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Cablegate: Drc December Economic Review

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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0135/01 0381306
ZNR UUUUU ZZH
R 071306Z FEB 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 7491
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
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 05 KINSHASA 000135

SIPDIS

SIPDIS

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

1. (U) Summary

Agriculture
-----------
- GDRC sets up Forests' National Consultative Council

Aviation
--------
- A South African Aircraft Crash Lands

Cooperation
-----------
- African Bank for Development Acquires Shares of Advans Bank Congo

- World Bank Approves 82 Loans and Credits for the DRC
- Angola and DRC Sign Partnership Agreement
- Great Britain Allocates USD 100 Million for DRC Forests
- Holland Donates USD 24 Million to DRC
- Japan Allocates USD 11 Million to DRC

Energy
------
- Fuel Shortages in Kasai Oriental Province
- High Performance of COBIL for Last Five Years
- DRC and ROC Examine Oil Reserves in Congo River Basin

Environment
-----------
- Climate Change Guidelines Established for DRC

Infrastructure
--------------
- Ministry of Economy/Trade Lowers Cement Price
- Governor of Chinese Exim Bank Visits Kinshasa
- World Bank Supports DRC Transportation Sector

Investment
----------
- DRC and China Sign Two Agreements for Total USD 34.38 Million in
Loans

Mining
------
- Moto Gold Project a World-Class Gold Camp
- Cobalt Price Up Due to High Demand and Conflict
- DRC and China Form Joint Mining Ventures

Miscellaneous
-------------
- Senate Considers Two Laws On State Enterprises
- EITI President Attends Kinshasa Conference
- Kinshasa Public Transportation Company Making Changes
- Inspection of Imported Goods Reinforced in January
- New Managers Named for Public Enterprises

Public Finance
--------------
- GDRC Launches Fund Raising Campaign
- Congolese Central Bank Raises Prime Interest Rate
- DRC Ends 2007 with 7.2 Percent GDP Growth
- 2008 Budget Adopted by the National Assembly
- Minister of Finance Raises Cigarette Tax
- National Assembly Raises Corporate Income Tax Rate
- Money Supply up at USD 552 Million
- Central Bank Acts to Halt Depreciation
- January Budget Deficit of USD 24.5 Million
- PEFA Stakeholders Analyze Partnership between DRC and Donors
- ANAPI: "Five Pillars" will be Investment Incentive in 2008

Monthly Inflation and Exchange Rates
------------------------------------
- Congolese Franc Depreciation
- Monthly Inflation 2.5 Percent
- Exchange Rate Increases as Money Supply Expands


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

1. (U) The GDRC has set up a National Consultative Council for its
forests. This Council is supposed to make the management of the
forests transparent through the participation of Civil Society. The
new council will follow up on the application of the new forestry
code and the implementation of forestry projects countrywide.

KINSHASA 00000135 002 OF 005


Aviation
--------

2. (U) A South African aircraft operated by King Services crash
landed on January 8 at Luano airport in Lubumbashi, Katanga. The
plane carried only crew and cargo. No one died in the accident.


Cooperation
-----------

3. (U) The African Bank for Development (AfDB) acquired 20 percent
of Advans Bank Congo's shares. Advans Bank Congo (ABC) specializes
in micro-finance. AfDB reported that EUR 650,000 worth of technical
assistance will be given to ABC. ABC is one of the banks waiting
for a presidential decree in order to operate in the DRC.

4. (U) According to Marie Francoise Marie-Nelly, the new Director of
the World Bank (WB) for the DRC and ROC, the WB has approved a total
of 82 loans and credits for the DRC for a total amount of USD 3.6
billion. Ongoing financed operations total approximately USD 1.9
billion. Nine active operations will impact the following sectors:
agriculture, fisheries and forestry, education, health and other
social services, transportation, law and public administration,
energy and mining, water, sanitation and flood protection, and
finance.

5. (U) Angola and the DRC have signed a partnership agreement in the
sectors of public works and reconstruction. This agreement targets
exploration, establishment of scientific and technical cooperation
in the civil construction sector, and public works. The agreement
states that its implementation depends on international community
support, since there is currently no funding for joint projects.

6. (U) Great Britain allocated USD 100 million to the DRC for the
sustainable management of its forests. Nearly sixty percent of all
African tropical forests are located in the DRC.

7. (U) Holland donated USD 24 million to DRC to support peace and
development in the Kivus.

8. (U) The government of Japan donated USD 4.7 million to DRC to
fight against poverty and also gave a no-interest loan of USD 6.3
million.


Energy
------

9. (U) Nearly 60 businessmen of Kasai Oriental province met recently
to find a way to fight fuel shortages in their province. Currently
Kasai Oriental is supplied by the state railway SNCC with gasoline
coming from Katanga in neighboring Kasai Occidental. Businesses
would like to be supplied instead though Luebo via Ilebo (the Kasai
River port). The businessmen are also demanding the restoration of
the road connecting provincial capitals Mbuji Mayi and Kananga, as
well as the Bena Dibela port on the Sankuru River in Kasai
Oriental.

10. (U) Congolese petroleum company, COBIL, involved in gasoline
distribution and production of engine oil, performed well during the
last five months of 2007. During the last five years, according to
the Ministry of Portfolio, the GDRC has received total revenues of
USD 650,000 on an investment of USD 1.3 million. This enterprise
annually pays an estimated USD 14 million in taxes.

11. (U) Experts from the DRC and from the Republic of Congo
(Brazzaville) are preparing to establish a commission in March for
the common exploration and production of petroleum reserves in the
Congo River Basin. The area covered begins with the basin at
Kin-Malebo and extends into the Equateur province. The commission
will consist of experts in geologic studies, mining, contraband, and
fraud.


Environment
-----------

12. (U) A workshop that gathered some environmental specialists and
representatives of local NGOs set up guidelines to discuss climate
change issues in DRC.


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


KINSHASA 00000135 003 OF 005


13. (U) After a meeting with cement vendors, the Ministry of
Trade/Economy decided to lower the price of a sack of cement. A
single sack will be sold to wholesalers at FC 6300 (USD 12.5) and to
retailers at FC 6900 (USD 13.8). The Ministry also noted the
artificial scarcity that is created by some local sellers.

14. (U) The Governor of the Chinese Exim Bank came to Kinshasa to
sign two agreements and launch infrastructure projects. The first
agreement allocated USD 35 million to the Congolese Post and
Telecommunication Agency (OCPT) for modernization. The second one
financed the DRC mining project SINO HYDRO. These joint
infrastructure projects will begin in Kinshasa and Lubumbashi. DRC
companies are believed to be involved in the joint ventures as
well.

15. (U) A World Bank specialist is working locally on a project
designed to set up innovative methods and new policies for the DRC
transportation sector. This "multi-modal" project has a strong
focus on the sector's profitability.


Investment
----------

16. (U) The Chinese Government allocated USD 3.75 million to the
GDRC as an interest-free loan and a preferential-rate loan of USD
30.62 million. Both loans are expected to contribute to the
rebuilding of the DRC.


Mining
------

17. (U) DRC's Moto Gold Project in northeastern DRC has developed
into a world-class "gold camp" with historic gold production of 3.9
million ounces/year and a reserve and resource base of 19.1 million
ounces. The company increased its stake in the project to 70
percent by acquiring joint-venture partner Orgaman's 10 percent for
USD 34.5 million. Moto's management has acquired key African
development and project finance expertise to realize its goal of
unlocking the project's value.

18. (U) The current high demand for batteries for cell phones and
hybrid cars has increased the price of cobalt. Some observers say
that the shortage of cobalt is due to ongoing conflict in the DRC,
since the DRC holds half of the world's known reserves of cobalt.

19. (U) Gcamines formed a joint venture with Sicomines, a Chinese
consortium (Eximbank, Hydro Corp, and Railway Engineering) that will
exploit the Mashamba and Dikuluwe mining concessions. Together, the
Mashamba and Dikuluwe mines are estimated to contain 10 million tons
of copper and 2 million tons of cobalt. Martin Kabwelulu, the
Minister of Mines, said Chinese investment would be repaid with
revenues generated by the joint venture. Sicomines will reimburse
both the funds received for new infrastructure and the loans
received to open the mines.


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

20. (U) The Senate is considering two laws concerning the GDRC's
management of parastatals. Some state enterprises may simply be
dissolved due to their inability to pay debts or become profitable.
After promulgation, the Prime Minister will have three months to
publish the list of concerned enterprises.

21. (U) Mr. Peter Eigen, the EITI (Extractive Industries
Transparency Initiative) international president, attended an EITI
conference in Kinshasa on 8-9 January. The principal theme for the
conference was "Transparency in the Management of Incomes Generated
by the Mining, Forestry, and Petroleum Industries." The objective
for the conference was to reinforce strategies aimed at helping the
DRC to meet EITI norms. Workshops were organized to facilitate the
short, medium, and long term objectives for the EITI in the DRC.

22. (U) The aptly-named Kinshasa public transportation company,
STUC, has fewer buses in circulation as part of a strategy to reduce
seats during the low month of January. STUC says that current
revenues are stable even with fewer buses on the road due to cost
savings. STUC, which has approximately 230 buses, will run more
buses starting in February.

23. (U) BIVAC, the international partner used by OCC (Office of
Congolese Control) and OFIDA (Office of Customs and Duties) for
pre-inspection of imported goods, has reinforced its controls since

KINSHASA 00000135 004 OF 005


early January. As a consequence, many economic operators were not
prepared to load their goods abroad without the BIVAC certificate.
Many provincial operators are asking the FEC (The Congolese Chamber
of Commerce) to negotiate a delay in application of the new
measures.

24. (U) The GDRC, by presidential decree, announced the new managers
and board members of 37 Congolese public enterprises on January 12.
In addition to the management appointments (most of whom were men),
130 women were included as members of the parastatal boards.


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

25. (U) The GDRC, thru the President and the Prime Minister,
launched a fund-raising campaign to support peace in eastern Congo.
The Ministries of Budget and Finance created accounts in three local
banks for those wishing to contribute.

26. (U) The Congolese Central Bank (BCC) raised its prime interest
rate from 19 percent to 21 percent. This decision by the BCC
Governor seeks to mitigate negative impacts of the current high
demand of foreign currency and a recent inflationary trend. Few
Congolese have savings accounts in commercial banks.

27. (U) The GDP growth rate for the DRC in 2007 was 7.2 percent.
However, this growth did not necessarily translate into better
living standards for the bulk of the population of 60 million plus,
because growth is concentrated mainly in the mining and telecom
sectors.

28. (U) The FY 2008 budget was adopted by the National Assembly
after the Bilateral Senate - National Assembly Commission harmonized
versions created by both chambers. Receipts and expenditures were
reduced by FC 100 billion (USD 200 million). The budget now stands
at USD 3.6 billion. Some ministers reduced projected revenues after
the initial National Assembly debate. Ministers were urged to issue
exploitation licenses only after an approved bidding process.

29. (U) In order to increase DRC revenue, the Ministry of Finance
raised taxes on locally produced and imported cigarettes. The new
decree states that USD 0.30, USD 0.28, and USD 0.16 per pack will be
levied on first, second, and third categories of cigarettes compared
to USD 0.30, USD 0.15, and 0.104 in the 2003 decree.

30. (U) The National Assembly voted to increase the corporate income
tax from 13 to 15 percent. This decision will allow OFIDA
(Congolese Customs Office) and DGI (Congolese Tax Authority) to meet
the additional receipts of USD 25 million projected in the 2008
budget. Goods for equipment, agriculture, and veterinary usage are
not affected by this decision.

31. (U) The end-of-month money supply was FC 276 billion (USD 552
million). This amount has been steadily increasing and includes
money both in circulation and in commercial banks.

32. (U) To address the recent depreciation of the Congolese franc,
the Central Bank is using its monetary policy instruments.
Mandatory reserves were raised from 4 to 5 percent, interest rates
for treasury bills rose from 15.5 percent to 17 percent for 7 days
treasury bills, 17.5 percent to 19 percent for 14 days treasure
bills, and 19.5 to 21 percent for 28 days treasury bills. As a key
result, FC 25.52 billion (about USD 50 million) was removed from
circulation.

33. (U) 2008 DRC budget monitoring showed a deficit of USD 24.5
million for the second week in January. This was reportedly due to
an increase in the level of civil servant, teacher, and military
salary payments, which passed from FC 19.23 billion (about USD 40
million), to FC 44.3 billion (nearly USD 90 million) per month.

34. (U) Stakeholders of PEFA, Public Expenditure and Financial
Accountability, met recently to analyze the final report of
partnerships between the DRC and its donor partners. The
partnerships may be the basis for informing and monitoring ongoing
public finance reforms. In the long term, it may lead to further
discussion about strategies and support for DRC public finances.

35. (U) The ANAPI General Manager (National Agency for Promotion of
Investment) announced last week that the agency worked on 100
projects for a total value of USD 1.22 billion in 2007. He said
that President Kabila's so-called "Five Pillars" (Infrastructure,
Employment, Electricity and Water, Health and Education, and
Housing) should be a tremendous incentive for investment in 2008.


KINSHASA 00000135 005 OF 005

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

36. (U) The recent depreciation of the Congolese franc (FC) is
mainly due to increased printing of new bank notes by the Congolese
Central Bank. This introduction of new Congolese francs for the
purpose of paying civil servants' salaries raised the quantity of FC
in circulation, while creating a scarcity of foreign currency,
mostly dollars. The Congolese Central Bank continues to use its
instruments of monetary policy in order to absorb more Congolese
francs.

37. (U) The inflation rate was 2.5 percent in January. The
year-to-date inflation rate (annualized from January 2007) stands at
39 percent. This inflation is likely due to the on-going
depreciation of the Congolese franc that pushes economic operators
to raise prices.

38. (U) The exchange rate increased during January as higher salary
payments put more money into circulation. Payment of civil
servants, soldiers and the participation of many DRC officials in
the National Peace Conference in Goma led to 8.6 percent
depreciation during the month.


11/30/07 12/28/2008 1/29/2008

Central Bank Rates: 498 520 542

Parallel Markets:

Kinshasa 495 520 560

Lubumbashi 495 500 550

Mbuji Mayi 495 505 550

Kisangani 500 510 550

Goma 500 515 560

Bukavu 500 515 550


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