Cablegate: Fy 2007 Carry-Over Esf for State Africa Regional


DE RUEHTO #1346 3201000
R 161000Z NOV 07




E.O. 12958: N/A


1. SUMMARY. Embassy Maputo proposes two projects for FY
2007 ESF carryover funding: (1) $1,000,000 for political
competition and consensus-building under the elections and
political processes (2.3.2) element and (2) $500,000 to
structure a program aimed at improving the Doing Business
"taxes" component in Mozambique by reducing the steps and
costs to businesses of paying taxes, under the trade and
investment enabling environment (4.2.1) element. END SUMMARY

Democracy: Elections and Political Processes (2.3.2)

2. Just 15 years after the end of its civil war, Mozambique
is, in many ways, a model of post-conflict reconciliation,
stability, and rapid economic growth. However its political
system development has yet to attain the same level as the
impressive improvements in its economy and stability. The
governing party, FRELIMO, retains near total control of all
government institutions at both the national and local
levels, as it has since independence in 1975, allowing little
room for opposition parties. This concentration of political
power, and the resulting weakness of political party
structures, hinders the development of democracy and genuine
political dialogue. The US Mission to Mozambique proposes
that FY 2007 ESF carryover funding in the amount of
$1,000,000 be allocated to the Mission for the political
competition and consensus-building, elections and political
processes (2.3.2) element. The Mission, through USAID's
Democracy and Governance program, will develop a new activity
to expand political freedom and enhance the competitive
political process, thus strengthening the foundations of
democracy in Mozambique. This activity will focus on
assisting political parties with training and technical
assistance on campaign techniques, researching public
attitudes, setting party platforms, strengthening internal
structures and capacity.

3. Currently there are seven political parties represented
in parliament; FRELIMO controls over two-thirds of the
members and rarely engages the opposition. The proposed
political party capacity building activity will likely flow
through the CEPPS mechanism in order to bring an American
non-governmental organization such as IFES, IRI, or NDI to
Mozambique to work with the political parties. This team of
professionals would work on identified needs of the political
parties. It is envisioned that the funds would be spent on
political party training across the country and would
effectively work in at least three of the ten provinces.

--------------------------------------------- --
Economic Growth: Trade and Investment Enabling Environment
--------------------------------------------- --

4. Economic growth is one of the USG focus areas. Recently
Mozambican President Guebuza challenged the country to
improve its World Bank's Doing Business Indicators rating; in
2007 Mozambique ranked 134 out of the 175 countries included
in the ranking. The US Mission to Mozambique requests
$500,000 in FY 2007 ESF carryover funding to work to improve
the Doing Business "taxes" component in Mozambique. The
funding, from the "trade and investment enabling environment"
(4.2.1) element, would structure a program to reduce the
steps and costs to businesses of paying taxes.

5. Mozambique has a large informal sector, accounting for an
estimated 40% of GDP and employing over 90% of the workforce
(this includes traditional agriculture). Although Mozambique
rates poorly on several of the Doing Business indicators, one
of the major constraints to growth for smaller informal
sector firms is the highly complex tax system that is
dismally administered and poorly understood. In 2004, USAID
helped design a single simple tax for the informal sector,
and in 2006 conducted a major study of how the tax system
could be made more business and investment-friendly. The
study confirmed that this was a priority for business and,
consequently, it has been included in an IMF list of actions
that the government has agreed to complete for 2008. The
Mission proposes to use ESF carryover funding to assist with
the design of a similar simplified system for small
businesses. This should widen the tax base without
increasing the burden on the informal sector. The focus
would be on ensuring implementation, improving the prospects
for small and medium enterprises to thrive and grow. The
funding would be added to an on-going USAID activity funded
through Nathan Associates under the same program element.

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