VZCZCXRO1004
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0959/01 2821011
ZNR UUUUU ZZH
R 081011Z OCT 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9426
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0251

UNCLAS SECTION 01 OF 06 MAPUTO 000959 
 
SIPDIS 
 
DEPT FOR AF/EPS - ANN BREITER AND GABRIELLE MALLORY 
DEPT PLEASE PASS TO USTR FOR CONNIE HAMILTON 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR ECON PGOV PREL ELAB PTER MZ
SUBJECT: AGOA ELIGIBILITY REVIEW - MOZAMBIQUE 
 
REF: STATE 85086 
 
¶1.  Per REFTEL, Embassy Maputo submits the following updated 
AGOA eligibility information. 
 
¶2.  Country: MOZAMBIQUE 
Current AGOA Status: Eligible 
 
Country Background Summary:  Between October 2007 and October 
2008 the Government of the Republic of Mozambique (GRM) 
continued efforts to establish a market-based economy, 
eliminate barriers to U.S. trade and investment, reduce 
poverty, and protect workers' rights.  This trend should 
continue, especially as Mozambique begins to benefit 
economically from higher levels of international trade and 
investment, and deepen its trade ties with plans to 
reinvigorate the Trade and Investment Framework Agreement 
(TIFA), and negotiate an Open Skies Agreement to liberalize 
air travel. 
 
Comments on Eligibility Requirements: 
 
----------------------- 
¶I. Market-based Economy 
----------------------- 
 
¶A. Major Strengths Identified: 
 
** Mozambique continues to have one of the most dynamic and 
fastest-growing non-petroleum 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, continues to drive economic performance. 
 
** GDP growth between 1995 and 2005 averaged 8.4 percent, 
with the growth rate in 2007 of 7.3, down from 8.5 in 2006. 
The average GDP growth 2008-2009 is currently projected to be 
about 7 percent. 
 
** Mozambique encourages foreign direct investment, with U.S. 
investors leading all other countries with FDI of over $5 
billion between 2003 and 2007.  CPI, the government's 
Investment Promotion Center, actively assists potential new 
foreign direct investors in Mozambique.  Private sector 
umbrella association CTA continues to push the government to 
improve the business climate. 
 
** 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.  Over $1 billion in port improvements 
are scheduled for Maputo, Beira, and Nacala. 
 
** 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 2008.  The project will invigorate rail traffic on the 
Beira corridor, increase volumes at the Port of Beira, and 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 September 2008. 
 
** Mozambique's exports to the U.S. in 2007 totaled $5.34 
million, of which $825,000 under AGOA, and $95,000 under GSP, 
down from a 2006 total of $15.5 million, of which $940,000 
under AGOA, and $10.8 million under GSP. 
 
** Numbers from the first three quarters of 2008 suggest that 
Mozambique's 2008 exports under AGOA and GSP provisions will 
be comparable to last year. 
 
** Mozambique is an active member of the Southern African 
Development Community (SADC), but is not a member of the 
Southern African Commercial Union (SACU). 
 
** In October 2006, the Mozambican government and USTR held 
the first Trade and Investment Council meeting under the 
 
MAPUTO 00000959  002 OF 006 
 
 
Trade and Investment Framework Agreement signed in June 2005. 
 The Minister of Investment and Commerce has recently agreed 
in principle to a second TIFA meeting in Washington in the 
first quarter of 2009.  The continuing bilateral dialogue 
could strengthen 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.  In the 2008 World Bank's 
"Doing Business" indicators, Mozambique's rank fell by two 
positions, largely due to accelerated business climate 
liberalization in competing countries.  The private sector 
and Government have met and identified specific steps that 
need to be taken to improve the business climate. 
 
** 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.  A Special 
Economic Zone (SEZ) has been developed to boost investment in 
the Nacala Corridor, and investment is actively sought in the 
Beira and Maputo Corridors. 
 
** 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 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, but does not sufficiently liberalize restrictive 
labor practices. 
 
** A joint private/public sector task force on IPR has had 
some isolated successes in recent years stemming the flow of 
illegal products into the local market.  The Government 
Intellectual Property Institute (IPI) addresses private 
sector concerns with intellectual property, patents, and 
trade mark infringements, working with a variety of 
ministries, even coordinating search and seizure of 
counterfeit goods. 
 
¶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. 
 
** The GRM continues to rely on direct donor funding to 
support approximately 56 percent of its annual budget.  The 
donor community has long pushed for greater transparency and 
better governance, with slower than hoped-for progress. 
 
** 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; counterfeit goods remain 
commonplace in local markets, and there remains a lack of 
coordination between government agencies and concerns about 
corruption in the form of raid tip-offs. 
 
** Access to capital continues to be a challenge in the 
business environment.  Private ownership of land is not 
allowed in Mozambique, only land tenure, reducing 
opportunities to collateralize loans and restricting the 
growth of credit markets, particularly at the small loans and 
micro-credit level.  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. 
 
** Several companies continue to struggle with value-added 
tax (VAT) reimbursement delays, with the Mozambican 
 
MAPUTO 00000959  003 OF 006 
 
 
government hampered by income stream and red-tape issues. 
Additional work is needed to improve reimbursement 
turn-around time and streamline the overall process. 
Starting in 2008, the U.S. Treasury's Office of Technical 
Assistance (OTA) began providing technical assistance to the 
Mozambican Tax Authority (ATM) in an effort to 
professionalize and expand the ATM's capacity. 
 
** There have been some actions take by the GRM that raise 
concerns regarding the sanctity of contracts, particularly 
concession agreements, with the GRM in some cases requesting 
to renegotiate in order to secure more favorable terms.  This 
concern remains moderate; however, the situation should be 
closely monitored. 
 
** 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: 
 
** 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. 
 
** In December 2004 Armando Guebuza, then 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 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 
September 2008 the GCCC has reviewed 406 cases, resulting in 
63 charges, with investigations ongoing in 256 additional 
cases.  In September 2008, the Attorney General announced the 
first high-level corruption case with the arrest of former 
Interior Minister Almerino Manhenje in connection with the 
theft of $8 million. 
 
¶B. Major Issues/Problems Identified: 
 
** Though President Guebuza has repeatedly emphasized his 
desire to wage a serious campaign against corrupt government 
practices, corruption at all levels of government remains a 
problem and threatens to undermine Mozambique's democratic 
consolidation and economic growth. 
 
** 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. 
 
** Mozambique's Transparency International 2008 Corruption 
Perceptions Index score dropped for the first time in five 
years from 2.8 to 2.6 (a result of less than 3 indicates 
corruption is perceived as "rampant"). 
 
** There are no laws providing for the right of public access 
to information, and in practice the government restricted 
citizens, access to public information. 
 
** 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. 
 
** Excessive use of force at times by security forces remains 
a cause for concern.  Arbitrary arrest, summary execution, 
vigilante killing, and detention continue to be a problem.  A 
local NGO reports that the police in and around the capital 
were involved in 10 summary executions in the first nine 
months of 2008. 
 
 
MAPUTO 00000959  004 OF 006 
 
 
** Freedom House's Freedom in the World index ranks 
Mozambique "Partly Free". 
 
** Although the GCCC continues to file charges of corruption, 
enforcement has been a serious problem.  Between January and 
July 2008, Mozambican courts tried and sentenced 31 cases of 
corruption according to the GCCC, with 27 additional cases 
pending trial dates, and 45 suspects in detention in 
connection with the pending cases. 
 
---------------------- 
III. 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 macroeconomic and financial 
management. 
 
** In 2007-2008, the donor community funded approximately 56 
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. 
 
** The Millennium Challenge Corporation (MCC) signed a 
Compact with Mozambique for $506.9 million in July 2007, 
which entered into force in September 2008, aimed at 
unlocking the economic potential of the poorer northern 
districts with projects focused on rural and urban water and 
sanitation, roads, improved land administration, agriculture, 
and cross-cutting policy reforms and capacity building 
initiatives. 
 
¶B. Major Issues/Problems Identified: 
 
** Illiteracy and child mortality rates in Mozambique remain 
among the highest in Africa.  In 2005 the illiteracy rate was 
estimated at around 55 percent, while in 2004, the mortality 
rate for children for 2008 is estimated at 104.97 per 1,000 
children. 
 
** Life expectancy at birth dropped to just over 40 years 
(41.04 estimated in 2008), 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. 
 
** The standard of living of residents of Maputo is 12 times 
that of the rest of the country, with the majority of the 
population living in rural areas. 
 
** 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 with 
children attending school for 8 years on average due to the 
lack of resources and the need for additional schools. 
 
-------------------------------------------- 
IV. Workers' Rights/Child Labor/Human Rights 
-------------------------------------------- 
 
¶A. Major Strengths Identified: 
 
** The Constitution provides that all workers, except for 
government employees, are free to join or refrain from 
joining a trade union, and workers enjoy these rights in 
practice. 
 
 
MAPUTO 00000959  005 OF 006 
 
 
** In 2007 the GRM increased the country's statutory minimum 
wage for industry and services by 14 percent. 
 
** Mozambique has ratified ILO Conventions 105 on Forced 
Labor, 182 on the Worst Forms of Child Labor, and 138 on 
Minimum Wage. 
 
** Forced and bonded labor by children is prohibited by law. 
 
** Compliance with child labor provisions are regulated by 
the Ministry of Labor and violations are punishable with 
fines ranging from one to 40 monthly salaries at minimum 
wage. 
 
** In an effort to reduce child labor, the government 
disseminated information and provided education about the 
dangers of child labor. 
 
** There were no reports of political detainees. 
 
** The independent media were active and the international 
media were allowed to operate freely. 
 
** The law provides for freedom of religion, and the 
government generally respected this right in practice. 
 
** In 2003 a revised family law was adopted that increases 
the status of women. 
 
¶B. Major Issues/Problems Identified: 
 
** The government does not effectively enforce protection of 
worker rights and employers continue to violate labor 
standards. 
 
** 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. 
 
** Labor unions remain relatively weak due to lack of 
resources and are disengaging themselves from the ruling 
party, FRELIMO. 
 
** While there has been an increase in the minimum wage, the 
minimum wage does not provide a decent standard of living for 
a worker and family. 
 
** While the law prohibits forced or compulsory labor, forced 
and bonded child labor remains a problem and is common in 
rural areas, agricultural work, domestic service, and 
prostitution. 
 
** Children orphaned by HIV/AIDS are also often forced to 
work because they are left without any adult family members 
to support them. 
 
** The Government's human rights record remains poor, 
although there were some significant improvements in a few 
areas. 
 
** Prison conditions remained life-threatening. 
 
** Security force members beat and abused detainees. 
 
** Police use of excessive force resulted in unlawful 
killings and injuries. 
 
** 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, including 
arrest.  In September 2008, three journalists were convicted 
of defamation and threatening state security for writing an 
article which questioned the nationality of the Prime 
Minister. 
** 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. 
 
** Mozambique is a source country for women and girls 
trafficked for the purpose of sexual exploitation and is 
ranked a Tier II Watch List country by the Department's 
annual Trafficking in Persons report.  The government does 
not fully comply with the minimum standards for the 
elimination of trafficking; however, in July 2008, it enacted 
 
MAPUTO 00000959  006 OF 006 
 
 
a law making human trafficking a punishable crime. 
 
** 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. 
 
** 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: 
 
** Mozambique does not engage in activities that undermine 
United States national security or foreign policy interests. 
 
** The Mozambican government, including the Central Bank, 
cooperates with international efforts to counter terrorist 
activities. 
 
** To the extent possible, given its limited resources, the 
Mozambican government fully cooperates on international 
anti-terrorist efforts. 
 
 
¶B. Major Issues/Problems Identified: 
 
** Money laundering activities in Mozambique continue to be 
suspected and cause for concern. 
 
** Mozambique is suspected to be a transshipment country for 
human smugglers. 
 
** Although the Mozambican government is committed to 
securing its borders, limited resources make this difficult. 
 
** Mozambique's approximately 1500 mile coastline remains 
largely unprotected and vulnerable to smuggling, illegal 
fishing and illegal entry into the country. 
Amani