VZCZCXRO7147
RR RUEHLMC
DE RUEHTO #0269/01 0651516
ZNR UUUUU ZZH
R 061516Z MAR 07
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6936
RUEHLMC/MILLENNIUM CHALLENGE CORP  0170

UNCLAS SECTION 01 OF 03 MAPUTO 000269 
 
SIPDIS 
 
SIPDIS 
 
AF/S FOR HTREGER AND JMALONEY 
AF/EPS FOR JPOTASH 
USTR FOR PCOLEMAN 
MCC FOR SGAULL 
 
E.O. 12958: N/A 
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MOZAMBIQUE: Update for 2007 President's Report on 
AGOA 
 
Ref: State 22438 
 
--------------------------------------------- ------------ 
Market Economy, Economic Reform, and Elimination of Trade 
Barriers 
--------------------------------------------- ------------ 
 
¶1. (U) The Government of Mozambique (GRM) continues to work 
toward creating an investment-friendly, market-based 
economy.  Mozambique has one of the most dynamic and 
fastest-growing economies in sub-Saharan African, although 
the growth is from a very low base and is supported by 
substantial donor assistance.  MozambiqueQs decade-long 
commitment to sound macroeconomic policies and structural 
reform has led to significant improvement in economic 
performance.  GDP growth between 1995 and 2006 averaged 
approximately 8 percent, with growth of 7.7 percent in 2005 
and 7.9 percent in 2006. (Note: Growth rates are World Bank 
estimates. End note.)  The GRM expects an average real GDP 
growth rate of seven to ten percent over the next five 
years, and the International Monetary Fund predicts seven 
percent real GDP growth through 2009.  Large foreign direct 
investment projects, so called mega-projects, helped fuel 
the rapid economic growth over the last several years.  The 
inflation rate for 2006 was 9.4 percent. 
 
¶2.  (U) Although the GRM has privatized most enterprises, 
several important sectors remain state-owned through 
parastatals, including the national airline, the national 
electricity company, the national insurance company and the 
national port and rail company.  The GRM privatized over 
1,200 enterprises between the end of the civil war in 1992 
and 2005.  Although the period of mass privatization ended 
a couple of years ago, private sector involvement in public 
enterprises continues via partnerships between parastatals 
and private companies.  There is some belief that some of 
the remaining parastatals may still be sold off, however 
when or how this might happen is still unclear. 
 
¶3.  (U) HIPC (Heavily Indebted Poor Countries) and Enhanced 
HIPC debt relief provided the GRM with breathing room to 
focus efforts on alleviating poverty, a key policy goal. 
These efforts received more support in 2005 and 2006, when 
the IMF forgave 100% of Mozambique's debt (USD 153 million) 
incurred prior to January 1, 2005 under the new 
Multilateral Debt Relief Initiative (MDRI). 
 
¶4.  (U) Although Mozambique has successfully eliminated 
some trade barriers, many, including non-tariff barriers, 
still remain a problem.  Mozambique does not use import 
quotas, although many consider the often time-consuming and 
bureaucratic customs clearance procedures significant non- 
tariff barriers.  MozambiqueQs trade-weighted average 
tariff is now less than nine percent, one of the lowest in 
Africa, but duties on imported goods range from zero to 20 
percent.  Customs also assesses a value-added tax of 17 
percent at the time of importation. 
 
¶5.  (U) The GRM remains cooperative on intellectual 
property rights (IPR) protection but has little ability and 
few resources to investigate crimes or enforce IPR laws. 
An ongoing collaborative effort between the private sector 
and law enforcement has led to the creation of IPR task 
forces.  This collaboration seems to be working well and 
has addressed a few individual cases of IPR violations. 
Despite this progress, IPR issues remain, including the 
occasional showing of pirated films on local television 
prior to their theater debut. 
 
¶6.  (U) While foreign direct investment is welcome, there 
are still many obstacles.  Private ownership of land is not 
allowed under the Mozambican constitution. According to the 
World BankQs 2007 Doing Business Report, it takes an 
average of 113 days to start a business in Mozambique.  In 
the same report Mozambique ranked 140 out of 175 countries 
on overall ease of doing business, a three position drop 
from 2006.  The government and private sector continue to 
work with donors to improve the business environment, a key 
objective for the United StatesQ mission to Mozambique.  In 
March 2005 the US-Mozambique Bilateral Investment Treaty 
entered into force.  In June 2005 Mozambique and the United 
States signed a Trade and Investment Framework Agreement 
(TIFA), creating an opportunity to further expand the trade 
relationship.  The first Trade and Investment Council 
meeting under the TIFA was held in October 2006 with both 
countries reaffirming a commitment to improving the 
business environment and increasing economic growth. 
 
MAPUTO 00000269  002 OF 003 
 
 
 
--------------------------------------------- -------- 
Rule of Law, Political Pluralism and Anti-Corruption 
--------------------------------------------- -------- 
 
¶7.  (U) Mozambique has a democratically elected government. 
In December 2004 Armando Guebuza of the FRELIMO party was 
elected president with 64% of the vote.  The election was 
generally considered free and fair, but was marred by some 
irregularities.  The opposition retains 36 percent of seats 
in the National Assembly and holds several mayorships, 
including in Beira, the nation's second largest city. 
 
¶8.  (U) Corruption continues to be a serious problem, 
undermining MozambiqueQs democratic consolidation and 
economic growth.  Senior officials often have conflicts of 
interest between their public roles and their private 
business interests.  Local NGOs and media groups observed 
that no corruption cases involving high-profile individuals 
have been brought to trial during the Guebuza 
administration. Bribery is considered a criminal offense in 
Mozambique, and political declarations have been repeatedly 
issued denouncing corrupt practices and promising actions 
against the guilty.  Despite this, investigations rarely 
result in convictions unless the accused has relatively 
minor influence, and senior officials are seldom, if ever, 
investigated.  The National Assembly passed an anti- 
corruption bill in 2003.  This bill was enacted in 2004. 
In April 2006 the government launched a National 
Anticorruption Strategy; however, a September 2006 report 
submitted following a six-month review of the strategy by 
18 donor nations stated that there had been "no progress on 
implementing the government's anticorruption strategy." 
Mozambique is a signatory to the Untied Nations Convention 
Against Corruption and the African Union Convention to 
Prevent and Combat Corruption. 
 
¶9.  (U) With assistance from USG resources, the government 
set up an Anti-Corruption Unit in the Office of the 
Attorney General (renamed in 2005 the Central Office for 
the Combat of Corruption (GCCC)).  This body is charged 
with investigating and prosecuting corruption-related 
crimes.  As one result of its reorganization in 2005, the 
office expanded its size by adding more lawyers. 
Unfortunately, MozambiqueQs judiciary continues to be 
undertrained, understaffed, and reportedly susceptible to 
pressure from high-ranking government and FRELIMO party 
officials and to bribery by private parties.  In October 
2006 the Attorney General announced that the GCCC had 
forwarded 17 new cases to the courts, in which the state 
was robbed of a total of USD 1 million.  Mozambique ranked 
99 out of 158 countries on Transparency InternationalQs 
2006 Corruption Perception Index. 
 
¶10.  (U) Through its Action Plan for the Reduction of 
Absolute Poverty, the GRM continues to place the fight 
against poverty at the top of its agenda.  Mozambique has 
made tangible progress in this area, reducing poverty rates 
from 69 percent in 1996 to 54 percent in 2004. 
MozambiqueQs second Plan for the Reduction of Absolute 
Poverty (PARPA II), covering the period of 2006-2009, 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 to 45 percent.  The latest IMF review 
released in February 2006 stated that Mozambique continues 
to honor its commitments and to follow its Action Plan.  In 
2006 donors funded nearly half of Mozambique's national 
budget, allowing Mozambique to make significant long-term 
investments in health, education and basic infrastructure. 
HIV/AIDS continues to present a long-term challenge to 
MozambiqueQs poverty reduction and economic goals. 
 
----------------------- 
Labor and Child Labor 
----------------------- 
 
¶11.  (U) The GRM generally respects labor rights, and has 
ratified ILO Convention 87 and 98, the right of association 
and the right to collective bargaining, respectively.  The 
Organization of Mozambican Workers (OTM-Central Sindical), 
an umbrella organization for 13 trade unions representing 
1,470 companies, reports just over 103,000 union members. 
The smaller Confederation of Free, Independent Trade Unions 
(CONSILMO) represents four trade unions and has 
approximately 57,000 members.  In 2006 the GRM increased 
the countryQs statutory minimum wage by 13 percent, 
somewhat above the 2005 inflation rate.  Mozambique's 
 
MAPUTO 00000269  003 OF 003 
 
 
current labor law is very rigid; however a proposed 
revision was submitted to the General Assembly in 2006.  As 
of March 5, 2007, the General Assembly had not yet reviewed 
the proposal.  The revision was an attempt to address major 
labor law issues; what form the final version will take is 
still not known. 
 
¶12.  (U)  The GRM ratified ILO Conventions 105 and 29 on 
forced labor, as well as ILO Convention 182 on the worst 
forms of child labor.  Despite this, child labor remains an 
issue, with approximately 1/3 of all urban children between 
the ages of 10 and 14 engaged in the economy Q 
overwhelmingly in the informal sector. 
 
 
Johnson