Cablegate: Drc November Economic Review

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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #1341/01 3391542
ZNR UUUUU ZZH
R 051542Z DEC 07
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 7202
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 05 KINSHASA 001341

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EMIN ELAB EAIR PGOV CG
SUBJECT: DRC NOVEMBER ECONOMIC REVIEW

1. (SBU) Summary

Agriculture
- Palm Oil Imports Flow Again, Local Industry Resumes Production of
Margarine, Soap

Forestry
- NGO Encourages GDRC to Complete Logging Concession Conversion
Process

Infrastructure
- Kinshasa Roads Bad, Getting Worse, Parliament Investigates
- New Forklifts May Help Solve Matadi Container Problems

Investment
- Portuguese Delegation Seeks DRC Business Opportunities
- Rothschild Bank May Open Branch in Kinshasa
- South African Company Looks to Invest in DRC

Labor
- Inter-Union's Threat to Strike is Dismissed by the Independent
Unions
- University Professors Strike
- Civil Servants End Walkout, Receive Salary Increase and Equal Pay
Across Country
- Transportation Employees Strike

Mining
- Cassiterite Trade in North Kivu Province
- Belgian Government Funds Carter Center
- African Development Bank Approves EUR 100 Million
- Katanga Mining Company and Nikanor to Merge
- Radioactive Material Dumped, Arrests Made
- GDRC Demands Conversion of Exploration Permits

Petroleum
- Gasoline Price Increases Nearly 16 Percent for Month
- Brazil/DRC Plan Cooperation on Oil Exploration

Public Finance
- The GDRC pays internal creditors USD 29 million
- World Bank grants DRC USD 3 Million

Miscellaneous
- Corporate Council on Africa (CCA) U.S.-Africa Business Summit,
November 14 - 16
- European Union Emergency Funding: EUR 45 Million
- World Bank Delegation Reviews DRC Urban and Socioeconomic Program
- Preliminary 2008 Draft Budget Announced by Ministry
- Cellular Phone Companies Fined
- Congolese Customs Office Under Scrutiny

Monthly Inflation and Exchange Rates

End Summary.

Agriculture
-----------

2. (U) MARSAVCO, the largest edible oils, soap, and cosmetic
manufacturer in the DRC, resumed production this week following a
month of severe shortage of imported palm oil due to problems at the
Port of Matadi. (Note: DRC was still a palm oil exporter in the
early 1980s, peaking at over 400,000 MT, but now is a net importer
from Malaysia and Indonesia, unable to supply even its own domestic
industry despite vast plantations along the Congo River. End
note.)

Forestry
--------

3. (U) The NGO "Natural Resources Network" (NRN) recommends that the
GDRC convert forestry certificates into forestry concession
contracts, in accordance with the presidential decree of 2005. A
team created by the Ministry of the Environment is working with the
World Bank to accomplish this task. According to NRN, this
conversion process should help solve the problem of illegal logging
in many regions of the DRC.

Infrastructure
--------------

4. (U) Roads in Kinshasa remain bad months after elections and
despite GDRC promises to improve infrastructure. Heavy rains in
late October and early November have made the roads even worse and

KINSHASA 00001341 002 OF 005

questions have been raised about recent work done under World Bank
contracts. Parliament will conduct an investigation.

5. (U) ONATRA (The National Transportation Office) unveiled 36 newly
acquired 4-ton forklifts at the Port of Matadi, purchased by the
GDRC for USD 14 million. It is hoped that these will help to
alleviate the backlog of containers at the port and speed up the
entire clearance process, as well as help to improve ONATRA's
financial returns.

Investment
----------

6. (U) A Portuguese trade delegation met in November with the
Ministries of Trade, Industry, Finance, Energy, and
Telecommunications. Portuguese investors are exploring
opportunities for reinvestment in the DRC after the looting of 1990
and 1993 drove many Portuguese businesses out of the country.

7. (U) Rothschild Bank, a Swiss bank that specializes in investment
and corporate banking, is negotiating with authorities in the DRC to
open a branch in Kinshasa. Rothschild currently has offices in only
two other African countries, South Africa and Zimbabwe.

8. (U) South African (SA) company Ingram Adcock is assessing the
market for dialysis equipment in the DRC. A South African trade
delegation met with the director of ANAPI (National Agency for
Investment Promotion) to explore the benefits of the GDRC Investment
Code.

Labor
-----

9. (U) Unions representing DRC civil servants ended their strike
after signing a salary agreement with the GDRC on November 14.
According to the agreement, the GDRC will increase salaries for all
civil servants (with lowest paid workers receiving USD 60/month)
throughout the DRC beginning December.

10. (U) University professors throughout DRC have begun striking
this month in a job action that has spread from Kinshasa to the rest
of the nation. Professors are requesting increased salaries of up to
USD 4,000/month and a tenure status different from civil servants.

11. (U) Independent civil service unions have dismissed calls for a
strike by the syndicate of unions, accusing the syndicate of
blackmailing the GDRC. The independent unions believe the syndicate
has no reason to strike since it has already accepted a negotiated
2008 salary scale.

12. (U) Employees in the transportation sector are either striking
or threatening to strike. CMDC (Compagnie Maritime du Congo, the
national maritime company), is closed due to a strike, while ONATRA
(Office National de Transport) employees are threatening to strike
and if this occurs there is a risk that the Port of Matadi would
close to all import-export traffic. Employees of Hewa Bora, an
international airline that flies to Belgium and South Africa, are
also on strike, causing aircraft to be grounded.

Mining
------

13. (SBU) Reliable sources in Goma report that LET 410 aircraft,
capable of carrying one metric ton (MT, 2200 lbs) of cargo per
flight, fly cassiterite (tin ore currently valued at close to
$10K/ton) from Walikale to Goma dozens of times/day. This could
amount to nearly $500K/day on good days. In addition to
cassiterite, the Walikale mines of western North Kivu province also
produce gold, coltan, and wolframite (tungsten ore, also now valued
at nearly $10K/ton). Villagers between Walikale and Goma report
regular overland truck transport of mineral ores, but the onset of
the rainy season and the worsening condition of roads, especially
around Masisi, has reduced this traffic of late.

14. (U) The Belgian government will provide EUR 150,000 (about USD
225,000) to the Carter Center so they can provide legal advice to
the GDRC Mining Commission that is reviewing mining contracts signed
between the GDRC and its copper/cobalt parastatal, GECAMINES. Based
upon the findings of the commission, the GDRC will seek to
renegotiate some of the 60-70 contracts under review and will
require legal assistance for that process.

15. (U) The African Development Bank (ADB) approved a loan of EUR
100 million to Tenke Fungurume Mining SARL (TFM, a project of the
U.S. copper mining company Freeport McMoRan International) to
partially finance their copper mining project in the Katanga

KINSHASA 00001341 003 OF 005

Province of southern DRC. The project will mine copper oxide ore
(such as malachite) in Tenke, and process it in a conventional
hydrometallurgical plant to extract copper and cobalt. The company
expects to produce 115,000 tons of nearly pure copper, and 10,000
tons of cobalt metal per year. In addition to its mining activities
TFM will implement infrastructure projects in the area, including
roads and hydroelectric power.

16. (U) The Minister of Mines, Martin Kabwelulu, announced that
Katanga Mining Company (KMC) and Nikanor have merged. The new
company will keep the name of Katanga Mining, and will be Africa's
largest producer of copper and the world's largest producer of
cobalt by 2011. Assets for the new company will exceed USD 3.3
billion.

17. (U) Authorities in Katanga province arrested seven members of a
team assigned to dispose of seized radioactive material. Seventeen
to nineteen tons of copper/cobalt ore found to have radioactivity
levels far in excess of legal limits had been confiscated in Likasi
(Katanga province). The ore was slated to be sealed in the
non-operational uranium mine at Shinkolobwe, but the transportation
crew dumped roughly four tons of the ore into the Mura River, six
miles south of Likasi. The remaining thirteen to fifteen tons of
radioactive ore is still missing. Didace Pembe, Minister of the
Environment, announced the arrests and the beginning of the
subsequent environmental clean-up. (see Kinshasa 1291)

18. (U) Summoned before the Senate on November 19 and 21, Minister
of Mines Martin Kabwelulu stated that some mining operators should
convert their exploration permits into exploitation permits, as
required by DRC law. He said also that the GDRC is working on a
process with German and U.S. companies to certify certain minerals,
such as coltan, as in the Kimberley process in order to avoid fraud.
The Minister also indicated that coltan in Kanyama, Katanga
province is being illegally mined.

Petroleum
---------

19. (U) The Ministry of Economy announced 8 percent and 5 percent
increases in the price of gasoline on November 2 and November 18
respectively due to recent increases in international oil prices.
For the western Congo (Kinshasa included), the price for one liter
of gas rose from CF 535 (USD 1.07) to CF 580 (USD 1.16) and then
from CF 580 (USD 1.16) AND CF 610 (USD 1.60). This nearly 16 percent
price hike is equivalent to a nearly thirty cent per gallon increase
overnight, and has resulted in a rise of more than 25 percent in the
cost of public transportation. The increase is expected to
contribute to high end-of-year inflation, beginning with the
transportation sector.

20. (U) Minister of Energy Lambert Mende Omalanga and a team of
Congolese hydrocarbon experts visited Brazil recently to discuss a
feasibility project for petroleum exploration in DRC's central basin
(mainly northwestern Equateur province). Brazil is planning to use
its national petroleum company for the exploration phase. High
Resolution Technology Petroleum, a Brazilian laboratory, will
evaluate the data for potential petroleum reserves in the basin.
The DRC delegation also discussed Brazil's plans for transforming
food waste into biofuels.

Public Finance
--------------

21. (U) The World Bank (WB) has agreed to provide the GDRC USD 29
million to help pay its interior debt. In 2004, the WB granted the
GDRC USD 90 million, which allowed the country to pay USD 42.5
million of interior debt and use USD 47.5 million to pay for the
retirement of civil servants.

22. (U) The World Bank, in an effort to promote the private sector
economy in Africa, granted the DRC USD 3 million to help stimulate
its economy. The fund will help Congolese businesses meet the GDRC
requirements of paying deposits and export fees. (Note: The GDRC
exacts large fees and duties on its own exports, making it difficult
for small-scale and non-profit exporters to get their goods out of
the country, even when attempting to utilize AGOA benefits for
exports into the U.S.)

Miscellaneous
-------------

23. (U) Econ counselor participated in the CCA summit in Cape Town,
attended by USG agencies (MCC, OPIC, USTDA, USTR, etc.), African
Heads of State (Namibia, Uganda) and U.S. Ambassadors to African
countries (Burundi, Madagascar, Zambia). Plenary sessions looked at

KINSHASA 00001341 004 OF 005

U.S. Investment and Financing in Africa, U.S-China relations in
Africa, and U.S.-Africa Energy Cooperation. Workshops attended by
Econcouns included Agribusiness Development, Public-Private
Partnerships, Renewable Energy, and Aid for Trade. (Greg Groth)

24. (U) EUR 45 million, the remainder of a total EUR 533 million
package provided to the GDRC in 2007 to address emergency needs,
will be utilized as follows:
-- Kinshasa Sanitation Project: EUR 22 million
-- Civil Aviation Agency Support Project: EUR 5
- million
-- National Police Reform Support: EUR 5 million
-- Land Preserves Support: EUR 4 million
-- National Independent Electoral Commission Support: EUR 3 million
-- Technical Assistance: EUR 5.7 million

25. (U) A World Bank (WB) delegation met with GDRC officials in late
October while reviewing the WB PURUS project (Emergency Program for
Urban and Socioeconomic Rehabilitation). PURUS includes a variety
of infrastructural and social programs (including school projects).
A progress report regarding GDRC public expenditures will follow.

26. (U) During the November 12 extraordinary meeting of the DRC
Council of Ministers, a first draft of the 2008 budget was unveiled
by the Budget Minister. At USD 3.34 billion, it exceeds the 2007
budget by nearly one billion dollars, and includes funding for the
decentralization process, scheduled to begin in early 2008.

27. (U) Following a meeting of experts from the GDRC tax collection
agency (DGRAD) and the Ministry of Finance, two DRC-based
telecommunication companies, CELTEL and SAIT, have been fined USD
14,750,000 and USD 17,428,500 respectively, with payment due to the
GDRC treasury by November 3. The two companies are accused of
modifying their licenses and/or transferring shares without prior
authorization by the Minister of Telecommunications.

28. (U) The GDRC Court of Accounts (a watchdog agency) has given the
Congolese Duty and Customs Office (OFIDA) until November 10 to
justify its low level of collections in fiscal years 2005 and 2006.
Although OFIDA reported slightly higher than projected amounts for
these years, the Court estimates that at least USD 45 million of
state revenues were not reported during those two years. (Note: It
is generally acknowledged that state revenue collection agencies,
which are self-financed from the proceeds collected, do not
effectively collect or deposit mandated taxes, duties and fees. End
note.)

Monthly Inflation and Exchange Rates
------------------------------------

29. (U) The DRC economy is showing an increasingly inflationary
trend. After a period of creeping inflation, post's market basket
survey indicates an inflation rate of 4.2 percent for November.
This November inflation is due almost entirely to a nearly 16
percent fuel price increase (gasoline rose from USD 4.07/gallon at
the beginning of the month to USD 4.64/gallon by the end of the
month) that in turn increased public transportation costs. Taxi-bus
rides rose from 150 CF/trip (about 30 cents) to 200 CF/trip (40
cents). Large buses increased fares from 200 CF (40 cents) to 300
CF (60 cents). Taxi rides went from 350 CF (70 cents) to 400 CF (80
cents). The Economic Section is now retooling its market basket
survey to reflect current realities, since the current survey is
based upon assumptions made in December 2000 (our base year) that
are now no longer completely valid.

30. (U) Exchange Rates: Rates have remained very stable despite a
spike in inflation for the month of November. Exchange rates may
move slightly in December as holiday spending puts more money into
circulation and exerts more inflationary pressure on the economy.

Week ending: 9/25 10/30 11/30

Central Bank Rates: 498 498 498

Parallel Markets:

Kinshasa 495 500 495

Lubumbashi 495 495 490

Mbujimayi 505 505 495

Kisangani 505 505 500

KINSHASA 00001341 005 OF 005

Goma 500 500 500

Bukavu 500 500 500

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