NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A030900010150-2
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 16
• Document Creation Date: December 19, 2016
• Document Release Date: August 12, 2005
• Sequence Number: 150
• Publication Date: January 2, 1979
• Content Type: REPORT

Director of
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Intelligence
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National Intelligence Daily
(Cable)
Top Secret
ID 7 -
2 January 1979
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National Intelligence Daily (Cable)
CONTENTS
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EUROPEAN COMMUNITY: Trade with China . . . . . . . . 2
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INTERNATIONAL: Cobalt Outlook. . . . . . . . . . . . 3
BRIEF . . . . . . . . . . . . . . . . . . . . . . . . 6
Soviet Meat Buying
FEATURE ARTICLES . . . . . . . . . . . . . . . . . . . 7
USSR: Compensation Agreements
RHODESIA: White Emigration
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EURCPEAN COMMUNITY- Trade with China
//Members of the European Community are scrambling
`. .o profit from china's decision to turn to Western sup-
pliers for technology and equipment. The two-way flow of
commodities and cash, however, remains small. Increases
in trade implied in recent agreements are on the order
of 15 to 20 percent per year through the mid-1980s.//
//EC exports to China reached $1.4 billion in 1975
but by 1977 had fallen back below $1 billion. Even in
1975, however, exports to China represented less than
0.5 percent of total exports by EC countries and about
1 percent of their sales outside the Community. China's
share of imports by EC countries was only about 0.3 per-
cent.//
//In the first half of 1978, EC shipments to China
ran close to the total for all oZ 1977 and, over the
full year, these exports no doubt broke the 1975 record.
EC imports from China for 1978 increase roughly 15 per-
cent over 1977.//
//China's plan for modernization through 1985 could
entail a substantial amount of business for all the large
EC countries. The plan lists 120 major projects, includ-
ing 10 steel plant complexes, nine nonferrous metal
plants, eight coalfields, 10 new oilfields and gasfields,
30 electric power plants six major railwa networks,
25X1 and five major ports.// 1 -1
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//Except for the problems involved in sales of mili-
tary equipment and nuclear technology, constraints on in-
creased EC-China trade are largely on the Chinese side
and are based primarily on China's limited ability to
pay for and absorb Western goods. While the Chinese may
now be willing to accept conventional foreign credits,
they still want to offset imports with exports.//
//For the Europeans, the key obstacle to meeting
trade goals will be finding suitable Chinese products at
competitive prices. Soviet displeasure with growing EC-
China trade and particularly with the prospect of Chinese
arms purchases may affect EC relations with both China
and the USSR. The Europeans will consider the Soviet
angle, as well as US policy, in responding to Chinese
requests for sensitive goods. Although a turning point
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appears to have been reached, long and frustrating nego-
tiations loom for the West Europeans; regardless of the
outcome, China will remain a small market for European
industry.//
INTERNATIONAL: Cobalt outlook
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A net increase in the global supply of cobalt seems
likely this year; the addition will ease but not elimi-
nate the tight supply situation. Demand for cobalt, which
is a critical and largely irreplaceable industrial metal,
has been rising for the last several years and will rob-
ably continue to rise this year. 25X1
Cobalt was in tight supply before the invasion in
May of Zaire--the leading producer. This scarcity was
largely attributable to a shortage in Zaire of spare
parts for cobalt production and to the fact that preoc-
cupation with copper production led Zaire to give inade-
quate attention to cobalt processing. 25X1
The invasion did not adversely affect Zaire's cobalt
facilities, although it did spark speculative buying,
partly in response to inaccurate reports that mines and
machinery had been destroyed. The flight of some 400
white technicians also did not constitute as serious a
production obstacle as had been forecast by earlier re-
ports. Nevertheless, the Zairians now acknowledge that
they face increasing problems. President Mobutu has been
forced to try to rehire about 140 foreign technicians
who were fired because they fled Zaire after the inva-
sion. Zaire must also replace overaged, defective equip-
ment and acquire spare parts that are currently in short
supply.
Even if it could obtain the $100 million necessary
to purchase the machinery and parts, Zaire probably
would have to wait a year or more for completion of
equipment deliveries. In the interim, we anticipate that
production problems will accumulate and will reduce re-
cent levels of production. 25X1
The shortfall in Zairian cobalt output this year
probably will be more than offset, however, by additional
output from other producers attempting to cash in on the
record prices. Production gains in other countries will
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probably be at least 5,000 tons. Zambia alone is planning
a 2,000-ton increase that will roughly double its current
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Since the invasion, the official producer price of
cobalt has tripled to $20 per pound and undoubtedly will
qo higher; prices for small-lot sales on the "free" or
"gray" market have risen 700 percent to $50 per pound.
These stiff increases are easily passed on to consumers
because the added cost of cobalt is only a f tion of
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BRIEF
Soviet Meat Buying
The USSR may recently have purchased as much as
40,000 tons of beef from Western suppliers and may be
looking for more. This is the first sign of Soviet meat
purchases last year; in 1977 the USSR imported more than
200,000 tons from the West.
Because of the tight world meat situation, which has
increased prices by 28 percent since last July, Soviet
purchases on this scale would probably put upward pres-
sure on prices.
Although the reported purchases would add less than
1 percent to domestic Soviet supplies, the current buying
may be explained by the leadership's publicly expressed
concern over the effects of continued meat shortages on
25X1 the mood of the public.
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USSR: Compensation Agreements
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The USSR is placing increased emphasis on compensa-
tion agreements with Western firms to ensure long-term
hard currency earnings. Export earnings guaranteed under
the more than 45 agreements signed to date far exceed the
$8 billion worth of agreement-related imports from the
West. Annual earnings will rise to nearly $4 billion in 25X1
1985, softening the impact on Soviet foreign trade of a
probable decline in oil exports. Our earlier estimate
that the USSR's hard currency import capacity will fall
in the early 1980s, however, remains unchanged.
Despite the intense Soviet interest in compensation
agreements, problems--notably inept Soviet bureaucracy, 25X1
inadequate support facilities, and Western difficulties
in absorbing large amounts of basic Soviet industrial
products--have slowed the pace of new signings.
Compensation agreements essentially allow the Soviets
to import Western capital goods on credit and subsequently
export to the West a portion of the production from the
imported equipment to repay the credits. The major impetus
for the USSR has been a desire to acquire and pay for
technology and equipment to develo Siberia and to expand
certain high priority industries.
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The agreements reduce the risk associated with buy-
ing Western equipment on credit. In 1975, for example,
the Western recession practically halted the growth of
Soviet hard currency exports, driving home to Moscow how
dependent its exports were on Western economic conditions.
Compensation agreements protect the Soviets from develop-
ments in the West that would otherwise reduce Soviet ex-
port earnings.
Over the past decade, more than 45 compensation
agreements have been signed under which nearly $8 billion
in Western equipment will be installed in the USSR. The
most profitable agreements for the USSR are the gas-for-
pipe deals with Western Europe, which call for imports
to the USSR of large-diameter gasline pipe in return for
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delivery of gas to Western Europe for up to 20 years and
longer. These agreements will generate revenue several
times greater than the $2.8 billion worth of Soviet pipe
imports. Rising gas prices will probably earn Moscow
$1.2 billion in 1980 and nearly $3 billion in 1985 under
current gas delivery schedules.
The Soviet chemical industry, which has been the
most aggressive industry seeking foreign help, has ordered
more than $3 billion in equipment and technology for fer-
tilizer, petrochemical, and other plants under product-
pay-back deals. The chemical deals generally involve just
enough exports to cover Soviet payments. In the only major
compensation agreement with a US company, Occidental Pe-
troleum last year began to receive ammonia in connection
with a deal for four chemical plants at Tolyatti. Other
Soviet industries involved in compensation arran ements
are timber, coal, and aluminum.
Earnings from compensation deals signed thus far are
likely to rise from about $830 million in 1977 to nearly
$4 billion in 1985. Revenue from the deals will far exceed
costs, yielding Moscow substantial increases in hard cur-
rency import capacity in the 1980s to help offset losses
from a probable decline in Soviet oil exports.
Internal Soviet problems and Western disenchantment,
however, have led to few major agreements since 1974. On
the Soviet side, debate continues over the policy of com-
mitting raw materials as the price for Western help in
developing Soviet resources. The bureaucracy in the USSR,
moreover, remains ill-equipped to handle compensation
agreements, and ideological attitudes clearly conflict
with Western demands for equity participation and manage-
ment control. Even if agreements can be reached in princi-
ple, the primitive level of Siberia's infrastructure and
the difficulties involved in taking on several large de-
velopment projects simultaneous) will slow the rolife a-
tion of compensation agreements.
On the Western side, companies are reluctant to ac-
cept many Soviet products. Unlike their attitude in 1974,
when fuel and raw material shortages made long-term sup-
plies of Soviet products attractive to Western firms,
these companies now regard compensation agreements as a
disagreeable condition for winning Soviet contracts. The
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depressed West European chemical industry is already wor-
ried about the chemicals, fertilizers, and petrochemicals
that the USSR soon will begin to export under compensation
agreements.
Deals involving energy suffer much less from this
constraint. Agreements on manufactured goods have not been
concluded mainly because the Soviets have been unwilling
to meet Western demands for continuin participation and
management control to ensure quality.
Despite these problems, the USSR and Western firms
are discussing several large deals. If negotiations can
be concluded soon, the associated projects would boost
Soviet raw material production and exports appreciably by
1985. Deals likely in the near term involve chemicals,
wood and wood products, aluminum, and possibly natural
gas. Over the longer term, additional compensation agree-
ments could be tied to developing Siberian natural gas
deposits in Yakutsk and Urengoy, a major steel complex,
copper deposits, and offshore oil reserves.
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FEATURE ARTICLE
RHODESIA: White Emigration
The number of white Rhodesians who have emigrated
from the country has accelerated sharply since mid-1978
as guerrilla activity has increased and as the outlook
for an actual turnover of power to a black majority gov-
ernment has Zoomed closer under the internal settlement
/pan of Prime Minister Smith. For the year as a whole,
a record 13,000 more whites emigrated from the country
than entered it--a drain of about 5 percent of the white
population. Reports of "extended vacations" indicate
that an additional 20,000-30,000 persons may have Zeft
on a wait-and-see basis pending the outcome of the strug-
We expect another record outflow in 1979, possibly
reaching disastrous proportions if the Smith government
cannot sell its revised internal settlement. A surge in
guerrilla activity--a distinct possibility--could seri-
ously damage already fragile white morale, sparking a
large exodus of whites and possibly dealing economic,
political, and military institutions an irreparable
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In sharp contrast to net white immigration of 40,000
people in 1966-75, 31,000 more whites left Rhodesia than
entered in the last three years. Initially, the dramatic
reversal in the migration trend was caused by stepped-up
guerrilla activity accompanied by deepening recession.
Many young Rhodesians in particular lost all hope in the
country's economic and political future. Later, the de-
partures took on a momentum of their own as families saw
neighbors, relatives, and coworkers leave or prepare to
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After leveling off somewhat in early 1978, net
emigration more than doubled in the second half of the
year when it became apparent that the internal settle-
ment would not lead to a cease-fire or an end to UN eco-
nomic sanctions. The massacre of 14 missionaries and
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their dependents at Elim and the downing of the Air Rho-
desia Viscount dealt a further blow to white morale.
Successful cross-border raids by Rhodesian security
forces in October and November, designed in part to
boost morale, did not stem the flow, which reached rec-
ord heights. The destruction of the fuel depot at Salis-
bury in December probably added to the out-migration.
Even before this, applications for emigration pointed to
a surge toward the end of the year.
Most of those who have left are skilled or white
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collar workers and professionals. More than half of the 25X1
white males who left in 1978 were reportedly between the
ages of 25 and 45; many of those leaving hold dual ci
izenship in the UK, South Africa, or other countries.
Emigration has had a major impact on the economy,
contributing to a 20-percent decline in GNP since 1975.
A shrinking domestic market--as whites, who represent
most of Rhodesia's purchasing power, leave the country--
along with tight government economic policies that em-
phasize large military imports have weakened demand. De-
mand for consumer durables has fallen off as Rhodesians
increasingly put their money into portable valuables
such as gold and jewelry. This has contributed to
sizable drop in manufacturing output since 1975.
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//The manpower drain has not made itself felt in
the military yet. To some degree, however, the rising
emigration already has served indirectly as a check on
expanding the white military forces because the govern- 25X1
ment is hesitant to draft more whites into the services
for fear of further deflating white morale.//
The emigrant flow and the possibility that it might
become a flood were the key factors that convinced Smith
and his black nationalist partners to revise their in-
ternal settlement to provide for greater white participa-
tion in the government than they originally had agreed
to. Smith's plan will be put to the test by the white
referendum on the constitution scheduled for 30 January.
The potential loss of manpower also was one of the rea-
sons why Smith decided earlier this year to talk with
black nationalist leader Joshua Nkomo.
A substantial hardcore of whites, perhaps 100,000
or more, will nevertheless probably elect to stick it
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out in Rhodesia through 1979 and longer, unless condi-
tions deteriorate drastically. These whites are typi-
cally native born, without dual passports, owners of
substantial property in Rhodesia, and attached sycholog-
ically to the country.
Loss of 25 percent or more of Rhodesia's European
population would bring immediate and irreparable damage
to the white war effort and the economy.
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