US embassy cable - 05KINSHASA1112

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001112 
 
SIPDIS 
 
PASS TO USTR 
 
E.O. 12958: DECL: 06/29/2015 
TAGS: ECON, EFIN, EMIN, ELAB, CG 
SUBJECT: JUNE ECONOMIC OVERVIEW 
 
REF: A. KINSHASA 01039 
     B. KINSHASA 01057 
     C. KINSHASA 01032 
 
Classified By: Econoff WBrafman for reasons 1.4 b/d. 
 
This cable contains proprietary business information.  Please 
protect accordingly. 
 
1.  (U)  Summary. 
 
-- The Congolese Franc (FC) significantly appreciated against 
the USD and prices generally fell, though petroleum prices 
increased. 
 
-- In response to U.S. Coast Guard sanctions, the GDRC is 
trying to form a permanent commission to address port 
security. 
 
-- In the mining sector, Gecamines continues to discuss 
restructuring in light of pressure from a variety of sectors, 
including students. 
 
-- Interest in the DRC's diamond mines is increasing in 
response to depleting global reserves, and the director of 
the CEEC (Congo's diamond regulatory authority) wants to 
create a DRC diamond market exchange. 
 
-- The ROC claims to have seized 40kg of illegally exported 
DRC uranium. 
 
-- University professors and health professionals protested 
unpaid wages, staging sit-ins and threatening strikes. 
 
-- Aviation officials from the DRC, Angola, and the Republic 
of Congo (ROC) have agreed on measures to increase air 
safety. 
 
-- Parliament approved a new customs code.  End summary. 
 
MONETARY AND PRICE UPDATE 
------------------------- 
 
2.  (U)  The FC has appreciated nearly twenty percent in the 
past five weeks, increasing from a recent official high of 
515 FC/$ to a June 29 rate of 420.  The country-wide average 
at the end of June was 450 CF/$. Local economists attribute 
the swing to tighter Central Bank (CB) monetary policy, 
improved GDRC fiscal performance, and political conditions. 
The FC had depreciated steadily over the past year, with a 
twenty percent drop between October 2004 and mid-April 2005. 
The CB tightened the money supply by releasing less currency 
and by demanding all payments, from taxes to treasury bonds, 
in FC. In addition, the GDRC tightened fiscal policy by 
reducing expenditures through delayed salary payments to 
civil personnel; the GDRC has only paid these civil salaries 
through April.  These monetary and fiscal policies have not 
fully affected Eastern Congo, where unofficial rates remain 
high due to excess liquidity and a highly speculative 
exchange market.  These significant exchange rate differences 
have encouraged aggressive arbitrage further increasing 
exchange rates, as currency traders are dumping FC in Goma 
and purchasing USD to resell in Beni/Butembo at an 
advantageous rate.  This region also experiences extensive 
illegal trading over the Rwandan border and thus significant 
amounts of cash remain in traders' hands rather than in the 
Central Bank in the form of tax revenues.  (Note: By month's 
end, the FC weakened and is expected to depreciate further. 
End note.) 
 
3.  (U)  The CB has delayed issuing new FC notes to avoid 
sparking currency devaluation or inflation.  The CB has 
printed 1,000 and 5,000 CF notes and has plans to produce 
higher denomination notes. 
 
4.  (U)  As a result of the FC's appreciation, the DRC 
experienced 5.4% deflation in June.  Although food and fuel 
prices increased, a 14% drop in housing costs forced overall 
inflation down.  Petroleum prices increased significantly in 
Kisangani, Equateur Province, from 600 CF/liter to 1,000 
CF/liter, due to a supply shortage.  Militia activity in 
Eastern Congo disrupted transport of petroleum to Kisangani. 
 
PORT AND AVIATION SECURITY 
-------------------------- 
 
5.  (U)  The National Commission for Maritime Security, 
consisting of delegates from the Ministry of Transport's 
overall director's office, ONATRA (Congolese port authority), 
and other interested parties, have requested Presidential 
approval to form an autonomous Port Security Commission to 
address port security needs, (reftel A). 
 
6.  (U)  A delegation headed by the DRC Civil Aviation's 
Director is currently in the U.S. to research passenger 
control equipment compliant with international safety 
standards.  Securiport, an American company that operates 
security equipment at Kinshasa's N'djili airport, wants to 
import the neccessary equipment from the U.S. 
 
MINING 
------ 
 
7.  (SBU)  Gecamines, the parastatal mining giant, continues 
to discuss restructuring in light of pressure from a variety 
of sectors.  A recent conference of Lubumbashi University 
students recommended that Gecamines diversify its funding of 
social programs, now privately owned, to include government 
funding.  The committee also recommended supporting 
agricultural development in Katanga to better reintegrate 
former Gecamines employees. 
 
8.  (U)  Interest in the DRC's diamond reserves is increasing 
in response to depleting global reserves. Three diamond 
mining companies, De Beers, BHP Billiton, and Alrosa are in 
advanced talks with the DRC's state-owned mining company 
Miniere de Bakangu (MIBA) to explore concessions near 
Mbuji-Mayi, Kasai-Oriental province.  Diamond companies are 
eager to find new sources as production from older mines 
decreases and as diamond prices continue to rise. 
 
9.  (C)  The CEEC's director continues to propose opening 
diamond exchanges in Kinshasa, Bunia, and Lubumbashi, and he 
claims that the CEEC may open an exchange in Kinshasa within 
the next two to three months.  (Comment: A diamond exchange, 
or "bourse," is a business framework that allows its members 
to trade, produce, market, purchase, broker, import, and 
export diamonds under one roof.  In 1999 the former Minister 
of Mines unsuccessfully attempted to open a diamond exchange 
in the DRC.  Given the relatively high level of corruption 
and low levels of infrastructural development and 
international confidence in security, the DRC does not seem 
to be ready for such an ambitious project.  End Comment.) 
 
10.  (C)  The DRC Minister of Mines, Ingele Ifoto, announced 
at a June 21 press conference that 40kg of enriched, 
illegally exported uranium had been confiscated in 
neighboring Brazzaville.  The ROC Minister of Mines, Pierre 
Oba, claimed that the GROC has dismantled the "mafia" network 
of DRC and ROC traders responsible for the cross-river 
trading. The GROC has not yet returned the uranium to the 
GDRC.  (Comment:  Per reftel B, Post is uncertain that any 
uranium was seized, and the only nuclear reactor in the DRC 
is not capable of enriching uranium.  End comment.) 
 
LABOR 
----- 
 
11.  (U)  Health professionals and university professors 
threaten continued labor disruptions if the GDRC does not 
meet salary demands.  Two health professionals' unions, 
Syndicat National des Professionals de Sante (Syncass) and 
Solidarite Syndicale Infirmiere au Congo (Soisico) announced 
that their members would strike in Kinshasa if the GDRC does 
not increase salaries and pay promised bonuses.  University 
of Kinshasa professors are not unionized and have not 
officially announced a strike, but they have refused to teach 
since April, in response to the GDRC's failure to pay them, 
(reftel C). 
 
12.  (U)  On June 23, Parliament approved a new customs code 
for the DRC, to be effective no later than January 2006, but 
the text is not yet available. 
 
13.  (U)  INFLATION BY CATEGORY (IN PERCENT) 
 
WEEK ENDING       6/10        6/17        6/24        6/30 
FOOD              1           0           -5          2 
BEVERAGE          0           0           -5          0 
NON-FOOD          0           -3          -2          7 
CLOTHING          0           0           -9          0 
RENT              0           0           0           -14 
TRANSPORT         0           0           -20         0 
SCHOOL COSTS      0           0           0           0 
UTILITIES         0           0           0           0 
COMBINED FIGURES 
WEEKLY INFLATION  0.3         -0.2        -6.3        0.2 
MONTHLY INFLATION 0.9         0.6         -5.5        -5.4 
 
MAY: 3.1% 
JUNE: 5.4% 
 
 
14.  (U) EXCHANGE RATE DEVELOPMENTS 
                  6/10        6/17        6/24        6/30 
CENTRAL BANK RATE 478.1989    424.1465    417.7434 
427.8593 
PARALLEL MARKET 
-KINSHASA         465-470     380-390     420-430     430-440 
-LUBUMBASHI       480-485     380-390     420-430     430-440 
-MBUJI MAYI       470-475     390-400     410-420     420-430 
-KISANGANI        480-490     480-490     480-490     470-480 
-GOMA             500-520     500-515     485-495     460-480 
-BUKAVU           500-520     500-515     485-495     460-480 
MEECE