CONGO (KINSHASA): THE CURRENT ECONOMIC SITUATION AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010068-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 68
• Publication Date: June 1, 1971
• Content Type: IM

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Secret
Secret
ER IN 71-116
June 1971
Copy No. 49
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Intelligence Memorandum
Congo (Kinshasa) : The Current Economic Situation
And Prospects
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WARNING
This document contains information affecting the, national
defense of the United States, within the meaning of Title
18, sections 703 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
EwdaJed 6om ,,Iomodc
Jowngradtng and
&douiGmdon
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
June 1971
CONGO (KINSHASA): THE CURRENT ECONOMIC SITUATION
AND PROSPECTS
Introduction
1. Congo (Kinshasa), an African country rich in agricultural and
mineral resources, has had a tumultuous history since independence in 1960.
It has survived army mutinies, secessions, and near-economic collapse. After
the accession of Joseph Mobutu to the presidency in 1965, serious economic
problems had to be faced: a moribund agriculture, a severe shortage of
skilled personnel, a deteriorated and neglected transportation system,
inadequate government revenues, meager foreign exchange holdings, and
rampant inflation. Nationalization of the one copper company in 1967 and
other measures to "Congolize" the economy discouraged foreign investor
interest. This memorandum will review the measures taken to counter these
economic conditions, assess the progress toward recovery, and indicate the
probable course of economic events in the next few years.
Discussion
Seven Years of Deterioration and Stagnation
2. Before 1960 the Congolese economy was one of the most
diversified between th;: Sahara and South Africa. The Belgian colonial
administration had encouraged Belgian citizens to establish large plantations,
mining complexes, and supporting industry and infrastructure. Development
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of Intelligence.
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of -' a mineral-rich interior provinces made the Congo J an important
supplier of cobalt, industrial diamonds, copper, columbium-tantalite, and
manganese (see Table 1). Agricultural diversification was fairly well
advanced, and the Congo exported a wide range of products, including palm
oil, coffee, cotton, rubber, and tropical woods (see Figure 2). Belgians
constituted the entrepreneurial and managerial class in all economic sectors,
and public services, such as health, administration, police, and education,
were dependent on the skills of more than 100,000 Belgian and other white
expatriates. Colonial planning assumed that Belgian rule would continue
indefinitely, and almost no preparations were made for independence. When
Brussels reversed its colonial policy and promised independence in 1960,
the Congolese were unprepared to assume the burdens of leadership.
3. Within a week of independence, the authority of the central
government had collapsed almost completely throughout the Congo. During
the ensuing five years, provinces declared themselves independent, tribal
warfare became widespread, and whites were beaten and killed by Congolese
stirred up by the government's antiwhite propaganda. By the end of 1960,
perhaps 60,000 Belgians had fled, and with them went the vital skills that
had held the complex economic and administrative structure together.
Disintegration of the entire structure followed, and elementary security
evaporated in the wake of tribal revolts and army mutinies. During the
administrative chaos and recurrent hostilities that continued for the next
few years, the transport network deteriorated, both from physical
destruction and from neglect, domestic trade fell off sharply, and production
of most cash crops fell to about if their pre-independence levels (see
Table 2). government administration 25X6
worsened the situation, budget deficits mounted, inflation became rampant,
and unemployment soared (see Table 3).
4. The one bright spot in the midst of this chaos was the copper
industry - production declined only about 4% below the pre-independence
level. With virtually a free hand in running its Katangan enterprises, Union
Miniere du Haut Katanga (UMHK), owned by Societe Generale de Belgique
and Tanganyika Concessios,, Limited, continued to invest in the industry.
Investment in concentrating and refining facilities amounted to about $150
million. Because of the decline of the rest of the economy, copper took
on new significance by the mid-1960s, providing about 50% of exports (see
Figure 2) and half of government revenues.
5. In 1965 a military regime headed by Joseph D. Mobutu replaced
the unstable civilian government in Kinshasa and turned its attention to
1. For principal locations in Democratic Republic of the Congo (Congo,
Kinshasa), see the map, F.7gure 1.
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DEMOCRATIC REPUBLIC OF THE CONGO
' Q U A T 5 U R
CONGO ,,
Figure 1
Munnbare
''" Klsaneon : ' Tenl
Mbandaka
00
r.dapnrr It K I V UUuI w D,
~,~... 3c~sa1?
icwn A N 0 U N 0 U ORIENTAL Klndu I'orI
I3nndundu J EmPnin UVIrh
1gwr I gnnkurn ~ ~ ' l ... _ .. t
~`.Y?INvI?i '~
BRAZZAVILLE
K ,
('Ilr ntrr~NSSHH I
fgololo
tl
ANGOLA
(Port.)
8OUHOARY nEPREBENTATION 18
NOV NECE88ARILY AUTHORITATIVE
1 I 6
200 din's
200 Kllomclera
Ilol Kohe
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I.We
RanrprcWu
Ndol
ZAM IA
LUSAKA
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Congo (Kinshasa): Indexes of Mineral Production
1959 =
100
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Copper
313,955 tons
107
105
105
96
98
102
112
114
116
129
136
Cobalt
9,294 tons
98
99
115
87
91
99
134
115
125
126
142
Diamonds
14,856,000 carats
91
123
99
100
99
84
84
89
80
95
95
Tin
10,297 tons
N.A.
N.A.
75
N.A.
56
N.A.
77
70
67
71
61
Manganese ore
402,343 tons
N.A.
N.A.
88
N.A.
79
N.A.
68
75
88
85
95
Cn
n
Coal
294,317 tons
65
27
30
39
40.
42
42
49
26
32
32
C
Zinc concentrates
60,418 tons
97
104
102
59
101
104
112
112
114
116
116
T
Wolframite
607 tons
N.A.
N.A.
65
N.A.
39
N.A.
41
25
32
39
N.A.
H
Columbium-tantalite
282 tons
N.A.
N.A.
57
N.A.
18
N.A.
38
57
44
68
63
Cadmium
524 tons
N.A.
N.A.
65
N.A.
99
N.A.
89
60
67
63
N.A.
Silver
163 tons
N.A.
N.A.
34
N.A.
31
N.A.
39
39
45
33
32
Gold
285,724 troy
ounces
82
64
53
59
48
22
45
42
48
50
50
Throughout t is memorandum, tonnages are given in short tons.
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CONGO (Kinshasa): Exports
Million US $
1959
Total: $461
Palm
Products
Coffee 2 27
Palm 26
Produc`
1967 Smuggled 30
Exports
Total: $476 Other 30
Smupplad exports Included ._Minoaio
Tin 'tt" ,?e?
Cobs it >..,.7
Diamonds
1970
Total: $793
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Diamonds
Cobalt /.
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Table 2
Congo (Kinshasa): Indexes of Cash Crop Production
1962
1963
1964
1965
Palm oil 78
73
72
56
Coffee 52
76
63
39
Cl)
Rubber 93
94
88
53
Cotton 30
N.A.
24
7
ttl ~
Sugar 107
97
70
85
Wood N.A.
N.A.
83
73
a. Estimated.
1966
1967
1968
60
73
84
58
67
74
76
80
102
12
13
19
83
90
99
72
63
58
1969 1970
82 82
82 84
91 80
30 30
93 N.A.
58 49
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 'Estimated gross domestic product N.A. N.A. N.A. N.A. 94 N.A. 107
(constant prices)
Employment
-Congo (Kinshasa): Indexes of Economic Indicators
Africans b/
Expatriates
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1960, 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
96, 84 75 80 78 73 41
97 63 58 63 67 70 70
N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Retail prices (end of year)
European stores
113 152 274 393 451 489 616
N.A. 149 180 261 377 425 476
106
114
122
134 a/
44
44
N.A.
N.A.
CO
M
70
63
N.A.
N.A.
n
N.A.
156
160
170
i17
H
1,074
1,276
1,437
1,466
892
1,061
1,132
1,172
a. Gross domestic product in 1970.in current prices estimated at $2,020 million.
b. In 1959, there were 1,281,490 Congolese in salaried positions or active in cash crop agriculture.
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the foreign interests that dominated the economy. Legislative measures were
taken to "Congolize" the economy and to assert control of natural
resources. Mining concessions granted prior to independence were revoked,
and concessionaires were required to reapply for future use of their holdings.
6. Relations with the UMHK particularly were strained, because of
Congolese bitterness over the fact that the firm had backed Katangan
secession after independence. UMHK's annual earnings fell from $70 million
in 1959 to an annual average of $12 :zillion between 1962 and 1965.
Taxation rose sharply, and. although sales revenues rose substantially in 1966
as a result of higher copper prices, profits after taxes increased only slightly
above the 1965 level of $16 million, far below pre-independence levels.
At the time of the takeover, more than $7 million in back dividends was
being held back, because the Congolese government refused to make the
necessary foreign exchange available.
7. UMHK was nationalized on 1 January 1967 with no provision
for compensation. UMHK reacted by stopping copper production, halting
the transfer of foreign exchange to the Congo, and threatening legal action
against anyone who purchased Katangan metals from the Congolese. As
a result, the Congo's foreign exchange reserves fell below one month's
imports, and stocks of consumer goods and industrial supplies dwindled.
In February 1967 the Congolese agreed to have the Belgian firm Societe
Generale des Mincrais (SGM), which had handled marketing for UMHK,
manage the Katangan operations (later named Gecomines) and market the
output. J
2. Compensation for UMHK was not resolved until September 1969 after
the personal intervention of World Bank President Robert McNamara. SGM
agreed to manage Gecomines for 25 years. During the first 15 years, SGAI
would receive 6% of the value of all minerals produced, (predominantly
copper, but also including cobai t, zinc, germanium, silver, and gold) minus
marketing costs; the 6% commission includes compensation to UMHK and
a management fee. After 15 years, compensation payment would cease,
and SGM's fee would fall to 1% of minerals soles minus marketing costs;
this charge is roughly in line with other similar management contracts. If
Gecomines expansion proceeds as scheduled, UMHK will receive more than
$500 million. Payment to SGM in 1969 was about $23 million, or about
$5 million more than the 1968 payment for management services alone.
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in 1969,
the first post-independence budget surplus was recorded (see Table 6),
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Recovery and Prosperity
8. The economic nadir of the nearly bankrupt Kinshasa government
came in 1967. At that point, on the advice of the International Monetary
Fund (IMF), the government agreed to a 67% devaluation and to sweeping
fiscal reform measures. Uncontrolled deficit spending by the government
was ended, export incentives were restored, and import restrictions that
had protected the manufacturing sector (see Table 4) were lifted. Less than
two weeks after the monetary reforms were announced, unfortunately,
mercenary-led revolutionaries occupied Bukavu (the leading commercial
center of eastern Congo), and elsewhere antiwhite army brutality resulted
in further departure of Europeans. Manganese mining was disrupted for
many months, and diamond production (usually the second or third most
important mineral export) fell off because of pilferage and smuggling by
the troops and by resettled refugees. Nevertheless, Mobutu's efforts to
improve security and achieve economic reform slowed the departure of
Europeans and permitted nearly normal operations in the Copperbelt and
most other important economic installations.
9. A prolonged US copper strike, which touched off a sharp price
rise (see Figure 3), from July 1967 to April 1968 did even more to benefit
the Congo. This windfall allowed the Congo to finance its current budget
without a deficit - revenues from Gecomines alone (see Table 5) were
almost equal to total government revenues the year before (see Table 6).
Total exports rose 24% (see Table 7), largely because copper exports rose
48%, and net foreign exchange holdings increased steadily from virtually
nothing in June 1967 to $138 million at the end of 1968.
10. By 1969, relative calm and prosperity prevailed. Restrictions on
funds blocked before the devaluation were relaxed, and expatriates were
invited back to run key industries and utilities. A liberal investment code
guaranteeing profit repatriation was issued, and in September 1969 a
settlement with UMHK was reached. Copper revenue continued to rise, as
economic growth in industrial countries as well as Vietnam war requirements
kept demand strong and world prices high. Because of unprecedented tax
collections, government spending was able to rise almost unchecked.
Equipment was purchased to repair bridges and roads, public works were
undertaken, and funds were allocated for schools and dispensaries. Wages
of the 285,000 workers on the government payroll (almost one-third of
total wage and salary earners) were raised, bringing the government's annual
wagebill to about $250 million - about 55% of current budget expenditures.
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Table oil
Beer
.Cigarettes
Cotton cloth
1962. 1963 1964
Congo (Kinshasa): Indexes of Selected Manufactures
Metal furniture
Table 4
1958-59 Average =
100 a/
1965
1966
1967
1968
1969
1970
322
303
305
249
300
377
159
176
175
173
213
245
66
76
72
71
83
94
cn
115
118
114
92
107
107
C~
282
371
471
379
500
629
L71
H
96
102
108
107
104
109
147
130
131
120
200
224
75
112
100
101
99
103
67
76
80
79
87
105
44
48
32
33
38
29
279 278 302
165 163 148
298
85 49
106 110
238 207
Sulphuric acid 85
Explosives 100
Soap 75
Metal barrels
78
105
70
66
88
123
61
55 45 45
? Unless otherwise indicated.
Estimated.
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Copper Prices
Cents Per Pound (Wlrebnrs)
0
1959 1960 1961- X962 1963
1968 1969 1970
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Congo (Kinshasa): Taxes and Duties Paid by Gecomines
Export taxes
Copper. surtax
Import duties
Oi.~ ke* r taxes
Total payments
1967 1968 1969 Total Ian-3'un Jul-Dec
80 151 177
N.A.
N.A.
N.A.
N.A.
301
Percent of all
domestically
generated revenue 46 51 49 54
a. 1970 partly estimated.
32
N.A.
N.A.
N.A.
N.A.
CO
tai
C)
rj
H
180
126
57
44
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Congo (Kinshasa) :
Government Budgetary Operations
Mi11io., ;S $
1967
1968
1969
1970
Total expenditures
247.2
457.4
598.4
653.8
Current
218.3
371.4
459.9
N.A.
Capital
28.9
86.0
138.5
N.A.
Total receipts
235.8
.0.8
600.3
630.6
Domestic revenues
199.2
375.1
539.9
570.6
Gecomines taxes
91.1
191.2
264.8
306.0
Foreign assistance
36.6
45.7
60.4
60.0
Surplus/deficit
-11.4
-36.6
+1.9
-23.2
Congo (Kinshasa):
Foreign Accounts
Million US $
1966
1967
1968
7.969
1970
Total exports
488.4
476.2
588.6
684.0
793.0
Copper exports
267.0
259.0
384.0
443.'
534.0
Imports
378.8
319.8
360.2
472.4
620.0
Net foreign assets
16.9
116.3
169.8
225.2
217.8
(end of year) a/
a. Net foreign assets is the difference between
foreign assets and liabilities of the entire Congo-
lese bankin. system.
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and foreign debt service was a modest 4ln of 1969's export earnings and
domestic debt service only 5% of domestically generated revenues,
1970's Turnabout
II. Although the wave or prosperity continued through the early
months of 1970, new fray s or nationalization were touched off. In February,
it Kinshasa court cloccd an auto dealership, which had operated through
a Brussels parent, and round the firm guilty of currency fraud and false
Invoicing, A surge or capital flight ensued its a hastily formed holding
compunY >repared (,~~ ~,~>ly be the responsibility of the Congolese.
Prospects
18. The economic boom of recent years is unlikely to continue in
the next few years. With copper prices down and likely to average around
500 a pound, earnings will fall by about $90 million in 1971 and it will
take two to three %years before the increase in copper production will offset
the effect of loiv.r prices. Prospects arc somewhat better for agricultural
exports, especially palm products, rubber, and coffee, but the price of tin
also has fallen. With wages rising and liberal impot policies, introduced
several years ago at IMF urging, being pursued, imports probably will
continue to rise in 1971. The government has already made recourse to
supplier credits and longer term foreign borrowing and has sought more
official foreign loans. The overall capital in-flow should increase in 1971,
but not nearly enough to cover the increased current account deficit.
Foreign exchange reserves arc, therefore, likely to continue declining, which
may lead to a serious foreign exchange shortage before the end of the year.
19. When the crisis comes, the Congolese government will be faced
with the choice of either cutting expenditures (particularly the government
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payroll) or imposing tight import controls - either course would be
politically almost impossible. To postpone capital expenditures -- especially
transport improvements - would slow the pace of economic development
considerably. Tighter import controls would also spur inflation.
20. The large foreign investments now under way to develop the
Congo's metal resources will not do much to improve the government's
financial position for a number of years. Large increases in copper
production will not begin before 1973-74. Transport bottlenecks continue
to hinder growth of mining output outside of Katanga Province. Because
tax holidays on new investments extend well into the mid-1970s, increases
in production will not immediately bring increased revenues.
21. Prospects for expansion of manufacturing and plantation
production are uncertain. A number of new industries are being established
and some existing facilities, all expatriate-owned, are being enlarged. These
advances could evaporate, however, if the Mobutu regimes were to
"Congolize" the major foreign-owned firms or if greater restrictions were
placed on profit remittances. Moreover, since the tax burden on corporations
already is heavy, any significant increase is more likely to trigger tax evasion
than result in greater receipts, Although expatriates are beginning to invest
in plantations, transport difficulties and rising wages make their position
vulnerable.
22. In any event economic progress will be concentrated in a few
large urban centers and surrounding areas - especially around Kinshasa and
the Copperbelt. The rural areas will almost certainly continue to be
neglected, although some slow progress may be made in rebuilding the rural
infrastructure that fell apart after independence. Even in the urban
economy, no relief from the growing unemployment problem is in sight.
Total employment in the modern sector is still far below the
pre-independence level; public investment will be limited by financial
constraints, and in any case is concentrated in capital-intensive areas, like
electric power, which use little labor.
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