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Cablegate: Request to Reconsider Decrease in Cola

VZCZCXYZ0001
PP RUEHWEB

DE RUEHKI #1422/01 3620755
ZNR UUUUU ZZH
P 280755Z DEC 07
FM AMEMBASSY KINSHASA
TO SECSTATE WASHDC PRIORITY 7305

UNCLAS KINSHASA 001422

SIPDIS

SIPDIS

FOR A/OPR/ALS (ACTION) AND AF/EX (INFO)

E.O. 12958: N/A
TAGS: ALOW AMGT AFIN CG
SUBJECT: REQUEST TO RECONSIDER DECREASE IN COLA

REF (A): STATE 160277; REF (B): 04 KINSHASA 1952

1. (U) Summary: The recent decision to lower Kinshasa's COLA from
42 to 30 percent (ref A) has serious implications for post morale
and its efforts to recruit Foreign Service staff. The new COLA is
inconsistent with findings by the highly reputable Employment
Conditions Abroad International" (ECA), the largest membership
organization for international human resources, which lists Kinshasa
as the world's sixth most expensive city. The standard exchange
rate considerations used to determine COLAS do not apply in the
Democratic Republic of the Congo, where the preferred currency is
the U.S. dollar and where imports are received primarily from
countries that use the Rand and the Euro, which has risen
considerably in recent months vis-a-vis the dollar. These and other
factors may explain why the market-survey system used to determine
the COLA may not adequately reflect the true level of consumer
prices in Kinshasa. Furthermore, per ref (B), in 2004 Post
requested an exemption from automatic COLA adjustments based on
exchange rate fluctuations given the fact that the local economy is
almost entirely dollarized. It is our understanding said request
was approved. Post requests Department to reconsider its decision
to decrease Kinshasa's COLA. End summary.

Kinshasa: world's sixth most expensive city
--------------------------------------------

2. (U) News that Kinshasa's Post Allowance has been decreased from
42 percent to 30 percent (Ref A) has been received with
disappointment and incomprehension at post. According to a survey
published on November 26, 2007 by Employment Conditions Abroad
International (ECA), the world's largest membership organization for
international human resources,
(http://www.eca-international.com/Asp/
ViewArticle2.asp?ArticleID=199), Kinshasa is now the world's sixth
most expensive city. This survey, which measures the cost of food,
other basic items and miscellaneous costs such as clothing and
electrical goods, placed Kinshasa ahead of Libreville (no. 8), which
has a 70 percent COLA; Geneva (no. 11), with an 80 percent COLA;
London (no. 10), 70 percent COLA; Abidjan (no. 16); 50 percent;
Abuja (19), 42 percent; and Dakar (20), 42 percent.

3. (U) ECA explains that some of the world's most expensive
locations for expatriates are in Africa, with Luanda (Angola),
Kinshasa (Democratic Republic of Congo) and Libreville (Gabon)
featuring in the top ten. Abuja has climbed 13 places joining the
top 20 most expensive places in the survey, mainly due to an
inflation rate of more than 10 percent. The survey highlights the
differences in living costs throughout Africa, with goods and
services in Luanda more than three times the cost of the equivalent
items in Maseru, Lesotho, which is still the cheapest location in
the survey. Maseru is one of five African locations in the bottom
ten globally including Gaborone (Botswana) and Durban where the
weakness of the Pula and Rand, respectively, have contributed to a
low cost of living. "Disparities in living costs in Africa can
largely be explained by differences in the availability of goods and
services, which can often be affected by a country's political
situation, and differences in the strength of local currencies,"
according to ECA.

4. (U) According to the Post Allowance regulations, section 228:
"The post allowance level is based on the foreign cost of living as
compared with that of the Washington, D.C. area." This provision
does not mention a country's exchange rate or inflation rate. It is
calculated exclusively on the basis of the Cost of Living Index (COL
Index) for Foreign Locations (based upon the local market basket
survey) as compared with Washington, which is given a value of 100.
If, indeed, the Kinshasa survey showed that the local prices are 31
percent higher than in the D.C. area, that would gave Kinshasa a 131
COL Index. Libreville, to receive a 70 percent COLA, would need
come in between a COL Index of 166 and 175, but the ECA
International survey put Kinshasa above that of Libreville in terms
of cost of living. In its explanation above, ECA states that it
also takes into consideration the following information: rates of
inflation (above 10 percent), difficulty of finding goods and
services that expatriates are accustomed to, political and economic
situation of the country, and the stability of the local currency.


Exchange Rate Considerations
----------------------------

5. (U) Ref (A) states that the Post Allowance change for the DRC is
based on the survey submitted by Kinshasa. Recent communication
with A/OMR/ALS, however, included references to Congolese franc
(FC)/USD exchange rate fluctuations. This factor is not relevant.
All transactions in the DRC can be, and most are, made using U.S.
dollars, which serves as the nation's de facto currency alongside
the official FC (Note: the FC, whose largest denomination is 500
francs, worth approximately USD 1.00, is used only for small
purchases, tips, and change for amounts less than $1.00). It should
be noted, in fact, that an exemption from COLA adjustments tied to
exchange rate fluctuations was requested in October 2004 (ref B).
Since then, post has done a full annual Retail Price Survey during
the ensuing period of exemption.

6. (U) If in fact there is an exchange rate component to the survey
then it should be noted that since October 2005 the USD/EUR has gone
from about 1.17 to 1.49 (about 27 percent depreciation) while the
cost of living in Washington has increased by less than 10 percent
during that same period. Most of the goods on the shelves in
Kinshasa are flown in from South Africa, France, or Belgium; it is,
therefore, the rate of exchange of the USD against the Euro and the
Rand, not against the FC, that is determinant. When mission staff
buy local products (eggs, bread, some vegetables, some meat, etc),
the FC/USD exchange rate plays a role in determining prices, but
even when this exchange rate rises, this does not necessarily confer
advantages to mission personnel, since the rate of local inflation
has been in double digits for many years now. Against the Euro,
however, the USD is now at its lowest point ever, trading at 1.49
USD/EUR. The prices of most products on the shelves are converted
from EUR to FC directly, or from EUR to USD and then finally to FC.
When checking out at the supermarket the prices are then converted
back into USD for payment. The prices on restaurant menus are all
in USD.

Inflation Rate Considerations
-----------------------------

7. (U) If local inflation is a factor influencing the Post
Allowance, then it should be noted that, according to the Embassy's
Economic Section calculations, there has been a cumulative total of
689 percent inflation in Kinshasa over the last 7 years. In the two
years since October 2005 there has been 41.3 percent inflation in
the DRC. This does not include the month of November 2007, which
with December, points to one of the highest monthly rates of
inflation for the year because of increased fuel prices. Fuel on
the local market has gone from USD 4.41/gal in October to USD
4.64/gal in December, causing a dramatic rise in transportation
costs, which has been passed on to consumers. Public transportation
by large bus has gone from 200 FC/trip to 300 FC/trip, taxi rides
from 350FC/trip to 400FC/trip, and taxibus rides from 150FC/trip to
200FC/trip. Although American employees cannot use local public
transportation due to security restrictions, there is a significant
trickle-down effect vis-`-vis the cost of local labor, goods and
services. Fuel price increases alone, as the Economic Section
reported in their November monthly update cable, are responsible for
a 4.2 percent inflation rate for the month of November, and we
expect that the inflation rate for December will be similar.

Additional Factors for Consideration
------------------------------------

8. (U) The Post Allowance regulations (sect. 222) also state that
"in addition to local prices, the comparative cost of living
considers the normal expenses ... and additional costs resulting
from local climatic and health conditions and customs," thereby
introducing a "quality of life" aspect into the calculation. The
Bureau of Labor Statistics (BLS), in its discussion of the Consumer
Price Index (the definitive calculation of Cost of Living in the
U.S.) says that "a complete cost-of-living index would go beyond
this (a market basket survey) to also take into account changes in
other government or environmental factors that affect consumers'
well-being...such as health, water quality, and crime that would
comprise a complete cost-of-living framework." Given the dramatic
episodes of violence in Kinshasa over the past year and a half,
including two voluntary evacuations, coupled with the grinding
poverty and sanitation problems, there is already a strong
perception among the employees in Kinshasa that the Post
Differential of 25 percent is already too low. Furthermore, post
has an extremely difficult time attracting viable officers; the
decrease in the Post Allowance will exacerbate an already bad
situation.

9. (U) Post hereby requests that the decision to lower the Post
Allowance from 42 percent to 30 percent be reconsidered taking into
account the foregoing considerations.

Garvelink

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