Congo: Profit and loss account

Congo: Profit and loss account

Vesely, Milan

War in the Democratic Republic of Congo (DRC) is having a profound effect on the economies of central African nations. With seven combatants involved in the escalating conflict, winners and losers are beginning to emerge. Milan Vesely reports.

The Congo’s economy is reeling. Two rebellions in as many years have the left the infrastructure devastated. International investors who flocked to Kinshasa following the fall of Mobutu Sese Seko have abandoned any hope of upgrading its mining, communications and transport industries. To prevent a complete rebel takeover, President Laurent Kabila mortgaged what little is left of the copper and diamond industry to Zimbabwe. Appointing Mr. Billy Rautenbach – more experienced in transportation matters than the intricacies of mining technology – to head Gecamines has resulted in a `wait and see’ attitude by even the hardiest of South African investors. Estimates of a 7% growth in the Congo’s GNP by President Kabila’s Minister of Finance are not even added as notations to American investment surveys.

Uganda, hitherto the African darling of the international financial community, is also experiencing negative fallout. $32m for 90 tanks from the Ukraine, a 3m bag coffee crop worth $274m, down from a 1997 total of 4.2m bags worth $355m, and a 60% dependence on foreign aid have all put pressure on the Uganda shilling. Stabilized at 1,380 to the US dollar, only intervention by the Central Bank of Uganda in April slowed its fall. Still registering a 5.5% growth rate from the momentum of 2,120 new investments in 1997, the cracks caused by Uganda’s simmering regional conflicts and its Congo adventure are beginning to show.

April 1998’s injection of $36m into the foreign exchange market had little more than a holding effect. A $70m South African telecommunications investments by Mobile Telephone Network of South Africa and World Bank Paris Club debt relief under the Highly Indebted Poor Countries (HIPC) scheme are only just stemming the outflow of confidence and capital from what was considered Eastern Africa’s most favoured country.

An early casualty

Rwanda, the lead participant in the Congo rebellion, is experiencing a visible decrease in international aid and declining commodity prices. The 1998 budget of Rf73bn ($243.3 million) is below the Rf83bn forecast. Higher tax revenues of Rf66bn, up from a projected Rf59bn, still leaves a considerable shortfall on the Rf98.9bn franc expenditure. 1998 donor pledges of $56m fell to $30m and the 1997 GNP growth rate of 12% is expected to fall to 7.6% in 1999.

Disbursements from the $255m International Monetary Fund three year recovery program have fallen behind schedule on fears that the escalating costs of the DRC war are depleting Rwanda’s exchequer. Data on Rwanda’s coffee production shows that the continuing instability caused by Interhamwe rebels in coffee producing areas has resulted in a reduction of Rwanda’s coffee crop to just 13,000 tonnes in 1998, down from a high of 45,000 tonnes a decade ago. “Rwanda is seeking financial help for rehabilitation programs to bring production back to previous levels,” Finance Minister Donald Kaberuka said in Kigali on 24 November. “In addition we intend to replace old Arabica trees with new high yield varieties and we are considering starting coffee auctions like Kenya and Tanzania to increase income.”

Whether such efforts in 76 of 140 Rwanda communes will have any effect in light of the guerrilla war being conducted by the Hutu extremists is still to be seen. Vice President Paul Kagame’s contention that defense spending is within targets agreed with the World Bank and the European Union are not being taken seriously and Rwanda’s continuing playing down of its Congo war involvement is causing considerable concern in Washington.

Mugabe on a tightrope

Of the seven countries involved in the DRC, Zimbabwe has the most at stake. The Zimbabwe dollar lost 60% of its value in 12 months, tobacco exports are down 37%, commercial lending rates rose above 40% and a budget deficit of Z$3bn is exacerbated by President Mugabe’s $2m dollar a day Congo adventure.

November riots in Harare and Bulawayo due to a 67% price hike on fuel is just the tip of the iceberg, knowledgeable observers believe. The temporary shelving of a 348% price hike in the cost of illuminating paraffin illustrates the fiscal mayhem created by Mugabe’s miss-rule.

Bringing pressure to bear, the International Monetary Fund is dragging its heels on the disbursement of a US$176m support program. The first tranche of $53m was released in January but when the rest will be approved is still unclear. “Unless there is a major political change at the top, Zimbabwe will continue its cycle into despair,” a South African Investec report concluded in November last year. US Wall Street analysts with African investment portfolios concur. “Even highly publicised visits from investors such as Michael Jackson do little to bolster confidence in the Zimbabwe economy if they are not followed by transparent injections of investment dollars to get projects off the ground,” Investment adviser David Johnson of Dallas reiterates. The winners

As with all wars, the DRC conflict is a boon to countries smart enough to stay out of it. With Dar es Salaam as a port of entry and a direct 700 mile railway to Kigoma, Tanzania is cashing in. Transporting tanks, munitions, and fuel destined for the belligerents is bringing welcome revenue. A political decision to withdraw its military training personnel from the Congo has drawn favourable comment in the US and Tanzania’s tea, coffee and tourism opportunities are being eyed by investors dropping DRC projects.

Tea is one obvious example. With increased research funding obtained by Tea Research Institute of Tanzania from the British Department for International Development, tea production is expected to rise from a 1997 total of 25,500 tonnes to 400,000 tonnes by the year 2000. Increases in coffee, cotton, cashew nuts, tobacco and sisal are also on the rise. The International Human Rights tribunal in Arusha is expected to take centre stage in any judicial proceedings arising out of the current DRC war. The influx of UN dollars into the northern Tanzania region has had a dramatic impact on infrastructure and communications development throughout Tanzania.

The DRC war has had mixed repercussions on the South African economy. Negative in the short term, South Africa is nevertheless gaining a windfall in armament sales. Rwanda and Uganda are increasingly major customers for its sophisticated defense industries and this is expected to rise as the war drags on. South African mineral companies are poised to scoop the lion’s share of the Congo’s mineral potential once the fighting dies down.

Zambia’s proximity to the conflict is straining its financial resources. The influx of refugees escaping the fighting now tops 20,000. There is a silver lining, however. In November Zambia set up its first gemstone auction house to market locally and Congolese mined precious stones and as UN relief efforts increase, local spending by NGO’s is expected to bring a welcome influx of foreign exchange.

Angola bogged down

Of the seven countries involved in the DRC conflict, Angola is the most financially effected. Sucked in to the conflict to prevent the Congo being used as a Unita rearguard base, Angolan troops are mired down in an enlarged area that only serves to weaken their offensive capability. With the next 15 years of oil revenues already spent to maintain the status quo in the guerrilla war against Savimbi’s Unita, the Dos Santos government in Luanda is bankrupt. Controlling the Inga Dam electricity supplies and Matadi port through which imports and exports are routed has brought some relief but as the war drags on President Kabila is finding it increasingly difficult to pay the Luanda regime for its military support.

The DRC war has become a necessity to most of the seven combatants. With their economies in desperate straits they are relying on the spoils of war for financial salvation. Diamonds, gold, coffee and a trickle of copper exports bring short term relief to their hard pressed exchequers. Caught between ‘a rock and a hard place’ they are desperately draining the Congo of its resources. Botswana’s President Festus Mogae put it aptly at the International Herald Tribune South Africa Trade and Investment summit in Cape Town on 1 December: “It is an expensive exercise and we can ill afford the instability,” he said on arrival from Gaborone. “We have to introduce reforms, political and economic, to establish an environment that is friendly to the private sector.”

The question being pondered by western investors is whether the current war will leave any future ventures in the region financially viable. The Congolese people themselves can only hope that such raping of its territory is not sowing the seeds of another future conflict. With nearly 40 years of independence behind them they have yet to feel the positive affects of the Congo’s abundant resources on their daily lives.

Copyright International Communications Jan 1999

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