Zambia Democratic Republic of Congo

COUNTRY REPORT

2nd quarter 1999

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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ISSN 1369-4839

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Contents

3 Summary

Zambia 5 Political structure 6 Economic structure 7 Outlook for 1999-2000 11 Review 11 The political scene 15 The economy 17 Business news 18 Agriculture 18 Mining and energy 19 Foreign trade and payments

Democratic Republic of Congo 22 Political structure 23 Economic structure 24 Outlook for 1999-2000 26 Review 26 The political scene 31 The economy 33 Mining 34 Foreign trade, aid and payments

35 Quarterly indicators and trade data

List of tables 9 Zambia: forecast summary (domestic) 10 Zambia: forecast summary (external) 32 Democratic Republic of Congo: official production, Jan-Feb 35 Zambia: quarterly indicators of economic activity 36 Democratic Republic of Congo: quarterly indicators of economic activity 37 Zambia: foreign trade 38 Zambia: direction of trade 38 Zambia: refined copper exports 39 Zambia: UK trade 39 Zambia: Japanese trade 40 Democratic Republic of Congo: trade with major partners

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List of figures 11 Zambia: gross domestic product 11 Zambia: kwacha real exchange rates 19 Zambia: copper production 19 Zambia: international copper prices 20 Zambia: international reserves 25 DRC: gross domestic product 30 DRC: President Kabila’s approval rating 31 DRC: exchange rates 31 DRC: inflation

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May 21st 1999 Summary

2nd quarter 1999

Zambia Outlook for 1999-2000: The formation of a new opposition alliance, ZAP, will not pose a threat to the ruling MMD, which will continue to crack down on domestic opponents. Industrial unrest is expected in the civil service. Relations with Angola will remain thorny and Zambia may well be the victim of more destabilisation tactics. More refugees will flood in from the DRC. The privatisation of the main copper mines should go ahead by the end of the year, but copper production will be down this year. This will hold down real GDP growth at 1.1% in 1999, although increased copper production and rising investment should bring a recovery to 4.5% in 2000. This also means that exports will rise in 2000 after a poor performance in 1999. Import demand will be strong in both years, fuelled by investment demand for capital goods, and we expect a deterioration of the current account in 1999 and 2000. Nonetheless, donor inflows should ensure currency stability, which will ease inflationary pressures, and although average inflation will rise in 1999, it will fall in 2000. Zambia may qualify for HIPC status, although it will only benefit from substantial debt relief beyond the forecast period.

Review: A new opposition alliance, ZAP, has been formed, but UNIP and the UPND are not included. A Zambian court has ruled that the former president, Kenneth Kaunda, is not entitled to citizenship. The Angolan government has again accused Zambian officials of supporting UNITA. Although both sides have agreed to Swazi mediation, relations remain tense and Angola is suspected of being behind a series of bomb blasts in Lusaka. The Ndeni oil refinery has been damaged by fire. Journalists at the Post have been charged with espionage after comparing Zambian and Angolan military forces. President Chiluba’s mediation attempts in the DRC have come to nothing, while refugees pour into Zambia. New import tariffs have led to sharp price rises. There has been widespread industrial unrest this year. After good rains the maize and sugar harvests will rise in 1999, but food imports will still be required. Copper production is falling as Anglo-American has still to secure a partner to buy the main mines. Substantial balance-of-payments support has been provided by donors, boosting foreign-exchange reserves. The Paris Club has agreed to write off $660m of Zambia’s external debt.

Democratic Republic Outlook for 1999-2000: The “national debate” initiated by President Kabila of Congo will remain stalled as long as the opposition and the rebels have no meaningful say in the event. This will put the government’s credibility at risk. However, the outcome of the conflict in the DRC will depend even more on the position of key external actors, particularly as the rebels continue to squabble among themselves. Although Uganda may withdraw from the RDC, Rwanda will maintain its military presence. With no end in sight to the conflict, the economy will remain depressed and the Congolese franc will fall further.

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Review: President Kabila dismissed the cabinet in February, but there were few changes in the new government announced in March. However, the chief of staff, Abdoulaye Yerodia, was promoted to minister of foreign affairs, while Bemba Saolona, a businessman, was appointed minister of the economy. In March President Kabila announced plans for a “national debate”, but this was rejected by the domestic opposition and the rebels. As a result, the event has been postponed twice. The peace process, spearheaded by the Zambian president, Frederick Chiluba, has lost momentum, and a surprise peace deal signed in Libya in April between President Kabila and the Ugandan president, Yoweri Museveni, has been rejected by the rebels and Rwanda. The military situation has remained confused, with both the government and the rebels making unverifiable claims. The rebel Rassemblement congolais pour la démocratie (RCD) split in May, further adding to the confusion. The first congress of President Kabila’s new support base, the Comités du pouvoir populaire (CPP), was held in April. Arrests have continued in Kinshasa, while support for Mr Kabila has fallen further. The Congolese franc has continued to fall on the black market, fuelled by skyrocketing inflation, prompting the government to devalue the official rate. Economic production has remained depressed. The state-owned mining company Gécamines has continued to experience difficulties, as has the diamond industry.

Editors: Piers Haben; Markus Scheuermaier All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 Next report: Our next Country Report will be published in September

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Zambia

Political structure

Official name Republic of Zambia

Form of state Unitary republic

Legal system Based on the 1996 constitution

National legislature National Assembly; 150 members elected by universal suffrage; all serve a five-year term

National elections November 1996 (presidential and legislative); next elections due in 2001

Head of state President elected by universal suffrage for a term of five years

National government The president and his appointed cabinet

Main political parties The Movement for Multiparty Democracy (MMD) is the ruling party, with a huge parliamentary majority. The National Party (NP), Zambia Democratic Congress (ZDC) and Agenda for Zambia (AZ) also have seats in parliament. The former sole party, the United National Independence Party (UNIP), and several other opposition groups boycotted the 1996 elections and have no seats. The United Party for National Development (UPND) was formed in late 1998 but already seems to have attracted considerable support. The Zambia Alliance for Progress (ZAP) is a coalition formed in early 1999 and comprises the National Citizens Coalition (NCC), the Zambia Democratic Congress (ZDC), Agenda for Zambia (AZ), the Labour Party, the Lima Party, the National Party (NP) and a non-governmental organisation called the National Pressure Group (NPG).There are over 30 parties in all

President Frederick Chiluba Vice-president Christon Tembo

Key ministers Agriculture & fisheries Sureshi Desai Commerce, trade & industry David Mpamba Communications & transport David Saviye Community & social development, lands Dawson Lupunga Defence Chitalu Sampa Education Godfrey Miyanda Energy & water development Ben Mwila Environment William Harrington Finance Edith Nawakwi Foreign affairs & co-operation Yerodia Abdoulaye Ndombasi Health Nkandu Lou Home affairs Katele Kalumba Information & broadcasting Newstead Zimba Labour & social services Peter Machungwa Legal affairs Vincent Malambo Local government & housing Bennie Mwiinga Mines Syamukayumbu Syamujaye Office of the president Eric Silwamba Science & technology Alfeyo Hambayi Sport & youth development Abel Chambeshi Tourism Anoshi Chipawa Without portfolio Michael Sata Works & supply Suresh Desai

Central bank governor Jacob Mwanza

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Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998a GDP at market prices (ZK bn) 2,241 2,998 3,970 5,156 6,650 Real GDP growth (%) –3.5 –2.3 6.5 3.5 –2.4 Consumer price inflation (av; %) 54.6 34.9 46.3 24.8 22.9b Population (m) 7.9 8.08 8.28 8.48 8.74 Exports foba ($ m) 1,066 1,233 1,093 1,135 903 Imports foba ($ m) 903 1,074 965 1,144 1,020 Current-account balancea ($ m) –57 –139 –150 –206 –301 Reserves excl gold ($ m) 268 228 223 239 92 Total external debt ($ bn) 6.61 6.85 7.11 6.76 7.19 External debt-service ratio, paid (%) 31.4 194.6 26.1 29.7a 36.9 Copper outputc (’000 tonnes) 354 307 320 325a 293 Exchange rate (av; ZK:$) 669.37 857.23 1,203.71 1,314.50 1,862.07d

May 21st 1999 ZK2,520:$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1997 % of total Agriculture 12 Private consumption 58 Industry 39b Government consumption 15 Mining 9 Gross fixed capital formation 37 Construction 2b Change in stocks 1 Manufacturing 31b Exports of goods & services 30 Government & other services 49 Imports of goods & services –43 GDP at market prices 100 GDP at market prices 100e

Principal exports 1996b $ m Principal imports 1993 $ m Copper 568 Crude oil 144 Cobalt 193 Fertiliser 30 Electricity 1

Main destinations of exports 1997f % of total Main origins of imports 1997f % of total Japan 11.6 South Africa 48.3 Saudi Arabia 11.5 UK 8.1 Thailand 10.6 Zimbabwe 7.2 India 7.5 Saudi Arabia 6.1 a EIU estimates. b Official estimate. c ZCCM financial years starting April 1st. d Actual. e Total does not sum due to rounding. f Based on partners’ trade returns, subject to a wide margin of error.

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Outlook for 1999-2000

The newly formed ZAP Zambia’s ruling Movement for Multiparty Democracy (MMD) stands to gain will split the opposition from recent developments in opposition politics. Following the formation of an vote opposition coalition, the Zambia Alliance for Progress (ZAP), in early May, voters who do not support the MMD or the United National Independence Party (UNIP) of the former president, Kenneth Kaunda, are now able to choose between two credible parties, ZAP and the United Party for National Development (UPND), founded by a former director of Anglo-American (Zambia), Anderson Mazoka, in December. Both parties will be vying for the same constituency in the 2001 national elections unless they can put aside differences over the allocation of senior positions and forge a broader alliance.

The presence in ZAP of the Agenda for Zambia (AZ) is likely to prove both a help and a liability to the new party. AZ, led by Akashambatwa Mbikusita Lewanika, is dominated by ethnic Lozi people, who want secession for the Lozi region of Barotseland in Western province. Mr Lewanika wants ZAP to advocate a referen- dum on the issue and is presumably offering useful Lozi votes in return. ZAP will need all the votes it can get, but the presence of AZ gives the MMD easy propaganda opportunities and will make potential backers and voters nervous.

Donor condemnation of The government will continue to crack down on domestic opposition groups in the government’s stance the run-up to the election. Whereas fears of international criticism (and possible will be muted damage to relations with donors) could normally be expected to keep such actions in check, the turbulent situation in neighbouring Angola, the Democratic Republic of Congo (DRC) and Zimbabwe will ensure that such criticism will remain muted. The ruling by a Zambian judge on March 31st that Mr Kaunda is not a Zambian, and the arrest of journalists at Lusaka’s independent Post newspaper in March, were therefore met with relative silence from donors. The two new opposition groupings will face similar harassment over the next two years, but with continued unrest in the region donors will need Zambia to remain stable; they will thus be reluctant to withhold their support.

More money is needed to In recent months Zambia has faced a wave of industrial unrest over wage levels avert civil service unrest and redundancy packages. Financial assistance from the World Bank should ensure that the benefits for the 7,000 Copperbelt workers who are to be retrenched in the coming months are generous enough to avoid serious trouble. However, in the case of the civil service, where 59,000 workers are scheduled to be laid off over the next two years, there may not be enough money to secure decent severance benefits. This may herald widespread industrial unrest in Zambia’s major urban areas. The private sector also looks set for a turbulent year, following the 30% pay rise awarded to government workers in March, as companies with well-organised trade unions will have to match this rise if they are to avoid disruption.

Relations with Angola Although domestic politics will be troublesome over the forecast period, it is will remain tense external relations, particularly tension with Angola, that will pose the greatest threat to stability in Zambia this year. Angola has accused members of the MMD government of supporting its rebel movement, União Nacional para a

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Independência Total de Angola (UNITA), and has made thinly veiled threats against Zambia. Indeed, the Angolan government has been mentioned in con- nection with a series of explosions which rocked Lusaka in April. Swaziland’s King Mswati III has been appointed by the Southern African Development Community (SADC) to mediate in the year-old dispute, but there is no reason to think that the young king will succeed where others, such as the South African president, Nelson Mandela, have failed. Nevertheless, a solution is still possible if Angola produces hard evidence to back up its allegations and if the two presidents can overcome their personal animosity. This would allow Zambia to make a concession to Angola and return relations back to normal. In the meantime, while a full-scale attack on Zambia is impossible for Angola’s overstretched military, destabilisation tactics may well continue.

More Congolese refugees Increased levels of fighting between government forces and the rebels in the will flee to Zambia DRC are bound to accompany the arrival of the dry season in the region, and Congolese refugees fleeing from the conflict will continue to pour into Zambia. Although Zambia should be able to cope with the help of international agencies, a steady influx of refugees might overstretch its resources if the rebels push further towards Lubumbashi. This will also raise concerns about security, as the rebels may feel justified in attacking refugee camps inside Zambia if they feel that they are playing host to government soldiers.

AAC might take until Although donors, the government, Zambian businesses and miners on the October over the Konkola Copperbelt are all desperate for the privatisation of Zambia’s main copper Deep deal mines, Nkana, Nchanga and Konkola Deep, to be concluded, the sale has been delayed yet again. The international mining conglomerate, Anglo-American Corporation (AAC), is still trying to find an equity partner, although Chile’s Codelco seems to be a likely candidate. However, neither AAC nor Codelco seem in too much of a hurry, partly because the deal is complex, but largely because the international price for copper is so low that both sides would prefer to wait until market conditions improve. AAC is also trying to make it clear to the Zambian government that it will not be rushed when planning major investments. Provided Codelco stays on board and there are no unforeseen disasters, such as the war in the DRC spilling over into the Zambian Copperbelt, a deal should be in place by the end of the year. It is likely that the privatisation of other assets on the Copperbelt, such as the sale of the Mufulira smelter to Poland’s KGHW, will be delayed until a deal on Konkola Deep is in place, as this will define the business environment in which new firms will be operating.

Economic policy will If the privatisation of the copper mines goes through before the end of the year, remain on track as expected, the EIU anticipates that the government’s economic reform programme will generally remain on track. The lure of further debt reductions should be enough to ensure that tight fiscal and monetary policies are observed and that the government services are gradually being restructured. This in turn will ensure that, although government spending will exceed budgetary targets, overspending will be minimised and will be covered by donor inflows, allowing a narrowing of the fiscal deficit over the forecast period.

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Low copper output in Because of the delay in privatising its key mines, copper production at Zambia 1999 will hold down Consolidated Copper Mines (ZCCM) will probably fall to 260,000 tonnes this real GDP year. This is far below the requirements of the survival plan hammered out last year between the company, the government and donors. The mining sector’s contribution to GDP will therefore be stagnant in 1999, particularly as international copper prices are forecast to fall by 17% to 62.2 cents/lb in 1999. The poor performance of copper and the delay in investment inflows are the main factors behind our forecast of a low increase in real GDP of 1.1% in 1999. As companies wait for the privatisation of the copper mines, the manufacturing sector will also suffer, and we expect no growth in manufacturing production in 1999.

The slump will be exacerbated by the fire at Ndeni, Zambia’s only oil refinery, in May, which will restrict oil supplies and raise production costs. However, investments are anticipated in the tourism industry, which should boost growth in the construction and services sectors. In addition, agricultural production is expected to grow modestly following a good harvest this year, in spite of heavy rains that spoilt some crops in the south. In 2000, provided the planned privatisations go ahead, real GDP growth should climb to 4.5%, as copper production rises slowly and new investment in the mines boosts construction and services. A resumption of mining activity will also provide renewed demand for Zambia’s beleaguered manufacturing sector, while the tourism and agricultural sectors should remain robust.

Zambia: forecast summary (domestic) (% change year on year) 1997a 1998a 1999b 2000b Real GDP 3.5c –2.4 1.1 4.5 of which: agriculture –6.0 –5.0 2.0 2.5 manufacturing 3.2 0.0 0.0 4.0 mining 2.0 –9.0 0.0 10.0 Consumer pricesd Average 24.8c 22.9 26.1 18.9 Year-end 19.4c 30.6 19.1 18.4

a EIU estimates. b EIU forecasts. c Actual. d Low-income index, urban areas.

Private maize importers Although a maize harvest of 700,000-800,000 tonnes is expected this year, will be unwilling to representing a marked improvement on the 1998 harvest of 548,000 tonnes, compete with the FRA food imports will still be required. Funding for the necessary food imports may prove difficult, however, despite substantial donor support. The private sector will be unwilling to commit itself to importing food from abroad because last year, when the government’s Food Reserve Agency (FRA) sold imported food at a loss, it was unable to compete. Given the cost of last year’s fiasco, the FRA will probably lack the necessary finance for Zambia’s entire import requirement, potentially creating a completely avoidable food deficit in 1999 and raising the prospect of hunger in some areas.

The current-account Zambia’s total export earnings are forecast to fall to $856m in 1999 as a result of deficit will widen— falling copper prices and stagnant production in the ailing mines. In addition, demand from Zambia’s strife-torn neighbours for its manufacturing exports will

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remain flat, and even the steadily growing exports of horticultural products to Europe will not be enough to offset this. However, the outlook for exports is brighter in 2000, as copper production improves and prices go up. With continued increases in horticulture exports anticipated (although none is expected in other non-traditional exports), a 21% increase in total export earnings to $1.04bn in 2000 is forecast. Import expenditure will rise to $1.1bn in 1999, as international oil prices rise and more expensive refined oil is imported because of the fire at the Ndeni oil refinery. In 2000 demand for imported capital goods, associated with investment in the mines, will push total import spending up to $1.24bn. The overall current-account deficit is forecast to deteriorate modestly to $340m in 1999 and to $342m in 2000.

Zambia: forecast summary (external) ($ m unless otherwise indicated) 1997a 1998a 1999b 2000b Merchandise exports fob 1,135 903 856 1,036 of which: copper 623 493 411 526 Merchandise imports fob1,144 1,020 1,100 1,240 Current-account balance –206 –301 –340 –342 Exchange rate (ZK:$) Average 1,315c 1,862c 2,543 2,902 End-period 1,414c 2,299c 2,677 3,049

a EIU estimates. b EIU forecasts. c Actual.

—but substantial Zambia can expect to receive continued balance-of-payments support from balance-of-payments donors throughout 1999 and 2000, allowing its international reserve position support will be received to recover from its precarious level of $92m (about one month of import cover) in December 1998. In addition to bilateral support, the IMF will release further tranches this year of the $349m enhanced structural adjustment facility (ESAF) it has committed over the next three years, while the World Bank will provide $105m when the mines are finally sold. This will boost international reserves, although a large proportion of the inflows will be used to service Zambia’s external debt obligations, averaging around $30m per month. Zambia is likely to see foreign reserves increase to $160m at the beginning of 2000, $68m less than five years earlier.

Inflation will be 26% Financial inflows from donors and investors will help to keep the Zambian in 1999 kwacha relatively stable in real terms throughout the forecast period. Only a modest nominal depreciation is forecast, taking the kwacha to an average of Zk2,543:$1 in 1999 and Zk2,902:$1 in 2000. This in turn will help to keep a lid on inflation, although rising international oil prices, exacerbated by the fire at Zambia’s only oil refinery, and the recent import tariff hike will maintain some momentum on price increases in 1999, leaving average year-on-year inflation at an estimated 26.1%. However, continued currency stability and projections of adequate food prices should allow a fall in average inflation in 2000 to 18.9%.

Zambia may become The World Bank is currently advocating Zambia’s early inclusion in the highly eligible for HIPC status indebted poor countries (HIPC) scheme. If Zambia qualifies in the near future and if the Paris Club of bilateral creditors delivers on its commitment to write

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off around $660m of Zambia’s bilateral debt, the country would join the HIPC scheme with about $6bn of external debt. The aim of HIPC is to leave a country with “sustainable” debt levels; although undefined, this is likely to mean a substantial reduction in Zambia’s total external debt stock. Perhaps more importantly, it would also lead to a drop in Zambia’s annual debt-servicing bill— which currently amounts to over $300m per year. However, the HIPC process is lengthy and Zambia is unlikely to reap the benefits within the current forecast period.

Zambia: gross domestic product Zambia: kwacha real exchange rates (c) % real change, year on year 1990=100 8 120 Zambia ZK:DM 6 Africa 110 4 ZK:$ 100 2

90 0

-2 80

-4 1996 97(a) 98(a) 99(b) 2000(b) 70 ZK:¥ (a) EIU estimates. (b) EIU forecasts. (c) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World 1990 91 92 93 94 95 96 97 97 98(a) 98(a) 99(b)99(b)2000(b) 2000(b) Economic Outlook.

Review

The political scene

A new opposition alliance In early May a new political party, the Zambia Alliance for Progress (ZAP), was is born formed. ZAP emerged from the more ad hoc National Patriotic Alliance (NPA), which was a grouping made up of the National Citizens Coalition, the Zambia Democratic Congress, Agenda for Zambia, the Labour Party, the Lima Party and a non-governmental organisation called the National Pressure Group. The parties will apparently retain separate identities for the time being, although ZAP is registered as one party. The National Party (NP) also joined on April 19th. Together, ZAP’s constituent parties have nine seats in Zambia’s 150-strong parliament. The alliance’s make-up is ultra-democratic. Each party leader is currently chairing ZAP for one week at a time, and ZAP officials will be elected by delegates from all the constituent parties at a national policy council at the end of May.

Notably absent from ZAP are the United National Independence Party (UNIP), led by the former Zambian president, Kenneth Kaunda, and the United Party for National Development (UPND), led by a former director of Anglo-American, Anderson Mazoka. The UPND’s absence is surprising, given that Mr Mazoka’s stated aim is to unite the opposition parties. It seems that disagreements over the allocation of high-level postings under any alliance were the main problem. Only the small Zambia Democratic Party (ZDP) has agreed to join the UPND,

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although Mr Mazoka still hopes to form a broader alliance with ZAP under his leadership. UNIP, however, seems to have lost interest in joining any opposition coalition at all, following its healthy performance in last December’s local government elections (1st quarter 1999, page 12) and in recent by-elections.

Mr Kaunda’s presidency is Mr Kaunda has reiterated his decision not to leave politics, despite promises not on UNIP’s national that he would do so on his release from prison in June 1998 (3rd quarter 1998, council agenda page 11). Indeed, his retirement as the head of his party, UNIP, was not even on the agenda at the UNIP national council in late May, which had originally been convened for this very purpose. It is perhaps because the issue of secession has been temporarily laid to rest that other rifts within UNIP have been smoothed over for now. The party’s former secretary-general, Sebastian Zulu, who has openly challenged Mr Kaunda’s sons, Wezi and Phanji, for the leadership, was readmitted to the party in early March after a lengthy suspension.

Mr Kaunda is rendered In spite of a Lusaka High Court ruling on December 10th which allowed the stateless president, Frederick Chiluba, to keep his Zambian citizenship on the grounds that he was resident in Zambia when it became independent in 1964 (1st quarter 1999, page 13), a Ndola High Court judge, Jalenda Sakala, ruled on March 31st that Mr Kaunda is not Zambian—despite the fact that at independence he was not only a resident but also the president. Judge Sakala ruled that Mr Kaunda had failed to follow the correct procedures in attaining Zambian citizenship, as he had only renounced his Malawian citizenship in 1970. Mr Sakala went on to rule that most of Mr Kaunda’s 27-year presidency has thus been illegal. Ironi- cally this makes Mr Chiluba’s presidency illegal, as Mr Kaunda could not have handed over the helm legitimately. Mr Sakala’s judgment was welcomed by the government but denounced by a variety of political parties and civil society groupings. Mr Kaunda’s lawyers have appealed against the ruling. On April 1st gunmen shot at Mr Kaunda’s car outside his Lusaka residence. He was not in the car at the time, and no one was hurt in the attack. Mr Kaunda and UNIP claim that it was an assassination plot, but others in the ruling Movement for Multi- party Democracy (MMD) have suggested that UNIP organised the attack as a publicity stunt.

Nine soldiers are acquitted On May 5th the Lusaka High Court acquitted nine soldiers in the long-running in a treason trial treason trial which followed the 1997 bungled coup attempt by junior army officers. The reason given was lack of evidence (4th quarter 1997, page 9). However, the judge ruled that the trial of the other 68 accused should still go ahead.

Angola accuses Zambian The Angolan government has repeated its allegations of high-level Zambian cabinet ministers of government involvement in arms smuggling to the rebel União Nacional para helping UNITA a Independência Total de Angola (UNITA), which the Zambian government still denies. In mid-February the Angolan government accused the Zambian vice-president, Christon Tembo, the minister of energy (and former minister of defence), Ben Mwila, and the former commerce minister, Enoch Kavindele, of dealings with UNITA. In mid-March it presented a formal accusation to the UN committee charged with overseeing sanctions against UNITA. Suspicions against these men have existed for a long time, but the Zambian government’s

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hastily convened inquiry into their role after the allegations made by Angola to the UN committee unsurprisingly found them completely innocent. Following these accusations, rumours have been circulating that the Angolan government was planning an air strike against Ndola in Zambia’s Copperbelt. Ndola’s airstrip has allegedly been used for clandestine flights into UNITA territory. It seems that Angola was dissuaded from carrying out the strike by pressure from the US and France.

Zambia and Angola accept In February the South African president, Nelson Mandela, attempted to set up Swazi mediation in their a meeting between Mr Chiluba and the Angolan president, José Eduardo dos dispute Santos, but to no avail. The Mozambican president, Joachim Chissano, tried to do the same later in the month, but he also failed. Mr dos Santos has ruled out a meeting until Zambia stops assisting UNITA, and since Zambia denies giving any assistance, there is a deadlock. Following these failed attempts the defence ministers of the Southern African Development Community (SADC), meeting in Swaziland in March, persuaded both Angola and Zambia to agree to submit to the mediation of Swaziland’s King Mswati III. Although King Mswati is not renowned for his mediation skills, he did manage to arrange a meeting of officials from the two countries in Swaziland in early May to lay the ground- work for a more high-level meeting.

Bombs explode in Lusaka— Amidst rumours of possible Angolan air attacks against Zambia, the six bombs that exploded in Lusaka and its environs on February 28th were alarmingly real. Most of the bombs hit strategic targets, including vital electricity pylons and Lusaka’s main water supply pipe. One bomb exploded inside the Angolan embassy. There were reportedly nine other bombs which failed to detonate. Although both the MMD and opposition groups were potential suspects (in 1996 the government was accused of trying to besmirch the opposition through the Black Mamba bombing campaign), both opposition politicians and cabinet minister resisted the temptation to blame each other. Instead, in an indication of the seriousness of the attack and motivated by suspicion that it was externally masterminded, Mr Chiluba invited the US Federal Bureau of Investigations to look into the matter. The FBI finished its work in mid-March and presented its report to the government, but its findings have not been made public. In the meantime three people, including an Angolan student, have been arrested, but the evidence against them is unconvincing and they are probably being held in an attempt to alleviate public concern.

—and the evidence points The Angolan government professed outrage at the bombing of its embassy, but to Angola’s involvement— this impressed few as the bomb exploded in a first-floor room to which only embassy staff had access. This suggests either that the embassy explosion was a decoy, intended to divert attention away from Angola’s involvement, or that it was a mistake committed by the bombers while assembling their bombs for detonation elsewhere in Lusaka. Both explanations are likely in the context of the Angolan government’s repeated warnings against Zambian support for UNITA. Assuming that the FBI findings show that the Angolan government was responsible, the Zambian government’s silence on the issue suggests that it has perhaps taken heed of the warning.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 14 Zambia

—but the fire at the oil In mid-May a fire at Zambia’s only oil refinery, Ndeni near Ndola, caused refinery is unlikely to extensive damage and closed the refinery for several months. It as yet unclear be linked what caused the fire, and initial fears that it may be linked to the bomb attacks in Lusaka (and thus the Angolan government) were fuelled by reports of a number of explosions prior to the fire. Although the cause of the fire has yet to be ascertained, it seems that it was probably an accident in the old refinery, which was in dire need of repair.

Post journalists are to be In the wake of the Lusaka bombings, Lusaka’s daily independent newspaper, The tried for espionage Post, carried a front page story on March 9th comparing the respective military strengths of Angola and Zambia. The report concluded, unsurprisingly, that Zambia was no match for the Angolan forces. The government reacted furiously, ordering the detention of most of the paper’s journalists, including the editor, Fred M’Membe. All the journalists have since been charged with espionage but have been released on bail. If found guilty, the journalists face a minimum of 20 years in jail.

President Chiluba is still President Chiluba has continued in his efforts to bring about peace between trying to end the war in the countries involved in the war in the Democratic Republic of Congo (DRC). Congo However, he has achieved little, except perhaps renewed balance-of-payments support from donors (see Foreign trade and payments). Indeed, Mr Chiluba has been increasingly criticised by the Congolese government. In mid-February it accused the Zambian consul in Lubumbashi of secretly supporting the rebels,

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Zambia 15

and in March reports appeared in the pro-government press in Kinshasa of an alleged Rwandan training camp inside Zambia.

The Zambian government The negative comments by the Congolese authorities are probably fuelled by is shifting its sympathies the actions of the Zambian government which, while remaining basically neu- in the conflict tral, seems to be shifting its sympathies from the Congolese government to the rebels. This is partly out of fear of a rebel attack on its own territory. Zambia now houses thousands of Congolese refugees who have fled from rebel-controlled areas. Money is also a serious issue. Zambia is the transit route for most supplies into southern Congo, but the Congolese government has rarely paid for them in a timely manner. In February the Zambian government cut off Congo’s credit lines, and consequently the supplies to southern Congo began to dry up. Congolese planes also experienced difficulties securing permission to fly over Zambian airspace. The Congolese president, Laurent Kabila, met Mr Chiluba in Ndola on March 5th to discuss the matter and apparently gave a briefcase full of US dollars to the Zambian delegation. Although this seems to have ensured the resumption of supplies, the incident also reinforced Zambia’s perception of Mr Kabila’s political and economic frailty, encouraging it to reconsider its assistance to the Congolese regime.

Congolese refugees pour Refugees from conflict-torn south-eastern Congo began pouring into Zambia in into northern Zambia March. Most of them arrived in the Kaputa region, a particularly undeveloped part of Zambia’s Northern province, which has almost no capacity to provide assistance to them. The UN High Commissioner for Refugees (UNHCR) and the Zambian government hastily erected camps for the refugees, who by mid-April numbered around 30,000. Sanitary conditions are poor and food stocks are low, although the World Food Programme (WFP) has made considerable headway in stabilising the situation. In mid-April the government and the UNHCR began resettling the refugees away from the border at Mporokoso. A camp called Mwange is being built there which should have the capacity to hold 35,000 people, and so far about 7,000 refugees have been relocated. Most of the 1,000 or so Congolese government soldiers who crossed into Zambia in March have been repatriated after discussions between Congolese and Zambian officials.

The economy

Tariffs increase despite According to treaties signed under the auspices of the Common Market for Comesa objections Eastern and Southern Africa (Comesa), all member states are now supposed to have cut import tariff by 90% in preparation for the October 2000 deadline for completely free trade within Comesa. So far only Madagascar and Egypt are on track, with reductions of 90% in place. Most countries (the other members are Angola, Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe) have reduced tariffs for fellow members by 80%, while Malawi has reduced them by 70% and Rwanda, Burundi and Zambia have reduced tariffs by only 60%. In late March Comesa officials announced that they were engaging the Zambian government (which hosts the Comesa headquarters) in talks in the hope of settling the matter. However, the increase in tariffs on selected imports in Zambia’s 1999

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 16 Zambia

budget, part of the government’s bid to protect local manufacturers, suggests that Zambia will not be able to meet its Comesa obligations.

The prices for basics go up The imports affected by the budget tariff increases include basic goods such as accordingly— cooking oil, soap, margarine, tyres and batteries. Although this seems to have had the desired effect of stimulating demand for locally produced goods—local manufacturers have reported rising production levels—consumers have been more concerned by rapid price hikes. For example, the price of 500g of imported washing powder has gone up over 200% from ZK1,200 ($0.50) to ZK2,700, and 1kg of margarine from ZK3,992 to ZK6,475, an increase of ap- proximately 60%. The price of imported cooking oil has risen by some 50%. Traders, particularly in Livingstone on the border with Zimbabwe, have been outraged by the tariff hikes, and in mid-February about 200 traders there threatened to beat up customs officials who attempted to collect the tariffs.

—and inflation is Consumer price inflation had been going up even before the tariff hikes, exceeding government largely as a result of continued price increases in imported goods following the targets large currency depreciation in 1998, but also because of a 30% civil service wage increase. This seems to have dashed government hopes of cutting the rate of inflation to 15% this year. From a low of 16.3% in February 1998, year-on- year inflation rose to 30.6% in December and to 31.6% in January 1999.

Industrial unrest rocks Several incidents of industrial unrest have occurred in the first few months of Zambia 1999. They centred on two issues: wage levels and retrenchment packages.

Monetary aggregates 1998

Statistics from the Bank of Zambia (BoZ, the central bank) paint an interesting picture of monetary aggregates in 1998. In the face of rising inflation and a depreciating currency, the BoZ still managed to bring down money supply growth. According to BoZ figures, narrow money, M1, rose by just 0.2% between December 1997 and December 1998, while broad money, M2, actually fell in nominal terms, sharply increasing the implied velocity of money, as an existing amount of money had to do more work. Somewhat oddly, increases in domestic credit, which are usually associated with an increasing money supply, were sharp. Total credit to the private sector rose by 31%, credit to parastatals rose by 194% and claims (from all sources) on central government rose by some 470%. However, private-sector lending to the government actually dropped in 1999, as the government switched its source of domestic funding to the central bank.

BoZ claims on the government rose from a negative K60bn in December 1997 to K467bn ($20m) in December 1998. Large-scale government borrowing from the central bank can be inflationary, but the fact that the BoZ financed this lending through drawing down its reserves of foreign currency and that the government largely used this money to repay external debts minimises this risk. However, sharp increases in M1 and M2 are expected in 1999, as liquidity is replenished through donor inflows, and in 2000 through rising export earnings. The BoZ maintained a tight monetary stance in 1998. The bank rate rose from 23% in January 1998 to 42% in December and to 46% in March 1999, ensuring that real lending rates remained positive, although it was unable to stop real deposit rates becoming negative.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Zambia 17

• Miners retrenched last year from the Roan Antelope Mining Corporation of Zambia (RAMCOZ) in Luanshya, which is owned by India’s Binani group, protested in March and April against Binani’s failure to pay them their redundancy packages. The result was clashes with riot police in mid-April in which at least two people died.

• At the Chambishi mine north of Kitwe, owned by China’s Non-Ferrous Metals Corporation, workers went on strike for several days in late March. They were demanding allowances which they claimed were in arrears.

• In early April workers at the Mpelembe drilling company, which supplies drills to the copper mines, went on strike, demanding the immediate payment of their March salaries. The company, which was privatised under a management buy-out last year for ZK325m ($175,000), claimed it was unable to pay workers because RAMCOZ owed the company ZK7.4bn.

• In mid-April workers laid off by Zambia’s Bonnita dairy in July 1998, when Parmalat of Italy took over, marched to demand payment of redundancy benefits. Paramilitary police broke up the demonstration and several people were arrested.

• Unionised workers at the Bank of Zambia (BoZ, the central bank) stopped work on April 20th. Their demands were vague but related to agreements made in 1998, which they claimed had not been honoured by management. The stoppage ended on April 22nd, after a meeting between union officials and the governor, Jacob Mwanza.

Business news

• The Zambia Privatisation Agency (ZPA) is has announced plans to sell the Zambia Forestry and Forest Industries Corporation (Zaffico). The closing date for submissions is July 30th.

• On February 11th Zambia Express Airlines (Zamex) went into liquidation. Zamex first ran into trouble when its managing director, Rajan Mathani, fell out of favour with the government, leading to the suspension of the airline’s Lusaka-London route.

• Zamex’s main rival, Aero Zambia, had its licence revoked in March but is continuing to offer services pending an appeal. The airline has been accused of operating unscheduled flights (a euphemism for flying arms to the UNITA rebels) and of irregular maintenance.

• Zambia Breweries (ZB) is in the process of acquiring Northern Breweries (which makes sorghum beer) from UK-based Lonrho. Even though the sale may be vetoed by the Zambian authorities on the grounds that it would create a monopoly in the Zambian beer market, ZB has announced plans for a local rights issue (a share issue with priority rights for existing shareholders) to finance the purchase. The issue, Zambia’s first rights issue, is to raise $8.5m and will be an important test case for Zambia’s small financial market.

• Zimbabwe’s Delta Corporation has put on hold a major Zambian sorghum brewery project, amid concern that the market for the product is in decline.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 18 Zambia

Agriculture

The prospects for the 1999 Generally, production in the agricultural sector has been robust in 1999. How- harvest are good ever, Zambia’s cotton harvest is estimated to have fallen to 90,000 tonnes this year, from 110,000 tonnes in 1998, and was plagued by poor quality. Lonrho has ordered large-scale retrenchments in its Zambian processing operations as a result. Nevertheless, sugar production is expected to rise some 7,700 tonnes this year to 190,000 tonnes on the back of better rainfalls, while improved weather conditions have also boosted this year’s maize harvest. In mid-April the Zambian National Farmers’ Union (ZNFU) estimated the final maize crop at 1.08m tonnes, nearly double the 1998 harvest of 548,000 tonnes. This is probably too optimistic, and a maize harvest of 700,000-800,000 tonnes seems more realistic. This, while still a marked improvement on last year, will necess- itate food imports. In late February Zambia’s vice-president, Christon Tembo, put the cereals deficit at an estimated 643,000 tonnes and said up to 1.2m people were suffering from food shortages, a figure supported by widespread reports of malnutrition in some rural areas.

The government aims to All too aware that fertilisers came in much too late last season (1st quarter import fertilisers on time 1999, page 20), the government announced in mid-April that it would aim this year to ensure that supplies arrive by July this year. Tenders have been issued for the supply of 80,000 tonnes of the most needed fertilisers. The Zambian Association of Manufacturers has suggested that on the reasonable assumption that only 20% of farmers will repay all the money they owe the government for fertilisers, and taking into account distribution costs, the government stands to lose some $25m on the deal.

Mining and energy

Copper production and Zambian copper output has not started the year well. February’s production is prices disappoint estimated at 15,168 tonnes, compared with the 21,000 tonnes required under the survival plan worked out by Zambia Consolidated Copper Mines (ZCCM) and multilateral donors last year (4th quarter 1998, pages 16-17). Total production in 1999 is now forecast at only 260,000 tonnes, making 1999 ZCCM’s worst year ever. Nevertheless, in other areas ZCCM is trying to adhere to the survival plan and is retrenching over 7,300 workers in 1999, about one-quarter of its workforce. In an unusual move the World Bank is financing the $57m cost of these redundancies through loans to the government in the form of balance-of-payments support.

Anglo-American has still Anglo-American Corporation has still to secure a partner for its acquisition of not found a partner the Konkola Deep, Nkana and Nchanga copper mines from ZCCM. The deal is therefore on hold, despite the fact that the deadline of March 31st has passed (1st quarter 1999, page 19). However, it seems that Codelco of Chile is interested in the venture. It has recently made public its intention to acquire a more international profile and has been seeking finance for this purpose. The director of Anglo-American, Julian Ogilvie Thompson, visited Chile in early 1999.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Zambia 19

Mufulira will now be The UK’s Reunion Mining, which had agreed to buy the Mufulira smelter in bought by KGHW February (1st quarter 1999, page 19), was badly affected by the downturn in African mining in 1998, brought about by falling international demand and increasing operational difficulties in countries such as the Democratic Republic of Congo. As a result it is now selling all its assets and withdrawing its offer to buy Mufulira. Instead, Poland’s KGHW appears to be interested in the smelter. The company has sent a draft memorandum of understanding to the Zambia Privatisation Agency (ZPA) and has already sent two teams to look at the assets. KGHW is apparently reasonably happy with the $10m price tag but may be seeking some additional concessions to those secured by Reunion.

RAMCOZ is struggling The Luanshya smelter of the Roan Antilope Mining Corporation of Zambia (RAMCOZ) closed in early February. With three smelters the Copperbelt had excessive capacity for its diminished operations, and the Luanshya smelter was the least cost-effective and the smallest of the three. It is highly probable that the entire company would have been forced to close without assistance from the government, which seems to think that it cannot afford a failed privatisation before it disposes of the major mining assets. Maamba collieries, bought by South Africa’s Benicon in 1997, has been seriously affected by the closure of the Luanshya smelter, causing monthly sales of coal to drop from 18,000 tonnes to 6,000-7,000 tonnes.

Zambia: copper production Zambia: international copper prices '000 tonnes Cents/lb

330 140

320 130

310 120 110 300 100 290 90 280 80 270 70

260 60

1995 96 97 98 99(a) 1995 96 97 98 99(a)

(a) EIU estimates. (a) EIU estimates. Sources: London Metal Exchange; World Bureau Sources: London Metal Exchange; World Bureau of Metal Statistics; ZCCM; EIU. of Metal Statistics; ZCCM; EIU.

Foreign trade and payments

Tourism earnings decline According to figures released by the Zambia national tourist board in mid- in 1998 but investment April, Zambia earned $74.7m from tourism in 1998, $800,000 less than in will rise in 1999 1997. There were apparently more visitors, but they stayed for a shorter time and spent less money, as increasing numbers of tourists switched from hotels to guest houses and backpackers’ lodges. The tourist board said that $7.7m of investment was pledged to the industry in 1998, but a more impressive $57m has been pledged this year. One of the main investments should come from the Zambia-registered Star of Africa company, jointly owned by Callow Ventures of the British Virgin Islands and Zimbabwe Sun, which in March won 25-year leases to four lodges, for which it pledged over $10m of investment.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 20 Zambia

Balance-of-payments The long-anticipated influx of balance-of-payments support from donors to support arrives— Zambia began in March. The World Bank provided $65m, primarily to fund retrenchments at Zambia Consolidated Copper Mines (ZCCM), and the IMF finally agreed to resume enhanced structural adjustment facility (ESAF) payments worth $349m over three years. The first tranche of $13m, which went

Zambia: international reserves into Zambia’s foreign reserves, was released shortly afterwards. The EU provided $ m $22m in fresh balance-of-payments support in mid-April, and the African 300 Development Bank (AfDB) pledged another $15m.

250 The new funding has rescued Zambia’s precarious foreign reserves position. In December 1998 reserves had sunk to a low of $92m, down from $239m in 200 December 1997 and equivalent to about one month of import cover. In Janu- 150 ary reserves rose to over $100m, and by June they should have reached at least $130m. This increase in reserves may have contributed to the temporary 100 appreciation of the Zambian kwacha and suggests that the currency will be 50 more stable this year than in 1998.

0 However, reports that parallel markets for dollars are once again emerging in 1993 94 95 96 97 98(a) Lusaka also give rise to fears that the authorities are manipulating the currency (a) EIU estimate. Sources: IMF, International Financial Statistics; EIU. through administrative means to ensure its stability. The Zambian kwacha stood at ZK2,320:$1 on December 31st 1998 and had depreciated to ZK2533:$1 by January 31st. There was little change to the kwacha’s value in February, but in March the currency appreciated to ZK2,226:$1. By late May the currency had fallen back to ZK2,520:$1.

—and there will be less On April 16th the Paris Club, which groups together Zambia’s major bilateral to pay donors, agreed to restructure its loans to Zambia. The Paris Club announced that it will write off 67% of Zambia’s $1bn debt and restructure the remaining 33% to make its repayment obligations less onerous. In February the Finnish government announced that it was writing off $7.5m of Zambia’s debt. Such negotiations may well be the first step towards further reductions through highly indebted poor country (HIPC) status, which will cover the bulk of Zambia’s other $6bn or so external debt stock.

On May 3rd the World Bank’s representative in Zambia, Phyllis Pomerantz, called on the IMF and bilateral donors to ensure that Zambia qualified for HIPC status, suggesting that they waive some of the criteria for entry. Countries can only qualify for HIPC status if they still face an unsustainable debt situation after the full application of existing debt relief mechanisms and at least six years of IMF adjustment and reform programmes. With major bilateral donors such as the US and the UK talking about more radical debt relief measures, the World Bank is keen to extend the HIPC initiative and demonstrate its use.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Zambia 21

Aid news • The EU announced in mid-February that it was donating ¤37.5m ($40m) to the road sector investment programme (ROADSIP). Later in the month the World Bank and other donors donated $160m for the road between Kitwe and Ndola.

• Norway announced on February 9th that it would give Zambia ZK3.25bn ($1.35m) to improve its potable water infrastructure. In early March China pledged $5m to improve refuse collection in Lusaka. These offers come in the wake of a cholera crisis that has claimed thousands of lives in Lusaka, Ndola and Kitwe this year.

• On March 31st Sweden signed agreements to give $17m to the Agricultural Sector Investment Programme (ASIP) over the next three years, and $17m to the National Strategic Health Plan.

• In early April the World Bank pledged $40m for educational projects with the aim of increasing school attendance.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 22 Democratic Republic of Congo

Democratic Republic of Congo

Political structure

Official name République Démocratique du Congo

Form of state Unitary republic

Legal system All executive, legislative and military powers are vested in the president. The judiciary remains independent, but the president has the power to appoint and dismiss magistrates. Following a coup in May 1997, the previous transitional constitution was abolished. A new draft constitution was approved by the Constitutional Commission in March 1998

National legislature Suspended

National elections July 1984 (presidential) and September 1987 (legislative). The next presidential and legislative elections were due in April 1999 but have been postponed

Head of state The president, Laurent Kabila

National government The president is head of a 23-member government. There is no prime minister. The government was reshuffled in March 1999

Main political parties The ruling Alliance des forces démocratiques pour la libération du Congo-Zaïre (AFDL), was officially dissolved in April 1999, after Mr Kabila established new grass-roots structures, the Comités du pouvoir populaire (CPP), his new power base. Rebels opposed to Mr Kabila have formed the Rassemblement congolais pour la démocratie (RCD), which de facto split in May 1999, as well as the Mouvement pour la libération du Congo (MLC). The Union pour la démocratie et le progrès social (UDPS) remains a strong opposition voice

President & head of the executive Laurent Kabila

Ministers of state Internal affairs Gaëtan Kakudji Foreign affairs & international co-operation Yerodia Abdoulaye Ndombasi Oil Pierre-Victor Mpoyo Planning Badimani Dilembu Mulumba

Other key ministersa Civil service, public works & social security Paul Kapita Shabani (UDPS) Defence Laurent Kabila Education Kamara Wa Kaikara Economy & industry Bemba Saolona Energy Babi Mbayi Finance Mawapanga Mwana Nanga Health Mashako Mamba Human Rights Léonard She Okitundu Information & tourism Didier Mumengi Justice Mwenze Kongolo Mines Frédéric Kibassa-Maliba

Central bank governor Jean-Claude Masangu

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Democratic Republic of Congo 23

Economic structure

Latest available figures

Economic indicators 1994 1995a 1996a 1997a 1998a GDP at market prices (NZ bn) 165a 40,045b 306,637 792,154 18.9c Real GDP growth (%) –3.9 1.6b 0.9d –6.4b –3.5b Consumer price inflation (av; %) 23,761 542b 659d 176b 147b Population (m) 42.6 43.9 45.4 46.6 47.8 Exports fobe ($ m) 1,028 1,563 1,547d 1,390d 1,577 Imports fobe ($ m) 581 871 1,089d 807d 819 Current-account balance ($ m) –415 –630 –621d –871d n/a Reserves excl gold ($ m) 121 147b 83d n/a n/a Total external debt ($ m) 12,322 13,137 13,900 15,000 n/a External debt-service ratio, paid (%) 1.3 1.5 2.7 0.0d 0.0d Copper production (’000 tonnes) 30.6 35.0 40.2 37.7 34.9f Cobalt production (’000 tonnes) 3.6 4.0 4.1 3.0 3.9f Diamond production (m carats) 16.3 22.0 22.2 22.0 24.5f Exchange rate (av; NZ:$) 1,194 7,024d 52,400d 145,988d 1.98g

May 21st 1999 FC4.5:$1 (official rate); FC6.3:$1 (parallel rate)

Origins of gross domestic product 1994 % of total Components of gross domestic product 1995 % of total Agriculture 52.0 Private consumption 81.0 Industry 11.0 Public consumption 4.9 Manufacturing 7.0 Gross Investment 9.4 Services 30.0 Exports of goods & services 28.2 GDP at factor cost 100.0 Imports of goods & services –23.5 GDP at market prices 100.0

Principal exports 1997 $ m Principal imports 1994 $ m Diamonds 717 Consumer goods 232 Copper & cobalt (Gécamines) 253 Capital goods 116 Coffee 168 Raw materials 93 Energy products 85

Main destinations of exports 1997h % of total Main origins of imports 1997h % of total Belgium-Luxembourg 42.7 South Africa 21.3 US 22.3 Belgium-Luxembourg 14.2 South Africa 8.0 Chinai 7.8 Italy 3.9 Netherlands 4.5 a EIU estimates. b Actual. c In FC m. The nouveau zaïre was replaced by the Congolese franc (FC) on June 30th 1998. d Official estimate. e Balance-of-payments basis. f January-October. g FC after June 30th 1998. h Based on partners’ trade returns, subject to a wide margin of error. i Including Hong Kong.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 24 Democratic Republic of Congo

Outlook for 1999-2000

The national debate may The government appears to have realised that neither the internal opposition not go far— nor the rebels or the international community will accept the stage-managed “national debate” suggested by the president, Laurent Kabila, in March (see Review). However, it is unlikely that the government would be willing to submit itself to a national dialogue in which it does not have the upper hand or cannot control the outcome. The dilemma is largely self-inflicted, as the publicity created by the government about the event means that its credibility is now at stake. If the government cancels the debate or goes ahead without the main opposition and rebel players, national reconciliation will remain impossible, and the blame will rest essentially on the government’s shoulders. If the debate does go ahead with all the main participants with the mediation of the Italian Christian community, Sant’ Egidio, the government will probably have to agree to a new power-sharing arrangement and ultimately submit to the electoral process—an alternative which it may find even more unpalatable.

—and national Ironically, the rebels themselves may provide a way out of this current predica- reconciliation is still not ment. If the government chooses to allow the two main rebel groups, the at hand Rassemblement congolais pour la démocratie (RCD) and the Mouvement pour la libération du Congo (MLC) to play an equal role in preparations for the national debate, it may be able to convince them to participate. However, it still remains unclear whether the rebels, many of whom rule out dialogue with the government as a means to resolve the current conflict, would agree to participate. Should they decline, the government may emerge from the entire exercise unscathed and be able to place the blame squarely on the rebels’ shoulders. In addition, it is difficult to imagine whether the various countries currently involved in the war in the Democratic Republic of Congo (DRC)— Rwanda, Uganda and Burundi on the side of the rebels and Zimbabwe, Namibia and Angola on the government’s side—would accept an outcome that does not satisfy their respective interests. The multitude of divergent objectives in the conflict will continue to frustrate both domestic and international attempts to bring a negotiated solution to the conflict.

Rwanda will battle on— The statement made in April by Rwanda’s powerful vice-president, Paul Kagame, that his country would continue to pursue the war in the DRC even if the rebels chose peace, has highlighted Rwanda’s determination to keep up the pressure on the Congolese government. The Rwandan-backed RCD still maintains that it is an autonomous entity, but the influence of the Rwandan government has become increasingly apparent in recent months. There is no question that the activity in the eastern DRC of Rwandan Hutu interahamwe militia as well as former Rwandan army troops, who were responsible for the 1994 genocide in Rwanda, represents a serious security threat to the Rwandan government. How- ever, the fact that Rwandan soldiers are operating thousands of kilometres from the Rwandan border inside the DRC shows that the Rwandan government is still actively working for a change of government in Kinshasa.

—but Uganda may Under increasing pressure from the international community to put an end to withdraw Uganda’s involvement in the DRC the Ugandan president, Yoweri Museveni,

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Democratic Republic of Congo 25

could make a show of withdrawing his troops from the DRC in the coming months. He already signed a peace accord with Mr Kabila in April and has little to lose. Uganda has also supported the MLC, the other main rebel movement in north-western DRC, and can count on MLC troops to protect growing Ugandan business interests in areas under the control of the rebels. The growing divergence between Ugandan and Rwandan interests will widen the internal split within the other rebel movement, the RCD, and differences between that movement and the MLC. The former president of the RCD, Wamba dia Wamba, ousted in May, and his supporters will gravitate increasingly towards Uganda’s conciliatory attitude, while the remaining faction of the RCD, now headed by Emile Ilunga, will continue to maintain a hardline stance. This will make it even harder for the RCD, under whatever guise, to convince the Congolese population that it is not just a vehicle for the interests of the Rwandan government.

The economy will remain Halting the decline of the already dire economic situation will represent a depressed— serious challenge for Mr Kabila’s government. After two years in power, much of the initial goodwill of the Congolese who live in areas controlled by the government has been squandered. Although few blame Mr Kabila directly for the war, and even fewer want to see the rebels come to power, many of the DRC: gross domestic product % real change, year on year economically deprived Congolese blame him for rising prices, the fall of the

6 Congolese franc, and his government’s inability to pay civil service salaries.

4 However, stabilising the teetering economy is a monumental task and will

2 remain largely out of Mr Kabila’s hands as long as rebels control production (a) areas for crucial exports such as gold and coffee, thereby depriving the govern- 0 ment of vital revenue. The situation has been made worse by the government’s -2 haphazard approach to policymaking and its habit of reneging on deals once

-4 they have been signed. This will continue to deter almost any foreign invest- DRC ment. Even more worrisome is the fact that an increasing number of com- -6 Africa panies which have been investing in the DRC for decades are leaving the -8 1994 95 96 97 98 country, plunging it deeper into recession. Economic prospects for 1999 and (a) Official estimate. 2000 therefor remain grim, and the EIU expects the economy to contract for Sources: EIU; Banque centrale du Congo; IMF, World Economic Outlook. the third consecutive year in 1999.

—and the currency will The government could go a long way towards solving part of the economic fall further impasse either by ending the ban on the use of US dollars in economic transactions or by floating the exchange rate of the Congolese franc. The present ban on the use of dollars will perpetuate an already chronic shortage of foreign exchange, while the maintenance of the official exchange rate at an artificially high level will continue to deprive the government of revenue. Many importers, frequently forced to buy hard currency at the higher black market rate because the government cannot meet their requirements, are increasingly dis- couraged from continuing operations, as the volatile black market exchange rate has made business extremely risky. In the absence of any significant capital inflows the currency will continue to depreciate, further aggravating inflation. The Banque centrale du Congo (BCC, the central bank) agrees that trying to maintain the exchange rate in the current highly unstable economic situation is counterproductive, but the government, motivated not least by its sense of pride in a currency it launched less than a year ago, is unlikely to agree to a floating of the exchange rate in the near future.

Review

The political scene

There is little change in After the president, Laurent Kabila, declared in December 1998 that he would the new government— be making changes to the government, speculation about the impending cabinet reshuffle was finally laid to rest in late February, when Mr Kabila’s chief of staff, Yerodia Abdoulaye Ndombasi, announced that the government had been dissolved (1st quarter 1999, page 22). However, ministers were ordered to remain in their posts until further notice. The government portrayed the coming cabinet reshuffle as a major change, raising expectations that it might use this as an opportunity to broaden political participation. There were indic- ations that the government had approached several opposition politicians, but they eventually turned down the offer to join the government.

The appointment of the new government finally came in mid-March, and to the disappointment of many it included few significant changes. Most of Mr Kabila’s closest confidants retained their portfolios. The only major change was the promotion of Mr Yerodia to minister of foreign affairs and co- operation, reflecting his important role in Mr Kabila’s entourage and the president’s determination to lend more weight to his government’s diplomatic efforts. However, many have commented that Mr Yerodia’s combative manner is unlikely to improve the government’s image.

—although there is one One surprise appointment was that of Bemba Saolona, a businessman, as eco- surprise nomics and industry minister. Mr Saolona is the father of Jean-Pierre Bemba, the leader of the rebel Mouvement pour la libération du Congo (MLC; 1st quarter 1999, page 26). Mr Saolona made his fortune under the former president, Mobutu Sese Seko, and was imprisoned by the new regime shortly after it came to power in May 1997. He was released several months later after allegedly paying $1m. Mr Saolona has close ties with the country’s business community and his appointment is intended to diffuse tensions between the government and the private sector. In addition, Mr Kabila may be hoping that Mr Saolona can win back some of the support which the government has lost in the north-western Equateur province, Mr Saolona’s home province in which his son’s MLC is most active.

President Kabila initiates In mid-March Mr Kabila announced plans to hold a “national debate” which a “national debate”— would bring together the country’s political opposition, the rebels and government representatives to discuss the future of the Democratic Republic of Congo (DRC). Mr Kabila has heralded the debate as a genuine attempt to resolve the country’s internal differences through a process of consultation and reconciliation. However, it soon became apparent that the government was not ready to submit itself to the outcomes of such a debate, since it wanted to determine not only the agenda—discussion of the draft constitution, the law governing political activity and the legitimisation of power—but also the logistics of the event, by choosing the venue, the mediators and, most importantly, the participants. Preparations for the debate quickly gained momentum with the establishment

of government-selected organising committees. In mid-April the government announced that the national debate would begin on April 30th in Rome, under the auspices of the Roman Catholic Sant’ Egidio community, which success- fully negotiated an end to Mozambique’s civil war in 1992.

—which is rejected by the It came as no surprise that from the outset Mr Kabila’s proposal ran into opposition— opposition from his political opponents. Although the leader of the Union pour la démocratie et le progrès social (UDPS), Etienne Tshisekedi, saluted the government’s willingness to engage in a dialogue, he insisted that the legiti- macy of Mr Kabila’s regime had to be included in the debate and demanded that international organisations, such as the UN, the Organisation of African Unity (OAU) and the EU, should mediate. He later said that he would not participate in the debate as his party had not been consulted on the date, venue or agenda of the event. In an effort to co-opt Mr Tshisekedi, the government tried in late April to initiate a meeting between him and Mr Kabila, but Mr Tshisekedi refused, saying that an encounter with Mr Kabila would have to be properly prepared. Mr Tshisekedi had made an initial request for an audi- ence with Mr Kabila when he came to power in May 1997, but the two met only once, in June 1998, when Mr Kabila released Mr Tshisekedi from internal exile (3rd quarter 1999, page 30).

—and goes nowhere— Faced with such opposition, the government rescheduled the event for May 8th and changed the venue to Nairobi, Kenya, ostensibly because finance from foreign donors had not been forthcoming. However, the publication of the names of 257 participants in late April did not improve matters, as the president of the main rebel movement, the Rassemblement congolais pour la démocratie (RCD), Ernest Wamba dia Wamba, as well as Mr Bemba from the MLC both declined to attend, accusing the government of trying to hijack the national debate. In addition, representatives of Congolese civil society, who were not invited to the debate, condemned the event and reserved the right to reject its outcome. The debate was postponed for a second time. Several days later Sant’ Egidio issued a statement, saying that it could not continue to mediate unless it was fully involved in the planning process and the number of participants was greatly reduced.

—but all hope is not lost Faced with the prospect of failure the foreign minister, Yerodia Abdoulaye, was sent to Europe to drum up support for the event and to mend relations with Sant’ Egidio. His visit suggests that the government might be willing to open up the national debate to wider participation, perhaps indicating a more receptive attitude to criticism. More importantly, it shows that the government may have gained a better understanding of the importance the Congolese population seems to attach to the success of the debate. The national debate is now scheduled to be held sometime in June in Nairobi. However, it remains unclear who will be invited and whether members of Sant’ Egidio will mediate the event. A delegation from the religious community is due to visit Kinshasa in June.

The peace process loses The peace mediation, spearheaded since the beginning of the conflict by the momentum— Zambian president, Frederick Chiluba, received a momentary boost in March, when Mr Kabila made a small but not insignificant concession to allow the

RCD to participate in the ongoing technical discussions which followed the ceasefire agreement reached in Windhoek, Namibia in January (1st quarter, page 31). However, the Rwandan and Ugandan delegations have since aban- doned the talks and there has been no progress towards the implementation of the ceasefire. The peace process seems to have lost its initial momentum, possibly because Mr Chiluba himself has lost some of his status as an impartial negotiator. This is partly as a result of his ongoing dispute with the Angolan government, which accuses him of harbouring troops from the rebel União para a Independência Total de Angola (UNITA), but also because other negoti- ation efforts have since stolen the limelight.

—and a new peace deal In mid-April there was a surprise announcement that a peace agreement had is rejected been signed in Sirte, Libya, between Mr Kabila and the Ugandan president, Yoweri Museveni, at a meeting organised by the Libyan leader, Muammar Qadhafi. Colonel Qadhafi has been a close ally of Mr Kabila since the outbreak of the rebellion in DRC and has sought to raise his profile by mediating in the conflict (1st quarter, 1999, page 31). The Sirte accord provides for a ceasefire, the withdrawal of all foreign troops and the deployment of an African peacekeeping force in the zones of conflict, but it lacks a specific timetable. Mr Kabila has expressed his confidence in Mr Museveni’s commitment to the Sirte accord which, he said, was complementing Mr Chiluba’s efforts. However, the RCD and the MLC as well as the Rwandan government—none of whom were represented at the talks—have dismissed the Sirte accord as “worthless”. The Ugandan government further contributed to the confusion by saying that Uganda would not withdraw its troops until its security along the border with the DRC had been guaranteed.

The allies renew their At a summit meeting in Kinshasa on March 1st Mr Kabila’s allies, Zimbabwe, support for Mr Kabila— Angola and Namibia, renewed their commitment to defending Mr Kabila’s regime. The Zimbabwean President, Robert Mugabe, whose country has now become Mr Kabila’s main supporter (1st quarter 1999, page 27), expressed the allies’ disappointment with what he called the rebels’ refusal to commit themselves to a peace process. Mr Mugabe added that the allies therefore felt that they had no choice but to increase their military support for Mr Kabila’s government. However, this rhetoric has not been matched by victories on the military front, and Zimbabwean forces have suffered a number of serious setbacks, stoking further domestic opposition to the country’s involvement in the DRC. In late March rebels shot down a Zimbabwean fighter plane, while in late April it appeared that a Zimbabwean battalion had been forced to retreat from the eastern part of the DRC. The worst military setback seems to have been a rebel ambush in April near the central town of Kabinda, in which up to 80 Zimbabwean soldiers are said to have been killed.

—but the front situation These setbacks came in February-April, as the rebels seemed to making steady remains muddled progress towards Mbuji-Mayi, the country’s diamond mining centre in Kasai Oriental province, capturing a number of towns along the way. Several days before May 17th—the anniversary of Mr Kabila’s two years in power—the rebels claimed to have captured Manono, Mr Kabila’s home town in northern Katanga province. The claim was promptly rebuffed by the government, which

had until then been relatively silent on the military situation. Government planes then suddenly bombed the eastern rebel-held towns of Goma, which contains the headquarters of the RCD, and Uvira on May 12th. An estimated 51 civilians were killed in the attacks. One week later the government claimed to have recaptured major towns in Katanga province, South Kivu, Maniema and Equateur province. However, news on the front from both the government and the rebels has remained highly unreliable, and to date there has been no independent confirmation of any of these claims or counterclaims.

Tensions increase within Following weeks of infighting (1st quarter 1999, page 30) the former leader of the RCD— the RCD, Arthur Z’ahidi Ngoma, resigned from the movement in March, de- nouncing the RCD as a puppet of the Rwandan government. He returned to Paris, where he founded a new political movement with the stated aim of establishing democracy in the DRC. In March, after a period of relative calm, dissent emerged again within the RCD when its president, Ernest Wamba dia Wamba, moved his headquarters to Kisangani, while Lunda Bululu, a former prime minister under Mobutu and leader of the RCD’s executive council (1st quarter 1999, page 30), and Jean-Pierre Ondekane, the RCD’s military leader, together with their loyalists remained at the rebel headquarters in Goma. Mr dia Wamba’s move came amidst rumours of growing differences between Rwanda and Uganda over their involvement in the DRC. Uganda, whose troops are stationed primarily around Kisangani and in western Equateur province, reportedly feels satisfied with the resources it has been able to extract from the DRC and is growing increasingly tired of its involvement in the war, as highlighted by Mr Museveni’s negotiations with Mr Kabila.

—which splits In mid-May the RCD held a crisis meeting in Goma to discuss the growing rift between the two factions. Mr dia Wamba accused Mr Bululu and his supporters of trying to sideline him in the movement, while Mr Ondekane accused Mr dia Wamba of joining ranks with Ugandan soldiers linked to the MLC. The meeting resulted in the temporary dissolution of the RCD’s executive council, which had only been set up in February. The council was reconstituted several days later with Emile Ilunga as its new president. Mr Ilunga, a doctor who headed the RCD’s health section, is a former friend of Mr Kabila. The two men fought together in the 1996-97 war which brought Mr Kabila to power, but they later fell out. However, Mr dia Wamba maintains that he is still the president of the RCD and has condemned his dismissal as a coup d’état, accusing Mr Bululu and Mr Ondekane of pursuing the war in a blind search for power. Senior RCD leaders have said that Mr dia Wamba is welcome to stay in the movement, but that he can no longer play a leading role.

The CPPs are Since Mr Kabila announced the creation of the Comités du pouvoir populaire institutionalised (CPP) in January (1st quarter, page 32), CPPs representing each district of Kinshasa have been constituted. The government describes them essentially as grass-roots democracy structures, but there are as yet no clear details about how CPP representatives are appointed, and by whom, and what their degree of autonomy will be. The first CPP congress held in Kinshasa in mid-April confirmed fears that they are merely structures allowing the government to legitimise its own power, as the assembled CPPs expressed their support of the

current government. In a speech at the start of the congress Mr Kabila officially dissolved the ruling Alliance des forces démocratiques pour la libération du Congo-Zaïre (AFDL), the movement which brought him to power in May 1997 and which was then backed by Rwanda and Uganda. Mr Kabila denounced the AFDL as an alliance of “adventurers and opportunists”, whose influence had frustrated the success of the “people’s revolution”.

Mr Garreton returns to The special UN rapporteur for human rights, Roberto Garreton, came to Kinshasa in the DRC but arrests mid-February for a one-week visit, which also took him to Lubumbashi and Goma. continue— Mr Garreton’s relationship with the government had previously been extremely tense, following his publication of a controversial preliminary report on the massa- cre of Hutu refugees by AFDL forces during the 1997 war (1st quarter 1999, page 33). In Kinshasa he visited several prisons as well as camps harbouring Congolese Tutsi and met with members of the government, the opposition and civil society groupings. At the end of his visit Mr Garreton confirmed that he had been able to work independently and noted that prison conditions had improved substantially since he last visited the country in 1997. He commended the efforts made by the minister for human rights, Léonard She Okitundu, but expressed concern over the sweeping powers of the military tribunal, which was set up in August 1997, as well as ongoing arbitrary arrests. Mr Garreton also said that a climate of fear prevailed in rebel-held territories. In April the UN reviewed Mr Garreton’s report, which recommends further investigations into recent massacres in government- and rebel-held territo-

DRC: President Kabila's ries, and renewed his mandate as special rapporteur for another year. approval rating % Although the government escaped relatively unscathed from Mr Garreton’s 90 visit, arrests of journalists, civil society activists and opposition politicians continued unabated. In March the editors of two daily independent news- 80 papers, Le Potentiel and La Référence Plus, were arrested along with an opposition

70 politician and a representative of a civil rights group after they returned from South Africa, where they had attended a summit on the future of the DRC 60 organised by a South African conflict resolution group. The government explained that they were merely being held for routine questioning, but three of 50 them were only released after three weeks in detention. The government, which had also been invited to attend the conference, declined and condemned the May Apr Sep Feb Apr 1997 98 99 event, which was attended by representatives of the RCD as well as politicians

Source: Bureau des etudes et recherches, Consulting from the former Mobutu regime. Ironically, two of the Mobutists who attended International (Berci), Kinshasa. the conference later arrived in Kinshasa as guests of the government.

—while support for An opinion poll conducted in April by the Bureau des études et recherches, Mr Kabila wanes Consulting International (Berci), a private consultancy based in Kinshasa, indicates that 62% of Kinshasa’s inhabitants, the Kinois, feel that the overall situation in the country has deteriorated since Mr Kabila took power, while 67% feel that their personal situation has deteriorated. Mr Kabila’s personal approval rating has also continued to decline, from a peak of 88% in September 1998, when the government defeated the rebels in Kinshasa, to 63% in April 1999. However, fears that growing dissatisfaction with the government could erupt into violence on May 17th, the anniversary of the government’s second year in power, failed to materialise and most Kinois met the day with indifference.

The economy

The Congolese franc Government economic policy has remained focused on stabilising the parallel is devalued— exchange rate of the Congolese franc, introduced in June 1998 (3rd quarter 1998, page 37). Following the sudden banning of the use of dollars for economic transactions in January and harsh crackdowns on foreign-exchange bureaux, the parallel rate stabilised around FC3:$1 for several weeks (1st quarter, page 34) but began to slide again in the last week of February. This forced the Banque centrale du Congo (BCC, the central bank) to devalue the official rate from FC2.5:$1 to FC2.9:$1. The official devaluation had effect on stabilising the parallel rate, which continued its steady slide. The gap between the official and the parallel rate widened considerably in the last week in March, with the Congolese franc trading at FC5.2:$1 on the parallel market. This prompted the BCC to devalue the currency again to its current level of FC4.5:$1, compared with FC1.45:$1 when the currency was first introduced. However, the parallel rate has continued to slide, standing at FC6.3:$1 in mid-May.

DRC: exchange rates DRC: inflation FC:$, end-period; inverted scale % change, year on year

320 Interbank rate Parallel rate 280 0 240 1 200 2 160 3 120 4

5 80

6 40

7 0 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 1998 99 (a)(a) (a) 1998 99 (a)(a) (a)

(a) Parallel rate is an estimate. (a) Estimate. Source: Banque centrale du Congo Source: US Embassy, Kinshasa.

—as inflation skyrockets— The fall in the exchange rate has been fuelled by inflation, which has skyrock- eted in recent months. According to the US Embassy in Kinshasa, year-on-year inflation reached 221% at the end of April 1999. The high rate of inflation is fuelled by increases in the price of basic goods, in particular foodstuffs, and a dramatic increase in the cost of transport and petrol. In early April the government allowed petrol suppliers to triple the price of petrol to FC3 and sub- sequently allowed public transport operators in Kinshasa to increase their prices by 100%. However, the underlying pressure behind the rapid increase in inflation is the fact the government has been forced to resort to finance its expenditure through printing money, as revenue has fallen to a trickle since virtually all of the government’s main revenue-earning activities have either been seriously affected or are in rebel hands. According to the BCC, government revenue for the month of January reached a paltry FC69.7m ($27.9m), while government expenditure amounted to FC109.8m.

—making life difficult The ongoing depreciation of the currency and soaring inflation have made life in Kinshasa in the capital increasingly difficult. Previously accessible goods such as frozen chicken, meat and fish have become scarce, as importers exercise caution when ordering imports. But even when such goods are available, rapidly rising prices mean that they are inaccessible for many. The recurrent fuel crises caused by the government’s inability to provide petrol importers with sufficient hard currency at the official rate (1st quarter, page 35) have also added to the misery. Every few weeks fuel becomes scarce, forcing many Kinois to walk long dis- tances to and from work. Given the current climate of economic hardship, it is hardly surprising that recent polls taken by the independent consultancy, Berci, indicate that many Kinois feel that the government’s most important failure is the deterioration of the economic situation.

Production remains Recent production statistics reveal that virtually all of the country’s main eco- depressed nomic activities have been severely curtailed. Cumulative copper production in January-March 1999 plummeted by 96% to 206 tonnes compared with the same period in 1998, which can be blamed on the insecurity caused by the war DRC: gross domestic product and the largely collapsed operations of the former state-owned mining giant, % real change, year on year La Générale des carrières et des mines (Gécamines; see Mining). Because rebels 6 control the majority of the coffee-producing areas in the eastern part of the 4 country, the official coffee output has dropped steeply by 56% in January-

2 March 1999 to 3,805 tonnes compared with the same period in 1998. Total (a) timber exports, further affected by the government’s decision in January to ban 0 timber exports altogether, fell by 62% to 11,502 cu metres in January-February -2 1999 compared with the same period in 1998.

-4 Democratic Republic of Congo: official production, Jan-Feb DRC -6 (tonnes unless otherwise indicated) Africa -8 1998 1999 % change 1994 95 96 97 98 Mineral production (a) Official estimate. a Sources: EIU; Banque centrale du Congo; IMF, World Copper 5,171 206 –96.0 Economic Outlook. Cobalt 636 n/a n/a Diamonds (carats) of which: artisanal 2,613 2,296 –12.1 MIBA 950 696 –26.7 Gold (kg) 12 7 –41.7 Agricultural production Coffeea 8,675 3,805 –56.1 Timberb (cu m) 30,168 11,502 –61.9 Rubber 480 n/a n/a Palm oil 1,657 1,247 –24.7

a January-March. b Volume of exports.

Source: Banque centrale du Congo.

Mining

Gécamines runs The situation of La Générale des carrières et des mines (Gécamines) has con- into trouble tinued to deteriorate, as salaries have remained unpaid and workers have become increasingly angry at the new Zimbabwean chairman, Billy Rautenbach, who took over the management of the company last November (1st quarter 1999, page 36). In early April Mr Rautenbach announced that the company would undergo a significant restructuring process, which would entail the loss of up to 16,000 jobs out of 26,000. He was overruled by the minister of mines, Frédéric Kibassa-Maliba, but Gécamines employees in Kinshasa staged a three- day strike. According to the Intersyndicale de Gécamines, the company’s umbrella trade union, employees oppose Mr Rautenbach’s unilateral intention to cut jobs and his alleged plans to fire the majority of the company’s directors and replace them with expatriate staff. In addition, the union demands that retrenched workers must be compensated “adequately”. Leaders of the Intersyndicale and Mr Kibassa-Maliba have appealed to Mr Kabila to intervene.

Diamonds are The DRC’s vital diamond industry continues to suffer, following the govern- suffering too ment’s decision to ban the use of dollars for economic transactions. Diamond buyers in Kinshasa say that the ban has complicated their business enor- mously, as there are differences in the exchange rates buyers use to set prices. Nevertheless, trade in dollars is continuing underground as traders from the interior remain reluctant to sell their wares for local currency. An additional burden on the sector is the fact that Mr Maliba ordered all diamond buyers in Kinshasa to establish offices by the end of April at the headquarters of the new Bourse congolaise des matières précieuses (BCMP), the government-run diamond stock exchange. Diamond buyers have so far refused to move to the building, citing lax security conditions. However, the government is unlikely to be able to raise the money needed to meet the diamond buyers’ security requirements, which will further delay the opening of the BCMP.

The Banro dispute The World Bank’s International Centre for the Settlement of Investment continues— Disputes (ICSID) has set up an arbitration court to review the lawsuit of the Canadian mining company Banro against the government. The government revoked Banro’s licence to operate in the DRC in July 1998 (4th quarter 1998, page 35), and Banro is now seeking $1bn in damages. Matters have not been helped by the arrest in Kinshasa of Banro’s lawyers, who are being investigated by the military tribunal for “collaboration” with the rebels.

—while Tenke Mining Tenke Mining, a Canadian company, has declared force majeure on its agree- declares force majeure ment with Gécamines to exploit copper and cobalt at the Tenke-Fungurume mines. The project had looked promising until just a few months ago (1st quarter 1999, page 36), but Tenke Mining was apparently unable to complete its feasibility study of the mines. The company says that it has not lost interest in the project but that a resumption of activities will depend on developments in the country and the situation at Gécamines.

Foreign trade, aid and payments

Progress is made on the In April a World Bank delegation arrived in Kinshasa to try to finalise an Trust Fund agreement on the administration of a Trust Fund set up on behalf of the DRC at an international donors’ conference in December 1997 (3rd quarter 1998, page 37). The Trust Fund is designed to channel funds which donors would be reluctant to commit directly to the government and is to be jointly managed by the World Bank and the government. However, negotiations between the government and the World Bank have been dragging on since June 1998, in large part because the government remains wary of international financial institutions. Although no agreement was signed during the visit, World Bank officials and the minister of finance, Mawampanga Mwana Nanga, have indicated that relations had improved, while Mr Kabila has said that he is ready to ratify the agreement once donor countries have agreed to the Trust Fund conditions. Only three countries have currently paid their pledges into the fund, which now totals $17m and is to be used for small-scale projects in the education, transport, sanitation and water sectors.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Quarterly indicators and trade data 35

Quarterly indicators and trade data

Zambia: quarterly indicators of economic activity

1996 1997 1998 1999 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Production: mining Qtrly totals Copper in concentrates ’000 tonnes 96.2 79.1 85.6 81.7 87.7 93.1 92.8 109.4 107.5 83.7 Prices Monthly av Consumer prices 1990=100 4,847 5,465 5,520 5,606 5,950 6,270a n/a n/a n/a n/a change year on year % 34.9 36.4 27.1 22.8 22.7 n/a n/a n/a n/a n/a Copper: LME, $ cents/lb 97.4 109.7 113.6 102.9 86.7 77.1 78.5 74.4 70.1 63.9 Money End-Qtr M1, seasonally adj ZK bn 270.3 301.1 305.7 333.6 354.2 368.4 350.5 357.8 413.6 422.6b change year on year % 19.4 26.6 19.2 24.0 31.0 22.4 14.7 7.3 16.8 n/a Foreign tradec Qtrly totals Exports fob $ m 233.0 289.8 297.9 308.8 281.0 249.4 303.2 332.2 n/a n/a Imports fob “ 255.6 245.3 260.2 286.9 277.3 265.1 301.0 294.4 n/a n/a Exchange reserves End-Qtr Foreign exchange $ m 220.7 181.7 202.7 255.7 238.0 185.0d n/a n/a n/a n/a Commercial bank assets “ 148.7 136.5 153.8 138.6 155.0 148.1 177.2 193.1 198.9 210.6b Exchange rate Official rate ZK:$ 1,282.7 1,284.0 1,313.4 1,322.9 1,414.8 1,698.4 1,931.0 1,976.9 2,298.9 2,074.7d

Note. Annual figures of most of the series shown above will be found in the Country Profile. a January only. b End-January. c DOTS estimate, figures are subject to revision. d End-February.

Sources: World Bureau of Metal Statistics, World Metal Statistics; IMF, International Financial Statistics; Direction of Trade Statistics, quarterly.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 36 Quarterly indicators and trade data

Democratic Republic of Congo: quarterly indicators of economic activity

1996 1997 1998 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Mining: production Annual totals Copper in concentrates ’000 tonnes ( 40.2 ) ( 37.7 ) ( 41.0 ) Zinc “ ( 1.2 ) ( 1.2 ) ( 1.2 ) Agriculture: production Annual totals Coffee ’000 tonnes ( 59 ) ( 48 ) ( 54a ) Prices Monthly av Consumer prices, Kinshasa 1990=0.0001 15,476 24,058 43,127 67,934 70,272 58,959 57,826 56,795b n/a n/a change year on year % 647 709 680 587 354 145 34 n/a n/a n/a Wholesale prices: coffee: US US cents/lb 90.0 77.8 68.9 75.2 88.7 79.0 79.9 85.5 89.3 79.8c copper: LME, $ “ 112.4 89.8 97.4 109.7 113.6 102.9 86.7 77.1 78.5 74.4d Money End-Qtr M1, seasonally adj NZ bn 4,147 n/a n/a n/a n/a n/a n/a n/a n/a n/a change year on year % 503 n/a n/a n/a n/a n/a n/a n/a n/a n/a Foreign trade Qtrly totals Exports fob $ m 153 168 113 52 29 85 n/a n/a n/a n/a Imports cif “ 121 102 102 58 71 72 n/a n/a n/a n/a Exchange holdings End-Qtr Bank of Zaire: golde $ m 5.7 6.3f n/a n/a 14.1 13.1 12.4 11.7g n/a n/a foreign exchange “ 63.3 71.2 82.5 n/a n/a n/a n/a n/a n/a n/a Deposit money banks: assets ” 71.4 87.9 n/a n/a n/a n/a n/a n/a n/a n/a Exchange rate Market rate NZ:$ 38,962 66,610 112,652h 171,450h 110,000 115,000 106,000 137,500h 137,500h 137,500hi

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimate. b Average for January-February. c Average for 4 Qtr, 81.2; average for 1 Qtr 1999, 77.4. d Average for 4 Qtr, 70.1; average for 1 Qtr 1999, 63.9. e End-quarter holdings at quarter’s average of London daily price less 25%. f End-July. g End-January. h Source: FT. i End-4 Qtr, 137,500; end-1 Qtr 1999, 137,500.

Sources: World Bureau of Metal Statistics, World Metal Statistics; FAO; IMF, International Financial Statistics; FT.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Quarterly indicators and trade data 37

Zambia: foreign trade (ZK m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1985 1986 1987 1988 1989 1990 1991 Cereals 43 75 13 130 171 176 n/a Other food, drink & tobacco 38 54 219 93 143 430 n/a Crude materials 32 71 123 100 155 760 n/a Petroleum & products 459 111 806 828 2,219 5,209 n/a Chemicals 317 411 1,171 1,180 1,274 4,335 n/a Rubber manufactures 53 118 198 156 181 579 n/a Paper & mnfrs 33 54 90 124 180 493 n/a Textile manufactures 59 107 194 163 263 1,212 n/a Iron & steel 76 152 217 263 451 1,303 n/a Other metals & mnfrs 93 245 263 266 450 1,403 n/a Machinery 517 1,276 1,817 1,838 2,467 7,999 n/a Road vehicles 276 548 1,066 1,150 1,443 4,501 n/a Other transport 21 57 55 257 548 3,724 n/a Scientific instruments etc 24 74 109 120 164 598 n/a Total incl others 2,133 4,448 6,627 6,898 12,601 36,554 51,624

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Domestic exports foba 1987 1988 1989 1990 1991 1993 1994 Tobacco 17 29 24 125 256 n/a n/a Cobalt 466 598 1,101 2,544 7,289 10,434 12,323 Copper 6,845 8,340 16,353 33,734 52,539 323,668 293,151 Lead 20 19 9 1 5 n/a n/a Zinc 131 162 302 438 429 2,270 293 Total incl others 8,032 9,720 18,336 39,037 67,583 579,036 554,279 Re-exports 27 66 98 107 85 n/a n/a a 1992 figures are not available.

Source: National sources.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 38 Quarterly indicators and trade data

Zambia: direction of trade ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1990 1991 1992 1993 1994 1995 1996 1997a Imports fob South Africa 206 165 224 303 157 259 293 518 UK 197 149 98 75 73 72 83 87 Zimbabwe 57 44 55 47 52 57 71 78 Saudi Arabia 4 83 47 51 1 97 60 66 US 124 57 72 20 11 29 41 33 Japan 8176383028452728 India 23 35 24 9 19 19 26 27 Pakistan 1 1 1 n/a n/a n/a 1 17 Germanyb 142 34 31 33 21 19 23 16 Total incl others 1,207 811 837 702 455 782 834 1,071 Exports fob Japan 168 204 152 105 105 158 120 126 Saudi Arabia 29 29 83 69 83 83 100 114 Thailand 37 34 39 54 72 100 114 101 India 33 122 21 45 56 62 69 92 France 74 108 48 82 38 32 23 77 UK 11 50 20 11 32 22 36 70 Taiwan n/a n/a 8 9 2 12 2 60 Zimbabwe 16 44 23 21 22 29 53 58 US 924535932952 Total incl others 544 1,077 752 891 758 986 1,039 1,156 a DOTS estimates. b Includes former East Germany from July 1990.

Source: IMF, Direction of Trade Statistics, yearbook.

Zambia: refined copper exports (tonnes) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1992 1993 1994 1995 1996 1997 1998 France 52,612 49,990 18,896 11,243 10,696 23,687 43,079 Japan 94,857 85,334 55,445 52,647 50,111 29,677 27,843 Thailand 37,361 49,030 62,637 40,933 46,904 48,286 23,555 Malaysia 33,324 30,230 31,369 21,092 28,594 31,788 13,829 US 0 760 2,000 27,779 8,958 41,338 12,684 India 19,149 21,186 20,209 22,872 24,946 13,778 7,674 China 5,000 0 0 0 0 3,997 3,301 Indonesia 5,040 3,499 5,146 7,676 2,793 1,497 2,257 Belgium 26,156 49,167 29,939 22,500 17,071 11,411 1,835 Netherlands 0 1,001 0 0 0 0 1,099 Italy 15,850 5,041 3,024 2,098 400 1,000 0 UK 0 0 3,999 0 0 200 0 Greece 7,876 6,871 3,524 374 2,936 0 0 Germany 500 0 0 0 1,667 0 0 South Korea 0 0 4,096 800 410 0 0 Total incl others 411,892 436,522 360,657 291,869 276,079 303,784 227,980 Source: World Bureau of Metal Statistics, World Metal Statistics.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 Quarterly indicators and trade data 39

Zambia: UK trade (£ ’000) Jan-Dec Jan-Dec Jan-Dec Jan-Mar Jan-Mar 1996 1997 1998 1998 1999 UK exports fob Food, drink & tobacco 677 989 536 158 49 Chemicals 3,256 8,557 4,123 1,208 928 Rubber manufactures 103 465 76 38 15 Paper & manufactures 338 239 207 45 22 Textile yarn, cloth & manufactures 221 547 275 117 16 Non-metallic mineral manufactures 885 374 522 102 49 Iron & steel 456 315 86 5 11 Metal manufactures 734 1,106 622 363 173 Machinery incl electric 29,877 22,285 19,507 5,088 2,385 Transport equipment 5,118 3,332 3,531 1,257 1,552 Clothing & footwear 1,573 491 628 88 454 Scientific instruments etc 2,137 432 1,766 323 271 Total incl others 51,544 45,620 35,387 9,621 7,057 UK imports cif Fruit & vegetables 3,681 5,172 5,075 970 856 Sugar & preparations 79 11,926 96 0 0 Textile yarn, cloth & manufactures 6,410 6,689 2,827 1,031 539 Iron & steel 0 1,000 4,816 1,054 477 Non-ferrous metals 4,927 4,574 9,126 1,928 3,245 Machinery & transport equipment 220 970 173 18 7 Total incl others 17,726 32,067 24,582 5,757 5,368 Source: UK HM Customs & Excise, Business Monitor, MM20.

Zambia: Japanese trade (¥ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Japanese imports cif 1993 1994 1995 1996 1997 1998 Copper cathodes 20,668 11,455 15,764 13,938 9,617 8,810 Total incl others 23,562 17,896 20,261 20,871 16,670 15,170 Source: Japan Tariff Association, Japan Exports & Imports.

EIU Country Report 2nd quarter 1999 © The Economist Intelligence Unit Limited 1999 40 Quarterly indicators and trade data

Democratic Republic of Congo: trade with major partnersa ($ ’000; monthly averages) Belg-Lux France USb Germany UK Exports to Democratic Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Republic of Congo fob 1996 1997 1996 1997 1996 1997 1996 1997 1997 1998 Food, drink & tobacco 2,632 1,794 1,922 1,502 1,987 1,139 276 128 182 70 Mineral fuels 153 107 157 310 15 10 5 13 108 3 Chemicals 1,831 1,682c 556 363 273 129 425 278 329 222 Rubber manufactures 134 159d 12 13d 62d 70 27d 15 10 Textile yarn, cloth & mnfrs 827 647d 16 29d 152 576d 18 86d 44 11 Non-metallic mineral mnfrs 1,295 718e 36 27e 23e 35 16e 10 Metals & manufactures 625 450 96 95 162 45 472 218 65 61 Machinery incl electric 3,513 2,291 643 350 2,039 935 896 526 441 230 Transport equipment 3,126 1,843 186 190 143 87 857 375 465 103 Clothing, footwear & handbags 319 211 119 76 76 13 8 24 14 0 Scientific instruments etc 535 400 97 56 67 37 26 14 15 24 Total incl others 17,005 10,851 4,238 3,245 6,102 3,132 5,177 2,226 2,024 815

Belg-Lux USb Germany France UK Imports from Democratic Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Republic of Congo fob 1996 1997 1996 1997 1996 1997 1996 1997 1997 1998 Coffee, cocoa, tea & spices 423 337 0 0 778 151 1,416 490 59 0 Animal feeding stuffs 0 0 275 139 0 0 0 0 0 0 Crude rubber 0 2f 23 2f 151 133f 4 0 67 59 Wood & cork 438 368f 65 47f 472 0 473 745f 248 24 Metal ores & scrap 3 19g 26 41g 73 0g 00g 10 Mineral fuels 0 0 10,94713,431 2,167 1,890 0 0 0 0 Chemicals 27 95c 7 45 8 33 92 5 0 0 Non-metallic mineral mnfrs 54,611 45,772e 7,246 7,886e 735e 121e 00 Non-ferrous metalsh 2,275 613i 2,171 2,273i 920 465i 213 312i 181 414 Machinery & transport eqpt 13 28 2 9 11 2 0 2 7 1 Total incl others 58,272 47,472 21,642 24,574 5,700 3,685 2,375 1,730 692 570 a Figures from partners’ trade accounts. b US exports to the DRC averaged $3.2m and $2.8m per month for the periods January-December 1997 and 1998. US imports from the DRC averaged $24.6m and $15.0m per month for the periods January-December 1997 and 1998. c Including crude fertilisers and manufactures of plastics. d Including crude materials. e Including precious metals and jewellery. f Including manufactures. g Ores, slag and ash. h Mainly copper and zinc. i Including scrap and manufactures.

Sources: UN, External Trade Statistics, series D; UK HM Customs & Excise, Business Monitor, MM20.