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