Identifier
Created
Classification
Origin
05KINSHASA1112
2005-07-08 10:52:00
CONFIDENTIAL
Embassy Kinshasa
Cable title:  

JUNE ECONOMIC OVERVIEW

Tags:  ECON EFIN EMIN ELAB CG 
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C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001112 

SIPDIS

PASS TO USTR

E.O. 12958: DECL: 06/29/2015
TAGS: ECON EFIN EMIN ELAB CG
SUBJECT: JUNE ECONOMIC OVERVIEW

REF: A. KINSHASA 01039

B. KINSHASA 01057

C. KINSHASA 01032

Classified By: Econoff WBrafman for reasons 1.4 b/d.

This cable contains proprietary business information. Please
protect accordingly.

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001112

SIPDIS

PASS TO USTR

E.O. 12958: DECL: 06/29/2015
TAGS: ECON EFIN EMIN ELAB CG
SUBJECT: JUNE ECONOMIC OVERVIEW

REF: A. KINSHASA 01039

B. KINSHASA 01057

C. KINSHASA 01032

Classified By: Econoff WBrafman for reasons 1.4 b/d.

This cable contains proprietary business information. Please
protect accordingly.


1. (U) Summary.

-- The Congolese Franc (FC) significantly appreciated against
the USD and prices generally fell, though petroleum prices
increased.

-- In response to U.S. Coast Guard sanctions, the GDRC is
trying to form a permanent commission to address port
security.

-- In the mining sector, Gecamines continues to discuss
restructuring in light of pressure from a variety of sectors,
including students.

-- Interest in the DRC's diamond mines is increasing in
response to depleting global reserves, and the director of
the CEEC (Congo's diamond regulatory authority) wants to
create a DRC diamond market exchange.

-- The ROC claims to have seized 40kg of illegally exported
DRC uranium.

-- University professors and health professionals protested
unpaid wages, staging sit-ins and threatening strikes.

-- Aviation officials from the DRC, Angola, and the Republic
of Congo (ROC) have agreed on measures to increase air
safety.

-- Parliament approved a new customs code. End summary.

MONETARY AND PRICE UPDATE
--------------


2. (U) The FC has appreciated nearly twenty percent in the
past five weeks, increasing from a recent official high of
515 FC/$ to a June 29 rate of 420. The country-wide average
at the end of June was 450 CF/$. Local economists attribute
the swing to tighter Central Bank (CB) monetary policy,
improved GDRC fiscal performance, and political conditions.
The FC had depreciated steadily over the past year, with a
twenty percent drop between October 2004 and mid-April 2005.
The CB tightened the money supply by releasing less currency
and by demanding all payments, from taxes to treasury bonds,
in FC. In addition, the GDRC tightened fiscal policy by
reducing expenditures through delayed salary payments to
civil personnel; the GDRC has only paid these civil salaries
through April. These monetary and fiscal policies have not

fully affected Eastern Congo, where unofficial rates remain
high due to excess liquidity and a highly speculative
exchange market. These significant exchange rate differences
have encouraged aggressive arbitrage further increasing
exchange rates, as currency traders are dumping FC in Goma
and purchasing USD to resell in Beni/Butembo at an
advantageous rate. This region also experiences extensive
illegal trading over the Rwandan border and thus significant
amounts of cash remain in traders' hands rather than in the
Central Bank in the form of tax revenues. (Note: By month's
end, the FC weakened and is expected to depreciate further.
End note.)


3. (U) The CB has delayed issuing new FC notes to avoid
sparking currency devaluation or inflation. The CB has
printed 1,000 and 5,000 CF notes and has plans to produce
higher denomination notes.


4. (U) As a result of the FC's appreciation, the DRC
experienced 5.4% deflation in June. Although food and fuel
prices increased, a 14% drop in housing costs forced overall
inflation down. Petroleum prices increased significantly in
Kisangani, Equateur Province, from 600 CF/liter to 1,000
CF/liter, due to a supply shortage. Militia activity in
Eastern Congo disrupted transport of petroleum to Kisangani.

PORT AND AVIATION SECURITY
--------------


5. (U) The National Commission for Maritime Security,
consisting of delegates from the Ministry of Transport's
overall director's office, ONATRA (Congolese port authority),
and other interested parties, have requested Presidential
approval to form an autonomous Port Security Commission to
address port security needs, (reftel A).


6. (U) A delegation headed by the DRC Civil Aviation's
Director is currently in the U.S. to research passenger
control equipment compliant with international safety
standards. Securiport, an American company that operates
security equipment at Kinshasa's N'djili airport, wants to
import the neccessary equipment from the U.S.

MINING
--------------


7. (SBU) Gecamines, the parastatal mining giant, continues
to discuss restructuring in light of pressure from a variety
of sectors. A recent conference of Lubumbashi University
students recommended that Gecamines diversify its funding of
social programs, now privately owned, to include government
funding. The committee also recommended supporting
agricultural development in Katanga to better reintegrate
former Gecamines employees.


8. (U) Interest in the DRC's diamond reserves is increasing
in response to depleting global reserves. Three diamond
mining companies, De Beers, BHP Billiton, and Alrosa are in
advanced talks with the DRC's state-owned mining company
Miniere de Bakangu (MIBA) to explore concessions near
Mbuji-Mayi, Kasai-Oriental province. Diamond companies are
eager to find new sources as production from older mines
decreases and as diamond prices continue to rise.


9. (C) The CEEC's director continues to propose opening
diamond exchanges in Kinshasa, Bunia, and Lubumbashi, and he
claims that the CEEC may open an exchange in Kinshasa within
the next two to three months. (Comment: A diamond exchange,
or "bourse," is a business framework that allows its members
to trade, produce, market, purchase, broker, import, and
export diamonds under one roof. In 1999 the former Minister
of Mines unsuccessfully attempted to open a diamond exchange
in the DRC. Given the relatively high level of corruption
and low levels of infrastructural development and
international confidence in security, the DRC does not seem
to be ready for such an ambitious project. End Comment.)


10. (C) The DRC Minister of Mines, Ingele Ifoto, announced
at a June 21 press conference that 40kg of enriched,
illegally exported uranium had been confiscated in
neighboring Brazzaville. The ROC Minister of Mines, Pierre
Oba, claimed that the GROC has dismantled the "mafia" network
of DRC and ROC traders responsible for the cross-river
trading. The GROC has not yet returned the uranium to the
GDRC. (Comment: Per reftel B, Post is uncertain that any
uranium was seized, and the only nuclear reactor in the DRC
is not capable of enriching uranium. End comment.)

LABOR
--------------


11. (U) Health professionals and university professors
threaten continued labor disruptions if the GDRC does not
meet salary demands. Two health professionals' unions,
Syndicat National des Professionals de Sante (Syncass) and
Solidarite Syndicale Infirmiere au Congo (Soisico) announced
that their members would strike in Kinshasa if the GDRC does
not increase salaries and pay promised bonuses. University
of Kinshasa professors are not unionized and have not
officially announced a strike, but they have refused to teach
since April, in response to the GDRC's failure to pay them,
(reftel C).


12. (U) On June 23, Parliament approved a new customs code
for the DRC, to be effective no later than January 2006, but
the text is not yet available.


13. (U) INFLATION BY CATEGORY (IN PERCENT)

WEEK ENDING 6/10 6/17 6/24 6/30
FOOD 1 0 -5 2
BEVERAGE 0 0 -5 0
NON-FOOD 0 -3 -2 7
CLOTHING 0 0 -9 0
RENT 0 0 0 -14
TRANSPORT 0 0 -20 0
SCHOOL COSTS 0 0 0 0
UTILITIES 0 0 0 0
COMBINED FIGURES
WEEKLY INFLATION 0.3 -0.2 -6.3 0.2
MONTHLY INFLATION 0.9 0.6 -5.5 -5.4

MAY: 3.1%
JUNE: 5.4%



14. (U) EXCHANGE RATE DEVELOPMENTS
6/10 6/17 6/24 6/30
CENTRAL BANK RATE 478.1989 424.1465 417.7434
427.8593
PARALLEL MARKET
-KINSHASA 465-470 380-390 420-430 430-440
-LUBUMBASHI 480-485 380-390 420-430 430-440
-MBUJI MAYI 470-475 390-400 410-420 420-430
-KISANGANI 480-490 480-490 480-490 470-480
-GOMA 500-520 500-515 485-495 460-480
-BUKAVU 500-520 500-515 485-495 460-480
MEECE