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Cablegate: Agoa Eligibility Review - Mozambique

VZCZCXRO1004
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0959/01 2821011
ZNR UUUUU ZZH
R 081011Z OCT 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9426
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0251

UNCLAS SECTION 01 OF 06 MAPUTO 000959

SIPDIS

DEPT FOR AF/EPS - ANN BREITER AND GABRIELLE MALLORY
DEPT PLEASE PASS TO USTR FOR CONNIE HAMILTON

E.O. 12958: N/A
TAGS: ETRD EAGR ECON PGOV PREL ELAB PTER MZ
SUBJECT: AGOA ELIGIBILITY REVIEW - MOZAMBIQUE

REF: STATE 85086

1. Per REFTEL, Embassy Maputo submits the following updated
AGOA eligibility information.

2. Country: MOZAMBIQUE
Current AGOA Status: Eligible

Country Background Summary: Between October 2007 and October
2008 the Government of the Republic of Mozambique (GRM)
continued efforts to establish a market-based economy,
eliminate barriers to U.S. trade and investment, reduce
poverty, and protect workers' rights. This trend should
continue, especially as Mozambique begins to benefit
economically from higher levels of international trade and
investment, and deepen its trade ties with plans to
reinvigorate the Trade and Investment Framework Agreement
(TIFA), and negotiate an Open Skies Agreement to liberalize
air travel.

Comments on Eligibility Requirements:

-----------------------
I. Market-based Economy
-----------------------

A. Major Strengths Identified:

** Mozambique continues to have one of the most dynamic and
fastest-growing non-petroleum economies in sub-Saharan
Africa, although the growth is from a very low base.

** Mozambique's decade-long commitment to sound macroeconomic
policies and structural reform, supported by substantial
donor assistance, continues to drive economic performance.

** GDP growth between 1995 and 2005 averaged 8.4 percent,
with the growth rate in 2007 of 7.3, down from 8.5 in 2006.
The average GDP growth 2008-2009 is currently projected to be
about 7 percent.

** Mozambique encourages foreign direct investment, with U.S.
investors leading all other countries with FDI of over $5
billion between 2003 and 2007. CPI, the government's
Investment Promotion Center, actively assists potential new
foreign direct investors in Mozambique. Private sector
umbrella association CTA continues to push the government to
improve the business climate.

** Foreign investors participated without significant
impediments in Mozambique's privatization program.

** Private investors continue to manage and rehabilitate the
main ports of Maputo, Beira, Nacala and Quelimane through
concession agreements. Over $1 billion in port improvements
are scheduled for Maputo, Beira, and Nacala.

** The Brazilian Companhia Vale do Rio Doce (CVRD) finished
exploration of its concession area, a massive coal deposit in
the Moatize region of central Mozambique, and finalized its
contract for extraction rights with the GRM in 2007. CVRD
anticipates that extraction and exportation will begin in
late 2008. The project will invigorate rail traffic on the
Beira corridor, increase volumes at the Port of Beira, and is
also expected to result in the construction of a coal-fired
power plant, with the bulk of the electricity exported to
South Africa.

** Mozambique retained its international credit rating of
B/B by Fitch Ratings, reflecting Mozambique's positive track
record on economic reforms, political stability, strong
economic growth, openness to FDI, and expanding exports. The
most recent rating was published in September 2008.

** Mozambique's exports to the U.S. in 2007 totaled $5.34
million, of which $825,000 under AGOA, and $95,000 under GSP,
down from a 2006 total of $15.5 million, of which $940,000
under AGOA, and $10.8 million under GSP.

** Numbers from the first three quarters of 2008 suggest that
Mozambique's 2008 exports under AGOA and GSP provisions will
be comparable to last year.

** Mozambique is an active member of the Southern African
Development Community (SADC), but is not a member of the
Southern African Commercial Union (SACU).

** In October 2006, the Mozambican government and USTR held
the first Trade and Investment Council meeting under the

MAPUTO 00000959 002 OF 006


Trade and Investment Framework Agreement signed in June 2005.
The Minister of Investment and Commerce has recently agreed
in principle to a second TIFA meeting in Washington in the
first quarter of 2009. The continuing bilateral dialogue
could strengthen AGOA-related trade and investment in the
future.

** The GRM recognizes the importance of removing a number of
obstacles to private sector development. To this end, steps
are being taken to reduce the cost of doing business in
Mozambique, address rigidities in the labor market, and
improve basic infrastructure. In the 2008 World Bank's
"Doing Business" indicators, Mozambique's rank fell by two
positions, largely due to accelerated business climate
liberalization in competing countries. The private sector
and Government have met and identified specific steps that
need to be taken to improve the business climate.

** The "one-stop shops" for business registration were
expanded to eleven locations, covering all provincial
capitals, in 2006. The government states an intention to
expand these to district-level capitals, however this has not
yet materialized A regulation is currently proposed by the
GRM to vest the "one-stop shops" with the authority necessary
to provide the stream-lined services intended. A Special
Economic Zone (SEZ) has been developed to boost investment in
the Nacala Corridor, and investment is actively sought in the
Beira and Maputo Corridors.

** In December 2005 the National Assembly approved major
revisions to the Commercial Code -- the result of a
collaborative effort starting in 1998 between the Mozambican
government, the private sector and donors.
** A revised Labor Law passed Parliament in May 2007 and was
promulgated in July 2007. This revision represents an
attempt by the government to address the rigid labor
legislation, but does not sufficiently liberalize restrictive
labor practices.

** A joint private/public sector task force on IPR has had
some isolated successes in recent years stemming the flow of
illegal products into the local market. The Government
Intellectual Property Institute (IPI) addresses private
sector concerns with intellectual property, patents, and
trade mark infringements, working with a variety of
ministries, even coordinating search and seizure of
counterfeit goods.

B. Major Issues/Problems Identified:

** Approximately a dozen large state-owned or operated
companies remain, in the following sectors:
telecommunications, electricity, insurance, oil and gas
exploration, port and rail, airlines and airports, water
supply, and fuel distribution.

** The GRM continues to rely on direct donor funding to
support approximately 56 percent of its annual budget. The
donor community has long pushed for greater transparency and
better governance, with slower than hoped-for progress.

** Continued work is needed to streamline company
registration processes and to share information about
regulations and procedures between the private sector and
government agencies, particularly in the area of trade
facilitation.

** The GRM has worked with the private sector to improve
intellectual property rights protection via a joint task
force, but continues to have little ability to investigate
crimes or enforce IPR laws; counterfeit goods remain
commonplace in local markets, and there remains a lack of
coordination between government agencies and concerns about
corruption in the form of raid tip-offs.

** Access to capital continues to be a challenge in the
business environment. Private ownership of land is not
allowed in Mozambique, only land tenure, reducing
opportunities to collateralize loans and restricting the
growth of credit markets, particularly at the small loans and
micro-credit level. In December 2006, the GRM approved a
modification to urban land-use rights, allowing for lease
period up to 100 years (renewable) and minimizing
restrictions on transferability of titles. For rural land,
the government continues to grant land-use concessions for
periods of up to 50 years, also with options to renew.

** Several companies continue to struggle with value-added
tax (VAT) reimbursement delays, with the Mozambican

MAPUTO 00000959 003 OF 006


government hampered by income stream and red-tape issues.
Additional work is needed to improve reimbursement
turn-around time and streamline the overall process.
Starting in 2008, the U.S. Treasury's Office of Technical
Assistance (OTA) began providing technical assistance to the
Mozambican Tax Authority (ATM) in an effort to
professionalize and expand the ATM's capacity.

** There have been some actions take by the GRM that raise
concerns regarding the sanctity of contracts, particularly
concession agreements, with the GRM in some cases requesting
to renegotiate in order to secure more favorable terms. This
concern remains moderate; however, the situation should be
closely monitored.

** While there is improvement in many areas, the new Labor
Law still contains provisions considered impediments to
increased foreign and local investment.

--------------------------------------------- ----
II. Political Reforms/Rule of Law/Anti-Corruption
--------------------------------------------- ----

A. Major Strengths Identified:

** Mozambique has made significant progress in the
consolidation of democracy since the signing of the 1992 Rome
Peace Accord that ended sixteen years of civil war;
Mozambique has a democratically elected government.

** In December 2004 Armando Guebuza, then secretary-general
of the ruling Frelimo party, was elected president with 64
percent of the vote, compared to 32 percent for his nearest
competitor.

** The election was generally considered free and fair, but
was marred by some irregularities, which did not affect the
outcome of the presidential election or control of the
national assembly.

** The political opposition retains 36 percent of seats in
the national assembly and holds five mayorships, including
that of Beira, the nation's second-largest city.

** In August 2005 the Attorney General formally announced the
creation of the Central Office for the Combat of Corruption
(GCCC), which replaced the Anti-Corruption Unit (UAC) as
Mozambique's primary corruption fighting office. As of
September 2008 the GCCC has reviewed 406 cases, resulting in
63 charges, with investigations ongoing in 256 additional
cases. In September 2008, the Attorney General announced the
first high-level corruption case with the arrest of former
Interior Minister Almerino Manhenje in connection with the
theft of $8 million.

B. Major Issues/Problems Identified:

** Though President Guebuza has repeatedly emphasized his
desire to wage a serious campaign against corrupt government
practices, corruption at all levels of government remains a
problem and threatens to undermine Mozambique's democratic
consolidation and economic growth.

** Corruption largely results from a lack of checks and
balances among the three branches of government, minimal
accountability of elected officials, and a culture of
impunity.

** Mozambique's Transparency International 2008 Corruption
Perceptions Index score dropped for the first time in five
years from 2.8 to 2.6 (a result of less than 3 indicates
corruption is perceived as "rampant").

** There are no laws providing for the right of public access
to information, and in practice the government restricted
citizens, access to public information.

** Mozambique's judiciary continues to be under-trained,
understaffed and susceptible to pressure from high-ranking
government officials and bribery by private parties and the
country suffers from a shortage of licensed attorneys.

** Excessive use of force at times by security forces remains
a cause for concern. Arbitrary arrest, summary execution,
vigilante killing, and detention continue to be a problem. A
local NGO reports that the police in and around the capital
were involved in 10 summary executions in the first nine
months of 2008.


MAPUTO 00000959 004 OF 006


** Freedom House's Freedom in the World index ranks
Mozambique "Partly Free".

** Although the GCCC continues to file charges of corruption,
enforcement has been a serious problem. Between January and
July 2008, Mozambican courts tried and sentenced 31 cases of
corruption according to the GCCC, with 27 additional cases
pending trial dates, and 45 suspects in detention in
connection with the pending cases.

----------------------
III. Poverty Reduction
----------------------

A. Major Strengths Identified:

** The GRM has placed poverty alleviation at the head of its
policy agenda.

** Mozambique has made tangible progress in this area,
reducing poverty rates from 69 percent in 1996 to 54 percent
in 2004.

** Mozambique's second Plan for the Reduction of Absolute
Poverty (PARPA II), covering the period of 2006-2010, was
launched in June 2006. The PARPA II aims to reduce, by 2009,
the percentage of the population living below the poverty
line from 54 percent to 45 percent. The new plan maintains
many of the same priorities of PARPA I, including emphasis on
more training in the education and health sectors,
strengthening good governance, developing basic
infrastructure and improving macroeconomic and financial
management.

** In 2007-2008, the donor community funded approximately 56
percent of the national budget. The HIPC and Enhanced HIPC
(Heavily Indebted Poor Countries) debt relief programs have
permitted increased budgetary support to alleviate poverty,
including long-term investment in health, agriculture, basic
infrastructure, and education.

** The Millennium Challenge Corporation (MCC) signed a
Compact with Mozambique for $506.9 million in July 2007,
which entered into force in September 2008, aimed at
unlocking the economic potential of the poorer northern
districts with projects focused on rural and urban water and
sanitation, roads, improved land administration, agriculture,
and cross-cutting policy reforms and capacity building
initiatives.

B. Major Issues/Problems Identified:

** Illiteracy and child mortality rates in Mozambique remain
among the highest in Africa. In 2005 the illiteracy rate was
estimated at around 55 percent, while in 2004, the mortality
rate for children for 2008 is estimated at 104.97 per 1,000
children.

** Life expectancy at birth dropped to just over 40 years
(41.04 estimated in 2008), and is expected to continue to
decline into the 30s by 2010 as the result of HIV/AIDS.

** The country also lacks infrastructure, electric power, and
clean water for most of its citizens.

** The standard of living of residents of Maputo is 12 times
that of the rest of the country, with the majority of the
population living in rural areas.

** HIV/AIDS is a growing problem, with infection rates
increasing to a national average of over 16 percent of the
sexually active population.

** Education is compulsory through the age of 12, but
enforcement of compulsory education laws is inconsistent with
children attending school for 8 years on average due to the
lack of resources and the need for additional schools.

--------------------------------------------
IV. Workers' Rights/Child Labor/Human Rights
--------------------------------------------

A. Major Strengths Identified:

** The Constitution provides that all workers, except for
government employees, are free to join or refrain from
joining a trade union, and workers enjoy these rights in
practice.


MAPUTO 00000959 005 OF 006


** In 2007 the GRM increased the country's statutory minimum
wage for industry and services by 14 percent.

** Mozambique has ratified ILO Conventions 105 on Forced
Labor, 182 on the Worst Forms of Child Labor, and 138 on
Minimum Wage.

** Forced and bonded labor by children is prohibited by law.

** Compliance with child labor provisions are regulated by
the Ministry of Labor and violations are punishable with
fines ranging from one to 40 monthly salaries at minimum
wage.

** In an effort to reduce child labor, the government
disseminated information and provided education about the
dangers of child labor.

** There were no reports of political detainees.

** The independent media were active and the international
media were allowed to operate freely.

** The law provides for freedom of religion, and the
government generally respected this right in practice.

** In 2003 a revised family law was adopted that increases
the status of women.

B. Major Issues/Problems Identified:

** The government does not effectively enforce protection of
worker rights and employers continue to violate labor
standards.

** Less than two percent of the workforce was covered by
collective bargaining contracts, in part due to the very
small percentage of the workforce employed in the formal
economy.

** Labor unions remain relatively weak due to lack of
resources and are disengaging themselves from the ruling
party, FRELIMO.

** While there has been an increase in the minimum wage, the
minimum wage does not provide a decent standard of living for
a worker and family.

** While the law prohibits forced or compulsory labor, forced
and bonded child labor remains a problem and is common in
rural areas, agricultural work, domestic service, and
prostitution.

** Children orphaned by HIV/AIDS are also often forced to
work because they are left without any adult family members
to support them.

** The Government's human rights record remains poor,
although there were some significant improvements in a few
areas.

** Prison conditions remained life-threatening.

** Security force members beat and abused detainees.

** Police use of excessive force resulted in unlawful
killings and injuries.

** Although the law provides for freedom of speech and of the
press, journalists sometimes practice self-censorship, and
police have been known to harass journalists, including
arrest. In September 2008, three journalists were convicted
of defamation and threatening state security for writing an
article which questioned the nationality of the Prime
Minister.
** The law generally provides for freedom of association,
although the government imposed some limits on this right. A
government decree regulates the registration and activities
of foreign NGOs. The registration process for foreign NGOs
and religious groups reportedly involved significant
discretion on the part of government officials and regularly
took several months.

** Mozambique is a source country for women and girls
trafficked for the purpose of sexual exploitation and is
ranked a Tier II Watch List country by the Department's
annual Trafficking in Persons report. The government does
not fully comply with the minimum standards for the
elimination of trafficking; however, in July 2008, it enacted

MAPUTO 00000959 006 OF 006


a law making human trafficking a punishable crime.

** Domestic violence against women is widespread. There is
no law that defines domestic violence as a crime; laws
prohibiting rape, battery, and assault may be used to
prosecute domestic violence, however there is no legal
prohibition against spousal rape.

** Exploitation of children under the age of 15 and child
prostitution remains a concern.

--------------------------------------------- -----
V. International Terrorism/U.S. National Security
--------------------------------------------- -----

A. Major Strengths Identified:

** Mozambique does not engage in activities that undermine
United States national security or foreign policy interests.

** The Mozambican government, including the Central Bank,
cooperates with international efforts to counter terrorist
activities.

** To the extent possible, given its limited resources, the
Mozambican government fully cooperates on international
anti-terrorist efforts.


B. Major Issues/Problems Identified:

** Money laundering activities in Mozambique continue to be
suspected and cause for concern.

** Mozambique is suspected to be a transshipment country for
human smugglers.

** Although the Mozambican government is committed to
securing its borders, limited resources make this difficult.

** Mozambique's approximately 1500 mile coastline remains
largely unprotected and vulnerable to smuggling, illegal
fishing and illegal entry into the country.
Amani

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