VZCZCXRO3019
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1010/01 2980811
ZNR UUUUU ZZH
R 240811Z OCT 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9474
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0266
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 MAPUTO 001010 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON PREL PGOV MZ
SUBJECT: MOZAMBIQUE ECONOMIC AND GOVERNANCE RANKINGS SHOW 
LITTLE RECENT PROGRESS 
 
REF: A. MAPUTO 927 
     ¶B. MAPUTO 748 
     ¶C. MAPUTO 354 
 
¶1.  (SBU)  SUMMARY:  Recent ratings and rankings point to 
relative weaknesses in Mozambique's business climate. 
According to Transparency International, corruption is still 
"rampant," while the World Bank's indicator Doing Business 
2009 ranking shows that Mozambique's business climate is not 
improving as quickly as its regional competitors.  Fitch's 
recent report on Mozambique's Sovereign Credit Rating also 
points to an uncompetitive business climate despite strong 
donor support and a private sector dedicated to reform, which 
keeps this rating stable.  The Mo Ibrahim Foundation Index of 
African Governance, released October 6, shows little progress 
compared to other sub-Saharan African countries, ranking 
Mozambique 22 out of 48 countries.  These indicators of 
underperformance provide new ammunition for the U.S. Mission, 
donor community, and private sector to demand more rapid 
economic reform, with an eye on attracting FDI. These 
indicators also help inform the Mission's economic team 
currently drafting the Country Assistance Strategy to support 
the acceleration of Mozambique's economic reform agenda.  END 
SUMMARY. 
 
-------------------------------------------- 
TRANSPARENCY SCORES MOZAMBIQUE BELOW NIGERIA 
ON CORRUPTION 
-------------------------------------------- 
 
¶2.  (U)  Mozambique's Transparency International's 2008 
Corruption Perceptions Index score dropped for the first time 
in five years from 2.8 to 2.6.  A result of less than three 
indicates that corruption is perceived as "rampant."  In 
previous annual indices, Mozambique's score remained at 2.8, 
leading many observers to state that despite strong rhetoric, 
citizens believe that the government was not making progress 
in combating corruption.  The fall in Mozambique's ranking 
leaves the country with the lowest corruption perceptions 
index of any of its six neighbors, with the exception of 
Zimbabwe.  In comparison, Mozambique now rates equally with 
countries such as Eritrea, Ethiopia, Guyana, Libya, and 
Indonesia, but falls significantly lower than other southern 
African countries such as South Africa (4.9), Namibia (4.5), 
Botswana (5.8), and even below Nigeria (2.7).  The index was 
based on seven surveys carried out by Transparency 
International in Mozambique during 2008, and does not take 
into account the recent arrest of former Minister of Interior 
Manhenje, which many observers consider to be the most 
significant corruption-related arrest in Mozambican history 
(Ref A). 
 
------------------------------------- 
'DOING BUSINESS' RANKING ALSO SUFFERS 
------------------------------------- 
 
¶3.  (U)  The World Bank's Doing Business 2008 ranking shows 
Mozambique has fallen two places since 2007 to the 141st 
position out of 181 economies.  Mozambique performed poorly 
in 5 of the 10 sub-categories used to determine the ranking, 
specifically, "Starting a Business," "Dealing with 
Construction Permits," "Registering Property," "Protecting 
Investors," and "Paying Taxes."  Mozambiqe lost the most 
ground relative to other countries due to procedural steps 
(10), duration in days (26), and cost of starting a business 
in Mozambique.  Liberalization of the business license 
procedures for certain types of small businesses (reported 
Ref C) did not appear to have an impact on Mozambique's 
ranking.  In relation to its regional competitors in SADC, 
Mozambique continued to backslide, ranking tenth out of 
fourteen.  Even by sub-Saharan Africa (SSA) standards, 
Mozambique ranks 18th out of 46. 
 
------------------------------------------ 
FITCH MAINTAINS SOVEREIGN RATING OF 'B/B ' 
------------------------------------------ 
 
¶4.  (U)  Fitch, the international credit rating organization, 
takes a longer view of economic progress, giving Mozambique a 
non-investment grade rating of 'B,' chiefly because of its 
strong export-driven economic growth, FDI, and donor support, 
contributing to a doubling of GDP per capita since 2000.  The 
rating reflects a "long track record of sound economic 
policies and reforms, strong foreign direct investment (FDI) 
into natural resources exports, and solid donor support..," 
and places the country in a peer group of countries like 
Benin, Cameroon, Dominican Republic, Suriname, and Uganda. 
Like the World Bank, Fitch raises concerns about Mozambique's 
 
MAPUTO 00001010  002 OF 003 
 
 
domestic business environment, noting in a September 26 
report that it is weak even in comparison to regional 
neighbors (specifically referencing the World Bank "Doing 
Business Indicators" ranking).  Nonetheless, Fitch appears 
reasonably satisfied with the GRM's strategic plan for 
improving the business environment, ranking the government's 
effectiveness at 40.3, well ahead of other SSA countries like 
Kenya (30.3) and Nigeria (14.7).  The report also highlights 
Mozambique's position as the most aid-dependent SSA country 
rated by Fitch, suggesting that the G19's direct support (Ref 
B), which accounts for over 50 percent of the GRM budget, 
lends significant stability to its sub-investment grade 
rating. 
 
-------------------------------------- 
MO IBRAHIM GOVERNANCE RANKING STAGNANT 
-------------------------------------- 
 
¶5.  (U)  In early October, the Mo Ibrahim Foundation 
announced that Mozambique ranked 22nd out of 48 countries in 
its Index of African Governance, a comprehensive system of 
ranking sub-Saharan countries based on 57 individual criteria 
in the general sub-categories of safety and security, rule of 
law, transparency and corruption, participation and human 
rights, sustainable economic opportunity, and human 
development.  The country's lowest sub-category score was in 
the category of sustainable economic opportunity, which 
measured capacity for wealth creation, macro-economic and 
financial stability, commercial infrastructure, and 
environmental sensitivity.  Compared to other SADC members, 
Mozambique (12th out of 16 members) overall outperformed only 
Zimbabwe, Swaziland, Angola, and the Democratic Republic of 
Congo.  The data for this year's ranking was captured in 
2006, while last year's ranking relied on 2005 data in which 
Mozambique held the same rank.  Mozambique's rank has slipped 
from a high of 16th based on data collected in 2000, followed 
by an 18th place ranking based on 2002 data. 
 
--------------------------------------------- - 
PRIVATE SECTOR DEMANDS BUSINESS CLIMATE REFORM 
--------------------------------------------- - 
 
¶6.  (SBU)  USAID-funded private sector umbrella association 
CTA has used slippage in the "Doing Business" ranking to 
express their dissatisfaction with the pace of reform and to 
renew calls for the Government of Mozambique (GRM) to take 
further steps to improve the business climate and attract FDI 
to develop value-added exports and move away from a 
dependence on natural resource-based exports (Note: Exports 
of Aluminum, Hydropower, and Gas account for 90 percent of 
Mozambique's exports. End Note).  In a September 18 meeting, 
the CTA pressed Prime Minister Luisa Diogo to introduce 
reforms in six areas: dropping minimum capitalization to 
start a business, simplifying the tax regime, adopting a 
single window electronic customs payment system, implementing 
new regulations for hiring foreign workers, introducing new 
tax incentives for the tourism sector, and committing to Open 
Skies by 2010. 
 
¶7.  (SBU) The Mission has been working to push the GRM to 
liberalize in each of these areas for some time.  The 
multi-donor Private Sector Working Group, chaired by the 
USAID Director, works with CTA and the Ministry of Industry 
and Commerce (MIC) to focus on key reforms and meets 
quarterly to monitor progress.  Efforts in technical 
assistance on taxation are underway this year via Department 
of Treasury's Office of Technical Assistance (OTA), with very 
positive early indicators of progress.  Customs 
liberalization continues to be a USAID focus to ameliorate 
the business climate.  In meetings with the Ministries of 
Labor and Education, the Charge has pushed for liberalized 
hiring regulations, particularly in the area of work permit 
issuance for third-country nationals, which continues to be 
an impediment for the Mission, the American School, USAID and 
CDC implementing partners, and foreign investors in general 
who require technical personnel not available within the 
domestic labor pool.  USAID continues to work towards 
developing the tourism sector and engages on policy issues in 
the agricultural sector.  Finally, the Political/Economic 
Section is in the process of facilitating pre-negotiation 
discussions between EEB/TRA/AN and Mozambique's Civil 
Aviation regarding an Open Skies agreement. 
 
--------------------------------------------- ----- 
COMMENT: RANKINGS SLIPPAGE PROVIDES NEW AMMUNITION 
--------------------------------------------- ----- 
 
¶8.  (SBU)  While recent ratings and rankings of Mozambique 
 
MAPUTO 00001010  003 OF 003 
 
 
suggest negative trends, particularly in the area of business 
climate, in reality, the GRM is simply not progressing with 
its transparency and economic reform agenda as rapidly as its 
neighbors or other SSA countries.  These indicators, along 
with Ref B concerns expressed by the G19 donor group, provide 
the Mission, donor community, and private sector with new 
ammunition in our ongoing push to accelerate the GRM's reform 
agenda on a variety of fronts in an effort to expand FDI, 
which in the future should allow Mozambique to become less 
dependent on donor support and more economically independent. 
 The GRM's current development policy formulation is based on 
guidelines established in their five-year planning documents, 
without elaborating specific or coordinated objectives. 
These various indices and indicators help inform the 
Mission's economic team, currently drafting the Country 
Assistance Strategy, to better focus USG resources to assist 
the GRM improve Mozambique's business climate. 
Chapman