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Cablegate: Drc Response to Usitc Study On Sub-Saharan Africa

VZCZCXRO2866
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0866/01 2840608
ZNR UUUUU ZZH
R 100608Z OCT 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 8583
INFO RUCNSAD/SADC COLLECTIVE
RUEHXR/RWANDA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE

UNCLAS SECTION 01 OF 03 KINSHASA 000866

SIPDIS

PASS TO USITC TO L. SCHLITT

E.O. 12958: N/A
TAGS: ECON ETRD OTRA ASEC CG
SUBJECT: DRC RESPONSE TO USITC STUDY ON SUB-SAHARAN AFRICA

REF: STATE 85109
KINSHASA 752
07 KINSHASA 592
KINSHASA 406
07 KINSHASA 1133
KINSHASA 402

1. (U) Background and Overview. Inadequate physical infrastructure
in the Democratic Republic of Congo (DRC), a country comprising a
land area of 2,345,000 square kilometers, represents a key
constraint for the country's economic development and export
competitiveness. The Government of the DRC (GDRC) has made
infrastructure development and rehabilitation a priority as the
country begins to recover following more than ten years of civil war
and literally decades of mismanagement, negligence, and a lack of
clear public policies in the infrastructure sector. International
donors and a recently concluded multi-billion dollar Sino-Congolese
agreement will provide critically needed resources for
infrastructure development. However, given the country's enormous
needs, rehabilitation and development of key infrastructure,
including roads, energy, rail and river transport, will remain a
constraint in the short-term for the competitiveness and production
of key products both for domestic consumption and export.

2. (U) While the majority of the DRC's population remains engaged in
subsistence agriculture, the country is endowed with enormous
natural resources, including a variety of minerals (copper, cobalt,
diamonds, gold, coltan, zinc, and other base metals), petroleum
(currently exporting 23,000 barrels per day), and timber. The DRC
also has the world's most promising hydroelectric production
potential. The planned rehabilitation of the existing hydroelectric
production turbines at Inga I and Inga II, along with the larger
Grand Inga Dam project, would enable the DRC to become a major
producer supplying needs across Africa (ref D). End Background and
Overview.

Current Physical Conditions
----------------------------

3. (U) A) Internal Transportation Networks: Road, Rail, Waterway

The national road network totals 152,400 kilometers, including
145,000 kilometers of national, regional and provincial roads, and
7,400 kilometers of urban roads. 98 percent of DRC roads are
unpaved, whereas only 2,801 kilometers are tarred. The road network
includes 1,965 bridges totaling 25,130 meters, and 187 ferries
(trail-ferry, motor or canoe). The DRC established with donor
assistance a priority network of 29,281 kilometers in 1990 called
the "National Ring." The network includes roads that link the
capitals of the DRC's 11 Provinces (10,652 kilometers) and other
roads deemed necessary to support country integration.

4. (U) The national rail system is operated by the government-owned
Societe Nationale de Chemins de Fer Congolais (SNCC) in the east of
the country and the government-owned Office National des Transports
(ONATRA) in the west and north. There are currently 4 different
networks of rail lines, totaling 4,700 kilometers. The first
network provides a connection between the port of Matadi and
Kinshasa. The second connects points in Southern Africa and the
Lake Tanganyika areas with Lubumbashi. A third network links
Kisangani to Ubundu, as a means to bypass Stanley Falls on the Congo
River. The final network is located in the Uele area (northeast).
The four networks are not linked and use different gauges, most of
which are narrower than the standard rail gauge used by Zambia and
countries to the south.

5. (U) The South Katanga electric rail totals 1,000 kilometers and
has gauges ranging from 0.6 meters to 1.067 meters. This southern
network links the Katanga province and many of the major
copper/cobalt mining companies to southern Africa through Zambia.
The stretch of rail from Kisangani to Ubundu has a gauge of 1 meter,
while the rest of this network measures up to 1.067 meters. The
Kinshasa - Matadi Railway is 366 kilometers long, with a 1.067 meter
gauge. Importers and exporters rely more heavily on trucks to carry
containers between Kinshasa and Matadi due to the poor conditions
and unreliability of this rail network.

6. (U) Waterways have traditionally been the principal means of
transport for both goods and people within the DRC. The total
length of waterways is estimated to be 15,000 kilometers, including
the Congo River, its tributaries, and unconnected lakes. The
1,000-kilometer Kinshasa-Kisangani route on the Congo River,
operated by river tugs pushing barges lashed together, is the
longest and most utilized waterway. Tugs also bring timber
downriver, 8 to 10 logs at a time floating and lashed together.

KINSHASA 00000866 002 OF 003


Kinshasa, with 7 kilometers of river frontage occupied by wharfs and
jetties, is the largest inland waterways port on the continent.


7. (U) B) External Transportation Networks

Kinshasa is linked to Brazzaville by regular boat and ferry services
that travel the 3.5 kilometers across the Congo River. Kinshasa is
also connected to Bangui in the Central African Republic via the
Ubangui River. Goma and Bukavu in Eastern DRC are connected with
Rwanda through Lake Kivu and a land crossing at Goma-Gisenyi.
Kasenga and Pweto in the DRC are connected to Nchelenge, Kashikishi
and Kashiba in Zambia through the Lake Mweru system. Two small
ports on the DRC side, Kisenye near Bunia and Mahadi Port in the
north, link to the Ugandan ports of Butiabo and Pakwach.

8. (U) C) Other Infrastructure: Energy

The DRC's extensive potential hydroelectric capacity is estimated to
be 100,000 MW. The total capacity of the turbines currently
installed is approximately 2,500 MW, but actual production is
600-700 MW because two-thirds of the turbines are not functioning.
Only a small percentage of the DRC's population, concentrated in
urbanized areas, has access to state-produced energy. In Kinshasa,
provision of electricity is sporadic, and the state energy
production agency (SNEL) is badly in need of restructuring. The DRC
mining sector alone requires 2,100 MW, representing 84 percent of
current generating capacity, to meet its energy needs. As a result,
many economic operators rely on generators of 300 to 1,250 KVA,
increasing operational costs by 10 to 15 percent. Projected repairs
should allow Inga turbines to work at full capacity (1,774 MW) by
2010. DRC exports hydroelectricity to its neighbor, Republic of
Congo, along a 220-kilovolt (KV) connection. The interconnection
supplies nearly one third of the electricity consumed in
Congo-Brazzaville. Power from Inga is also transmitted to the
Zambian grid along a 500-KV DC line from Inga to Kolwezi in Southern
DRC, and a 220-KV line from Kolwezi to Kitwe in northern Zambia.
South Africa also imports DRC's energy output through the Southern
Africa Power Pool grid.

Associated Infrastructure Service Providers
-------------------------------------------

9. (U) DRC freight forwarders are privately-owned companies that
have been set up by importers. The market has been opened to
competition, falling into two categories: domestic and international
freight forwarders. The international customs brokers and freight
forwarders are traditionally larger companies, but the opportunities
to circumvent the lawful process for customs have allowed entry into
the market by several smaller organizations (ref E).

10. (U) The government operates all ports, railways, and waterways,
resulting in a high level of mismanagement and limited maintenance.
The DRC railway parastatal company, SNCC, manages the eastern
infrastructure backbone of the DRC economy, while the national port
company, Office National de Transport (ONATRA), manages that of
western DRC including Matadi, Boma, Banana, Kinshasa, Mbandaka, and
Kisangani ports. Roads are under the authority of the national
Office des Routes (OdR) and the DRC Roads and Drainage Agency
(Office des Voiries et Drainage) through the Ministry of
Infrastructure, Public Works and Reconstruction. Production and
distribution of energy is through the State Energy Production Agency
(SNEL).

11. (U) DRC customs procedures remain highly bureaucratic. For
example, more than fifteen government procedures are required to
clear customs at Matadi Port. However, the GDRC has streamlined the
process at some international airports (Kinshasa), ports (Kinshasa),
and land borders (Kasumbalesa in Katanga). ONATRA has been trying
to establish a new "one-stop-shop" for customs clearance, but
importers report that corruption prevents the new system from taking
hold.

Efforts to Improve Infrastructure
----------------------------------

12. (U) In October 2006, then-candidate Joseph Kabila announced that
as president his economic development plan would focus on progress
in "cinq chantiers" (literally "five work areas") or prioritized
sectors: education, health, infrastructure, water and electricity,
and job creation. Since then, the GDRC has begun to establish more
specific and coherent policies. The GDRC's road transport policy
focuses on three areas: construction of new asphalted roads; the
resettlement of traffic on non asphalted roads; and the protection
and the maintenance of existing road networks under the National

KINSHASA 00000866 003 OF 003


Fund for Road Maintenance (FONER). International donors engaged in
road rehabilitation include the World Bank, the European Union, the
African Development Bank, Kuwait, Ex-Im Bank, and Belgium.

13. (U) Waterways and related infrastructure are to be rehabilitated
as part of the restructuring of various state-owned companies
including ONATRA and SNCC, an effort managed by the GDRC Ministry of
Portfolio and supported by the World Bank. The rehabilitation of
the rail network and port infrastructure aims to promote trade
between the DRC and regional trade partners.

14. (U) In the energy sector, the GDRC has launched bidding
procedures in order to raise funds for Inga I and Inga II
hydroelectric turbine rehabilitation. SNEL has also entered into
several joint ventures with private sector companies that fund
hydroelectric power generation projects in exchange for a guaranteed
supply of electricity to their facilities.

15. (U) A multi-billion dollar agreement concluded in early 2008
with a consortium of Chinese companies will create a joint venture
to exploit mining resources and develop Congolese infrastructure.
The project will be financed by a USD 9 billion loan arranged by the
consortium. Though not all details have been made public, the GDRC
announced that it will exchange over 8 million tons of copper and
over 200,000 tons of cobalt for an estimated USD 6 billion in
Chinese-funded infrastructure projects, including roads, railway,
universities, hospitals, housing and clinics. The remaining USD 3
billion will fund necessary construction projects to support the
mining joint venture.

Impact on Export Competitiveness
---------------------------------

16. (U) The poor quality of the DRC's infrastructure has a direct
impact on both the quality and supply of locally produced products.
The majority of DRC exporters regularly experience increased
operational costs as a result of inadequate infrastructure.

17. (SBU) A) Natural Rubber

According to Mr. Robert Ducarme, a Belgian who has spent thirty
years exporting natural rubber from the North Kivu Province
(specifically from Beni, 75 kilometers from Uganda), costs of
production have doubled during the last decade. The lack of
transport infrastructure has required his operations to both invest
in road infrastructure and purchase generators. These additional
production costs have lowered his competitiveness compared with
other regional producers such as Cameroon. He also said producers
of natural rubber in eastern DRC must export through the port of
Mombasa, Kenya, and therefore have higher operational costs than
western operations close to the port of Matadi.

18. (U) B) Mining

The mining companies in the Katanga province, primarily copper and
cobalt operations, have access to the DRC's most extensive road and
rail links for export through Zambia. The companies are still
required to build their own road network, linking it to the main
roads, and invest heavily in a reliable supply of energy. The
mining companies in the Kivus (gold, cassiterite, coltan, etc.) face
the challenges of both very poor infrastructure and the on-going
violence between several armed groups. Operators in the Kasai
provinces, where most of the diamond mining is located, rely on air
traffic to bring in supplies and export the diamonds. Companies in
all provinces of the DRC must bring in the majority of their own
equipment and supplies for the construction and management of mining
operations. Though high prices of commodities over the last few
years have supported investments in the DRC, the additional costs
and delays in shipping, transport, and customs clearance have a
significant negative impact on the ability to remain competitive.

19. (U) C) Agriculture

The Congolese economy is largely rural, informal, and agricultural.
Agriculture accounted for approximately 42% of GDP in 2007, though
its share has been gradually declining. Despite extensive fertile
land and the potential for the DRC to serve as a breadbasket for
Central Africa, agricultural production remains largely based on
subsistence farming, with little formal commercialized activities.
Collapsed infrastructure, particularly key road links between
producers and clients, lack of investment, limited access to credit,
inefficient land use, and a difficult policy environment have
reduced the production and marketing of key agricultural products.

BROCK

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