COUNTRY REPORT Zambia Democratic Republic of Congo 3rd quarter 1998 The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 1369-4839 Symbols for tables n/a means not available; means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1 Contents 3 Summary Zambia 5 Political structure 6 Economic structure 7 Outlook for 1998-99 11 Review 11 The political scene 16 The economy 17 Mining and energy 19 Manufacturing and commerce 20 Transport and telecommunications 20 Agriculture 22 Health 23 Foreign trade and payments Democratic Republic of Congo 25 Political structure 26 Economic structure 27 Outlook for 1998-99 30 Review 30 The political scene 35 The economy 38 Mining 39 Quarterly indicators and trade data List of tables 9 Zambia: forecast summary (domestic) 11 Zambia: forecast summary (external) 18 Zambia: copper and cobalt production, 1998 19 Zambia: international copper prices 21 Zambia: cereals production estimates, 1997-98 31 DRC: regional distribution of ministers, government as of June 1st 1998 39 Zambia: quarterly indicators of economic activity 40 Democratic Republic of Congo: quarterly indicators of economic activity 41 Zambia: foreign trade 42 Zambia: direction of trade 42 Zambia: refined copper exports 43 Zambia: UK trade 43 Zambia: Japanese trade 44 Democratic Republic of Congo: trade with major partners EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 2 List of figures 11 Zambia: gross domestic product 11 Zambia: kwacha real exchange rates 29 DRC: gross domestic product EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 3 July 30th 1998 Summary 3rd quarter 1998 Zambia Outlook for 1998-99: Kenneth Kaundas sudden and presumably forced re- tirement from politics and the leadership of UNIP will further weaken the party. As yet, no clear successor has emerged, and factional squabbling is expected to continue, while the decision to end the boycott of forthcoming local elections indicates that UNIP supporters are aware of the partys weakened position. UNITAs recent capture of several towns along the Angolan border with Zambia has increased the likelihood that Angolan government troops will attack its bases from within Zambian territory. The finance ministers gamble that donors will bail out the debts of the mining parastatal, ZCCM, to the private sector could backfire. Donors are likely to disburse pledged funds in the next few months. However, they will wait as long as possible in the hopes of pressuring the government into completing the ZCCM privatisation process. Inflation will remain high, and the exchange rate could come under more pressure should donor funds fail to materialise. Following the collapse in negotiations for the sale of ZCCM assets and a shortfall in copper production, overall real GDP for this year is now forecast to fall by 1.9%, and rise by 2.8% in 1999. Review: Although the circumstances surrounding his release from detention are unclear, Mr Kaunda seems to have traded a continued career in politics for his freedom. Splits in UNIP have emerged since then, and the party has announced that it would contest local elections although none of its precond- itions for doing so have been met by the government. A cabinet reshuffle has led to changes in the key portfolios. Donors have pledged $530m in project and balance-of-payments support in May, but funds have not yet been dis- bursed. The National Christian Coalition has announced its intention to form a political party. Angola has continued to accuse the government of allowing UNITA to operate from within its territory. Foreign-exchange levels remain low, and the exchange rate has depreciated considerably in May-June in part because of the strong depreciation of the South African rand. The Bank of Zambia has raised interest rates and the stock exchange suffered a severe blow. ZCCMs creditors in the energy sector have appealed to the government to pay ZCCMs debts, and talks between ZCCM and Copperbelt Energy Consortium over the sale of the Nkana and Nchanga mines have collapsed. Copper prod- uction figures for the first quarter of 1998 indicate a sharp drop in output. Zambias agricultural sector has been hit hard by El Niño and faces a cereals deficit for this year. Democratic Republic Outlook for 1998-99: Although the release of an opposition leader, Etienne of Congo Tshisekedi, from internal exile and the resumption of arrears payments to the IMF are signs that the Kabila government is beginning to feel less immune to domestic and international pressures, the ruling AFDLs repressive measures will continue. The governments heightened sense of paranoia with regard to its hold on power will prohibit progress towards democratisation and continue to strain its relations with the international donors. Relations with Rwanda and Uganda will continue to deteriorate as long as the government fails to put an EIU Country Report 3rd quarter 1998 © The Economist Intelligence Unit Limited 1998 4 end to escalating violence in the east, and the recent removal of several Tutsis from high-level positions will not send Rwanda encouraging signals. Economic policymaking remains fragmented and incoherent, and economic growth is expected to remain depressed. It remains unclear whether the resumption of minimal arrears payments to the IMF will be sufficient to clear the way for donor funds. The launch of the new currency will be a crucial test of the governments commitment to economic stabilisation. Review: Mr Tshisekedi was released from detention in early July, but a num- ber of his supporters were arrested shortly thereafter, and several officials re- main in detention. The government has made some moves towards tackling corruption by targeting ministers. Mr Kabila has appointed a new government, which includes more ministers with ties to his home province, Katanga. Those who worked with the Mobutu government have been excluded from the eligi- bility for membership in the Constituent Assembly. A number of Mr Kabilas opponents have been organising abroad. A more severe threat to his power is growing in the eastern part of the country where violence is escalating. The UN has released its report on alleged massacres of Hutu refugees during the 1996-97 war, and has implicated the AFDL. The government has denounced the find- ings of the report. Uganda and Rwanda have turned down Mr Kabilas invita- tion to attend a regional security summit in mid-May. Copper and cobalt production in 1997 was lower than expected, and the mining sector has failed to attract significant investment. The government has made its first arrears payment on its debt, and launched the new currency. Late note: At the time of this report going to print, Banyamulenge soldiers of the Forces armées congolaises, allied with other loose groupings of soldiers, had staged an uprising in the eastern part of the country which quickly gathered momentum. A western front opened days later and rebels were closing in on the capital, Kinshasa, in late August. Editor: Stephanie Wolters All queries: Tel: (44.171) 830 1007 Fax: (44.171)