DRC APRIL ECONOMIC REVIEW

UNCLAS SECTION 01 OF 08 KINSHASA 000413 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EMIN ELAB EAIR PGOV CG SUBJECT: DRC APRIL ECONOMIC REVIEW ¶1. (U) Summary Agriculture -------------- - New DRC Agricultural Code Presented to Traditional Chiefs - African Wildlife Foundation Assists Isolated Population - Orientale Province Poised to Renew Agricultural Activities Aviation -------------- - CAA Suspends Flights, All Planes to South Africa for Check-Up - Hewa Bora Plane Added to EU Blacklist Banking Sector -------------- - Congolese Bank Improves on 2006 Performance - Seven New Banks Authorized to Operate in DRC Bilateral Cooperation -------------- - The GDRC Attends Indian-Africa Summit - New Partnership between Uganda and DRC Cooperation -------------- - New Start in GDRC - South Africa Relations Corruption -------------- - Former Officials Misappropriate More than 30,000 Houses Environment -------------- - Governors Meet to Address Increased Poaching in Salonga Park - REGIDESO Protests River Pollution Governance -------------- - Congolese Consumer Group Demands Action against Food Price Increases - Smuggling Continues Near Shinkolobwe - Challenges for Congo's Poverty Reduction Strategy Health -------------- - Monkeypox Kills Two in Bokumu - Ministry of Health Sponsors Public Health Workshop - Drug Advertising Banned Infrastructure -------------- - Major Infrastructure Works Launched - Funding Available to Deepen Banana Port Labor -------------- - Doctors Strike in North Kivu - FEC Objects to USD 3 per Day Minimum Wage Microfinance -------------- - DRC Micro-Finance Sector Examined Mining -------------- - Coltan Mining Continues in Northern Katanga - Germany Supports DRC Ore Certification and EITI - MIBA Takes Diamond Marketing Back From Partners - Freeport McMoRan Discusses Mining Contract Review with GDRC - Copper Belt Challenges Multilateral Cooperation -------------- KINSHASA 00000413 002 OF 008 - World Bank and IMF: Still More for the GDRC to Accomplish - AfDB Gives USD 60 Million Against Hunger - The WB Supports the DRC Decentralization Process - The WB Intervenes for Good Governance in DRC - The WB Grant to Empower DRC Private Sector - A UN Stabilization Strategy Signed - The GDRC Meets with Donors - South Kivu Province Population Feels Abandoned - AfDB Participates in Inga Dam Restoration - BCC Governor Attends G-24 Meeting Private Enterprises -------------- - British Oil Company Starts Activities in DRC Public Enterprises -------------- - Ministers Disagree Over Petroleum Revenues - Bas Congo Population Receives Funding from Oil Companies - Congo Oil Company Opens Shop in Kisangani - Cement Production Halted Temporarily - SONAS Seeks Revenue Increase with Insurance Scheme - Rail Traffic Resumes between Ubundu and Kindu - ONATRA Fights Smuggling, Increases Revenues - Public Enterprises under Scrutiny - IBM Contemplating Return to DRC Public Finance -------------- - COPIREP Seeks Means of Simplifying Taxation - Telecoms' Contribution to the Treasury - UNDP: Retrocession Process Faces Challenges - One Stop Shop for Customs Clearance - Misappropriation of Money at Kinshasa Provincial Assembly - New Partnership among BIVAC, OCC and OFIDA - Inflationary Risks Remain - GDRC Budget May Improve with Donations Monthly Inflation and Exchange Rates -------------- - Year-to-date Inflation Stands at 14 Percent - Congolese Franc Decreases by 0.54 Percent End Summary. Agriculture -------------- (U) Minister of Agriculture Nzanga Mobutu (son of the late Mobutu Sese Seko) has submitted a draft agricultural code to the National Association of Traditional Chiefs as a first step before debate within the National Assembly. Traditional chiefs are seen as the principal landowners in the DRC, despite the fact that by law all land is owned by the state, and any land usage must be approved by the local customary chief. With their approval, this agricultural code would likely have enough support to guarantee its passage and implementation countrywide. (OMUHONGYA) (U) The African Wildlife Foundation, in partnership with the ICCN (Congolese Institute for Natural Conservation) launched a project called "BOAT" in the Maninga - Lopori - Wamba area that aims at providing the population with manufactured goods. Empowered by a community based conservation philosophy, the project is funded by the French Fund for the World Environment and executed by the African Women Network for Sustainable Development, the Nederland Agency for Development, and the International Center for Research in agri-forestry. (OMUHONGYA) (U) The International Fund for Agricultural Development (IFAD) has granted Orientale Province in northeast DRC the sum of USD 40 million to relaunch agricultural activities. Following many years of war, Orientale Province, once a strong agricultural producer, seems poised to renew its agricultural sector. (Note: Improvements in agricultural production in the DRC usually requires infrastructural improvement as well, since so much was destroyed during the wars and farmers often cannot get their crops to market or process/store them in any way. End note.) (OMUHONGYA) KINSHASA 00000413 003 OF 008 Aviation -------------- (U) Partly as a result of the crash of rival Hewa Bora's DC-9 in Goma on April 15, the African Aviation Company (CAA) airline has suspended its domestic flights until sometime in May. CAA assured its clients that this action was due to a decision to perform a complete maintenance check in South Africa on all of its aircraft. (OMUHONGYA) (U) The EU has added the one Congolese aircraft previously allowed, the Hewa Bora Airways plane which flew once a week to Brussels from Kinshasa, to the list of aircraft banned from flying in the 27-nation bloc due to safety concerns, said an EU official. EU representatives will be in the DRC to discuss the ban with GDRC Civil Aviation Authority (AAC) May 14-16. (OMUHONGYA) Banking Sector -------------- (U) The new Congolese Bank has published its balance sheet for ¶2007. It generated a net profit of USD four million for fiscal year 2007 up from under USD three million for 2006. The increase is thought to be due to the speed with which the Congolese Bank installed itself in the former Union of Congolese Banks infrastructure nationwide. (OMUHONGYA) (U) Seven new commercial banks have been authorized to operate in the DRC by presidential decree. They are: Ecobank, Invest Bank Congo, Mining Bank of the Congo, First International Bank, Finca, La Cruche Banque, and Socit Financihre des Banques (SOFIBANQUE). Most of these banks have been waiting for the presidential decree for over two years. (OMUHONGYA) Bilateral Cooperation -------------- (U) President Kabila attended the Africa-India summit in New Delhi, along with seven other African presidents. The DRC welcomed this summit as an opportunity to learn from Indian experience. Two documents were signed: the "Delhi Declaration" and the "Indo - African Cooperation Blueprint Agreement". The declaration covered various political issues while the blueprint agreement points out key sectors of cooperation: education, science and technology, agriculture and human resources development. President Kabila met with several Indian companies: Tata, Jindal Steel, Kirloskar group, and Sonalika. (OMUHONGYA) (U) Uganda and the DRC have agreed to create a commission for the management of water resources in Lakes Edward and Albert. This new commission will work under the auspices of the Nile Basin Initiative. The Nile Basin Initiative currently includes nine countries: Burundi, Egypt, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, Uganda and the DRC. (OMUHONGYA) Cooperation -------------- (U) A group of thirty bilateral agreements to be reviewed by a mixed DRC - South Africa commission lack funding. A recent Chinese investment in Standard Bank (STANBIC Bank in the DRC) purports to be among the three largest investments in the DRC. Other investments include the rehabilitation of Congo's airports, construction of new railway lines, repairs to ports, immunization projects, and modernization of the Inga Hydroelectric Dam. (OMUHONGYA) Corruption -------------- (U) More than 30,000 houses have been misappropriated by former GDRC officials countrywide, says a report by the Ministry of the Environment. Most of the houses are in Kinshasa (3/4) but many are also in Katanga, Bas Congo and Sud Kivu. Current "owners" have illegal certificates of registration to support their ownership. (OMUHONGYA) Environment -------------- (U) The Governors of Equateur, Bandundu, and Kasai Occidental provinces have met to set up strategies aimed at reducing an alarming increase in poaching activities in Salonga Park. The park is located in the middle of the DRC and is home to endangered species, including the Bonobo Chimpanzee found only in the DRC. It is one of the oldest parks in the country but is becoming the scene KINSHASA 00000413 004 OF 008 of increased poaching as people move to nearby areas and as the local economy, especially agricultural production, worsens.(OMUHONGYA) (U) The DRC National Water Company (REGIDESO) has filed protests against two companies for dumping organic and minerals pollutants into the Lukunga River in Bas Congo and Kinshasa. REGIDESO claims that this pollution is raising the cost of water treatment of the Lukunga River water. Minister of Environment Jose Endundo has demanded that both enterprises stop polluting the water and has provided a schedule to follow. The World Bank, meanwhile, has made future REGIDESO funding contingent upon improvement of the Lukunga River water quality. (OMUHONGYA) Governance -------------- (U) The Congolese Association for Consumers' Rights (ADCC) urged the GDRC to pay subsidies in order to reduce prices of petrol, cement, sugar, cassava flour and rice. According to the ADCC president, the prices of these basic items have risen precipitously lately and must be dealt with. (OMUHONGYA) (U) DRC security forces seized 300 to 600 tons of copper and cobalt ore illegally mined near Shinkolobwe, a uranium site shut down since ¶1960. Officially, uranium mining is banned by the GDRC, but checks of copper cargoes occasionally reveal high levels of radioactivity. It's said that lack of pay and poor working conditions for the guards at Shikolobwe encourages them to participate in smuggling. (OMUHONGYA) (U) The Ministry of Plan has released the results of the 2008 Paris Statement survey The DRC Poverty Reduction Strategy Paper (PRSP) has been approved by the World Bank and IMF. Its implementation, however, is still a challenge because of the lack of sectorial policies; lack of a reliable system of evaluation and follow up; lack of statistics; and the risk of an uncontrolled decentralization. (OMUHONGYA) Health -------------- (U) According to officials in Mbandaka, there have been 42 cases of monkeypox, which have resulted in two deaths. Mbandaka health zone officials and a team from the World Health Organization are on the ground accessing the problem. (U) On April 7th the Ministry of Health sponsored a five-day workshop to review the 2007 Public Health Report, to address the state of public health in DRC, and to identify challenges and make recommendations for the 2009 health budget. The workshop was also used as a tool to help prepare for decentralization of DRC's health sector. (The 2006 Strategy for the Reinforcement of the Health System (SRSS) is integrated into the DRC Poverty Reduction Strategy document.) The current health infrastructure is in a state of decay and diseases that were once controlled are now resurging. The system also lacks services for victims of sexual violence. (DMMORTON) (U) The Minister of Media and Communication has decided to ban advertisements related to pharmaceutical products made by traditional healers. Traditional healers are said to pose a public danger since they do not control dosages of their products. (OMUHONGYA) Infrastructure -------------- (U) Major infrastructure projects have been launched by the Ministry of Infrastructure. Road, railway, hospital and school construction is being planned for the next three years. The total amount, including all stakeholders, is around USD 9 billion, with an initial tranche of USD 700 million. Of this, USD 350 million is already available. Work on the road between Kasumbalesa (on the border with Zambia) and Lubumbashi has already started. Kinshasa will benefit from 250 km (ca. 150 miles) of new city roads, 1,000 houses and a new hospital.(Note: much of this construction is predicated on the USD 9 billion from the Chinese in return for mineral resources. End note.) (septel) (OMUHONGYA) (U) The Managing Director of the Organization for Equipping Banana - Kinshasa (OEBK) announced that the creation of the deep water Banana port would be funded by OEBK, with participation of the GDRC. (OMUHONGYA) Labor KINSHASA 00000413 005 OF 008 -------------- (U) Doctors in North Kivu, both public and private sector, went on strike for 48 hours recently by providing only emergency services. They are asking for a "risk bonus" and two months of unpaid salary arrears. (OMUHONGYA) (U) The Congolese Chamber of Commerce (FEC) is against the minimum wage of USD 3 per day suggested by the Minister of Social Affairs. USD 3/day would make the lowest monthly salary USD 147 (including bonuses and benefits) and a high-end salary USD 1000. Operational costs would be three times higher and unaffordable for many companies, especially the public enterprises that are undergoing reforms. The FEC suggests a minimum salary of USD 2.5 a day to be implemented in two phases: July 2008 and then January 2009. FEC says that some companies would otherwise be forced to close and the informal sector would continue to grow. (OMUHONGYA) Microfinance -------------- (U) The Ministry of Small and Medium Enterprises held a national workshop to reflect on practical ways of supporting the DRC's national strategy on micro-finance. The UNDP's Financial Director said he expects a clear definition of priorities for the implementation of the existing national strategy. (OMUHONGYA) Mining -------------- (U) A total of 218 metric tons of coltan has been extracted from Kisengo according to the DRC mining services of Tanganyika district, northern Katanga Province. This stock has been exported through the towns of Goma and Bukavu in the Kivu provinces. Coltan, once one of the leading money-earners in eastern Congo, has recently been mined much less due to lower world prices and adverse publicity associated with the armed forces and artisanal workers who were producing it in the past. (OMUHONGYA) (U) The German Ambassador to the DRC says that the German Government will support the process of ore certification and tracing in the country. The objective would be to facilitate the commercialization of Congolese ore according to the DRC mining code and international standards. In addition, the German Technical Cooperation (GTZ) will increase its assistance to the Extractive Industry Transparency Initiative (EITI) in the DRC. (OMUHONGYA) (U) The Congolese diamond mining parastatal, MIBA, will begin selling its own production on the open market. Previously, much of MIBA's much-reduced production was going directly to private joint venture partners, who were free to market the diamonds through their own channels. It is hoped that this development will bring some transparency to an industry that has been somewhat secretive, despite the DRC's certification by the Kimberley Process. (OMUHONGYA) (U) Discussion is ongoing between Freeport McMoRan and the GDRC through the "cooperative" mining review process. The GDRC is asking to raise its shares of Tenke Fungurume Mining from 17.5 percent to 45 percent. Freeport has stated that the GDRC share was negotiated fairly and legally. (OMUHONGYA) (U) It is estimated that the DRC and Zambia together will eventually furnish 10 percent of world copper supplies, about 2 million metric tons annually. Political problems, power and sulfuric acid shortages, and transport/infrastructure difficulties could impede the normal development of current projects. Some copper belt officials feel that only public private partnerships may solve some of these challenges. (OMUHONGYA) Multilateral Cooperation -------------- (U) The Congolese delegation to the spring World Bank (WB) meetings in Washington returned to the DRC with the possibility of a new formal International Monetary Fund (IMF) program, contingent upon an improvement of GDRC management of public finance. Despite a March monthly surplus of FC 29 billion (almost USD 60 million),the IMF still wants to see strict respect of the expenditure chain and the achievement of on-going reforms within the Central Bank. (OMUHONGYA) (U) Mme El Bakri, Deputy President of the African Development Bank (AfDB) announced a USD 150 million grant to the DRC to support activities designed to reduce hunger and malnutrition. (OMUHONGYA) KINSHASA 00000413 006 OF 008 (U) The WB has granted USD 50 million to support GDRC efforts to improve transparency and efficiency in central and provincial public finance and human resource management and to establish/consolidate an equitable sharing mechanism between the central and provincial governments. (OMUHONGYA) (U) The WB has approved a total USD 160 million International Development Association grant to finance three projects in the DRC designed to support the "Governance Compact" adopted by the GDRC. The compact will help to lay the foundation for sustained growth and progress towards the Millennium Development Goals. (Note: The DRC is a Millennium Challenge Corporation "eligible" country, not yet a "candidate" country. End note.) (OMUHONGYA) (U) The WB has approved an IDA grant of USD 60 million that aims to increase the competitiveness of the Congolese economy, thereby contributing to economic growth through the improvement of the investment climate and support of public enterprise reforms in the DRC. (OMUHONGYA) (U) Minister of Plan Olivier Kamitatu signed a United Nations Stabilization Strategy for USD 23 million. The main objective of this fund, provided by the Netherlands, is to improve security in eastern Congo. While enhancing peace in the Kivus, Orientale Province and northern Katanga Province, this strategy will reportedly attempt to promote local economies. (OMUHONGYA) (U) GDRC Ministers met with DRC development partners to evaluate the management of their donations. Representatives from Belgium, France, European Union, UNDP, AfDB, IMF and the World Bank were present. Additional pledges of USD 4 million were made at this meeting. The partners agreed to conduct such evaluations more frequently. (OMUHONGYA) (U) It has been reported that some International NGOs are shutting down activities in South Kivu because of rising insecurity. The local population feels doubly abandoned because they are victims of exactions by armed groups and now are experiencing disruption of outside assistance. (OMUHONGYA) (U) The African Development Bank (AfDB) has loaned USD 58 million to the DRC to help rehabilitate 10 out of 14 Inga hydroelectric complex turbines and the construction of a high voltage transmission line from Inga to Kinshasa. This project will extend the Kinshasa and Bas Congo electricity network and will allow DRC to export electricity to other African countries. The World Bank is also a stakeholder in this project. (OMUHONGYA) (U) The Governor of the Congolese Central Bank (BCC),Jean-Claude Masangu, participated in the 79th meeting of the G-24 countries in Washington, DC. Issues included the worldwide financial and economic situation, the reform of Bretton Woods institutions, climate change and development, and funding for development. The group urged the World Bank to increase its political and financial support and the IMF to alleviate balance of payment needs. The participants shared a common view of climate change risks. (OMUHONGYA) Private Enterprises -------------- (U) British company Sneider Oil (SOCO) has launched activities in the Bas Congo Province at Kipholo Mvumbi, three kilometers from the Angolan border. SOCO plans to hire 700 local employees. (OMUHONGYA) Public Enterprises -------------- (U) A dispute has arisen between Minister of Petroleum Mende and Minister of Portfolio Mabunda regarding the use of COHYDRO dividends for the rehabilitation of the road from Muanda to Boma in the Bas Congo Province. Minister Mabunda says her decision to force COHYDRO to fund this project is in accordance with GDRC guidelines, while Mende argues that COHYDRO needs this money for its own purposes. COHYDRO employees, who are demanding payment of USD 450,000 in back wages, are also upset with Mabunda's decision. (OMUHONGYA). (U) Congolese National Petroleum Company (COHYDRO) and Surestream Company have reportedly given USD 600,000 to the population living around their facility for petroleum production near Muanda, Bas Congo Province. This fund is supposed to be used for education, health, microfinance and agriculture projects. (OMUHONGYA). (U) Kisangani recently welcomed Congo Oil Company, a mixed capital business, after many years without new formal sector enterprises. Congo Oil aims to provide all of Orientale Province with petroleum products. This will be only the third company to provide new KINSHASA 00000413 007 OF 008 employment in this formerly war-torn province, along with Congo Fina and Datco. (OMUHONGYA) (U) The Congolese national cement plant (CINAT) has temporarily suspended production in order to perform maintenance on machines and wait for the arrival of raw materials especially paper used for sacks. CINAT has not been able to satisfy local demand for cement and hence the price has gone from USD 15/sack to USD 22/sack, despite GDRC efforts to fix an official price of USD 13/sack. (Note: Ongoing problems at the DRC port of Matadi may be the reason for lack of paper, but the chief financial officer of CINAT was recently arrested and charged with embezzling as much as USD one million. End note.) (OMUHONGYA) (U) In an effort to increase revenue, the Congolese National Insurance Company (SONAS) has launched a new car insurance certificate. Those with current policies will receive new certificates, while stricter controls and the use of the "Denver Boot" to discourage offenders will begin on May 15. (OMUHONGYA) (U) Rail traffic has resumed between Ubundu (Orientale Province) and Kindu (Maniema Province). 300 tons of goods were transported from Kisangani to Kindu. The breakdown of a locomotive had caused a three-month interruption of service. Kisangani and Kindu are located far from international borders, on the Congo River, but now rely heavily on rail traffic. (OMUHONGYA) (U) The Congolese river transport parastatal (ONATRA) raised revenues of FC 68 million (about USD 130,000) in February, up from FC 55 million (about USD 110,000) in January. This increase is likely due to the increase in travelers and transportation of goods. ONATRA is attempting to combat smuggling and the use of illegal private ports, both of which cause losses to the GDRC treasury. (OMUHONGYA) (U) Minister of Portfolio Jeannine Mabunda met with the managers of DRC public enterprises for a first evaluation. Technical forms have been distributed to managers to get at key information about finances. A corruption hotline has been created so that the public can denounce mismanagement. The minister says that corruption charges will be brought against anyone found to be engaged in illegal activity. (OMUHONGYA) (U) International Business Machines (IBM),which closed its DRC operation in 1980, announced possibly reopening in the DRC. IBM/France is still recognized as the source of most computer technology in the DRC. (OMUHONGYA) Public Finance -------------- (U) In an effort to attract investors, the Pilot Committee for the Reform of Public Enterprises (COPIREP) has launched a study aimed at determining ways of reducing the tax burden. This process could hopefully result in a larger, more stable revenue flow, while simplifying and streamlining the tax collection system for businesses. (OMUHONGYA) (U) The three largest telecommunication companies in the DRC (Vodacom, Celtel and Tigo) claim to account for as much as 30 percent of the DRC budget revenues. Figures just released for 2007 indicate that these companies paid USD 4 million in taxes on profits of USD 36.8 million for the year. According to industry spokespersons, despite this large contribution to the budget, the companies are still subject to GDRC harassment. (OMUHONGYA) (U) UNDP experts say that the constitutional principle of returning 40 percent of provincial revenues to the provinces will be difficult in practice because it is sometimes difficult to determine the source of taxes. The experts reportedly suggest a reconsideration of the terms of this constitutional principle. (OMUHONGYA) (U) The "guichet unique" (one stop window for customs clearance) system has finally been installed in Kasumbalesa, on the DRC-Zambia border south of Lubumbashi. (Note: this system was supposed to be in place originally by the end of 2006, and follows similar installations at N'djili Airport in Kinshasa and Ngobila Beach, the ferry crossing between Kinshasa and Brazzaville. End note.) The Congolese customs service hopes to increase its revenues with faster services to economic operators. (OMUHONGYA) (U) A financial audit commissioned by the Provincial Assembly of Kinshasa accuses the speaker of the misappropriation of FC 397,822,720 (over USD 700,000). This amount still cannot be accounted for by the Bureau of the Provincial Assembly. (OMUHONGYA) KINSHASA 00000413 008 OF 008 (U) A partnership was signed January 30 between expatriate customs inspection company BIVAC, the Congolese office of Control (OCC),and the Congolese Customs and Duties Agency (OFIDA) to maximize state revenues. The Ministry of Portfolio has set up a Commission to evaluate this new system. The Commission is primarily looking at ways to further enhance revenue. Recently, the GDRC reduced the cost of OCC services from 3 percent to 1.5 percent of the value of the goods inspected. (OMUHONGYA) (U) A reported budget surplus of FC 29 billion (about USD 50,000) has had no effect on the current inflationary trend. Growing pressures to increase civil service wages - such as the minimum wage of USD 3/day suggested by the Ministry of Social Affairs - along with rising fuel costs pose a serious inflationary risk. These pressures could be lessened by expected seasonal increases of domestic food production. (OMUHONGYA) (U) The launching of major infrastructural works may modify the configuration of the 2008 DRC Budget. According to the Minister of Plan, Chinese contributions from the announced USD 9 billion loan, as well as large South African and Indian disbursements could total in the hundreds of millions of dollars. (OMUHONGYA) Monthly Inflation and Exchange Rates -------------- (U) The Inflation rate was 3.7 percent in April. The year-to-date inflation rate stands at 14 percent. Inflation is likely due to a 4 percent increase in the cost of gasoline in western DRC. (U) Compared to the end of March, the Congolese Franc officially decreased by 0.54 percent 2/29/2008 3/28/2008 4/29/2008 BCC 548 557 560 Parallel market Kinshasa 570 570 570 Lubumbashi 560 570 570 Mbujimayi 570 570 580 Kisangani 560 560 570 Goma 570 570 580 Bukavu 560 570 580 GARVELINK