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Cablegate: Mozambique Remains Eligible for Agoa Benefits

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 001213

SIPDIS
STATE FOR AF/S, AF/EPS
E.O. 12958: N/A
TAGS: ETRD PHUM PREL MZ AGOA
SUBJECT: MOZAMBIQUE REMAINS ELIGIBLE FOR AGOA BENEFITS

REF: A. STATE 168472

B. MAPUTO 269
C. 03 MAPUTO 1452

Summary
--------
1. Mozambique meets the requirements for benefits under the
African Growth and Opportunity Act (AGOA). The Government of
the Republic of Mozambique (GRM) continues to make progress
in establishing a market-based economy, eliminating barriers
to US trade and investment, reducing poverty, promoting
democratic consolidation, and protecting workers' rights.
This positive trend should continue, especially as Mozambique
begins to benefit economically from higher levels of
international trade and investment. End Summary.

Market-Based Economy
--------------------
2. Mozambique continues to be one of the most dynamic and
fastest-growing economies in sub-Saharan Africa, albeit from
a very low base. GDP growth was 7 percent in 2003 and is
expected to continue between 7-10 percent over the next
several years. The GRM has been encouraging foreign direct
investment (FDI). During 2003, the GRM's Investment
Promotion Center, CPI, approved 101 projects involving
foreign investment, valued at approximately $112 million.
Several new, large projects which are not included in the
2003 figures are expected to begin in 2005/2006. Mozambique
has privatized over 1200 small companies and 37 large
enterprises since the privatization program began 10 years
ago. Foreign investors have participated in Mozambique's
privatization program without impediment.

3. 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. Concession
agreements have been signed with private investors for
various aspects of the management and rehabilitation of the
ports of Beira, Maputo and Quelimane. In August,
negotiations were finalized on the Nacala Corridor
Development Project for the rehabilitation and modernization
of the railroad and port system on a key transport route
between Malawi, Zambia and Mozambique. The project includes
substantial US investment and is expected to include
financing from the Overseas Private Investment Corporation
(OPIC). Mozambique opened its cellular telephone industry to
competition in late 2003 with the granting of a licensing
agreement to Vodacom. In 2004, 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.

Elimination of Barriers to US Trade/Investment
--------------------------------------------- -
4. Although quite small, US-Mozambican trade is expanding,
with the vast majority of Mozambique's exports to the US
entering under either AGOA or GSP. South Africa and Portugal
are the leading foreign investors. Only 6 of the largest 100
companies in Mozambique are US-owned or related to the U.S.:
Coca-Cola, Mobil, Seaboard, Avis, Colgate-Palmolive and KPMG.
Mozambique remains cooperative on intellectual property
rights protection. Mozambique does not generally employ
non-tariff barriers to trade and is an active member in SADC,
as well as the British Commonwealth.

Poverty Reduction
-----------------
5. Illiteracy and infant mortality rates in Mozambique are
among the highest in Africa. Life expectancy is 46 years
and, as a result of AIDS, is expected to decline into the 30s
by 2010. 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 key reducers of absolute poverty: education; health; basic
infrastructure; agriculture and rural development; good
governance; and macroeconomic and financial management. A
recent household survey indicates that the incidence of
extreme poverty has declined from 70 percent to 55 percent
over the past 5 years. The donor community 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.

Democratic Consolidation/Rule of Law/Corruption
--------------------------------------------- --
6. 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. On
December 1 and 2, Mozambique will hold its third multi-party
presidential elections since independence in 1975. The
current constitutionally-elected president, Joaquim Chissano,
will step down after having served since 1986, winning
elections in 1994 and 1999. 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,
the National Assembly passed a new Anti-Corruption Law in
2004, 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.

Workers Rights
--------------
7. 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. Mozambique's labor law, currently under
revision, is generally considered pro-worker. Labor unions
are exerting significant pressure on the government to keep
many of the law's provisions. In 2004, the GRM increased the
country's statutory minimum wage by slightly more than the
2003 inflation rate of 13 percent.

Recommendation
--------------
8. Post once again (ref C) believes strongly that the
progress made by Mozambique in its economic and political
policies further solidifies its qualification for AGOA
benefits. Embassy Maputo is confident that this positive
trend will continue, especially as Mozambique begins to
benefit economically from higher levels of international
trade and investment.
LA LIME

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