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