VZCZCXRO7407
RR RUEHBZ RUEHDU RUEHGI RUEHMR RUEHRN
DE RUEHKI #0399/01 1131356
ZNR UUUUU ZZH
R 231356Z APR 09
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 9518
INFO RUCNSAD/SADC COLLECTIVE
RUEHXR/RWANDA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE

UNCLAS SECTION 01 OF 02 KINSHASA 000399 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EMIN EINV PGOV PREL CG
SUBJECT:    KATANGA'S ECONOMIC WOES 
 
¶1.  (SBU) Summary:  The DRC's resource-rich Katanga province has 
been particularly hard hit by lower prices and demand for key 
minerals.  Government officials and private economic operators 
shared a common message with Economic Counselor during a visit to 
the province the week of April 13: the economy is struggling as the 
mining sector has contracted.  Customs receipts are down by more 
than 50 percent since the beginning of the global economic crisis, 
while over 200,000 jobs have been directly lost, with the total 
number of job losses much higher.  While most agree that economic 
diversification, with an emphasis on the agricultural sector, is 
necessary, extremely limited infrastructure and a cultural and 
economic environment strongly linked to mining remain constraints. 
The one bright spot in the currently bleak economic environment is 
Freeport-McMoRan's $1.7 billion Tenke Fungurume (TFM) copper/cobalt 
mining concession, which started copper production in March.  End 
Summary. 
 
LOST JOBS . . . 
---------------- 
 
¶2.  (SBU) Provincial government officials highlighted to EconCouns 
the significant impact of the global economic crisis on Katanga's 
economy.  A significant contraction of the mining sector, including 
the closure of many smaller operators, has resulted in both job 
losses and lower revenues.  Governor Moise Katumbi, for example, 
noted that 200,000 Katangans had lost their jobs directly as a 
result of the contraction of the mining sector, with several hundred 
thousand more affected due to the indirect impact of lower demand 
for minerals.  (Note: Press has noted job losses in Katanaga's 
mining sector in the range of 200,000 to 400,000, with many of these 
artisanal diggers. End Note) Only four or five of the larger mining 
companies have remained, with some of these (e.g., Anvil) operating 
well below capacity.  Katumbi noted his strong support for TFM and 
that, if it were up to him, TFM's still unresolved contract 
renegotiation would have been long ago concluded. 
 
¶3.  (SBU) Katumbi stated that diversification of the province's 
economic base, with a specific focus on agricultural production, 
remained key to both stabilizing the economy and promoting food 
security.  To this end, the Provincial government had begun 
educating and informing the local population about agricultural 
production over a year ago.  A symposium bringing together 
government officials and business representatives looking at 
economic diversification was held at the Provincial Assembly the 
week of April 13.  Katumbi also noted that extensive flooding in 
various points throughout the provinces had significantly impacted 
agricultural production.  He requested USG support, though 
acknowledged that the GDRC had not issued a disaster declaration. 
(Note: Post has not received any formal request for assistance from 
the provincial or federal government to assist with flooding in 
Katanga province. End note.) 
 
. . .AND LOWER REVENUES 
------------------------ 
 
¶3.  (SBU) Lower purchasing power among the local population and 
decreased mining operations have significantly impacted the 
province's trade.  Heavily dependent on imports of basic staples as 
well as equipment for the mining sector, the drop in both imports 
and exports serves as a good indicator of the struggling economy. 
Provincial officials from the DRC's Customs authority (OFIDA, Office 
des Douanes et Accises, in French) told EconCouns that revenues from 
customs were currently half of levels before the impact of global 
economic crisis.  According to OFIDA's Provincial Director, customs 
receipts had been $23 million per month in November 2008, dropping 
to $12 million in December 2008 and $10 million for the months of 
January, February and March 2009.  EconCouns was provided similar 
data during a visit to the key DRC-Zambian border post of 
Kasumbalesa: prior to the economic downturn, approximately 250 
trucks per day entered the DRC with imported goods from Zambia, 
while the current number had dropped to 99 trucks per day.  The 
local market established on the Zambian side of the border, where 
Congolese purchase basic food items such as eggs, bread, and 
vegetables, was a testament to the province's dependence on imported 
goods. At the same time, the large number of cars for sale stuck on 
the Congolese side of the border highlighted the lack of purchasing 
power among the local Congolese population. 
 
¶4.  (SBU) OFIDA officials stated they are working to modernize 
customs operations and improve revenue collections.  OFIDA's 
Provincial Director noted, for example, he was supportive of the 
efforts of CTC to modernize and reform OFIDA and improve revenue 
collections (Note: Customs and Tax Consultancy, CTC, is 
U.S.-incorporated company that signed an agreement with the GDRC in 
September 2008 to modernize and reform OFIDA. CTC representatives 
 
KINSHASA 00000399  002 OF 002 
 
 
have told Econoffs that many in OFIDA have been resistant to their 
efforts to reform the agency. End Note).  OFIDA is also working with 
TFM to create a dedicated lane to expedite and facilitate TFM's 
goods associated with their investment.  Kasumbalesa OFIDA officials 
placed the blame of contraband, a significant problem, squarely on 
the police and military.  Specifically, a local OFIDA official told 
EconCouns that the police and military permitted trucks to enter the 
DRC illegally at night at several easy nearby crossings to avoid 
paying import duties in exchange for bribes.  In response, the OFIDA 
official has personally dug several large trenches, shown with great 
pride to EconCouns, in these passageways to impede trucks from 
illegally crossing.  OFIDA has also begun construction on a new 
customs post, located several kilometers in from the border.  With 
funding from the French government, the site includes several new 
buildings for OFIDA and other revenue collection agencies, and a 
weigh station.  However, Kasumbalesa OFIDA officials lamented that 
they did not have sufficient funds to complete the project: $10 
million was needed to finish access control, including a perimeter 
fence and road. 
 
NOT JUST MINING IMPACTED 
------------------------- 
 
¶5.  (SBU) Meetings with private economic operators highlighted the 
impact of the mining sector's contraction on broader commercial 
activities in the province.  The Lubumbashi branch of Trust Merchant 
Bank, for example, noted a drop by 85% in its business portfolio. 
Likewise, a local manufacturer and distributor of a range of 
consumer products, Hyper-Psaro Group, stated business was down by 
more than 50 percent from 2008.  Hyper-Psaro's GM stated that 
limited purchasing power and contraband were significant factors 
impacting their current operations. 
 
TFM-A BRIGHT SPOT 
----------------- 
 
¶6.  (SBU) Freeport-McMoRan's $1.7 billion Tenke Fungurume (TFM) 
copper/cobalt mine is one of the few positive developments in 
Katanga's difficult economic landscape.  A site visit by EconCouns 
highlighted the significant scope of TFM's operations, both in the 
commercial and social sectors.  TFM began copper production in March 
2009 and plans to begin exports the week of April 20, 2009. Company 
officials told EconCouns that they contributed approximately $100 
million in various taxes to the GDRC in 2008.  TFM is currently 
producing copper at approximately 50 percent of capacity, which, at 
full capacity, should eventually total 250 million lbs of copper 
annually.  The cobalt operation will be completed shortly.  In 
addition to TFM's commercial operations, they have active social 
programs, including in the areas of microenterprise development and 
health, implemented in conjunction with an international NGO. They 
have also partnered with the government to support upgrades to the 
local infrastructure, including roads, railways and power. TFM's 
local reputation remains highly positive, with local government 
officials, business representatives, and several average Congolese 
all noting to EconCouns the positive role of the company in the 
province.  The lingering issue for TFM remains the still pending 
finalization of its contract renegotiation with the GDRC. 
 
¶7.  (SBU) Comment:  The fall in demand and prices for key minerals 
has highlighted the dependence of Katanga, and the DRC more 
generally, on the mining sector for jobs and revenue.  There is a 
strong recognition of the need for greater economic diversification 
in the province, particularly in increased investment in 
agriculture.  However, limited infrastructure and a local population 
culturally and economically linked to mining remain challenges for 
the immediate development of the agricultural sector.  While 
Governor Katumbi, a businessman himself, is clearly supportive of 
international companies such as Freeport and has made strides to 
create a more business-friendly environment in the province, much of 
the province's bureaucracy and revenues remain controlled by the 
central government in Kinshasa, many of whose leading officials are 
themselves from Katanga.  The still pending finalization of TFM's 
contract renegotiations is another example of Kinshasa's reach into 
the province.  The long delays and lack of transparency in 
finalizing the mining contract review of such major investors as TFM 
has dampened investor confidence during a period when the GDRC 
should be doing everything in its power to attract and facilitate 
investment. 
 
GARVELINK