THE ECONOMY OF CONGO (KINSHASA): TRENDS SINCE INDEPENDENCE AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600010014-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 27, 2016
• Document Release Date: May 14, 2010
• Sequence Number: 14
• Publication Date: June 1, 1968
• Content Type: IM

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T)G/Fi /e
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Economy of Congo (Kinshasa):
Trends Since Independence and Prospects
ER IM 68-64
June 1968
Copy N!
52
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amendcd.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
fcclud.d from amomollc
dornprodina and
d.clardficalion
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
June 19 G 8
INTELLIGENCE MEMORANDUM
The Economy of Con 2o (Kinshasa) :
Trends Since in ependence and Prospects
Summarv
The measures initiated one year ago by President
Mobutu of Congo (Kinshasa) to stem inflation,
stimulate exports, and liberalize imports have
helped to halt an economic decline which had been
almost continuous since independence in 1960. There
is little hope, however, that the Congo can reverse
the trend and acquire either the capital or the
skills needed to support a significant economic
development program. Indeed, the prospects favor
moderate economic deterioration over the next few
years.
The lack of administrative, technical, and
managerial skills will continue for many years to
be the highest barrier to economic recovery and
growth. An adequate number of skilled expatriates
cannot be induced to work in the Congo because of
the absence of physical and economic security.
Although many native Congolese are being trained,
a decade or more will be required before there are
enough of them to make a difference.
Large amounts of aid would be necessary to re-
store the transport network, to increase agricul-
tural output, and to reintegrate scattered centers
of economic activity. But aid of the required
magnitude is not likely to be found. Although
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence.
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substantial assistance from Belgium and the United
States is expected to continue, most of this is re-
quired to maintain current levels of activity.
Private foreign capital investment will continue to
be discouraged by internal instability and by rela-
tively unattractive prospects in both the domestic
market and the world market for the country's most
exploitable resources. Since Congolese tax rates
are already among the highest among the underdeveloped
countries, prospects for increasing local funds for
restoration and development are dim.
At independence, Kinshasa inherited one of the
most advanced economies in sub-Saharan Africa, with
a well-integrated and efficiently run infrastructure,
abundant natural resources, thriving agriculture, and
an expanding mining sector. But there were no native
Congolese in the upper echelons of either government
or business, and it took more than 100,000 Belgians --
administrators, mining engineers, plantation owners,
technicians, and teachers -- to hold the complex
economic structure together.
By the end of 1960, perhaps 60,000 Belgians had
fled, many in fear for their lives, and with them
went the vital skills without which the Congo could
not properly function. The whole structure began to
disintegrate, and elementary security evaporated in
the wake of tribal revolts and army mutinies. Dur-
ing the years of administrative chaos and recurrent
hostilities that followed, the transport network
deteriorated badly -- less from physical destruction
than from neglect. Agricultural exports fell to
about half their preindependence levels as transport
bottlenecks and periodic warfare destroyed incentive
to produce for export. Corruption and inefficiency
in government administration exacerbated the situa-
tion, budget deficits mounted, inflation was rampant,
and unemployment soared. By the end of 1967 the
real wages for those who had jobs averaged only about
40 percent of the 1960 level.
Two factors kept the modern economy from collapse
after independence in 1960: more than a billion
dollars in foreign aid and the continued near-normal
operation of the copper mining industry. As other
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sectors of the economy declined, the copper industry
assumed an increasingly important role; by 1966 it
was providing about 70 percent of total exports and
50 percent of government revenues. The only area
benefiting from the chaos has been the lower Congo
region, which includes Kinshasa. Here, small-scale
African farmers and'local manufacturers increased
their output to meet the requirements of the rapidly
growing population of the region and to offset the
sharp decline in foodstuffs available from other
regions.
SPrR FT
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 J 1) f ?h'.INs~II
C~c INSHAS
Koq;o ~~
? T.hele
B a ongololo
go - ow f.
fr
KASAI.
ORIENTAL
buji M.yl . Nebel
r.~lti,?
+m?,?r ll
?Likasi I/
ANGOLA
(Port.)
- -- Province boundary o Province capital
-- Railroad
Copper concession area
? Diamonds
Mn Manganese
Au Gold
Sn Tin
&i Tin smelter
? `Rubber (each
dot represents
500 hectares)
0 190 290 390 490 Milos
-~ITITI
0 100 200 300 400 Kllonn?lers
59036 5.68
OOUNOARY REPRESENTATION 19
NOT NECESSARILY AUTHORITATIVE
it ?A.?
A rherl
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CONGO (Kinshasa)
ECONOMIC ACTIVITY
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The Congolese Economic Inheritance
1. At independence on 30 June 1960, the Congo
had the most modern economy of any country between
the Sahara and South Africa. (For a map of Congo
(Kinshasa), see Figure 1.) The Belgians had es-
tablished large, relatively efficient plantations,
mining complexes, and industrial plants and the in-
frastructure to support them. Although the founda-
tions of this economy were laid during the half
century preceding World War II, the most ambitious
development period in the Belgian Congo occurred in
the decade and a half after the war, when more than
$2 billion was invested to greatly expand existing
economic and social facilities. Gross investment
averaged about one-fourth of gross national product --
a rate matched by few other countries in the world.
2. The Congo's wide variety of natural resources
spurred development in the years before independence.
Rich mineral deposits in southern Katanga have long
been an important world source of corner and zinc
and the leading source of cobalt. Industrial diamonds
from Kasai now account for three-quarters of the Free
World's total output. Marked variations in climate
ranging from tropical to temperate permit a considera-
ble range of products such as palm oil, coffee, cotton,
corn, wheat, and garden vegetables. Extensive tropi-
cal forests provide large quantities of valuable
timber, and the Congo River is one of the world's
leaders in hydroelectric potential.
3. The productive areas are located mainly along
the periphery of the country, which is about the size
of the United States east of the Mississippi River.
Most of the interior Congo Basin is thinly populated
and heavily wooded. The long distances and difficult
terrain separating economic centers make it difficult
to shape a country-wide economic unit. In an effort
to overcome these problems, the Belgians spent about
$400 million during the 1950's to improve transport
links. The enclaves of modern economic activity are
the Katanga Cooperhelt in the south, the rich farm
area of the temperate eastern highlands, and the
tropical plantations of the northeast and lower Congo
area around Kinshasa, which is also the hub of trans-
port and commercial services and the site of many
consumer industries. Most of the Congo's foreign
e c'T'r'TI Trr?
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trade funnels through Kinshasa to Matadi, the
country's only major ocean port.
4. Few other colonial powers involved the
native inhabitants as fully in the economy as did
the Belgians toward the end of the colonial era.
Although Belgians constituteu the entrepreneurial
class, Europeans were excluded from many jobs. In
the late 1950's, for example, Congolese drove trains
and operated power shovels, in contrast to British-
ruled Northern Rhodesia (now Zambia), where the local
population was considered capable of only menial
tasks. As a result of these efforts, more than a
million Congolese were wage earners, and, of these,
more than three-quarters were engaged in urban occu-
pations. Another million of the estimated 1960
population of 13 million was drawn from the tradi-
tional subsistence economy into a Belgian-organized
quasi-modern agricultural system -- the paysannats
indigene -- which considerably raised the partici-
pating Congolese standards of living. The average
real income of the Congolese more than doubled in
the 10 years prior to independence, and there emerged
a middle class, including building contractors,
tradesmen, small manufacturers, and transport con-
tractors. In addition, the country had relatively
well-developed health, administrative, police, and
educational systems. For example, in 1959, almost
four-fifths of the children of elementary school age
attended class, whereas in French African colonies
the ratio was about one-third.
5. Congolese involvement in the economy, how-
ever, stopped short of the higher levels of industry
and administration. Belgian planning assumed indefi-
nite colonial rule and very slow political advance,
and in 1959, when Brussels reversed its colonial
policy and promised independence, there were no
Congolese engineers and no Congolese in the upper
levels of the government. The economy and the
social services were almost entirely dependent on
the skill, knowledge, and experience supplied by
more than 100,000 Belgian and other white expatriates.
The absence of Congolese trained to cone with --
or even understand -- the managerial problems of
an economy as complex as the Congo's has been a
major cause of many serious postindependence dif-
ficulties.
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Seven Years of Deterioration and stagnation
6. Within a week of independence, the authority
of the central government throughout the Congo had
almost completely collapsed. Provinces declared
themselves independent, tribal warfare became wide-
spread, and whites were beaten and killed by
Congolese stirred up by the government's antiwhite
propaganda. Some 60,000 Belgians fled and modern
economic activity dropped sharply.
7. By mid-1963 with UN aid a semblance of order
was restored, and many Belgians returned, but con-
fidence soon evaporated as the "Simba rebellion" of
1964 and 1965 took place. The rebels, with tech-
nicians and weapons supplied by radical African
and Communist countries, controlled and terrorized
almost a quarter of the country. The Congo govern-
ment regained control in early 1966 with the use of
white mercenaries, but security deteriorated again
in July 1966 with the revolt of Katangan troops and
later with the mercenary-led rebellion of 1967.
Moreover, security in many areas cor';.rolled by the
Congolese National Army (ANC) has been weak or non-
existent, and in some instances the Army itself,
which lacks effective leadership, has pillaged and
destroyed.
8. The Belgian expatriates suffered enormous
losses but they could and did leave the country while
the Congolese, who also fared badly, lacked the option
to leave. Congolese who had been drawn into Belgian-
organized agricultural schemes were driven from them,
either to return to subsistence production or to
swell the ranks of the urban unemployed. Some have
been absorbed by the rapidly expanding government
bureaucracy, but most remain without any permanent
jobs. For those Congolese who have jobs, money wages
have increased since independence, but prices have
risen much faster, and real wages by the end of 1967
were about 40 percent of the 1960 level. Throughout
the country, but especially in rural areas, social
services, including medical services, have deteriorated
markedly.
Changes in the Economic Structure
9. Basic structural changes have been wrought
by seven years of deterioration. Before 1960,
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large Belgian-based holding companies controlled
most major productive enterprises, and individual
Belgians owned the numerous small shops that handled
much of the trade and services. Both groups had a
relatively free hand in running their businesses.
Under Congolese rule, however, economic policy has
been to remove the Belgians from positions of con-
trol and to put Congolese in charge whether or not
they were ready for it. As a result the momontum
of development was quickly halted. Those Belgian
businessmen who stayed on did so mainly to protect
their remaining investments. For many urbanized
Congolese, undisciplined in business management,
graft and corruption have become a way of life.
10. The Belgian Congo's highly developed financial
structure has been undermined. The colonial Congo
franc was, except for temporary restrictions in
capital movements, freely convertible into Belgian
francs. Laonoldville had financed a large part of
its massive development efforts with loans guaranteed
by Brussels. Moreover, the colony's well-run public
finance system usually had generated sufficient
revenues to meet regular government spending and to
finance some development as well. When cut off from
the discipline enforced by Brussels, the Congolese
financial system succumbed to the stress of local
events. Payrolls were swollen grotesquely, and poor
fiscal controls, combined with declining revenues,
resulted in large budget deficits. For the first
three years of independence, half of government
expenditures were financed by deficit spending.
11. The Congo economy has been further weakened
by inflation. Large budget deficits since independ-
ence pumped money rapidly in-to the economy while the
supply of goods available declined, and as a result
the cost of living rose sixfr,ld between mid-1960
and mid-1967 (see the chart, Figure 2). Concur-
rently there was a sharp drop in the international
free market value of the Congolese currency. Never-
theless, the government maintained an artificially
high official exchange rate through most of the
postindependence period, thereby causing an increas-
ingly severe cost-price squeeze for exporters, whose
production costs soared while exhort revenues remained
constant. As a consequence, many exporters turned
to smuggling. illicit exports of agricultural prod-
ucts and diamonds grew rapidly and have amounted
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to perhaps $40 million or $50 million annually for
the last few years. The unrealistic exchange rate
also increased the demand for imports, because in
terms of local currency the prices of imported goods
were artificially low. At these i.ow prices, demand
for imports was greater than the economy could support,
and import controls were imposed. The Congo's import
control system soon became ridden with corr'iption and
hampered by bureaucracy, causing long delays in the
receipt of goods.
Congo (Kinshasa): Monetary Indicators
Congolese Francs per Dollar'
1200
Brussels Free Market Rate
of Congolese franc
Official (selling) Rate of Congolese franc
. I ._1 t ( t 1 t ( ( t ( t l t
1960 1961 1962 1963 1964 1965 1966 1967
$ln Jun. 1067, a new mon.tory unit (the Baird wog established
with I eoi.w equal to I,Ooo of the retired Congolese Inns.
12. It took well over $1 billion in foreign assis-
tance to keep the Congo afloat from independence in
1960 through mid-1967. This is substantially more
1960 - 67 Index
INDEX OF
RETAIL. PRICES
Kinshasa African Markets
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than has been received by any other sub-Saharan
country, and almost all of it has been in the form
of grants or lenient loans. The nearly $600 million
supplied by the United States was used mainly to
allow the Congo to import US foods and industrial
supplies. (For US aid, see Table 1.) Belgium pro-
vided rrDst of the technical assistance and has spent
about $50 million annually to meet debt and pension
obligations incurred during the colonial period, which
the independent government has re-.used to pay. Since
most aid was used to cushion the severe economic de-
cline, only negligible amounts were spent on development.
Transport System Deterioration
13. The deterioration of the once efficient rail,
river, and road transport network built during the
colonial period has had a particularly severe impact
because almost all agricultural and mineral exports
are produced in separated enclaves, which are a
thousand miles from ocean ports. Waterborne trans-
port capacity has fallen because of a lack of main-
tenance, an absence of new investment, and a shortage
of trained personnel. Barges and steamers plying the
10,000 miles of navigable waterways are the backbone
of the Congo transport system, but the Office d'Ex-
ploitation des Transports au Congo (OTRACO), a quasi-
government agency responsible for most river transport,
now can handle no more than 65 percent of the 1958
volume of traffic. The loss has been felt especially
hard by agriculture because almost all cash crops are
moved by water. (For photographs of transport equip-
ment and facilities, see Figure 3.)
14. A lack of maintenance has left many important
feeder roads between the farms and railheads or
river ports impassable even during the dry season.
Numerous b idges either have fallen or have been so
weakened that only the lightest vehicles can pass.
A truck shortage has made the problem worse. The
Societe des Chemins de Fer Vicinaux du Congo
(VICICONGO), the main road hauler in the northeast,
had 470 trucks in 1959, but now has only 80 trucks,
many of which are sidelined for lack of spare parts.
Because of recurring disorders, VICICONGO has been
unable to increase its truck inventory. In July
1966, for example, mutinying Katangan troops con-
fiscated many trucks and the Army stole or expropriated
much of what was left. Few trucks were recovered in
serviceable condition. Some agricultural commodities
are still moved by small private truckers, mainly
Greeks, and by trucks supplied under various US aid
programs.
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US Aid to Congo (Kinshasa)
Fiscal Years 1961 Through 1967 a/
Million US $
Fiscal Years
1960/61
1961/62
1962/63
1963/64
1964/65
1965/66
1966
67
/
Total
M ,
Economic
75.5
83.1
73.4
41.6
29.8
48
3
45
1
397
4
n
.
.
.
om,
N
UN operation b/
36.1
58.2
39.4
7.5
5.0
4.7
3.5
154.4
~-1
Bilateral
39.4
~'.9
34.0
34.1
24.8
44.2
41.6
243.0
Military
68.6
45.9
38.5
22.8
2
3
3
6
5
1
186
.
.
.
.8
UN operation b/
68.6
45.9
38.4
17.8
170.7 c/
Bilateral
0.1
5.0
2.3
3.6
5.1
16.1
Total Aid
144.1
129.0
111.9
64.4
32.1
52.5
50.2
584.2
a. Fiscal year: 1 July to 30 June.
b. Implemented through the United Nations.
c. Including assessed contribution, $88.9 million; voluntary contribution, $43.4
million; UN bonds, $38.4 million.
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FIGURE 3. CONGO (KINSHASA): TRANSPORT EQUIPMENT AND FACILITIES
C.Ceaxing the Congo RLve& o6
y
-
g
n
wa.ten hyacin-th4 .to baciti.-ta-te mencenanies in Januany 1963
.tnan.6pon.t
Rai1 yg&dA at Lubumbashi
B'Ldge de4.tnoyed b
Ka
tan
a
Riven pon.t o6 KLn4haysa
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15. The 250-mile-long narrow-gauge VICICONGO
railroad, which traverses the northern Congo from
Mungbere to the river port of Aketi, is another
important carrier of agricultural goods. But traffic
is only about one-third of preindependence levels,
and railroad officials estimate '.hat even without new
Simba uprisings the pre-1960 level will not be reached
for at least five years.
16. Four transport routes am available to and
from the Katanga Copperbelt. Two of them are
efficient all-rail routes, one through Zambia,
Rhodesia, and Mozambique to the Indian Ocean and the
other through Angola to the Atlantic coast. The
government has urged mining companies to use an all-
Congo route -- the Voie Nationale -- to save foreign
exchange, but this is a much less efficient route
that now can handle less than half of the Katangan
traffic, mainly because of deteriorated equipment
and the loss- of trained personnel since 1960. A
fourth route -- involving rail-barge-rail use --
through Tanzania to the Indian Ocean port of Dar es
Salaam can handle only a small portion of Katanga's
traffic.
Decline in Internal Trade
17. The deterioration of the transport system
has caused a sharp decline in regional trade and a
breakdown of the regional specialization developed
during the colonial period. Modern economic activity
now is concentrated in the generally self-contained
areas of the lower Congo region near Kinshasa and
the Copperbelt. While these two areas have grown,
other once important commercial centers such as
Kisangani (Stanleyville), Kalemi (Albertville), and
Bukavu have deteriorated.
18. The populace of the vast rural areas, left
to themselves or to the disruptive whims of the
Army, have fallen back to growing just enough produce
for family consumption and little if any for market.
Congolese farmers in the lower Congo, however, have
benefited from the disorders. The population of
Kinshasa increased from 400,000 in 1959 to over a
million in 1967, while food shipments from the
traditional supply areas, Kasai and Kivu Provinces,
dropped to a quarter of the 1959 level. Farmers
near Kinshasa turned increasingly to market gardening
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and now .supply most of the domestically grown food
consumed in the capital region. Their increased
output was a response to the rise in food prices
which was much more rapid than the rise in prices
of manufactured products.
Agricultural Losses
19. Cash crop production (largely for export),
which was seriously affected by the disorders, now
is a!,out half the level of the late 1950's. Official
agricultural exports valued at about $180 million
annually prior to 1960 were only about half this in
1967 (see the chart, Figure 4). Perhaps $30 million
to $40 million worth of agricultural goods are also
smuggled out of the Congo each year. Many products
previously provided by local growers must now be
imported. For example, in 1959 the Congo produced
about 150,000 metric tons of cotton, about two-thirds
of which was exported, but in 1966 the crop was only
about 20,000 metric tons, and the Congo had to im-
port cotton to keep its textile mills operating.
20. The postindependence chaos had its most
disastrous impact on native Congolese farmers whose
output of cash crops plummeted. By 1964, cotton
grown by the Congolese was only 10 percent of the
preindependence level, rice 30 percent, and corn
50 percent (see the chart, Figure 5). The decline
occurred mainly because the highly organized ag-
ricultural schemes developed during the colonial
period collapsed as the Belgian supervisory person-
nel left the country. The output of most other
Congolese cash crop producers also dropped rapidly
because they were dependent on Belgian firms to
provide credit, seed, and other supplies, and to
buy, process, and transport their output. Govern-
ment-sponsored extension services and research
organizations also have been severely weakened.
21. Plantations were in a better position than
the individual farmers to continue operations after
independence because they were able to supply many
of their own needs. Output was relatively stable
until the Simba rebellion in 1964-65, which ravaged
the north and east where most plantations are lo-
cated. Many of these large estates were then
abandoned, and plantation output dropped by about
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Figure 4
Congo (Kinshasa): Exports, 1959 and 1966
1959
Mineral Exports Million US $
Other
Total $279
Mineral Exports
Gold. Other
Total $182
Agricultural Exports
Total $87
Total $380
1966
Million US $
Grand Total $467*
*Exports in 1967 were 5446 million.
Agricultural Exports
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Congo (Kinshasa): Indexes of Cash Crop Production
In ,x 1957.59 Average and 1961.66
1 Yo
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0
1957-59
Average
58905 5-68 CIA
..L.
1961
.--0000-00
Production of Selected Mineral Products
in Congo (Kinshasa)
1959-66
Cobalt 8.4 8.2 8.3 9.7 7.4 7.7 8.4 11.3
Copper 282 303 295 297 271 277 289 317
Tin 9.2 9.2 6.6 7.0 7.0 5.2 6.1 7.2
Zinc 111 109 99 95 100 105 119 '17
Thousand Troy Ounces
Industrial
diamonds 14.2 13.4 18.1 14.4 14.5 14.5 12.5 12.4
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half. Although the Belgians subsequently reopened
some plantations, renewed disorders over the last
two years have negated most efforts to increase
production. Moreover, inflation raised costs while
export revenue remained unchanged at the overvalued
official exchange rate. The problem was worsened
by the breakdown of the transport svstem. Never-
theless, because cash crop production of individual
Congolese has fallen so sharply, plantations now
account for more than 85 percent of all agricultural
exports.
Problems in the Noncopper "dining Sector
22. The volume of output of gold, diamonds, and
tin, which accounts for most mined production outside
the Copperbelt, declined by 25 percent between 1959
and 1966, and their combined export value was down
17 percent.. (For volumes of production, see Table
2.) High tin prices prevented the value of exports
from falling as much as output. Tin and gold are
extracted mainly in the eastern areas, where the
equipment not destroyed by insurrection is old and
obsolete. New investment is minimal and geared to
replacing wornout units to maintain present pro-
duction. Many gold mines have closed because rising
costs, combined with fixed world prices, have made
them unprofitable.
23. Legal exports of industrial diamonds have
declined because of a deterioration in world market
conditions which is partly of the Congo's own making.
About a third of Congolese stones sold abroad are
mined illegally on mining company property, smuggled
outside the country, and sold at prices below those
established by the Central Selling Organization (CS O),
the international diamond marketing cartel. In order
to maintain prices in a market further depressed by
the increasing use of manmade substitutes, the CSO
has reduced the legal output in the Congo, which
accounts for three-quarters of the Free World's
natural output of industrial diamonds, to about 12.5
million carats a year from the previous level of
nearly 15 million carats. About 5 million carats
are smuggled out annually.
24. Diamond smuggling has cost the country about
$10 million a year in foreign exchange earnings and
several million dollars in government revenues.
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Kinshasa has periodically attempted to reduce these
illegal exports but has failed largely because of
internal corruption. For example, in 1966, when
the Army was called on to enforce the law, smuggling
was reduced, possibly by 20 percent, but it soon re-
sumed and in 1967 may evert have surpassed 6 million
carats. The government's failure to halt illegal
diamond mining and smuggling stems largely from the
susceptibility of the Armv and the judiciary to
bribes. Illegal diamond diggers are soon released
from jail or given light sentences, and they quickly
resume operations.
The Special Case of Katanga
25. Two factors have kept the modern sector of
the Congo's economy from complete collapse: the
maintenance of output by Union Minibre du Haut
Katanga (UMHK) and massive foreign aid. Production
of copper, cobalt, and zinc, the UMHK's three most
important minerals, reached an all-time high in
1966 -- some 5 percent higher than in 1960. The
value of output, about $325 million, also was at a
record level because of soaring copper prices. The
UMHK, unlike most other foreign firms, continued its
large investment program in the Congo for some time
after independence. This paid off in the early 1960's
when new refining facilities permitted a more finished
and thus higher valued product to be exported. But
since then, investment programs have been cut and
geared to replacing wornout or obsolete equipment.
26. As economic activity declined in other sectors,
the Congo became increasingly dependent on Katangan
mineral sales. Katanga's share of total exports rose
from about 50 percent in the immediate preindependence
period to 80 percent in 1967. While foreign exchange
earnings from mineral exports are reduced by ex-
penditures abroad for mining supplies and freight
and for a portion of the expatriates' salaries, the
net foreign exchange obtained by the Congo from UMI1K
sales has been sizable, amounting to $200 million in
1966. Government revenues from UMHK operations in-
creased from about a third of total treasury receipts
before 1960 to about half in 1966.
27. UMHK kept up production after independence
because it had virtually a free hand in running its
Katangan enterprises. The Copperbelt has been
operated like a self-contained company town. (For
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a map of the Katanga Copperbelt, see Figure 6; for
photographs of equipment and facilities, see Figure
7.) UMHK helped establish local firms to meet
many of the company's needs and those of the Katangan
populace as well. These firms include metal-processing
plants, a coal mine, hydroelectric power complexes,
an electrical distribution system, cement and chemi-
cal plants, and agricultural processing firms. Most
independent companies in Katanga depend on sales to
UMHK or its employees. Furthermore, the 20,000 UMHK
workers and their 90,000 dependents are housed,
educated, and given medical treatment by the company.
28. After UMHK was nationalized at the end of
1966, the operation of the Katanga mining complex
remained essentially unchanged. The Congolese have
established their own operating company -- Societe
Generale Congolaise de Minerals (GECOMIN) -- to
control the ex-UMHK properties, but actual management
is still in the hands of the Belgians, most of whom
formerly worked for UMHK. The most damaging aspect
of nationalization was the exodus of expatriate
workers. GECOMIN had 1,750 expatriate employees in
January 1967, but by the year's end more than 600
had left. The expatriates left in two waves: the
first because they were reluctant to work for the
Congolese government and had good offers at home,
and the second wave, because of the mercenary-led
mutiny in July 1967 and the subsequent excesses per-
petrated by the Army. As security improved, the
remaining Belgians stayed chiefly because their social
status and living standards are much higher in Katanga
than they would be in Belgium. The number of GECOMIN
foreign personnel has stabilized at about 1,300,
which is a sufficient number to maintain the present
annual output of almost 320,000 metric tons of cop-
per. However, 300 to 400 additional foreign tech-
nicians would be required to carry out long-range
research and exploration.
29. The agreement between Societe Generale de
Minerais (SGM), the management company for the copper
properties, and the Congo government has assured
continuation of copper production, but it poses
serious implications for the industry's future, SGM
is paid 42 percent of sales, less taxes, for managing
the Copperbelt complex. SGM can increase its profits
only if output is increased. Because processing
facilities are being utilized at near capacity, SGM
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$hituru.
e0pppar?
Ceba I bad
CENTRAL GRO
_,Luliro f
lulls
pp usU n.
Dp YI o Ltlc
vboU, uwMA 001COMmuhe
Ko1wil
id, T O/TNI Kelrji
n - 00 /.~...
DIMOCRATIC IIPUILIC
DAR ES e
SALAAM
IOUTN?WIIT
AIIIICA IOTIWAN
I (MY,. lost.)
f - IwAtrIN
SOUTH
AMICA rI}
Lot do Rofenuo
do to Lulira
CONGO (Kinshasa)
KATANGA COPPERBELT
Concession area AL Smelter and refinery
Copper-base mine Refinery
Ore concentration plant Hydroelectric plant
Smelter - Powerline
Lobito
ANGOLA
(Pert.)
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FIGURE 7. CONGO (KINSHASA): KATANGAN COPPERBELT
MINING EQUIPMENT AND FACILITIES
Open p.U copper mine near Ko.ewezL
Lubumba.6hL .smetten p.ean.t
Copper. eonven.ten at the LubumbazhL
6meeUen peant
Vekeommune: one os boun major
hydnoe eec.tni.c powenp.ean.t
comp.Cexee producing e.eee-
.tkLc Uy 4on the Coppenbett
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is working only the richest ore bodies. This assures
the largest possible quantity of copper and other
minerals per ton of ore processed. For example, dur-
ing 1967 (the company's first year in operation) ,
copper output was slightly above the 1966 level, but
the amount of ore processed dropped about 10 per-
cent. Processing only rich ores results in maximum
output in the short term, but has adverse long-run
implications because the poorer grades are bypassed
and the life of the mine is shortened.
A Small but Growing Manufacturing Sector
30. Between 1962 and 1966, manufacturing output
increased by about 25 percent, mainly in the Kinshasa
area and Katanga. Restrictions on imports sparked
consumer goods production, and the breakdown in
internal Congolese trade spurred development of
plants to service the lower Congo and the Copper-
belt. The output of producers' and construction
goods, however, has either stagnated or declined.
Moreover, small manufacturing centers like Bukavu
and Kisangani have declined because of civil strife.
31. Despite the rapid growth of manufacturing,
many plants have been plagued by shortages. A steady
flow of imports is especially important because most
of the manufacturing plants are essentially assembly
operations and because nearly all spare parts are
imported. US loans to the Congo government to purchase
such goods 4.n the United Stated have been a major
factor in maintaining and increasing output of the
local manufacturing sector, :but Kinshasa's corrupt
and excessively bureaucratic import system has caused
periodic shortages of those needed supplies.
32. The Congo's manufacturing sector is minuscule
compared with more advanced developing countries
such as Mexico, but by sub-Saharan standards the
indu-try is large. The Congo leads the area in the
production of beer and processed food products and
ranks high in textiles, cigarettes, and metal and
chemical products used in the mining industry. (For
photographs of manufacturing equipment and facilities,
see Figure 8). The Copperbelt, for example, produces
its own explosives, sulfuric acid, and many other
chemicals used in processing minerals, while neigh-
boring Zambia's much larger copper industry is de-
pendent on South Africa and Rhodesia for these supplies.
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FIGURE 8. CONGO CKINSHASA): MANUFACTURING EQUIPMENT AND FACILITIES
Pa.Pm oit extnac.ti.on p.Cant
8neweny at KLneha.aa
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Efforts at Financial and Economic Reform
33. On 24 June 1967 the government, with sunnort
from the International Monetary Fund (It4F) , insti-
tuted sweening reforms to correct the country's
distorted financial system. The key provision of
the program was a 67 percent devaluation in the
official exchange rate for the Congo currency to
bring it more in line with its actual purchasing
rower. Such a move immediately improved the profit
position of companiFis producing for exhort thus
stimulating foreign sales. Some of the increased
profits earned by exhorters from devaluation is
being siphoned off through higher taxes in an effort
to achieve a small budget surplus.
34. The government has liberalized the import
control system, honing to eliminate much of the
corruptive oractices of imnorters and thus to offset
some of the orice increases of imnorted goods. Also
considerably eased were restrictions on payments
abroad for services such as transport and travel and
the remittance of earnings by Belgian and other ex-
natriates. The reforms are also designed to attract
new foreign investment through such measures as
allowing profits to be renatriated starting in 1969.
35. The IMF sunnorted the reform grogram by
giving the Congo government a $27 million standby
credit. In return the Congolese government pledged
itself to certain IMF-suggested guidelines intended
to prevent the dissipation of all the immediate gains
of devaluation. Wages are sunnosed to rise only 40
percent in the first 18 months after devaluation
desni;:e an expected doubling of prices. There are
credit ceilings on loans by the private sector and
a moratorium on any new government borrowing from
the banking system. Recurring government expenditure s
are to be constrained sufficiently to allow a 10
Percent budget surplus, which is to be spent on
development projects.
A Year of Reforms
36. Less than two weeks after the monetary re-
forms were announced, the mercenary-led revolt broke
out. When the mercenaries occunied Bukavu, economic
activities at this leading commercial center of
eastern Congo came to a near standstill. Elsewhere
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in the country the antiwhite brutality of the Army
resulted in the departure of some 15,000 Europeans,
causing further dislocation. An abortive mercenary
invasion from Angola in November 1.967 completely
disrunted manganese mining in western Katanga for
many months. The Congo economy weathered these
crises, however, as Mobutu's efforts to imr,rove
security slowed down the departure of Europeans
and permitted near normal operations in the CooDer-
belt and at most other important economic installa-
tions.
37. For almost a year the financial reform
program benefited from the prolonged US conger
strike, which kent conner prices high. This windfall
may allow the Congo to balance its budget during the
reform's first year despite higher than planned govern-
ment spending. A similarly favorable situation has
develoned in the Congo's external accounts. Net
foreign exchange holdings increased steadily from
minus $6 million on 23 June 1967 to ;:123 million
by the end of February 196b, and the Congo has not
yet had to utilize the standby credit extended by the
Ir1F. About a third of the reserve buildup reflects
the sale of conner that had been produced and stock-
piled during the dispute with the UMHK in early 1967.
Although the more liberal terms granted for salary
remittances by foreign nationals as well as the al-
most complete removal of restrictions on Congolese
spending abroad increased foreign exchange expendi-
tures in the last half of 1967, there was an offset-
ting decline in imnorts. Foreign purchases were
held down by delays in getting the liberalized
licensing system under way and by a slack in demand
caused by the sharnly increased prices following
devaluation. A small reduction in reserves may occur
before June 1968, however, because a large volume: of
imnorts has been ordered to replenish low inventories.
38. Because the financial situation has improved,
Kinshasa has been able to generally follow the IMF
guidelines. Wages and prices have increased about
as planned. Kinshasa has generally refrained from
borrowing from the banking system, has set aside 10
percent of its budget receints for development, and has
restricted private credit. Although economic activity
in the northeast agricultural areas has revived
somewhat, this is probably a reflection of better
security rather than the reforms. There are, how-
ever, complaints from plantation owners that
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increased export duties on agricultural exports --
now an extraordinarily high 40 percent -- are cancel-
ing much of the profit incentive gained from devalua-
tion.
Prospects Beyond Mic?-1968
39. The performance of the Congolese economy
over the next several years will tend to be uneven.
The rural areas probably will continue to be
neglected, and poor security conditions in the
interior may last for many years. Little if any
economic Progress is expected in these areas. The
government's attention will be focused on the lower
Congo and the Copne-,beli:, where it has better con-
trol, and most of the Congo's development will
occur here.
40. Prospects for more than a modest rise in
agricr!ltural output and exports are dim. Although
plantation output could be increased substantially
because there has been little damage to palm, coffee,
and rubber trees, transport limitations would make
it difficult to get the additional produce to market.
River vessels are working near capacity, and there
are no plans to purchase new ones. Dredging channels
that were allowed to become silted during years of
neglect would be a long and costly process. Moreover,
there is a critical shortage of trained personnel.
41. It will be even more difficult to increase
commercial sales by Congolese farmers, who depend
almost entirely on expatriate-run institutions to
sunnly goods and credits and to buy and transport
crops. The number of private traders and technicians
is not likely to increase sufficiently, especially
in the agriculturally important northeast, because
of the government's inability to maintain security
there. Although the cash crop production of Congo-
lese farmers over. the next several years will almost
certainly rise above the very low level of 1966, it
seems unlikely to achieve the level of the late 1950's.
Even if output should increase significantly, sales
to major economic centers and for export would be
hampered by deficiencies in the marketing and trans-
port system.
42. Kinshasa hopes that, by 1971, copper pro-
duction will reach 450,000 metric tons, 40 percent
higher than in 1967, but prospects for achieving
CFfD FT
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this goal are poor. A 15 percent rise could be
achieved soon because a new ore concentrator, be-
gun several years ago, is scheduled to be completed
late this year. The additional 25 percent increase
would entail new ii-vestment of about $100 million
and a large number of additional foreign technicians.
Except for the concentrator, no other new facilities
are under construction. The prospects for obtaining
funds to finance, or technicians to engineer, a large
increase in copper output are not bright. A world-
wide 'ost-price squeeze is developing in copper, and
the Congo will find profits barely adequate to re-
place wornr)ut equinment. Copper prices, which at
their peak in February 1968 were $0.70 a pound,
began to fall after the US strike was settled in
March 1968. By the end of April they fell to $0.47
and are likely to fall further, perhaps to about
$0.40 per pound by the end of the year, or about 25
percent below the average price received during the
last two years. World output has been increasing
much faster than demand, and Free World consumption
may not catch up to productive capacity for several
years. On the cost side, wages in the Congo will
continue to rise throughout 1968 as workers attempt
to recoup much of the purchasing power that they
lost when the currency was devalued in June 1967.
The minim; sector will also have to pay higher prices
for goods and services purchased locally as suppliers
pass on their increased costs.
43. President Mobutu's attempt to find funds
abroad for cooper expansion is not likely to be
successful. He has tried to sell 40 Percent of
GECOMIN's stock to such large foreign concerns as
Anglo-American Company, Roan Selection Trust, and
the Rothschild-controlled organizations in France
and Belgium. Mobutu has done virtually nothing to
settle the issue of compensation for property ex-
oropriated from UMHK, however, and until this issue
is resolved most foreign firms will not invest in
the Congo.
44. In December 1967, Kinshasa signed an agree-
ment with the Nippon Mining Company to investigate
further a large copper deposit south of Lubumbashi,
outside the original UMHK concession area. The
Japanese hope that production could start in 1972
at an annual rate of 42,000 metric tons. Because
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SIa1~,
1~
1~
for industrial diamonds is likely to soften. Find-
ing now customers for these stones will be difficult.
of technical and mining problems, however, this
project would be economically feasible only if
Kinshasa granted generous tax concessions. Lengthy
haggling and nrocraztinati.on typical of Congolese
authorities are likely to delay the project at least
a year or so beyond the 1972 goal.
45. The output of other minerals in the Congo is
not likely to increase. Most comnanies working old,
small, and scattered tin and gold mines of eastern
Congo are content if they can maintain production.
With the expiration of a US agreement at the end of
1967 to buy about 20 percent of the Congo's diamond
production for the strategic stockpile, the demand
46. Most of the Congo's manufacturing plants are
operating well below capacity largely because of
shortages of imported components and supplies. The
lifting of some of the restrictions on imports under
the monetary reform may permit an increase in output.
Only moderate industrial growth is possible in the
short run, however. Sizable increases in manufactur-
ing production in the important Kinshasa center would
cause a shortage of electrical power, which would be
relieved only after the $60 million Inga hydroelectric
plant is completed in 1970 or 1971. Prospects for
manufacturing in the Copoerbelt are also limited
except in the unlikely event that mining activity
increases substantially. Smaller regional industrial
centers such as Kisangani, Bukavu, and Kalemi have
been seriously affected by civil strife, and major
new industrial endeavors are not likely to be under-
taken for many years in these areas.
47. The financial situation is likely to deterior-
ate for the next several years. The modest budget
surplus recorded during the first few months of re-
form is already giving way to deficits, which will
grow as copper prices fall. As a consequence, pros-
pects include recurring budget deficits, inflation,
a decline in the international value of the Congolese
currency, and continued smuggling. However, the
moderating influence of the IMF and the expatriate
advisers with the National Bank, whose recommenda-
tions have usually been followed by Mobutu, will
Probably keep financial problems within workable
limits. If assistance by foreign governments in
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financing imports continues at the level of the past
few years ($25 million to $50 million annually) , this
would be a major benefit to the Congo's balance of
payments.
48. Development in the Congo is impeded by a
shortage of skills and investment funds. The pos-
sibility for significant tax increases is small;
taxes on company revenues now are among the highest
in the world and any new tax hike would dampen pro-
duction incentives further. Almost the entire
operational profit of GECOMIN is taxed away at
present. In addition, the government's borrowing
caoacity is limited. Any major rise in its outstand-
ing internal debt would be inflationary, as the
money supply would increase much more rapidly than
the amount of goods and services that would become
available. Foreign borrowing on commercial terms
could not be sustained because, with the prospective
decline in export earnirgs over the next several
years, the Congo would soon find repayment of large
short- and medium-term loans difficult.
49. Kinshasa would need foreign aid grants or
loans on noncommercial terms to finance any new
major development effort, but it is not likely to
obtain the required sums. it now receives $150
million a year in foreign aid, mainly in the form
of commodities and technical assistance, and this
amount will be required for at least several more
years to keen the economy afloat. The United States
and Belgium supply a large portion of this aid and
would be raluctant to provide much development assist-
ance in addition. The largest increase in aid for
the next few years probably will come from the
European Common Market's development fund, which
already has pledged $57 million in prcject assist-
ance. This aid is to be spent primarily on restor-
ing transport and agriculture.
50. Even if development funds were found, the
Congo's lack of personnel to manage an expanding
modern sector of the economy and its attendant social
superstructure would be a barrier to any major develop-
ment effort. It will be at least a decade or so
before the Congolese can achieve a reasonable level
of sophistication and develop a trained cadre able
to run the modern sector of the economy. Meanwhile
the number of foreign experts in the Congo, already
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inadequate, has been declining. The Belgian techni-
cal assistance program -- by far the largest -- has
been cut over 40 percent during the last two years,
adversely affecting the onerations of much of the
economic and social infrastructure. The number of
UN-supplied technicians also has been dropping
steadily. Although France and a few other countries
have expanded their programs, they have only made up
for a small part of the loss.
51. Lack of development will not necessarily
cause serious problems. Kinshasa may be relatively
content with a status quo economy over the next few
years. A few prestigious development projects may
be enough for Mobutu or any successor. The populace
is likely to continue to grow sufficient foodstuffs
to meet most basic needs and will probably, as in
the past, absorb large doses of economic punishment
without significant political reaction. Violence
and a new round of chaos is, however, always possible.
A new Simba type of uprising, another period of
xenophobia, or the passing of Mobutu could lead to
further major disruptions in economic activities.
Q1iCID t-r
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