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Cablegate: Drc December Economic Review

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DE RUEHKI #0022/01 0101454
ZNR UUUUU ZZH
R 101454Z JAN 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 7347
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 04 KINSHASA 000022

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EMIN ELAB EAIR PGOV CG
SUBJECT: DRC DECEMBER ECONOMIC REVIEW

1. (SBU) Summary

Agriculture
- FAO Promotes Manioc

Infrastructure
- TV and Radio Broadcasters Recoup Licenses to Transmit
- President of African Development Bank Announces Africa's First
Satellite

Investment
- Swiss Government Allocates USD 136 Billion for Local DRC Elections
Labor
- European Union Donates to City Hall
- ECOBANK Opens Branch in DRC
- FEC Delegation in Paris Promotes Business During Consultative
Group Meeting
- GDRC to Use Leasing as Financial Instrument for Disbursing World
Bank Funding
- Congolese Request 20 Percent Set Aside for Subcontractors of
Chinese Projects

Labor
- OCPT Strike Continues

Mining
- MWANA Africa Makes Offer for SouthernEra Diamonds
- First Quantum Achieves Commercial Production
- First Quantum Announces Go-Ahead for Kolwezi Tailings Project
- BANRO Contributes to Community Development
- Governor of Katanga Province Reassures Mining Sector
- Namakwa Diamonds Funds New Mine in DRC
- Discussions to Relocate Communities Affected by Drilling/Mining
Activities

Public Finance
- USD 50,000 of GDRC Money for Rapid Impact Projects in Kinshasa
- Construction of Road from Downtown Kinshasa to N'djili Airport
Reportedly Underway
- Economic Indicators
- DRC Working Toward African Monetary Union Criteria
- 2008 Budget Concerns: Agriculture and Education Sectors
- IMF Team in DRC to Review Progress, Possibly Negotiate New Formal
Program
- December Consumer Prices Increase in Kinshasa
- GDRC 2008 Budget Includes Record Receipts from Main Revenue
Collection Agencies
- New Appointments for OFIDA, DGRAD, and DGI

Miscellaneous
- DRC Company Begins Antibiotics Production
- Animal Species Disappearing from Virunga National Park
- Fishing Banned Temporarily in Katanga Province
- New Reserve Protects Bonobo Chimpanzees

Monthly Inflation and Exchange Rates
- Monthly Inflation Rate
- 2007 Budget Deficit Figures
- December 2007 Money Supply in DRC
- Exchange Rate Survey

End Summary.

Agriculture
-----------

2. (U) FAO, the United Nation's Food and Agricultural Organization,
is looking for partners to promote a manioc farming project in DRC.
The program is being developed to alleviate hunger by providing more
of this Congolese food staple.

Infrastructure
--------------

3. (U) Twenty two radio and television stations have been authorized
to transmit again, after being suspended by the Ministry of
Communication and Media. These radio and television stations had
either been functioning without local licenses or were involved in
intellectual property disputes involving programming content.

4. (U) Donald Kaberuka, President of the African Development Bank
(ADB) announced that African countries were expected to have their
own first satellite before the end of 2007. The satellite should
help decrease telecommunication costs within and from Africa.

Investment

KINSHASA 00000022 002 OF 004


----------

5. (U) The Swiss Government allocated USD 1.36 billion for the next
round of local elections in the DRC. This funding will be given to
the Independent Electoral Commission (CEI).


6. (U) The European Union donated USD 22 million to the City of
Kinshasa to rehabilitate the Kinshasa City Hall.

7. (U) The African Banking Group ECOBANK will open a branch in DRC
in January 2008. ECOBANK is present in Benin, Burkina Faso,
Nigeria, Senegal and Togo. ECOBANK, with headquarters in Lome
(Togo), is quoted on the regional securities exchanges of Abidjan,
Accra and Lagos.

8. (U) The Congolese Chamber of Commerce (FEC) sent a delegation of
24 to the Consultative Group forum in Paris to promote business in
the DRC. The FEC delegation spoke directly to 150 members of the
French Business Association (MEDEF).

9. (U) The GDRC will use leasing as a financing instrument for
long-term investment through a new World Bank project for support to
Congolese companies. The GDRC must first create a legal framework
for such an approach.

10. (U) The FEC wants 20 percent of China-financed project
subcontracts given to private Congolese companies.


Labor
-----

11. (U) Employees of OCPT, the DRC public enterprise in charge of
Post and Telecommunications, continued their month-long strike to
protest non-payment of salary arrears. Strike leaders have also
called for the sacking of OCPT's management team, citing poor
leadership in an organization with high revenue potential.

Mining
------

12. (U) Mwana Africa recently completed its offer for SouthernEra
Diamonds, Inc. The company now owns 84.2 percent of Southern Era
Diamonds. Mwana Africa holds exploration assets for a range of
commodities in the DRC, Ghana, and Zimbabwe. In May 2006, Mwana
Africa acquired 20 percent of the Socit Minire de Bakwanga
(MIBA).

13. (U) On November 2, First Quantum (FQM) announced commercial
production in DRC through its Frontier Copper Mine. Frontier expects
to produce 8,000 tons of copper concentrate in 2007 and 75,000 tons
in 2008.

14. (U) First Quantum (FQM) announced the go-ahead for the Kolwezi
tailings project, financed at USD 593 million. FQM currently
produces copper in Zambia, DRC, and Mauritania. Kingamyambo Musonoi
Tailings (KMT) holds the exploitation license to develop the Kolwezi
tailing project. Project construction is due to be completed in
2009, with production to start in 2010.

15. (U) BANRO, a mining company operating in the eastern DRC Kivu
provinces, has identified a huge gold resource. The company is
contributing to local community development, technological
advancement, and employment.

16. (U) Moose Katumbi, governor of Katanga province, reassured the
mining sector about possible contract renegotiations and
cancellations. He told investors that they are welcome in Katanga,
despite a leaked report from a government-appointed mining review
commission. Katumbi stated, "I encourage the mining companies to
continue their investment programs in spite of rumors of a
non-official document by the Commission reviewing the mining
contracts."

17. (U) Namakwa Diamonds, a South Africa business, intends to raise
USD 185 million through the sale of new shares to increase gem
production in South Africa and open two new mines in DRC and
Namibia. The Kruger family owns 25 percent of Namakwa Diamonds and
is currently the company's largest shareholder.

18. (U) A partnership among Rainforest Foundation UK and Congolese
NGOs "Natural Resources Network" and "National Center for Support to
Development and Popular Participation" are evaluating a program
that, through advocacy activities and lobbying, hopes to relocate
local communities affected by mining and oil drilling operations.

KINSHASA 00000022 003 OF 004

Public Finance
--------------

19. (U) The GDRC, through its Republic Social Fund (FSR) has
released USD 50,000 for the NGO "Convention for the Development of
Kinshasa" to carry out sixty small, rapid-impact projects. Most of
the projects deal with sanitation, erosion, and the
construction/rehabilitation of bridges.

20. (U) According to the Ministry of Public Works and
Reconstruction, the downtown Kinshasa - N'djili Airport road
construction has begun. This project will cost USD 150 million. The
project will be carried out by a Chinese construction company.

21. (U) The IMF continues to monitor a number of key financial
indicators for the DRC. These include the amount of international
reserves of the Central Bank and other important quantitative
indicators. At end December, international reserves were down to USD
150.87 million from USD 238.48 at end November. This gap (USD 24.13
million) was attributed to the GDRC payment of USD 67 million to the
IMF. Most other quantitative criteria were respected: no credit was
extended to non-financial public enterprises or non-financial
private enterprises and the restriction of buying local and foreign
money on the market against bank money.

22. (U) The DRC is working towards the objectives of the African
Monetary Cooperation Program. This program seeks to set common
econ/financial policies in order to reach a harmonized monetary
system in Africa. Its ultimate objective is the creation of an
African Monetary Zone by 2021, with single money and one Central
Bank for the continent. At least 51 percent of the members of the
Association of African Central Banks, including the DRC, must
achieve their objectives before the African Monetary Union can be
launched. By end 2007, the DRC has achieved seven (three of the
first rank and four of the second rank) of eleven criteria.

23. (U) The 2008 budget, designed to re-launch the Congolese
economy, is underfunded in the agricultural and education sectors,
according to the guidelines of the Protocol of Maputo. The
agricultural sector is slated to receive 3.5 percent of the new
budget, but should receive 10 percent. The educational sector, which
was 14 percent of the 2007 budget, has sunk to only 5 percent of the
2008 budget.

24. (U) An IMF team from Washington was in Kinshasa for two weeks in
early December to review the DRC's progress toward re-establishing a
formal IMF Poverty Reduction and Growth Facility (PRGF) program.
The team visited Katanga province (home of copper and cobalt mining
operations) before arriving in Kinshasa. In an initial in-brief
with donors, the team expressed concern over how decentralization,
due to begin in 2008, would affect the 2008 budget. In Kinshasa,
the IMF met with GDRC officials, including the Ministers of Finance,
Budget, and Plan, to review the macroeconomic situation, determines
progress on structural reforms, and work with the GDRC as it
prepares its economic/financial plan for the three year period
2008-2010. Brian Ames, head of the IMF delegation, said that he has
the authority to agree to a new, three-year PRGF (to be approved by
IMF management afterwards) but that an estimated USD 200M budget gap
for each of the next three years must be solved first through a
combination of outside budget assistance and budget spending
decreases. The IMF team out briefed the donors on December 18 and
left December 19.

25. (U) The prices of consumer and manufactured goods in Kinshasa
increased considerably during the first week of December. The
prices of toys remained stable, but the overall price hikes appeared
to negatively affect the Christmas and New Year holidays for many in
Kinshasa.

26. (U) The National Assembly's EcoFin Commission, including trade
union and revenue collection agency representatives (DGRAD, OFIDA
and DGI) completed its work on the 2008 budget and sent the draft
back to Parliament for approval. The revenue side of the draft
budget included record projected receipt levels for the collection
agencies:

- OFIDA: USD 681 million
- DGI: USD 812 million
- DGRAD: USD 1.6 billion

27. (U) The GDRC appointed the new managing directors for OFIDA
(customs), DGRAD (administrative tax collection office), and DGI
(tax collection service). The government is likely to appoint
managers for the remaining public enterprises in the near future.


KINSHASA 00000022 004 OF 004


Miscellaneous
-------------

28. (U) New Cesamex, a DRC-based pharmaceutical company, began
production of antibiotics in December in the Kingabwa neighborhood
of Kinshasa. The Ministry of Public Health prohibited importing
certain antibiotics last September in order to support local
industry and contribute to the national GDP.

29. (U) The Congolese National Institute of Conservation (ICCN)
announced in December that some species of animals are disappearing
from Virunga National Park because of on-going fighting in and
around the park, in addition to poaching. The exact number of
mountain gorillas left in Virunga is not known precisely; however,
hippos, which numbered 25,000 in 1990, now are thought to number
only around 1000.

30. (U) The Governor of Katanga has banned fishing in all rivers and
lakes of the province for three months. The stated reason behind the
ban was for fish regeneration.

31. (U) The GDRC announced the establishment of the Sankuru Nature
Reserve, designed to protect man's closest ape relative, the Bonobo
chimpanzee. At 11,800 square miles, the reserve is larger than the
state of Massachusetts and lies within the world's second largest
rainforest. Bonobos are known for being peaceful, cooperative, and
intelligent, and are native only to the Congo Basin.

Monthly Inflation and Exchange Rates
------------------------------------

32. (U) The inflation rate rose significantly at the end of December
and reached nearly two percentage points. The year to date inflation
rate is now close to double digits. This inflation is thought to be
due at least partially to preparations for the Christmas and New
Year holidays. The inflation rate may have been mitigated by delayed
salary payments in public sector, including non-payment of the
so-called "thirteenth month" end-of-year bonus. This effectively
reduced the anticipated increase in the amount of cash in
circulation during the month.

33. (U) According to the Congolese Central Bank, there was a deficit
of FC 7,244.5 billion (USD 14.49 million). This was significantly
better than the deficit at the end of 2006, some USD 50 million.


34. (U) Money supply at the beginning of December was FC 566 million
(about USD 1.1 billion) compared with 552 million in early November
2007, an increase of 2.5 percent. This was an increase of nearly 33
percent over the December 2006 level (FC 425 million).

35. (U) The exchange rate increased during December as holiday
spending put more money into circulation and exerted inflationary
pressure on the economy. The nation-wide average depreciation of the
CF for the month was 2.4 percent.


Week Ending 10/30 11/30 12/28

Central Bank Rates: 498 498 520

Parallel Markets:

Kinshasa 500 495 520

Lubumbashi 495 490 500

Mbujimayi 505 495 505

Kisangani 505 500 510

Goma 500 500 515

Bukavu 500 500 505

GARVELINK

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