THE CONGO ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004100010003-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 19, 2016
• Sequence Number: 3
• Content Type: REPORT

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lease 2006/11/06: CIA-RDP79-00927AO04100010003-5
W
OCI NO. 0284/63A
Copy No. 73
khRIT
I'D ~i
BONN.
ova,
SPECIAL REPORT
OFFICE OF CURRENT INTELLIGENCE
THE CONGO ECONOMY
CENTRAL INTELLIGENCE AGENCY
? 1O . /CDF Pages 1-10
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GROUP I Excluded from automatic
downgrading and declassification
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HIS MATERIAL CONTAINS INFORMATION AFFECT-
ING THE NATIONAL DEFENSE OF THE UNITED STATES
WITHIN THE MEANING OF THE ESPIONAGE LAWS.
TITLE 18, USC, SECTIONS 793 AND 794, THE TRANSMIS-
SION OR REVELATION OF WHICH IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
This document MUST NOT BE RELEASED TO FOREIGN
GOVERNMENTS. If marked with specific dissemination
controls in accordance with the provisions of DCID 1/7,
the document must be handled within the framework of
the limitation so imposed.
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The Congo is potentially a wealthy country.
It possesses an eighth of the world's known copper
reserves, much of its cobalt, and four-fifths of
its located industrial diamonds. Most of the land
is fertile and not overpopulated, with less than
15 persons per square mile. The Congo's rivers
could generate a fifth of the world's hydroelectric
power, and its forests are largely uncut. Despite
three years of political turmoil since the country
received its independence, most of the Belgian-built
economy still functions. The development of the
country's economic potential, however, is increas-
ingly threatened by Congolese financial mismanage-
ment and by the Leopoldville government's inability
to establish its authority outside the capital or
to control the unruly Congo Army.
In the aftermath of inde-
pendence, which arrived on 30
June 1960, most Belgians and
other Europeans fled. The
economy they deserted was and
remains highly centralized organ-
izationally. A few big companies
do most of the business and earn
most of the foreign exchange.
The Europeans, many of whom have
returned, still run the companies;
in spite of a program of "Afri-
canization," technicians and
managers are largely foreign,
workers Congolese.
The most profitable pits
are in southern Katanga, where
the gigantic Union Miniere de
Haut Katanga (UMHK) operates,
often refining and smelting the
metals unearthed. The company's
smelters produced a twelfth of
the world's copper in 1962--
295,000 tons--an increase of five
percent over UMHK's 1959 pro-
duction. Similarly, cobalt pro-
duction rose by a sixth to al-
most 10,000 tons, well over
half the world's total. Last
year, approximately a quarter
of a billion dollars worth of
minerals was shipped from the
area.
The surest way to make money
in the Congo is to dig for it.
In 1959, out of $460 million in
exports, $270 million were
earned by the mines, and work
has continued in spite of
mutinies, secessions, and wars.
The value of some other exports
has sharply decreased, but
earnings from minerals, except
tin and gold, have remained al-
most constant.
The Union Miniere comfort-
ably weathered last January's
fighting. Despite Tshombe's
threats of scorched earth, only
a few detonators were actually
exploded on company property.
One power substation was wrecked,
but the four main hydroelectric
plants supplying the UMHK's
power were unscathed. Most damage
was to power lines and bridges.
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 CAMEROON
REPUBLIC
OF THE
CONGO
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To the north, the large
rail bridges over the Lualaba
and Lubilash were rendered
inoperative, closing again the
"Route Nationale" between
Katanga and Leopoldville. Only
about 28 percent of Katanga's
minerals were ever exported
over the Route Nationale and the
main mineral exit route through
Angola was reopened in February.
Power lines were quickly restored.
East of Luluabourg, in
Kasai Province, is the town of
Bakwanga, site of the MIBA com-
pany, producer of four out of
five of the world's industrial
diamonds. In 1962, MIBA produced
14 million carats, about the
same number it extracted in 1959,
despite the tribal wars that
have raged around Bakwanga.
Three hundred miles north
of Elisabethville is the GEOMINES
complex at Manono in northern
Katanga; three hundred miles
above that are the SYMETAIN
works of Kivu. These two com-
panies mined almost a tenth of
the world's 1959 tin production.
Production has seriously de-
clined--1962 tonnage was only
slightly over half that of 1959
--but the plants are intact.
European assistance and trading
facilities. Palm products, used
in margarine, soap, and live-
stock feed, are exported now in
almost the same quantities as
before independence, because
palms grow on large, easily
accessible plantations along the
rivers of the northern provinces.
Boats still running on the in-
land waters carry the crop down
to Leopoldville for shipment to
the sea.
The plantations--many con-
nected with UNILEVER,a subsidi-
ary of the British Lever combine
--are self-sufficient. A typi-
cal plantation in Equateur Prov-
ince covers- 24,000 acres and
has its own missionary-taught
schools (part Roman Catholic and
part Baptist) and its own housing,
cement works, and 320-bed hospi-
tal. Over the past three years
the farm has assured its workers
of enough to eat by either im-
portation or local procurement.
Its trucks have been kept running
by company garages, although
spare parts are rationed. Roads
necessary for production are
repaired by plantation crews.
As yet unaffected by tribal
strife developing to the south,
the plantation produces more
today than it did in 1959.
Before independence, a
third of the Congo's foreign
exchange was earned by agricul-
tural products--chiefly coffee,
cotton, and palm products.
Europeans own the big planta-
tions, Congolese the smaller
farms. The former are holding
their own while the latter have
gone broke or out of production
largely because of the lack of
Before independence, coffee
was second only to palm products
among agricultural exports.
There are two types of Congolese
coffee: Arabica and Robusta.
The former is grown exclusively
by Europeans on large farms in
the eastern highlands of Kivu
and Orientale, and in spite of
disturbances in eastern Kivu
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Proposed New Provincial
Boundaries
? National capital
* Provincial capital
Areas in dispute
(R indicates subject to referendum)
(Arrows indicate disputants)
0 100 200 Miles
0 1 1 00 00 200 Kilometers
Undefined 14
border o-
Stanleyville
Coquilhotville S?' HAUT CONGO
NOTE: This map is by no .eons definitive and boundaries are often canlectoral. Lameion and size of
disputed areas or approximate, and the extent of referendum z n and the mechanics far voting
m them remain to be determined. Capitals vary in efficacy: Kika.it (Kahn) is apparently functioning
smoothly; Tshikopo and Goma, capitals of Unite Kasaienne and Kiou Nord respectiely, lie in --
',aimed by neighboring provr s; Kongo Central lacks a permanent capiro( Laelabo a has not been
selected. Leopoldville, capital oh the republic, has been see aside as a federal district.
14 JUNE 1983
33517
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caused by various tribes vying
for power in the newly formed
provinces, these European
planters produced about as much
Arabica coffee last year as they
did in 1959. Growers of Robusta
--mostly Congolese on small,
marginal farms scattered through-
out the country--have not main-
tained previous levels of pro-
duction.
Most of the conditions
threatening the stability of the
Congo economy still exist, and
may become more acute. The
Leopoldville government's
authority does not extend much
beyond the city limits. Although
scheduled to be retrained and
reorganized, the Congo National
Army (ANC) is as undisciplined as
ever. Ineffective as a depend-
able arm of the government, it
has often joined rather than
quelled tribal disturbances,
and creates more trouble than
it allays. Short of funds,
food, beer, or equipment, it re-
quisitions what it wants and
generally terrorizes the local
population, both European and
Congolese.
This January, for example,
Congolese soldiers in Kasai stole
40 MIBA trucks to pursue nearby
enemies; in their rampage, the
soldiers laid waste to a broad
swath of territory west of Bak-
wanga. The ANC "conquerors" of
Katanga in the wake of now-de-
parting UN forces are making
life uncomfortable for UMHK
employees. On 15 May, hundreds
of European workers took to the
streets of Jadotville and went
on strike to protest the fatal
clubbing of a Belgian by ANC
members. With UN troops scheduled
to leave at the end of this year
and possibly even before--and
certainly before the ANC can be-
come a responsible guarantor of
law and order--a continuation of
such incidents could precipitate
an economically crippling exodus
of Europeans.
The increase in the number
of provinces, voted during the
past year by the Leopoldville
legislature, compounds the Congo's
economic problems. Instead of
six expensive and corrupt pro-
vincial administrations, there
now are At least twenty-one.
originally created to reflect
tribal paramountcies, the new
provinces cause internecine
troubles within the provinces
and boundary disputes among them.
The hitherto peaceful Equateur
area is now the scene of develop-
ing power struggles. The old
provinces of Kivu and Kasai have
dissolved into eight warring
segments. The proposed Lualaba
province in Katanga not only
portends tribal disruptions, but
also cuts the Union Miniere con-
cession into two major parts,
a division which in the future
will doubtless cause tax disputes.
As the new provinces quarrel and
divide, their responsibilities
are neglected.
Political troubles, and the
accompanying breakdown of adminis-
tration,, are major factors in
the disruption of the country's
transport system--a particularly
serious problem. Most roads,
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maintenance of which is the re-
sponsibility of the provinces,
have not been repaired since
independence. Relatively small
companies like GEOMINES and"
SYMETAIN, remote and dependent
on trucking, have been especially
vulnerable to the highway
deterioration. Prevented from
sending tin north by rail be-
cause of the destruction of the
Kongolo bridge in North Katanga,
GEOMINES has been forced to ship
its product over ill-kept roads
to Albertville in the east. A
casualty of tribal wars and the
worsening roads, SYM$TAIN pro-
duction has virtually ceased.
The smaller, isolated agri-
cultural enterprises have been
injured likewise. When Congo-
lese farmers succeed in growing
Robusta coffee, the scarcity of
trucks and the impassable con-
dition of provincial highways
prevent them from getting the
crop to market. Cotton, which
once earned the Congo almost
$30 million a year, has similarly
suffered. In Orientale Province,
where much of the cotton is
raised, the area's transportation
company, VICICONGO, can field
only half its fleet of 525
trucks; the rest sit in garages,
awaiting repairs, while parts
and gasoline are smuggled out
across the border to Uganda,
whose shillings are a more re-
spected currency than Congolese
francs.
Smuggling, increasingly
widespread since 1959, has be-
come a major drain on the foreign
exchange earnings and export
tax income of the central govern-
ment. Corrupt and inefficient
customs officials allowed almost
the entire 1962 crop of Arabica
coffee, like most of Orientale
Province's cotton production,
to slip out of the country east-
ward to Uganda and Rwanda.
Diamonds, estimated in the mil-
lions of carats, have been stolen
from MIBA concession lands and
other Kasai areas and smuggled
across the Congo to Brazzaville
by truck and by plane. An Amer-
cian customs advisory team tour-
ing Congolese border posts earlier
this year found confusion, ex-
tremely lax procedures, and
evidence of wholesale bribery
of Congo border guards.
Leopoldville is not only
the seat of the central govern-
ment, but also serves as depot,
factory, and bank for the entire
country outside Katanga. As a
depot, it collects products
coming from the interior, loads
them on trains, and sends them
past the rapids in the lower
Congo River to Matadi, the Congo's
biggest seaport. As a factory
the city turns out Congolese-
produced consumer goods--tex-
tiles, beer, soap, shoes, and
cigarettes. As a bank it con-
trols the country's finance.
Leopoldville performs its
first two functions satisfactorily.
Although trains are slow and
crates get lost, the 227-mile
Matadi-Leopoldville line is
presently able to carry the
traffic that accumulates at
either end. The manufacture of
consumer goods in the Leopoldville
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area has increased 30 percent
since independence.
As banker and financial
manager, however, Leopoldville
has been a nearly disastrous
failure. Inflation threatens
to become runaway. On the free
market in 1959 the dollar could
buy 50 francs; today it can
purchase over 300. Internal
prices are in a sharp uphill
curve. Since the end of 1962
price inflation in the Leopold-
ville area has reached a monthly
rate of 10 percent and shows
every sign of accelerating.
The rise in prices is
accompanied by expanding pres-
sure on the balance of payments
and a widespread evasion of
foreign exchange controls. As
local money declines in value,
individuals, small companies,
provincial authorities, and
even branches of the central
government disregard the Congo
government mechanism's control
over the inflow and outflow of
harder currencies. The in-
creased tendency to deal di-
rectly with the outside is
also reflected by the rampant
smuggling. Foreign exchange
leakage, chiefly in the form of
illegal transfers abroad, was
estimated at over 2.5 billion
francs in 1962. Last year's
balance-of-payments deficit of
6 billion francs was principally
financed from aid and from the
depleted Congolese foreign ex-
change reserve. Half of the
Congo's imports last year were
externally financed.
government's receipts and ex-
penditures. For every franc the
government receives, it pays
out almost five--4.2 billion
Congolese francs were collected
in 1962 while 19.7 billion were
spent.
Part of the reason for the
situation is the centralized
banking system the Congo in-
herited from the Belgians. A
central bank handled expenditures
as well as receipts throughout
the country. Payment orders
presented to bank branches by
authorized agents were auto-
matically honored, and branches
were immediately replenished
from Leopoldville. The system
worked under the Belgians be-
cause it was accompanied by
careful control of provincial
agents and expenditures. After
independence, the system remained
but controls vanished. Payment
orders have multiplied, and to
keep up with demand, the central
bank issues new currency. It
has been estimated that since
independence, there has been at
least a threefold increase in
the money supply.
The two biggest recipients
of the central government's
snowballing expenditures are
the army and the provinces.
The cost of the army, whose
dubious loyalty has had to be
bought, since independence rose
nearly 500 percent between 1959
and 1962, as army salaries mush-
roomed and army rolls increased.
One fifth of the government's
outlay is on the military.
The basic cause of inflation
is the imbalance of the central
Transfers to the provinces
account for more than half of
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government expenses. As in Leo-
poldville, large amounts of money
are lost to corrupt politicians.
Most of the rest is spent on educa-
tion. Although large numbers of
Congolese children attend school,
few get past primary grades and
many dropouts sink back into il-
literacy. A large proportion of
the money disbursed to schools thus
does not bring the economic return
that it might.
Government revenues have in-
creased since independence, but the
pace of advance is slow compared to
the rise in outlay. New income
from the UMHK, which started paying
its taxes to the central government
last January when Katanga's seces-
sion collapsed, increases govern-
ment intake, but not enough'to ap-
preciably affect the imbalance.
The effects of continued in-
flation could be dangerous. Ex-
pansion of prices has not been at-
tended with a concomitant increase
in wages. Although salaries paid
to members of Parliament and sol-
diers in the army are vastly higher
than before, wages earned by in-
dustrial workers and teachers, for
example, have risen comparatively
little. It was estimated last
October that the purchasing power
of an unskilled laborer in Leo-
poldville had declined 23 percent
since independence. Doubtless,
his real earnings are even less
today.
With a large influx of new
money into the economy expected,
the two main ties that bind the
provinces to Leopoldville may fray
or break. The first, central govern-
ment subsidy, wanes in value as
money cheapens. The second, the
army (Leopoldville's only physical
method of forcing obedience), may
lose its flimsy allegiance to the
central government if it discovers
local prices are outpacing its
wages. The future will undoubtedly
bring further demands of autonomy
from the provinces if inflation
goes unchecked.
Even if current difficulties
were resolved, a background of
older problems remains. There was
a public debt of $900 million as
of independence day, due in part
to large deficits incurred by the
Belgian colonial administration
in 1958 and 1959, in connection
with what was to have been a ten-
year development plan. At pres-
ent much of the debt is being
serviced by Belgium, whose bill
this year will be approximately
$60 million in interest payments
alone. Belgium has no inten-
tion of picking up this tab in-
definitely, however, and now is
attempting to get the Congo to
assume part of the load. A
burden of this size would be
heavy on the Congo even if its
economy were stable.
Furthermore, for all its
potential wealth, the Congo
is today a poor and underde-
veloped country. Per capita in-
come is still less than $50 a
year, and trained administrators
are few. It is estimated that
the country will need $175'mil7
lion tliisyear from outside sources
merely to stay afloat economi-
cally, and there is little pros-
pect that the strong executive
political authority necessary to
make effective use of the govern-
ment's resources will develop
soon. (CONFIDENTIAL)
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