Cablegate: Mozambique: Scenesetter for Visit of Staffdel

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

UNCLAS SECTION 01 OF 05 MAPUTO 000388

SIPDIS
SENSITIVE
AF/S FOR TREGER
EMBASSY HARARE FOR BILL WEISSMAN - PLEASE PASS TO VISITING
HIRC STAFFERS CHAKA AND MARSH
E.O. 12958: N/A
TAGS: PREL PGOV MZ
SUBJECT: MOZAMBIQUE: SCENESETTER FOR VISIT OF STAFFDEL
FLYNN AND STAFFDEL CHAKA, MARCH 23-29

1. (SBU) Introduction and Summary: Your visit to Mozambique
will provide you an opportunity to gain a better
understanding of issues surrounding port and coastal security
in Mozambique, as well as insight into Mozambique's
Millennium Challenge Account (MCA) proposal. The trip will
also give you information on the 2004 general elections, the
economy, and enable you to learn more from public and private
sector interlocutors about key challenges facing the incoming
Guebuza government, including fighting corruption, combating
HIV/AIDS and trying to influence neighboring Zimbabwe on its
parliamentary elections on March 31. End Introduction and
Summary.

-------------------------
COASTAL AND PORT SECURITY
-------------------------
2. (U) Mozambique at present has very little ability to
secure its 2,500 kilometer long coast (twice the length of
California's). The Mozambican navy consists of a 500-person
force that patrols only on land, since it has no operating
vessels. In the fall of 2004 the French donated two small
patrol boats with 80 hp engines each, suitable for harbor or
near-shore patrols, at a cost of approximately USD 80,000.
However the boats have remained tied at the dock, unused
because the Navy has not found funding to pay for fuel.

3. (SBU) What little water-borne patrolling that does occur
is carried out SADC's Monitoring, Control and Surveillance
(MCS) vessels, which occasionally patrol the fishing waters
off Namibia and Mozambique. The MCS program is jointly
funded by the South African Ministry of Fisheries and the
European Union. In March 2004 an MCS vessel, the "Eagle
Star," arrested an Indonesian-registered and PRC-registered
vessel off Beira, Mozambique and confiscated the vessels
catch, after it was discovered they were using illegal "wall
of death" fishing nets.

4. (SBU) Post has sought boats, though without success,
through the DOD excess defense articles program to help equip
the Mozambique navy. In the interim, though, we believe it
could be more effective to fund the the MCS program above, so
that it could expand its operations.

5. (SBU) All three of Mozambique's principal ports - Maputo,
Beira and Nacala - are in compliance with the International
Maritime Organization's International Ship and Port Facility
Security (ISPS) Code.

----------------------------
MILLENNIUM CHALLENGE ACCOUNT
----------------------------
6. (SBU) MCA: Millennium Challenge Corporation (MCC)
representatives have visited Mozambique on four occasions
since Mozambique was selected as part of the first group of
16 eligible countries in May 2004, with MCC CEO Applegarth
visiting in October. The MCC's most recent visit, by a
technical team, ended March 23. Mozambique submitted a
concept paper to the MCC in late September that is focused on
the private sector and the northern region. The government
entrusted the CTA, a confederation of business associations
and also the private sector representative on Mozambique's
MCA Technical Group, with the responsibility for drafting
Mozambique's concept paper. Although the CTA and the
Mozambique-US Chamber of Commerce have circulated the concept
paper widely, the government has not yet officially released
it. There has been some press coverage, particularly around
the MCC visits, but as yet no in-depth presentation and
analysis of the concept paper by the media. The MCC provided
feedback on Mozambique's concept paper in late November, and
a dialogue has been developing since then. As a result of
the latest visit, the technical team is refining the proposal
to focus on water, sanitation, roads, technical assistance,
and financing to support tourism, agricultural processing and
the timber industry.

--------------------------
FRELIMO DOMINATES POLITICS
--------------------------
7. (SBU) Mozambique is a post-conflict success story. Since
the signing of the 1992 Rome Peace Accord, which ended
sixteen years of civil war, Mozambique has made significant
progress as a young, multi-party democracy. FRELIMO led the
independence struggle and has been the ruling party in
Mozambique since Portuguese colonial rule ended in 1975.
FRELIMO's military opponent during the subsequent civil war,
RENAMO, has been the main opposition party since the first
presidential and legislative elections were held in 1994. In
November 2003 municipal elections resulted in a major win for
FRELIMO and were generally regarded as free and fair. The
following year, in December 2004, Mozambique held its third
presidential and legislative elections. Guebuza won the
presidency by a wide margin, defeating perennial RENAMO
candidate and RENAMO president Afonso Dhlakama. FRELIMO won
the majority of seats in the National Assembly, too.
Although the elections were marred by regularities, these
were not significant enough to affect the outcome of the
presidential election nor alter the final tally in the
National Assembly by more than two or three seats out of the
Assembly's 250. Guebuza was sworn in as President on
February 2, 2005, and announced most of his cabinet the next
day.

8. (SBU) Voter turnout in the December 2004 election was a
disappointing 40-45 percent, down substantially from the
nearly 75 percent turnout in 1999. Although slightly fewer
FRELIMO voters cast their ballots than did so in 1999, about
half of former RENAMO supporters did not vote. Some analysts
explain the poor RENAMO showing by saying that Dhlakama began
campaigning too late, only in the last several months of
2004, while Guebuza had been crisscrossing the country since
2002. And some believe many RENAMO backers may have felt
cheated in the very close 1999 election and therefore
cynically saw little point in participating. Several local,
regional, and international observer groups, including the
Carter Center, monitored the elections. The Presidency of
the European Union declared that the elections were carried
out in a "generally successful and peaceful" manner, and
"broadly conducted along the lines of internationally
established standards." However, the EU noted that there
were irregularities and publicly stated that they should be
investigated and resolved in accordance with the law. The
Carter Center made similar statements, though they were more
forceful in their criticism of the National Elections
Commission's administration of the elections and the
subsequent lack of transparency in the tabulation phases.
All agreed, nonetheless, that final results broadly reflected
the will of voters. An independent parallel vote count that
USAID helped support tracked very closely with the results
announced by the government.

9. (SBU) FRELIMO has returned to the National Assembly in
March with a strong showing -- 160 out of 250 seats ) up
from its previous 133 and just seven short of a two-thirds
majority. RENAMO won 84 seats and an allied coalition of
small parties took the remaining six. Recent press reports
indicate several of these small party deputies will distance
themselves from RENAMO. RENAMO's unexpectedly poor showing
has led to disarray within the party, and Dhlakama's
leadership is being called into question by some.

-----------------------
GUEBUZA AND HIS CABINET
-----------------------
10. (SBU) Although Guebuza reportedly is more nationalistic
and less flexible than Chissano, he has indicated recently
that, at least in the near term, he will continue policies of
his predecessor, Joaquim Chissano. During Guebuza's trip to
the United States in July, where he attended the Democratic
National Convention and met with U.S. officials, Guebuza
repeatedly said he favored maintaining a strong
Mozambique-U.S. relationship and stressed that he wanted to
work closely with donors and international financial
institutions (IFIs). Both the IMF and World Bank are very
active in Mozambique, and the GRM's economic policies --
particularly its poverty reduction strategy -- adhere to
guidelines set out by both institutions. A wealthy
businessman himself, largely the result of his party and
government positions, Guebuza has a good understanding of
business and economic concerns and strong ties to the private
sector. On occasion Guebuza has called for the
"Mozambicanization" of businesses, which has sparked some
concern among foreign investors -- both existing and
potential. Just what he means by this, apart from the clear
intent to provide more jobs for Mozambicans, is not yet
obvious. He comes across as serious, intelligent, and
disciplined.

11. (SBU) President Guebuza has moved swiftly to set up his
cabinet; he named most of its members one day into his
presidency. We understand that the highest FRELIMO party
body, the Political Commission (15 members), vetted his
choices and that former President Chissano (who is on the
Commission) may have insisted on some names; more accurately,
then, the cabinet is both Guebuza's and FRELIMO's. The
cabinet members, according to press reports, in the main are
leaders who will push forward Guebuza's wishes rather than
technocrats, stalwarts in FRELIMO, and many have moved up
from positions as provincial governors. Analysts stress that
the latter attribute demonstrates that Guebuza is serious
about economic development in outlying areas of the country
-- a central theme in his inaugural address. The lead
commercial association in Mozambique is optimistic that
Guebuza will be more pro-business than Chissano was. There
are some important holdovers from the Chissano administration
-- Prime Minister Luisa Diogo, Defense Minister Tobais Dai,
and veteran Minister in the Presidency for Diplomatic Affairs
Francisco Madeira. One surprise appointment is that of
Alcinda Abreu, FRELIMO's 2004 general elections campaign
manager, as Foreign Minister. Although considered talented
and energetic, she was trained as a psychologist and has
worked on social welfare and women's issues; she faces a
steep learning curve. Some believe that Madeira will be the
lead advisor for President Guebuza on foreign affairs, at
least in the near future.

12. (U) Guebuza has appointed a total of 26 ministers and 15
vice ministers; 11 of them are women (seven ministers and
four vice ministers). This compares with a government of 24
ministers and 18 vice ministers under Chissano, eight of whom
(three ministers and five vice ministers) were women.

----------------
ECONOMIC AFFAIRS
----------------
13. (U) Mozambique's macroeconomic reforms and success in
attracting large investment projects have given the country
an average GDP growth rate of eight percent from 1994 (two
years after its devastating civil war ended) through 2004,
the highest in Africa over this time period. This growth is
from a very low base; per capita GNP for 2004 is projected
only at around USD 290. Foreign direct investment, exports,
and revenue collections all have seen notable increases, and
the government continues to privatize state firms, albeit at
a slower pace than in the late 1990's. Mozambique's
mega-projects, such as the MOZAL aluminum smelter (an
Australian investment) and the newly inaugurated SASOL gas
pipeline (South African), account for two-three percentage
points of the country's GDP growth and dominate its exports.
Several other mega-projects -- a coal mine to be operated by
a Brazilian firm in Tete province and two alluvial heavy
metal mines -- are in the beginning stages of development.
Guebuza welcomes such investment, but has expressed concern
that Mozambique needs to rapidly develop small and
medium-size businesses, both for jobs and to foster the
growth of a managerial class of native Mozambicans.

14. (U) Over the past decade, the government has followed IMF
and World Bank guidelines on economic issues. The inflation
rate for 2004 was around 11 percent, in line with the levels
of recent years. The USG has forgiven all of Mozambique's
debt - USD 151 million - with the final USD 50 million
forgiven in 2002 as part of Mozambique's HIPC initiative
relief. The government depends on foreign donors to finance
half of its budget, a dependency likely to continue for some
time even as the economy continues to grow.

------------------
INVESTMENT CLIMATE
------------------
15. (SBU) The Mozambican business climate is improving, but
still has a long way to go to meet Western standards.
Generally sound macroeconomic policies and a high-level
commitment to attracting business mask a bureaucracy that
remains at times unresponsive to the needs of the private
sector, especially small-to-medium-sized enterprises.
Obtaining permits takes time, corruption is problematic, and
the legal system is antiquated and cumbersome. Although
revisions are being considered, the labor law remains
extremely inflexible and an impediment to foreign investment.
Land tenure is granted through leases covering land use; the
Mozambican constitution invests ownership of all national
territory in the State. Donors, including USAID, are working
extensively with the GRM to modernize and improve the
commercial code, labor law, business registration process,
tax system, and land ownership policy. Although reform is
moving in the right direction, Mozambique still rates as
'mediocre' on many economic and investment competitiveness
indicators. Mozambique's road network is quite limited and
in poor condition along many stretches, although major repair
work is underway. Much of the countryside lacks electricity.
?
16. (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. The GRM has been very
responsive to large-scale investors, and has created several
"special economic zones" and "export processing zones," some
located in poor and under-developed areas. In December 2004,
the government of Mozambique ratified the U.S.-Mozambique
Bilateral Investment Treaty (BIT) that was signed in 1998 and
ratified by the U.S. in 2001. The Treaty entered into force
on March 3, 2005.

17. (SBU) US trade with and investment in Mozambique remains
small. In eleven months of 2004, the US imported USD 10
million in goods (mainly seafood, garments, cashews) and
exported USD 49 million in products (wheat, corn, tractors,
milk products) to Mozambique. Investments from the U.S. in
2004 totaled slightly less than USD one million (compared to
USD 60 million from South Africa). Currently only one
apparel company in Mozambique is exporting to the U.S. under
AGOA. The BIT may provide new incentive for increasing
bilateral investment, but Mozambique must address a number of
the constraints mentioned in para 15 for business to improve
rapidly.

-----------------------------------------
KEY CHALLENGES FOR THE GUEBUZA GOVERNMENT
-----------------------------------------
18. (SBU) Combating Corruption: President Guebuza made
combating corruption a key theme of his successful
presidential campaign last fall, and has often, since his
election, repeated that his government will fight corruption.
However, corruption has been and remains a prominent feature
of Mozambican society, both petty and high-level. In 2001
the Chissano government set up the Anti-Corruption Unit (ACU)
in the Attorney General's office, funded mainly with USG
assistance monies. Since then the ACU has indicted several
dozen persons, but all of the indictments have been dismissed
by the courts. In mid-March Attorney General Madeira was
heavily criticized by representatives in Parliament for his
annual report. They pointed to the dismissals of the cases
of those indicted by the ACU and said his report contained
little information on any progress toward resolving several
other high profile cases. We intend to continue funding the
ACU, but will stress that indictments must lead to trials.

19. (U) HIV/AIDS: Mozambique is at a critical stage in its
efforts to stem the HIV/AIDS epidemic. HIV/AIDS prevalence
in Mozambique has risen from 3.3 percent of adults in 1992 to
almost 15 percent in 2004. The central region is worst
affected, with an estimated prevalence of 35 percent in urban
areas of Sofala province. Some 1,400,000 adults (15-49) are
currently living with HIV/AIDS, but only 5,600 are on ARVS.
The estimated number of AIDS orphans in Mozambique is
273,000. Challenges include current rates of high-risk
behavior, the low age of sexual debut, multiple partners, and
low use of condoms in high-risk encounters. The Mission has
made considerable efforts to ensure that the President's
Emergency Plan For AIDS Relief is seen as a collaborative
approach to addressing the epidemic by working closely with
the government, other donors, and domestic and international
NGOs. Under the first full year of the Emergency Plan
implementation, U.S. agencies supported anti-retroviral
treatment for approximately 5,000 Mozambicans.

20. (U) Mozambique is one of 15 priority countries under the
President's Emergency Plan for AIDS Relief. The Emergency
Plan will provide approximately USD 48 million for our 2005
Country Operational Plan (COP), up from USD 25.5 million for
the 2004 COP. All agencies at post, including State, USAID,
CDC, the Peace Corps, and Defense, are part of our effort,
and we make sure to mention in every public speaking
opportunity the urgency of fighting HIV/AIDS. In his
Washington visit last July, Guebuza acknowledged the
extensive U.S. commitment to helping Mozambique combat the
disease and its effects. In the government's five year plan,
now before Parliament for approval, it plans to transform its
fight against HIV/AIDS into a "national emergency."

21. (SBU) Nyati Beach Lodge: The ongoing Nyati Beach Lodge
legal conflict involving an OPIC-supported American
businessman offers a prime example of why Mozambique remains
an unstable environment for potential investors. The upscale
Vilanculos-area resort is the subject of competing land
claims between the American, whose investment group was
issued rights to the Nyati lands in 2003, and a Zimbabwean
firm with an apparently shaky claim dating from the
mid-1990s. In 2004 a provincial judge found in favor of the
Zimbabwean, which led to the American's eviction from the
lodge on January 6, 2005. Subsequently the Mozambican
Supreme Court ordered the suspension of the eviction order,
and police left the lodge, but the provincial judge has
refused to enforce the order in a way that would force police
to remove the Zimbabwean. The American is hoping to pressure
the new government to evict the Zimbabweans based on the
Supreme Court's order, and is also hoping the Supreme Court
will reverse the lower court's decision that favors their
claim. Over the past several months, the Embassy has
contacted many high-level officials about the Nyati
situation.

22. (SBU) Peacekeeping: During his Presidency of the African
Union (AU), President Chissano was actively engaged on
broader African issues and sought to use his AU Presidency
both to build stronger African institutions and to find
African-led solutions to Africa's problems. Mozambique's
participation in the AU's peacekeeping operations in Burundi
is one such example. Post is working to assist the
Mozambican military in further developing its peacekeeping
capacity the African Contingency Operations and Training
Assistance (ACOTA) program.

23. (SBU) Zimbabwe: Despite the support for the AU
peacekeeping efforts, the GRM has been hesitant to point the
finger at other African governments over human rights
violations and has historically abstained from voting on any
such resolutions, including the recent EU resolution on human
rights violations in Darfur. Late last year, Mozambique also
voted in favor of non-action motions on the UN human rights
resolutions for Sudan and Zimbabwe. GRM officials state that
Mozambique, instead of criticizing actions, prefers to focus
on what can be done to address such issues within the
regional institutions (e.g., the AU). Mozambique, under
Chissano, was particularly hesitant to engage on Zimbabwe,
due to the close historical and personal ties between the
countries and their leaders. In his meeting with State
Department officials when he visited Washington in July 2004,
Guebuza took a similar line on Zimbabwe. The GRM officials
tell us that they are pushing Zimbabwe to hold free and fair
parliamentary elections on March 31, although the pushing is
behind closed doors. We are urging the GRM, through the
regional body SADC, at a minimum to publicly give a frank
assessment of the merits and demerits of the election once it
is held, as a way to pressure the Mugabe regime to behave
more responsibly.
LALIME

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