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Cablegate: Agoa Eligibility Review - Mozambique

DE RUEHTO #1145/01 2951453
R 221453Z OCT 09




E.O. 12958: N/A

REF: 09 STATE 97769

1. Per REFTEL, Embassy Maputo submits the following updated
AGOA eligibility information.

2. Country: MOZAMBIQUE

Current AGOA Status: Eligible

Country Background Summary: Between October 2008 and October
2009 the Government of the Republic of Mozambique (GRM)
continued efforts to establish a market-based economy,
eliminate barriers to U.S. trade and investment, reduce
poverty, and protect workers' rights. Widespread corruption
and weak democratic institutions put poverty reduction and
continued economic growth into jeopardy.

Comments on Eligibility Requirements:

I. Market-based Economy

A. Major Strengths Identified:

** Mozambique continues to have one of the fastest-growing
non-petroleum economies in sub-Saharan Africa.

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** Mozambique's commitment to sound macroeconomic policies
and structural reform, supported by substantial donor
assistance, continues to drive economic performance.

** GDP growth between 1995 and 2005 averaged 8.4 percent,
with the growth rate of 7.3 percent in 2007 and 6.8 percent
in 2008. The 2009 GDP growth rate is currently projected to
be about 4.5 percent down from a previous estimate of around
7 percent.

** Mozambique encourages foreign direct investment, with U.S.
investors, with FDI of over $5 billion between 2003 and 2007,
leading all other countries.

** Private investors continue to manage and rehabilitate the
main ports of Maputo, Beira, Nacala and Quelimane through
concession agreements. Over $1 billion in port improvements
are scheduled for Maputo, Beira, and Nacala.

** The Brazilian Companhia Vale do Rio Doce (CVRD) finished
exploration of its concession area, a massive coal deposit in
the Moatize region of central Mozambique, and finalized its
contract for extraction rights with the GRM in 2007. CVRD is
investing more than $1.3 billion and anticipates that
extraction and exportation will begin in early 2010. The
project is expected to invigorate rail traffic on the Beira
corridor, increase volumes at the Port of Beira, and is also
expected to result in the construction of coal-fired power
plants, with the bulk of the electricity exported to South
Africa. Three other coal companies are investing in the
Moatize / Benga region, including Riversdale, investing more
than $300 million.

** In 2008 total exports to the US were $16.4 million, of
which $129,000 was under AGOA and $235,000 under the General
System of Preferences (GSP). Up to October 2009, total
exports were $32 million, with $888,000 under GSP and $0
under AGOA. Approximately half of 2009 Mozambican exports to
the U.S. are attributed to a one-time sale of aluminum ingots
from the Mozal smelter outside of Maputo.

** Mozambique is an active member of the Southern African
Development Community (SADC), but is not a member of the
Southern African Commercial Union (SACU).

** In October 2006, the Mozambican government and USTR held
the first Trade and Investment Council meeting under the
Trade and Investment Framework Agreement signed in June 2005.
Bilateral dialogue continued in the March 2009 TIFA meeting
held in Washington, DC.

** In the 2010 World Bank "Doing Business" indicators,
Mozambique's overall rank improved by five positions, due
primarily to eliminating minimum capital requirements to
start a new business, however most other indicators in the
report fell.

** The "one-stop shops" for business registration were

MAPUTO 00001145 002 OF 006

expanded to eleven locations, covering all provincial
capitals, in 2006. A Special Economic Zone (SEZ) has been
developed to boost investment in the Nacala Corridor, and
investment is actively sought in the Beira and Maputo

** A revised Labor Law passed Parliament in May 2007 and was
promulgated in July 2007. This revision represents an attempt
by the government to address the rigid labor legislation, but
does not sufficiently liberalize restrictive labor practices.

** A joint private/public sector task force on IPR has had
some isolated successes in recent years stemming the flow of
illegal products into the local market. The Government
Intellectual Property Institute (IPI) addresses private
sector concerns with intellectual property, patents, and
trade mark infringements, working with a variety of
ministries, even coordinating search and seizure of
counterfeit goods.

B. Major Issues/Problems Identified:

** Approximately a dozen large state-owned or operated
companies remain, in the following sectors:
telecommunications, electricity, insurance, oil and gas
exploration, port and rail, airlines and airports, water
supply, and fuel distribution.

** The GRM continues to rely on direct donor funding to
support more than half of its annual budget. The donor
community has long pushed for greater transparency and better
governance, with slower than hoped-for progress. The slow
progress may delay the disbursement of funds by the donor

** Continued work is needed to streamline company
registration processes and to share information about
regulations and procedures between the private sector and
government agencies, particularly in the area of trade

** The GRM has worked with the private sector to improve
intellectual property rights protection via a joint task
force, but continues to have little ability to investigate
crimes or enforce IPR laws; counterfeit goods remain
commonplace in local markets, and there remains a lack of
coordination between government agencies and concerns about
corruption in the form of raid tip-offs.

** Access to capital continues to be a challenge in the
business environment. Private ownership of land is not
allowed in Mozambique, reducing opportunities to
collateralize loans and restricting the growth of credit
markets, particularly at the small loans and micro-credit
level. In December 2006, the GRM approved a modification to
urban land-use rights, allowing for lease period up to 100
years (renewable) and minimizing restrictions on
transferability of titles. For rural land, the government
continues to grant land-use concessions for periods of up to
50 years, also with options to renew.

** Several companies continue to struggle with value-added
tax (VAT) reimbursement delays, with the Mozambican
government hampered by income stream and red-tape issues.
Additional work is needed to improve reimbursement
turn-around time and streamline the overall process. Starting
in 2008, the U.S. Treasury's Office of Technical Assistance
(OTA) began providing technical assistance to the Mozambican
Tax Authority (ATM) in an effort to professionalize and
expand the ATM's capacity.

** There have been some actions taken by the GRM that raise
concerns regarding the sanctity of contracts, particularly
concession agreements, with the GRM in some cases requesting
to renegotiate in order to secure more favorable terms. This
concern remains moderate; however, the situation should be
closely monitored.

** While there is improvement in many areas, the new labor
law still contains provisions considered impediments to
increased foreign and local investment.

--------------------------------------------- ----
II. Political Reforms/Rule of Law/Anti-Corruption
--------------------------------------------- ----

MAPUTO 00001145 003 OF 006

A. Major Strengths Identified:

** Mozambique has made significant progress in the
consolidation of democracy since the signing of the 1992 Rome
Peace Accord that ended sixteen years of civil war;
Mozambique has a democratically elected government.

** In December 2004 Armando Guebuza, then secretary-general
of the ruling Frelimo party, was elected president with 64
percent of the vote, compared to 32 percent for his nearest

** The election was generally considered free and fair, but
was marred by irregularities, which did not affect the
outcome of the presidential election or control of the
national assembly.

** The political opposition retains 36 percent of seats in
the national assembly and holds five mayorships, including
that of Beira, the nation's second-largest city.

** In August 2005 the Attorney General announced the creation
of the Central Office for the Combat of Corruption (GCCC),
which replaced the Anti-Corruption Unit (UAC) as Mozambique's
primary corruption fighting office. As of September 2008 the
GCCC has reviewed 406 cases, resulting in 63 charges, with
investigations ongoing in 256 additional cases. In September
2008, the Attorney General announced the first high-level
corruption case with the arrest of former Interior Minister
Almerino Manhenje in connection with the theft of $8 million.

B. Major Issues/Problems Identified:

** Though President Guebuza has repeatedly emphasized his
desire to wage a serious campaign against corrupt government
practices, corruption at all levels of government remains a
problem and threatens to undermine Mozambique's democratic
consolidation and economic growth.

** Corruption largely results from a lack of checks and
balances among the three branches of government, minimal
accountability of elected officials, and a culture of

** Mozambique's Transparency International 2008 Corruption
Perceptions Index score dropped for the first time in five
years from 2.8 to 2.6 (a result of less than 3 indicates
corruption is perceived as "rampant").

** There are no laws providing for the right of public access
to information, and in practice the government restricted
citizens, access to public information.

** Mozambique's judiciary continues to be under-trained,
understaffed and susceptible to pressure from high-ranking
government officials and bribery by private parties and the
country suffers from a shortage of licensed attorneys.

** Excessive use of force at times by security forces remains
a cause for concern. Arbitrary arrest, summary execution,
vigilante killing, and detention continue to be a problem. A
local NGO reports that the police in and around the capital
were involved in 10 summary executions in the first nine
months of 2008.

** Freedom House's Freedom in the World index ranks
Mozambique "Partly Free".

** Although the GCCC continues to file charges of corruption,
enforcement has been a serious problem. GCCC is understaffed,
and those staffers who have higher education often lack
degree in relevant areas such as; law, auditing and

** A recent, highly controversial decision by the
Constitutional Council, characterized by several observers as
seriously flawed, confirmed a questionable ruling by the
National Elections Commission (CNE) to exclude many
opposition parties, whether wholly or partially, from running
in the 2009 legislative elections.

III. Poverty Reduction

A. Major Strengths Identified:

MAPUTO 00001145 004 OF 006

** The GRM has placed poverty alleviation at the head of its
policy agenda.

** Mozambique's second Plan for the Reduction of Absolute
Poverty (PARPA II), covering the period of 2006-2010, was
launched in June 2006. The PARPA II aims to reduce, by 2009,
the percentage of the population living below the poverty
line from 54 percent to 45 percent. The new plan maintains
many of the same priorities of PARPA I, including emphasis on
more training in the education and health sectors,
strengthening good governance, developing basic
infrastructure and improving macroeconomic and financial

** In 2007-2008, the donor community funded approximately 56
percent of the national budget. The HIPC and Enhanced HIPC
(Heavily Indebted Poor Countries) debt relief programs have
permitted increased budgetary support to alleviate poverty,
including long-term investment in health, agriculture, basic
infrastructure, and education.

** The Millennium Challenge Corporation (MCC) signed a
Compact with Mozambique for $506.9 million in July 2007,
which entered into force in September 2008, aimed at
unlocking the economic potential of the poorer northern
districts with projects focused on rural and urban water and
sanitation, roads, improved land administration, agriculture,
and cross-cutting policy reforms and capacity building

B. Major Issues/Problems Identified:

** In 2007 Mozambique was ranked by UNDP 127 in the Human
Poverty Index, and 90 percent of the population lives on less
than $2 per day.

** Illiteracy and child mortality rates in Mozambique remain
among the highest in Africa. In 2005 the illiteracy rate was
estimated at around 55 percent, while in 2004, the mortality
rate for children for 2008 is estimated at 104.97 per 1,000

** Life expectancy at birth dropped to just over 40 years,
and is expected to continue to decline into the 30s by 2010
as the result of HIV/AIDS.

** The country also lacks infrastructure, electric power, and
clean water for most of its citizens.

** The standard of living of residents of Maputo is 12 times
that of the rest of the country, with the majority of the
population living in rural areas.

** HIV/AIDS is a growing problem, with infection rates
increasing to a national average of over 16 percent of the
sexually active population.

** Education is compulsory through the age of 12, but
enforcement of compulsory education laws is inconsistent with
children attending school for 8 years on average due to the
lack of resources and the need for additional schools.

IV. Workers' Rights/Child Labor/Human Rights

A. Major Strengths Identified:

** The Constitution provides that all workers, except for
government employees, are free to join or refrain from
joining a trade union, and workers enjoy these rights in

** In 2007 the GRM increased the country's statutory minimum
wage for industry and services by 14 percent.

** Mozambique has ratified ILO Conventions 105 on Forced
Labor, 182 on the Worst Forms of Child Labor, and 138 on
Minimum Wage.

** Forced and bonded labor by children is prohibited by law.

** Compliance with child labor provisions are regulated by
the Ministry of Labor and violations are punishable with
fines ranging from one to 40 monthly salaries at minimum

MAPUTO 00001145 005 OF 006


** In an effort to reduce child labor, the government
disseminated information and provided education about the
dangers of child labor.

** There were no reports of political detainees.

** The independent media were active and the international
media were allowed to operate freely.

** The law provides for freedom of religion, and the
government generally respected this right in practice.

** In 2003 a revised family law was adopted that increases
the status of women.

B. Major Issues/Problems Identified:

** The government does not effectively enforce protection of
worker rights and employers continue to violate labor

** Less than two percent of the workforce was covered by
collective bargaining contracts, in part due to the very
small percentage of the workforce employed in the formal

** Labor unions remain relatively weak due to lack of

** While there has been an increase in the minimum wage, the
minimum wage does not provide a decent standard of living for
a worker and family.

** While the law prohibits forced or compulsory labor, forced
and bonded child labor remains a problem and is common in
rural areas, agricultural work, domestic service, and

** Children orphaned by HIV/AIDS are also often forced to
work because they are left without any adult family members
to support them.

** Prison conditions remained life-threatening.

** Security force members beat and abused detainees.

** Police use of excessive force has resulted in unlawful
killings and injuries.

** Although the law provides for freedom of speech and of the
press, journalists sometimes practice self-censorship, and
police have been known to harass journalists. In September
2008, three journalists were convicted of defamation and
threatening state security for writing an article which
challenged the nationality of the Prime Minister.

** The law generally provides for freedom of association,
although the government imposed some limits on this right. A
government decree regulates the registration and activities
of foreign NGOs. The registration process for foreign NGOs
and religious groups reportedly involved significant
discretion on the part of government officials and regularly
took several months.

** Mozambique is a source country for women and girls
trafficked for the purpose of sexual exploitation and is
ranked a Tier II country by the Department's annual
Trafficking in Persons report. The government does not fully
comply with the minimum standards for the elimination of
trafficking; however, in July 2008, it enacted a law making
human trafficking a punishable crime.

** Domestic violence against women is widespread. In July
2009 Mozambique criminalized domestic violence and sex
without consent. Enforcement of the law is weak.

** Exploitation of children under the age of 15 and child
prostitution remain a concern.

--------------------------------------------- -----
V. International Terrorism/U.S. National Security
--------------------------------------------- -----

A. Major Strengths Identified:

MAPUTO 00001145 006 OF 006

** Mozambique does not engage in activities that undermine
United States national security or foreign policy interests.

** The Mozambican government, including the Central Bank,
cooperates with international efforts to counter terrorist

** To the extent possible, given its limited resources, the
Mozambican government fully cooperates in international
anti-terrorist efforts.

B. Major Issues/Problems Identified:

** Money laundering activities in Mozambique continue an
increasing cause for concern.

** Mozambique is a transshipment country for an increasing
amount of illegal narcotics and for human smugglers.

** Although the Mozambican government is committed to
securing its borders, limited resources make this difficult.

** Mozambique's approximately 1500 mile coastline remains
largely unprotected and vulnerable to smuggling, illegal
fishing and illegal entry into the country.

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