VZCZCXRO8872
RR RUEHLMC
DE RUEHTO #1324/01 2861426
ZNR UUUUU ZZH
R 131426Z OCT 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6221
RUEHLMC/MILLENNIUM CHALLENGE CORP  0098

UNCLAS SECTION 01 OF 05 MAPUTO 001324 
 
SIPDIS 
 
SIPDIS 
 
AF/S FOR HTREGER AND CKARBER 
AF/EPS FOR JPOTASH 
USTR FOR CONNIE HAMILTON 
MCC FOR SGAULL 
USAID FOR AA/AFR AND AFR/SA 
 
E.O. 12958: N/A 
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MOZAMBIQUE: AGOA ELIGIBILITY REVIEW 
 
Ref: State 163056 
 
¶1.  Country Background Summary:  Between October 2005 and 
October 2006 the Government of the Republic of Mozambique 
(GRM) continued to make progress in establishing a market- 
based economy, eliminating barriers to US trade and 
investment, reducing poverty, promoting democracy, and 
protecting workers' rights.  This positive trend should 
continue, especially as Mozambique begins to benefit 
economically from higher levels of international trade and 
investment, and deepen its trade ties with the United States 
under the Bilateral Investment Treaty (BIT) and Trade and 
Investment Framework Agreement (TIFA). 
 
------------------------------------- 
Comments on Eligibility Requirements 
------------------------------------- 
 
¶2.  Market-based Economy 
 
 
¶A. Major Strengths Identified 
----------------------------- 
-- Mozambique continues to have one of the most dynamic and 
fastest-growing economies in sub-Saharan Africa, although 
the growth is from a very low base. 
 
-- Mozambique's decade-long commitment to sound 
macroeconomic policies and structural reform, supported by 
substantial donor assistance, has led to a significant 
improvement in economic performance. 
 
-- GDP growth between 1995 and 2005 averaged 8.4 percent, 
with the growth rate in 2005 estimated at 7.7 percent by the 
World Bank.  The average GDP growth rate for 2005 through 
2009 is currently projected to be 7.3 percent. 
 
-- Inflation fell from 9.1 percent in 2004 to 6.3 percent in 
2005, according to the World Bank.  (Other measures show 
higher rates.) 
 
-- These continuing achievements were facilitated by a 
stable political situation, as illustrated by the smooth 
transition in February 2005 to a new administration 
following the 2004 presidential and parliamentary elections. 
 
-- Mozambique encourages foreign direct investment, and CPI, 
the government's Investment Promotion Center, actively 
assists potential new foreign direct investors in 
Mozambique. 
 
-- Foreign investors participated without significant 
impediments in Mozambique's privatization program. 
 
-- Private investors continue to manage and rehabilitate the 
main ports of Maputo, Beira, Nacala and Quelimane through 
concession agreements. 
 
-- The Nacala Corridor Development project, in which a U.S. 
firm has a significant holding, continued operating and 
rehabilitating the railroad and port system on a key 
transport route between Malawi and Mozambique.  This project 
is supported by an OPIC loan worth USD 30 million. 
 
-- The Brazilian Companhia Vale do Rio Doce (CVRD) began to 
explore its concession area, a massive coal deposit in the 
Moatize region of central Mozambique, and is anticipated to 
begin exporting coal in 2007.  The project is also expected 
to result in the construction of a coal-fired power plant, 
with the bulk of the electricity exported to South Africa. 
 
-- Mozambique retained its international credit rating of 
B/B+ by Fitch Ratings, reflecting Mozambique's positive 
track record on economic reforms, political stability, 
strong economic growth, openness to FDI, and expanding 
exports.  The most recent rating was published in July 2006. 
 
-- Although still small, U.S.-Mozambican trade is expanding, 
with the vast majority of Mozambique's exports to the US 
entering under either AGOA or GSP.  Mozambique's 2005 
exports under AGOA and GSP provisions were valued at USD 8.3 
million, representing more than 80 percent of the country's 
total exports to the United States. 
 
-- Numbers from the first half of 2006 suggest that 
Mozambique's 2006 exports under AGOA and GSP provisions will 
show significant growth from 2005. 
 
MAPUTO 00001324  002 OF 005 
 
 
 
-- South Africa is Mozambique's single largest trading 
partner.  The EU is a significant market for Mozambican 
exports. 
 
-- In 2005 the top five foreign direct investors in 
Mozambique were South Africa, the United Kingdom, Zimbabwe, 
Portugal and Sweden. 
 
-- Mozambique is an active member of the Southern African 
Development Community (SADC). 
 
-- 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.  The continuing bilateral dialogue bodes well for 
increased AGOA-related trade and investment in the future. 
 
-- The GRM recognizes the importance of removing a number of 
obstacles to private sector development.  To this end, steps 
are being taken to reduce the cost of doing business in 
Mozambique, address rigidities in the labor market, and 
improve basic infrastructure. 
 
-- The "one-stop shops" for business registration were 
expanded to eleven locations, covering all provincial 
capitals.  Current government plans call for additional 
expansion to district-level capitals. 
 
-- In December 2005 the National Assembly approved major 
revisions to the Commercial Code - the result of a 
collaborative effort starting in 1998 between the Mozambican 
government, the private sector and donors. 
 
-- A revision to the current Labor Law was presented to the 
General Assembly in September 2006.  This revision 
represents an attempt by the government to address the rigid 
labor legislation. 
 
-- A joint private/public sector task force on IPR had some 
successes in 2005-2006 stemming the flow of illegal products 
into the local market. 
 
¶3.  Market-based Economy 
 
¶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. 
 
-- 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 
facilitation. 
 
-- 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. 
 
-- Access to capital continues to be a challenge in the 
business environment.  Private ownership of land is not 
allowed in Mozambique.  The government instead grants land- 
use concessions for periods of up to 50 years, with options 
to renew.  The land-use concessions are not allowed to be 
used as collateral, making it difficult to obtain financing 
via the banking community. 
 
-- Several companies continue to struggle with 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. 
 
¶4.  Political Reforms/Rule of Law/Anti-Corruption 
 
¶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. 
 
MAPUTO 00001324  003 OF 005 
 
 
 
-- Mozambique has a democratically elected government. 
 
-- In December 2004 Armando Guebuza, secretary-general of 
the ruling Frelimo party, was elected president with 64 
percent of the vote, compared to 32 percent for his nearest 
competitor. 
 
-- The election was generally considered free and fair, but 
was marred by some 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 2004 the National Assembly passed a new Anti- 
Corruption Law, aimed at curbing corruption in government 
offices, the police force, hospitals and the schools. 
 
-- In August 2005 the Attorney General formally 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. 
 
-- In October 2006 the Attorney General announced that the 
GCCC had forwarded 17 new cases to the courts. 
 
¶5.  Political Reforms/Rule of Law/Anti-Corruption 
 
¶B. Major Issues/Problems Identified 
----------------------------------- 
 
-- Though President Guebuza has repeatedly emphasized his 
desire to wage a serious campaign against corrupt government 
practices, corruption remains a problem and continues to 
undermine Mozambique's democratic consolidation and economic 
growth. 
 
-- Mozambique's judiciary continues to be under-trained, 
understaffed and susceptible to pressure from high-ranking 
government officials and bribery by private parties. 
However in recent years the number of trained attorneys and 
judges in Mozambique has risen significantly, giving hope 
for a more professional judiciary in the future. 
 
-- Freedom House's Freedom in the World index ranks 
Mozambique "Partly Free" (3,4). 
 
-- Mozambique ranked 99 out of 158 countries on Transparency 
International's 2005 Corruption Perceptions Index. 
 
¶6.  Poverty Reduction 
 
¶A. Major Strengths Identified 
----------------------------- 
 
-- The GRM has placed poverty alleviation at the head of its 
policy agenda. 
 
-- Mozambique has made tangible progress in this area, 
reducing poverty rates from 69 percent in 1996 to 54 percent 
in 2004. 
 
-- 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 macro-economic and financial 
management. 
 
-- In 2005-2006, the donor community funded approximately 50 
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. 
 
¶7.  Poverty Reduction 
 
¶B. Major Issues/Problems Identified 
----------------------------------- 
 
MAPUTO 00001324  004 OF 005 
 
 
 
-- Illiteracy and infant mortality rates in Mozambique 
remain among the highest in Africa.  In 2005 the illiteracy 
rate was estimated at around 55%, while, in 2004, the 
mortality rate for children under five was 151.6 per 1,000 
children. 
 
-- Life expectancy dropped to just over 40 years (41.8 in 
2004), 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. 
 
-- 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, 
due to the lack of resources and the need for additional 
schools. 
 
¶8.  Workers' Rights/Child Labor/Human Rights 
 
¶A. Major Strengths Identified 
----------------------------- 
 
-- The Constitution provides that all workers are free to 
join or refrain from joining a trade union, and workers 
enjoy these rights in practice. 
 
-- The Organization of Mozambican Workers (OTM-Central 
Sindical), an umbrella organization for 13 trade unions 
representing workers at 1,470 companies, reports just over 
103,000 union members among its affiliates. 
 
-- The smaller Confederation of Free, Independent Trade 
Unions (CONSILMO), representing four trade unions, has 
approximately 57,000 unionized members. 
 
-- In 2006 the GRM increased the country's statutory minimum 
wage by 13 percent, somewhat above the 2005 inflation rate. 
 
-- Mozambique has ratified ILO Convention 105 on forced 
labor and ILO Convention 182 on the worst forms of child 
labor. 
 
-- In 2003 a revised family law was adopted that increases 
the status of women. 
 
-- Professional training for new police officers increased. 
 
¶9.  Workers' Rights/Child Labor/Human Rights 
 
¶B. Major Issues/Problems Identified 
----------------------------------- 
 
-- In part because a very small percentage of the workforce 
is employed in the formal economy, less than two percent of 
the workforce was covered by collective bargaining 
contracts. 
 
-- Mozambique's current labor law is very rigid; however a 
proposed draft was submitted to the General Assembly in the 
fall of 2006.  This revision is an attempt to address the 
current rigid labor legislation, although what form the 
final version will take is still not known. 
 
-- Mozambique stands out in the southern Africa region as 
having one of the most pro-worker, anti-employer labor laws 
- a significant impediment to foreign investment. 
 
-- Although labor unions are exerting significant pressure 
on the government to keep many of the law's provisions, the 
private sector is pushing for more flexible legislation to 
promote increased investment. 
 
-- Labor unions, created during the socialist years, 
continue to lack resources, remain relatively weak and are 
disengaging themselves from the ruling party, FRELIMO. 
 
-- The Government's human rights record, while improving, 
remains poor; although there were some significant 
improvements in a few areas, serious problems remained. 
 
-- Prison conditions remained life-threatening. 
 
MAPUTO 00001324  005 OF 005 
 
 
 
-- Security force members beat and abused detainees. 
 
-- Mozambique is ranked a Tier II country by the 
Department's annual Trafficking in Persons report. 
Mozambique is a source country for women and girls 
trafficked for the purpose of sexual exploitation.  The 
Government of Mozambique does not fully comply with the 
minimum standards for the elimination of trafficking; 
however, it is making significant efforts to do so. 
Mozambique currently has no law explicitly prohibiting the 
trafficking of humans. 
 
-- Exploitation of children under the age of 15 and child 
prostitution remains a concern. 
 
-- Child labor remains a problem in Mozambique.  A 2003 
study estimated that one-third of children between ages 10 
and 14 were economically active.  This is largely the result 
of children working in the informal or agricultural sectors, 
including family farms, rather than children being used as 
laborers in the formal industrial sector, something that 
rarely happens. 
 
-- Children orphaned by HIV/AIDS are often forced to work 
because they are left without any adult family members to 
support them. 
 
¶10.  U.S. National Security Concerns/Gross Human Rights 
Violations 
 
-- No Major Strengths or Major Issues/Problems Identified. 
 
Raspolic