VZCZCXRO0610
RR RUEHDU RUEHGI RUEHJO RUEHMR
DE RUEHKI #1082/01 1871304
ZNR UUUUU ZZH
R 061304Z JUL 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4315
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOP COLLECTIVE
RUEAIIA/CIA WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 KINSHASA 001082 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
NOT FOR INTERNET DISTRIBUTION 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EMIN PGOV CG UG
SUBJECT: ECONOMICS ALONG THE UGANDAN BORDER: ITURI 
 
REF: KINSHASA 818 
 
¶1. (SBU) Summary.  EconOff and PolOff visited the major towns of the 
troubled Ituri District in Eastern DRC -  Bunia, Aru and Mahagi - 
May 6 through 10.  As in the Grand Nord region of neighboring North 
Kivu, legal and illegal cross-border trade, the absence of national 
government control and a strong Ugandan economic influence is 
pervasive.  The resulting economic environment is thus oriented 
toward Uganda rather than the DRC, with militia groups, the 
Congolese military and traders profiting from loose border control 
and illegal commerce. End summary. 
 
UGANDAN INFLUENCE 
----------------- 
 
¶2. (U) The Ugandan economic influence along the Ituri-Uganda border 
is identical in many ways to that in the "Grand Nord" (reftel). 
(Note: The Grand Nord refers to the northern region of neighboring 
North Kivu province. End note.)  This influence is most evident in 
the near-exclusive use of the Ugandan shilling within a twenty-mile 
swath of the border, including nearly all of Aru territory, and in 
extensive cross-border trade. Contacts told EconOff that the 
shilling makes up as much as ninety percent of the currency in 
circulation.  Further, the factors that promote Ugandan influence in 
Ituri are similar to those in the Grand Nord, including a 
debilitated infrastructure, the lack of a manufacturing base, 
underpaid or unpaid military and civil servants, inadequate border 
control, and geographical proximity. 
 
¶3. (SBU) As in the Grand Nord, EconOff found that the local 
population relies heavily on imports from Uganda and other countries 
to meet its consumer and commercial needs, largely because the DRC's 
infrastructure does not support the area's own production and 
distribution network.  SNEL, the DRC national electricity 
parastatal, has no regional operations.  In Aru, for example, the 
UNHCR's diesel generator is the main electricity source.  Via a 
nearly sixty-year old decrepit hydroelectric plant, the DRC's gold 
mining parastatal, OKIMO, supplies about 5 MW to local residents and 
businesses in Bunia, plus a few MW to a small OKIMO support facility 
and to Mongbwalu, an OKIMO concession.  The rusting plant, at which 
only two of the four generators are operational, has no security and 
is missing part of its roof, which an OKIMO official told EmbOffs 
was due to a fire that occurred several years ago. 
 
¶4. (SBU) Because of this lack of infrastructure, the Ituri-Uganda 
border region has no capacity to develop even a small manufacturing 
base, unlike that in North Kivu.  Business owners told EconOff that 
coffee and cotton processing plants were destroyed following the 
conflicts of the last ten years, and growers must now export the raw 
materials to Uganda. 
 
CROSS-BORDER TRADE 
------------------ 
 
¶5. (SBU) In addition to being a major supply route into the DRC, 
Uganda is also an open door for the exit of legal, and more often 
illegal, goods from the DRC.  The FARDC (DRC's armed forces), as 
well as Ugandan and Congolese customs officials and business 
persons, are believed to participate in this trade. As in North 
Kivu, it is widely suggested that some FARDC forces participate in 
cross-border smuggling of the DRC's natural resources, motivated in 
part by their low pay.  The FARDC also profits from this trade 
through their increasing control of the borders.  (Note: Accounts 
vary as to how regularly the troops are paid, although FARDC 
soldiers in Bunia were receiving their first payments in several 
months during Emboffs' visit. End note.)  Several contacts told 
Emboffs that some FARDC elements have wrested control of the gold 
trade from the militias (see e.g., the 2005 Human Rights Watch 
report "Curse of Gold"), because they have blocked the militias' 
access to the gold mines in the past year.  MONUC officials in Bunia 
told Emboffs that high-level military officers participate in the 
illegal export, while others in Ituri said that it is lower-level, 
extremely low-paid soldiers who do so. 
 
¶6. (SBU) FARDC officials, though, claim the military has no 
involvement in illegal trade. The then-FARDC Ituri Commander, 
General Bob Ngoie, told Emboffs that FARDC elements previously 
participated in illicit trade but do so no longer. FARDC commanders 
in Aru also denied any involvement beyond a few isolated cases. 
Conversely, customs officials told Emboffs that FARDC elements do 
participate in customs fraud, although all said that the degree to 
which it occurs has decreased since 2003. (Comment: It is not clear 
how credible customs officials' claims are that FARDC involvement in 
customs fraud has decreased. It is instead possible that customs 
officials' involvement in the schemes has grown. It is also likely 
 
KINSHASA 00001082  002 OF 003 
 
 
local officials are complicit with the FARDC in abetting illegal 
trade.  End comment.) 
 
¶7. (SBU) Customs officials were more forthcoming than their 
counterparts in North Kivu in admitting the extent of customs fraud 
at the borders with Uganda. They offered EconOff a variety of 
explanations for the high frequency of fraud, including the GDRC's 
failure to provide adequate resources to the customs agencies, the 
several-mile gap in some locations between the actual frontier and 
the collections stations, excess Congolese border taxes, relatively 
higher Ugandan import taxes, and an ingrained culture of tax 
evasion.  These interconnected conditions, officials say, create the 
incentives for traders and government officials to smuggle. 
 
¶8. (SBU) Customs authorities claimed they are underpaid and lack the 
tools needed to do their jobs. The bare offices in Mahagi 
demonstrated the lack of central government financial support for 
customs officials, as did accounts of months of salary arrears.  The 
head of Mahagi's OFIDA office (DRC's customs agency) said January 
was the first month for which the DRC has paid him since before 
¶1997.  He also said that his office has just one copy of the DRC's 
customs schedules, so officials do not know the correct amounts to 
collect. The head of the DGRAD office (DRC's administrative 
collection agency) in Aru told EconOff that he and his staff have 
not been paid in three months. 
 
¶9. (SBU) Facing what they say are inadequate salaries, Congolese 
customs officials take their income where they can find it. The head 
of Aru's DGI (DRC's income tax collection agency) estimated that 
area tax and customs agencies remit only about one-twelfth of their 
receipts to the national government, retaining the rest for salaries 
and other purposes. (Comment: This fraud and the GDRC's failure to 
provide adequate resources may be a chicken-or- egg issue. The GDRC 
may refrain in part from providing resources if it believes that the 
collections services can support themselves through local revenues. 
End comment.) 
 
¶10. (U) As a result of the collection services' real and perceived 
lack of resources, GDRC agencies impose on traders a multiplicity of 
taxes and fees at the borders to raise income.  A MONUC officer in 
Bunia told Emboffs that as many as 27 agencies collect at the 
border. Some of the fees and taxes levied are entirely unauthorized, 
while others have a legal basis but no direct connection with import 
activities, such as taxes paid to the Ministries of Energy and 
Environment. 
 
¶11. (U) The imposition of excessive border fees further encourages 
an already ingrained habit of customs fraud.  The DRC experienced 
what was essentially a 40-year tax holiday, beginning in the Mobutu 
era, when few if any citizens paid taxes to the GDRC.  This habit 
grew during the DRC's civil war from 1997-2003, when militias 
controlled the borders and thus facilitated a sort of "free trade 
zone."  The OFIDA director in Mahagi told EconOff that goods crossed 
the borders tax-free, with customs officials complying either 
voluntarily or under militia threat. The Mahagi DGI director said 
Ugandan traders still import goods tax-free to markets along the 
border, disadvantaging Congolese traders who must pay import duties. 
During this period, no revenues made their way back to Kinshasa nor 
did the GDRC pay salaries or provide any other financial support to 
the province.  According to Mahagi's DGI director, this tax evasion 
became the modus operandi throughout much of eastern Congo. 
 
¶12. (U) This habit is proving hard to break, as even the GDRC's 
post-rebellion financial support for Ituri territorial governments 
is reportedly only nominal. For example, the Aru Administrator told 
EmbOffs that his territory has received only 9000 USD in 
retrocessions from Kinshasa since 2003.  With minimal support for 
the region, local officials and business persons see little 
incentive to pay taxes. Finally, the potential for fraud is also 
present, because no established banking system exists in Aru or 
Mahagi. Hence, banks do not serve as a collection agent of customs 
revenues, as they do in Boma and Matadi.  Customs officials can 
easily put the cash revenues into their pockets rather than into 
official coffers, particularly as they must take the money to 
distant Bunia or elsewhere to deposit it in a commercial bank. 
 
¶13. (U) The absence of goods inspection and revenue collecting 
stations at some border crossings may also facilitate customs fraud. 
 For example, the Aru customs agencies are about four miles from the 
Ugandan border, permitting both agency sub-office authorities and 
traders to benefit.  An Aru MONUC officer said the sub-offices at 
the border only inspect import-export documents (papers that might 
not be accurate), not the goods.  Traders therefore have the 
opportunity to onload or offload goods between the border and the 
customs post and possibly even alter documents. OFIDA's director in 
 
KINSHASA 00001082  003 OF 003 
 
 
Mahagi told EconOff that this situation exists because OFIDA's 
headquarters in Kinshasa will not authorize moving the main office 
closer to the border crossing. 
 
¶14. (SBU) The DRC's primary exports from Ituri are wood, coffee, 
cotton, tobacco, fish, gold and coltan (columbite-tantalite).  As 
stated above, though, the region must import most of its consumer 
goods, as well as petroleum products, vehicles and equipment. Most 
of the exported wood reportedly comes from Aru and territories 
neighboring Mahagi, such as Fardje, and it is widely believed that a 
great deal of it is smuggled into Uganda.  As in North Kivu, FARDC 
commanders denied involvement in this illegal trade, but local media 
reports and Emboff contacts, including the Aru territory 
administrator and a MONUC officer in Aru, said some FARDC troops 
likely facilitate transport. 
 
¶15. (U) Emboffs' contacts generally admit that the smuggling of 
precious metals out of the DRC - gold, diamonds and coltan - is 
widespread. As discussed above, MONUC officers, customs officials 
and business owners told Emboffs that militia involvement in 
smuggling has significantly decreased because joint MONUC-FARDC 
operations have disrupted trade routes, particularly surrounding 
some gold mines. However, it is difficult to know whether illegal 
export has decreased overall.  (Note: Both private and public sector 
contacts told EconOff that price decreases have reduced coltan 
exportation. End note.) Many contacts told EconOff that gold is 
smuggled into Uganda, although almost none could estimate amounts, 
stating that it is easily concealed in small bags. A MONUC officer 
in Bunia estimated that at Mongbwalu, a major mine about 93 miles 
from Bunia, ten times as much gold is smuggled as is legally 
exported.  (Comment: Essentially all gold is artisanally mined, 
making illegal exports even easier.  If industrial joint-venture 
mining operations in OKIMO's concessions can launch production, 
illegal exports should decrease. End comment.) 
 
¶16. (U) The illegal export of coffee, fish and other natural 
resources is also supposedly widespread, particularly via the 
largely uncontrolled Lake Albert. A business owner told EconOff 
that, while disease has not affected Ituri's coffee crop, there are 
no domestic factories to process the coffee. Hence, much 
Congolese-grown coffee is smuggled into Uganda, where processing 
factories exist. The Mahagi representative of a forwarding company 
told EconOff that he estimates that annually about 3,500 tons of 
coffee are illegally exported from Mahagi territory - twice the 
amount the National Coffee office told him is officially exported. 
The Mahagi territory administrator said he believes that half of 
what Uganda exports as its own coffee is actually of Congolese 
origin. 
 
¶17. (U) Petroleum is also traded across the Ugandan border, imported 
into the DRC after coming from Kenya, since the region has no 
alternative source. While some is sold domestically, some is 
smuggled back into Uganda through a duty-avoidance scheme.  A MONUC 
official in Aru told Emboffs that traders avoid Uganda's higher 
import taxes by importing petroleum into the DRC through Uganda, 
paying only transit duties in Uganda. Some of the petroleum is then 
smuggled back into Uganda, thereby avoiding higher Ugandan import 
fees. 
 
Comment 
------- 
 
¶18. (SBU) To reintegrate fully the Ituri-Ugandan border region, the 
GDRC must continue to focus on activities that will capture 
increased revenue in the region.  In the short term, these 
activities can include regularly paying the military and public 
employees.  In the medium-to long-term, while the list is long, 
priorities should include the GDRC developing plans to replace 
current customs and border officials with non-Iturians, as well as 
increasing border control, particularly along porous areas such as 
Lake Albert. In these efforts, the GDRC should seek the support, 
advice and cooperation of MONUC, World Bank and bi-lateral donors as 
well as the Government of Uganda - to the extent practical.  End 
comment. 
 
Meece