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Viewing cable 06KINSHASA1474, ECONOMIC IMPACT OF THE AUGUST VIOLENCE

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Reference ID Created Released Classification Origin
06KINSHASA1474 2006-09-20 16:48 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kinshasa
VZCZCXYZ0035
RR RUEHWEB

DE RUEHKI #1474/01 2631648
ZNR UUUUU ZZH
R 201648Z SEP 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4824
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
UNCLAS KINSHASA 001474 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS TO OPIC (JEDWARDS) 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD EAIR PGOV CG
SUBJECT: ECONOMIC IMPACT OF THE AUGUST VIOLENCE 
 
REF: A) KINSHASA 1372 
B) KINSHASA 1365 
 
Summary 
------- 
 
1. (U) Summary. The August 20-22 violence in Kinshasa clearly 
impacted the DRC's economy, although the full extent of the damage 
is not clear.  Both in the informal and formal economies businesses 
suffered losses due to both closure and physical damage, although 
the latter was quite limited. End summary. 
 
2. (U) From August 20-22, the GDRC's Presidential Guard units and 
Vice President Jean Pierre Bemba's security forces exchanged gunfire 
for three days in Kinshasa's Gombe neighborhood.  The violence began 
the evening that the Independent Electoral Commission (CEI) 
announced the provisional presidential electoral results, a 
pre-scheduled event. Gombe is home to much of the expatriate 
community as well as many locally and foreign-owned businesses, 
including banks, restaurants, vehicle dealerships, 
telecommunications firms and grocery stores.  Many businesses closed 
from Monday, August 21 through August 24. Some business owners 
anticipated the disorder and planned the closures before the August 
20 announcement, while others closed in reaction to the disorder. 
 
Immediate Impact 
---------------- 
 
3. (U) In the short-term, the three-days of disorder caused profit 
loss and some physical damage to businesses, although the latter was 
not extensive.  The incidents of physical damage include looting of 
a Vodacom (telecommunications company) residential building; 
computers and other property were stolen.  According to the FEC 
Administrator, Henri Yav Mulang, armed forces also looted the GDRC's 
development bank (SOFIDE), stealing travelers' checks with an 
estimated value of USD 4600.  Mulang said that COPIREP (the GDRC 
agency that oversees parastatal reform) and a hotel were also 
looted, the latter losing some television sets and mattresses. FEC 
also reported that stray munitions destroyed the working files in 
the office of a Congolese attorney.  Businesses outside of Gombe, 
including frozen food storage near the N'djili airport and some arts 
and crafts artisans' workshops, lost inventory as the result of 
opportunistic looting. 
 
4. (U) The August events seem to have had only a brief impact on the 
local consumer basket of goods.  During the hostilities, some food 
and other goods were scarce, and therefore prices increased. 
However, both Econ LES' observations and Post's consumer market 
basket survey indicate only a nominal impact, including 1.1 percent 
overall inflation, and a two percent increase in food prices between 
August 17 and 31. 
 
5. (U) Loss due to closure is far more difficult to verify, because 
many businesses in the DRC zealously guard financial information to 
try to minimize taxation, which is already quite burdensome. 
Further, it is hard to determine whether income losses will show up 
on the monthly spreadsheet or just be temporary income decreases 
offset by later sales.  Most of the FEC members, who are primarily 
owners of large and medium-sized businesses, closed their operations 
August 18 thru 24; an estimated 80 percent re-opened by August 25. 
Manufacturing and service industries were likely among those hardest 
hit. One American manufacturer in Kinshasa told EconOff that from 
August 21 through August 31, retail sales decreased by about sixty 
percent, following erratic business since the middle of May. 
According to the FEC Administrator, a Congolese airline, Malila 
Airlift, lost USD 60,000 after suspending operations August 21 
through 23. A Congolese businessman who owns a new hotel, a 
restaurant and a petroleum distributorship, said that business has 
been erratic, and that since August 21 his enterprises' revenue has 
decreased by about 50 percent, but that it has begun to increase in 
the past few days.  In August, he sold 240,000 liters from a service 
station he owned in a busy area of Gombe, compared to a monthly 
average of 300,000. 
 
6. (U) The FEC Administrator also said that the violence 
economically impacted other towns, particularly those reliant on 
Kinshasa to supply consumer goods and other needs.  For example, the 
FEC chapter in Kisangani, Orientale province, estimated a loss of 
USD 450,000 because goods were not transported from Kinshasa and 
because radio-operated cash transfers did not occur during this 
time, as their Kinshasa-based operations closed. 
 
7. (U) Small informal-sector businesses throughout Kinshasa also 
suffered losses of at least several hundred thousand USD, according 
to Post's estimate.  For example, EconOffs estimate that local 
barbers may have lost a total of USD 30,000 from August 21-23, 
bakeries lost as much as USD 450,000, while small-scale bread 
sellers likely lost several thousand dollars as well. However, it is 
hard to determine if there was an offset in business after cessation 
of the violence. 
 
8. (U) Conversely, some companies' business increased or felt little 
effect. For example, the American manufacturer whose retail sales 
have slumped said that non retail-sales have remained constant, 
including business with regular customers such as sugar and flour 
processing companies. Unsurprisingly, a Vodacom employee told an 
Econ LES that the volume of calls increased during the three days of 
violence.  Large grocery stores were also packed with shoppers on 
the day after the violence, and the stores likely lost little 
business. Further, an executive at the DRC's largest brewery and 
beverage distribution company told the Ambassador that sales barely 
decreased during the three days of violence. 
 
Medium-Term Impact 
------------------ 
 
9. (SBU) The violence will likely have some negative medium term 
economic impact, although evidence remains largely anecdotal.  Some 
foreign businesses are reportedly withdrawing or operating at a 
minimum working level, although there is no evidence that 
enterprises whose primary operations are outside Kinshasa, such as 
those in the mining sector, have significantly changed work plans. 
Those companies who have scaled down operations have likely done so 
not just in reaction to the recent violence, but also in response to 
the increasingly difficult business atmosphere during the election 
period (reftel B), making it increasingly unattractive to conduct 
business in the DRC. The FEC Administrator told EconOff that he 
agrees with Post's assessment that the August violence will decrease 
the confidence of investors and business owners. (Note: In addition, 
the Congolese franc has devalued by over six percent since the 
violence, although most of that slippage has occurred in the past 
week, rather than in the days immediately following the violence. 
End note.)(septel) 
 
10. (U) On the other hand, some businesses have forged ahead with 
plans. For example, the Spanish-owned Bravo Airline launched its 
domestic service to several cities in the DRC August 11, and plans 
to begin flights to Brussels, Paris and Madrid shortly. The 
Congolese petroleum distributor mentioned in paragraph 5 told 
EconOff that although the political uncertainty resulted in his 
decision to terminate his retail service station contracts with the 
petroleum provider, he wants to expand his wholesale distribution 
network, which includes sales to corporations. 
 
11. (U) The violence may also have an economic impact through the 
cancellation of potential investors' visits and the departure of 
some expatriates.  For example, a large American petroleum company 
postponed by six months its planned September exploratory visit to 
the DRC.  Further, the United Nations agencies' family members have 
departed the DRC, and some other family members of expatriates 
working in Kinshasa are either leaving the country or delaying their 
return if they are currently outside the DRC.  This event will 
likely impact the local economy, particularly in the food, 
restaurant and personal service sectors and via reduced employment 
of local domestic staff. 
 
Comment 
------- 
 
12. (SBU) Even if no further violence occurs in the DRC through the 
election period, business is likely to remain erratic, and investors 
wary.  This phenomenon, although unwelcome, is not unexpected. End 
comment. 
MEECE