VZCZCXYZ0000
RR RUEHWEB

DE RUEHTO #1173/01 2750153
ZNR UUUUU ZZH
R 020153Z OCT 07
FM AMEMBASSY MAPUTO
TO SECSTATE WASHDC 8014

UNCLAS MAPUTO 001173 
 
SIPDIS 
 
SIPDIS 
 
AF/S FOR MSHIELDS 
AF/EPS FOR JPOTASH 
USTR FOR CHAMILTON 
 
E.O. 12958: N/A 
TAGS: ECON ETRD MZ
SUBJECT: Mozambique: 2008 AGOA Eligibility Review 
 
 
Country: Mozambique 
Current AGOA Status: Eligible 
 
Country Background Summary:  Between October 2006 and 
October 2007 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 
 
¶I. Market-based Economy 
 
¶A. Major Strengths Identified 
Q 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. 
Q 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. 
Q GDP growth between 1995 and 2005 averaged 8.4%, 
with the growth rate in 2006 estimated at 8.5% by the 
World Bank, up from 6.2% in 2005 (final).  The average 
GDP growth rate for 2005 through 2009 is currently 
projected to be 7.3%. 
Q The World Bank reports Mozambique's Inflation 
(GDP deflator) in 2006 at 13.2%, up from its final 
estimate of 11.1% inflation in 2005. 
Q Mozambique encourages foreign direct investment, 
and CPI, the government's Investment Promotion Center, 
actively assists potential new foreign direct 
investors in Mozambique. 
Q Foreign investors participated without 
significant impediments in Mozambique's privatization 
program. 
Q Private investors continue to manage and 
rehabilitate the main ports of Maputo, Beira, Nacala 
and Quelimane through concession agreements. 
Q The Nacala Corridor Development project, in 
which two U.S. firms have 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 US$30 million. 
Q 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 anticipates that 
extraction and exportation will begin in late 
2007/early 2008.  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. 
Q 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 May 2007. 
Q Although small, the vast majority of Mozambique's 
exports to the US enter under either AGOA or GSP. 
Mozambique's 2006 exports under AGOA and GSP 
provisions were valued at US$11.8 million, up from 
8.35 million in 2005.  Goods exported under AGOA and 
the GSP provisions represented more than 75% of the 
country's total exports to the United States. 
Q Numbers from the first three quarters of 2007 
suggest that Mozambique's 2007 exports under AGOA and 
GSP provisions will be comparable to recent years. 
Q South Africa is Mozambique's single largest 
trading partner.  The EU is a significant market for 
Mozambican exports. 
Q In 2006 the top ten foreign direct investors 
in Mozambique were South Africa, Mauritius, the United 
Kingdom, Ireland, Portugal, Malawi, the United States, 
India, Zimbabwe and Germany. 
Q Mozambique is an active member of the Southern 
African Development Community (SADC). 
Q 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. 
Q 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. 
Q The "one-stop shops" for business registration 
were expanded to eleven locations, covering all 
provincial capitals, in 2006.  The government states 
an intention to expand these to district-level 
capitals, however this has not yet materialized. 
A regulation is currently proposed by the GRM to vest 
 
the "one-stop shops" with the authority necessary to 
provide the stream-lined services intended. 
Q 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. 
Q 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. 
Q A joint private/public sector task force on IPR 
had some isolated successes in 2006-2007 stemming the 
flow of illegal products into the local market. 
 
¶B. Major Issues/Problems Identified 
Q 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. 
Q 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. 
Q 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; there 
remains a lack of coordination between government 
agencies and concerns about corruption in the form of 
raid tip-offs. 
Q Access to capital continues to be a challenge in 
the business environment.  Private ownership of land 
is not allowed in Mozambique.  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.  The land-use 
concessions are not allowed to be used as collateral, 
making it difficult to obtain financing via the 
banking community. 
Q 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. 
Q There have been some actions take by the GRM 
that raise concerns regarding the sanctity of 
contracts, particularly concession agreements.  This 
concern remains moderate; however, the situation 
should be closely monitored. 
Q 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 
 
¶A. Major Strengths Identified 
Q 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. 
Q In December 2004 Armando Guebuza, then 
secretary-general of the ruling Frelimo party, was 
 
SIPDIS 
elected president with 64% of the vote, compared to 
32% for his nearest competitor. 
Q 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. 
Q The political opposition retains 36% of seats 
in the national assembly and holds five mayorships, 
including that of Beira, the nation's second-largest 
city. 
Q 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.  As of August 2007 the 
GCCC had filed 13 new charges of corruption. 
 
¶B. Major Issues/Problems Identified 
Q Though President Guebuza has repeatedly 
emphasized his desire to wage a serious campaign 
against corrupt government practices, corruption 
remains a problem and threatens to undermine 
Mozambique's democratic consolidation and economic 
growth. 
Q Petty corruption by low-level government 
officials to supplement low incomes and high-level 
corruption by some political elites continues. 
Q 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 impunity. 
Q Mozambique ranked 99 out of 163 countries on 
Transparency International's 2006 Corruption 
Perceptions Index. 
Q There are no laws providing for the right of 
public access to information, and in practice the 
government restricted citizens' access to public 
information. 
Q 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. 
Q Arbitrary arrest and detention continue to 
be a problem. 
Q Freedom House's Freedom in the World index 
ranks Mozambique "Partly Free". 
Q Although the GCCC continues to file charges 
of corruption, enforcement has been a serious 
problem.  In August 2007 the Supreme Court refused 
to consider 15 corruption cases, with several Supreme 
Court justices claiming that the GCCC did not have 
Legal authority to prosecute. 
Q Excessive use of force at times by security 
Forces remains a cause for concern. 
 
III. Poverty Reduction 
 
¶A. Major Strengths Identified 
Q The GRM has placed poverty alleviation at the 
head of its policy agenda. 
Q Mozambique has made tangible progress in 
this area, reducing poverty rates from 69% in 1996 
to 54% in 2004. 
Q 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% 
to 45%.  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. 
Q In 2006-2007, the donor community funded 
approximately 50% 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. 
Q The Millennium Challenge Corporation (MCC) 
signed a Compact with Mozambique for $506.9 
million in July 2007. 
 
¶B. Major Issues/Problems Identified 
Q Illiteracy and child 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. 
Q Life expectancy at birth dropped to just over 
40 years (41.9 in 2004), and is expected to continue 
to decline into the 30s by 2010 as the result of 
HIV/AIDS. 
Q The country also lacks infrastructure, electric 
power, and clean water for most of its citizens. 
Q HIV/AIDS is a growing problem, with infection 
rates increasing to a national average of over 16% 
of the sexually active population. 
Q 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. 
 
IV. Workers' Rights/Child Labor/Human Rights 
 
¶A. Major Strengths Identified 
Q The Constitution provides that all workers are 
free to join or refrain from joining a trade union, 
and workers enjoy these rights in practice. 
Q In 2007 the GRM increased the country's 
statutory minimum wage by 13%. 
Q Mozambique has ratified ILO Conventions 105 
on Forced Labor 182 on the Worst Forms of Child Labor. 
Q The Ministry of Labor regulates child labor in 
both the informal and formal sectors. Forced and 
bonded labor by children is prohibited by law.  Labor 
inspectors may obtain court orders and use police to 
enforce compliance with child labor provisions. 
Q Violations of child labor provisions are 
punishable with fines ranging from one to 40 
monthly salaries at minimum wage.  The government 
disseminated information and provided education about 
the dangers of child labor. 
Q There were no reports of political detainees. 
Q The independent media were active and the 
international media were allowed to operate freely. 
Q The law provides for freedom of religion, 
and the government generally respected this right in 
practice. 
Q In 2003, a revised family law was adopted that 
increases the status of women. 
 
¶B. Major Issues/Problems Identified 
Q  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 economy. 
Q Labor unions, created during the socialist years, 
continue to lack resources, remain relatively weak 
and are disengaging themselves from the ruling 
party, FRELIMO. 
Q 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. 
Q Children orphaned by HIV/AIDS are often 
forced to work because they are left without any 
adult family members to support them. 
Q The Government's human rights record 
remains poor; although there were some significant 
improvements in a few areas. 
Q Prison conditions remained life-threatening. 
Q Security force members beat and abused detainees. 
Q 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. 
Q 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. 
Q Mozambique is ranked a Tier II Watch List 
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 some attempts to do so. Mozambique currently 
has no law explicitly prohibiting the trafficking 
of humans.  The trafficking of children for 
commercial sexual exploitation and labor remained 
a problem. 
Q Domestic violence against women is widespread. 
There is no law that defines domestic violence as a 
crime; laws prohibiting rape, battery, and assault 
may be used to prosecute domestic violence, however 
there is no legal prohibition against spousal rape. 
Q Exploitation of children under the age of 15 
and child prostitution remains a concern. 
 
¶V.  International Terrorism/U.S. National Security 
 
¶A. Major Strengths Identified 
Q Mozambique does not engage in activities that 
undermine United States national security or 
foreign policy interests. 
Q The Mozambican government, including the 
Central Bank, cooperates with international efforts 
to counter terrorist activities. 
Q To the extent possible, given its limited 
resources, the Mozambican government fully 
cooperates on international anti-terrorist efforts. 
 
¶B. Major Issues/Problems Identified 
Q Money laundering activities in Mozambique 
continue to be suspected and cause for concern. 
Q Although the Mozambican government is committed 
to securing its borders, limited resources make this 
difficult. 
Q Mozambique's approximately 1500 mile coastline 
remains largely unprotected and vulnerable to 
smuggling, illegal fishing and illegal entry into 
the country. 
 
Chapman