DRC NOVEMBER ECONOMIC REVIEW

UNCLAS SECTION 01 OF 05 KINSHASA 001341 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EMIN ELAB EAIR PGOV CG SUBJECT: DRC NOVEMBER ECONOMIC REVIEW ¶1. (SBU) Summary Agriculture - Palm Oil Imports Flow Again, Local Industry Resumes Production of Margarine, Soap Forestry - NGO Encourages GDRC to Complete Logging Concession Conversion Process Infrastructure - Kinshasa Roads Bad, Getting Worse, Parliament Investigates - New Forklifts May Help Solve Matadi Container Problems Investment - Portuguese Delegation Seeks DRC Business Opportunities - Rothschild Bank May Open Branch in Kinshasa - South African Company Looks to Invest in DRC Labor - Inter-Union's Threat to Strike is Dismissed by the Independent Unions - University Professors Strike - Civil Servants End Walkout, Receive Salary Increase and Equal Pay Across Country - Transportation Employees Strike Mining - Cassiterite Trade in North Kivu Province - Belgian Government Funds Carter Center - African Development Bank Approves EUR 100 Million - Katanga Mining Company and Nikanor to Merge - Radioactive Material Dumped, Arrests Made - GDRC Demands Conversion of Exploration Permits Petroleum - Gasoline Price Increases Nearly 16 Percent for Month - Brazil/DRC Plan Cooperation on Oil Exploration Public Finance - The GDRC pays internal creditors USD 29 million - World Bank grants DRC USD 3 Million Miscellaneous - Corporate Council on Africa (CCA) U.S.-Africa Business Summit, November 14 - 16 - European Union Emergency Funding: EUR 45 Million - World Bank Delegation Reviews DRC Urban and Socioeconomic Program - Preliminary 2008 Draft Budget Announced by Ministry - Cellular Phone Companies Fined - Congolese Customs Office Under Scrutiny Monthly Inflation and Exchange Rates End Summary. Agriculture -------------- ¶2. (U) MARSAVCO, the largest edible oils, soap, and cosmetic manufacturer in the DRC, resumed production this week following a month of severe shortage of imported palm oil due to problems at the Port of Matadi. (Note: DRC was still a palm oil exporter in the early 1980s, peaking at over 400,000 MT, but now is a net importer from Malaysia and Indonesia, unable to supply even its own domestic industry despite vast plantations along the Congo River. End note.) Forestry -------------- ¶3. (U) The NGO "Natural Resources Network" (NRN) recommends that the GDRC convert forestry certificates into forestry concession contracts, in accordance with the presidential decree of 2005. A team created by the Ministry of the Environment is working with the World Bank to accomplish this task. According to NRN, this conversion process should help solve the problem of illegal logging in many regions of the DRC. Infrastructure -------------- ¶4. (U) Roads in Kinshasa remain bad months after elections and despite GDRC promises to improve infrastructure. Heavy rains in late October and early November have made the roads even worse and KINSHASA 00001341 002 OF 005 questions have been raised about recent work done under World Bank contracts. Parliament will conduct an investigation. ¶5. (U) ONATRA (The National Transportation Office) unveiled 36 newly acquired 4-ton forklifts at the Port of Matadi, purchased by the GDRC for USD 14 million. It is hoped that these will help to alleviate the backlog of containers at the port and speed up the entire clearance process, as well as help to improve ONATRA's financial returns. Investment -------------- ¶6. (U) A Portuguese trade delegation met in November with the Ministries of Trade, Industry, Finance, Energy, and Telecommunications. Portuguese investors are exploring opportunities for reinvestment in the DRC after the looting of 1990 and 1993 drove many Portuguese businesses out of the country. ¶7. (U) Rothschild Bank, a Swiss bank that specializes in investment and corporate banking, is negotiating with authorities in the DRC to open a branch in Kinshasa. Rothschild currently has offices in only two other African countries, South Africa and Zimbabwe. ¶8. (U) South African (SA) company Ingram Adcock is assessing the market for dialysis equipment in the DRC. A South African trade delegation met with the director of ANAPI (National Agency for Investment Promotion) to explore the benefits of the GDRC Investment Code. Labor -------------- ¶9. (U) Unions representing DRC civil servants ended their strike after signing a salary agreement with the GDRC on November 14. According to the agreement, the GDRC will increase salaries for all civil servants (with lowest paid workers receiving USD 60/month) throughout the DRC beginning December. ¶10. (U) University professors throughout DRC have begun striking this month in a job action that has spread from Kinshasa to the rest of the nation. Professors are requesting increased salaries of up to USD 4,000/month and a tenure status different from civil servants. ¶11. (U) Independent civil service unions have dismissed calls for a strike by the syndicate of unions, accusing the syndicate of blackmailing the GDRC. The independent unions believe the syndicate has no reason to strike since it has already accepted a negotiated 2008 salary scale. ¶12. (U) Employees in the transportation sector are either striking or threatening to strike. CMDC (Compagnie Maritime du Congo, the national maritime company),is closed due to a strike, while ONATRA (Office National de Transport) employees are threatening to strike and if this occurs there is a risk that the Port of Matadi would close to all import-export traffic. Employees of Hewa Bora, an international airline that flies to Belgium and South Africa, are also on strike, causing aircraft to be grounded. Mining -------------- ¶13. (SBU) Reliable sources in Goma report that LET 410 aircraft, capable of carrying one metric ton (MT, 2200 lbs) of cargo per flight, fly cassiterite (tin ore currently valued at close to $10K/ton) from Walikale to Goma dozens of times/day. This could amount to nearly $500K/day on good days. In addition to cassiterite, the Walikale mines of western North Kivu province also produce gold, coltan, and wolframite (tungsten ore, also now valued at nearly $10K/ton). Villagers between Walikale and Goma report regular overland truck transport of mineral ores, but the onset of the rainy season and the worsening condition of roads, especially around Masisi, has reduced this traffic of late. ¶14. (U) The Belgian government will provide EUR 150,000 (about USD 225,000) to the Carter Center so they can provide legal advice to the GDRC Mining Commission that is reviewing mining contracts signed between the GDRC and its copper/cobalt parastatal, GECAMINES. Based upon the findings of the commission, the GDRC will seek to renegotiate some of the 60-70 contracts under review and will require legal assistance for that process. ¶15. (U) The African Development Bank (ADB) approved a loan of EUR 100 million to Tenke Fungurume Mining SARL (TFM, a project of the U.S. copper mining company Freeport McMoRan International) to partially finance their copper mining project in the Katanga KINSHASA 00001341 003 OF 005 Province of southern DRC. The project will mine copper oxide ore (such as malachite) in Tenke, and process it in a conventional hydrometallurgical plant to extract copper and cobalt. The company expects to produce 115,000 tons of nearly pure copper, and 10,000 tons of cobalt metal per year. In addition to its mining activities TFM will implement infrastructure projects in the area, including roads and hydroelectric power. ¶16. (U) The Minister of Mines, Martin Kabwelulu, announced that Katanga Mining Company (KMC) and Nikanor have merged. The new company will keep the name of Katanga Mining, and will be Africa's largest producer of copper and the world's largest producer of cobalt by 2011. Assets for the new company will exceed USD 3.3 billion. ¶17. (U) Authorities in Katanga province arrested seven members of a team assigned to dispose of seized radioactive material. Seventeen to nineteen tons of copper/cobalt ore found to have radioactivity levels far in excess of legal limits had been confiscated in Likasi (Katanga province). The ore was slated to be sealed in the non-operational uranium mine at Shinkolobwe, but the transportation crew dumped roughly four tons of the ore into the Mura River, six miles south of Likasi. The remaining thirteen to fifteen tons of radioactive ore is still missing. Didace Pembe, Minister of the Environment, announced the arrests and the beginning of the subsequent environmental clean-up. (see Kinshasa 1291) ¶18. (U) Summoned before the Senate on November 19 and 21, Minister of Mines Martin Kabwelulu stated that some mining operators should convert their exploration permits into exploitation permits, as required by DRC law. He said also that the GDRC is working on a process with German and U.S. companies to certify certain minerals, such as coltan, as in the Kimberley process in order to avoid fraud. The Minister also indicated that coltan in Kanyama, Katanga province is being illegally mined. Petroleum -------------- ¶19. (U) The Ministry of Economy announced 8 percent and 5 percent increases in the price of gasoline on November 2 and November 18 respectively due to recent increases in international oil prices. For the western Congo (Kinshasa included),the price for one liter of gas rose from CF 535 (USD 1.07) to CF 580 (USD 1.16) and then from CF 580 (USD 1.16) AND CF 610 (USD 1.60). This nearly 16 percent price hike is equivalent to a nearly thirty cent per gallon increase overnight, and has resulted in a rise of more than 25 percent in the cost of public transportation. The increase is expected to contribute to high end-of-year inflation, beginning with the transportation sector. ¶20. (U) Minister of Energy Lambert Mende Omalanga and a team of Congolese hydrocarbon experts visited Brazil recently to discuss a feasibility project for petroleum exploration in DRC's central basin (mainly northwestern Equateur province). Brazil is planning to use its national petroleum company for the exploration phase. High Resolution Technology Petroleum, a Brazilian laboratory, will evaluate the data for potential petroleum reserves in the basin. The DRC delegation also discussed Brazil's plans for transforming food waste into biofuels. Public Finance -------------- ¶21. (U) The World Bank (WB) has agreed to provide the GDRC USD 29 million to help pay its interior debt. In 2004, the WB granted the GDRC USD 90 million, which allowed the country to pay USD 42.5 million of interior debt and use USD 47.5 million to pay for the retirement of civil servants. ¶22. (U) The World Bank, in an effort to promote the private sector economy in Africa, granted the DRC USD 3 million to help stimulate its economy. The fund will help Congolese businesses meet the GDRC requirements of paying deposits and export fees. (Note: The GDRC exacts large fees and duties on its own exports, making it difficult for small-scale and non-profit exporters to get their goods out of the country, even when attempting to utilize AGOA benefits for exports into the U.S.) Miscellaneous -------------- ¶23. (U) Econ counselor participated in the CCA summit in Cape Town, attended by USG agencies (MCC, OPIC, USTDA, USTR, etc.),African Heads of State (Namibia, Uganda) and U.S. Ambassadors to African countries (Burundi, Madagascar, Zambia). Plenary sessions looked at KINSHASA 00001341 004 OF 005 U.S. Investment and Financing in Africa, U.S-China relations in Africa, and U.S.-Africa Energy Cooperation. Workshops attended by Econcouns included Agribusiness Development, Public-Private Partnerships, Renewable Energy, and Aid for Trade. (Greg Groth) ¶24. (U) EUR 45 million, the remainder of a total EUR 533 million package provided to the GDRC in 2007 to address emergency needs, will be utilized as follows: -- Kinshasa Sanitation Project: EUR 22 million -- Civil Aviation Agency Support Project: EUR 5 - million -- National Police Reform Support: EUR 5 million -- Land Preserves Support: EUR 4 million -- National Independent Electoral Commission Support: EUR 3 million -- Technical Assistance: EUR 5.7 million ¶25. (U) A World Bank (WB) delegation met with GDRC officials in late October while reviewing the WB PURUS project (Emergency Program for Urban and Socioeconomic Rehabilitation). PURUS includes a variety of infrastructural and social programs (including school projects). A progress report regarding GDRC public expenditures will follow. ¶26. (U) During the November 12 extraordinary meeting of the DRC Council of Ministers, a first draft of the 2008 budget was unveiled by the Budget Minister. At USD 3.34 billion, it exceeds the 2007 budget by nearly one billion dollars, and includes funding for the decentralization process, scheduled to begin in early 2008. ¶27. (U) Following a meeting of experts from the GDRC tax collection agency (DGRAD) and the Ministry of Finance, two DRC-based telecommunication companies, CELTEL and SAIT, have been fined USD 14,750,000 and USD 17,428,500 respectively, with payment due to the GDRC treasury by November 3. The two companies are accused of modifying their licenses and/or transferring shares without prior authorization by the Minister of Telecommunications. ¶28. (U) The GDRC Court of Accounts (a watchdog agency) has given the Congolese Duty and Customs Office (OFIDA) until November 10 to justify its low level of collections in fiscal years 2005 and 2006. Although OFIDA reported slightly higher than projected amounts for these years, the Court estimates that at least USD 45 million of state revenues were not reported during those two years. (Note: It is generally acknowledged that state revenue collection agencies, which are self-financed from the proceeds collected, do not effectively collect or deposit mandated taxes, duties and fees. End note.) Monthly Inflation and Exchange Rates -------------- ¶29. (U) The DRC economy is showing an increasingly inflationary trend. After a period of creeping inflation, post's market basket survey indicates an inflation rate of 4.2 percent for November. This November inflation is due almost entirely to a nearly 16 percent fuel price increase (gasoline rose from USD 4.07/gallon at the beginning of the month to USD 4.64/gallon by the end of the month) that in turn increased public transportation costs. Taxi-bus rides rose from 150 CF/trip (about 30 cents) to 200 CF/trip (40 cents). Large buses increased fares from 200 CF (40 cents) to 300 CF (60 cents). Taxi rides went from 350 CF (70 cents) to 400 CF (80 cents). The Economic Section is now retooling its market basket survey to reflect current realities, since the current survey is based upon assumptions made in December 2000 (our base year) that are now no longer completely valid. ¶30. (U) Exchange Rates: Rates have remained very stable despite a spike in inflation for the month of November. Exchange rates may move slightly in December as holiday spending puts more money into circulation and exerts more inflationary pressure on the economy. Week ending: 9/25 10/30 11/30 Central Bank Rates: 498 498 498 Parallel Markets: Kinshasa 495 500 495 Lubumbashi 495 495 490 Mbujimayi 505 505 495 Kisangani 505 505 500 KINSHASA 00001341 005 OF 005 Goma 500 500 500 Bukavu 500 500 500 GARVELINK