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Viewing cable 05MAPUTO1646, PROCUREMENT REGULATION APPROVED WITH PREFERENTIAL

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Reference ID Created Released Classification Origin
05MAPUTO1646 2005-12-22 11:17 2011-08-25 00:00 UNCLASSIFIED Embassy Maputo
VZCZCXRO3671
RR RUEHDU RUEHJO RUEHMR
DE RUEHTO #1646/01 3561117
ZNR UUUUU ZZH
R 221117Z DEC 05
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 4758
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 MAPUTO 001646 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR AF/S:HTREGER,JMALONEY AND EB/IFD/OIA:SMILLER 
STATE PASS USTR FOR PCOLEMAN 
JOHANNESBURG FSC FOR RDONOVAN 
JOHANNESBURG TDA FOR DSHUSTER 
USDOC FOR RTELCHIN 
MCC FOR SGAULL 
USAID FOR AA/AFR AND AFR/SA 
 
E.O. 12958: N/A 
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: PROCUREMENT REGULATION APPROVED WITH PREFERENTIAL 
TREATMENT FOR MOZAMBICAN FIRMS 
 
REF: MAPUTO 159 
 
MAPUTO 00001646  001.2 OF 002 
 
 
1. (U) Summary.  On December 13, the Council of Ministers 
approved a long-awaited procurement regulation, which is the 
result of work since 2002 by GRM officials, the donor 
community and the private sector.  The approved language 
embodies compromises between many conflicting interests and 
is viewed by other donors as a significant advance.  However, 
preferential treatment for majority-Mozambican-owned 
companies may cost the GRM both financially and through 
reduced quality.  GRM officials counter that the preferences 
are limited and are needed to help domestic businesses.  End 
Summary. 
 
2. (U) The new procurement regulation approved on December 13 
by the Council of Ministers represents several years of 
discussion and debate between various ministries, donors and 
the private sector.  Most significantly, it is also the first 
unified procurement law at the federal level that will apply 
across the board to all Ministries and government 
procurement.  Prior to this regulation, procurement in 
Mozambique was Ministry and donor specific, with the 
hodgepodge of old procurement-related laws often not followed 
or inapplicable. 
 
3. (U) During the discussion process, the main area of debate 
and concern to donor nations regarded language in Article 24 
allowing the contracting entity to restrict bidding on 
certain contracts to national (Mozambican) competitors and to 
give preferences to national competitors on all contracts. 
Early drafts had limited all government-financed contracts to 
Mozambican-owned bidders, raising worries amongst the donor 
community and prompting several months of discussion.  Such a 
scheme would have not only potentially exposed the GRM to 
increased costs and decreased quality, but would have 
severely prejudiced foreign-owned companies.  As a result of 
this discussion, the restriction to national bidders was 
changed so that it applied only to contracts valued below 
certain thresholds. 
 
4. (U) The approved language of Article 24, section 2, sets 
the threshold below which the contracting entity may restrict 
bidding to national competitors at approximately 210,000 USD 
for public works or 105,000 USD for provision of goods or 
services (5.25 billion meticais and 2.625 billion meticais, 
respectively).  These thresholds are 50 percent higher than 
the ones that were in the draft regulation as of early 
December, and post had heard that there was significant 
pressure to increase them to help domestic businesses.  In 
addition, Article 24, sections 3(a) and 4 allow the 
contracting entity to establish margins of preference for 
national competitors of 10% for public works contacts and 15% 
for contracts for goods or services.  Article 24 also 
contains domestic content language. 
 
5.  (U) Emboffs had met with Finance Ministry officials on 
December 9, before the final version of the regulation was 
approved, to discuss our concerns.  The officials 
acknowledged that the regulation favored Mozambican companies 
over foreign ones, even those long established in Mozambique. 
 They said this was an effort to help Mozambican businesses, 
which had yet to fully recover from the devastating civil 
war.  They argued the regulation also included aspects that 
welcomed foreign bidders.  As evidence, the officials pointed 
out that the regulation allowed bids to be submitted in 
languages other than Portuguese.  They did not directly 
address the issue of whether the regulation was consistent 
with the Bilateral Investment Treaty that entered into force 
in March (reftel), but they noted that it allowed different 
procedures as required under a treaty or other agreement 
between Mozambique and another government or institution. 
 
6.  (SBU) Comment:  It is unclear whether the political 
intent behind the preferential treatment language -- to 
promote domestic businesses -- will reap benefits greater 
than its costs.  There are still concerns that the clause 
will increase costs and limit participation, thereby 
potentially limiting the quality of public works, goods and 
services provided to the government.  Furthermore, by basing 
preferences solely on nationality of ownership, as opposed to 
 
MAPUTO 00001646  002.2 OF 002 
 
 
more neutral criteria such as place of incorporation or 
length of time registered in Mozambique, the preferential 
treatment clauses do little to foster continued foreign 
investment or improve the overall business climate.  That 
said, the broader donor community is generally pleased with 
the end result, particularly in light of the starting point, 
and views the approved regulation as an improvement over the 
previous situation and an example of successful dialogue. 
End Comment. 
Dudley