Zambia Democratic Republic of Congo at a Glance: 2001-02

COUNTRY REPORT

Zambia Democratic Republic of Congo At a glance: 2001-02

OVERVIEW The president, Frederick Chiluba, has yet to set a date for the national convention of the ruling party, the Movement for Multiparty Democracy, which will select the party’s presidential candidate for the election around November 2001. The resumption of IMF lending will ensure that the government continues with economic reforms, including improving governance. With an upturn in the mining sector, the economy, in real terms, is forecast to grow by over 4% in 2000, by 5.6% next year and by 6.5% in 2002. The exchange rate will remain volatile, ending 2000 at ZK3,933:US$1. The kwacha is expected to average ZK3,955:US$1 in 2001 and ZK4,589:US$1 in 2002. Helped by rising export receipts, the current account will improve from a deficit of 4.2% of GDP in 2000 and 1.1% of GDP next year, to a surplus of 1.4% of GDP in 2002. Key changes from last month Political outlook • The MMD won all eight of the September by-elections, a severe setback for the hopes of the newly established Republican Party of the ex- environment minister and presidential aspirant, Ben Mwila, in next year’s elections. Economic policy outlook • Completion of the poverty reduction strategy paper next year, which will be based on this year’s interim draft, will help Zambia to reach the HIPC decision point late this year, and will feed into next year’s budget process. Economic forecast • We have raised our real GDP growth forecasts for 2001 and 2002 because of expected higher copper productivity, the result of increasing investment in mining. October 2000

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ISSN 1369-4839

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Contents

3 Summary

Zambia

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2001-02 8 Political outlook 8 Economic policy outlook 10 Economic forecast 12 The political scene 15 Economic policy 18 The domestic economy 18 Economic trends 20 Mining and energy 22 Agriculture 23 Foreign trade and payments

Democratic Republic of Congo

26 Political structure 27 Economic structure 27 Annual indicators 28 Quarterly indicators 29 Outlook for 2001-02 29 Political outlook 31 Economic policy outlook 31 Economic forecast 31 The political scene 38 The domestic economy 38 Economic trends 39 Mining 40 Foreign trade and payments

List of tables

10 Zambia: international assumptions summary 11 Zambia: forecast summary 16 Zambia: government finance 18 Zambia: money supply 18 Zambia: quasi-money supply 21 Zambia: operating statistics for Konkola Copper Mines, Apr-Jun 2000 22 Zambia: cereal production 40 Democratic Republic of Congo: external debt

List of figures

7 Zambia: foreign reserves 7 Zambia: copper production & price 12 Zambia: gross domestic product 12 Zambia: kwacha real exchange rates 17 Zambia: money supply 20 Zambia: exchange rate 21 Zambia: copper price 28 Democratic Republic of Congo: copper price 28 Democratic Republic of Congo: foreign trade 31 Democratic Republic of Congo: gross domestic product

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 3

Summary

October 2000

Zambia

Outlook for 2001-02 Although it has still not selected its presidential candidate, based on its September by-election successes, the ruling Movement for Multiparty Democracy is expected to win the presidential and legislative elections due around November 2001. The government’s economic policy for the remainder of this year and for 2001 onwards will mainly be determined by the contents of its interim poverty reduction strategy paper (PRSP), which should help lead to a successful conclusion of debt relief under the heavily indebted poor countries (HIPC) initiative. The privatisation process will continue, but slowly, in the post-election period. Fiscal policy will concentrate on balancing the budget by containing public expenditure. After a period of declining interest rates, monetary policy looks set to tighten over the forecast period. Increased copper production has improved real GDP growth prospects this year and will lead to real GDP growth of 5.6% in 2001 and 6.5% in 2002. Repeated energy tariff increases this year and part of next, will lead to an average rate of inflation of 26.1% in 2001 and 23.4% in 2002. Having fallen in 2000, the value of the kwacha will continue to fall, to an average of ZK3,995:US$1 in 2001 and ZK4,589:US$1 in 2002. The current account will continue to improve: the deficit will fall to 1.1% of GDP in 2001, and there will be a surplus of 1.4% of GDP in 2001.

The political scene The Republican Party, led by the former environment minister, Ben Mwila, performed badly in the September by-elections. The results have shown that none of the three main opposition parties has a truly national following. Relations with Angola have remained strained because of the military action in the border region. The controversial State Proceedings (Amendment) Bill has upset civil groups who think it will hamper efforts to promote good governance. Civil groups have formed a coalition to monitor the 2001 elections.

Economic policy Work on preparing the PRSP has continued; the government has been required to consult civil society in formulating the paper. However, tension has grown, as the Ministry of Finance has declined to widen the groups’ remit. A new budgeting procedure, piloted by five key ministries, has gathered pace, but critics suggest it may fail as interest groups push for exemptions.

The domestic economy Lower copper production since privatisation has reduced overall real GDP growth prospects this year, despite the abundant harvest. However, the new mine owners have committed themselves to making sizeable capital investments over the coming years, which should help output to rise steadily. The kwacha has depreciated strongly against the US dollar since July because of the increased cost of imported oil.

Foreign trade and Revenue losses are expected when the Comesa and SADC-SACU free-trade payments agreements come into affect. Revenue from non-traditional exports has fallen.

Democratic Republic of Congo

Outlook for 2001-02 Efforts to move the peace process forward will focus on President Laurent Kabila who, for the moment, is seen as the main obstacle to peace because of his rejection of the official mediator and the deployment of a United Nations military observer mission. Pressure for him to compromise will come from the international community and his own allies, Zimbabwe, Namibia and Angola, who are increasingly exasperated by his obstructiveness. Mr Kabila may offer some concessions, although ultimately his interests lie elsewhere than the peace process, which is a threat to his power. There is little prospect of substantive change in the government’s economic policies, which are having a devastating impact on the economy, particularly its granting of a monopoly in the diamond sector. As long as the war carries on, the economy is expected to continue to contract over the 2001-02 outlook period.

The political scene President Kabila’s hand-picked new parliament, Assemblée constituante et législative, was inaugurated in Lubumbashi in August, although it has been derided as an irrelevance and a government-controlled rubber-stamp. A minor cabinet reshuffle in September kept the government team largely intact, although it brought in two former allies of ex-president Mobutu. Mr Kabila has continued to obstruct the peace process, adamantly rejecting the official mediator and flouting two regional summits on the Congo conflict in Namibia and Zambia. In late August he abruptly declared the Lusaka accord to be null and void, but shortly after agreed to UN conditions for the deployment of its troops. Military activity in Equateur province has intensified: the MLC rebels are making strong headway in an offensive against government and Zimbabwean forces. Following the visit of a senior Angolan delegation to Uganda, there is growing evidence that some of Mr Kabila’s allies may be reconsidering their support.

The domestic economy and The government has granted a monopoly on all diamond exports to an Israeli the economy company, IDI-diamonds, claiming this would allow greater control over the industry. Independent diamond traders have protested against the decision and foreign-exchange earnings have slumped to a fraction of their former level. The foreign-exchange shortage is having a disastrous effect on the economy as imports have dropped dramatically. The differential between the official and parallel market rates has surged: the franc congolais fell by 400% in August before it started to stabilise in early September.

Foreign trade and payments Congo’s total external debt has risen as arrears continue to accumulate.

Editors: Angus Downie (Zambia); Douglas Mason (DRC) Editorial closing date: October 13th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Zambia 5

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 presidential and legislative 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 large parliamentary majority. The National Party (NP) 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 its support appears mixed. 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), AZ, the Labour Party, the Lima Party and a non- governmental organisation, the National Pressure Group (NPG). There are over 30 parties in all.

President Frederick Chiluba Vice-president Christon Tembo

Key ministers Agriculture & fisheries Amusaa Mwanamwambawa Commerce, trade & industry William Harrington Communications & transport Nkandu Luo Community & social development, lands Samuel Miyanda Defence Chitalu Sampa Education Godfrey Miyanda Energy & water development David Saviye Finance & economic development Katele Kalumba Foreign affairs & co-operation Keli Walubita Home affairs Peter Machungwa Information & broadcasting Newstead Zimba Labour & social services Edith Nawakwi Legal affairs Vincent Malambo Local government & housing Ackson Sejani Mines Syamukayumbu Syamujaye Office of the president Eric Silwamba Science & technology Lawrence Shimba Tourism Anoshi Chipawa Works & supply Suresh Desai

Central bank governor Jacob Mwanza

Economic structure

Annual indicators

1996 1997 1998 1999 2000a GDP at market prices (ZK bn) 4.0 5.2 6.6 a 8.7 a 11.7 GDP (US$ bn) 3.3 3.9 3.5a 3.7 a 3.7 Real GDP growth (%) 6.5 3.4 –2.0 2.2a 4.1 Consumer price inflation (av; %) 46.3 24.8 24.3 26.9 27.3 Population (m) 9.5 9.8 10.1 10.4 10.7 Exports of goods fob (US$ m) 994.0 1,191.0 858.0 753.0 928.3 Imports of goods fob (US$ m) 1,056.0 1,218.0 1,017.0 939.0 1,050.0 Current-account balance (US$ m) –122.0 –239.0 –276.0 –200.0 –156.5 Foreign-exchange reserves excl gold (US$ m) 222.7 239.1 69.4 45.4 120.0 Total external debt (US$ bn) 7.1 6.7 6.9 6.1a 6.1 Debt-service ratio, paid (%) 21.5 17.7 18.9 19.4 a 16.8 Exchange rate (av) ZK:US$ 1,207.9 1,314.5 1,862.1 2,388.0 3,141.7

October 13th 2000 ZK3,460:US$1

Origins of gross domestic product 1999 % of total Components of gross domestic product 1999 % of total Agriculture 18 Private consumption 77 Industry 27 Government consumption 10 Mining 7 Gross fixed capital formation 17 Construction 5 Change in stocks 1 Manufacturing 10 Exports of goods & services 31 Government & other services 55 Imports of goods & services –37 GDP at market prices 100 GDP at market prices 100

Principal exports 1999 US$ m Principal imports 1999 US$ m Copper 377 Metals 103 Cobalt 104 Petroleum 88

Main destinations of exports 1999c % of total Main origins of imports 1999c % of total Saudi Arabia 12.5 South Africa 55.5 Japan 10.2 Zimbabwe 8.8 UK 7.7 UK 5.9 Thailand 6.7 Japan 2.7 a EIU estimates. b Based on partners’ trade returns; subject to a wide margin of error.

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Zambia 7

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (1994=100) 304.9 332.4 356.7 370.6 387.4 401.3 437.0 463.5 % change, year on year 27.0 31.1 30.2 26.9 27.1 20.7 22.5 25.1 Copper, LME (US cents/lb) 74.4 70.1 63.9 66.5 76.1 78.9 81.5 78.9 Financial indicators Exchange rate ZK:US$ (av) 1,940.8 2,136.0 2,288.1 2,377.9 2,403.6 2,482.5 2,717.0 2,866.4 ZK:US$ (end-period) 1,976.9 2,298.9 2,288.5 2,439.5 2,413.7 2,632.2 2,758.2 3,022.0 Interest rates (av; %) Deposit 13.13 15.90 18.60 20.47 21.00 21.00 20.93 20.00 Weighted lending base 31.80 36.67 38.37 40.37 41.23 42.10 40.67 38.93 Treasury bill, 91 day 29.29 32.67 35.26 36.66 36.70 36.15 34.41 31.59 M1 (end-period; ZK bn) 376.4 414.9 379.7 398.2 432.3 513.0 474.5 582.3 % change, year on year 7.4 16.8 6.4 10.8 14.9 23.6 25.0 46.2 M2 (end-period; ZK bn) 993.6 1,094.7 1,065.4 1,154.8 1,241.0 1,397.9 1,422.6 1,724.7 % change, year on year 14.9 25.6 23.4 24.9 24.9 27.7 33.5 49.4 Sectoral trends Copper in concentrates, production (‘000 tonnes) 109.4 107.5 77.7 71.4 65.7 56.2 53.2 51.0 Foreign tradea (US$ m) Exports fob 232.3 231.7 214.3 189.8 195.7 184.9 179.4 n/a Imports fob –216.7 –243.3 –188.1 –181.4 –206.6 –236.5 –196.0 n/a Trade balance 15.6 –11.6 26.2 8.4 –10.9 –51.6 –16.6 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 101.3 69.4 73.3 55.5 72.6 45.4 n/a n/a a DOTS estimates. Sources: Zambian Central Statistical Office; World Bureau of Metal Statistics, World Metal Statistics; IMF, International Financial Statistics; Direction of Trade Statistics.

Outlook for 2001-02

Political outlook

Domestic politics Zambia is due to hold presidential and legislative elections in 2001. The ruling party, the Movement for Multiparty Democracy (MMD), has said that it will hold a national convention later this year to select its presidential candidate but, even though 2000 is drawing to a close, a date for the convention has not been set. Whoever is selected, the MMD is likely to win both elections, having demonstrated, with a string of by-election successes in September, that it is the only party in Zambia with a convincingly national following.

Election watch Potential MMD presidential candidates include the vice-president, Christon Tembo, the pugnacious party chairman, Michael Sata, and the talented finance minister, Katele Kalumba. The political prospects for the Republican Party (RP), founded by former environment minister Ben Mwila, after he was expelled from the MMD in July, seem poor. The September by-elections were for seats held by Mr Mwila and other RP members while they belonged to the MMD, and the RP failed to capture any of them. Efforts by Francis Nkhoma, the leader of the faction-riven main opposition party, the United National Independence Party (UNIP), to restore the party to its former glory will continue to be hampered by his lack of authority, and UNIP is expected to perform badly in the 2001 elections. The only serious rival to the MMD will be the United Party for National Development (UPND), led by Anderson Mazoka. However, the UPND’s performance in the by-elections, despite an earlier victory in Sesheke, show that Mr Mazoka still has a lot of catching up to do.

International relations Bilateral relations between Angola and Zambia have been severely strained this year, particularly in recent months, by the intensification of Angola’s civil war in the Zambian border area. This has led to an increased influx of Angolan refugees into Zambia, growing numbers of internally displaced Zambians and a build-up of troops on both sides of the border. The strength of the rebel Angolan forces, the União Nacional para a Independência Total de Angola (UNITA), has weakened recently, but the insecurity on the Angolan side is set to continue. However, the Zambian and Angolan governments will use their joint security commission to contain fresh tensions as and when they arise.

Economic policy outlook

Policy trends The government’s economic policy imperatives for the remainder of this year and in 2001, are to produce a poverty reduction strategy paper (PRSP)—which will be derived from the July 2000 interim PRSP—and then to begin its implementation. These tasks are urgent, because the PRSP is an important element in the application for debt relief under the World Bank-IMF’s heavily indebted poor countries (HIPC) initiative, and for much bilateral and multilateral aid besides.

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Policies contained within the PRSP—which will continue from programmes drafted in the National Poverty Reduction Action Plan in November 1998 and the July 2000 interim PRSP—include efficient management of the economy and sustainable economic growth. The finance minister, Katele Kalumba, appears genuinely committed to orienting economic policy towards the eradication of poverty. The PRSP formulation process has to include representatives of civil society, which makes it likely that the process will turn into a battleground between the government and civil society groups as the elections draws nearer. This will diminish the chances of the PRSP genuinely influencing the 2001 budget, though it should have more impact on the 2002 budget.

There is little to stop Zambia reaching the HIPC decision point by the end of the year. However, what impact this has on Zambia’s debt-servicing requirements for 2001-02 is still being negotiated. The World Bank and IMF have been stung by the accusation from debt relief organisations that costs will be higher in 2001-02 than in 1999-2000, despite the HIPC initiative, and the two institutions may come under pressure to make further concessions.

The privatisation process is likely to continue, but slowly, in the post-election period, as the MMD’s main rival, the UPND, appears equally committed to it. The government will probably decide to offer a concession in, rather than sell off, the distribution arm of the Zambia Electricity Supply Company. If the government fails to raise the share of Zambia Telecommunications (Zamtel) available for flotation from the current 20% to over 35%, Zamtel’s sale will probably fail to take off in 2001. The privatisation of Zambia’s hydrocarbon fuel sector, which includes assets like the Indeni oil refinery and the Zambia National Oil Company, will prove a long drawn-out affair.

Fiscal policy Zambia’s budget process is undergoing extensive reform, which by 2003 will embrace all ministries. Fiscal policy throughout 2001-02, however will remain centred on balancing the budget (using the cash budget system), through attempts to contain public expenditure and maximise revenue. Revenue will rise, thanks to the continuing increase in economic activity on the Copperbelt, but this may prove insufficient to cover pre-election spending increases. Mr Kalumba has given his assurance that economic policy will not be unduly influenced by the MMD’s electoral needs, but a budget deficit of 4.7% of GDP is nonetheless expected in 2000. The EIU expects the deficit to improve to 3.9% of GDP in 2001 and 3.3% of GDP in 2002. We expect donor assistance to cover most of the financing gap in 2000-02.

Monetary policy After a period of declining interest rates, the Bank of Zambia now appears to have judged that it has loosened monetary policy enough, and is expected either to maintain yields on Treasury bills and short-term bonds or to increase them slightly in 2001. Monetary policy in 2002 will depend on the impact these changes will have on investors’ decisions in 2001. Market uncertainty about inflation is making investors wary of the reduced yields on offer, and attention has already turned to higher-yielding long-term bonds.

Economic forecast

International assumptions Prospects for the global economy remain promising. We expect world GDP to expand at an average rate of 4.2% in 2001 and 4.1% in 2002 against a background of low levels of inflation. The outlook for copper—Zambia’s main export—over the forecast period is encouraging. Copper prices are expected to rise by 6.9% in 2001, to 86.6 US cents/lb, and by a further 6.5% in 2002 to 92.3 US cents/lb, owing to improved growth forecasts in the OECD region of 3.1% in 2001 and 2.7% in 2002.

Zambia: international assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 Real GDP growth World 3.5 4.9 4.2 4.1 OECD 2.9 4.1 3.1 2.7 EU 2.3 3.4 3.0 2.6 Exchange rates (av) ¥:US$ 113.9 106.7 104.0 102.0 US$:¤ 1.07 0.93 0.95 1.05 US$:SDR 1.37 1.30 1.29 1.35 Financial indicators ¤ 3-month interbank rate 2.97 4.35 5.19 4.70 US$ 3-month commercial paper rate 5.42 6.63 6.78 5.48 Commodity prices Oil (Brent; US$/b) 17.9 28.9 25.4 19.4 Gold (US$/troy oz) 278.8 283.2 275.0 270.0 Copper (US cents/lb) 71.1 81.0 86.6 92.3 Industrial raw materials (% change in US$ terms) –4.3 14.9 8.7 2.3

Note. Regional aggregate GDP growth rates weighted using purchasing power parity (PPP) rates.

Economic growth The introduction of fresh investment, new technology and improved management to the copper mines since privatisation has begun to reverse the decline in copper production, but will have little impact on real GDP growth this year. Production will increase significantly in 2001 and, together with rising copper prices, should help the mining sector to grow by 12%, and overall real GDP by 5.6%. Copper output and prices will rise further in 2002, boosting real GDP growth to 6.5%.

This year’s maize harvest was 20% higher than last year’s, and the agricultural sector will grow by around 3% overall in 2000. However, a rise in farm bankruptcies (due to low crop prices) will hit production in 2001 to some extent, and the sector will probably not experience strong growth. Manufacturing has received a boost on the Copperbelt because of new investment, and this will begin to impact on manufacturers elsewhere in the country during 2001, when we expect 3.5% growth in the sector. However, manufacturers face stiff competition both regionally and internationally, and their ability to compete is severely constrained by high costs.

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Inflation We still expect an average rate of inflation in 2000 of 27.3%, primarily because of the increase in world oil prices. With world oil prices falling in 2001 we expect the average inflation level to recede to 26.1%, and to fall further to 23.4% in 2002. However, increased spending in the run-up to the elections, if the MMD thinks that the UPND poses a serious threat to its position, will threaten our forecasts.

This year’s good harvest is helping to contain food price increases, but repeated rises in fuel and electricity prices are having a knock-on effect throughout the economy (via more expensive imported capital and consumer goods due to the depreciating exchange rate). This has forced the government to raise its year- end inflation target for 2000 from 14% to 19%.

Zambia: forecast summary (% unless otherwise indicated) 1999a 2000b 2001c 2002c Real GDP growth 2.2b 4.1 5.6 6.5 Gross industrial growth 0.9b 6.1 7.4 9.0 Gross agricultural growth 13.8b 3.0 3.2 3.5 Consumer price inflation Average 26.9 27.3 26.1 23.4 Year-end 20.7 30.2 22.7 23.7 Short-term interbank rate 40.5 40.5 41.0 42.0 Government balance (% of GDP) –5.7b –4.7 –3.9 –3.3 Exports of goods fob (US$ bn) 0.8 0.9 1.0 1.2 Imports of goods fob (US$ bn) 0.9 1.1 1.1 1.2 Current-account balance (US$ bn) –0.20 –0.16 –0.04 0.06 % of GDP –5.5b –4.2 –1.1 1.4 External debt (year-end; US$ bn) 6.1b 6.1 6.0 5.9 Exchange rates ZK:US$ (av) 2,388.0 3,141.7 3,955.1 4,588.7 ZK:¥100 (av) 2,096.5 2,840.6 3,429.8 3,676.5 ZK:¤ (av) 2,544.2 2,825.5 3,370.8 3,937.5 ZK:SDR (av) 3,265.5 3,944.2 4,600.1 5,079.7

a Actual. b EIU estimates. c EIU forecasts.

Exchange rates The resumption of donor inflows and increased export revenue will ease some of the downward pressure on the kwacha over the next two years, though local expectations of increased foreign-exchange flows from the newly privatised mines have so far not been met. The Zambian authorities’ main concern during the forecast period will be to ensure the stability of the kwacha’s decline against the US dollar. Given the large expected increase in foreign-exchange inflows, this should be achievable. We expect the kwacha to depreciate steadily, averaging ZK3,955:US$1 in 2001 and ZK4,589:US$1 in 2002.

External sector Overall, the current-account deficit is forecast to reduce to 4.2% of GDP in 2000 (US$156m), and 1.1% of GDP in 2002 (US$44m), while in 2002 the current account will show a small surplus of 1.4% of GDP (US$60m). The rising value of exports will allow the trade deficit to narrow to US$60m in 2001, while a surplus of US$32m in 2002 is forecast.

Rising copper production and prices will increase total export earnings to US$1bn in 2001 and US$1.2bn in 2002. Floriculture and horticulture production and export levels will increase only marginally in the forecast period. The overall trend for non-traditional exports in 2001-02 largely hinges on the international cotton lint market. As world cotton prices are forecast to increase by 15.3%, to 68 US cents/lb, in 2001 and by 10.3%, to 75 US cents/lb, in 2002, Zambian production should increase. Import costs will climb to US$1.1bn in 2001, and US$1.2bn in 2002. The increase will be in part due to higher international oil prices but also because of the recapitalisation of the mining industry.

The political scene

By-elections confirm the The political dominance of the ruling Movement for Multiparty Democracy dominance of the MMD (MMD) in Zambia was confirmed on September 26th by its victory in eight by- elections. However, there was a low turnout at all the polls. The by-elections were caused by the death of one member of parliament, and the expulsion from the MMD of the former environment minister and presidential aspirant, Ben Mwila, and several of his parliamentary colleagues (July 2000, page 14). The elections were held in four provinces, and the MMD’s success in all of them—assisted by judicious donations to various civic bodies by the president, Frederick Chiluba, beforehand—confirms that it remains the only party in Zambia with a truly national support base. Mr Mwila’s newly formed Republican Party (RP) contested all eight seats, though Mr Mwila was not allowed to stand because of a legal technicality. However, the RP failed to make much impression in the polls, which bodes ill for its future.

Republican Party faces an Since the RP’s formation in August at a well-attended rally in Mr Mwila’s uphill struggle former constituency of Luanshya, Mr Mwila and other former MMD members have rarely lost an opportunity to attack the government. An RP member Moses Kaunda, who is a former member of the MMD’s national executive committee (NEC), has alleged that Mr Chiluba told an NEC meeting earlier this

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year that he might decide to run for a third term, despite the constitutional prohibition, and that “no one could stop him”. Whatever the truth contained in such revelations, they will do little for the RP, since many Zambians seem unimpressed that RP members only saw fit to break ranks with the MMD once their own ambitions had been thwarted.

The UPND has yet to win a The United Party for National Development (UPND), headed by the former national support base managing director of Zambian operations for the Anglo American Corporation (AAC), Anderson Mazoka, performed indifferently in the September by- elections, coming second in four constituencies (all in the same region), but last in the others. This is worrying news for Mr Mazoka, since it shows that his party has yet to generate a sufficiently national following to win next year’s legislative election. Nonetheless, the UPND’s parliamentary presence was boosted by its victory in a by-election in Sesheke in Western province in early August, again on a low turnout. However, Mr Mazoka was badly injured in a head-on collision with a lorry in September, which UPND cadres say was part of a plot to remove him from politics.

UNIP’s woes continue The United National Independence Party (UNIP), which ruled Zambia for 27 years before the MMD, could draw no comfort from the by-election results, failing even to come second in any of the constituencies. The former central bank governor and MMD member, Francis Nkhoma, was elected to lead UNIP in May this year, succeeding Kenneth Kaunda, Zambia’s former president (July 2000, pages 14-15). Since then, Mr Nkhoma has battled to revive the party, but has been hampered by the apparently widespread perception within UNIP that he remains close to the MMD. UNIP also has yet to prove to the electorate that it offers a coherent alternative to MMD economic policy, bar a vague denunciation of IMF-inspired reform programmes. The party remains badly divided, as evidenced by the manoeuvring of a number of UNIP heavyweights to have Mr Nkhoma removed. UNIP insiders say that the party chairman, Kingsley Chinkuli, is closely involved in these efforts.

New legislation prompts Zambia’s donors made it clear at the last consultative group meeting in Lusaka concerns about governance in July that governance was of critical importance to their continued assistance (July 2000, pages 12-13). Although the government has since taken some steps towards the accountability, transparency and inclusiveness advocated by donors (and human rights organisations), particularly in drawing up its poverty reduction strategy paper (see Economic policy), one controversial new piece of legislation appears to point the other way. The State Proceedings (Amendment) Bill (which has yet to receive presidential assent) prevents an application for a judicial review acting as a stay to decisions made by the state and its officials. According to the legal affairs minister, Vincent Malambo, there is nothing sinister about the bill, which he has claimed is merely intended to close loop-holes in the current act that work against the public interest. Mr Malambo has given the example of the government’s attempt in March 1999 to suspend the licence of Aero-Zambia until the air worthiness of its aircraft was proven. Aero-Zambia applied successfully in the courts for a stay of execution, and the suspension was delayed for a year (2nd quarter 1999, page

17). Mr Malambo claims this delay endangered lives, and that an amendment to the law is necessary to prevent such a thing happening again.

Legislation could allow the Critics argue, however, that the new bill will allow the state to act with state to act with impunity impunity towards any person or body its officials choose, which they say is the opposite of good governance, particularly in the run-up to a general election. According to the Zambian human rights group, Afronet, if the government, for example, decided to ban the organisation, the new bill would deny Afronet the right to halt the execution of the ban in the courts. Afronet claims that even if, in this hypothetical case, it appealed against the ban and was successful, it would still be banned until the conclusion of the case, by which time the damage would have been done.

The bill certainly generated misgivings in Zambia’s parliament when it had its second reading, despite the fact that the government won the vote with ease. A National Party MP, Ludwig Sondashi, predicted in parliament that the bill would one day come back to haunt MMD members, since if they were expelled from their party on flimsy grounds and then lost their seats, they would remain excluded from parliament until legal proceedings were concluded, possibly in their favour. Mr Mwila later added that when the MMD lost power it would rue the day it passed the bill, since “the beauty” was that it could then be deployed against the party.

Serious financial Although good governance is a difficult criterion to quantify, government irregularities uncovered departmental audits are a rare source of measurable standards, and as such are of considerable interest to donors. The latest report of Zambia’s auditor-general, released in early August and covering 1998, revealed serious financial irregularities in most government departments, and showed parliament itself to have been the worst offender. The auditor-general has uncovered a total of ZK2bn (US$11m in 1998) of missing receipts, over half of which emanate from parliament. Donors would like to see evidence that government accounting and expenditure is being tightened up, but the elections next year will generate temptations that pull in the opposite direction. The results of the 2001 audit will not be known until 2003.

NGOs join together to Over 20 non-governmental organisations (NGOs) formed a coalition in late monitor the 2001 elections September to monitor the elections in 2001. The coalition has been formed now, well in advance of the elections, because Zambian NGOs believe they must establish their credibility as monitors both with the government and donors as early as possible. This is intended to deter any attempt to limit their freedom of operation, or to question their neutrality, as the election draws nearer. Meanwhile, signs of antagonism between the government and opposition over the elections are already evident. In late September the Zambia Alliance for Progress (ZAP) threatened to boycott the elections unless the voters’ register was updated, and accused the Electoral Commission of being “toothless” because it never seemed to act against MMD “irregularities”.

Crossborder raids from Since July there has been heavy fighting between Angolan government troops Angola intensify and Angolan rebel forces from the União Nacional para a Independência Total

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de Angola (UNITA), near Angola’s border with Zambia. UNITA has sustained strategic losses, including that of the Cazombo airstrip in Angola’s Moxico province. The loss of Cazombo and other more minor landing sites is causing supply problems for UNITA, and has led to an increase in often bloody crossborder raids into Zambia for provisions. Angolan government forces in their pursuit of UNITA have not only made a number of crossborder incursions on the ground, but the Angolan airforce has dropped bombs on the Zambian side (notably in late August). The Zambian government complained publicly about the bombing, which prompted a denial and a rebuke from the Angolan government. As the EIU has previously suggested (July 2000, page 8), neither side is prepared to risk going to war over the issue. However, the Angolan government’s war with UNITA in the border area has created enormous difficulties in diplomatic relations between Zambia and Angola. Nevertheless, the two governments appear keen to keep talking. Shortly after the bombing, the Zambian speaker of parliament, Levison Mumba, visited Angola for a three- day visit aimed at strengthening parliamentary ties, and later in the month the Zambian army chief of staff, Leujalo Musengulo, held consultations with the Angolan army chief of staff, João de Matos.

Angolan refugee numbers Since July around 25,000 more Angolan refugees have crossed into Zambia, grow bringing the Angolan refugee population to around 180,000. The Angolan flow intensified towards the end of September, with 9,000 refugees crossing in the last week of the month alone. Zambia’s total refugee population is thought to now stand at around 220,000. Officials from the United Nations High Commission for Refugees (UNHCR), have said they need more money to look after the growing refugee population, but despite their plea, funds remain short. UNHCR officials have also expressed the concern that armed UNITA fighters are among the most recent arrivals, which bodes ill for the security of the refugee camps and surrounding areas.

Economic policy

Work on the PSRP The preparation of an interim poverty reduction strategy paper (PRSP) has been intensifies a key condition for Zambia to qualify for the decision point under the heavily indebted poor countries (HIPC) debt initiative by the end of this year. A PRSP, amongst other factors, will allow the completion point to be reached. The PRSP is also supposed to be at the core of Zambia’s economic policy since, although the requirement for a PRSP has been imposed by donors, the prevailing doctrine dictates that this nonetheless be “owned” by the indebted country. It is a further requirement that the PRSP is drafted by government in full consultation with civil society, so as to widen this “ownership”. Zambia’s government has duly complied and established eight PRSP working groups which include representatives from civil society organisations. The groups cover agriculture, education, governance, health, industry, macroeconomics, mining and tourism. Policies contained within the PRSP include efficient management of the economy, sustainable economic growth, human resource development, targeted group interventions, cross cutting priorities and urban

development (see www.imf.org/external/np/prsp/2000/zmb/01/ for details). Government officials have stated that the results of the groups’ work will feed directly into the 2001 budget, which will make it, in the words of one official, “the most transparent and most accountable ever”. However, there is a potential worry that, in the event of the budget failing to meet set targets, the government may blame the civil society groups for this, and try and preclude them from further official policy debate.

Civil society pushes for Civil society organisations, although pleased by their unprecedented influence wider-themed PRSP groups in policy formulation, are uncomfortable with the government’s themes for the working groups. These themes, though helpful to the Ministry of Finance in its efforts to blend this unpredictable process with the onerous demands of national budgeting, are regarded by the organisations as limiting. Instead, they are pushing for PRSP working groups to consider wider themes, and to include discussion of issues such as food security, gender, employment and HIV/AIDS. The finance ministry has so far shown no indication that it will agree to this proposal, and officials argue that the inclusion of civil society in the economic policymaking process is concession enough. While some civil society representatives are considering getting donors to pressure the government on their behalf in this matter and in future debates with government, others are concerned about the implications of such leverage for Zambia’s sovereignty.

New budgeting procedures Meanwhile, the Ministry of Finance has warned the five ministries piloting the for five ministries new system—commerce, trade and industry; environment; local government and housing; community and social development, lands; and works and supply—that their funding for next year will not be based as previously on their funding this year plus an allowance for inflation, but will instead depend on well-defined performance targets and implementation strategies. The system is due to be applied to all ministries by 2003. Sceptical observers of Zambia’s budgeting process wonder what difference the new policy will make in practice, since although the government has had a policy of cash budgeting for several years, which should mean that expenditure cannot exceed revenue, expenditure regularly does (for example, the overspending of the district administrators appointed in January (May 2000, page 13).

Zambia: government finance (ZK bn) 1998 1999 % change Revenue 1,097.6 1,430.4 30.3 Grants received 432.7 414.2 –4.3 Lending minus repayments –143.6 –245.7 71.1 Expenditure –1,717.1 –1,874.3 9.2 Balance –330.4 –275.4 16.6 Source: IMF, International Financial Statistics.

Zambia will reach the HIPC Following a positive IMF assessment of Zambia’s progress on monetary and decision point soon fiscal targets (when a small team visited Lusaka in late August), the preparation of the PRSP, the relative success of the donors’ consultative group meeting in July, and an optimistic assessment from a visiting IMF team in August, it now

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seems that Zambia is on course to reach the HIPC decision point sometime in November. The date of the completion point depends on the government achieving certain IMF conditionalities, but should be between one and two years after the decision point has been agreed. Reaching the HIPC decision point will mean Zambia’s debt-servicing commitments in 2001 will be reduced by half from the current arrangements, and savings are predicted to total US$375m. If Zambia remains on track with the HIPC process, its debt-service repayments, as a percentage of exports, should decline to single figures by 2005. In 1999, the ratio was 19.4%. However, the British-based charity, Oxfam, and other non-governmental organisations participating in the Jubilee 2000 campaign to cancel less developed countries’ debt, have embarrassed the IMF and World Bank. They have calculated that Zambia’s debt-service repayments will increase in 2000 despite HIPC relief. According to Oxfam, whose figures have been contested by the IMF, Zambia’s debt-servicing obligation in 2002 will be US$225m, US$55m higher than it is this year. Oxfam further estimates that Zambia’s debt repayments in 2001-03 will be 46% higher than in 1997-98. The main reason for these predicted increases are rising repayments of principal on loans contracted to the IMF, which are not eligible for debt relief, because HIPC regulations exclude loans that have already been rescheduled.

Debt-servicing The IMF’s initial response to Oxfam’s public criticism was to accuse the NGO of commitments will grow being unfair, and to insist that Zambia was getting a good deal, saying its debt- service payments in 2001 will be higher than in 2000, but only because of new IMF credits increasing repayment levels (which have been zero for several years). Overall, the IMF is “front-loading” its HIPC assistance, offering nearly 60% of its reduction in 2001-02, and Zambia’s net position currently will see it receive more funds from the IMF than it will repay. However, at the IMF and World Bank’s Prague summit in September, officials said they would be examining Zambia’s case, which they conceded was “inequitable”.

The finance minister Katele Kalumba, meanwhile, has other concerns about HIPC, and in particular its emphasis on the length of time a reform process has been in place, rather than the quality of the reforms undertaken. Mr Kalumba has an influential platform from which to press his position, since Zambia was elected in late September to the international monetary and financial committee of the IMF, chaired by the UK’s chancellor of the exchequer, Gordon Brown.

Money supply grows by Zambia’s narrow money supply increased by 44% year on year in May 2000, over 40% year on year while broad money increased by 40.8% over the same period. This level of annual increase has not been seen in Zambia since the mid-1990s, and is a clear indication that the Bank of Zambia (the central bank) has loosened its monetary stance. Treasury-bill yields have dropped since July, with yields on the 28-day bill falling from an average of 21% in July to just 17% in early October. The 28-day bill is now virtually unused, and accounted for only 1.6% of total T-bills outstanding in August, compared with 38% at the beginning of the year. The yield on the 182-day bill has similarly fallen, but has generated increasing interest as the 28-day T-bill yield has declined, and now accounts for 55% of T-bills outstanding. Zambia’s monetary authorities have however

decided that interest rates have fallen far enough in view of the depreciating kwacha, and interest rates will be raised in the coming months in an attempt to slow its further depreciation.

Zambia: money supply (end-period) Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec 1999 ZK bn 399.5 378.3 379.7 376.6 399.6 398.2 432.8 418.9 432.2 458.0 472.8 513.0 % growtha ( –5.0 ) ( 5.7 ) ( –0.1 ) ( 12.0 ) 2000 ZK bn 478.5 500.1 474.5 499.6 541.3 582.3 n/a n/a n/a n/a n/a n/a % growtha ( –0.9 ) ( 16.5 ) ( n/a ) ( n/a ) a Quarter on quarter. Source: IMF, International Financial Statistics.

Zambia: quasi-money supply (ZK bn; end-period) Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec 1999 694 678.9 685.7 707.0 747.4 756.6 795 786.9 808.7 851.3 853.5 884.9 2000 908.9 946.6 948.1 1,013.4 1074.1 1,142.4 n/a n/a n/a n/a n/a n/a Source: IMF, International Financial Statistics.

Lending rates drift Commercial lending rates have followed the same gentle downward trend as T- downwards bill rates since July. There has been an increase in consumer deposits of late because of new legislation forbidding informal sector traders to cash third party cheques, forcing them to open accounts with banks for the first time. This has led to competition between the banks, who want to secure this small group of new account holders, as their commercial success makes them a source of profit for the retail bankers.

The domestic economy

Economic trends

Weak copper output Weaker than expected copper output since privatisation, as well as continued dampens growth prospects problems in the manufacturing sector, have muted Zambia’s economic growth prospects this year, despite a good harvest. However, the fresh capital currently being invested into the Copperbelt by the new mine owners, Mopani (a joint venture between the Canadian firm, First Quantum Minerals, Swiss-based Glencore International and state-controlled Zambia Consolidated Copper Mines (ZCCM)) and Konkola Copper Mines (KCM) (a joint venture between a subsidiary of British-based Anglo American Corporation(AAC) and ZCCM) (May 2000, page 20), and the steady rise in international copper prices in recent months, are two promising pointers for future growth.

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Privatisation update

Zesco—distribution sale or concessioning? In the build-up to the CG meeting in July, the government reassured donors that the long-delayed privatisation of the Zambia Energy Supply Company (Zesco) and the Zambia Telecommunications Company was on track (July 2000 page 17). However, on August 1st the energy minister, David Saviye, said Zesco would not be privatised, though private investors would be able to compete with Zesco in power generation and distribution. Mr Saviye added that because of its strategic nature, electricity transmission would remain in state hands. The finance minister, Katele Kalumba, subsequently gave an assurance that the sale of Zesco remained an option, though several ministers are believed to be unwilling to relinquish the parastatal, which is one of the government’s last remaining cash generators. Meanwhile, the Zambia Privatisation Agency (ZPA) has until the end of the year to present its assessment of the options relating to Zesco to the cabinet. The ZPA is likely to argue that efficiency gains in the energy sector are mainly to be found in distribution, where the options are sale or concessioning. The ZPA may recommend concessioning on the grounds that Zesco’s distribution operations could probably only be sold at a discount because of negative investor sentiment about the region. As the government’s attentions in early 2001 will probably be taken up with budget deliberations, it is unlikely that the cabinet will decide on the issue until March 2001 at the earliest.

Zamtel—20% is not enough As the EIU suggested (May 2000, page 9), the offer of a 20% stake has proved insufficient to attract quality investors to Zamtel, and the cabinet has asked the ZPA for new recommendations by November. The ZPA is expected to recommend that a larger stake be offered for sale, as indeed it recommended in its original submission. A cabinet decision is expected before the January 2001 budget.

Zambia Railways—completion planned for mid-2001 The cabinet approved privatisation plans for Zambia Railways in May (July 2000 page 20), and tenders were advertised in early October. Potential concession owners will have about one month to submit proposals, and the tendering process should be complete by mid-2001. Meanwhile the government is hoping to secure US$27m from the World Bank to help finance redundancy payments for a large number of railway staff, and the refurbishment of Zambia Railways’ physical assets.

Maamba—where’s the money? Representatives of the South African mining company, Benicon, and their financiers, went to Zambia in early October to discuss the US$1.5m the company still owes the government for the Maamba colliery, which it bought several years ago. The mine workers’ union has claimed that Benicon has insufficient financial capacity to run Maamba, and that the colliery should be re-advertised for sale (July 2000, page 21).

Hydrocarbon energy—the review has begun In late September, the ZPA began its review of the privatisation options in the hydrocarbon sector, as was urged by donors at the CG meeting. The review is due for completion in January 2001.

The kwacha’s slide The kwacha has depreciated significantly in recent months, and hit a new low continues of ZK3,390 against the US dollar in early October. Since January of this year the kwacha has fallen by over 23%. Although foreign exchange is now more readily available than during the suspension of donor lending in 1998-99, the new mine owners have released less hard currency on to the market than some had hoped, resulting in insufficient foreign exchange to meet demand, particularly at the end of each month when companies try to settle their payment positions. Currently, the Bank of Zambia has such low foreign- exchange reserves at its disposal (last reported to the IMF in December 1999 at US$45.4m, but now estimated to be around US$120m) that it is not able to intervene to support the kwacha, and it has been constrained from raising interest rates to help the currency because of the government’s aim to reduce interest rates to help stimulate the economy. However, the combination of a weak kwacha and high international prices for oil is having a major inflationary impact which has prompted a rethink on currency strategy among Zambia’s monetary policymakers.

The inflation rate remains Zambia’s inflation rate has remained stubbornly higher than the government stubbornly high target, which was increased in July from an annual average of 14% to 19% for 2000. Consumer prices rose by 2.9% month on month in July and 1.3% in August, while the year-on-year rate in August was a significant 27%, 1.1 percentage points up on the year-on-year rate in July. Although the maize price remains low (see Agriculture), increases in the cost of other foods (such as wheat, fresh meat, vegetables, sugar and salt) played a major part in the rising consumer price inflation rate, but the key determinants were the falling value of the kwacha and rising oil prices.

Mining and energy

The recapitalisation of the The recapitalisation of the Copperbelt mining industry continues apace. The Copperbelt moves forward Mopani group is committed to some US$159m in capital expenditure over the next three years. New equipment has been imported from South Africa, and the Zambia Revenue Authority (ZRA) has said revenue from the Copperbelt in April was 20% higher than revenue received in April 1999, suggesting that local industrial suppliers are participating in the upturn. However, copper production since the March 31st privatisation has been lower than anticipated, even though output in 2000 is estimated at 300,000 tonnes, up 15% on the 1999 level.

Konkola Copper Mines miss Konkola Copper Mines (KCM) produced 36,493 tonnes of finished copper in their target the second quarter, nearly 5,000 tonnes below target. The company blamed delays in receiving supplies, and the assets being in worse condition than originally expected. Nonetheless, KCM reported itself relatively happy with losing US$679,000 in the quarter, compared with the US$12.7m it had previously anticipated. KCM predicts it will break even in the nine months to December 31st, with copper production of 140,000 tonnes. KCM projects 240,000 tonnes of copper production next year. The company has not yet assembled the finance for the massive investments it has planned for the

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Konkola Deep mine, but the visit of Barclays Capital to the Copperbelt recently has been taken by industry insiders as an encouraging sign that funds may be raised within a year.

Zambia: operating statistics for Konkola Copper Mines, Apr-Jun 2000 (tonnes unless otherwise indicated) Actual Target Copper 36,493 41,445 Cobalt 431 466 Average price realised Copper (US cents/lb) 80 84 Cobalt (US$/lb) 13.79 14.00 Source: Konkola Copper Mines.

Nkana mine deep in the red At Nkana, Mopani has been reluctant to disclose the extent of its current losses except that they are “huge”. However, according to the group, it is expecting to cover operating costs by the end of this year. Mopani projects 75,000 tonnes of copper production in the year to March 2001. This will rise to 165,000 tonnes by 2002, with an associated 2,700 tonnes of cobalt also being produced.

The Nkana smelter’s future Through the mine privatisation process, KCM secured the rights to manage the is uncertain Nkana smelter. It has an agreement with Mopani that Nkana ores will be smelted there for at least the next two years. After that, its future is uncertain. If Anglo American opts for pressure leaching at either Nchanga or Konkola, it is thought unlikely that it would need the Nkana smelter, yet Mopani’s future production is unlikely to generate enough material for both Nkana and the Mufulira smelter, which it already owns. However, if Mopani is able to increase production significantly at Nkana and Mufulira, and particularly if the unstable situation in the neighbouring Democratic Republic of Congo begins to settle, purchasing the Nkana smelter could then be justified. On the other hand, should KCM exercise its option to buy the Nkana smelter, Mopani would need its own acid plant for Mufulira operations, which currently uses the Nkana plant.

RAMCOZ insists it has Managers of the troubled Roan Antelope Mining Company (RAMCOZ), said in sufficient finance August that their plans to build a 40,000-tonnes/year capacity ore treatment plant and a 100,000-tonnes/year acid plant at Muliashi North, were on track, and building would start soon. After this announcement, it emerged that the Export Import Bank of India would lend the Indian-based owners of RAMCOZ, Binani, US$57m for the project. Copper specialists believe the project looks promising, but because of poor industrial relations, among other problems, some doubt whether it can succeed under RAMCOZ management.

Kafue Gorge and Itezhi- The government has short-listed two of the four international consortia that Tezhi power stations submitted bids for the construction of two power stations costing a total of US$700m. The Office for Promoting Power Investment at the Ministry of Energy, announced on October 9th that a new plant in the lower Kafue Gorge would cost US$600m and a second station at Itezhi-Tezhi would cost US$105m, including US$35m for the construction of a transmission line. They

are build-own-operate projects, which will give the new owners full management rights for 30 years, after which, they are expected to be handed to the government. The new lower Kafue Gorge project will produce 600 megawatts of electricity and construction will take four years. Itezhi-Tezhi will produce 120 mw and will take two years to build.

Mining and energy briefs

The US government is financing a US$300,000 feasibility study for an infrastructure link between Nchanga and Kansanshi. Kansanshi mine is owned by Phelps Dodge, which acquired it when it took over Cyprus Amax (May 2000, page 21).

The Export-Import Bank of China has lent China Non-Ferrous Metal Company US$57m to develop the Chambishi mine, with which the company has done little since it bought it in June 1998.

The Indeni oil refinery, which closed after being badly damaged by fire in 1999, has still not reopened despite assurances from its management that it would do so by September 30th.

Agriculture

Zambia: cereal production (‘000 tonnes) 1998/99 1999/2000 % change Maize 936 1,130 20.7 Wheat 90 60 –33.3 Source: Zambia National Farmers’ Union.

Farmers suffer despite a Farmers say that this year is one of the worst, if not the worst, they can good harvest remember, despite the fact that the maize harvest is up nearly 21% on the 1999 level. Southern Africa as a whole has a maize surplus this year, and prices everywhere are low, with Zambia no exception. In Lusaka, a 50-kg bag retails currently at around ZK6,000-8,000 (US$1.70-2.28). Yet the costs of production are high, particularly because of the weak kwacha and high fuel prices, and in most cases, factory gate prices for maize have not covered these costs. However, emergent farmers are forced by cash shortages to offload their maize, and in many cases are also obliged to hand over a portion their crop to Omnia, which has been appointed by the Food Reserve Agency (FRA) to collect maize on its behalf in payment of farmers’ fertiliser debts. The FRA says it has no funds to buy maize from emergent farmers in order to save them from further financial hardship, and the government has shown no signs of providing any, despite strident calls to do so by Ben Kapita of the Zambia Alliance for Progress (ZAP). Mr Kapita was previously president of the Zambia National Farmers’ Union (ZNFU), and was then generally opposed to government intervention.

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Commercial farmers also Commercial farmers have been better able to store their maize crop, waiting for struggle prices to rise, but even they have struggled. In previous years international commodity trading firms, like Glencore and Louis Dreyfus, have entered the market at this stage, making purchases up to US$10m, thus injecting some much needed liquidity into the sector, and pushing up prices. This year, however, the traders have stayed out, judging it insufficiently profitable.

Wheat production has fallen this year, and is sufficient for only half of local consumption needs. The ZNFU has blamed high production costs and cheap imports, yet with Zimbabwean production disrupted (because of the ongoing political and economic instability) and parts of Southern Africa facing a cereals deficit, prices are climbing steadily, resulting in respectable returns for local farmers with a good crop.

Commercial and manufacturing briefs

Following the announcement in August by the Zambia Competition Commission that Zambia’s two private cellphone providers, Telecel and Zamcell were under investigation for price fixing, cellphone call rates have fallen—according to the two companies, because of the encouraging growth rate in their customer base.

Financing has still not been secured for the hugely indebted Kafue Textiles (KTZ), once intended by the government to be a lynchpin of the Zambian textiles industry. KTZ’s management says it has orders from Europe on hold because it lacks the funds to purchase the necessary raw materials, but the government has given assurances that it is still working on plans to pay off KTZ’s debts and recapitalise the company.

Foreign trade and payments

Zambia braces itself for The Community of East and Southern African States (Comesa) free-trade Comesa free-trade agreement will come into effect on October 31st when the participating countries sign the agreement in Lusaka. The business community in Zambia, and throughout the region, have been apprehensive about the impact of the agreement (1st quarter 2000, page 23). Tanzania has decided to pull out of it, while Swaziland and Namibia will not enter into full compliance immediately. Some influential Zambian businessmen, such as the chief executive of Lever Brothers Zambia, Rory Simpson, say they support the agreement but are calling for zero duties on inputs to improve their prospects of competing regionally. Zambia’s revenue losses as a result of the agreement are calculated by Comesa to be around 2% overall of total duty revenue, and the Zambian government has already tendered a compensation application to the EU, in line with a recent agreement.

SADC-SACU free-trade At the beginning of September, after almost three years of talks and following agreement initiated the Southern African Development Community (SADC) summit held in Windhoek in August, the joint free-trade agreement of SADC and the Southern Africa Customs Union (SACU; 4th quarter 1999, page 19) was launched. The

agreement covers all SADC’s 14 members––except for the Seychelles, the Democratic Republic of Congo and Angola. Progress in liberalising trade will be slow as it is now up to the parliament of each member state to pass the legislation required to lower tariff and trade taxes over the next eight years. If all the states manage to keep to the broadly agreed schedule, and that is far from certain, then 85% of trade within the region will be conducted with zero levels of duties and tariffs by 2008. Full liberalisation of trade is scheduled for 2012. It is estimated that intra-SADC trade is expected to rise to 35% of total trade from the current 25% by the time the agreement has been half executed.

SADC’s broad liberalisation strategy

Category “A” goods: About 47% of traded goods within the region will be classified as category “A”. The duty on these goods will be reduced to zero as soon as they have been gazetted with individual parliaments.

Category “B“ goods: These will have their tariff levels gradually reduced over an eight-year period. In some countries the reduction will begin in 2001, whereas in others it will be delayed; all should start by 2004. Once this phase is completed by 2008, 85% of goods traded within the region will be exempt from tariffs or trade taxes.

Category ”C” goods: These are the most sensitive goods and tariffs will not be reduced until 2012.

Sugar: Trade in sugar has been classified as sensitive and is subject to a special agreement. Initially all SADC producers will have access to the Southern African Customs Union (SACU) market based on their share of the total world market. Their share of the SACU market will then be gradually increased up to 2012, when the total liberalisation of the SADC market is expected to take place.

These proposals will have little impact on the SACU states (Botswana, Lesotho, Namibia South Africa and Swaziland), where trade has been carried out on sim- ilar terms for decades. In contrast, it will be much harder for countries such as Zambia to implement where trade barriers have been in place for many years.

Non-traditional exports fall The value of Zambia’s non-traditional exports declined by 12.9% to US$57.1m in value in the first quarter of 2000, compared with US$65.6m in the corresponding quarter in 1999. The main fall was in cotton lint exports, as producers stockpiled cotton in anticipation of higher buyer prices. After significant year- on-year increases since the mid-1990s, the value of floricultural exports was US$12.4m, some US$900,000 lower in the first quarter of 2000 than in the first quarter of 1999; however, in the same quarter, horticultural exports increased by US$8000,000 to US$4.2m. Latest figures reveal that South Africa has replaced the UK as the main importer of Zambian non-traditional exports.

Zambia rejects World Bank Zambia has rejected the offer of a World Bank loan to fund the fight against anti-AIDS loan HIV/AIDS. The loan was to have been Zambia’s share of a total of nearly US$4bn which is being offered to several Southern African states. The health minister, David Mpamba, said the reason for the rejection was the World

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 Zambia 25

Bank’s precondition that the money be directed at AIDS research and consultancy, whereas Zambia wants to target its efforts at acquiring cheap drugs to combat AIDS. An estimated 20% of Zambia’s adult population is infected with HIV. Mr Mpamba also added that Zambia was not in a position to take on new external loans when it cannot service existing debt commitments.

EIU Country Report October 2000 © The Economist Intelligence Unit Limited 2000 26 Democratic Republic of Congo

Democratic Republic of Congo

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 nominally 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 President Kabila created a new parliament, the Assemblée constituante et législative— Parlement de transition, in August 2000, packed with his own hand-picked appointees.

National elections July 1984 (presidential) and September 1987 (legislative). Presidential and legislative elections were due in April 1999 but were postponed indefinitely. Government plans to hold new elections have been made and withdrawn at short notice

Head of state The president, Laurent Kabila

National government The president is head of government. There is no prime minister. The government was last reshuffled in September 2000. Abrupt sackings and reinstatements to cabinet are common

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 (CPPs), his new power base. Rebels opposed to Mr Kabila have formed the Rassemblement congolais pour la démocratie (RCD), which in effect 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 & minister of defence Laurent Kabila

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

Civil service, public works & social security Célestin Iwangui Other key ministers Economy & industry Grégoire Bakandeja Education Kamara Wa Kaikara Energy Babi Mbayi Environment; Anatole Bishikwabo Mines Vacant Finance Mawampanga Mwana Nanga Health Mashako Mamba Human rights Léonard She Okitundu Information & tourism Dominique Sakombi Inongo Justice Mwenze Kongolo Public finance Likulia Bilongo Reconstruction Denis Kalume Numbi Youth & sports Didier Mumengi

Central Bank governor Jean-Claude Masangu

Economic structure

Annual indicators

1996 1997 1998a 1999a 2000b GDP at market prices (FC bn)c 306,637 792,154 18.9 70.0 380.0 Real GDP growth (%) 0.9a –6.4 –3.5d –14.5 –15.0 Consumer price inflation (av; %) 659 176 147d 333d 540 Population (m) 45.2a 46.6a 48.2 49.4b 50.6 Exports fobd (US$ m) 1,469 1,290 1,189 1,167 960 Imports cifd (US$ m) 1,356 994 975 771 660 Current-account balance (US$ m) –521a –658a –583 n/a n/a Reserves excl gold (US$ m) 83 n/a n/a n/a n/a Total external debt (US$ m) 12,826 12,330 12,929d n/a n/a External debt-service ratio, paid (%) 2.7 0.9 1.2d n/a n/a Copper production (‘000 tonnes) 40.2 37.7 38.2d 31.2 33.0 Cobalt production (‘000 tonnes) 6.0 3.0 3.9d 2.3 3.1 Diamond production (m carats) 22.2 22.0 26.0d 20.1 18.0 Exchange rate (av official; FC:US$)c 52,400 145,988a 2.0 4.1 16.5

October 13th 2000 FC23.5:US$1 (fixed official rate); FC93:US$1 (parallel rate)

Origins of gross domestic product 1997 % of total Components of gross domestic product 1995 % of total Agriculture 57.9 Private consumption 81.0 Industry 16.9 Public consumption 4.9 Services 25.2 Gross investment 9.4 GDP at factor cost 100.0 Exports of goods & services 28.2 Imports of goods & services –23.5 GDP at market prices 100.0

Principal exports 1999 fobe US$ m Principal imports 1999 fobe US$ m Diamonds 520 Consumer goods 263 Copper & cobalt (Gécamines) 60 Capital goods 110 Petroleum 99 Raw materials 115 Coffee 91

Main destinations of exports 1999 fobf % of total Main origins of imports 1999 fobf % of total Belgium 62.0 South Africa 28.4 US 18.5 Belgium 13.5 Finland 4.2 Nigeria 8.9 Italy 4.0 Kenya 6.6 a Official estimates. b EIU estimates. c 1997-98 in NZ; the franc congolais (FC) replaced the nouveau zaïre (NZ) on June 30th 1998 at the rate of NZ100,000:FC1. d Actual. e Banque Centrale du Congo. f IMF, Direction of Trade Statistics; based on partners’ trade returns, may include exports from rebel-held areas; differs from local trade figures.

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Wholesale prices Coffee, US (US cents/lb) 79.8 81.2 77.4 67.7 62.2 63.3 50.1 44.7 Copper, LME, (US cents/lb) 74.4 70.1 63.9 6.5 76.1 78.9 81.5 78.9 Official exchange rate FC:US$ (end-period) 2.2 3.6 ( 4.1a ) 9 . 0 9 . 0 Sectoral trends Mining production (annual totals) Copper in concentrates ( ‘ 0 0 0 t o n n e s ) ( 3 8 . 2 ) ( 3 1 . 2 ) ( 3 3 . 0 b ) Zinc (‘000 tonnes) ( 1.2 ) ( 1.2 ) ( n/a ) D i a m o n d s ( m c a r a t s ) ( 2 6 . 0 ) ( 2 0 . 1 ) ( 1 8 . 0 b ) Coffee production (annual totals; ‘000 tonnes) ( 57.4 ) ( 45.6c ) ( n / a ) Foreign tradec (US$ m) Exports fob 272.0 274.2 252.6 266.3 308.4 307.1 284.5 n/a Imports cif –183.7 –181.3 –169.9 –152.4 –177.0 –159.9 –180.1 n/a Trade balance 88.3 92.9 82.7 113.9 131.4 147.2 104.4 n/a a EIU estimate for 1999 average. b Estimate. c DOTS estimate. Sources: World Bureau of Metal Statistics, World Metal Statistics; FAO; IMF, International Financial Statistics; Direction of Trade Statistics; FT.

Outlook for 2001-02

Political outlook

Domestic politics Efforts to move the peace process along will focus on the government of President Laurent Kabila, whose refusal to compromise on key issues remains, at least for the moment, the main obstacle to peace and the deployment of a United Nations military observer mission (see The political scene). The international community will try to persuade him to accept the designated facilitator for a planned dialogue between the government and its armed and unarmed opposition, and to meet the necessary conditions for a UN deployment throughout the country. Concerted pressure will come from Mr Kabila’s own allies, Zimbabwe, Angola and Namibia, without whose military support his own poorly trained army would quickly face annihilation. It is unlikely that Mr Kabila will bow to the pressure. He will probably maintain his position that the peace process can go no further until the Lusaka peace accord is revised to include a specific condemnation of Uganda and Rwanda as aggressors. Whether Mr Kabila believes that his allies will stick by his side at all costs, or whether he is willing to forgo their support and risk the consequences, is unclear. However there is growing speculation that he is quietly preparing for a secessionist move to his native Katanga province should rebels capture Kinshasa. Mr Kabila’s obstruction of the peace process is motivated by the realisation that he stands to lose far more from peace than he stands to gain; if he goes along with the Lusaka peace process, he will eventually have to submit himself to a political transition culminating in national elections. Although co- operating with the peace process could give him a small electoral boost, Mr Kabila is so distrusted in government-controlled areas, where the population holds him responsible for their miserable economic and social conditions, that it is unlikely that he would ever win an election. Mr Kabila will maintain his position that the only way to resolve the current crisis is through a quadripartite summit with Uganda, Rwanda and Burundi.

At the same time as it is frustrating the national dialogue, the government will continue parallel, and largely disingenuous, efforts at national reconciliation. It is virtually impossible that the 20-member board, created by the new parliament (Assemblée constituante et législative-Parlement de transition) in September and charged with setting up a national dialogue, will actually make any progress in engaging either its armed or unarmed opposition, both of which have already rejected the new parliament as an illegitimate body.

Meanwhile, the main rebel faction, Rassemblement pour la démocratie (RCD) based in Goma, will continue to face serious leadership problems and the position of its current president, Emile Ilunga, is becoming increasingly insecure. The Rwandan government, which is regarded as pulling the strings in the RCD and using it as a proxy for its political interests in the Democratic Republic of Congo (DRC), is increasingly exasperated by the inability of the movement to win popular support or maintain a cohesive front. Nonetheless, the Rwandan government still views it as an asset and one which will represent its interests at, and influence the outcome of, an eventual national dialogue.

International relations The UN military observer mission, which has extended its mandate in Congo to December 15th, will continue to look to all sides for signs of commitment to the peace process. Attention will focus on Mr Kabila and his government, with whom the relationship will remain tense, as it is unlikely that the government will meet the conditions for Monuc’s deployment—complete freedom of movement for UN personnel as well as security guarantees—in the next three months. For the moment the government has too much to hide and, fundamentally it would rather see Monuc go home. Nonetheless, it will string the UN along, knowing that it cannot be seen to be completely responsible for the failure of the mission, and hope that the UN commits an error of its own that it can use as a pretext to delay progress or demand a withdrawal. Although the UN will probably scale down its mission in Congo if the situation does not improve by December 15th, it will nonetheless maintain a presence in the country. Although the Congolese government is currently the most obvious obstacle to a UN deployment, it remains to be seen whether the other parties— in particular the Mouvement pour la libération du Congo (MLC) which is making significant headway along the military front in Equateur province— would also be willing to accept a UN deployment.

Mr Kabila’s allies are increasingly frustrated with his unwillingness to go along with the peace process and his apparent disregard for their wishes. The key player remains Zimbabwe, whose troops provide 90% of Mr Kabila’s outside military support. Engagement in Congo is extremely costly for Zimbabwe, and domestic pressure on its president, Robert Mugabe, will grow as the country’s economy sinks further and foreign aid is withheld. Nonetheless, Mr Mugabe appears committed to remaining in Congo in order to “outlast” his adversaries and project power as a key regional state regardless of the consequences. His personal and ideological affinity with Mr Kabila––they appear to share a quixotic anti-Western, pan-African nationalism––also continues to play a role. However, Mr Mugabe is under intense pressure from his own party to designate a successor and step down before the next presidential election in 2002 and this favours efforts in the short term to resolve the current stalemate. It is even possible that Zimbabwe will cede some territory to the rebels in an attempt to increase its influence over Mr Kabila.

Meanwhile, the Angolan government’s position in the alliance may become less certain. Angolan entered the war primarily for security reasons––although economic ones have also become important––in order to deny sanctuary to its domestic opponents, the União Nacional para a Independência Total de Angola (UNITA) rebels. Recently it has made contact with the intelligence services of Uganda and Rwanda both of which have attempted to reassure Angola that they will not provide support to UNITA and will respect its security interests. Relations between Mr Kabila and his Angolan counterpart, José Eduardo dos Santos, are poor and the latter has not hid his evident frustration with the Congolese leader’s back-sliding on previous agreements.

Late note At a meeting of the heads of state of the countries involved in the Congo conflict held in the Mozambican capital, Maputo, on October 16th, Mr Kabila agreed together with his allies to the deployment of UN troops. Although hailed as a breakthrough, the measure may have little practical effect, as

deployment by Monuc is meant to be accompanied by compliance with the other conditions of the Lusaka accord, namely the holding of the national dialogue. The summit in Maputo has been taken as an indication of desperation on the part of Mr Kabila and his allies who hope to restart the peace process and halt the advance of the MLC. Angola’s president José Eduardo dos Santos did not attend or send a representative (see below).

Economic policy outlook

Policy trends There is little prospect of improvement in the economy as long as the government allows the Israeli company IDI-Diamonds to hold the export monopoly on diamonds which it was granted in August. Whether it will do so in spite of growing evidence that this is having a devastating effect on the economy is unclear, although on past experience, there is little reason to believe that the government will suddenly come to its senses. It is also highly unlikely that the government will do anything about the overvalued exchange rate, ease restrictions on foreign-currency transactions or curb uncontrolled monetary growth, although there are rumours that a devaluation of the official rate of the franc congolais—currently nearly 400% overvalued—may be in the offing.

Economic forecast

Barring a drastic change in economic policy, the economic situation is forecast to deteriorate rapidly as a result of the chronic shortage of foreign exchange caused by disarray in the diamond sector. Importers who do not have access to foreign exchange are expected to curtail their orders and shortages of basic goods are expected to hit shortly before Christmas. Unless there is a sudden end to the war, the economy will continue to contract over the 2001-02 forecast period in spite of steady increases in copper and cobalt output by Générale des carrières et des mines (Gécamines), the state mining company. The population’s weakened purchasing power will force more and more businesses to close, exacerbating the already dire unemployment situation, further impoverishing the population. Meanwhile, the parallel rate for the Congolese franc will continue to depreciate owing to the worsening foreign- exchange shortage. Exports are expected to continue their downward trend; imports will also contract.

The political scene

The transitional In mid-August after repeated delays, the new parliament, Assemblée parliament is inaugurated constituante et législative-Parlement de transition, hand-picked by the government, was inaugurated in Lubumbashi—some 1,600 km from Kinshasa. In an extraordinary session held one week before its inauguration, the 300-member body passed its first resolution, which calls for the revision of the Lusaka peace accord, reiterates the government’s rejection of the designated facilitator for the national dialogue (see below) and expresses support for President Laurent

Kabila’s government. Parliamentarians, the majority of whom were surprised to find that Lubumbashi is the official seat of the parliament and that they would be required to spend lengthy periods away from the capital, returned to Kinshasa shortly after the inauguration. Since then they have held several sessions. In late September two former members of the Rassemblement pour la démocratie (RCD) rebel faction entered parliament as honorary members, prompting criticisms from several parliamentarians who (correctly) noted that their inclusion was a violation of the body’s founding texts, which prohibit the inclusion of anyone ever associated with a rebel faction.

But it is not taken seriously Few people either in Kinshasa or Lubumbashi take the parliament seriously or expect it to represent the public interest. Votes, which are taken by a show of hands, are barely counted before being declared overwhelmingly in favour of the official position, and the bulk of the parliamentarians are either members of government ministries, high-ranking parastatal officials or part of Mr Kabila’s well-paid, and loyal, entourage. Both the opposition and the international community consider the creation of the parliament inappropriate, given the government’s agreement to participate in the national dialogue which is supposed to map out new political institutions for the country. None of the Kinshasa-based diplomats from EU countries or the United States attended the inauguration ceremony.

A minor reshuffle leaves After weeks of growing speculation, Mr Kabila reshuffled his cabinet on the government intact September 4th. Those who expected the reshuffle to bring a fresh and much- needed change in government policies, were disappointed to find that the new cabinet is almost identical to the old one. The bombastic minister of foreign affairs, Yerodia Abdoulaye Ndombasi, had been expected to be moved—even government officials concede that he is a liability to Congolese diplomacy— although Mr Kabila did not move him for fear of appearing to bow to international pressure. An warrant was issued by a Belgian judge in June for the arrest of Mr Ndombasi for incitement to racial violence over his incendiary comments against Congolese Tutsis (July 2000, page 39).

Meanwhile, two prominent figures who served under the ousted former president, Mobutu Sese Seko, joined the government in the latest reshuffle. General Likulia Bilongo—the last prime minister in the Mobutu regime— whose return to Kinshasa in 1999 was considered a triumph for the Kabila government, is to head the newly created Ministry of Public Finance. Given Mr Likulia’s military background, his posting is aimed less at improving the management of public finances than boosting Mr Kabila’s attempts to present his government as an open and diverse one. It is also not clear what the exact responsibilities of the new ministry will be vis-à-vis the existing ministries of finance and economy and industry. Another former Mobutuist, Dominique Sakombi Inongo, who was responsible for creating the personality cult surrounding the former president before becoming Mr Kabila’s communications adviser, was appointed minister of information. Didier Mumengi, was moved from the Ministry of Information to the Ministry of Youth and Sports.

New minister cracks down Mr Sakombi made an immediate impression on the Congolese media. Within on the media days of his appointment he announced that all Congolese media organisations had two weeks to regularise their files with the Ministry of Information. That is, to file all relevant documents and pay outstanding regulatory and licensing fees. One week later Mr Sakombi abruptly shortened this deadline by three days. Subsequently ten radio and television stations were banned including some of the capital’s most popular. Two of the banned radio stations and one television station were later authorised to operate again in September.

Diplomatic policy marked The past quarter has been a period of considerable confusion in Congolese by confusion diplomacy, in which Mr Kabila has openly defied international and regional opinion and made sudden policy reversals. At first declaring the Lusaka accord to be null and void, his government later made ambiguous statements acceding to UN requests and claiming that it is engaged in the peace process. In early August Mr Kabila failed to show up at a regional summit to discuss the crisis, held in the Namibian capital, Windhoek. At the meeting leaders of the countries involved in the war as well as several other African heads of state reiterated their support for the Lusaka peace process, saying it was the only way to end the war and urging Mr Kabila to authorise the deployment of UN peacekeeping troops in areas under government control. Mr Kabila did attend a meeting one week later in the Zambian capital Lusaka. However, no progress was made and he left the summit abruptly after just one day of talks, making no concessions over the UN deployment or the question of the facilitator, Quettumile Masire, whom the Congolese government rejected in June (June 2000, page 37). Mr Kabila’s allies as well as the other parties to the conflict unanimously agree that Mr Masire, the former president of Botswana, who was designated as facilitator by the Organisation of African Unity (OAU) in December last year, should be accepted by the Congolese government. Mr Kabila remains adamant in rejecting Mr Masire, alleging that he is biased and disrespectful of the government’s sovereignty.

The UN sends an envoy to As the peace process looked set to collapse entirely, the UN secretary-general rescue the peace Kofi Annan named Abubakar Abdusalami, the former president of Nigeria as his special envoy to Congo. General Abubakar travelled to Kinshasa for a short visit on August 22nd, apparently in an attempt to unblock the peace process and convince Mr Kabila to meet the conditions for a UN deployment. The main sticking point remained Mr Kabila’s insistence that UN troops should deploy only along the front lines in rebel-controlled territory, but not in government-controlled territory. Less than 24 hours after General Abubakar left the Congolese government announced that it considered the Lusaka peace accord null and void. The announcement shocked observers and, realising that it had gone a bit too far, the government has since moderated its tone, saying that the Lusaka accord is still valid, but not in its current format. According to the government, the main reason for demanding a revision of the accord is the fact that UN Resolution 1304, which was passed in June, distinguishes between aggressors and non-aggressors, whereas the Lusaka accord put all parties on the same footing. This reasoning is weak, however, as the Congolese government’s position has always been that Uganda and Rwanda are the aggressors and it is under these terms that it signed the peace accord over a year ago. The

Congolese government has since then proposed a quadripartite summit between Congo, Uganda, Rwanda and Burundi as the only way of finding a peaceful solution to the war. The proposal was immediately rejected by the other three countries.

Congo’s approval of UN Even more astonishing was the government’s second abrupt turnaround, deployment is ambiguous which came less than 24 hours after the first. On August 24th Kamel Morjane, the special representative of the UN secretary-general and head of the United Nations military observer mission in the Congo (Monuc), suddenly announced that the government had acceded to the UN’s long-standing request to deploy troops in government-controlled areas, waiving the need to seek government authorisation for Monuc flights and the requirement that Monuc aircraft returning from rebel-held areas should transit via a second country. Little has actually changed since then, as Monuc flights must still be authorised by the government and authorisations have repeatedly been refused.

But deployment remains Concerns about the government’s commitment to the peace process and its far off refusal to meet the necessary conditions for a UN deployment have continued to delay the arrival of 500 military observers and 5,000 support troops. The UN briefly planned to begin repatriating military observers stationed in Kinshasa who could not be deployed, and to scale down operations but later shelved the plan. In mid-September the UN Security Council extended Monuc’s mandate in Congo for a further three months, to December 15th.

Rwandan “flexibility” puts Following a meeting between Mr Morjane and senior Rwandan officials in the onus on Mr Kabila August, the Rwandan government announced plans to withdraw its forces 200 km from the front line according to a calendar to be worked out between the two parties. Although hailed as an important breakthrough, it is clear that Rwanda does not intend to withdraw its troops until UN military observers have arrived on the ground and it apparently believes, with ample cause, that this is a long way off. Its “concession”, therefore, succeeded in putting the ball back in the court of Mr Kabila who is again seen as the main obstacle to the UN deployment. The Congolese government immediately criticised the plan and refused to follow suit. In September Rwanda withdrew its offer.

Mr Kabila comes under Relations between Mr Kabila and his military allies, Zimbabwe, Angola and pressure from his allies Namibia have grown increasingly strained over the past three months: the presidents of all three countries have been publicly urging him to engage in the Lusaka peace process and facilitate the deployment of UN troops. In late- September Mr Kabila toured Southern Africa, meeting first the Angolan president, José Eduardo dos Santos, then Mr Mugabe and finally the Namibian president, Sam Nujoma. Less than a week later, Mr Mugabe travelled to Lubumbashi to meet Mr Kabila. Little has been said publicly about any of the meetings, but there is much speculation that Mr Kabila may have been unequivocally told to co-operate with the peace process.

Congo’s allies may be Highly publicised meetings between senior Angolan intelligence and military hedging their bets officials—including the Angolan armed forces chief of staff, João de Matos— and Ugandan officials in late September have increased speculation that

Mr Kabila’s allies may be ready to dump him. Angolan officials also held meetings in Paris at the same time with the MLC leader, Jean-Pierre Bemba. Angola’s official position is that it wanted reassurances from Mr Bemba and the Ugandan government that the Angolan rebel organisation União Nacional para a Independência Total de Angola (UNITA) is not fighting alongside them. However, there is much speculation that, in sounding out its adversaries in Congo over its security interests, Angola was signalling that it is prepared to rethink its position inside the alliance. Angola’s military presence in Congo is minimal––mostly concentrated in the far west in Bas-Congo province along its own border with Cabinda––and its forces are not represented on the frontline in Equateur province where most fighting is currently taking place (see below).

The fighting in Equateur The military situation in Equateur province has deteriorated significantly over intensifies the past quarter, with an escalation of fighting between Congolese government troops and MLC rebels and Ugandan troops. The lull that followed Mr Kabila’s announcement in August that he was halting his offensive in the province was short-lived, and the fighting has since then intensified. The MLC has made significant advances, recapturing important towns such as Dongo along the Ubangui river. Over 800 Congolese and Zimbabwean troops were reportedly

killed in an MLC ambush on two river boats in August. MLC troops are now advancing on Mbandaka, the provincial capital and the government’s military stronghold, which is located about 500 km north of Kinshasa along the Congo river. From Basankusu, a staging post for the offensive, MLC troops are reportedly moving on government positions along several road and river routes. The apparent aim is to rupture the crucial government axis which runs along the Tshuapa river and connects the government’s garrison in the western town of Ikela with Mbandaka. MLC troops are also said to be moving south- east towards the town of Boende, located on the Tshuapa river, via the connecting road from Basankusu as well as along the Maringa river, where they are approaching Befale, a town held by Mr Kabila’s Zimbabwean and Namibian allies. Meanwhile, on the western front, the MLC is edging closer to Mbandaka along the Lulonga river and the road that runs south-west of Basankusu and ends in Bolomba. The Congolese government sent an estimated 3,000 troops to Mbandaka in late August, while an equal number of Ugandan troops have been dispatched to the MLC-held town of Gemena. Although Mr Bemba has reportedly said that he is aiming to capture Mbandaka in the coming months, it is not immediately clear whether he will actively pursue his campaign.

Civilian population suffers Despite consistent denials, it is clear that the Congolese government is waging most from the offensive an aerial bombing campaign in Equateur province. In early September the government bombed MLC positions in the northern town of Libenge and, recently, the town of Gemena during celebrations of the MLC’s second anniversary of entering the war. The bombing is reported to be ineffective militarily, but has terrorised the population. Indiscipline among the poorly paid and underequipped Congolese army troops is also increasing. Government troops massacred an estimated 50 people during their retreat from the city of Dongo in August and are reported to have looted captured towns. In a recent incident along the Ubangui river, deserting troops attacked a boat belonging to the neighbouring Republic of Congo, looting it and killing one army officer, and further straining the already tense relations with a neighbour.

The rebels attempt to There have been renewed efforts at a rapprochement between the two main increase co-ordination rebel factions over the past three months. A high-level delegation of RCD officials visited Mr Bemba at the MLC’s headquarters at Gbadolite in early- September. The aim of the meeting was to discuss closer collaboration between the factions through three joint commissions—one political, one military and a “leaders’ forum”—which were created when leaders of the RCD-Goma faction, the MLC and the RCD-Mouvement pour la libération (RCD-ML) faction signed the Kabale accords in January this year. The Uganda-backed RCD-ML, which is led by Ernest Wamba dia Wamba and is based in Bunia, was not at the talks but was invited to participate in future collaboration.

Uganda and Rwanda make Relations between Uganda and Rwanda seem to have improved over the last a show of friendship quarter, having exploded into all-out war in the eastern city of Kisangani in June (July 2000, page 30). A high-level delegation of Rwandan officials which included Emmanuel Ndahiro, the special adviser on security issues to the Rwandan president, Paul Kagame, visited Kampala in late August, following up the meeting between Mr Kagame and the Ugandan president, Yoweri

Museveni, in July. In late-September Mr Museveni travelled to Rwanda for the first time in one and a half years for talks with Mr Kagame. Although distrust between the two former allies remains high, both leaders seem to understand that at least on the surface they need to be seen to be mending the rift between their two countries. They are also under pressure from international donors who are concerned that deteriorating relations between the two countries will increase instability in the already volatile region. Meanwhile, the Rwandan government welcomed the replacement in July of Brigadier James Kazini, the commander of Ugandan forces in Congo, whom it blames for the deterioration of the relationship and for the repeated outbreaks of hostilities between the two armies in Kisangani. Brigadier Kazini has been replaced by Brigadier Edward Katumba Wamal.

The situation in the Kivus The security situation in the eastern provinces of North and South Kivu deteriorates continues to deteriorate, with armed attacks by the Mai-Mai and Interahamwe militias reported to have increased and to be edging closer to the main urban areas. Poor security continues to deny the humanitarian aid agencies access to vast parts of the provinces and to the many thousands of displaced persons. The population continues to show its discontent with the presence of RCD and Rwandan troops in the region. In early August a grenade attack on a religious gathering in Bukavu, the capital of South Kivu province, killed five people and injured many others, sparking widespread protests. Equally unpopular was the RCD’s arrest of four civil society leaders in South Kivu who had been appointed to the Congolese government’s transition parliament. After being imprisoned in Kisangani for several weeks, they were released and returned to Bukavu in late-September. An RCD spokesman, Kin-Kiey Mulumba, subsequently stated that the RCD would not tolerate the presence of Mr Kabila’s political operatives in RCD-controlled territory. Meanwhile, Emmanuel Kataliko, the outspoken archbishop of Bukavu was allowed to return to Bukavu in September after being exiled to his hometown of Butembo for several months (May 2000, page 36). His sudden death of a heart attack in Rome in early October shocked the population for whom he was a beacon of hope, prompting accusations that he had been poisoned by the Rwandans as well as sparking riots in Bukavu in which at least three people were killed.

Rebels and government The human rights situation in Congo has been in the spotlight in recent criticised for rights abuses months. Roberto Garreton, the UN special rapporteur for human rights in Congo visited both government and rebel-held areas for two weeks in August. He criticised the Congolese government for human rights abuses, such as the arbitrary arrest of opposition politicians and civil society activists, as well as the continued practice of trying civilians in military tribunals. He was equally critical of the human rights record in areas under the control of the RCD, where he said the population was living in a climate of fear. His sentiments were echoed by Mary Robinson, the UN high commissioner for human rights who travelled to Congo in early October on a three-day visit. Mrs Robinson, who met Mr Kabila as well as the RCD president, Emile Ilunga, stated that the human rights situation could not improve as long as the war continued. She also said that she would urge the UN Security Council to give priority to Congo and appeal to the UN’s humanitarian agencies to provide increased assistance

to the country. Although she praised the government’s suspension of the death penalty in February, she expressed concern about torture and poor conditions in government prisons as well as about the suppression of free speech. During her visit to the RCD’s headquarters in Goma, she discussed allegations of massacres of civilians committees by RCD forces. The RCD denied the claims, blaming the massacres on “negative forces”, by which it meant the Mai-Mai and Interahamwe militia fighting alongside Congolese government troops.

Regional relations are Relations between the Congolese government and its northern neighbour, the strained landlocked Central African Republic (CAR), have deteriorated over the past three months, as disruption to traffic along the Ubangui river has caused a fuel crisis in the country. The CAR president Ange-Félix Patassé visited Kinshasa in mid-September, apparently in the hope of negotiating safe passage for supplies, which transit via Kinshasa and up the Ubangui river to CAR. Mr Kabila denied that he had ordered his troops to block supply boats and blamed the disruption on heavy fighting along the river. He accused Mr Patassé of allowing Mr Bemba to use Bangui as a supply base, an allegation denied by Mr Patassé. Mr Patassé remains caught in an awkward position; his weak regime cannot afford to alienate the MLC by denying it access to its airport and risk being further destabilised, nor can it carry on in the grip of a fuel crisis. In the hope of breaking the impasse, Mr Patassé offered to facilitate a reconciliation between Mr Bemba and Mr Kabila (who swiftly turned down the offer).

Economic policy

Government policy The government has continued its ill-conceived policy of maintaining an exacerbates crisis overvalued exchange rate for the national currency, the franc congolais, and allowing uncontrolled growth in the money supply. The negative consequences of this policy have been greatly exacerbated by the government’s recent decision to create a monopoly for all diamond sales and exports (see The domestic economy). The government maintains that this will allow it to minimise fraud and control the industry better while increasing its revenue. However, the policy change has had the opposite effect, paralysing the diamond sector and aggravating a severe foreign-exchange crisis. The diamond industry has been in turmoil since the government imposed a ban in January 1999 on the—previously widespread—use of US dollars in economic transactions and forced traders to sell in the unstable local currency.

The domestic economy

Economic trends

Economy crippled by a Inflation has continued to rise over the past quarter. According to the US foreign-exchange shortage embassy in Kinshasa, the year-on-year inflation rate nearly doubled from May to June, jumping from 84% to 151%. The increase is largely due to the

devaluation of the official exchange rate from FC9:US$1 to FC23.50:US$1 in June. By July annual average inflation had risen further, to 207%.

A severe shortage of foreign currency caused by the government’s decision to impose a sales monopoly on the diamond sector (see Mining) has paralysed much of the economy, greatly restricting imports. Diamond traders have refused to sell their wares and there has been virtually no repatriation of foreign exchange since August from the sector which normally accounts for roughly 70% of foreign-exchange earnings. The franc congolais has plummeted, losing over 400% of its value on the parallel market in the first weeks after the announcement of the diamond monopoly was made. It has since stabilised, hovering around FC90:US$1 in mid-October.

Mining

The diamond sector is On August 18th the Congolese government abruptly revoked all existing thrown into disarray diamond export licenses, and granted a monopoly on diamond exports to the Israeli-run company, IDI Diamonds. According to its contract with the government, IDI Diamonds is to make a one-off 18-month payment of US$20m for the export licence, while the government will receive 70% of the profits on sales. The controversial decision immediately threw the diamond industry into disarray; diamond traders protested against the revocation of their one-year licences—for which each trading post had paid US$100,000 at the start of the year. In subsequent memos to the president and the minister of mines, the diamond traders demanded the abrogation of the monopoly and the restitution of their licences. The monopoly has been maintained, however, and the vast majority of traders have simply refused to sell to IDI Diamonds. Faced with this boycott, the government proposed that sales be put up for tender in front of a government body in case of price disputes between a trading post and IDI Diamonds. Diamond traders have rejected the proposal as it requires them to accept the highest tender offer even if it is below their asking price, and the boycott of IDI has continued. So far the monopoly has had the effect of driving more and more of the diamond trade underground. Meanwhile, in the first two months of operations, IDI Diamonds has twice failed to find sufficient financing to buy monthly output from the state-owned diamond mining company, the Minières des Bakwanga (Miba), as well as initially undervaluing the output by half in September.

The dispute over a mega- A dispute over the ownership of a massive 267-carat diamond found in Mbuji- diamond continues Mayi, the Congolese diamond mining capital in May, (July 2000, page 41) is continuing. Alphonse Ngoy Kasanji, the Congolese diamond trader who bought the diamond in Mbuji-Mayi, as well as several of his associates, were all released from detention in July, apparently after offering to pay the government 20% of the profit from the sale of the diamond. Nonetheless the government, which seized the diamond on the grounds that it had been stolen from Miba, held on to the stone apparently because of a dispute over its real value. The seizure of the diamond caused widespread outrage among the population of Mbuji-Mayi—the majority of whom earn their income in the diamond mining sector—who saw the government’s action as theft.

Discontent in the city led to near riots, which were quashed by the Congolese security forces. In September the army prevented a protest march organised by civil society members from taking place, and four people were arrested and brought to Kinshasa. Under increasing pressure from traditional leaders and the diamond industry, President Laurent Kabila met Mr Ngoy Kasanji in early October and ordered that the diamond be returned to him. The diamond was handed over by Jean-Claude Masangu, the governor of the Banque Centrale du Congo—where the diamond had been kept—on October 5th. Mr Ngoy Kasanji, who estimates the value of the diamond at US$13.5m, is required to offer the diamond to IDI Diamonds first, although if the company does not meet his asking price, the sale will be put up for tender.

Foreign trade and payments

A debt-distressed country According to data from the World Bank’s Global Development Finance 2000, the Democratic Republic of Congo’s total stock of external debt at end-1998––the last year for which figures are available––amounted to US$12.9bn, up by 4.9% on 1997. The increase in debt is accounted for by a rise in interest arrears which account for over 90% of the total short-term debt of US$3.6bn. As in previous years, official creditors account for the bulk of this. New disbursements remain at zero reflecting Congo’s ongoing lack of any agreement with its multi-lateral and bilateral donors. With a debt to GNP ratio of 208% Congo qualifies as a debt distressed country under the World Bank’s heavily indebted poor countries debt-relief initiative. However, the government’s ongoing failure to agree or adhere to any of the rudimentary requirements for a macro- economic stabilisation programme make the prospects of it gaining access to debt relief inconceivable for the immediate future.

Democratic Republic of Congo: external debt (year-end; US$ m unless otherwise indicated) 1997 1998 % change Long-term debt 8,617 8,949 3.9 Short-term debt 3,306 3,557 7.6 of which: interest arrears on long-term debt 2,941 3,205 9.0 Total debt stock incl others 12,330 12,929 4.9 Disbursements 0 0 – Debt service, paid 13 19 – Ratios (%) Debt/GNP 232.3 208.2 Concessional debt/total debt 25.2 25.0 Source: World Bank, Global Development Finance.