KASAIAN ECONOMY LACKS ENERGY

UNCLAS SECTION 01 OF 05 KINSHASA 000404 SIPDIS SENSITIVE SIPDIS DEPT PASS TO USTR (WJACKSON) E.O. 12958: N/A TAGS: ENRG ECON EMIN ELAB EAGR CG SUBJECT: KASAIAN ECONOMY LACKS ENERGY REF: KINSHASA 380 ¶1. (U) Summary. The two Kasai provinces offer a clear example of the economic tragedy of the Congo, with fertile, diamond-studded soil juxtaposed with an impoverished population unable to pull themselves out of their economic despair. Western Kasai seems slightly more prosperous than Eastern Kasai, but both provinces lack reliable electricity, adequate infrastructure, credit and initiative. These elements, as well as transparent, accountable government, must be in place before the diamond and agricultural sectors, the best hopes for the region, can bring prosperity and increased standards of living to the population. End Summary. Western Kasai - The Lights Are Still Out -------------- ¶2. (U) EconOff and PolOff visited Kananga, the capital of Western Kasai province, February 21 through 23 (reftel). Administration is the main business of Kananga, a city with an estimated population of 600,000 people, in addition to the plethora of goats that roam the town. As in much of the DRC, extreme shortages of three key elements severely limit economic progress: electrical power, transport, and access to credit. Little if any industry exists and, as evidence of its economic isolation, limited commercial flight service is available. Emboffs arrived via a MONUC flight, and even that service is erratic. The town has the bones of either past or hoped-for economic prosperity, with its handful of broad, well-laid-out commercial district boulevards and a few sizable residences. However, infrastructure is in serious disrepair, passable roads are few outside of town, and even within Kananga itself, some neighborhoods are inaccessible by vehicle because roads have been washed away by runoff and poor upkeep. Very few work in the formal sector, which consists of MONUC, the GDRC, a few state enterprises and a handful of businesses. ¶3. (U) Kananga suffers most from the lack of an effective electrical power supply. Its only electricity comes from two gas-powered generators, making the town captive to rising fuel prices. SNEL, the Congolese electricity parastatal, usually provides power daily from 7 pm to 11 pm, via its two 1000 KW diesel generators at a facility that EconOff visited. However, the SNEL director in Kananga told EconOff that only about 1 percent of Kanangans have access to this power supply and that SNEL had been out of fuel for a week. SNCC (DRC's railway parastatal) and REGIDESO (the state water supply company) also have generators that some local businesses and residents pay to use. ¶4. (SBU) Two possibilities exist for providing Kananga access to power: hydroelectric dam construction and a tie-in to the trans-DRC Inga-Katanga line. The Katende Dam, 79 kilometers from Kananga on the Kasai River, is under construction via a contract with Clackson Power, a South African company. The SNEL director said the dam has the potential to generate 32 MW of electricity. (Note: SNEL will not own or manage this hydroelectric plant. End note.) The project is proceeding slowly, although the GDRC released USD 2.5 million in funding following the Minister of Energy's February visit to the dam. The director told EconOff that it is possible that the plant will begin supplying power within 18 months, and the MONUC Head of Office in Kananga optimistically said that start-up within a year may even be possible, based on his visits to the dam and discussion with employees on site. However, the provincial Central Bank representative told EconOff that he believes that Clackson Power is essentially defrauding the GDRC and that it has no serious intentions to complete the dam and power plant. The SNEL director told EconOff that SNEL wants to continue plans to complete a second dam closer to Katanga that could generate 15 MW of electricity. Several years ago private citizens and businesses raised USD 4 to 5 million to construct the second dam, but the SNEL director estimated that only USD 1.2 million remain and that administrative fees and taxes allegedly consumed the rest. ¶5. (U) The Western Kasai Vice Governor for Economy and Finance spoke very enthusiastically about the idea of tapping into the Inga-Katanga power line, which brings several hundred megawatts of power from the Inga Dam through the KINSHASA 00000404 002 OF 005 Kasais to Katanga province. The line does not currently supply power to the Kasais. Political enthusiasm abounds for the project, but no funding. According to the MONUC Head of Office, it is not clear if such a project is even technically feasible. And It's Hard to Get Around -------------- ¶6. (U) The lack of reliable transport also hampers economic growth in Western Kasai, hamstringing the agricultural industry and making consumer goods expensive and difficult to obtain. According to a market survey that EmbOffs conducted in Kananga, the average market basket of food costs USD 113, versus USD 130 in Kinshasa, although Kananga's prices appear more volatile as a result of its dependence on a less reliable supply. (Note: Market basket quantities and products vary among cities. End note.) The province must import most of its goods, and the Vice Governor estimated as much as 80 percent of its imports come via Katanga, primarily via the rail line. However, the poor condition of the rail line, engines and other equipment, theft enroute, and tax payments in Katanga mean that goods arrive slowly (seven to eight months in transit) and at a high cost. Most primary and secondary roads are highly degraded; transporting cargo takes about three weeks between Katanga and Mbuji-Mayi, Eastern Kasai's capital. As evidence of the extent to which Kananga is captive to external supply, media reports indicate that Zambia's recent decision to stop maize meal exports to the DRC resulted in a 35 percent price increase (from 7,000 to 9,500 CF per unit). ¶7. (SBU) Little access to credit may also significantly hamper development. During EconOff's meeting with the local chamber of commerce (FEC),many businesspersons complained about their inability to get business loans. (Note: They also said that the multiplicity and unpredictability of taxes also harm business, as is the case throughout the DRC. End note.) However, the FEC Vice President said that many businesspersons do not even try to obtain credit; this is likely a result of both high interest rates and a pervasive lack of confidence in the banking system. The main commercial bank, BCDC, charges 35 percent annual interest and for usually no more than a six-month term. The BCDC branch manager said his loan portfolio is around USD 100,000 and claims that despite the high interest rates, businesspersons can and do make profits. Since the early 1990s, confidence in the banking system has been low, and the government had done little to change this perception. For example, the Congolese Central Bank (BCC) representative in Kananga said that although deposit insurance regulations exist, the BCC in Kinshasa has not disseminated information on how to implement the insurance. Initiative Is Lacking -------------- ¶8. (SBU) Personal initiative seems to be a resource that Kasaians also lack, particularly in the business community, though the lack is evident in government leadership as well. The Vice Governor said the provincial government has no power under the transitional government, and has only limited control over its own budget. Several FEC members complained bitterly that the international community does not adequately invest in or support economic growth in Western Kasai, and that IMF policies actually harm the economy, although they could offer no specific examples. In response to EconOff's inquiry, however, FEC members admitted that they had not attempted to work together to form credit cooperatives, address the energy shortage, fight overtaxation, or take any other steps to rectify perceived problems. They were also unable to offer EconOff any specific examples of how the international community might support economic growth in the Kasais. The BCC Director shared EconOff's impression that the business community lacks inventiveness or entrepreneurism. ¶9. (SBU) Local workers seem to possess only slightly more initiative. The president of Western Kasai's leading union, CSC, told EconOff that it holds weekly workers' rights advocacy training for its members to help them lobby for KINSHASA 00000404 003 OF 005 improved working conditions. However, he too seemed unable to articulate ideas for economic development. For example, EconOff spoke with a women's sewing cooperative. Members said that the cooperative is barely sustainable because it lacks an adequate client base. Although the group asked for external support, it had no clear idea of what help it needed. CSC's president also complained about the GDRC's decision to pay teachers and civil servants in Kinshasa more than in the provinces. Continuing teacher and civil servant strikes in the Kasais have not provoked any national policy change, however. Western Kasai's Prospects -------------- ¶10. (SBU) The diamond (septel) and agricultural sectors hold the greatest promise for economic growth in the Kasais. The Congo's alluvial diamond mining center is in Tshikapa, which is 300 kms southwest of Kananga. The DRC's first diamond cutting and polishing factory opened in Kananga last year, and several international diamond companies, including De Beers and BHP Billiton, have new five-year exploration concessions. De Beers is already aggressively exploring its concessions (septel). The BCDC director in Mbuji-Mayi did note some increase in overall economic activity in the last year. ¶11. (SBU) The province currently captures little revenue from mining operations, however, since there is little government monitoring or oversight, and hemce few diamonds enter official channels. The Vice Governor complained repeatedly that the province has no control over granting mining concessions and receives no benefit from the mining sector. Tshikapa is exemplary of the extent to which revenue outflows SIPDIS fail to return. Western Kasai Head of Office Jean Victor Nkolo said that the conditions of Tshikapa, which has as many as 3 million inhabitants, are "unimaginable", with virtually no roads or access to electricity or potable water. (Note: He said that these abysmal conditions have resulted in increasing violence and thus sees the town as a potential flashpoint. End note.) ¶12. (SBU) Tilling the soil for food crops rather than digging for diamonds may be a better long-term development prospect for the general population, at least if nothing more than to provide basic subsistence. Many Congolese, particularly in the Tshikapa region, have abandoned agriculture (and often educational opportunities) in search of the illusory promise of getting rich by digging diamonds. Although estimates on remaining reserves vary, artisanal alluvial mining sources will not be viable in the long term, particularly if the DRC continues to replace individual diggers in favor of corporate-controlled industrial and semi-industrial concessions. The Vice Governor and BCC representative stressed the importance of reviving the agricultural industry. In fact, the BCC representative himself recently purchased farm equipment and is experimenting with agricultural approaches. He complained, however, that the World Bank's method of supporting agricultural cooperatives is counterproductive, and that funds used to pay overhead and "technocrats" would be better used to provide employment for the local population. Eastern Kasai - Economic Doldrums -------------- ¶13. (U) The lack of adequate infrastructure, economic diversity, and vision make Eastern Kasai's economic outlook perhaps even bleaker than that of Western Kasai. Mbuji-Mayi, the provincial capital and diamond center, continues to epitomize the paradox of abundant natural resource wealth contributing very little to the local population. ¶14. (SBU) Eastern Kasai's economy is unquestionably bound to the fortunes of its diamond industry, which MIBA, the DRC diamond mining parastatal, dominates (septel). MIBA is so linked to the economy that it is a 70 percent owner of a local soft drink bottler, one of the main non-diamond industries in the province. The bottling company's director is on the MIBA board. A decrease in diamond production in late 2005 impacted the local economy, although EconOff did KINSHASA 00000404 004 OF 005 not see any striking examples of economic downturn compared to an August 2005 visit. (Comment: Most of Mbuji-Mayi is so impoverished that a decline would be hard to discern. End comment.) The BCDC branch manager said that deposits declined by about 50 percent last year compared to 2004. He said that he does not think the province approached the 2005 estimated national 6.6 percent GDP growth rate. Problems Beget Problems -------------- ¶15. (SBU) The lack of adequate infrastructure exacerbates the poverty in Western Kasai. MIBA is Mbuji-Mayi's only significant electrical power generator, via its dam and hydro-plant, but it consumes most of the production. MIBA's CEO, Gustave Luabeya Tshitala, told EmbOffs that the MIBA plant is generating 11.5 MW but planned to increase output to 16 MW in March. (Note: In August 2005, MIBA executives told EconOff that its plant had a 30 MW hydro-electric capacity and that five of six turbines were already operating. End note.) The provincial SNEL director told EconOff that MIBA accords no more 1.5 MW to SNEL for general distribution, and that often MIBA does not even provide that amount. The SNEL director also claims that MIBA tries to charge many customers a USD 2500 "study fee" to discourage electricity purchase. Outside of Mbuji-Mayi electricity is even more scarce, with about 600 KW in the town of Mwene Ditu, 100 kms south of Mbuji-Mayi, and no electricity at all in Kabinda, 100 kms east. The lack of electricity means that an adequate supply of clean water is unavailable. ¶16. (U) The transport system in Mbuji-Mayi is even more degraded than Kananga's, with few paved roads and rail service about once per week. (Note: BCDC's director said that SNCC employees' salaries are more than a year in arrears and that strikes are frequent. End note.) Just as in Western Kasai, the combination of inadequate infrastructure and the lure of diamonds discourages manufacturing or agricultural production, leading to the additional problem of a high cost of living. Nearly all goods must be imported, at a significant cost. The average market basket in Mbuji-Mayi costs USD 145, more than in Kinshasa, where wages are generally higher. Complaints, but no Solutions -------------- ¶17. (SBU) As in Eastern Kasai, complaints abound, but proposed solutions are scarce. Governor Dominique Kanku echoed the Western Kasaian Vice Governor's comment that he has little budget control, stating that Eastern Kasai does not receive the proceeds it should from GDRC diamond revenues. (Note: Conversely, MIBA's Luabeya estimates that USD 70 to 120 million is retroceded monthly to the province, through this seem unlikely. End note.) Nearly every other government official, politician and businessperson with whom EmbOffs met lacked suggestions, no less solutions, to the province's economic woes, beyond asking for generic donor support. But Change Is on the Horizon -------------- ¶18. (U) The only emerging change in the Eastern Kasaian diamond sector is the relaunching of large-scale diamond exploration by De Beers and other recent concession grantees (septel). If the region remains secure, these ventures are likely to yield significant additional revenues for the DRC, not only through tax income but also new jobs and downstream income in support sectors. MIBA is also interested in expanding its mining operations, but it remains unclear if it can obtain the outside investment necessary to do so. Comment -------------- ¶19. (SBU) Electrification of the two Kasai provinces is a priority need, but this alone cannot lift the provinces out of their economic doldrums if neither begin to develop social support programs and alternate economic bases, such as agriculture. Kasaians should also obtain their fair share of KINSHASA 00000404 005 OF 005 proceeds from the diamond sector. Claiming the central government in Kinshasa is aligned against them, Kasaians remain unwilling or incapable of improving social and economic conditions themselves. The upcoming elections offer an opportunity for Kasaians to select new, accountable national and local representatives who may better advocate on their behalf - if they choose to vote. End comment. MEECE