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Cablegate: Scene-Setter for Visit of Mcc Ceo Paul Applegarth To

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

UNCLAS SECTION 01 OF 03 MAPUTO 001376

SIPDIS
MCC FOR PAPPLEGARTH, JHEWKO, SGAULL, MHARRINGTON, RHERING
STATE FOR AF/S - HTREGER, EB/IFD/ODF, AND EB/TRA
USDOC FOR AHILLIGAS
SENSITIVE
E.O. 12958: N/A
TAGS: PREL PGOV KDEM ECON ETRD MZ MCC
SUBJECT: SCENE-SETTER FOR VISIT OF MCC CEO PAUL APPLEGARTH TO
MOZAMBIQUE

REF: A. MAPUTO 1341

B. Maputo 1001
C. Maputo 1183

1. (SBU) Introduction and Summary: Your visit to Mozambique will
provide an opportunity to gain a better understanding of the
Mozambican political environment, government, private sector,
civil society, and MCC team and to increase Mozambican
understanding of the MCC. You will be here during the campaign
for December national elections. This message provides
background on the elections, trade and investment, the fight
against HIV/AIDS, poverty reduction, and other topics. End
Introduction and Summary.

------------------------
MOZAMBIQUE AND DEMOCRACY
------------------------
2. (SBU) Mozambique is rightly considered a post-conflict success
story. Since the signing of the 1992 Rome Peace Accords that
ended sixteen years of civil war, Mozambique has made significant
progress in promoting economic reforms and advancing democracy.
On December 1 and 2, Mozambique will hold its third multi-party
presidential elections since independence in 1975 (Ref A). The
current president, Joaquim Chissano, will step down after having
served since 1986, winning elections in 1994 and 1999.

3. (SBU) During November 2003 municipal elections, the ruling
party, FRELIMO, won all but four of the country's 33 mayorships
in what were considered generally free and fair elections.
RENAMO's four mayoral wins and five city council wins signaled
the first time that it took power on a local level. All of the
RENAMO wins were in the central and northern provinces; two of
them were in major port cities that have a significant impact on
economic growth in Mozambique. Prior to and during these
elections, the president of the major opposition party (RENAMO),
Afonso Dhlakama, alleged intimidation and political harassment of
voters by FRELIMO authorities - - a complaint repeatedly
announced by RENAMO supporters during past elections. The GRM
passed a new general elections law in May of 2004 that will allow
for greater transparency in the process of vote counting and
dissemination of electoral results. Mozambican electoral
authorities estimate just over 9 million Mozambicans are
registered to vote in the December general elections. Though
leading presidential candidates Armando Guebuza of FRELIMO and
Afonso Dhlakama of RENAMO have called for a transparent and
peaceful process, there are signs of increasing tensions. In a
recent turn of events, the GRM, through the National Elections
Committee (CNE), has announced that it will not allow
international observers to participate in observation of the
final vote counting stage (national level validation). The
European Union, which helps fund the elections and sends a team
of official observers, is concerned and is considering next
steps. The Carter Center also plays an important role in
observing elections and conducting a parallel vote tabulation
(PVT) financed by the U.S. Mission.

4. (SBU) The electoral campaign begins on October 17 and
continues until three days prior to the elections. Many
government officials will be out of Maputo campaigning during
your visit.

-------------------------------------
A WORD ON THE PRESIDENTIAL CANDIDATES
-------------------------------------
5. (SBU) Though Guebuza belongs to a different ideological camp
within the FRELIMO party and is considered less flexible than is
Chissano, he has indicated that he is likely to continue current
government policies if elected. On his trip to the United States
in July, when he attended the Democratic National Convention and
visited you, the Global AIDS Coordinator's office (S/GAC), the
Corporate Council on Africa (CCA), and the State Department,
Guebuza reiterated the importance of maintaining a strong
Mozambique-U.S. relationship and stressed that he would honor
commitments with donor communities and international financial
institutions (IFIs). A businessman himself as a result of his
party and government positions, Guebuza demonstrates
understanding of business and economic concerns and reaches out
to the private sector community. Guebuza is known as a strong
nationalist and has on occasion called for the
"Mozambicanization" of businesses (Ref B). This causes some
concern for foreign investors - both existing and potential.
Guebuza acknowledges the extensive US commitment to helping
Mozambique overcome the challenges of poverty and HIV/AIDS. He
comes across as a serious and intelligent candidate.

6. (SBU) Dhlakama has been President of RENAMO since 1980 and led
its forces during the civil war against the FRELIMO government.
Since the signing of the Rome Peace Accords in 1992, Dhlakama has
played a crucial role in transforming RENAMO into a viable
political party and keeping the disparate factions of his party
from lapsing back into violence. Regarding priorities for the
country, he has stressed the need for greater progress on
judicial reform and fighting corruption, as well the importance
of developing national economic production, particularly in
small-to-medium sized businesses (Ref C). If RENAMO wins the
elections, one of the party's major challenges will be to find
technically competent people to fill key government positions.
During Dhlakama's September visit to the United States, he
attended the Republican National Convention and he met with you,
the State Department, and the National Security Council (NSC).
Dhlakama describes himself as a friend of the U.S. and will seek
to strengthen the Mozambique-U.S. relationship if elected.

------------------------------
THE STATE OF ECONOMIC AFFAIRS
------------------------------
7. (U) Mozambique's recovery from the devastation of civil war,
its macroeconomic reforms, and its success in attracting large
investment projects have resulted in an average GDP growth rate
of eight percent from 1992-2003, the highest in Africa over this
time period. Foreign direct investment, exports, and revenue
collections have seen notable increases, and privatization
continues but has slowed in recent years. GDP growth for 2003
was approximately seven percent, and the government expects the
economy to continue to expand at a rate between 7-10 percent.

8. (U) Maintaining this high rate of growth hinges on several
major foreign investment projects, continued economic reform, and
the revival of the agriculture, transportation, and tourism
sectors. This growth is from a low base; per capita GNP for 2002
was around $200. Inflation for 2003 was 13 percent, in line with
the levels of recent years.

9. (SBU) The Mozambican business climate remains a work in
progress. Excellent macroeconomic policies and high-level
commitment to attracting business mask a bureaucracy that remains
at times unresponsive to the needs of corporations, especially
small-to-medium-sized enterprises. Permits are slow; corruption
is problematic; and the legal system is antiquated. Although
under revision, the labor law is extremely pro-worker and remains
an impediment to foreign investment. Land tenure at present
relies on a lease system without private ownership. Donors are
working extensively with the GRM to modernize and improve the
current commercial code, labor law, business registration
process, tax system, and land ownership policy. Although reform
is moving in the right direction, it is expected to take several
years before significant impediments to investment are removed.
Infrastructure is poor and was further damaged by severe floods
in 2000. Important strides have been made to improve the
situation, most notably in road infrastructure.

-------------------------------------------
COMMERCIAL OPPORTUNITIES AND MEGA-PROJECTS
-------------------------------------------
10. (U) Mozambique offers substantial investment and commercial
opportunities in energy generation (hydropower, coal, and gas),
transportation (road construction, rail and port services,
airport construction, and air transport), resource extraction
(natural gas, minerals, timber, and fishing), aquaculture,
agriculture/horticulture (cereals, cashews, cotton, sugar,
vegetables, flowers, and citrus; light industry), and tourism.

11. (U) Mozambique's rapid economic growth is enhanced by the
operation of several mega-projects. These include the MOZAL
aluminum smelter (Australia), the newly inaugurated SASOL gas
pipeline (South Africa), and soon-to-be operational mining and
heavy sands projects in Gaza and Nampula Provinces (Australia and
Ireland). The GRM works closely with large investors by creating
government-investor task forces to address issues and concerns
large investors confront when working in the Mozambican business
environment. The GRM is very responsive to these investors and
has created several "special economic zones" and "export
processing zones" which provide incentives to investors involved
in mass-production and export and those investing in
traditionally poor and under-developed areas. Mozambique's mega-
projects are said to account for 2-3 percentage points of the
country's seven percent GDP growth and a much larger share of
export growth.

--------------------------------
KEY BILATERAL ISSUES - IN BRIEF
--------------------------------
12. (SBU) A) Elections: The USG is supporting the electoral
process through financial assistance to the Carter Center and
domestic observer groups. As we did during the 2003 municipal
elections, post will send observers to key municipalities
throughout the country.
B) Trade & Investment: Mozambique has yet to take full advantage
of AGOA, and US trade and investment in Mozambique remains small.
Currently, only one apparel company in Mozambique is exporting
under AGOA, with a second company, owned by the Aga Khan
Foundation, expected to begin operations shortly.
C) HIV/AIDS: Mozambique is at a critical stage in its efforts to
stem the HIV/AIDS epidemic. In Southern Africa, Mozambique
presents both the greatest challenges and possibly the greatest
opportunity to become the next Uganda-like success in turning
around the HIV/AIDS threat. Despite occasional criticism from the
health minister, we have made considerable efforts to ensure that
the President's Emergency Plan For AIDS Relief (PEPFAR) is seen
as a collaborative approach to addressing the epidemic.
Mozambique is the only country to be both a focus country under
the PEPFAR and eligible to submit an MCC proposal in FY04.

------------------
MCA IN MOZAMBIQUE
------------------
13. (SBU) Mozambican government officials, civil society leaders,
and private sector groups are broadly aware of the MCA and
Mozambique's FY04 eligibility for the program. This will be the
third MCC team visit to Mozambique since Mozambique was selected
as part of the group of 16 eligible countries in May. The first
visit took place June 8-11 and served largely to introduce the
MCC and meet Mozambican officials leading the proposal process.
The second visit took place in early September and allowed for
the MCC's familiarization with Mozambique and the draft proposal.
On October 4, Prime Minister Luisa Diogo met in Washington with
MCC officials John Hewko, Thomas Briggs, and Stephen Gaull and
discussed Mozambique's submission of a proposal Although the CTA
business group and the Mozambique-US Chamber of Commerce have
circulated the proposal widely, the government has not yet
released it and it has not been covered in the press. We do not
know whether the government's reluctance to release the proposal
so far is related to electoral concerns.
DUDLEY

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