US embassy cable - 04KINSHASA1399

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