ECONOMICS ALONG THE UGANDAN BORDER: THE GRAND NORD

UNCLAS SECTION 01 OF 04 KINSHASA 000818

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD ELTN ECON EAGR CG
SUBJECT: ECONOMICS ALONG THE UGANDAN BORDER: THE GRAND NORD

REF: A. KINSHASA 793


B. 05 KINSHASA 944


1. (SBU) Summary. EconOff and PolOff visited Beni, Butembo
and Kasindi in North Kivu province May 4-6. A strong Ugandan
economic influence exists in the region, supported by both
legal and illegal cross-border trade. Weak national and
provincial-level government influence in the region further
contributes to this phenomenon. In addition to the
preponderance of Ugandan products in local markets, Asian
goods have found their way into this region. While a
national highway rehabilitation project should bring eventual
economic development, the Nande ethnic community, which has a
strong business network, has the capacity to drive growth in
the nearer term. End summary.

UGANDAN INFLUENCE
--------------


2. (U) Ugandan influence is pervasive in the Beni-Butembo
region, particularly as a result of the extensive legal and
illegal cross-border trade that is active all along the
Congolese-Ugandan border. Tangible evidence of this sway is
the extensive use of the Ugandan shilling; within a zone
about 20 miles from the Ugandan border, the shilling is used
almost exclusively by local merchants, due largely to Ugandan
importers' insistence on payment in shillings. For example,
DRC customs officials at the border town of Kasindi told
EconOff that they collect most of the taxes in shillings.
Furthermore, only a relatively small sum of Congolese francs
flow into the economy from Kinshasa via tax retrocessions and
public servants' salaries. (Note: The U.S. dollar is also
widely accepted. End note.)


3. (U) The lack of state-provided social services,
particularly medical care, also drives Congolese towards
Uganda. Emboffs observed fairly free pedestrian movement
across the border. While some appeared to be traders, many
carried no goods with them and were likely crossing on
personal business, such as visiting family.


4. (U) Although neighboring countries are frequently natural
trading partners, several factors elevate Uganda's role in
the regional economy, including ethnic and familial
cross-border ties, the DRC's degraded road system, an
underdeveloped manufacturing base, poorly paid military and
civil servants, and the consequent weak border control. As
in much of the DRC, both primary and secondary roads are in
disrepair, making the transport of agricultural products and
consumer goods difficult, costly, and time-consuming.
Conversely, Uganda has a relatively well-maintained road
system, facilitating transport of goods from Kenya and Uganda
to DRC's border. For example, the Ugandan road leading to
Kasindi had been repaved the week before Emboffs' visit.
Hence, the Grand Nord region imports from Uganda most of the
consumer goods and packaged food products it uses.
Conversely, the region exports relatively little (at least
legally),despite an abundance of natural resources and three
growing seasons per year. Uganda even has a bus line that
ferries passengers to Entebbe and Kampala from the Congolese
border town of Kasindi, and many Congolese use it to conduct
trade and visit friends and family.


5. (U) While government officials and business persons are
quite open about the extensive trade with Uganda, it is
difficult to determine how much of it is illegal. Persons in
the private and public sector told EconOff that illegal trade
has decreased since the national government regained nominal
control over the region, but evidence indicates that it still
continues. For example, despite reports from business
persons, civil servants and NGO staff that trade with Uganda
is extensive, the traffic at the main regional customs post
is not heavy, indicating that trade also occurs at numerous
unofficial points along the porous border. According to
Kasindi customs officials, only about ten to twenty trucks
pass daily through Kasindi, the main official customs post.
Emboffs' observations during the two-hour drive from Beni to
Kasindi, along the only route between the two towns, support
this statement.


6. (SBU) The illegal export of wood and coffee is openly
discussed, although no one Emboffs talked to would admit to
knowing anyone directly involved in this trade. A World
Wildlife Fund (WWF) program manager told EconOff that he
estimates about 85 percent of the wood exported from the DRC
to Uganda is done so illegally, and he concurred with

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Emboffs' information that the FARDC is involved in this trade
at Kasindi and unofficial border crossings. The director of
Beni's OCC (the DRC's standards control agency) said the
illegal export of wood is a "serious problem." He said that
elements of the military are involved in the illegal trade
because salaries are too low and irregularly paid, and hence
some soldiers seek other income sources. The local Congolese
Central Bank (BCC) representative (who is also the Beni
branch manager of the Commercial Bank of the Congo) estimated
that at least 40 cubic meters of wood per day exits the DRC
illegally. Although customs officials in Beni, Butembo and
Kasindi claimed that this illegal trade has decreased, all
directly or indirectly admitted that the FARDC plays a role
in illegal wood export by pressuring customs officials to let
trucks pass through without inspection of the contents.


7. (U) Coffee is also exported legally and illegally, both
overland and via Lake Edward, according to EconOff's contacts
in the region. However, disease has devastated the Arabica
coffee crops in the last few years, substantially reducing
the production. Reliable production figures are not
available. The president of the Chamber of Commerce in
Butembo told EconOff that neither the National Coffee Office
nor any other government body has helped coffee farmers
combat the disease.


8. (SBU) Artisanal gold, diamond and coltan mining occurs in
the region, and evidence indicates that little if any of
these precious minerals exit the country through official
channels. For example, the Beni OCC representative said that
his office has never used the spectrophotometer it purchased
to test precious minerals, because none have passed through
the OCC. He estimated that about five to ten kilograms of
gold per month enters Uganda from the DRC, much of it in
small bags or even pockets. The BCC representative said that
Ugandan customs officials facilitate this trade by not
requiring certificates of origin.

THE GRAY MARKET?
--------------


9. (SBU) What is less clear is the extent to which
quasi-legal trading occurs; that is, the extent to which
traders pass through official customs points but pay bribes
to have customs and other export-import taxes and fees
reduced or eliminated. Certainly conditions are ripe for
customs fraud, because the GDRC is not removing many of the
officials engaged in the fraud, and is receiving little or no
official salary, and traders face a multiplicity of export
fees. The GDRC has not yet replaced all of the revenue
collectors who have held their posts since before
reunification and who have often participated voluntarily or
under duress in customs fraud. Most such officials are from
the region and therefore have close ties to their community,
giving them further opportunity and incentive to develop and
participate in customs fraud schemes.


10. (SBU) Low salaries also foster participation in customs
fraud. The OCC office director in Beni claimed that the
agency's employees receive salaries ranging on average from
USD 150 to 500 per month, which is higher than most
government staff earn but still low enough to create
temptation. The OFIDA official in Kasindi said he receives no
salary, only "primes" (bonuses) and declined to tell Emboffs
his employees' bonus range. (Comment: The OFIDA official's
refusal to reveal income gives credence to the widespread
belief that customs officials take a portion of proceeds. End
comment.) Further, traders must deal with at least four
government services collecting taxes at the border: OFIDA
(customs agency),OCC, OGEFREM (the DRC's freight agency);
and DGRAD (the administrative fees' collection agency).


11. (SBU) Tax collection officials in the region told EconOff
that tax revenues have increased since June 2003. For
example, an OFIDA official in Butembo told EconOff that
regional revenues increased from USD 250,000 to USD 900,000
from 2004 to 2005. (Comment: The actual revenue collected is
undoubtedly higher. End comment.) He added that only about
USD 30,000 comes from exports from the DRC. Further, revenue
collectors said to EconOff that official revenue increases
are relative, because militia controlled the cross-border
trade pre-unification, and hence official tax revenues
essentially did not exist. Revenue officials at Kasindi
agree that significant export revenues escape official
channels; they told Emboffs that, while they have border
agents dispersed throughout the region to monitor trade on

KINSHASA 00000818 003 OF 004


the frontier, they cannot control activity in the DRC's
Virunga National Park, which also borders Uganda.

ASIAN INFLUENCE TOO?
--------------


12. (U) In addition to imports from Kenya and Uganda,
business persons have developed strong trading relationships
with Asian partners, including Dubai, Indonesia and China,
importing significant quantities of consumer goods, vehicles
and equipment from these countries. The president of the
Chamber of Commerce in Butembo told EconOff that he travels
regularly to Dubai, Indonesia and other Asian countries to
purchase goods for import into the DRC. Nearly all the cars
in the area are right-hand drive, and Chinese consumer
products such as soap were found in the hotels in which
Emboffs stayed. However, Emboffs saw no evidence that Chinese
or other Asians have a significant physical presence in the
region.

A ROAD TO SOMEWHERE
--------------


13. (U) Government officials and business persons are
optimistic that the completion of the 255-mile World
Bank-funded highway from Beni to Nyanya, Orientale province,
will facilitate domestic trade (reftel B) and reduce reliance
on imports from Uganda and other countries. Another road -
albeit not a very good one - links Nyanya to the Congo River
town of Kisangani, several hundred miles upriver from
Kinshasa. Traders told EconOff that opening this trade route
will give them better access to goods either brought into or
produced in Kinshasa, and will create new markets for the
region's products. Some business persons told EconOff that
they look forward in particular to importing American goods
via Kisangani.


14. (U) Cheaper, more efficient exchange of goods and food
products via a western trade route is probably not a
short-term reality, however. First, rehabilitation of
secondary roads is also necessary for the transport of
regional products. Further, even if the overland route to
Kisangani is well-maintained and can accommodate container
trucks, the fluvial transport sector is far from ready to
meet expanded demands on it. Unlike during the colonial era,
few large commercial barges and boats ply the Congo.


15. (U) Nevertheless, if stability increases, conditions will
be promising for further economic revival because of the
abundance of natural resources, some industrial experience,
ready access to a large Eastern market and the initiative,
self-sufficiency and business acumen of the Nande -- the
dominant ethnic group of North Kivu's Grand Nord. The Nande,
who are already relatively prosperous, are particularly
poised to avail themselves of improving economic conditions.
Even in Beni, seemingly the less prosperous of the two main
towns in the area, there are three factories in operation -
coffee and papaya processing plants and a wood treatment
factory. (Note: Vice President Jean-Pierre Bemba's family
owns the wood treatment factory. End note.)


16. (U) Butembo is far more vibrant than Beni and, according
to the president of the Chamber of Commerce (FEC),has no
provincial or national support. The business community has
funded the construction of the airport, a small hydroelectric
plant and local schools, and is in the process of building a
new town hall and FEC headquarters. In addition to the
coffee factory EconOff saw - which has over 100 employees,
mainly women - the FEC president told EconOff that tea
processing and soft drink bottling factories exist. The FEC
president also expressed interest in developing the fishing
and tourism industries on Lake Edward.

COMMENT
--------------


17. (SBU) Along the Grand Nord's border with Uganda are both
positive and negative examples of economic activity. The
Nande, particularly in Butembo, show how a community can
thrive in spite of, or perhaps even because of, the absence
of national government presence. Even the often criticized
Ugandan economic influence is not an entirely negative
phenomenon, especially to the extent that it makes more goods
and services available. However, what must be firmly
addressed is Uganda's role in supporting illegal trade,
particularly of gold. To do so, the GDRC must continue to

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install national control, replace entrenched customs
officials with a larger cadre from another region and ensure
that replacements - along with the military - are better
paid. The GDRC and the international community must also
continue to pressure the GOU to install import controls on
its side of the border.
MEECE