Cablegate: Economic Report - March Through June 2004

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 KINSHASA 001140

SIPDIS

E.O. 12958: N/A
TAGS: EAID EAIR ECON ECPS EFIN EINV ELTN EMIN EPET ETRD PGOV PREL CG
SUBJECT: ECONOMIC REPORT - MARCH THROUGH JUNE 2004

1. SUMMARY. Prices and the exchange rate remain stable even
through political difficulties. The mining sector has been
extremely active. Mining company America Mineral Fields
(Amfi) wins approval and signature of its USD 300 million
contract and then changes its name to Adastra Minerals. The
UK government has exonerated De Beers of accusations of OECD
violations made by the UN Panel on Resource Exploitation.
The Central Bank is liquidating the Bank of Commerce and
Development. The local market is demanding pay by the second
telecommunications charges. Truckers protested the high
level of insecurity on the Matadi Road. Commercial flights
between the DRC and Uganda are scheduled to resume.
Zimbabwean investors bought the Hotel Karavia in Lubumbashi
END SUMMARY.

MONETARY AND PRICE UPDATE

2. Prices have remained largely stable throughout the recent
political crises. Only a slight increase was registered in
the past two weeks. Inflation, year-to-date, is at zero (0)
percent. Currently, food stocks are high, keeping prices
stable. However, the amount of rainfall north of Mbandaka in
Equateur province has been abnormally low - as evidenced by
the extremely low level of the Congo River at present - and
if this affects food supplies, food prices would be likely
to increase. On the contrary, the dry weather helps firewood
and charcoal supplies - the other major daily consumables in
the local economy.

3. The Congolese Franc (FC) has not fluctuated greatly over
the past 2-3 months. The informal market rate hovers at FC
385-395 to the USD. A slight increase (FC 5 band trending
up) was noted in Goma and Bukavu over the past two weeks.
This may be due to the relative lack of economic activity
and access to cash resulting from the ongoing instability.
(Note. The exchange rate tends to be slightly higher -
approx FC 400 to USD 1 - in the Kivus and Kisangani. It had
only converged with the Kinshasa, Lubumbashi and Mbuji Mayi
rates three weeks before the hostilities began. End Note.)

MINING

AMFI WINS INTERMINISTERIAL APPROVAL, CHANGES NAME

4. On Mar 12, America Mineral Fields (Amfi) won inter-
ministerial approval from the GDRC cabinet for its joint
venture with Gecamines for the Kolwezi Tailings project.
Formal signing ceremonies took place on March 23 in
Kinshasa. Amfi representatives in Kinshasa stated that the
final hurdle to gaining approval was to convince the
Presidency that no bribes had been paid in the course of
negotiating the contract. The hurdle as explained to post
was that the Presidency was so exceptionally surprised that
AMFI got past Gecamines and the Mining Ministry that it was
thought that a bribe must have been paid. IFC and IDC
financing was held out as evidence of the inability of Amfi
to resort to under-the-table deals. (Comment. Amfi did end
up conceding to USD 15 million in lump sum payments to
Gecamines, which could have expedited the deal seeing as the
current senior management of Gecamines is scheduled to be
fired in the near future. Bceco, one of the executing
agencies of the World Bank in the DRC, recently posted in
"l'Intelligent" a public offer of employment for the soon to
be vacant senior management positions in Gecamines. End
Comment.) Amfi also recently changed its name to Adastra
Mineral and hired Rothschild as the primary financial
advisor for the Kolwezi Tailing project.

SENGAMINES BATTLES WITH GDRC

5. During March, the National Assembly of the GDRC and the
Minister of Mines called on Sengamines to come into full
compliance with Congolese law, according to Minister of
Mines Diomi Ndongala. The specific requests are for the
delivery of a feasibility study of the entire project and
the inclusion of a member of Miba on Sengamines' governing
board. (Note. Miba is a 20 percent shareholder in
Sengamines. End Note.) Sengamines is currently resisting the
addition of a Miba member to its governing board and as of
yet has not presented a feasibility study.

AFRICAN GOLD PLC ENTERING DRC

6. African Gold, PLC plans to form a joint venture with
Tangold, Sprl of the DRC. Greendale Universal Holdings
Limited is a shareholder. The preliminary agreement signed
between Greendale and African Gold holds that African Gold
has 90 days to conduct due diligence on the Tangold and the
license agreement. African Gold must also complete a
preliminary exploration program of the concerned concession
(Portion 3 of Concession 38) and must also make a lump sum
payment of USD 250,000.

CADASTRE MINIER CHANGES MANAGEMENT

7. Cadastre Minier (Cami) had shut its doors indefinitely in
protest of a declaration by Minister of Mines Diomi halting
the processing of any further new mining concession
applications. This dispute ended in the suspension of
Director General Ambroise Mbaka, who argued that the
Minister neither had the authority to halt its work nor had
given sufficient justification for the action. Diomi has
technical oversight of Cami and cited an unfavorable World
Bank report on Cami for stopping the reception of new
concession applications. Cami has not been accused of any
improprieties and has been cited by several mining companies
as being the most professional of all the services
associated with the mining sector. Nevertheless, Mbaka is
out, and the deputy director, Joseph Ngoma di Nzau is now
interim director and has pledged to improve Cami's
performance.

METOREX TAKES SCANDAL PLAGUED MINE DE L'ETOILE

8. In May, South African mining junior Metorex recently
signed a deal with the GDRC for the development of Mine de
l'Etoile and Ruashi. Etoile was originally sold the Chemaf
Sprl under suspicious circumstances. The contract - signed
by Chemaf with Gecamines and the Mining Ministry - was
annulled by Vice President Bemba. Metorex estimates that the
mine could produce 42,500 tons of copper and 3,500 tons of
cobalt per year with a life of 30 years. It holds a 52
percent stake while the GDRC reserves 20 percent and
Sentinelle (a local firm) takes the remaining 28 percent.
Estimated investment is approximately USD 200 million with a
first tranche of USD 18-20 million to come in June. Metorex
plans to raise the second and final tranche of USD 150-180
million in the next 18 months.

KGHM PLANNING TO RETURN TO DRC

9. KGHM Polska Miedz is considering returning to the DRC to
develop a copper/cobalt processing plant near Kimpe. The
total cost of the project is approximately USD 10 million.
Equipment is scheduled to be purchased from a Canadian
supplier.

MINING - DE BEERS EXONERATED BY UK AGENCY

10. In May, the UK Department of Trade and Industry
determined that the allegations raised against De Beers by
the UN Panel on Exploitation of Natural Resources in the DRC
were unsubstantiated. The 2002 Panel report accused De Beers
of violating OECD guidelines for multinational companies.

MINING - GEOLOGICAL SURVEY OF KABINDA REGION PLANNED

11. Belgian mining consultants Bugeco is undertaking a USD 3
million geological/mineralogical survey of the Kabinda
region of the DRC (East of Mbuji Mayi - Kasai Oriental).
Bugeco also advises the GDRC on mining policy.

MINING - 21 MINERS DIE NEAR TSHIKAPA

12. In early May, 21 artisanal diamond miners died near
Tshikapa, Kasai Occidental, when a mudslide caused the walls

SIPDIS
of the pit in which they were digging to collapse. (Comment.
This is not an infrequent occurrence. Pits are often dug too
close together on unstable ground and are rarely reinforced
rendering them vulnerable to collapse. End Comment.)

BANKING - FORCED LIQUIDATION OF BCD

13. The Congolese Central Bank (BCC) recently began the
forced liquidation of the Bank of Commerce and Development
(BCD). This was a small national bank with offices in
Kinshasa, Lubumbashi and the Kivus. The BCC estimates that
the total cost to liquidate the bank and pay the severance
packages of the workers should not total more than USD 5
million (less than USD 100,000 will be dedicated to
severance pay). Priority for account reimbursement is
focused on small account holders (e.g. less than USD 20,000
or FC 500,000). Only accounts and employees in Kinshasa and
Lubumbashi will benefit from the liquidation. The GDRC has
made the decision that since the BCC did not have control of
the bank branches in the Kivus either during the war or
currently, the account holders and employees in those
branches will be left outside of the package. USD 2.5
million will be disbursed in June with the remaining USD 2.5
million being disbursed from July to December.

TELECOMMUNICATIONS - FEE STRUCTURE ISSUES

14. The Union of Telecommunication Services Consumers (UCST)
has filed a formal protest to the Ministry of Post,
Telephones and Telegraph against the current fee structure
utilized by cellular telecommunications providers in the
DRC. Almost all providers have a pay by the minute system,
rather than pay by the second. This increases costs to the
consumer. (Comment. It is interesting that the market does
not seem to have the power to influence the
telecommunications providers through choice as in the US
market where pay by the second fee structures have won
through plan choice. End Comment.)

INFRASTRUCTURE - NEW WATER SYSTEM FOR MUDUSA

15. The ICRC opened a new water provision system in Mudusa,
South Kivu province on Mar 16. The system was developed in
concert with the local NGO Initiatives et Actions pour le
Developpement Local and will service the villages of
Lwanvuhye, Cirhagabwa, Cirhundu and Lugusha - a population
totaling approx 6,000 people. The project took four months
to complete and involved the use of two springs in
Musheweshwe, the rehabilitation of one reservoir and
construction of another, and the installation of 18 water
taps supplied by 6.5 km of piping.

HEALTH - SLEEPING SICKNESS OUTBREAK IN WEST KASAI

16. In the Katende health zone of Kasai Occidental province
an outbreak of sleeping sickness has occurred according to
the director of the Congolese national program to fight
trypanosomiasis, Dr. Victor Kande. More than a dozen cases
have been reported. However, a greater number of people
could easily be affected without GDRC knowledge due to the
remoteness of many villages and the lack of adequate
understanding of the disease by the local population.

TRANSPORTATION - TRUCKER STRIKE ON MATADI ROAD

17. In March, truckers initiated a strike to protest the
high level of insecurity on the Matadi Road (National Route
No.1). Truckers attempted to increase security on their own
by traveling in convoys. However, the loading delays at the
Port of Matadi while waiting for enough trucks to form a
convoy was not cost-effective for the shipping companies.
Truckers asked for increased protection from the government.
The Minister of Interior has increased military patrols on
the road and a curfew of 18:00L for travel to improve
security. Traffic is flowing more normally on the Matadi
Road at present.

CIVIL AVIATION - FLIGHTS FROM DRC TO UGANDA TO RESUME

18. The GDRC has reopened its airspace to commercial flights
from Uganda. A memorandum of understanding between their
respective civil aviation authorities provides the
groundwork for the decision. However, a bilateral air
agreement is still under review.

HIV/AIDS AGREEMENT BETWEEN GDRC AND UNC

19. UN OCHA press reported that the GDRC has authorized the
University of North Carolina to establish an office at the
Kinshasa Referral Hospital to help improve the fight against
HIV/AIDS. UNC will also train health personnel.

INTERNET AND INFOTECH

20. Three companies, two of which are German (Keysystems and
Nic.cd), are in a legal battle to gain control of the ".cd"
top level domain registry for the DRC. The Ministry of Post,
Telephone and Telegraph may have given control over the
registry to the third company, Congo Internet Management.

AID - WORLD BANK GRANT FOR DDR
21. In late May the World Bank approved a USD 100 million
grant earmarked for the GDRC's Emergency DDR Plan. The
program will support reinsertion of 150,000 demobilized
troops and permit reallocation of government spending from
the military to social and economic sectors.

REAL ESTATE/TOURISM - PURCHASE OF HOTEL KARAVIA

22. Zimbabwean press reports that the Rainbow Tourism Group
(RTG) has purchased the Hotel Karavia (250 rooms) in
Lubumbashi. RTG intends to remodel and rename the hotel the
Caribbean; it is the largest in Lubumbashi. The total cost
is estimated at USD 1.8 million. (Note. RTG also manages the
Sheraton Harare and either owns or manages the Rainbow
Mercure Hotels, Touch the Wild Lodges and Safaris, and
Tourism Services Zimbabwe. End Note.)
23. INFLATION BY CATEGORY (IN PERCENT)

WEEK ENDING 03/12 03/19 03/26 04/02
FOOD -1 -2 -1 2
BEVERAGES 0 0 0 0
NON-FOOD -10 0 1 -2
CLOTHING 0 0 0 0
RENT 0 0 0 1
TRANSPORTATION 0 0 0 0
SCHOOL COSTS 0 0 0 0
UTILITIES 0 0 0 0
COMBINED FIGURES
WEEKLY -8.0 -0.8 -0.3 0.8
MONTH TO DATE -0.5 -1.3 -1.6 -0.8

WEEK ENDING 04/09 04/16 04/23 04/30
FOOD -1 1 0 0
BEVERAGES 0 0 0 0
NON-FOOD 0 0 0 0
CLOTHING 0 0 0 0
RENT 0 0 0 0
TRANSPORTATION 0 0 0 0
SCHOOL COSTS 0 0 0 0
UTILITIES 0 0 0 0
COMBINED FIGURES
WEEKLY -0.3 0.4 -0.2 -0.1
MONTH TO DATE -0.3 0.0 -0.1 -0.2

WEEK ENDING 05/07 05/14 05/21 05/28
FOOD 0 0 0 0
BEVERAGES 0 0 0 0
NON-FOOD 4 0 -4 0
CLOTHING 0 0 0 0
RENT 0 0 0 0
TRANSPORTATION 0 0 0 0
SCHOOL COSTS 0 0 0 0
UTILITIES 0 0 0 0
COMBINED FIGURES
WEEKLY 0.2 0.0 -0.1 0.1
MONTH TO DATE 0.2 0.2 0.1 0.2

February 2004 inflation: 0.0 percent
March 2004 inflation: -1.4 percent
April 2004 inflation: -0.2 percent
May 2004 inflation: 0.2 percent
Year to date: 0 percent
Last 12 months inflation: -0.2 percent
2002 Inflation: 22 percent
2003 Inflation: 7 percent

EXCHANGE RATE DEVELOPMENTS

25. Exchange rates in Congolese francs per US dollar

03/12 03/19 03/26 04/02
CENTRAL BANK RATE 380.4057 381.9240 382.8745 383.7484
PARALLEL MARKET
-KINSHASA 380-385 380-385 385-390 380-385
-LUBUMBASHI 380-390 380-390 380-390 380-390
-MBUJI MAYI 375-380 380-385 380-385 375-380
-KISANGANI 390-400 390-400 400-410 400-410
-GOMA 400-420 400-420 400-410 400-410
-BUKAVU 400-420 400-420 400-410 400-410

04/09 04/16 04/23 04/30
CENTRAL BANK RATE 382.7635 384.3099 385.1090 385.2552
PARALLEL MARKET
-KINSHASA 380-385 380-385 380-385 385-390
-LUBUMBASHI 377-385 377-385 377-385 380-390
-MBUJI MAYI 375-380 375-380 375-380 380-385
-KISANGANI 400-410 390-400 390-400 390-400
-GOMA 400-410 400-410 400-410 395-405
-BUKAVU 400-410 400-410 400-410 395-405

05/07 05/14 05/21 05/28
CENTRAL BANK RATE 385.6318 386.8274 385.8868 385.8236
PARALLEL MARKET
-KINSHASA 380-385 385-390 385-390 380-385
-LUBUMBASHI 380-390 380-390 380-390 380-385
-MBUJI MAYI 380-385 380-385 380-385 375-380
-KISANGANI 385-395 385-395 385-395 380-390
-GOMA 385-395 385-395 385-395 395-405
-BUKAVU 385-395 385-395 385-395 395-405
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