VZCZCXRO2422
RR RUEHDU RUEHJO RUEHMR
DE RUEHTO #0561/01 1320918
ZNR UUUUU ZZH
R 120918Z MAY 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 5379
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0039
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MAPUTO 000561 
 
SIPDIS 
 
SIPDIS 
 
AF/S FOR HTREGER AND JMALONEY 
JOHANNESBURG FSC FOR RDONOVAN 
JOHANNESBURG TDA FOR DSHUSTER 
USDOC FOR RTELCHIN 
MCC FOR SGAULL 
USAID FOR AA/AFR AND AFR/SA 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: Mozambique: Revising the Labor Law 
 
 
MAPUTO 00000561  001.2 OF 002 
 
 
Sensitive But Unclassified - Handle Accordingly 
 
¶1. (SBU) Summary.  Caught between its socialist past and the 
need to spur greater employment, Mozambique's pro-worker 
labor law is on the verge of rebirth.  As the private sector 
urges meaningful changes that will stimulate investment and 
economic growth, a tripartite committee continues to work on 
final draft language.  The final draft is expected to go to 
the Council of Ministers at the end of May and be presented 
to Parliament this fall.  Many of the proposed changes 
support an improved business environment, but it remains to 
be seen what the approved law will look like and whether it 
will go far enough to support increased investment and 
employment in the formal sector.  End Summary. 
 
A Socialist Past 
---------------------------- 
 
¶2.  (U) Mozambique's current labor law is a testament to the 
nation's socialist history.  Workers employed in the formal 
sector receive benefits that put Mozambique out of step with 
other sub-Saharan African nations and rest of the developing 
world.  Among other employee benefits, paternalistic laws 
severely restrict employment contracts, require generous 
severances to terminated employees and give employees nearly 
unlimited leave.  As an example, an employee who has been 
with a firm for 20 years is entitled to 141 weeks of salary 
upon departure.  In comparison, the same termination in 
South Africa would cost 38 weeks and in Mauritius only 15 
weeks. 
 
¶3. (U) The consequences of Mozambique's labor law on 
economic growth and employment within the formal sector have 
been significant.  As of 2003, only slightly more than 
500,000 Mozambicans were employed in the formal sector, out 
of a labor force of 9.2 million.  According to the 
representatives of CTA (Confederacao das Associacoes 
Economicas de Mocambique), the USAID-financed national 
private sector umbrella organization, the current law deters 
increased economic investment and places Mozambique at a 
competitive disadvantage.  The myriad of complicated and 
employee-friendly rules makes hiring, disciplining and 
firing employees prohibitively expensive and a significant 
barrier to setting up a business in Mozambique.  The role of 
Mozambique's labor costs is particularly relevant when 
compared to the region and other developing countries.  The 
World Bank's Doing Business 2006 report ranks Mozambique 113 
in ease of hiring and firing and 110 out of 155 countries 
for overall business environment. 
 
Relaxing Labor Rules 
-------------------- 
 
¶4. (U) Revision of the current labor law began approximately 
three years ago.  A Tripartite Commission (TC) consisting of 
Mozambican government representatives, organized labor and 
the private sector was established to review the entire law 
in 20 sections.  The goal of the TC was to have all partners 
agree on language for resolution of all issues.  While the 
potential for unresolvable conflict was high, in reality the 
internal dynamic of the TC was reportedly so good that it 
never needed to request the services of the available 
external consultant. 
 
¶5. (U) The TC agreed on nearly all revisions by the time the 
draft law entered public debate in April.  Many of these 
revisions reveal the active role of the private sector, and 
at least one is reported to have been resolved at the 
insistence of President Guebuza.  The positive role of GRM 
officials reflects this administration's commitment to 
improve Mozambique's business environment. 
 
¶6. (U) Some of the positive revisions include creating the 
possibility of employment contracts with certain (up to ten 
years), as well as uncertain, durations and allowing fewer 
employee absences.  Statutory leave minimums have been 
reduced by 20 percent, and limits have been put on justified 
absences (sick and compassionate leave).  The revised law 
creates three tiers of corporations (less than 10 workers, 
10 to 100 workers and more than 100 workers) and allows 
 
MAPUTO 00000561  002.2 OF 002 
 
 
greater flexibility for those with less than 10 workers. 
Firing an employee would be easier under the current draft, 
which recognizes different justifications for termination - 
including just cause, economic reasons and objective 
(structural) reasons.  The notice period for dismissal has 
been reduced from 90 to 7 days.  There is a proposed 
reduction in severance from 45 days to 7 per year worked, 
and the revised law differentiates between those terminated 
for non-economic versus economic reasons.  As an example of 
greater flexibility, a worker would be able to work up to 56 
hours per week, as long as the average over a six-month 
period is 48 hours per week.  This is an improvement over 
the rigid current requirement of no more than 48 hours per 
week. 
 
¶7. (SBU) Furthermore, the private sector appears to have 
obtained a significant achievement on the issue of foreign 
workers.  Currently, the Ministry of Labor must approve each 
foreign worker on a case-by-case basis.  The private sector 
originally requested that any company be allowed to have 
foreign workers constitute up to 15% of its workforce 
without government approval, necessary for encouraging 
foreign direct investment and ensuring institutional 
capacity over time.  Embassy sources suggest that GRM 
representatives agreed to 12% only upon intervention and 
urging by President Guebuza to resolve labor issues in favor 
of promotion of foreign investment.  However, recent 
statements by Labor Minister Taipo suggest that this is not 
entirely resolved. 
 
 
Comment: 
-------- 
 
¶8. (U) The tripartite negotiations suggest Mozambique's 
positive commitment to promoting the private sector, 
business environment and investment.  The proposed changes 
are significant.  If adopted, they would improve 
Mozambique's World Bank ease of hiring and firing ranking 
from 113 to 61 out of 155 countries.  However, while the 
current draft places Mozambique on par with its regional 
counterparts, it does not necessarily provide an advantage 
to Mozambique in comparison to other developing countries 
outside of Africa. 
 
¶9. (U) There are many questions as to implementation of the 
final law - particularly with regard to Alternative Dispute 
Resolution (ADR) requirements included in the current draft. 
While an ADR system is considered essential by the private 
sector, particularly in light of Mozambique's struggling 
judicial sector, it is not clear how the GRM will pay for 
the required ADR centers, who will pay for arbitration and 
how a sustainable structure will be established. 
 
¶10. (U) It also remains to be seen what the final version of 
Mozambique's revised labor law will look like.  The month of 
public review concluded on May 8, and the public raised many 
concerns.  The draft now returns to the TC for final 
revisions and proceeds to the Council of Ministers at the 
end of this month.  There is still room for significant 
changes between now and when the law is finally approved by 
Parliament in October.  A priority for the private sector is 
to ensure that those changes do not trap Mozambique in its 
stagnant socialist past, but allow it to attract greater 
investment and boost employment. 
 
La Lime