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