JUNE ECONOMIC OVERVIEW

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