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Cablegate: Mcc Ceo Danilovich Sees Capacity Challenges

VZCZCXRO5298
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1445/01 3401307
ZNR UUUUU ZZH
R 061307Z DEC 07
FM AMEMBASSY MAPUTO
TO RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEHC/SECSTATE WASHDC 8301
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0092

UNCLAS SECTION 01 OF 02 MAPUTO 001445

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EAID ECON PGOV PREL MZ
SUBJECT: MCC CEO DANILOVICH SEES CAPACITY CHALLENGES
FIRSTHAND

MAPUTO 00001445 001.2 OF 002


1. SUMMARY: Ambassador John Danilovich, CEO of the
Millennium Challenge Corporation (MCC), met with Mozambican
President Armando Guebuza, international donors and private
sector representatives, gave a speech on U.S. development
assistance at a local university, and visited MCC project
sites on November 17-20. Indicative of the challenges of
assistance programs in Mozambique, a recurring theme in
meetings was the challenge of developing local capacity to
implement and participate in the MCC Compact. END SUMMARY.

2. From November 17-19, Ambassador Danilovich visited
Mozambique's Northern provinces. Stops included proposed MCC
roads, agriculture and water sanitation projects in Pemba,
Nampula, and Nacala. The Ambassador also met with key
counterparts including provincial governors, city mayors, and
local business and religious leaders.

--------------------------------------------- ----
Guebueza: I'm responsible for GRM proposal to MCC
--------------------------------------------- ----

3. In a courtesy call November 20th, President Guebuza
thanked Ambassador Danilovich for USG support to Mozambique.
Guebuza indicated that the GRM's proposal to the MCC for
funding reflected his personal input*&this MCC plan is my
plan,8 he said. The President expressed interest in
learning more about other MCC agreements signed in
sub-Saharan Africa, especially Sao Tome and Principe. He
noted that international and U.S. investment is increasing.
Referring to the GRM purchase of the Cahora Bassa
hydroelectric dam from Portugal with commercial financing, he
declared the act &a second day of independence for the
country.8 Ambassador Danilovich responded that many
international companies include MCC indicators and the
signing of a Compact as part of their risk analysis before
investing in a country. The Ambassador pressed for continued
GRM focus on Compact implementation, and to finalize the
MCC's tax agreement and to engage qualified local MCA staff.
In a subsequent meeting with the MCA Board of Directors that
included the Ministers of Planning and Development,
Agriculture, and State Administration, he reiterated the
importance of timely Compact implementation.

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Private Sector Competitiveness Concerns
---------------------------------------

4. Private sector representatives from the U.S.-Mozambique
Chamber of Commerce (CCMUSA) and the Confederation of
Economic Associations of Mozambique (CTA) told Ambassador
Danilovich that many Mozambican companies don't yet have the
technical capacity and expertise to successfully compete for
many of the projects contemplated by MCC, and pressed for MCC
to use Compact funds for capacity building. Representatives
also shared a common concern that domestic financing
obstacles make it very difficult for the private-sector in
Mozambique to compete with foreign companies with better
access to international credit, pointing to many existing
examples of large-scale projects in Mozambique contracted out
to foreign companies, especially from South Africa.
Participants also expressed concern about Chinese companies
outcompeting local businesses. Pointing to a similar World
Bank strategy, representatives suggested that large MCC
contracts be broken into smaller components, which would help
local compete.

--------------------------------------------- ----
International Donors Urge for Closer Coordination
--------------------------------------------- ----

5. Ambassadors and heads of cooperation from more than 20
diplomatic and international missions had a roundtable
discussion with Ambassador Danilovich, the Charge, USAID
Director and MCC acting country director. The IMF resident
representative expressed concern about MCC's tax exemptions.
The Norwegian representative noted that most other donors are
providing direct budget support, while the USG through the
MCC does not. The French and Dutch Ambassadors urged for
more MCC coordination with other donors to minimize overlap
and ensure efficient use of the GRM's limited capacity.
Ambassador Danilovich pointed to the U.S. legal requirements
which prevent the MCC from paying local taxes. He assured
participants that coordination efforts are ongoing, noting
many joint efforts between the USG and other donors already
existed in other countries and were being developed in
Mozambique, including with the World Bank, the United
Kingdom, and France. The Charge emphasized that while the
USG doesn't provide direct budget support bilaterally, USG
contributions to international organizations that do provide
direct support in Mozambique are significant.

MAPUTO 00001445 002.2 OF 002

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Policy Speech: U.S. Committed to Africa
---------------------------------------

6. In a presentation at Maputo's Polytechnic University,
Ambassador Danilovich reviewed the depth of the USG's
commitment to Africa, including the President's Emergency
Plan for AIDS Relief (PEPFAR), the President's Malaria
Initiative (PMI), and assistance through USAID and MCC. In
an extended question and answer period following, there were
many requests for additional information on the specifics of
procurement and bidding processes for the MCC Compact, and
opportunities for training and capacity building.

--------------------------------------------- ---
Comment: Capacity, Implementation Top Challenges
--------------------------------------------- ---

7. Ambassador Danilovich's visit underscored USG commitment
to Mozambique's development and furthered understanding of
the MCC program by other donors and Mozambican stakeholders.
In each venue, participants highlighted the importance of
developing additional human capacity to implement programs in
Mozambique. The private sector and government have limited
qualified personnel, and supporting systems and
infrastructure are sometimes still nascent and untested.
President Guebuza's personal commitment to MCC Compact
implementation, reiterated again at a private sector
conference November 28, will be vital for implementation and
keeping the Compact on schedule.
Chapman

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