ECONOMIC REPORT - JULY 25 THROUGH AUGUST 04

UNCLAS SECTION 01 OF 03 KINSHASA 001490 SIPDIS E.O. 12958: N/A TAGS: EAID EAGR ECON EFIN EIND ELTN EMIN ETRD PGOV PREL CG SUBJECT: ECONOMIC REPORT - JULY 25 THROUGH AUGUST 04 ¶1. Summary. Exchange rates are quite stable, but prices show signs of impending increase due to transportation problems between Kinshasa and the provinces, including the collapse of the Mai-Ndombe bridge. The GDRC reported significant macroeconomic progress for 2003, including 5 percent GDP growth and single digit inflation. Diamond exports rose sharply in July due to the expulsion of Congo- Brazzaville from the Kimberley Process certification scheme. New pumps provided by the ICRC increased Regideso's water supply to eastern Kinshasa. Tax and fee receipts at the Port of Matadi have increased since the installation of the World Bank funded guichet unique in mid-2003. Japan and Belgium will disburse USD 1 million in food aid to at-risk families in Katanga, Equateur, and Kasai provinces. The World Bank released USD 42.5 million to the GDRC to pay back a portion of its domestic debt. End Summary. MONETARY AND PRICE UPDATE ¶2. Prices have been relatively stable, but show signs of a light increase on certain foodstuffs. The combined problems of low water levels on the Congo River during the dry season and the recent collapse of the Mai-Ndombe bridge on the main land route from Bandundu province to Kinshasa (see para 10) could result in a scarcity of certain staple foods on the Kinshasa market. Corn prices have already risen from FC 80/unit to FC 180/unit. (Note. Unit used in the Embassy price survey is a non-standard local unit of measurement. End Note.) ¶3. No significant changes have been seen in the rate of exchange over the past two weeks. Rates in eastern cities remain slightly higher (FC 400-410 to the USD) due to continuing tensions. However, the official, and most parallel market rates remain at approximately FC 390 to the USD. MACROECONOMIC CLIMATE DRC ECONOMY SHOWS IMPROVEMENT FOR 2003 ¶4. Ministries in the financial and economic sectors displayed the successes of the GDRC's economic program in a 27 July 2004 cabinet meeting. Highlights of the annual reports for 2003 include: a 5.6 percent GDP increase; annual inflation of 4.4 percent (Note. Embassy price survey showed an inflation rate of 7 percent. End Note.) and a year to date inflation rate of 2.7 percent for 2004; exchange rate stability at FC 388 to the USD; a positive real interest rate for the first time in several years; doubled foreign exchange holdings; and a 40 percent increase in GDRC revenues. MINING BRAZZAVILLE SHUTDOWN DRIVES UP DRC DIAMOND EXPORTS ¶5. The CEEC reported DRC diamond exports of 2.7 million carats valued at USD 81.4 million for July 2004. DRC diamond exports usually total between USD 27 and 35 million per month. CEEC attributes the substantial increase in exports to the 9 July 2004 exclusion of the Republic of Congo (Brazzaville) from the Kimberley Process certification scheme. BANKING BANKS' CURRENCY HOLDINGS INCREASE ¶6. The GDRC Central Bank (BCC) reported a reduction in currency circulation outside the banking sector from 50 percent to 30 percent. (Comment. This reflects primarily increased commercial deposits by businesses in the DRC. Commercial banks still largely do not issue personal checking accounts. This is positive sign for the DRC economy but falls short of signaling renewed confidence in the banking sector among the general population. End Comment.) MANUFACTURING DRC, NAMIBIA, ZAMBIA ESTABLISH COPPER CABLE VENTURE ¶7. DRC Minister of Mines Eugene Diomi Ndongala announced that he signed a joint-venture agreement with his counterparts in the Zambian and Namibian Ministries of Mines on 23 July 2004. This multilateral agreement will establish a copper cable plant in Walvis Bay, Namibia. The plant will operate as an export-processing zone, and will receive raw materials from each of the three countries. INFRASTRUCTURE TENDER FOR DRC-ZAMBIA POWER INFRASTRUCTURE WORK ¶8. The Bureau Central de Coordination (BCECO) has issued an open tender for construction and rehabilitation work on the DRC electrical power infrastructure. Work in the DRC will include rehabilitation of the 500kV transmission lines between Inga and Kolwezi, the construction of new 220kV transmission lines, and the installation of a telecommunications network between Inga and Kolwezi. Additional work will repair transmission lines in the electricity export corridor between the DRC and Zambia. The World Bank has provided USD 178 million to finance this project. EIGHT REHABILITATED WATER PUMPS IN EAST KINSHASA ¶9. The ICRC funded the rehabilitation and reinstallation of eight commercial water pumps used by Regideso (national water company) to supply running water to eastern Kinshasa. Four pumps have been installed at the N'Djili intake and four at the Kingabwa water treatment station. The two locations had been operating at half capacity since the late 1990s, leaving many Kinshasans without regular access to running water. The new pumps will increase N'Djili's output to 220,000 cubic meters/day and will supply some 4 million people. TRANSPORTATION MAI-NDOMBE BRIDGE COLLAPSES ¶10. The bridge over the Mai-Ndombe River on National Road No. 2 collapsed on 28 July 2004. The collapse severed the primary land transportation route from Bandundu province to Kinshasa, and has resulted in a scarcity of staple commodities in the city. Office des Routes (OR - national road maintenance and planning authority) has sent a repair team to the site. Office des Routes expects to complete repairs by the end of the week of August 1-7, 2004. The primary bridge over the Mai-Ndombe River was destroyed in 1997 by retreating FAZ. The Italian government financed construction of a temporary bridge, to be used until the primary bridge could be repaired. However, repairs were never completed, and the primary bridge remains impassable. OR is working to repair the temporary bridge and has offered no plan to rebuild the primary bridge. PORT OF MATADI AGENCIES INCREASE RECEIPTS ¶11. In the year since the installation of the World Bank- funded guichet unique, Port of Matadi customs and tax agencies have reported significant receipt increases. According to Ofida's provincial director Mr. Mwepu, receipts increased 67 percent at Ofida (Customs),180 percent at Direction Gnrale des Recettes Administratives et Domaniales (DGRAD - Government Fees and Receipts Authority), 70 percent at Office de Gestion de Fret Maritime (OGEFREM - - Maritime Freight Authority),50 percent at Le Fond de Promotion de l'Industrie (FPI),and 20 percent at Direction Generale des Impots (DGI - Tax Authority). Mr. Mwepu attributed the increases to the reorganization and computerization of the port's customs and tax processes. Additionally, Ofida hopes to install similar guichets uniques for their operations at Kasumbalesa and Mwene-Ditu. AGRICULTURE JAPAN AND BELGIUM TO ASSIST CONGOLESE AGRICULTURE ¶12. Local press reports that Japan and Belgium have agreed to provide USD 1 million in agricultural aid to Congolese families in Equateur, Kasai, and Katanga provinces as the second stage of a larger food security program in which the donor countries will eventually distribute USD 3.5 million in aid. The second stage of the program involves distribution of some 120 tons of seeds, 24,000 hoes and machetes, and several thousand ducks to families deemed at risk of malnutrition. Each family will receive enough supplies to cultivate 250 square meters of land and supplement their diet with protein from meat and eggs. The donor countries will also provide technical assistance and monitoring via regular consultation with beneficiary families. ZAMBIA TO EXPORT CORN TO THE DRC ¶13. Zambian Deputy Agricultural Minister Chance Kabaghe reported that Zambia has agreed to export some 120,000 metric tons of surplus corn to four countries, including the DRC. HEALTH SUSPECTED PLAGUE KILLS 58 IN ITURI ¶14. Local health officials have reported 58 deaths and 1,042 infections of suspected plague in Ituri since the beginning of this year. WHO officials cite poor food storage facilities and displacement due to continuing violence in the region as primary contributors to the outbreak. Most of the infections are believed to be bubonic plague, with a small minority being pneumonic plague. Local committees have been established to sensitize the public to the problem and sanitize the homes of infected persons. Plague infections have been reported in Ituri since the 1920s. According to the WHO, recent cases represent a significant, but not alarming, increase in the infection rate. AID WORLD BANK ASSISTS GDRC WITH INTERNAL DEBT ¶15. Bavon Nkubiri of la Commission de la Dette Interieuer de l'Etat (Internal Debt Commission) reported that the World Bank released USD 42.5 million to the GDRC to repay debts to individuals or businesses accrued by the state before, during, and after the 1997-2001 war. A delegation from the Ministry of Finance was dispatched to Bukavu in late July to begin collecting claims from citizens and business-owners. ¶16. INFLATION BY CATEGORY (IN PERCENT) WEEK ENDING 7/9 7/16 7/23 7/30 FOOD 0 2 -2 2 BEVERAGE 0 0 0 0 NON-FOOD 1 1 8 0 CLOTHING 0 0 0 0 RENT 0 0 0 0 TRANSPORT 0 0 0 0 SCHOOL COSTS 0 0 0 0 UTILITIES 0 0 0 0 COMBINED FIGURES WEEKLY INFLATION 0 0.9 -0.6 0.9 MONTHLY INFLATION 0 0.8 0.4 1.2 MAY 2004 INFLATION: 0.2 JUNE 2004 INFLATION: 0.4 JULY 2004 INFLATION (TO DATE): 1.2 YEAR TO DATE INFLATION: 1.0 2003 INFLATION: 7.0 2002 INFLATION: 22.0 ¶17. EXCHANGE RATE DEVELOPMENTS 7/9 7/16 7/23 7/30 CENTRAL BANK RATE 392.7530 389.5709 388.1864 389.1094 PARALLEL MARKET -KINSHASA 385-392 390-395 388-398 385-390 -LUBUMBASHI 380-390 380-390 385-395 380-385 -MBUJI MAYI 385-390 380-385 380-385 380-385 -KISANGANI 375-385 400-410 400-410 400-410 -GOMA 400-410 400-410 400-410 400-410 -BUKAVU 390-400 400-410 400-410 400-410 MEECE