Cablegate: Cafe Sol, an Example of Commercial Advocacy

VZCZCXRO4403
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1251/01 3470719
ZNR UUUUU ZZH
R 120719Z DEC 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9712
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0313

UNCLAS SECTION 01 OF 02 MAPUTO 001251

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ETRD PREL PGOV MZ
SUBJECT: CAFE SOL, AN EXAMPLE OF COMMERCIAL ADVOCACY

REF: A. MAPUTO 1010

1. (SBU) SUMMARY: Mozambique is ranked 141 out of 181
economies on the World Bank's "Doing Business8 report (Ref
A), which means that Embassy Maputo's outreach to U.S.
companies and investors in this challenging business
environment is especially important for their success. The
Mission plays a key role in acting as a conduit between the
U.S. business community and the GRM, particularly with
small-to-medium sized businesses that often do not have the
same access to the GRM as large enterprises. One of the most
daunting challenges to foreign investment in Mozambique is
navigating the difficult and opaque tax regulations in the
country. The mission plans to continue its efforts to assist
the GRM in streamlining the tax code, and making accounting
regulations and processes more simple. Cafe Sol, a small
American expatriate-owned coffee shop, illustrates the
rewards and obstacles a small business operating in
Mozambique faces and the greater role the U.S. Embassy can
serve to the business community. END SUMMARY.

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CAFE SOL ) A HOBBY TURNED BUSINESS
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2. (U) In May of 2007, three American expatriates in
Mozambique turned their passion for coffee into reality by
opening Cafe Sol in Maputo, the city's first premium coffee
roaster. This small premium coffee shop in an upscale
neighborhood of Maputo serves as the marketing arm for a
retail and wholesale coffee roasting business, which has
already expanded its product line, featuring their coffees in
fine hotels and supermarkets across the country. The
business currently employs approximately 15 Mozambicans and
generates a small profit. In August of 2008, Cafe Sol gained
a license to place the Made in Mozambique trademark on their
coffee which allows them greater notoriety, and hopefully
access, to the domestic market (though the unroasted beans
are not sourced domestically). Currently, Cafe Sol sells
their coffee in a variety of specialty shops and locations in
three major cities in Mozambique. The owners plan to expand
their distribution network, eventually exporting their
product.

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CHALLENGES IN TAX AND ACCOUNTING
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3. (SBU) In late November, the owners described to Econoff
the difficulties of operating a business in Mozambique, which
requires persistence and patience. The owners said that they
believe that running a small operation is even more difficult
than large-scale businesses, many of which have special tax
benefits and assistance from the GRM, since large scale
foreign investors in Mozambique have the capacity to generate
millions of dollars in tax revenues-- to say nothing of job
creation. The owners of Cafe Sol stated that among their
biggest challenges is navigating Mozambique's Byzantine tax
code. They are consistently surprised by burdensome and
unforeseen taxes that hinder their ability to generate a
profit and expand their business. For example, the GRM
levies a combined corporate income tax of up to 32 percent in
Mozambique, levied in a series of up to 37 payments per year.
This is compared to South Africa where corporate tax rates
are 29 percent spread over 11 payments, and the SADC average
of 21.7 percent over 7 payments.

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BUSINESS IN MOZAMBIQUE: DIFFICULT BUT REWARDING
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4. (U) Although operating in the Mozambican business
environment can be difficult, the owners explained that the
rewards outweigh the negatives. For example, Cafe Sol owners
enjoy being leaders in the expatriate business community,
have assisted in the development of the Overseas Security
Advisory Committee (OSAC--a security forum for American
business people living in Mozambique), and assisted the
U.S./Mozambique Chamber of Commerce (CCMUSA) by interacting
with potential U.S. investors interested in establishing
themselves in Mozambique. Equally important, their business
provides a socially responsible model for domestic companies.
According to several employees, Cafe Sol is one of the best
places to work in Maputo. At Cafe Sol, Mozambican employees
receive a competitive wage, including tips, and engage in a
profit sharing program, while receiving on-the-job
professional training.

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EMBASSY ASSISTS SMALL BUSINESSES
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MAPUTO 00001251 002 OF 002

5. (U) Post assisted Cafe Sol by coordinating several
meetings with appropriate members of the Government of
Mozambique (GRM) with an end result of allowing the owners to
gain licenses to sell their product in Mozambique. In
addition, Post has raised the business community's concerns
with the GRM regarding the heavy corporate tax system, which
hinders business development. The Department of Treasury's
Office of Technical Assistance (OTA) continues its programs
in Mozambique to train and assist the GRM in
professionalizing its tax authority and streamlining taxation
systems, with an eye on additional simplification of the tax
code. Through the USAID-led Private Sector Working Group
(PSWG), and USAID-funded business association umbrella group
CTA, the Mission continues to look at ways to convince the
GRM to improve its business climate, including taxation. As
Cafe Sol continues to develop, Mission Maputo will support
the owners, plans to export their coffee in the region, and
potentially to the U.S. under AGOA.

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COMMENT: EMBASSY SUPPORT HELPS THE LITTLE GUY TOO
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6. (SBU) Small U.S. businesses operating in Mozambique often
require more assistance from the Mission in delivering their
message and concerns to the GRM. The Embassy plans to
intensify its efforts to advocate and assist the GRM in
establishing a more efficient business climate, including tax
systems for foreign enterprises in Mozambique via CTA and the
CCMUSA, as well as through the Department of Treasury's OTA.
We maintain a constant message that attracting U.S.
investment means attracting responsible business partners
that keep high standards for social responsibility,
sustainable economic growth, and an especially good work
environment for employees. The Embassy continues to work
closely with current and potential U.S. investors, like Cafe
Sol, to send the message to the GRM that improving the
business climate in Mozambique will result in a win-win
situation, where profits for U.S. companies will result in
both tax revenue generation and local employment generation,
significantly improving living standards for Mozambicans
throughout the country.
Amani

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