VZCZCXYZ0001
PP RUEHWEB

DE RUEHKI #1422/01 3620755
ZNR UUUUU ZZH
P 280755Z DEC 07
FM AMEMBASSY KINSHASA
TO SECSTATE WASHDC PRIORITY 7305

UNCLAS KINSHASA 001422 
 
SIPDIS 
 
SIPDIS 
 
FOR A/OPR/ALS (ACTION) AND AF/EX (INFO) 
 
E.O. 12958: N/A 
TAGS: ALOW AMGT AFIN CG
SUBJECT:  REQUEST TO RECONSIDER DECREASE IN COLA 
 
REF (A):  STATE 160277; REF (B):  04 KINSHASA 1952 
 
¶1. (U) Summary:  The recent decision to lower Kinshasa's COLA from 
42 to 30 percent (ref A) has serious implications for post morale 
and its efforts to recruit Foreign Service staff.  The new COLA is 
inconsistent with findings by the highly reputable Employment 
Conditions Abroad International" (ECA), the largest membership 
organization for international human resources, which lists Kinshasa 
as the world's sixth most expensive city.  The standard exchange 
rate considerations used to determine COLAS do not apply in the 
Democratic Republic of the Congo, where the preferred currency is 
the U.S. dollar and where imports are received primarily from 
countries that use the Rand and the Euro, which has risen 
considerably in recent months vis-a-vis the dollar.  These and other 
factors may explain why the market-survey system used to determine 
the COLA may not adequately reflect the true level of consumer 
prices in Kinshasa.  Furthermore, per ref (B), in 2004 Post 
requested an exemption from automatic COLA adjustments based on 
exchange rate fluctuations given the fact that the local economy is 
almost entirely dollarized.  It is our understanding said request 
was approved.  Post requests Department to reconsider its decision 
to decrease Kinshasa's COLA.  End summary. 
 
Kinshasa:  world's sixth most expensive city 
-------------------------------------------- 
 
¶2.  (U) News that Kinshasa's Post Allowance has been decreased from 
42 percent to 30 percent (Ref A) has been received with 
disappointment and incomprehension at post.  According to a survey 
published on November 26, 2007 by Employment Conditions Abroad 
International (ECA), the world's largest membership organization for 
international human resources, 
(http://www.eca-international.com/Asp/ 
ViewArticle2.asp?ArticleID=199), Kinshasa is now the world's sixth 
most expensive city.  This survey, which measures the cost of food, 
other basic items and miscellaneous costs such as clothing and 
electrical goods, placed Kinshasa ahead of Libreville (no. 8), which 
has a 70 percent COLA; Geneva (no. 11), with an 80 percent COLA; 
London (no. 10), 70 percent COLA; Abidjan (no. 16); 50 percent; 
Abuja (19), 42 percent; and Dakar (20), 42 percent. 
 
¶3.  (U) ECA explains that some of the world's most expensive 
locations for expatriates are in Africa, with Luanda (Angola), 
Kinshasa (Democratic Republic of Congo) and Libreville (Gabon) 
featuring in the top ten.  Abuja has climbed 13 places joining the 
top 20 most expensive places in the survey, mainly due to an 
inflation rate of more than 10 percent.  The survey highlights the 
differences in living costs throughout Africa, with goods and 
services in Luanda more than three times the cost of the equivalent 
items in Maseru, Lesotho, which is still the cheapest location in 
the survey.  Maseru is one of five African locations in the bottom 
ten globally including Gaborone (Botswana) and Durban where the 
weakness of the Pula and Rand, respectively, have contributed to a 
low cost of living.  "Disparities in living costs in Africa can 
largely be explained by differences in the availability of goods and 
services, which can often be affected by a country's political 
situation, and differences in the strength of local currencies," 
according to ECA. 
 
¶4.  (U) According to the Post Allowance regulations, section 228: 
"The post allowance level is based on the foreign cost of living as 
compared with that of the Washington, D.C. area."  This provision 
does not mention a country's exchange rate or inflation rate.  It is 
calculated exclusively on the basis of the Cost of Living Index (COL 
Index) for Foreign Locations (based upon the local market basket 
survey) as compared with Washington, which is given a value of 100. 
If, indeed, the Kinshasa survey showed that the local prices are 31 
percent higher than in the D.C. area, that would gave Kinshasa a 131 
COL Index.  Libreville, to receive a 70 percent COLA, would need 
come in between a COL Index of 166 and 175, but the ECA 
International survey put Kinshasa above that of Libreville in terms 
of cost of living.  In its explanation above, ECA states that it 
also takes into consideration the following information:  rates of 
inflation (above 10 percent), difficulty of finding goods and 
services that expatriates are accustomed to, political and economic 
situation of the country, and the stability of the local currency. 
 
 
Exchange Rate Considerations 
---------------------------- 
 
¶5. (U) Ref (A) states that the Post Allowance change for the DRC is 
based on the survey submitted by Kinshasa.  Recent communication 
with A/OMR/ALS, however, included references to Congolese franc 
(FC)/USD exchange rate fluctuations.   This factor is not relevant. 
All transactions in the DRC can be, and most are, made using U.S. 
dollars,  which serves as the nation's de facto currency alongside 
the official FC (Note: the FC, whose largest denomination is 500 
francs, worth approximately USD 1.00, is used only for small 
purchases, tips, and change for amounts less than $1.00). It should 
be noted, in fact, that an exemption from COLA adjustments tied to 
exchange rate fluctuations was requested in October 2004 (ref B). 
Since then, post has done a full annual Retail Price Survey during 
the ensuing period of exemption. 
 
¶6. (U) If in fact there is an exchange rate component to the survey 
then it should be noted that since October 2005 the USD/EUR has gone 
from about 1.17 to 1.49 (about 27 percent depreciation) while the 
cost of living in Washington has increased by less than 10 percent 
during that same period.  Most of the goods on the shelves in 
Kinshasa are flown in from South Africa, France, or Belgium; it is, 
therefore, the rate of exchange of the USD against the Euro and the 
Rand, not against the FC, that is determinant.  When mission staff 
buy local products (eggs, bread, some vegetables, some meat, etc), 
the FC/USD exchange rate plays a role in determining prices, but 
even when this exchange rate rises, this does not necessarily confer 
advantages to mission personnel, since the rate of local inflation 
has been in double digits for many years now.  Against the Euro, 
however, the USD is now at its lowest point ever, trading at 1.49 
USD/EUR.  The prices of most products on the shelves are converted 
from EUR to FC directly, or from EUR to USD and then finally to FC. 
When checking out at the supermarket the prices are then converted 
back into USD for payment.  The prices on restaurant menus are all 
in USD. 
 
Inflation Rate Considerations 
----------------------------- 
 
¶7. (U) If local inflation is a factor influencing the Post 
Allowance, then it should be noted that, according to the Embassy's 
Economic Section calculations, there has been a cumulative total of 
689 percent inflation in Kinshasa over the last 7 years.  In the two 
years since October 2005 there has been 41.3 percent inflation in 
the DRC.  This does not include the month of November 2007, which 
with December, points to one of the highest monthly rates of 
inflation for the year because of increased fuel prices.  Fuel on 
the local market has gone from USD 4.41/gal in October to USD 
4.64/gal in December, causing a dramatic rise in transportation 
costs, which has been passed on to consumers.  Public transportation 
by large bus has gone from 200 FC/trip to 300 FC/trip, taxi rides 
from 350FC/trip to 400FC/trip, and taxibus rides from 150FC/trip to 
200FC/trip. Although American employees cannot use local public 
transportation due to security restrictions, there is a significant 
trickle-down effect vis-`-vis the cost of local labor, goods and 
services.  Fuel price increases alone, as the Economic Section 
reported in their November monthly update cable, are responsible for 
a 4.2 percent inflation rate for the month of November, and we 
expect that the inflation rate for December will be similar. 
 
Additional Factors for Consideration 
------------------------------------ 
 
¶8. (U)  The Post Allowance regulations (sect. 222) also state that 
"in addition to local prices, the comparative cost of living 
considers the normal expenses ... and additional costs resulting 
from local climatic and health conditions and customs," thereby 
introducing a "quality of life" aspect into the calculation.  The 
Bureau of Labor Statistics (BLS), in its discussion of the Consumer 
Price Index (the definitive calculation of Cost of Living in the 
U.S.) says that "a complete cost-of-living index would go beyond 
this (a market basket survey) to also take into account changes in 
other government or environmental factors that affect consumers' 
well-being...such as health, water quality, and crime that would 
comprise a complete cost-of-living framework."  Given the dramatic 
episodes of violence in Kinshasa over the past year and a half, 
including two voluntary evacuations, coupled with the grinding 
poverty and sanitation problems, there is already a strong 
perception among the employees in Kinshasa that the Post 
Differential of 25 percent is already too low.  Furthermore, post 
has an extremely difficult time attracting viable officers; the 
decrease in the Post Allowance will exacerbate an already bad 
situation. 
 
¶9. (U) Post hereby requests that the decision to lower the Post 
Allowance from 42 percent to 30 percent be reconsidered taking into 
account the foregoing considerations. 
 
Garvelink