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Viewing cable 06KINSHASA818, ECONOMICS ALONG THE UGANDAN BORDER: THE GRAND NORD

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Reference ID Created Released Classification Origin
06KINSHASA818 2006-05-23 15:47 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kinshasa
VZCZCXRO4567
RR RUEHDU RUEHGI RUEHJO RUEHMR
DE RUEHKI #0818/01 1431547
ZNR UUUUU ZZH
R 231547Z MAY 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 3935
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
UNCLAS SECTION 01 OF 04 KINSHASA 000818 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ELTN ECON EAGR CG
SUBJECT: ECONOMICS ALONG THE UGANDAN BORDER: THE GRAND NORD 
 
REF: A. KINSHASA 793 
 
     B. 05 KINSHASA 944 
 
1. (SBU) Summary. EconOff and PolOff visited Beni, Butembo 
and Kasindi in North Kivu province May 4-6.  A strong Ugandan 
economic influence exists in the region, supported by both 
legal and illegal cross-border trade. Weak national and 
provincial-level government influence in the region further 
contributes to this phenomenon.  In addition to the 
preponderance of Ugandan products in local markets, Asian 
goods have found their way into this region.  While a 
national highway rehabilitation project should bring eventual 
economic development, the Nande ethnic community, which has a 
strong business network, has the capacity to drive growth in 
the nearer term. End summary. 
 
UGANDAN INFLUENCE 
----------------- 
 
2. (U) Ugandan influence is pervasive in the Beni-Butembo 
region, particularly as a result of the extensive legal and 
illegal cross-border trade that is active all along the 
Congolese-Ugandan border. Tangible evidence of this sway is 
the extensive use of the Ugandan shilling; within a zone 
about 20 miles from the Ugandan border, the shilling is used 
almost exclusively by local merchants, due largely to Ugandan 
importers' insistence on payment in shillings. For example, 
DRC customs officials at the border town of Kasindi told 
EconOff that they collect most of the taxes in shillings. 
Furthermore, only a relatively small sum of Congolese francs 
flow into the economy from Kinshasa via tax retrocessions and 
public servants' salaries. (Note: The U.S. dollar is also 
widely accepted. End note.) 
 
3. (U) The lack of state-provided social services, 
particularly medical care, also drives Congolese towards 
Uganda. Emboffs observed fairly free pedestrian movement 
across the border. While some appeared to be traders, many 
carried no goods with them and were likely crossing on 
personal business, such as visiting family. 
 
4. (U) Although neighboring countries are frequently natural 
trading partners, several factors elevate Uganda's role in 
the regional economy, including ethnic and familial 
cross-border ties, the DRC's degraded road system, an 
underdeveloped manufacturing base, poorly paid military and 
civil servants, and the consequent weak border control.  As 
in much of the DRC, both primary and secondary roads are in 
disrepair, making the transport of agricultural products and 
consumer goods difficult, costly, and time-consuming. 
Conversely, Uganda has a relatively well-maintained road 
system, facilitating transport of goods from Kenya and Uganda 
to DRC's border. For example, the Ugandan road leading to 
Kasindi had been repaved the week before Emboffs' visit. 
Hence, the Grand Nord region imports from Uganda most of the 
consumer goods and packaged food products it uses. 
Conversely, the region exports relatively little (at least 
legally), despite an abundance of natural resources and three 
growing seasons per year. Uganda even has a bus line that 
ferries passengers to Entebbe and Kampala from the Congolese 
border town of Kasindi, and many Congolese use it to conduct 
trade and visit friends and family. 
 
5. (U) While government officials and business persons are 
quite open about the extensive trade with Uganda, it is 
difficult to determine how much of it is illegal. Persons in 
the private and public sector told EconOff that illegal trade 
has decreased since the national government regained nominal 
control over the region, but evidence indicates that it still 
continues.  For example, despite reports from business 
persons, civil servants and NGO staff that trade with Uganda 
is extensive, the traffic at the main regional customs post 
is not heavy, indicating that trade also occurs at numerous 
unofficial points along the porous border.  According to 
Kasindi customs officials, only about ten to twenty trucks 
pass daily through Kasindi, the main official customs post. 
Emboffs' observations during the two-hour drive from Beni to 
Kasindi, along the only route between the two towns, support 
this statement. 
 
6. (SBU) The illegal export of wood and coffee is openly 
discussed, although no one Emboffs talked to would admit to 
knowing anyone directly involved in this trade. A World 
Wildlife Fund (WWF) program manager told EconOff that he 
estimates about 85 percent of the wood exported from the DRC 
to Uganda is done so illegally, and he concurred with 
 
KINSHASA 00000818  002 OF 004 
 
 
Emboffs' information that the FARDC is involved in this trade 
at Kasindi and unofficial border crossings. The director of 
Beni's OCC (the DRC's standards control agency) said the 
illegal export of wood is a "serious problem." He said that 
elements of the military are involved in the illegal trade 
because salaries are too low and irregularly paid, and hence 
some soldiers seek other income sources. The local Congolese 
Central Bank (BCC) representative (who is also the Beni 
branch manager of the Commercial Bank of the Congo) estimated 
that at least 40 cubic meters of wood per day exits the DRC 
illegally.  Although customs officials in Beni, Butembo and 
Kasindi claimed that this illegal trade has decreased, all 
directly or indirectly admitted that the FARDC plays a role 
in illegal wood export by pressuring customs officials to let 
trucks pass through without inspection of the contents. 
 
7. (U) Coffee is also exported legally and illegally, both 
overland and via Lake Edward, according to EconOff's contacts 
in the region. However, disease has devastated the Arabica 
coffee crops in the last few years, substantially reducing 
the production. Reliable production figures are not 
available.  The president of the Chamber of Commerce in 
Butembo told EconOff that neither the National Coffee Office 
nor any other government body has helped coffee farmers 
combat the disease. 
 
8. (SBU) Artisanal gold, diamond and coltan mining occurs in 
the region, and evidence indicates that little if any of 
these precious minerals exit the country through official 
channels.  For example, the Beni OCC representative said that 
his office has never used the spectrophotometer it purchased 
to test precious minerals, because none have passed through 
the OCC.  He estimated that about five to ten kilograms of 
gold per month enters Uganda from the DRC, much of it in 
small bags or even pockets.  The BCC representative said that 
Ugandan customs officials facilitate this trade by not 
requiring certificates of origin. 
 
THE GRAY MARKET? 
---------------- 
 
9. (SBU) What is less clear is the extent to which 
quasi-legal trading occurs; that is, the extent to which 
traders pass through official customs points but pay bribes 
to have customs and other export-import taxes and fees 
reduced or eliminated. Certainly conditions are ripe for 
customs fraud, because the GDRC is not removing many of the 
officials engaged in the fraud, and is receiving little or no 
official salary, and traders face a multiplicity of export 
fees. The GDRC has not yet replaced all of the revenue 
collectors who have held their posts since before 
reunification and who have often participated voluntarily or 
under duress in customs fraud.  Most such officials are from 
the region and therefore have close ties to their community, 
giving them further opportunity and incentive to develop and 
participate in customs fraud schemes. 
 
10. (SBU) Low salaries also foster participation in customs 
fraud.  The OCC office director in Beni claimed that the 
agency's employees receive salaries ranging on average from 
USD 150 to 500 per month, which is higher than most 
government staff earn but still low enough to create 
temptation. The OFIDA official in Kasindi said he receives no 
salary, only "primes" (bonuses) and declined to tell Emboffs 
his employees' bonus range. (Comment: The OFIDA official's 
refusal to reveal income gives credence to the widespread 
belief that customs officials take a portion of proceeds. End 
comment.)  Further, traders must deal with at least four 
government services collecting taxes at the border: OFIDA 
(customs agency), OCC, OGEFREM (the DRC's freight agency); 
and DGRAD (the administrative fees' collection agency). 
 
11. (SBU) Tax collection officials in the region told EconOff 
that tax revenues have increased since June 2003. For 
example, an OFIDA official in Butembo told EconOff that 
regional revenues increased from USD 250,000 to USD 900,000 
from 2004 to 2005.  (Comment: The actual revenue collected is 
undoubtedly higher. End comment.)  He added that only about 
USD 30,000 comes from exports from the DRC. Further, revenue 
collectors said to EconOff that official revenue increases 
are relative, because militia controlled the cross-border 
trade pre-unification, and hence official tax revenues 
essentially did not exist.  Revenue officials at Kasindi 
agree that significant export revenues escape official 
channels; they told Emboffs that, while they have border 
agents dispersed throughout the region to monitor trade on 
 
KINSHASA 00000818  003 OF 004 
 
 
the frontier, they cannot control activity in the DRC's 
Virunga National Park, which also borders Uganda. 
 
ASIAN INFLUENCE TOO? 
-------------------- 
 
12. (U) In addition to imports from Kenya and Uganda, 
business persons have developed strong trading relationships 
with Asian partners, including Dubai, Indonesia and China, 
importing significant quantities of consumer goods, vehicles 
and equipment from these countries. The president of the 
Chamber of Commerce in Butembo told EconOff that he travels 
regularly to Dubai, Indonesia and other Asian countries to 
purchase goods for import into the DRC.  Nearly all the cars 
in the area are right-hand drive, and Chinese consumer 
products such as soap were found in the hotels in which 
Emboffs stayed. However, Emboffs saw no evidence that Chinese 
or other Asians have a significant physical presence in the 
region. 
 
A ROAD TO SOMEWHERE 
------------------- 
 
13. (U)  Government officials and business persons are 
optimistic that the completion of the 255-mile World 
Bank-funded highway from Beni to Nyanya, Orientale province, 
will facilitate domestic trade (reftel B) and reduce reliance 
on imports from Uganda and other countries.  Another road - 
albeit not a very good one - links Nyanya to the Congo River 
town of Kisangani, several hundred miles upriver from 
Kinshasa.  Traders told EconOff that opening this trade route 
will give them better access to goods either brought into or 
produced in Kinshasa, and will create new markets for the 
region's products. Some business persons told EconOff that 
they look forward in particular to importing American goods 
via Kisangani. 
 
14. (U) Cheaper, more efficient exchange of goods and food 
products via a western trade route is probably not a 
short-term reality, however.  First, rehabilitation of 
secondary roads is also necessary for the transport of 
regional products. Further, even if the overland route to 
Kisangani is well-maintained and can accommodate container 
trucks, the fluvial transport sector is far from ready to 
meet expanded demands on it. Unlike during the colonial era, 
few large commercial barges and boats ply the Congo. 
 
15. (U) Nevertheless, if stability increases, conditions will 
be promising for further economic revival because of the 
abundance of natural resources, some industrial experience, 
ready access to a large Eastern market and the initiative, 
self-sufficiency and business acumen of the Nande -- the 
dominant ethnic group of North Kivu's Grand Nord. The Nande, 
who are already relatively prosperous, are particularly 
poised to avail themselves of improving economic conditions. 
Even in Beni, seemingly the less prosperous of the two main 
towns in the area, there are three factories in operation - 
coffee and papaya processing plants and a wood treatment 
factory.  (Note: Vice President Jean-Pierre Bemba's family 
owns the wood treatment factory. End note.) 
 
16. (U) Butembo is far more vibrant than Beni and, according 
to the president of the Chamber of Commerce (FEC), has no 
provincial or national support.  The business community has 
funded the construction of the airport, a small hydroelectric 
plant and local schools, and is in the process of building a 
new town hall and FEC headquarters.  In addition to the 
coffee factory EconOff saw - which has over 100 employees, 
mainly women - the FEC president told EconOff that tea 
processing and soft drink bottling factories exist. The FEC 
president also expressed interest in developing the fishing 
and tourism industries on Lake Edward. 
 
COMMENT 
------- 
 
17. (SBU) Along the Grand Nord's border with Uganda are both 
positive and negative examples of economic activity. The 
Nande, particularly in Butembo, show how a community can 
thrive in spite of, or perhaps even because of, the absence 
of national government presence.  Even the often criticized 
Ugandan economic influence is not an entirely negative 
phenomenon, especially to the extent that it makes more goods 
and services available. However, what must be firmly 
addressed is Uganda's role in supporting illegal trade, 
particularly of gold. To do so, the GDRC must continue to 
 
KINSHASA 00000818  004 OF 004 
 
 
install national control, replace entrenched customs 
officials with a larger cadre from another region and ensure 
that replacements  - along with the military - are better 
paid.  The GDRC and the international community must also 
continue to pressure the GOU to install import controls on 
its side of the border. 
MEECE