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Cablegate: Economic Report - Late June Through 23 July

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

UNCLAS SECTION 01 OF 04 KINSHASA 001399

SIPDIS

E.O. 12958: N/A
TAGS: EAGR EAID EAIR ECON ECPS EFIN EIND EINV ELAB ELTN EMIN ETRD PGOV PREL CG
SUBJECT: ECONOMIC REPORT - LATE JUNE THROUGH 23 JULY
2004

1. Summary. Bank of Commerce and Development (BCD)
liquidation and conflict in eastern DRC temporarily
raise exchange rates. Prices remain relatively stable.
The diamond sector continues to see increased activity
with CEEC projecting exports of USD 1 billion by 2006
(up from current USD 700-800 million). Public
enterprise workers (ONTRA, RVF, RVM, OFIDA, and OCPT)
strike for salary arrears. Air traffic controllers may
be threatening similar action. The Kindu-Lubumbashi
rail line reopens with assistance from USAID.
Utexafrica merges with Hong Kong-based Cha Textiles.
The IMF approves USD 40 million for the DRC and
commends GDRC progress towards structural reform. DRC
domestic debt reaches USD 1.15 billion.
Gastroenteritis infection rates rise in Kinshasa due to
low Congo River water levels. End Summary.

MONETARY AND PRICE UPDATE

2. Prices have remained relatively stable. Despite
problems with river commerce due to low water levels of
the Congo River during the dry season, most roads are
passable during this time of year. Prices also
remained mostly stable in the DRC's eastern provinces
despite continuing tensions.

3. Exchange rates rose slightly in June and early July
due to two major events. First, the Congolese Central
Bank's (BCC) liquidation of the BCD increased the
demand for USD as bank depositors receiving their
payments in local currency rushed to convert it to USD.
Roughly USD 2.5 million was disbursed as part of the
liquidation during this period. This situation
primarily affected the parallel market in Kinshasa,
where 90 percent of BCD clients reside. Second, Goma
and Bukava saw rising exchange rates due to continuing
regional tension. Some analysts have suggested that
rates increased because General Nkunda's forces flooded
Goma and Bukavu exchange markets with local currency
looted from the BCC's Bukavu branch office. These
reports are unconfirmed.

MINING

INCREASE IN DIAMOND EXPORTS FORECASTED

4. According to CEEC director Victor Kasongo, the GDRC
diamond supervisory agency expects DRC rough diamond
exports to increase to USD 1 billion by 2006.
Additionally, Kasongo projected production of USD 1
billion and exports of USD 700-800 million for 2004.
Kasongo noted that the present difference between
production and export figures represents the value of
diamonds being smuggled out of the country.

SOUTH AFRICAN BUSINESSMAN FREEZES DRC ASSETS IN BELGIUM

5. The South African press reported that Frans Rootman,
a businessman formerly operating in the DRC, has frozen
over USD 20 million in gold and diamonds deposited in
Belgian banks by the GDRC. Rootman won a judgment
against the GDRC in the Transvaal High Court for breach
of a 1998 contract with former President Laurent Kabila
whereby Rootman was to receive a commission on the
recovery of cobalt ore allegedly stolen from Gecamines
by Zimbabwean Billy Rautenbach, then CEO of Gecamines.
Rootman filed the suit in civil court naming himself
plaintiff as a private citizen. Orders to freeze the
assets were secured by a Brussels law firm acting on
Rootman's behalf after investigators traced the assets
to GDRC accounts in the Belgian banks. Under Belgian
law the GDRC has 15 days to oppose the order, after
which Rootman may formally seize the assets. These
recent events come in addition to Rootman's seizure
earlier this year of DRC assets in South Africa
including Gecamines' corporate jet (since sold at
auction for USD 1.9 million) and two large tracts of
land in the Western Cape. (Comment. The South African
Embassy commented that the freeze order was likely
carried out by the Belgian banks in good faith after
being contacted by Rootman's legal representation in
Brussels. SA Embassy was unaware of any specific
bilateral agreements that would have formerly extended
the Transvaal High Court's ruling. As a final note,
press reports on the matter of Rootman's freezing and
seizure of GDRC assets have tended towards the
outlandish. Some of the reports are contradicted by
widely known information, e.g. earlier reports that the
GDRC's 80 percent share in MIBA had been seized are
simply untrue. End Comment.)

TELECOMMUNICATIONS

TELECEL BUSINESS LEAKS ACROSS BORDER

6. DRC-based Starcell (formerly Telecel) is penetrating
the cellular market in northern Angola. Starcell
phones and prepaid subscription cards are being
smuggled across the border by Angolan nationals and
sold at cheaper prices than phones offered locally (USD
100 versus USD 240). Proximity to the DRC border
permits Angolan users access to Telecel's network.
(Comment. Starcell may have little other option than
to actively promote this trade. The company has been
losing market share since the arrival in the DRC of
Celtel and Vodacom. End Comment.)

LABOR AFFAIRS

PUBLIC ENTERPRISE WORKERS STRIKE FOR SALARY ARREARS

7. Workers at DRC public enterprises and government
services including ONATRA (transportation) RVF (river
commerce), RVM (maritime trade), OFIDA (customs), and
OCPT (postal and telecommunications) staged brief
strikes in Kinshasa and the port cities of Banana and
Boma to protest unpaid wages and poor working
conditions. The strikes occurred in late June and
early July, but work quickly resumed after the GDRC
agreed to distribute a portion of the unpaid wages
totaling several million FC. (Note. Many DRC public
enterprises are in arrears. RVF workers, for example,
had not been paid for nine months prior to the strike,
but returned to work after being promised one month's
back pay. End Note.)

POSSIBLE RVA STRIKE

8. Local press reports that workers of La Regie des
Voies Aeriennes (RVA) are preparing to strike.
Unconfirmed reports indicate that workers had
tentatively set 26 July as the final date for
negotiation before the strike begins. RVA's air
traffic controllers and technicians claim that the GDRC
has reneged on an agreement negotiated to end a strike
last April. (Comment. Econoffs interviewed local
sources including air traffic controllers who indicate
that strike rumors may be to due to internal RVA
management wrangling. Salary arrears are a common
cause of labor unrest in the DRC, but RVA is generally
timelier in its salary payments than other government
services. End Comment.)

TRANSPORTATION

KINDU-LUBUMBASHI RAIL LINE REOPENS

9. Rail transportation between Kindu and Lubumbashi in
Katanga province has resumed. No trains had traveled
the route since 1998. The line will be used primarily
to transport freight and food aid. USAID provided most
of the USD 1.3 million in repair costs. (Comment. The
reopening of the Kindu-Lubumbashi line is important in
that it 1) reconnects regions of the DRC isolated by
conflicts of recent years, thus promoting
reunification, and 2) permits the flow of aid and
commercial traffic which will help to reinvigorate the
economy in Maniema. End Comment.)

JORDAN, DRC SIGN AIR TRANSPORT AGREEMENT

10. Jordan's Petra News Agency reported that DRC
Transport Minister Joseph Olenghankoy signed an
agreement with Jordanian civil aviation authorities to
allow commercial flights between the two countries.
(NFI)

FORESTRY

11. Local press reports that La Societe Africaine des
Bois (Safbois), an American-owned company, has
purchased USD 2 million in equipment and vehicles to
augment its timber exploration and exploitation
operations in Isangi, Orientale Province.

TEXTILES

HONG KONG TEXTILE GROUP PURCHASES UTEXAFRICA

12. Local press reported that the Hong Kong-based Cha
Textiles purchased a majority of the public shares of
Utexafrica from the company's former Franco-Belgian
owners. Press reports indicate that Cha intends to
change the firm's name to Congotex and trim its
workforce. (Comment. Econoffs have met with Cha
Textiles' representative in Kinshasa. The case appears
to be a merger rather than a buy-out. Cha had a
presence in Kinshasa until 1993, when its facilities
were looted. Utexaftrica's operations have also been
severely reduced since the pillages of 1991 and 1993.
The company is now in dire financial straits. Cha's
offer constitutes an opportunity to recapitalize. End
Comment.)

REGULATORY ISSUES

PARLIAMENT ADOPTS DRAFT BILL ON MONEY LAUNDERING

13. In early July, the national parliament adopted a
draft bill on money laundering. The proposed
legislation creates a clear definition of money
laundering and provides for domestic enforcement
mechanisms and international cooperation. The draft
bill also includes a provision defining and outlawing
the financing of terrorism. (Comment. While this
draft bill is a step towards financial transparency and
accountability, it remains to be codified into law.
Even if this occurs, detection and enforcement
shortcomings are likely. End Comment.)

HEALTH

GASTROENTERITIS HITS KINSHASA

14. Gastroenteritis infection due to water supply
contamination by E. Coli bacterium has resulted in 77
deaths and nearly 3,000 reported infections in
Kinshasa. Local authorities and NGOs have established
treatment centers and are monitoring the spread of
infection. (Comment. Lack of access to clean drinking
water results in occasional outbreaks of bacterial
infection in Kinshasa. The unusually low water level
of the Congo River during this dry season has
exacerbated contamination problems. End Comment.)

AID

IMF APPROVES USD 40 MILLION FOR DRC

15. The IMF has approved a release of USD 40 million to
the DRC after completing a fourth review of the
country's performance under a USD 861 million Poverty
Reduction and Growth Facility Arrangement. The IMF
also approved an additional USD 1.7 million requested
by the DRC under the HIPC initiative.

DEBT

AUDIT REVEALS DEBT INCREASE

16. According to Finance Minister Andre-Phillipe Futa,
the DRC's domestic debt climbed to USD 1.15 billion in
2003. Futa noted that the DRC is not likely to clear
this debt in the near future. (Comment. The fact that
domestic debt received scrutiny via an audit report is
in itself a positive development. Nevertheless, the
GDRC has yet to make any clear provisions for dealing
with its debt. End Comment.)

17. INFLATION BY CATEGORY (IN PERCENT)

WEEK ENDING 6/10 6/18 6/25 7/2
FOOD 1 1 -1 0
BEVERAGE 0 0 0 0
NON-FOOD -3 0 -5 -2
CLOTHING 0 0 0 0
RENT 0 0 0 1
TRANSPORT 0 0 0 0
SCHOOL COSTS 0 0 0 0
UTILITIES 0 0 0 0
COMBINED FIGURES
WEEKLY INFLATION 0 0 0 0
MONTHLY INFLATION 1 1 1 0

WEEK ENDING 7/9 7/16 7/23

FOOD 0 2 -2
BEVERAGE 0 0 0
NON-FOOD 1 1 8
CLOTHING 0 0 0
RENT 0 0 0
TRANSPORT 0 0 0
SCHOOL COSTS 0 0 0
UTILITIES 0 0 0
COMBINED FIGUERS
WEEKLY INFLATION 0 1 -0.6
MONTHLY INFLATION 0 1 0.4

MAY 2004 INFLATION: 0.2
JUNE 2004 INFLATION: 0.4
JULY 2004 INFLATION (TO DATE): 0.4
YEAR TO DATE INFLATION: 0.0
2003 INFLATION: 7.0
2002 INFLATION: 22.0

18. EXCHANGE RATES IN CONGOLESE FRANCS PER US DOLLAR

6/4 6/10 6/18 6/25
CENTRAL BANK RATE 386.4978 386.9505 387.075
391.0448
PARALLEL MARKET
-KINSHASA 370-390 380-390 385-390 385-
392
-LUBUMBASHI 375-380 380-390 380-390 380-
390
-MBUJI MAYI 375-380 380-385 380-305 380-
390
-KISANGANI 375-385 375-385 405-415 375-
385
-GOMA 405-415 405-415 405-415 400-
410
-BUKAVU 400-410 405-415 415-425 400-
410

7/2 7/9 7/16 7/23
CENTRAL BANK RATE 390.7816 392.7530 389.5709
388.1864
PARALLEL MARKET
-KINSHASA 385-392 385-392 390-395 388-
398
-LUBUMBASHI 380-390 380-390 380-390 385-
395
-MBUJI MAYI 385-390 385-390 380-385 380-
385
-KISANGANI 375-385 375-385 400-410 400-
410
-GOMA 400-410 400-410 400-410 400-
410
-BUKAVU 390-400 390-400 400-410 400-
410

MEECE

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