LOCAL IMPORTER SUSPECTED OF CRIMINALITY

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 008363

SIPDIS


E.O. 12958: DECL: 11/20/2010
TAGS: ECON ETRD SOCI CG
SUBJECT: LOCAL IMPORTER SUSPECTED OF CRIMINALITY

Classified by Economic Officer Katherine Simonds. Reason:
1.5(d).



1. (SBU) Summary: Many long-standing Kinshasa businesses are
complaining about Congo Futur, an importer that has expanded
rapidly since it started operations less than three years ago
and is now the largest food supplier in Kinshasa.
Established businesses accuse Congo Futur of various
illegalities. Congo Futur's general manager claims his
company has thrived because of its efficiency. End summary.


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We Need Protection
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2. (SBU) Manufacturers in Kinshasa have a long tradition of
blaming their problems on low-priced imports. At various
times during the last year, local producers of textiles,
batteries, razors, palm oil and flour have all briefed
econoff on the unfair competition they face and the need for
protectionist policy to preserve jobs. This complaint has
now spread to importers, and their accusations center on a
company that has been doing business in Kinshasa for less
than three years, called Congo Futur.



3. (C) Business contacts say that Congo Futur has become
Kinshasa's largest importer of dry staples (e.g. flour, rice,
salt and sugar) and the second largest importer of frozen
food. Its volume has increased from less than 4000 tons in
1998 to over 90,000 tons in 2000. A manufacturer of sacks
told the Ambassador that his largest clients, a local flour
mill and the national sugar company, were reducing
production, severely cutting his business. The largest
importer of frozen foods to Kinshasa told Econoff that Congo
Futur had cut prices so far that he was being forced to sell
below cost to stay in business. He speculates that Congo
Futur must be laundering money and/or trying to drive out
competitors to secure a monopoly. Other contacts acknowledge
the weakness of these two hypothesese, since converting
dollars to Congolese francs is an expensive laundering
mechanism and low barriers to entry mean that a monopoly
would provide at best small and fleeting profits. They
wonder if Congo Futur is buying diamonds or smuggling
Congolese francs to rebel occupied zones, where the franc is
worth almost twice as much as in Kinshasa. All assume that
Congo Futur has corrupted tax and customs authority.


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Customs Director Defensive
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4. (C) On December 13, the Director General of the Congolese
Customs Agency, an Embassy contact who is generally
considered a competent professional, called Econoff to ask
her to come to his office. Expecting a visa referral
request, she complied. Instead of inquiring about a visa,
the Customs director said that he wanted to assure the
Embassy that, regardless of what they heard, he had not been
corrupted by Congo Futur. He did not rule out the
possibility that some of his subordinates were giving the
company favorable treatment, and said he had initiated a
discreet inquiry. He implied that the subject required
careful handling because of the possibility that powerful
political figures were somehow behind the company's success.


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Congo Futur's Story
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5. (SBU) On December 15 Econoff called on Ahmed Tajideen, the
General Manager of Congo Futur, to get his views on the
Kinshasa market and his response to these suspicions.
Tajideen was somewhat surprised at the Embassy's interest,
but acknowledged that he was aware of the rumors circulating
about his company. After a nervous start, he seemed pleased
to have the opportunity to explain how he operated.



6. (SBU) According to Tajideen, Congo Futur is the subsidiary
of an Antwerp-based family business called Soafrimex which is
also a major importer in Angola, Sierra Leone, Mozambique,
Ghana and the Gambia. The company decided to move into Congo
because it saw profit opportunity in the relatively high
prices it saw in Congolese markets. He attributed the
company's success to a combination of efficiency and a high
volume strategy. To show the gains from efficiency, he said
the company had lost 6 percent of the first shipment of food
imported through the port of Matadi, presumably to theft.
Congo Futur now has seven expatriate (Lebanese) employees
permanently assigned to Matadi and theft loss is down to 0.5
percent. The company responded to the unreliability of
transportation from Matadi to Kinshasa by establishing its
own trucking firm, Trans M, and now owns 60 trucks.



7. (SBU) Tajideen said that high volume gives his company a
competitive advantage in transportation and allows him to
make healthy profits with a small mark-up. To demonstrate
his transportation cost savings, he used the example of wheat
flour. He said that because of storage limitations, no one
can import more than 5000 tons of flour to Congo. A small
shipload of flour might entail transportation costs of USD 60
per ton. His company loads a boat with 12,000-16,000 tons of
flour, reducing transportation costs to about 35 dollars a
ton. The flour is shared between Soafrimex subsidiaries in
Angola, Mozambique and Congo. This means that his product
delivered to Matadi costs at least 10 percent less than his
competitors'. He then uses a 5 to 15 percent mark-up when
the norm in Kinshasa might be 30 or 40 percent. His vertical
integration extends to the consumer market, providing further
benefits; Congo Futur owns a bakery and indirectly owns a
chain of retail outlets. (One of the accusations of
competitors is that bypassing the wholesale system is illegal
in the DRC. Tajideen acknowledged this when he said Congo
Futur "indirectly" owns these retail outlets.)



8. (SBU) Tajideen said that his attention to the market also
contributes to his success; he said he spent most of the day
out of the office gathering information. Because even market
middlemen are suffering declining purchasing power, he is
bringing in goods in smaller sacks. He is confident that the
Kinshasa market is all about price, rather than quality, so
he seeks out the cheapest rice available on world markets,
instead of bringing in quality rice from Thailand. Tajideen
told econoff that he pays all his taxes and even pays a duty
premium. He said that Congolese customs authorities are used
to seeing documents reporting a 20 percent higher cost for
rice. Instead of arguing with them about the actual price he
pays for the rice, Tajideen said he pays duty based on this
higher price.


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Are They Crooks?
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9. (C) Tajideen was animated and excited when talking about
his business strategy and he convinced econoff that he
aggressively pursues cost-savings. It is hard, however, to
dismiss the certainty of his competitors that his prices are
patently below cost. The Embassy FSN who arranged econoff's
interview reported that Congo Futur runs a side business
changing money at the parallel exchange rate. He reported
that people with money in hard currency bank accounts who
transferred funds to Congo Futur accounts received either
Congolese francs or dollar cash at a discount of 3 to 5
percent. The Customs Director's sensitivity also suggests
that something more than just good practices underlies the
company's success. Post would be interested in any
information Maputo, Luanda, Banjul or Accra might have on
Soafrimex and its subsidiaries.


SWING