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Cablegate: Mozambique: Input for President's Report On Agoa

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MAPUTO 000269

SIPDIS
DEPT PASS TO USTR
E.O. 12958: N/A
TAGS: ETRD MZ AGOA
SUBJECT: MOZAMBIQUE: INPUT FOR PRESIDENT'S REPORT ON AGOA

REF: A. STATE 023970

B. MAPUTO 01697
C. MAPUTO 01452
D. MAPUTO 01406

1. AGOA Trade and Investment: Mozambique has had limited
success in expanding trade and investment under AGOA, though
there remains strong potential to increase exports in several
key sectors. Two apparel companies, Mauritian-owned BELITA
and Pakistani-owned OMAR, exported apparel products to the
United States under AGOA during 2003, though OMAR recently
closed its operations (ref B). Apparel exports consisted
principally of knitted t-shirts under the FUBU and Cherokee
(Target) labels. Despite the closure of OMAR, which resulted
in the loss of over 350 jobs, apparel exports and jobs are
likely to increase significantly in the next few years due to
a recent investment by the Aga Kahn Foundation. This
investment includes the rehabilitation of a 12,000 square
meter factory located outside of the capital city of Maputo,
and is expected to result in the creation of 2,000 jobs. The
Foundation is the process of sourcing equipment for the
plant. Several of Mozambique's six textile mills could
potentially be revitalized. As none of the mills is currently
operating at any significant level of operation, all textiles
for use in apparel assembly factories are currently imported.
A key concern for existing and potential investors in the
apparel sector is the scheduled expiration of the third
country textile provisions in September 2004. Post has been
working closely with several fish processing facilities to
promote the export of non-industrially caught prawns to the
United States. The first shipment of prawns was exported to
the United States in June and increased exports are expected.

2. Market-Based Economy/Reduction of Trade Barriers:
Mozambique continues to be one of the most dynamic and
fastest-growing economies in sub-Saharan Africa, albeit from
a low base. The Government of Mozambique (GRM) has encouraged
foreign direct investment (FDI). Mozambique has privatized
over 1200 mostly smaller companies and 37 large enterprises
since the privatization program began 10 years ago. Foreign
investors have participated in Mozambique's privatization
program without impediment. Only 11 large state-owned or
operated companies remain, including the national airline,
telephone, electricity, insurance, oil and gas exploration,
port and rail, airports, water supply, and fuel distribution
companies. In July, Mozambique was assigned an 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. There were no claims of expropriation
by U.S. firms in 2003. Mozambique remains cooperative on
intellectual property rights protection. Mozambique is a
signatory to the Southern African Development Community
(SADC) Trade Protocol, which calls for the elimination of
tariff and non-tariff barriers between the signatory states
over a 12-year period. Launched in September 2000, tariff
reductions began in July 2001.

3. Poverty Reduction: Mozambique faces enormous development
challenges. The country also lacks infrastructure, power, and
clean water for most of its citizens. The Government has
placed its Plan for the Reduction of Absolute Poverty (PARPA)
at the head of its policy agenda. PARPA emphasizes six areas
as the key reducers of absolute poverty: education; health;
basic infrastructure; agriculture and rural development; good
governance; and macroeconomic and financial management.
Indicative of the huge challenges Mozambique will face for
decades to come is the modest PARPA goal to reduce from 70
percent to 50 percent the level of absolute poverty by 2010.
The donor community, led by the US, funds approximately 60
percent of the national budget, though the HIPC and Enhanced
HIPC (Heavily Indebted Poor Countries) debt relief programs
have permitted increased budgetary support to alleviate
poverty.

4. Democratic Consolidation/Rule of Law/Anti-Corruption:
Mozambique has made significant progress in the consolidation
of democracy since the signing of the 1992 Peace Accords that
ended sixteen years of civil war. In late 2004, Mozambique
will hold it's third multi-party presidential elections since
independence in 1975. The current constitutionally-elected
president, Joaquim Chissano, will step down after having
served two terms. Chissano and the leadership of FRELIMO
dominate policy-making and implementation. On November 19,
2003, Mozambique held municipal elections which were
considered generally free and fair. However, many
institutions, such as the judiciary and the police, remain
weak. Corruption remains a problem in both the public and
private sectors. In recognition of this, the GRM's Attorney
General established an Anti-Corruption Unit, which has
received funding from USAID and the Department. In addition,
in October, the National Assembly passed the Anti-Corruption
Law, which aims to curb corruption in government offices, the
police force, hospitals and the schools. The Department has
also funded Mozambique's Police Sciences Academy in an effort
to improve the performance and professionalism of the police
force. Mozambique is an increasingly important partner on
regional security issues and in the war against terrorism and
organized crime.

5. Human Rights/Workers Rights/Labor: Mozambique does not
engage in gross violations of internationally recognized
human rights, though there remains room for improvement and
abuses do exist. The Constitution provides that all workers
are free to join or refrain from joining a trade union, and
workers enjoy these rights in practice. Labor unions, created
during the socialist years, remain weak and lack resources.
Total membership among Mozambique's thirteen unions is less
than 200,000, concentrated in Maputo and a few other urban
areas, and much of the labor force is engaged in small-scale
agriculture. There were a number of work actions in 2003.
Child labor remains a problem. One positive development
during 2003 was the GRM's ratification of ILO Convention 182
on the Worst Forms of Child Labor.

6. Trade Capacity-Building Efforts/AGOA Outreach: USAID is
currently implementing a variety of trade capacity-building
efforts in Mozambique under its Strategic Objective of
Enabling Environment for Growth. These initiatives focus on
overcoming constraints to investment and trade through
technical assistance and institutional support. In 2003, the
Embassy began a series of digital video conferences (DVC) on
expanding exports under AGOA in key sectors. The first DVC
focused on the apparel/textile industry and included the
participation of Mozambican government officials and apparel
sector representatives and US business associations. A second
DVC is planned for April on the handicrafts sector. The
Embassy also continues to engage Ministry of Industry and
Trade Officials on addressing constraints to trade and
investment in key sectors.
LA LIME

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