US embassy cable - 00KINSHASA8363

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 008363 
 
SIPDIS 
 
 
E.O. 12958: DECL: 11/20/2010 
TAGS: ECON, ETRD, SOCI, CG 
SUBJECT: LOCAL IMPORTER SUSPECTED OF CRIMINALITY 
 
Classified by Economic Officer Katherine Simonds.  Reason: 
1.5(d). 
 
 
1. (SBU) Summary: Many long-standing Kinshasa businesses are 
complaining about Congo Futur, an importer that has expanded 
rapidly since it started operations less than three years ago 
and is now the largest food supplier in Kinshasa. 
Established businesses accuse Congo Futur of various 
illegalities.  Congo Futur's general manager claims his 
company has thrived because of its efficiency. End summary. 
 
 
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We Need Protection 
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2. (SBU) Manufacturers in Kinshasa have a long tradition of 
blaming their problems on low-priced imports.  At various 
times during the last year, local producers of textiles, 
batteries, razors, palm oil and flour have all briefed 
econoff on the unfair competition they face and the need for 
protectionist policy to preserve jobs.  This complaint has 
now spread to importers, and their accusations center on a 
company that has been doing business in Kinshasa for less 
than three years, called Congo Futur. 
 
 
3. (C) Business contacts say that Congo Futur has become 
Kinshasa's largest importer of dry staples (e.g. flour, rice, 
salt and sugar) and the second largest importer of frozen 
food.  Its volume has increased from less than 4000 tons in 
1998 to over 90,000 tons in 2000.  A manufacturer of sacks 
told the Ambassador that his largest clients, a local flour 
mill and the national sugar company, were reducing 
production, severely cutting his business.  The largest 
importer of frozen foods to Kinshasa told Econoff that Congo 
Futur had cut prices so far that he was being forced to sell 
below cost to stay in business.  He speculates that Congo 
Futur must be laundering money and/or trying to drive out 
competitors to secure a monopoly.  Other contacts acknowledge 
the weakness of these two hypothesese, since converting 
dollars to Congolese francs is an expensive laundering 
mechanism and low barriers to entry mean that a monopoly 
would provide at best small and fleeting profits.  They 
wonder if Congo Futur is buying diamonds or smuggling 
Congolese francs to rebel occupied zones, where the franc is 
worth almost twice as much as in Kinshasa.  All assume that 
Congo Futur has corrupted tax and customs authority. 
 
 
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Customs Director Defensive 
-------------------------- 
 
 
4. (C) On December 13, the Director General of the Congolese 
Customs Agency, an Embassy contact who is generally 
considered a competent professional, called Econoff to ask 
her to come to his office.  Expecting a visa referral 
request, she complied.  Instead of inquiring about a visa, 
the Customs director said that he wanted to assure the 
Embassy that, regardless of what they heard, he had not been 
corrupted by Congo Futur.  He did not rule out the 
possibility that some of his subordinates were giving the 
company favorable treatment, and said he had initiated a 
discreet inquiry.  He implied that the subject required 
careful handling because of the possibility that powerful 
political figures were somehow behind the company's success. 
 
 
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Congo Futur's Story 
------------------- 
 
 
5. (SBU) On December 15 Econoff called on Ahmed Tajideen, the 
General Manager of Congo Futur, to get his views on the 
Kinshasa market and his response to these suspicions. 
Tajideen was somewhat surprised at the Embassy's interest, 
but acknowledged that he was aware of the rumors circulating 
about his company.  After a nervous start, he seemed pleased 
to have the opportunity to explain how he operated. 
 
 
6. (SBU) According to Tajideen, Congo Futur is the subsidiary 
of an Antwerp-based family business called Soafrimex which is 
also a major importer in Angola, Sierra Leone, Mozambique, 
Ghana and the Gambia.  The company decided to move into Congo 
because it saw profit opportunity in the relatively high 
prices it saw in Congolese markets.  He attributed the 
company's success to a combination of efficiency and a high 
volume strategy.  To show the gains from efficiency, he said 
the company had lost 6 percent of the first shipment of food 
imported through the port of Matadi, presumably to theft. 
Congo Futur now has seven expatriate (Lebanese) employees 
permanently assigned to Matadi and theft loss is down to 0.5 
percent.  The company responded to the unreliability of 
transportation from Matadi to Kinshasa by establishing its 
own trucking firm, Trans M, and now owns 60 trucks. 
 
 
7. (SBU) Tajideen said that high volume gives his company a 
competitive advantage in transportation and allows him to 
make healthy profits with a small mark-up.  To demonstrate 
his transportation cost savings, he used the example of wheat 
flour.  He said that because of storage limitations, no one 
can import more than 5000 tons of flour to Congo.  A small 
shipload of flour might entail transportation costs of USD 60 
per ton.  His company loads a boat with 12,000-16,000 tons of 
flour, reducing transportation costs to about 35 dollars a 
ton.  The flour is shared between Soafrimex subsidiaries in 
Angola, Mozambique and Congo.  This means that his product 
delivered to Matadi costs at least 10 percent less than his 
competitors'.  He then uses a 5 to 15 percent mark-up when 
the norm in Kinshasa might be 30 or 40 percent.  His vertical 
integration extends to the consumer market, providing further 
benefits; Congo Futur owns a bakery and indirectly owns a 
chain of retail outlets.  (One of the accusations of 
competitors is that bypassing the wholesale system is illegal 
in the DRC.  Tajideen acknowledged this when he said Congo 
Futur "indirectly" owns these retail outlets.) 
 
 
8. (SBU) Tajideen said that his attention to the market also 
contributes to his success; he said he spent most of the day 
out of the office gathering information.  Because even market 
middlemen are suffering declining purchasing power, he is 
bringing in goods in smaller sacks.  He is confident that the 
Kinshasa market is all about price, rather than quality, so 
he seeks out the cheapest rice available on world markets, 
instead of bringing in quality rice from Thailand.  Tajideen 
told econoff that he pays all his taxes and even pays a duty 
premium.  He said that Congolese customs authorities are used 
to seeing documents reporting a 20 percent higher cost for 
rice.  Instead of arguing with them about the actual price he 
pays for the rice, Tajideen said he pays duty based on this 
higher price. 
 
 
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Are They Crooks? 
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9. (C) Tajideen was animated and excited when talking about 
his business strategy and he convinced econoff that he 
aggressively pursues cost-savings.  It is hard, however, to 
dismiss the certainty of his competitors that his prices are 
patently below cost.  The Embassy FSN who arranged econoff's 
interview reported that Congo Futur runs a side business 
changing money at the parallel exchange rate.  He reported 
that people with money in hard currency bank accounts who 
transferred funds to Congo Futur accounts received either 
Congolese francs or dollar cash at a discount of 3 to 5 
percent.  The Customs Director's sensitivity also suggests 
that something more than just good practices underlies the 
company's success.  Post would be interested in any 
information Maputo, Luanda, Banjul or Accra might have on 
Soafrimex and its subsidiaries. 
 
 
SWING