DRC FEBRUARY/MARCH ECONOMIC REVIEW

UNCLAS SECTION 01 OF 24 KINSHASA 000326



SIPDIS



SIPDIS



E.O. 12958: N/A

TAGS: ECON, EFIN, EMIN, ELAB, EAIR, PGOV, CG

SUBJECT: DRC FEBRUARY/MARCH ECONOMIC REVIEW



1. (U) Summary



Aviation

--------------

- MONUC Owes Government of Uganda USD 10 Million in Aviation Fees

- Royal Air Maroc Service to Casablanca and Europe

- Air Zimbabwe Offers Flights from Kinshasa to Dubai and Brussels



Banking Sector

--------------

- Low Rate of Bank Account Ownership in DRC

- Official Central Bank Interest Rate is 24 Percent

- Positive Foreign Exchange Balance

- Money Supply Increases by 15 Percent

- Congolese Central Bank Announces New Treasury Bill Issue and

Process



Bilateral Cooperation

--------------

- Belgium to Help Modernize DRC Customs Agency

- New Partnership Enhances Expertise in Accounting Practices



Commercial

--------------

- Cosmetic Producers Resist Ban on Products



Cooperation

--------------

- GDRC Standardizing Bidding Procedures



Corruption

--------------

- DRC and South Africa Join to Fight Corruption



Energy

--------------

- World Energy Council Announces Grand Inga Project

- WB Director: SNEL Needs USD 20B to Rehab Inga Dam

- SNEL Seeks Proposals for Generator Rehab



Forestry

--------------

- World Bank Reviews its Forestry Activities in DRC

- GDRC Defends Timber Export Legality



Governance

--------------

- Commission: USD 2B Missing from Treasury



Health

--------------

- Malnutrition in Katanga Province Increasing



Infrastructure

--------------

- World Bank Funds USD 50 Million in Road Projects



Labor

--------------

- MONUC Head Promotes Contracts with Local Businesses

- National Labor Council Meets



Microfinance

--------------

- Association Sets Up Work Plan 2008 to 2012

- DRC National Microfinance Strategy Published

- Proposal for Statistics Law delivered to Plan Ministry



Mining

--------------

- VM Mines: All Mining Contracts to be Renegotiated

- MIBA Needs USD 50 Million to Improve Production

- China to Exploit Two GECAMINES Concessions

- Mining Contract Review Commission Contacts 61 Companies

- Mining Conference On 2002 Mining Code and EITI Practices

- CAMEC and Prairie Complete Joint Venture and Restart Operations at

Mukondo

- Police Expel Artisanal Miners from Mining Concessions



Multilateral Cooperation

--------------

- UNICEF and GDRC Work to Enhance Education



Nuclear

--------------

- DOE/DOS Delegation Negotiates with GDRC to Defuel Nuclear



KINSHASA 00000326 002 OF 024





Reactors



Petroleum

--------------

- Senator: 2008 Budget Does Not Share Oil Revenues

- SACOIL Gains Oil Concession; Tullow Loses One

- French Petroleum Company Invests in Bas-Congo

- Brazilian Investors Launch Petroleum Drilling



Public Enterprises

--------------

- New Manager of SONAS Launches Operation Insurance

- Union Protests Against Water Company Reforms

- SNCC Management Contract Awarded to Belgian Firm

- USD 8 Million to Revitalize ONATRA and SNCC

- Office des Routes Celebrates 37 Years, then Complains



Public Finance

--------------

- GDRC Struggling to Meet Key IMF Requirements

- GDRC Cites Causes of Poor 4th Quarter Performance

- The GDRC Committed to Retrocede Revenues to Provinces

- Cigarette Smuggling in Bunia

- Deputies Debate GDRC Support to Provinces

- State Revenues Reach 162 Million

- Foreign Exchange Reserves Decrease



Telecom

--------------

- GDRC Ministries Get Connected



Transportation

--------------

- Public Transportation Shortage in Kinshasa

- STUC Increases Buses in Circulation

- GDRC to Auction Matadi Cargo Containers



End Summary.



Aviation

--------------



2. (U) MONUC (the United Nations Mission in the DRC) owes USD 10

million to the Ugandan Civil Aviation Authority for landing fees,

air navigation, airport passenger service, and change facilities.

The debt accrued from March 2002 through January 2008. On August 8,

2003, the UN and Ugandan Government signed an agreement allowing

MONUC to use Entebbe as their base for flying in and out of DRC, but

the agreement did not stipulate how the fees would be paid.



3. (U) Royal Air Maroc (RAM) airline inaugurated flights from

Kinshasa to Europe and Africa via Casablanca on March 29. The

company will fly on Fridays and Sundays and will operate Boeing

737-800 aircraft with economy and business class sections.



4. (U) The Congolese airline, Lignes Ariennes Congolaises (LAC),

signed a contract with Air Zimbabwe for joint operations of flights

from Kinshasa to both Dubai and Brussels. Air Zimbabwe will provide

aircraft while LAC will provide rights to DRC airspace. Air

Zimbabwe will also operate some DRC domestic flights with LAC. LAC

has also signed a Memorandum of Understanding with the Arcane Group

for DRC airport management.



Banking Sector

--------------



5. (U) According to the Deputy General Secretary of COMESA, DRC

still has one of lowest levels of bank account ownership on the

continent. Of the 60 million Congolese only 100,000 have accounts

in the DRC banking system. This situation impedes commercial

development in eastern and southern African regions.



6. (U) The official Congolese Central Bank (BCC) interest rate is 24

percent. This rate was decided by BCC in early January 2008.



7. (U) According to the Central Bank, the year-to-date total of

purchased foreign currencies reached USD 120 million while sold

foreign currencies was USD 126 million. This means that some USD 6

million worth of Congolese francs (FC 3 billion) were removed from

circulation during the period January 1 through March 10.



8. (U) Money supply has increased by nearly 15 percent since the end

of December 2007. (Note: This is not a surprise considering the

sharp depreciation of the Congolese franc, nearly ten percent, since

December. Exchange rate fluctuations tend to reflect changes in

money supply very closely and quickly in the DRC. End note.)



KINSHASA 00000326 003 OF 024







9. (U) In an effort to reduce the amount of Congolese francs in

circulation, the Central Bank (BCC) has announced a new process for

issuance and redemption of Treasury Bills. Offers by those wishing

to purchase the new T-bills will be submitted thru merchant banks

and include the buyer's suggested interest rate and the amount to be

purchased (in FC 1,000,000 units, about USD 1,700 each). The BCC

will then analyze all the offers and sell the T-bills at the lowest

interest until all the bills are sold.



Bilateral Cooperation

--------------



10. (U) According to an existing accord signed between DRC and

Belgium, both countries are committed to fight against smuggling at

the international level. After a visit in DRC, the General

Inspector of the Belgian Customs Agency declared that Belgium would

help DRC to promulgate its new customs code. The new code should be

published in June.



11. (U) A new partnership between the Belgian Royal Institute of

Auditors and both the Congolese Institute of Auditors and the

Congolese Permanent Council of Accountancy aims at enhancing the

level of expertise of DRC auditors and promoting sound accounting

practices for the annual control of public accounts.



Commercial

--------------



12. (U) The Ministry of Industry has started to enforce a ban on

hydroquinone by regulating the stocks of certain cosmetics.

Cosmetics producers are reluctant to comply with the ban, arguing

that their plants would need adjustments. Cosmetics with

hydroquinone, used primarily to lighten skin, are in high demand in

Kinshasa, and producers may be trying to maintain a profitable

line.



Cooperation

--------------



13. (U) COMESA, the Common Market for Eastern and Southern Africa,

has urged the DRC to harmonize its bidding procedures with COMESA

standards. A new DRC bidding procedure is ready to be sent to the

National Assembly according to the Vice Minister of Finance.



Corruption

--------------



14. (U) The DRC and South Africa signed an agreement to fight

corruption through their civil service ministries. South Africa

will also fund some anti-corruption related activities in DRC.



Energy

--------------



15. (U) The World Energy Council launched a new project called

"Grand Inga" that is intended to provide electricity to sub-Saharan

African countries through the South African Power Pool. The project

would supply the DRC with 52 generators of 750 megawatts (MW) each

for a total of 39,000 MW. The electricity companies involved in the

Grand Inga project met most recently in Gaborone, Botswana on March

16 -17, 2008, where they concluded that electricity is crucial for

economic growth and poverty reduction. The Grand Inga project

includes both dams, Inga I (inaugurated in 1972 with a potential of

380 MW) and Inga II (inaugurated in 1982 with a 1,440 MW potential).





16. (U) According to the World Bank, the DRC Treasury receives only

35 percent of electricity revenues generated by SNEL. Marie

Frangoise Marie-Nelly, Director of the World Bank in Kinshasa, said

SNEL needs USD 20 billion to rehabilitate Inga dam, expand

hydroelectric capacity, and improve transmission lines. She also

said SNEL should use the available funds of USD 200 million to

restore turbines and to construct a second power transmission line

from Inga.



17. (U) SNEL published a tender for rehabilitation of turbines 7 and

8 at INGA 2. This rehabilitation will fill the current energy

deficit by responding to the needs of the population, the mining

industry in Katanga, and supporting energy pools in Sub-Saharan

Africa. The deadline for submission is May 22. Proposals will be

opened the same day.



Forestry

--------------





KINSHASA 00000326 004 OF 024





18. (U) Since early 2002, the World Bank (WB) has helped the DRC to

approve 48 million hectares of forest concessions. Problems with

exploitation have made the GDRC review some of these contracts, with

25 million hectares recuperated. The WB in Kinshasa is preparing

three reform projects: 1) capacity building for forestry agencies,

2) capacity building for ICCN (Congolese Institute for Nature

Conservation) staff, and 3) a multi-donor project to review forestry

policy with the participation of civil society.



19. (U) The GDRC has reacted to Greenpeace accusations of illegal

exports against two timber companies operating in the DRC. The

government says that recent shipments to France were legal and

covered by the required procedures and documents.



Governance

--------------



20. (U) An audit commissioned by Prime Minister Gizenga reports that

USD 2 billion went missing from the DRC treasury during the past 18

months. The commission audited nine public enterprises and the

three main revenue collecting agencies (Customs, Taxes, and

Revenues). Ministries that oversee public enterprises were said to

have misappropriated USD 786,819; illegal advantages totaling USD

1,170,794 were granted to managers, and USD 18,081,738 in losses

were still to be justified. "Unconscionable bargains" reached USD

9,578,420 and interior debt of USD 1,467,826,233 went unpaid. The

customs (OFIDA),tax (DGI) and revenue (DGRAD) agencies were said to

have lost USD 59,980,543, USD 56,600,955 and USD 1,705,015,941 in

income, respectively.



Health

--------------



21. (U) Cases of malnutrition in and around mining cities in Katanga

are increasing due to the reduction of agricultural activities by

the population in formerly agricultural areas. The province now

imports eighty percent of the cereal it consumes, most of this from

South Africa. Governor Katumbi has decreed that all mining

companies will cultivate at least 500 hectares (over 1000 acres).



Infrastructure

--------------



22. (U) A USD 50 million high-priority World Bank road project

(Pro-Routes) will re-pave sections that are currently impassable.

The roads targeted are Kisangani-Buta-Bondo-Bunduki (620 km, about

450 miles) in Province Orientale, with connections to Equateur

Province; and Uvira - Kasomeno (1,180 km, about 800 miles)

connecting Sud Kivu and Katanga provinces. This project will serve

highly populated areas and connect to a network of about 7,000 km

(almost 5,000 miles) of high-priority roads funded by other donors

including the International Development Association (IDA). The WB

project also includes a comprehensive social and environmental

program.



Labor

--------------



23. (U) Alan Doss, the new SRSG to the DRC, plans to promote the use

of DRC SMEs for MONUC contracts. Doss committed to initiating

workshops that will help local businesses understand MONUC's

procurement process.



24. (U) The National Labor Council began on March 25, 2008 with

delegates from the Ministry of Labor, private companies, and the

labor unions. Council delegates will review resolutions from the

First National Labor Council; adoption of the Labor Code and jobs

that foreigners are prohibited to hold; and the guaranteed minimum

salary for professionals.



Microfinance

--------------



25. (U) RIFIDEC (Regroupement des Institutions de Micro Finance du

Systhme Dcentralis du Congo),a platform of micro financial

institutions, has set up its 2008 - 2012 work plan. This work plan

targets modernization and outreach. RIFIDEC includes 26

institutions authorized by the Central Bank in eight provinces, and

helps some 120 cooperatives and microfinance institutions to

formalize their operations.



26. (U) The National Microfinance Strategy document provides

information on the current situation, the national policy/strategy,

and an action plan for 2008-2012. Approximately 60,000 accounts

exist in 75 microfinance institutions authorized by the Congolese

Central Bank. Private banking products and services in the DRC are



KINSHASA 00000326 005 OF 024





still poor in general, while the need for banking and credit

services are high and increasing.





27. (U) A committee will present the Ministry of Plan a proposal for

new laws regulating the collection and organization of statistics.

The draft proposal suggests standardizing the statistical methods

used by various GDRC organizations. Statistics are currently

collected by the National Council of Statistics, the National

Institute of Statistics, and various provincial-level agencies. The

Ministry of Plan hopes to improve the reliability and availability

of statistics in the DRC.



Mining

--------------



28. (U) The Vice Minister of Mines, Victor Kasongo Shomari,

announced in February that all of the DRC mining contracts reviewed

needed to be renegotiated. Kasongo, leading a delegation to the

Indaba mining conference in South Africa, said the review process

turned out to require "multiple major surgeries" rather than the

minor corrections initially envisioned. The GDRC will start

negotiations with the mining companies, who will then have the

opportunity to appeal any decision within 30 days.



29. (U) MIBA is looking for USD 50 million in funding to improve

production. The diamond parastatal announced that it will use 90

percent of the funding for new investments and 10 percent for

operations. MIBA is in the process of reducing expenses by 25

percent.



30. (U) Forrest Group International has signed an agreement to

retrocede two concessions, Mashamba West and Dikulwe in Katanga

province, to GECAMINES for USD 825 million. The concessions

belonged to Katanga Mining, a 24.5 percent shareholder in Forrest

Group, and will not be exploited before 2020. Chinese companies

will reportedly exploit the mineral reserves in Mashamba West and

Dikulwe in exchange for road construction and other

infrastructure-building projects.



31. (U) The Ministry of Mines announced on February 18, 2008 that

the DRC had completed the review of 60 mining contracts and has made

the results available to respective companies. The Commission

recommended cancellation of 16 contracts, including joint ventures

between GECAMINES and Swanepoel/Exaco, MIBA and SENGAMINES, and

OKIMO and Amani Gold. A GDRC panel will determine which

recommendations to accept, and the next step in the process will be

renegotiations with a GDRC Task Force. (Ref Kinshasa 294)



32. (U) The Mining Days Conference took place in Kinshasa from March

12 to 14, during which the Ministry of Mines planned to make quick

decisions to implement the mining code. Martin Kabwelulu, the

Minister of Mines, said the objective for the conference was to

evaluate the implementation of the 2002 Mining Code and to introduce

good governance principles through the Extractive Industries

Transparency Initiative (EITI) practices. Delegates from

international organizations, decentralized administrative entities,

organizations of artisanal mining exploiters, tax collection

services, government experts, and Chambers of Commerce participated

in the event.



33. (U) Central African Mining & Exploration Company (CAMEC)

completed its joint venture with Prairie International,

majority-owned by the Gertler family, after negotiations with

GECAMINES. CAMEC and Prairie have since restarted operations on

Mukondo Mountain. CAMEC announced that the new deal with GECAMINES

clears the company from further review of its mining licenses.

CAMEC also raised USD 87.27 million (72.5 million new shares at USD

1.21 per share) to develop its Luila copper cobalt facility,

estimating a possible 100,000-ton copper cathode production capacity

per year.



34. (U) GECAMINES expelled artisanal miners from its Kamatana

concession, 3 km from Likasi in the Katanga province, on March 6.

Police killed one miner after fighting broke out with artisanal

miners that would not leave. Police also forced artisanal miners

off of an Anvil Mining concession near Kolwezi on March 31, firing

teargas into the air. Artisanal miners burned tires and threw

Molotov cocktails in protest in Kolwezi and nearby Luilu.



Multilateral Cooperation

--------------



35. (U) In an effort to enhance the level of education in DRC, the

GDRC and UNICEF estimate the need in the education sector at USD 93

million from 2008 to 2012. Part of this projected expenditure wll



KINSHASA 00000326 006 OF 024





be taken from the DRC budget while the rest should be raised from

outside sources. This plan targets reforms in education as well as

increasing the number of children in schools.



Nuclear

--------------



36. (U) A Department of Energy/Department of State delegation met

with the GDRC Office of the Presidency, the Ministry of Higher

Education and Scientific Research, and officials from CREN-K

(Regional Center for Nuclear Studies - Kinshasa) during the week of

March 17. The DOE/DOS team is working toward eventually defueling

the two nuclear reactors located at the University of Kinshasa and

repatriating all U.S.-origin nuclear elements currently in CREN-K

facilities. While DRC government officials were opposed to

defueling one of the reactors, key members of the Ministry and

CREN-K agreed to meet for technical meetings in the near future.

(See Septel)



Petroleum

--------------



37. (U) Senator Lunda Bululu, former PM under Mobutu, says the 2008

budget is unconstitutional. He says that it does not include the

required petroleum revenue sharing among provinces based upon their

population size. (Note: the DRC is only producing about 25K barrels

of oil per day, compared to nearly 200M barrels per day in

neighboring Angola. End note.)



38. (U) A geologist from the Ministry of Mines announced that

significant petroleum reserves exist in eastern Ituri, Orientale

Province. The geologist said a South African company, South Africa

Congo Oil (SACOIL),negotiated a contract with the GDRC to share

production from Block 3, located south of Lake Albert in Ituri. The

Ministry of Hydrocarbons also announced Block 1 would be assigned to

SACOIL after Tullow Oil (UK) and its partner, Heritage Oil (Canada),

had relinquished the concession (a claim Tullow Oil denies).



39. (U) PERENCO, a French petroleum company specializing in on- and

off-shore oil exploitation in the DRC is planning to invest USD 50

million to double production. Currently, the company produces 25

thousand barrels per day and exports 350 thousand barrels per month.

At the moment PERENCO has a 6 MW hydroelectric dam equipped with

gas compression facilities, a water injection system, electricity

generators, a petroleum storage vessel, and a 300 kilometer pipeline

(210 miles). The GDRC has a 20 percent share in PERENCO.



40. (U) Brazilian investors from High Resolution Technical Petroleum

(HRTP) visited the DRC on March 26 and met with Prime Minister

Gizenga. HRTP said that they will launch their first petroleum

drilling at Maindombe Lake, Bandundu next year. Dr. Keith Millheim,

President of Global Drilling (a U.S. company) is a partner with the

Brazilian investors. HRTP is investing USD 100 million of which USD

20 million was used on feasibility studies.



Public Enterprises

--------------



41. (U) Aiming to increase receipts, the new manager of SONAS (the

National Insurance Company) launched a promotion campaign providing

for a free replacement of car insurance stamps. In a close

partnership with the traffic police the brake - block (Denver Boot)

will be used to immobilize cars that do not have current insurance

stamps.



42. (U) Union employees of the DRC National Water Company (REGIDESO)

are protesting against possible World Bank-funded reforms as part of

the public enterprise reform process. Employees feel that improved

efficiency and competitiveness should not translate to layoffs.



43. (U) The Pilot Committee for the Reform of State Enterprises

(COPIREP) has confirmed the awarding of the State Rail Company

(SNCC) management contract to Vectoris, a Belgian firm. Management

of SNCC will now be mixed Congolese and Belgian. The Ministry of

Portfolio, which oversees COPIREP, hopes that this move will

contribute to the eventual return of SNCC to profitability.



44. (U) Recently-signed management contracts for GDRC river

transport parastatal ONATRA and rail transport parastatal SNCC will

cost a total of USD 8 million. Belgian firm Vectoris and

Spanish/French firm PROGOSA will provide expertise that it is hoped

will turn the unprofitable and under-equipped transportation

parastatals around. ONATRA personnel, meanwhile, are reportedly

more worried about the lack of new equipment (e.g. locomotives and

riverboats). (Comment: While rolling/floating stock for the two

companies is in abysmal condition and short supply, no sane investor



KINSHASA 00000326 007 OF 024





is going to pour millions of dollars into poorly managed companies.

End comment.)



45. (U) The newly-installed CEO of the Congolese Office des Routes

used the 37th anniversary of the agency to deplore its lack of

financial resources to cover operational costs and investment. He

also denounced what he saw as the marginalization of his agency by

funding and implementation of projects by outside entities.



Public Finance

--------------



46. (U) The GDRC is struggling to meet the key macroeconomic targets

required for eventual reestablishment of the formal IMF country

program. The GDRC is hoping to conclude a new program by March in

order to achieve Highly Indebted Poor Country (HIPC) completion

point before the end of 2008. The challenge lies with maintaining

GDRC expenditures within revenues.



47. (U) The GDRC's Technical and Economic Commission presented its

annual report to the Council of Ministers on February 12. According

to the Commission, the poor economic performance during the 4th

quarter of 2007 was due to slow processing in the ports of Matadi

and Boma; backlogs of merchandise at the Kasumbalesa border;

reluctance of economic operators to BIVAC (customs) inspections;

OCC's refusal to adopt the "guichet unique" (one-stop service for

import/export clearance); and many other border issues. These

problems led to a decreased supply of goods, higher prices in the

interior, and lower DRC customs revenue.



48. (U) Budget Minister Adolph Muzito says that the GDRC has begun

retrocession of state revenues to the eleven provinces. This is

happening before actual adoption of the decentralization law by the

National Assembly. Muzito stated that the GDRC would make sure that

this money reaches the commune (the smallest administrative entity)

level. USD 6 million has reportedly been given to Kinshasa province

for the period January/February 2008.



49. (U) Tons of foreign-produced cigarettes are reportedly entering

the DRC via Bunia, Province Orientale, in eastern Congo near the

border with Uganda, without paying required customs and duty fees.

Smuggling from Uganda is thought to be the cause.



50. (U) Speaker of the National Assembly Vital Kamerhe urged GDRC

officials to allocate required budget support to provinces in

anticipation of a vote on the so-called equalization law, as part of

the overall decentralization process. This would allow provincial

governments to address their emergency needs.



51. (U) According to the BCC, annual state revenues reached FC 162

billion (USD 324 million) and expenditures FC 161 billion (USD 322

million) through March 10, for a net positive balance of about USD 2

million.



52. (U) DRC foreign exchange reserves decreased by USD 4.38 million,

down to a total of USD 170 million, which represents one week of

imports. (Note: BCC Governor Masangu told Ambassador Garvelink on

March 26 that this low level of reserves was "not a problem" because

of the ease with which dollars can be obtained from the many in DRC

circulation. End note.)



Telecom

--------------



53. (U) In an agreement signed by the Republic of South Korea and

DRC, South Korea will connect GDRC institutions via intranet

starting with the ministries of Foreign Affairs, Justice, Plan,

Budget, Finance, PTT, and Public Works.



Transportation

--------------



54. (U) Public transportation in Kinshasa has become even more

difficult over recent months. The number of buses in circulation is

considered insufficient, and people now rely more on taxis. Because

the taxis are shortening their travel distances to maximize profits,

the waiting-time for transportation is often more than an hour.



55. (U) The Kinshasa Urban Transport Company (STUC, an apt acronym),

has launched a program to increase the number of buses in

circulation. STUC's CEO announced that at least 50 buses will be

put back into circulation due to a significant acquisition of spare

parts. STUC also held an awards ceremony to congratulate Congolese

mechanics that were trained by Tata Motors (the Indian supplier of

most buses in the DRC).





KINSHASA 00000326 008 OF 024





56. (U) At a meeting in Matadi, the GDRC decided that at the end of

the month they will auction containers that are piling up at

ONATRA's port. This should ease congestion and allow normal

operations to resume.



Monthly Inflation and Exchange Rates

--------------



57. (U) The monthly inflation rate for March was 5.6 percent. The

UNCLASSIFIED



SIPDIS

PROG 04/03/2008

AMB:WGARVELINK

ECON:DMORTON, NKABANGU

ECON:GGROTH, CCORKEY

KCTY



AMEMBASSY KINSHASA

SECSTATE WASHDC

INFO RWANDA COLLECTIVE

SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

DEPT OF COMMERCE WASHDC

DEPT OF TREASURY WASHDC

HQ USEUCOM VAIHINGEN GE

JAC MOLESWORTH RAF MOLESWORTH UK

CIA WASHDC



SIPDIS



E.O. 12958: N/A

TAGS: ECON, EFIN, EMIN, ELAB, EAIR, PGOV, CG

SUBJECT: DRC FEBRUARY/MARCH ECONOMIC REVIEW



1. (U) Summary



Aviation

--------------

- MONUC Owes Government of Uganda USD 10 Million in Aviation Fees

- Royal Air Maroc Service to Casablanca and Europe

- Air Zimbabwe Offers Flights from Kinshasa to Dubai and Brussels



Banking Sector

--------------

- Low Rate of Bank Account Ownership in DRC

- Official Central Bank Interest Rate is 24 Percent

- Positive Foreign Exchange Balance

- Money Supply Increases by 15 Percent

- Congolese Central Bank Announces New Treasury Bill Issue and

Process



Bilateral Cooperation

--------------

- Belgium to Help Modernize DRC Customs Agency

- New Partnership Enhances Expertise in Accounting Practices



Commercial

--------------

- Cosmetic Producers Resist Ban on Products



Cooperation

--------------

- GDRC Standardizing Bidding Procedures



Corruption

--------------

- DRC and South Africa Join to Fight Corruption



Energy

--------------

- World Energy Council Announces Grand Inga Project

- WB Director: SNEL Needs USD 20B to Rehab Inga Dam

- SNEL Seeks Proposals for Generator Rehab



Forestry

--------------

- World Bank Reviews its Forestry Activities in DRC

- GDRC Defends Timber Export Legality



Governance

--------------

- Commission: USD 2B Missing from Treasury



Health

--------------

- Malnutrition in Katanga Province Increasing



Infrastructure



KINSHASA 00000326 009 OF 024





--------------

- World Bank Funds USD 50 Million in Road Projects



Labor

--------------

- MONUC Head Promotes Contracts with Local Businesses

- National Labor Council Meets



Microfinance

--------------

- Association Sets Up Work Plan 2008 to 2012

- DRC National Microfinance Strategy Published

- Proposal for Statistics Law delivered to Plan Ministry



Mining

--------------

- VM Mines: All Mining Contracts to be Renegotiated

- MIBA Needs USD 50 Million to Improve Production

- China to Exploit Two GECAMINES Concessions

- Mining Contract Review Commission Contacts 61 Companies

- Mining Conference On 2002 Mining Code and EITI Practices

- CAMEC and Prairie Complete Joint Venture and Restart Operations at

Mukondo

- Police Expel Artisanal Miners from Mining Concessions



Multilateral Cooperation

--------------

- UNICEF and GDRC Work to Enhance Education



Nuclear

--------------

- DOE/DOS Delegation Negotiates with GDRC to Defuel Nuclear

Reactors



Petroleum

--------------

- Senator: 2008 Budget Does Not Share Oil Revenues

- SACOIL Gains Oil Concession; Tullow Loses One

- French Petroleum Company Invests in Bas-Congo

- Brazilian Investors Launch Petroleum Drilling



Public Enterprises

--------------

- New Manager of SONAS Launches Operation Insurance

- Union Protests Against Water Company Reforms

- SNCC Management Contract Awarded to Belgian Firm

- USD 8 Million to Revitalize ONATRA and SNCC

- Office des Routes Celebrates 37 Years, then Complains



Public Finance

--------------

- GDRC Struggling to Meet Key IMF Requirements

- GDRC Cites Causes of Poor 4th Quarter Performance

- The GDRC Committed to Retrocede Revenues to Provinces

- Cigarette Smuggling in Bunia

- Deputies Debate GDRC Support to Provinces

- State Revenues Reach 162 Million

- Foreign Exchange Reserves Decrease



Telecom

--------------

- GDRC Ministries Get Connected



Transportation

--------------

- Public Transportation Shortage in Kinshasa

- STUC Increases Buses in Circulation

- GDRC to Auction Matadi Cargo Containers



End Summary.



Aviation

--------------



2. (U) MONUC (the United Nations Mission in the DRC) owes USD 10

million to the Ugandan Civil Aviation Authority for landing fees,

air navigation, airport passenger service, and change facilities.

The debt accrued from March 2002 through January 2008. On August 8,

2003, the UN and Ugandan Government signed an agreement allowing

MONUC to use Entebbe as their base for flying in and out of DRC, but

the agreement did not stipulate how the fees would be paid.



3. (U) Royal Air Maroc (RAM) airline inaugurated flights from

Kinshasa to Europe and Africa via Casablanca on March 29. The

company will fly on Fridays and Sundays and will operate Boeing

737-800 aircraft with economy and business class sections.



KINSHASA 00000326 010 OF 024







4. (U) The Congolese airline, Lignes Ariennes Congolaises (LAC),

signed a contract with Air Zimbabwe for joint operations of flights

from Kinshasa to both Dubai and Brussels. Air Zimbabwe will provide

aircraft while LAC will provide rights to DRC airspace. Air

Zimbabwe will also operate some DRC domestic flights with LAC. LAC

has also signed a Memorandum of Understanding with the Arcane Group

for DRC airport management.



Banking Sector

--------------



5. (U) According to the Deputy General Secretary of COMESA, DRC

still has one of lowest levels of bank account ownership on the

continent. Of the 60 million Congolese only 100,000 have accounts

in the DRC banking system. This situation impedes commercial

development in eastern and southern African regions.



6. (U) The official Congolese Central Bank (BCC) interest rate is 24

percent. This rate was decided by BCC in early January 2008.



7. (U) According to the Central Bank, the year-to-date total of

purchased foreign currencies reached USD 120 million while sold

foreign currencies was USD 126 million. This means that some USD 6

million worth of Congolese francs (FC 3 billion) were removed from

circulation during the period January 1 through March 10.



8. (U) Money supply has increased by nearly 15 percent since the end

of December 2007. (Note: This is not a surprise considering the

sharp depreciation of the Congolese franc, nearly ten percent, since

December. Exchange rate fluctuations tend to reflect changes in

money supply very closely and quickly in the DRC. End note.)



9. (U) In an effort to reduce the amount of Congolese francs in

circulation, the Central Bank (BCC) has announced a new process for

issuance and redemption of Treasury Bills. Offers by those wishing

to purchase the new T-bills will be submitted thru merchant banks

and include the buyer's suggested interest rate and the amount to be

purchased (in FC 1,000,000 units, about USD 1,700 each). The BCC

will then analyze all the offers and sell the T-bills at the lowest

interest until all the bills are sold.



Bilateral Cooperation

--------------



10. (U) According to an existing accord signed between DRC and

Belgium, both countries are committed to fight against smuggling at

the international level. After a visit in DRC, the General

Inspector of the Belgian Customs Agency declared that Belgium would

help DRC to promulgate its new customs code. The new code should be

published in June.



11. (U) A new partnership between the Belgian Royal Institute of

Auditors and both the Congolese Institute of Auditors and the

Congolese Permanent Council of Accountancy aims at enhancing the

level of expertise of DRC auditors and promoting sound accounting

practices for the annual control of public accounts.



Commercial

--------------



12. (U) The Ministry of Industry has started to enforce a ban on

hydroquinone by regulating the stocks of certain cosmetics.

Cosmetics producers are reluctant to comply with the ban, arguing

that their plants would need adjustments. Cosmetics with

hydroquinone, used primarily to lighten skin, are in high demand in

Kinshasa, and producers may be trying to maintain a profitable

line.



Cooperation

--------------



13. (U) COMESA, the Common Market for Eastern and Southern Africa,

has urged the DRC to harmonize its bidding procedures with COMESA

standards. A new DRC bidding procedure is ready to be sent to the

National Assembly according to the Vice Minister of Finance.



Corruption

--------------



14. (U) The DRC and South Africa signed an agreement to fight

corruption through their civil service ministries. South Africa

will also fund some anti-corruption related activities in DRC.



Energy

--------------



KINSHASA 00000326 011 OF 024







15. (U) The World Energy Council launched a new project called

"Grand Inga" that is intended to provide electricity to sub-Saharan

African countries through the South African Power Pool. The project

would supply the DRC with 52 generators of 750 megawatts (MW) each

for a total of 39,000 MW. The electricity companies involved in the

Grand Inga project met most recently in Gaborone, Botswana on March

16 -17, 2008, where they concluded that electricity is crucial for

economic growth and poverty reduction. The Grand Inga project

includes both dams, Inga I (inaugurated in 1972 with a potential of

380 MW) and Inga II (inaugurated in 1982 with a 1,440 MW potential).





16. (U) According to the World Bank, the DRC Treasury receives only

35 percent of electricity revenues generated by SNEL. Marie

Frangoise Marie-Nelly, Director of the World Bank in Kinshasa, said

SNEL needs USD 20 billion to rehabilitate Inga dam, expand

hydroelectric capacity, and improve transmission lines. She also

said SNEL should use the available funds of USD 200 million to

restore turbines and to construct a second power transmission line

from Inga.



17. (U) SNEL published a tender for rehabilitation of turbines 7 and

8 at INGA 2. This rehabilitation will fill the current energy

deficit by responding to the needs of the population, the mining

industry in Katanga, and supporting energy pools in Sub-Saharan

Africa. The deadline for submission is May 22. Proposals will be

opened the same day.



Forestry

--------------



18. (U) Since early 2002, the World Bank (WB) has helped the DRC to

approve 48 million hectares of forest concessions. Problems with

exploitation have made the GDRC review some of these contracts, with

25 million hectares recuperated. The WB in Kinshasa is preparing

three reform projects: 1) capacity building for forestry agencies,

2) capacity building for ICCN (Congolese Institute for Nature

Conservation) staff, and 3) a multi-donor project to review forestry

policy with the participation of civil society.



19. (U) The GDRC has reacted to Greenpeace accusations of illegal

exports against two timber companies operating in the DRC. The

government says that recent shipments to France were legal and

covered by the required procedures and documents.



Governance

--------------



20. (U) An audit commissioned by Prime Minister Gizenga reports that

USD 2 billion went missing from the DRC treasury during the past 18

months. The commission audited nine public enterprises and the

three main revenue collecting agencies (Customs, Taxes, and

Revenues). Ministries that oversee public enterprises were said to

have misappropriated USD 786,819; illegal advantages totaling USD

1,170,794 were granted to managers, and USD 18,081,738 in losses

were still to be justified. "Unconscionable bargains" reached USD

9,578,420 and interior debt of USD 1,467,826,233 went unpaid. The

customs (OFIDA),tax (DGI) and revenue (DGRAD) agencies were said to

have lost USD 59,980,543, USD 56,600,955 and USD 1,705,015,941 in

income, respectively.



Health

--------------



21. (U) Cases of malnutrition in and around mining cities in Katanga

are increasing due to the reduction of agricultural activities by

the population in formerly agricultural areas. The province now

imports eighty percent of the cereal it consumes, most of this from

South Africa. Governor Katumbi has decreed that all mining

companies will cultivate at least 500 hectares (over 1000 acres).



Infrastructure

--------------



22. (U) A USD 50 million high-priority World Bank road project

(Pro-Routes) will re-pave sections that are currently impassable.

The roads targeted are Kisangani-Buta-Bondo-Bunduki (620 km, about

450 miles) in Province Orientale, with connections to Equateur

Province; and Uvira - Kasomeno (1,180 km, about 800 miles)

connecting Sud Kivu and Katanga provinces. This project will serve

highly populated areas and connect to a network of about 7,000 km

(almost 5,000 miles) of high-priority roads funded by other donors

including the International Development Association (IDA). The WB

project also includes a comprehensive social and environmental

program.



KINSHASA 00000326 012 OF 024







Labor

--------------



23. (U) Alan Doss, the new SRSG to the DRC, plans to promote the use

of DRC SMEs for MONUC contracts. Doss committed to initiating

workshops that will help local businesses understand MONUC's

procurement process.



24. (U) The National Labor Council began on March 25, 2008 with

delegates from the Ministry of Labor, private companies, and the

labor unions. Council delegates will review resolutions from the

First National Labor Council; adoption of the Labor Code and jobs

that foreigners are prohibited to hold; and the guaranteed minimum

salary for professionals.



Microfinance

--------------



25. (U) RIFIDEC (Regroupement des Institutions de Micro Finance du

Systhme Dcentralis du Congo),a platform of micro financial

institutions, has set up its 2008 - 2012 work plan. This work plan

targets modernization and outreach. RIFIDEC includes 26

institutions authorized by the Central Bank in eight provinces, and

helps some 120 cooperatives and microfinance institutions to

formalize their operations.



26. (U) The National Microfinance Strategy document provides

information on the current situation, the national policy/strategy,

and an action plan for 2008-2012. Approximately 60,000 accounts

exist in 75 microfinance institutions authorized by the Congolese

Central Bank. Private banking products and services in the DRC are

still poor in general, while the need for banking and credit

services are high and increasing.





27. (U) A committee will present the Ministry of Plan a proposal for

new laws regulating the collection and organization of statistics.

The draft proposal suggests standardizing the statistical methods

used by various GDRC organizations. Statistics are currently

collected by the National Council of Statistics, the National

Institute of Statistics, and various provincial-level agencies. The

Ministry of Plan hopes to improve the reliability and availability

of statistics in the DRC.



Mining

--------------



28. (U) The Vice Minister of Mines, Victor Kasongo Shomari,

announced in February that all of the DRC mining contracts reviewed

needed to be renegotiated. Kasongo, leading a delegation to the

Indaba mining conference in South Africa, said the review process

turned out to require "multiple major surgeries" rather than the

minor corrections initially envisioned. The GDRC will start

negotiations with the mining companies, who will then have the

opportunity to appeal any decision within 30 days.



29. (U) MIBA is looking for USD 50 million in funding to improve

production. The diamond parastatal announced that it will use 90

percent of the funding for new investments and 10 percent for

operations. MIBA is in the process of reducing expenses by 25

percent.



30. (U) Forrest Group International has signed an agreement to

retrocede two concessions, Mashamba West and Dikulwe in Katanga

province, to GECAMINES for USD 825 million. The concessions

belonged to Katanga Mining, a 24.5 percent shareholder in Forrest

Group, and will not be exploited before 2020. Chinese companies

will reportedly exploit the mineral reserves in Mashamba West and

Dikulwe in exchange for road construction and other

infrastructure-building projects.



31. (U) The Ministry of Mines announced on February 18, 2008 that

the DRC had completed the review of 60 mining contracts and has made

the results available to respective companies. The Commission

recommended cancellation of 16 contracts, including joint ventures

between GECAMINES and Swanepoel/Exaco, MIBA and SENGAMINES, and

OKIMO and Amani Gold. A GDRC panel will determine which

recommendations to accept, and the next step in the process will be

renegotiations with a GDRC Task Force. (Ref Kinshasa 294)



32. (U) The Mining Days Conference took place in Kinshasa from March

12 to 14, during which the Ministry of Mines planned to make quick

decisions to implement the mining code. Martin Kabwelulu, the

Minister of Mines, said the objective for the conference was to

evaluate the implementation of the 2002 Mining Code and to introduce



KINSHASA 00000326 013 OF 024





good governance principles through the Extractive Industries

Transparency Initiative (EITI) practices. Delegates from

international organizations, decentralized administrative entities,

organizations of artisanal mining exploiters, tax collection

services, government experts, and Chambers of Commerce participated

in the event.



33. (U) Central African Mining & Exploration Company (CAMEC)

completed its joint venture with Prairie International,

majority-owned by the Gertler family, after negotiations with

GECAMINES. CAMEC and Prairie have since restarted operations on

Mukondo Mountain. CAMEC announced that the new deal with GECAMINES

clears the company from further review of its mining licenses.

CAMEC also raised USD 87.27 million (72.5 million new shares at USD

1.21 per share) to develop its Luila copper cobalt facility,

estimating a possible 100,000-ton cQper cathode production capacity

per year.



34. (U) GECAMINES expelled artisanal miners from its Kamatana

concession, 3 km from Likasi in the Katanga province, on March 6.

Police killed one miner after fighting broke out with artisanal

miners that would not leave. Police also forced artisanal miners

off of an Anvil Mining concession near Kolwezi on March 31, firing

teargas into the air. Artisanal miners burned tires and threw

Molotov cocktails in protest in Kolwezi and nearby Luilu.



Multilateral Cooperation

--------------



35. (U) In an effort to enhance the level of education in DRC, the

GDRC and UNICEF estimate the need in the education sector at USD 93

million from 2008 to 2012. Part of this projected expenditure will

be taken from the DRC budget while the rest should be raised from

outside sources. This plan targets reforms in education as well as

increasing the number of children in schools.



Nuclear

--------------



36. (U) A Department of Energy/Department of State delegation met

with the GDRC Office of the Presidency, the Ministry of Higher

Education and Scientific Research, and officials from CREN-K

(Regional Center for Nuclear Studies - Kinshasa) during the week of

March 17. The DOE/DOS team is working toward eventually defueling

the two nuclear reactors located at the University of Kinshasa and

repatriating all U.S.-origin nuclear elements currently in CREN-K

facilities. While DRC government officials were opposed to

defueling one of the reactors, key members of the Ministry and

CREN-K agreed to meet for technical meetings in the near future.

(See Septel)



Petroleum

--------------



37. (U) Senator Lunda Bululu, former PM under Mobutu, says the 2008

budget is unconstitutional. He says that it does not include the

required petroleum revenue sharing among provinces based upon their

population size. (Note: the DRC is only producing about 25K barrels

of oil per day, compared to nearly 200M barrels per day in

neighboring Angola. End note.)



38. (U) A geologist from the Ministry of Mines announced that

significant petroleum reserves exist in eastern Ituri, Orientale

Province. The geologist said a South African company, South Africa

Congo Oil (SACOIL),negotiated a contract with the GDRC to share

production from Block 3, located south of Lake Albert in Ituri. The

Ministry of Hydrocarbons also announced Block 1 would be assigned to

SACOIL after Tullow Oil (UK) and its partner, Heritage Oil (Canada),

had relinquished the concession (a claim Tullow Oil denies).



39. (U) PERENCO, a French petroleum company specializing in on- and

off-shore oil exploitation in the DRC is planning to invest USD 50

million to double production. Currently, the company produces 25

thousand barrels per day and exports 350 thousand barrels per month.

At the moment PERENCO has a 6 MW hydroelectric dam equipped with

gas compression facilities, a water injection system, electricity

generators, a petroleum storage vessel, and a 300 kilometer pipeline

(210 miles). The GDRC has a 20 percent share in PERENCO.



40. (U) Brazilian investors from High Resolution Technical Petroleum

(HRTP) visited the DRC on March 26 and met with Prime Minister

Gizenga. HRTP said that they will launch their first petroleum

drilling at Maindombe Lake, Bandundu next year. Dr. Keith Millheim,

President of Global Drilling (a U.S. company) is a partner with the

Brazilian investors. HRTP is investing USD 100 million of which USD

20 million was used on feasibility studies.



KINSHASA 00000326 014 OF 024







Public Enterprises

--------------



41. (U) Aiming to increase receipts, the new manager of SONAS (the

National Insurance Company) launched a promotion campaign providing

for a free replacement of car insurance stamps. In a close

partnership with the traffic police the brake - block (Denver Boot)

will be used to immobilize cars that do not have current insurance

stamps.



42. (U) Union employees of the DRC National Water Company (REGIDESO)

are protesting against possible World Bank-funded reforms as part of

the public enterprise reform process. Employees feel that improved

efficiency and competitiveness should not translate to layoffs.



43. (U) The Pilot Committee for the Reform of State Enterprises

(COPIREP) has confirmed the awarding of the State Rail Company

(SNCC) management contract to Vectoris, a Belgian firm. Management

of SNCC will now be mixed Congolese and Belgian. The Ministry of

Portfolio, which oversees COPIREP, hopes that this move will

contribute to the eventual return of SNCC to profitability.



44. (U) Recently-signed management contracts for GDRC river

transport parastatal ONATRA and rail transport parastatal SNCC will

cost a total of USD 8 million. Belgian firm Vectoris and

Spanish/French firm PROGOSA will provide expertise that it is hoped

will turn the unprofitable and under-equipped transportation

parastatals around. ONATRA personnel, meanwhile, are reportedly

more worried about the lack of new equipment (e.g. locomotives and

riverboats). (Comment: While rolling/floating stock for the two

companies is in abysmal condition and short supply, no sane investor

is going to pour millions of dollars into poorly managed companies.

End comment.)



45. (U) The newly-installed CEO of the Congolese Office des Routes

used the 37th anniversary of the agency to deplore its lack of

financial resources to cover operational costs and investment. He

also denounced what he saw as the marginalization of his agency by

funding and implementation of projects by outside entities.



Public Finance

--------------



46. (U) The GDRC is struggling to meet the key macroeconomic targets

required for eventual reestablishment of the formal IMF country

program. The GDRC is hoping to conclude a new program by March in

order to achieve Highly Indebted Poor Country (HIPC) completion

point before the end of 2008. The challenge lies with maintaining

GDRC expenditures within revenues.



47. (U) The GDRC's Technical and Economic Commission presented its

annual report to the Council of Ministers on February 12. According

to the Commission, the poor economic performance during the 4th

quarter of 2007 was due to slow processing in the ports of Matadi

and Boma; backlogs of merchandise at the Kasumbalesa border;

reluctance of economic operators to BIVAC (customs) inspections;

OCC's refusal to adopt the "guichet unique" (one-stop service for

import/export clearance); and many other border issues. These

problems led to a decreased supply of goods, higher prices in the

interior, and lower DRC customs revenue.



48. (U) Budget Minister Adolph Muzito says that the GDRC has begun

retrocession of state revenues to the eleven provinces. This is

happening before actual adoption of the decentralization law by the

National Assembly. Muzito stated that the GDRC would make sure that

this money reaches the commune (the smallest administrative entity)

level. USD 6 million has reportedly been given to Kinshasa province

for the period January/February 2008.



49. (U) Tons of foreign-produced cigarettes are reportedly entering

the DRC via Bunia, Province Orientale, in eastern Congo near the

border with Uganda, without paying required customs and duty fees.

Smuggling from Uganda is thought to be the cause.



50. (U) Speaker of the National Assembly Vital Kamerhe urged GDRC

officials to allocate required budget support to provinces in

anticipation of a vote on the so-called equalization law, as part of

the overall decentralization process. This would allow provincial

governments to address their emergency needs.



51. (U) According to the BCC, annual state revenues reached FC 162

billion (USD 324 million) and expenditures FC 161 billion (USD 322

million) through March 10, for a net positive balance of about USD 2

million.





KINSHASA 00000326 015 OF 024





52. (U) DRC foreign exchange reserves decreased by USD 4.38 million,

down to a total of USD 170 million, which represents one week of

imports. (Note: BCC Governor Masangu told Ambassador Garvelink on

March 26 that this low level of reserves was "not a problem" because

of the ease with which dollars can be obtained from the many in DRC

circulation. End note.)



Telecom

--------------



53. (U) In an agreement signed by the Republic of South Korea and

DRC, South Korea will connect GDRC institutions via intranet

starting with the ministries of Foreign Affairs, Justice, Plan,

Budget, Finance, PTT, and Public Works.



Transportation

--------------



54. (U) Public transportation in Kinshasa has become even more

difficult over recent months. The number of buses in circulation is

considered insufficient, and people now rely more on taxis. Because

the taxis are shortening their travel distances to maximize profits,

the waiting-time for transportation is often more than an hour.



55. (U) The Kinshasa Urban Transport Company (STUC, an apt acronym),

has launched a program to increase the number of buses in

circulation. STUC's CEO announced that at least 50 buses will be

put back into circulation due to a significant acquisition of spare

parts. STUC also held an awards ceremony to congratulate Congolese

mechanics that were trained by Tata Motors (the Indian supplier of

most buses in the DRC).



56. (U) At a meeting in Matadi, the GDRC decided that at the end of

the month they will auction containers that are piling up at

ONATRA's port. This should ease congestion and allow normal

operations to resume.



Monthly Inflation and Exchange Rates

--------------



57. (U) The monthly inflation rate for March was 5.6 percent. The

UNCLASSIFIED



SIPDIS

PROG 04/03/2008

AMB:WGARVELINK

ECON:DMORTON, NKABANGU

ECON:GGROTH, CCORKEY

KCTY



AMEMBASSY KINSHASA

SECSTATE WASHDC

INFO RWANDA COLLECTIVE

SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

DEPT OF COMMERCE WASHDC

DEPT OF TREASURY WASHDC

HQ USEUCOM VAIHINGEN GE

JAC MOLESWORTH RAF MOLESWORTH UK

CIA WASHDC



SIPDIS



E.O. 12958: N/A

TAGS: ECON, EFIN, EMIN, ELAB, EAIR, PGOV, CG

SUBJECT: DRC FEBRUARY/MARCH ECONOMIC REVIEW



1. (U) Summary



Aviation

--------------

- MONUC Owes Government of Uganda USD 10 Million in Aviation Fees

- Royal Air Maroc Service to Casablanca and Europe

- Air Zimbabwe Offers Flights from Kinshasa to Dubai and Brussels



Banking Sector

--------------

- Low Rate of Bank Account Ownership in DRC

- Official Central Bank Interest Rate is 24 Percent

- Positive Foreign Exchange Balance

- Money Supply Increases by 15 Percent

- Congolese Central Bank Announces New Treasury Bill Issue and

Process



Bilateral Cooperation

--------------

- Belgium to Help Modernize DRC Customs Agency

- New Partnership Enhances Expertise in Accounting Practices





KINSHASA 00000326 016 OF 024





Commercial

--------------

- Cosmetic Producers Resist Ban on Products



Cooperation

--------------

- GDRC Standardizing Bidding Procedures



Corruption

--------------

- DRC and South Africa Join to Fight Corruption



Energy

--------------

- World Energy Council Announces Grand Inga Project

- WB Director: SNEL Needs USD 20B to Rehab Inga Dam

- SNEL Seeks Proposals for Generator Rehab



Forestry

--------------

- World Bank Reviews its Forestry Activities in DRC

- GDRC Defends Timber Export Legality



Governance

--------------

- Commission: USD 2B Missing from Treasury



Health

--------------

- Malnutrition in Katanga Province Increasing



Infrastructure

--------------

- World Bank Funds USD 50 Million in Road Projects



Labor

--------------

- MONUC Head Promotes Contracts with Local Businesses

- National Labor Council Meets



Microfinance

--------------

- Association Sets Up Work Plan 2008 to 2012

- DRC National Microfinance Strategy Published

- Proposal for Statistics Law delivered to Plan Ministry



Mining

--------------

- VM Mines: All Mining Contracts to be Renegotiated

- MIBA Needs USD 50 Million to Improve Production

- China to Exploit Two GECAMINES Concessions

- Mining Contract Review Commission Contacts 61 Companies

- Mining Conference On 2002 Mining Code and EITI Practices

- CAMEC and Prairie Complete Joint Venture and Restart Operations at

Mukondo

- Police Expel Artisanal Miners from Mining Concessions



Multilateral Cooperation

--------------

- UNICEF and GDRC Work to Enhance Education



Nuclear

--------------

- DOE/DOS Delegation Negotiates with GDRC to Defuel Nuclear

Reactors



Petroleum

--------------

- Senator: 2008 Budget Does Not Share Oil Revenues

- SACOIL Gains Oil Concession; Tullow Loses One

- French Petroleum Company Invests in Bas-Congo

- Brazilian Investors Launch Petroleum Drilling



Public Enterprises

--------------

- New Manager of SONAS Launches Operation Insurance

- Union Protests Against Water Company Reforms

- SNCC Management Contract Awarded to Belgian Firm

- USD 8 Million to Revitalize ONATRA and SNCC

- Office des Routes Celebrates 37 Years, then Complains



Public Finance

--------------

- GDRC Struggling to Meet Key IMF Requirements

- GDRC Cites Causes of Poor 4th Quarter Performance

- The GDRC Committed to Retrocede Revenues to Provinces



KINSHASA 00000326 017 OF 024





- Cigarette Smuggling in Bunia

- Deputies Debate GDRC Support to Provinces

- State Revenues Reach 162 Million

- Foreign Exchange Reserves Decrease



Telecom

--------------

- GDRC Ministries Get Connected



Transportation

--------------

- Public Transportation Shortage in Kinshasa

- STUC Increases Buses in Circulation

- GDRC to Auction Matadi Cargo Containers



End Summary.



Aviation

--------------



2. (U) MONUC (the United Nations Mission in the DRC) owes USD 10

million to the Ugandan Civil Aviation Authority for landing fees,

air navigation, airport passenger service, and change facilities.

The debt accrued from March 2002 through January 2008. On August 8,

2003, the UN and Ugandan Government signed an agreement allowing

MONUC to use Entebbe as their base for flying in and out of DRC, but

the agreement did not stipulate how the fees would be paid.



3. (U) Royal Air Maroc (RAM) airline inaugurated flights from

Kinshasa to Europe and Africa via Casablanca on March 29. The

company will fly on Fridays and Sundays and will operate Boeing

737-800 aircraft with economy and business class sections.



4. (U) The Congolese airline, Lignes Ariennes Congolaises (LAC),

signed a contract with Air Zimbabwe for joint operations of flights

from Kinshasa to both Dubai and Brussels. Air Zimbabwe will provide

aircraft while LAC will provide rights to DRC airspace. Air

Zimbabwe will also operate some DRC domestic flights with LAC. LAC

has also signed a Memorandum of Understanding with the Arcane Group

for DRC airport management.



Banking Sector

--------------



5. (U) According to the Deputy General Secretary of COMESA, DRC

still has one of lowest levels of bank account ownership on the

continent. Of the 60 million Congolese only 100,000 have accounts

in the DRC banking system. This situation impedes commercial

development in eastern and southern African regions.



6. (U) The official Congolese Central Bank (BCC) interest rate is 24

percent. This rate was decided by BCC in early January 2008.



7. (U) According to the Central Bank, the year-to-date total of

purchased foreign currencies reached USD 120 million while sold

foreign currencies was USD 126 million. This means that some USD 6

million worth of Congolese francs (FC 3 billion) were removed from

circulation during the period January 1 through March 10.



8. (U) Money supply has increased by nearly 15 percent since the end

of December 2007. (Note: This is not a surprise considering the

sharp depreciation of the Congolese franc, nearly ten percent, since

December. Exchange rate fluctuations tend to reflect changes in

money supply very closely and quickly in the DRC. End note.)



9. (U) In an effort to reduce the amount of Congolese francs in

circulation, the Central Bank (BCC) has announced a new process for

issuance and redemption of Treasury Bills. Offers by those wishing

to purchase the new T-bills will be submitted thru merchant banks

and include the buyer's suggested interest rate and the amount to be

purchased (in FC 1,000,000 units, about USD 1,700 each). The BCC

will then analyze all the offers and sell the T-bills at the lowest

interest until all the bills are sold.



Bilateral Cooperation

--------------



10. (U) According to an existing accord signed between DRC and

Belgium, both countries are committed to fight against smuggling at

the international level. After a visit in DRC, the General

Inspector of the Belgian Customs Agency declared that Belgium would

help DRC to promulgate its new customs code. The new code should be

published in June.



11. (U) A new partnership between the Belgian Royal Institute of

Auditors and both the Congolese Institute of Auditors and the



KINSHASA 00000326 018 OF 024





Congolese Permanent Council of Accountancy aims at enhancing the

level of expertise of DRC auditors and promoting sound accounting

practices for the annual control of public accounts.



Commercial

--------------



12. (U) The Ministry of Industry has started to enforce a ban on

hydroquinone by regulating the stocks of certain cosmetics.

Cosmetics producers are reluctant to comply with the ban, arguing

that their plants would need adjustments. Cosmetics with

hydroquinone, used primarily to lighten skin, are in high demand in

Kinshasa, and producers may be trying to maintain a profitable

line.



Cooperation

--------------



13. (U) COMESA, the Common Market for Eastern and Southern Africa,

has urged the DRC to harmonize its bidding procedures with COMESA

standards. A new DRC bidding procedure is ready to be sent to the

National Assembly according to the Vice Minister of Finance.



Corruption

--------------



14. (U) The DRC and South Africa signed an agreement to fight

corruption through their civil service ministries. South Africa

will also fund some anti-corruption related activities in DRC.



Energy

--------------



15. (U) The World Energy Council launched a new project called

"Grand Inga" that is intended to provide electricity to sub-Saharan

African countries through the South African Power Pool. The project

would supply the DRC with 52 generators of 750 megawatts (MW) each

for a total of 39,000 MW. The electricity companies involved in the

Grand Inga project met most recently in Gaborone, Botswana on March

16 -17, 2008, where they concluded that electricity is crucial for

economic growth and poverty reduction. The Grand Inga project

includes both dams, Inga I (inaugurated in 1972 with a potential of

380 MW) and Inga II (inaugurated in 1982 with a 1,440 MW potential).





16. (U) According to the World Bank, the DRC Treasury receives only

35 percent of electricity revenues generated by SNEL. Marie

Frangoise Marie-Nelly, Director of the World Bank in Kinshasa, said

SNEL needs USD 20 billion to rehabilitate Inga dam, expand

hydroelectric capacity, and improve transmission lines. She also

said SNEL should use the available funds of USD 200 million to

restore turbines and to construct a second power transmission line

from Inga.



17. (U) SNEL published a tender for rehabilitation of turbines 7 and

8 at INGA 2. This rehabilitation will fill the current energy

deficit by responding to the needs of the population, the mining

industry in Katanga, and supporting energy pools in Sub-Saharan

Africa. The deadline for submission is May 22. Proposals will be

opened the same day.



Forestry

--------------



18. (U) Since early 2002, the World Bank (WB) has helped the DRC to

approve 48 million hectares of forest concessions. Problems with

exploitation have made the GDRC review some of these contracts, with

25 million hectares recuperated. The WB in Kinshasa is preparing

three reform projects: 1) capacity building for forestry agencies,

2) capacity building for ICCN (Congolese Institute for Nature

Conservation) staff, and 3) a multi-donor project to review forestry

policy with the participation of civil society.



19. (U) The GDRC has reacted to Greenpeace accusations of illegal

exports against two timber companies operating in the DRC. The

government says that recent shipments to France were legal and

covered by the required procedures and documents.



Governance

--------------



20. (U) An audit commissioned by Prime Minister Gizenga reports that

USD 2 billion went missing from the DRC treasury during the past 18

months. The commission audited nine public enterprises and the

three main revenue collecting agencies (Customs, Taxes, and

Revenues). Ministries that oversee public enterprises were said to



KINSHASA 00000326 019 OF 024





have misappropriated USD 786,819; illegal advantages totaling USD

1,170,794 were granted to managers, and USD 18,081,738 in losses

were still to be justified. "Unconscionable bargains" reached USD

9,578,420 and interior debt of USD 1,467,826,233 went unpaid. The

customs (OFIDA),tax (DGI) and revenue (DGRAD) agencies were said to

have lost USD 59,980,543, USD 56,600,955 and USD 1,705,015,941 in

income, respectively.



Health

--------------



21. (U) Cases of malnutrition in and around mining cities in Katanga

are increasing due to the reduction of agricultural activities by

the population in formerly agricultural areas. The province now

imports eighty percent of the cereal it consumes, most of this from

South Africa. Governor Katumbi has decreed that all mining

companies will cultivate at least 500 hectares (over 1000 acres).



Infrastructure

--------------



22. (U) A USD 50 million high-priority World Bank road project

(Pro-Routes) will re-pave sections that are currently impassable.

The roads targeted are Kisangani-Buta-Bondo-Bunduki (620 km, about

450 miles) in Province Orientale, with connections to Equateur

Province; and Uvira - Kasomeno (1,180 km, about 800 miles)

connecting Sud Kivu and Katanga provinces. This project will serve

highly populated areas and connect to a network of about 7,000 km

(almost 5,000 miles) of high-priority roads funded by other donors

including the International Development Association (IDA). The WB

project also includes a comprehensive social and environmental

program.



Labor

--------------



23. (U) Alan Doss, the new SRSG to the DRC, plans to promote the use

of DRC SMEs for MONUC contracts. Doss committed to initiating

workshops that will help local businesses understand MONUC's

procurement process.



24. (U) The National Labor Council began on March 25, 2008 with

delegates from the Ministry of Labor, private companies, and the

labor unions. Council delegates will review resolutions from the

First National Labor Council; adoption of the Labor Code and jobs

that foreigners are prohibited to hold; and the guaranteed minimum

salary for professionals.



Microfinance

--------------



25. (U) RIFIDEC (Regroupement des Institutions de Micro Finance du

Systhme Dcentralis du Congo),a platform of micro financial

institutions, has set up its 2008 - 2012 work plan. This work plan

targets modernization and outreach. RIFIDEC includes 26

institutions authorized by the Central Bank in eight provinces, and

helps some 120 cooperatives and microfinance institutions to

formalize their operations.



26. (U) The National Microfinance Strategy document provides

information on the current situation, the national policy/strategy,

and an action plan for 2008-2012. Approximately 60,000 accounts

exist in 75 microfinance institutions authorized by the Congolese

Central Bank. Private banking products and services in the DRC are

still poor in general, while the need for banking and credit

services are high and increasing.





27. (U) A committee will present the Ministry of Plan a proposal for

new laws regulating the collection and organization of statistics.

The draft proposal suggests standardizing the statistical methods

used by various GDRC organizations. Statistics are currently

collected by the National Council of Statistics, the National

Institute of Statistics, and various provincial-level agencies. The

Ministry of Plan hopes to improve the reliability and availability

of statistics in the DRC.



Mining

--------------



28. (U) The Vice Minister of Mines, Victor Kasongo Shomari,

announced in February that all of the DRC mining contracts reviewed

needed to be renegotiated. Kasongo, leading a delegation to the

Indaba mining conference in South Africa, said the review process

turned out to require "multiple major surgeries" rather than the

minor corrections initially envisioned. The GDRC will start



KINSHASA 00000326 020 OF 024





negotiations with the mining companies, who will then have the

opportunity to appeal any decision within 30 days.



29. (U) MIBA is looking for USD 50 million in funding to improve

production. The diamond parastatal announced that it will use 90

percent of the funding for new investments and 10 percent for

operations. MIBA is in the process of reducing expenses by 25

percent.



30. (U) Forrest Group International has signed an agreement to

retrocede two concessions, Mashamba West and Dikulwe in Katanga

province, to GECAMINES for USD 825 million. The concessions

belonged to Katanga Mining, a 24.5 percent shareholder in Forrest

Group, and will not be exploited before 2020. Chinese companies

will reportedly exploit the mineral reserves in Mashamba West and

Dikulwe in exchange for road construction and other

infrastructure-building projects.



31. (U) The Ministry of Mines announced on February 18, 2008 that

the DRC had completed the review of 60 mining contracts and has made

the results available to respective companies. The Commission

recommended cancellation of 16 contracts, including joint ventures

between GECAMINES and Swanepoel/Exaco, MIBA and SENGAMINES, and

OKIMO and Amani Gold. A GDRC panel will determine which

recommendations to accept, and the next step in the process will be

renegotiations with a GDRC Task Force. (Ref Kinshasa 294)



32. (U) The Mining Days Conference took place in Kinshasa from March

12 to 14, during which the Ministry of Mines planned to make quick

decisions to implement the mining code. Martin Kabwelulu, the

Minister of Mines, said the objective for the conference was to

evaluate the implementation of the 2002 Mining Code and to introduce

good governance principles through the Extractive Industries

Transparency Initiative (EITI) practices. Delegates from

international organizations, decentralized administrative entities,

organizations of artisanal mining exploiters, tax collection

services, government experts, and Chambers of Commerce participated

in the event.



33. (U) Central African Mining & Exploration Company (CAMEC)

completed its joint venture with Prairie International,

majority-owned by the Gertler family, after negotiations with

GECAMINES. CAMEC and Prairie have since restarted operations on

Mukondo Mountain. CAMEC announced that the new deal with GECAMINES

clears the company from further review of its mining licenses.

CAMEC also raised USD 87.27 million (72.5 million new shares at USD

1.21 per share) to develop its Luila copper cobalt facility,

estimating a possible 100,000-ton copper cathode production capacity

per year.



34. (U) GECAMINES expelled artisanal miners from its Kamatana

concession, 3 km from Likasi in the Katanga province, on March 6.

Police killed one miner after fighting broke out with artisanal

miners that would not leave. Police also forced artisanal miners

off of an Anvil Mining concession near Kolwezi on March 31, firing

teargas into the air. Artisanal miners burned tires and threw

Molotov cocktails in protest in Kolwezi and nearby Luilu.



Multilateral Cooperation

--------------



35. (U) In an effort to enhance the level of education in DRC, the

GDRC and UNICEF estimate the need in the education sector at USD 93

million from 2008 to 2012. Part of this projected expenditure will

be taken from the DRC budget while the rest should be raised from

outside sources. This plan targets reforms in education as well as

increasing the number of children in schools.



Nuclear

--------------



36. (U) A Department of Energy/Department of State delegation met

with the GDRC Office of the Presidency, the Ministry of Higher

Education and Scientific Research, and officials from CREN-K

(Regional Center for Nuclear Studies - Kinshasa) during the week of

March 17. The DOE/DOS team is working toward eventually defueling

the two nuclear reactors located at the University of Kinshasa and

repatriating all U.S.-origin nuclear elements currently in CREN-K

facilities. While DRC government officials were opposed to

defueling one of the reactors, key members of the Ministry and

CREN-K agreed to meet for technical meetings in the near future.

(See Septel)



Petroleum

--------------





KINSHASA 00000326 021 OF 024





37. (U) Senator Lunda Bululu, former PM under Mobutu, says the 2008

budget is unconstitutional. He says that it does not include the

required petroleum revenue sharing among provinces based upon their

population size. (Note: the DRC is only producing about 25K barrels

of oil per day, compared to nearly 200M barrels per day in

neighboring Angola. End note.)



38. (U) A geologist from the Ministry of Mines announced that

significant petroleum reserves exist in eastern Ituri, Orientale

Province. The geologist said a South African company, South Africa

Congo Oil (SACOIL),negotiated a contract with the GDRC to share

production from Block 3, located south of Lake Albert in Ituri. The

Ministry of Hydrocarbons also announced Block 1 would be assigned to

SACOIL after Tullow Oil (UK) and its partner, Heritage Oil (Canada),

had relinquished the concession (a claim Tullow Oil denies).



39. (U) PERENCO, a French petroleum company specializing in on- and

off-shore oil exploitation in the DRC is planning to invest USD 50

million to double production. Currently, the company produces 25

thousand barrels per day and exports 350 thousand barrels per month.

At the moment PERENCO has a 6 MW hydroelectric dam equipped with

gas compression facilities, a water injection system, electricity

generators, a petroleum storage vessel, and a 300 kilometer pipeline

(210 miles). The GDRC has a 20 percent share in PERENCO.



40. (U) Brazilian investors from High Resolution Technical Petroleum

(HRTP) visited the DRC on March 26 and met with Prime Minister

Gizenga. HRTP said that they will launch their first petroleum

drilling at Maindombe Lake, Bandundu next year. Dr. Keith Millheim,

President of Global Drilling (a U.S. company) is a partner with the

Brazilian investors. HRTP is investing USD 100 million of which USD

20 million was used on feasibility studies.



Public Enterprises

--------------



41. (U) Aiming to increase receipts, the new manager of SONAS (the

National Insurance Company) launched a promotion campaign providing

for a free replacement of car insurance stamps. In a close

partnership with the traffic police the brake - block (Denver Boot)

will be used to immobilize cars that do not have current insurance

stamps.



42. (U) Union employees of the DRC National Water Company (REGIDESO)

are protesting against possible World Bank-funded reforms as part of

the public enterprise reform process. Employees feel that improved

efficiency and competitiveness should not translate to layoffs.



43. (U) The Pilot Committee for the Reform of State Enterprises

(COPIREP) has confirmed the awarding of the State Rail Company

(SNCC) management contract to Vectoris, a Belgian firm. Management

of SNCC will now be mixed Congolese and Belgian. The Ministry of

Portfolio, which oversees COPIREP, hopes that this move will

contribute to the eventual return of SNCC to profitability.



44. (U) Recently-signed management contracts for GDRC river

transport parastatal ONATRA and rail transport parastatal SNCC will

cost a total of USD 8 million. Belgian firm Vectoris and

Spanish/French firm PROGOSA will provide expertise that it is hoped

will turn the unprofitable and under-equipped transportation

parastatals around. ONATRA personnel, meanwhile, are reportedly

more worried about the lack of new equipment (e.g. locomotives and

riverboats). (Comment: While rolling/floating stock for the two

companies is in abysmal condition and short supply, no sane investor

is going to pour millions of dollars into poorly managed companies.

End comment.)



45. (U) The newly-installed CEO of the Congolese Office des Routes

used the 37th anniversary of the agency to deplore its lack of

financial resources to cover operational costs and investment. He

also denounced what he saw as the marginalization of his agency by

funding and implementation of projects by outside entities.



Public Finance

--------------



46. (U) The GDRC is struggling to meet the key macroeconomic targets

required for eventual reestablishment of the formal IMF country

program. The GDRC is hoping to conclude a new program by March in

order to achieve Highly Indebted Poor Country (HIPC) completion

point before the end of 2008. The challenge lies with maintaining

GDRC expenditures within revenues.



47. (U) The GDRC's Technical and Economic Commission presented its

annual report to the Council of Ministers on February 12. According

to the Commission, the poor economic performance during the 4th



KINSHASA 00000326 022 OF 024





quarter of 2007 was due to slow processing in the ports of Matadi

and Boma; backlogs of merchandise at the Kasumbalesa border;

reluctance of economic operators to BIVAC (customs) inspections;

OCC's refusal to dopt the "guichet unique" (one-stop service for

iport/export clearance); and many other border issus. These

problems led to a decreased supply of oods, higher prices in the

interior, and lower DC customs revenue.



48. (U) Budget Minister Adolh Muzito says that the GDRC has begun

retrocessio of state revenues to the elevn provinces. This is

happening before actual adoption of the decentralization law by the

National Assembly. Muzito stated that the GDRC would make sure that

this money reaches the commune (the smallest administrative entity)

level. USD 6 million has reportedly been given to Kinshasa province

for the period January/February 2008.



49. (U) Tons of foreign-produced cigarettes are reportedly entering

the DRC via Bunia, Province Orientale, in eastern Congo near the

border with Uganda, without paying required customs and duty fees.

Smuggling from Uganda is thought to be the cause.



50. (U) Speaker of the National Assembly Vital Kamerhe urged GDRC

officials to allocate required budget support to provinces in

anticipation of a vote on the so-called equalization law, as part of

the overall decentralization process. This would allow provincial

governments to address their emergency needs.



51. (U) According to the BCC, annual state revenues reached FC 162

billion (USD 324 million) and expenditures FC 161 billion (USD 322

million) through March 10, for a net positive balance of about USD 2

million.



52. (U) DRC foreign exchange reserves decreased by USD 4.38 million,

down to a total of USD 170 million, which represents one week of

imports. (Note: BCC Governor Masangu told Ambassador Garvelink on

March 26 that this low level of reserves was "not a problem" because

of the ease with which dollars can be obtained from the many in DRC

circulation. End note.)



Telecom

--------------



53. (U) In an agreement signed by the Republic of South Korea and

DRC, South Korea will connect GDRC institutions via intranet

starting with the ministries of Foreign Affairs, Justice, Plan,

Budget, Finance, PTT, and Public Works.



Transportation

--------------



54. (U) Public transportation in Kinshasa has become even more

difficult over recent months. The number of buses in circulation is

considered insufficient, and people now rely more on taxis. Because

the taxis are shortening their travel distances to maximize profits,

the waiting-time for transportation is often more than an hour.



55. (U) The Kinshasa Urban Transport Company (STUC, an apt acronym),

has launched a program to increase the number of buses in

circulation. STUC's CEO announced that at least 50 buses will be

put back into circulation due to a significant acquisition of spare

parts. STUC also held an awards ceremony to congratulate Congolese

mechanics that were trained by Tata Motors (the Indian supplier of

most buses in the DRC).



56. (U) At a meeting in Matadi, the GDRC decided that at the end of

the month they will auction containers that are piling up at

ONATRA's port. This should ease congestion and allow normal

operations to resume.



Monthly Inflation and Exchange Rates

--------------



57. (U) The monthly inflation rate for March was 5.6 percent. The

UNCLASSIFIED



SIPDIS

PROG: 4/3/2008

AMB: WGARVELINK

ECON: GGROTH; AID: KWIEGAND, JBRYAN; FFP: JCONWAY

ADCM: CCLOUD, AID: SHAYKIN

KCTY



AMEMBASSY KINSHASA

SECSTATE WASHDC

INFO SADC COLLECTIVE

RWANDA COLLECTIVE

AMEMBASSY NAIROBI

CIA WASHDC



KINSHASA 00000326 023 OF 024





DEPT OF AGRICULTURE WASHDC

JAC MOLESWORTH RAF MOLESWORTH UK

HQ USEUCOM VAIHINGEN GE



SIPDIS



USDA for FAS: DEVANS

NAIROBI for FAS: KSMITH



E.O. 12958: N/A

TAGS: EAGR, EAID, ECON, SOCI, CG

SUBJECT: Impact of Rising Food Prices in DRC



REF: 06 Kinshasa 1182



1. (U) Summary. Food availability in the DRC is already poor, with

high levels of malnutrition. Food price statistics indicate a 25

percent increase in food prices over the last six months, in

addition to an overall tripling of food prices since the end of

2000. Substitution from imported grains and oils to locally

produced cassava (manioc) and palm oil seems to be one coping

mechanism. Local food purchases by the UN World Food Program may

help, but even this program shows the poor availability of food in

the DRC. End summary.



--------------

Food Availability Already Poor

--------------



2. (U) Food availability in the DRC is very poor, with high rates of

malnutrition throughout the country due to conflict, displacement,

plant disease, severely degraded transportation and infrastructure,

lack of credit, high levels of corruption and banditry, chronic

underinvestment in research, and other factors. Over the past 15

years, food insecurity has increased significantly: between 1991 and

2002, the number of undernourished people tripled, from 12 to 36

million, and now includes approximately 72 percent of the 60 million

population. During this same period, average per capita caloric

intake declined from 2170 to 1610 calories per day. Preliminary

results from the recent Demographic Health Survey completed in DRC

show that 46 percent of children under 5 are malnourished. The

United Nation's Food and Agriculture Organization (FAO) categorizes

the DRC as a low-income food-deficit country. In urban markets such

as Kinshasa and Lubumbashi, rising world prices for staple

commodities can only further negatively impact this situation.

Congolese media regularly issue anecdotal reports about increasing

food prices and the country's inability to feed itself.



--------------

Food Price Increases

--------------



3. (U) There are a number of measures of food price increases

available in the DRC. Both the IMF and the Congolese Central Bank

(BCC) have economic units that conduct market basket surveys in

order to determine inflation rates. The official DRC inflation rate

for 2007, as measured by the IMF and BCC, was just under ten

percent. The GDRC National Statistics Institute (INS) and the

Embassy Kinshasa Economic Section also conduct market basket

surveys. The Economic Section survey has found that over the period

October 1 to March 31, 2008, the price of the average Kinshasan's

food basket has increased by about 25 percent, with food costs more

than tripling between December 2000 and December 2007. (Note: The

embassy market basket survey begun in December 2000 was indexed then

at 100, and now stands at over 300 for basic food items. Inflation

was often very high prior to 2003, sometimes in triple digits. End

note.) INS statistics track more closely to Embassy findings than

to IMF and BCC statistics, and show food price increases and

inflation rates for 2007 and since October 2007 of 36 and 20

percent, respectively, with close agreement on food price increases

during those periods. Recent increases in inflation and food prices

in Kinshasa are largely attributable to rising fuel and

transportation costs, with double digit increases observed in both

October 2007 and again in March 2008.



--------------

Bread Still Popular, but...

--------------



4. (U) Conflict and economic decline has transformed the urban

economy from a largely formal sector to about a 90 percent informal

sector today. Many people have become dependent upon daily, untaxed

sources of income (as opposed to monthly salaries) and are

increasingly dependent upon day-to-day income and subsistence

purchases, especially in the form of bread. Because bread,

especially for breakfast, has now become a relatively larger



KINSHASA 00000326 024 OF 024





proportion of the urban diet, as the price for wheat and corn

increases, cassava flour could be substituted for wheat flour and

corn meal in increasing proportion to produce bread. (Note: during

certain periods of the 1980s, this experiment in "cassava bread" was

tried and failed. End note.) As with public transportation, where

the GDRC-fixed taxi and bus fares were circumvented by shortening

routes, the price of bread has been maintained only through an

apparent reduction in portion size.



--------------

Let Them Eat Cassava...

--------------



5. (U) In the DRC, the primary food source has been and largely

still is cassava. Though all the cassava consumed in the DRC is

produced in-country, the price of cassava has also increased in line

with other basic food commodities measured (approximately 25 percent

over the last six months). This is likely due to increasing

transportation costs and increased demand as the urban population

substitutes for the more expensive rice and corn (maize) that are

also staples of the average Kinshasan diet. For the same price,

approximately USD 50, you can buy twice as much cassava (100 kilos,

or 220 pounds) as rice or maize (50 kilos, 110 pounds),making

cassava the cheapest calories. (Note: DRC cassava production, like

the caloric intake of its people, has also decreased significantly

over the last 15 years (as elsewhere in Africa),due primarily to

the cassava mosaic virus. Luckily, another staple of the Kinshasan

diet is the cassava leaf that often accompanies the cooked

cassava-flour dough, since the leaves are relatively high in

vitamins, minerals and protein. End note.) In rural areas, where

consumption is largely limited to cassava produced by subsistence

farms, there should be lesser impacts of price increases.



--------------

...and Cook with Palm Oil

--------------



6. (U) As the price for vegetable oil increases worldwide, and,

parenthetically, has investors looking seriously at rehabilitating

abandoned palm oil plantations in the DRC, there seems to be an

increased local demand for artisanally produced palm oil. (Note: The

once thriving industrial production and processing of palm oil in

the DRC, which reached almost half a million tons in the 1980s, has

been reduced to the point where domestic DRC producers of refined

oil, soap, and cosmetics are forced to import palm oil from Malaysia

and Indonesia (reftel) End note.) Meanwhile, perhaps due to these

higher imported vegetable oil prices and resultant substitution,

unrefined domestic palm oil prices have increased faster than any

other commodity over the last six months but it continues to be a

better buy than imported, refined oils.



--------------

Local Food Purchases

--------------



7. The UN World Food Program (WFP) has a mandate and money for local

purchase of food in areas of excess production to feed the hungry in

areas of need. WFP/DRC was able to purchase 5,638 metric tons (MT,

about 2,200 pounds) of local food commodities in 2007 and has

already purchased 2,534 MT in 2008. WFP buys from large scale

farmers, traders, and NGOs that organize small scale farmers. The

commodities purchased are maize (2/3 of total) and beans (1/3 of

total). Regionally (Zambia, Uganda, Kenya, Namibia, South Africa

and Tanzania),WFP/DRC has been able to purchase a total of 32,994

MT, primarily maize. This relatively low level of in-country

purchases is another indicator of poor food availability in the

DRC.



8. (U) Comment. The Congolese people in general, and Kinshasans in

particular, know how to get along despite hard times. One old joke

goes: "What did we do before there were candles?" Answer: "We had

electricity." The same might someday be said about cassava bread

and wheat bread, or palm oil and U.S. vegetable oil. The most

disturbing aspect of this food price trend is that, even with

substitution as a coping mechanism, there are those who are having a

difficult time putting food on the table. Recent events in Burkina

Faso, Cameroon, and elsewhere suggest that there is only so much

elasticity in hunger, and that eventually the population may decide

that it has not had enough...to eat. End comment.



Garvelink