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

Created: 6/1/1968

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Seer-*" 55

NoJ'oreign DUsem

Memorandum

The Economy of Congo (Kinshasa):

Trends Since Independence and Prospects

Approved for Release

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Copy

CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence June8

M0RANDUM

The Economy of Congorends Since Independence and Prospects

Summary

The measures initiated one yearPresident

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 indeDendence There

is little hopei however, that the Congo can reverse

the trend and acquire either the capital or tho

skills needed toignificant 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 beingecade or more will be recuired before there are enough of them toifference.

Large amounts of aid would be necessary tothe transport network, to increaseoutput, and to reintegrate scattered centers of economic activity. But aid of the required magnitude is not likely to be found. Although

Hoff This memorandum vas produced solely by CIA. It was prepared by the Offiae of Economic Research and was coordinated with the Offiae of Current Intelligence.

substantial assistance from Belgium and the United States is expected to continue, most of this isto maintain current levels of activity. Private foreign capital investment will continue to be discouraged bv internal instability and byunattractive orosoects 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,ell-integrated and efficiently run infrastructure, abundant natural resources, thriving agriculture, and an exoanding mining sector. But there were no native Congolese in the upoer echelons of either government or business, and it took moreelgiansadministrators, mining engineers, plantation owners, technicians, and teachersto hold the complex economic structure together.

By the end0 Belgians had fled, many in fear for their lives, and with them went the vital skills without which the Congo could not properlv function. The whole structure began to disintegrate, and elementary security evaporated in the wake of tribal revolts and arrav mutinies. the years of administrative chaos and recurrent hostilities that followed, the transport network deteriorated badlyess from Physical destruction than from neglect. Agricultural exports fell to about half their preindeoendence levels as transport bottlenecks and periodic warfare destroyed incentive to produce for export. Corruption and inefficiency in government administration exacerbated thebudget deficits mounted, inflation was rampant, and unemployment soared. Bv the end7 the real wages for those who had jobs averaged only aboutercent of0 level.

Two factors kept the modern economy from collapse after independence in moreillion dollars in'foreign aid and the continued near-normal operation of the coooer mining industry. As other

sectors of the economy declined, the copner industry assumed an increasingly important role;6 it was providing aboutercent of total exports andercent 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 outout to meet the_requirements of the rapidly growing population of the region and to offset the sharo decline in foodstuffs available from other regions.

The Congolese Economic Inheritance

At independence onhe Congo had the most modern economy of any country between the Sahara and South Africa. ap of Congoee The Belgians hadlarge, relatively efficient plantations, mining complexes, and industrial Dlants and theto supoort them. Although theof this economv were laid during the half century preceding World War II, the most ambitious develooment period in the Belgian Congo occurred in the decadealf after the war, when more thanillion was invested to greatlv exoand existing economic and social facilities. Gross investment, averaged about one-fourth of gross national producta rate matched by few other countries in the world.

The Congo's wide variety oi natural resources spurred develooment in the years before independence. Rich mineral deposits in southern Katanga have long been an important world source of copner and zinc

and the leading source of cobalt. Industrial diamonds from Kasai now account for three-quarters of the Free World's total outout. Marked variations in climate ranging from tropical to temnerate permit arange of products such as oalm oil, coffee, cotton, corn, wheat, and garden vegetables. Extensiveforests provideantities of valuable timber, and the Congo River is one of the world's leaders in hydroelectric potential.

productive areas are located mainlyoerioherv of the country, which is about thethe United States east of the Mississippiof the interior Congo Basin is thinlyheavily wooded. The long distances andseparating economic centers makeountrv-wide economic unit. In anovercome these problems, the Belgians spentmillion durings to imorove The enclaves of modern economic activityKatanga Cooperhelt in the south, the richof the temoerate eastern highlands, andplantations of the northeast and loweraround Kinshasa, which is also the hub ofand commercial services and the site ofindustries. Most of the Congo's foreign

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trade funnels through Kinshasa to Matadi, the country's only major ocean port.

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 constituted the entrepreneurial class, Europeans were excluded from many jobs. In thes, for examole, Congolese drove trains and ooerated power shovels, in contrast to British-ruled Northern Rhodesia (nowhere the local oooulation was considered capable of only menial tasks. esult of these efforts, moreillion Congolese were wage earners, and, of these, more than three-quarters were engaged in urban Another million of the0 population ofillion was drawn from thesubsistence economvelgian-organized quasi-modern agricultural svstemthe payeannats indigenehich considerably raised theCongolese standards of living. The average real income of the Congolese more than doubled in theears prior to independence, and thereiddle class, including building contractors, tradesmen, small manufacturers, and transport In addition, the countrv had relatively well-develooed health, administrative, police, and educational systems. For examole,lmost four-fifths of the children of elementary school age attended class, whereas in French African colonies the ratio was about one-third.

Congolese involvement in the economy, stopped short of the higher levels of industry and administration. Belgian planning assumedcolonial rule and very slow political advance, andhen Brussels reversed its colonial policv and promised independence, there were no Congolese engineers and no Congolese in the upper levels of the government. The economy and theservices were almost entirely dependent on

the skill, knowledge, and experience supplied by moreelgian and other white expatriates. The absence of Congolese trained to cooe with or even understandhe managerial problems of an economv as complex as the Congo's hasajor cause of manv serious oostindependence.

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Seven Years of Deterioration and Stagnation

eek of independence, tho authority of the central government throughout the Congo had almost completely collapsed. Provinces declared themselves independent, tribal warfare becameand whites were beaten and killed by Congolese stirred up by the government's antiwhite propaganda. 0 Belgians fled and modem economic activity dropped sharply.

Byith UNemblance of order was restored, and many Belgians returned, butsoon evaporated as the "Simba rebellion"45 took place. The rebels, withand weapons supplied by radical African

and Communist countries, controlled and terrorizeduarter of the country. The Congoregained control in6 with tho use of white mercenaries, but security deteriorated again in6 with the revolt of Katangan troops and later with the mercenary-led rebellionoreover, security in many areas controlled by the Congolese National Army IANC) has been weak orand in some instances the Army itself, which lacks effective leadership, has pillaged and destroyed.

Belgian expatriates sufferedbut they could and did leave the countryCongolese, who also fared badly, lacked theleave. Congolese who had been drawn intoagricultural schemes were driven fromto return to subsistence production orthe ranks of the urban unemployed. Someabsorbed by the rapidly expandingbut most remain without any For those Congolese who have jobs, moneyincreased since independence, but pricesmuch faster, and real wages by the end ofaboutercent of0 level. country, but especially in rural areas,including medical services, have

Changes in the Economic Structure

structural changes have beenseven years of deterioration.

large Belgian-based holding companies controlled most major productive enterprises, and individual Belgians owned the numerous small shoos that handled much of the trade and services. Both groupselatively free hand in running their businesses. Under Congolese rule, however, economic policy has been to remove the 3elgians from positions ofand to out Congolese in charge whether or not they were ready for it. esult the momentum of development was quickly halted. Those Belgian businessmen who staved on did so mainly to protect their remaining investments. For many urbanized Congolese, undisciplined in business management, graft and corruption haveav 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, freelv convertible into Belgian francs. Leoooldville hadarge 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 bv Brussels, the Congolese financial svstem 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 economv has been further weakened by inflation. Large budget deficits sincepumped money raoidlv into the economy while the suooly of goods available declined, andesult the cost of living rose sixfold betweenndsee the chart. thereharp droo in the international free market value of the Congolese currency.the government maintained an artificially high official exchange rate through most of the postindeoendence period, thereby causing ansevere cost-price squeeze for exporters, whose production costs soared while oxoort revenues remained constant. onsequence, manv exoorters turned to smuggling. Illicit exports of agriculturaland diamonds grew raDidly and have amounted

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toillionillion 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 low 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 corruption and hampered by bureaucracy, causing long delays in the receipt of goods.

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Congoonetary Indicators

12. It took well overillion in foreignto keep the Congo afloat from independence0 through This is substantially more

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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. The0 million supplied by the United States was used mainly to allow the Congo to import US foods and industrial supplies. (For US aid, see Belgiummost of the technical assistance and has spentillion annually to meet debt and pension obligations incurred during the colonial period, which the independent government has refused to pay. Since most aid was used to cushion the severe economiconly negligible amounts were spent on development.

Transport System Deterioration

The deterioration of the once efficient rail, river, and road transport network built during tho colonial period hasarticularly severe impact because almost all agricultural and mineral exports are produced in separated enclaves, whichhousand miles from ocean ports. Waterbornecapacity has fallen becauseack ofan absence of new investment,hortage of trained personnel. Barges and steamers plying0 miles of navigable waterways are the backbone of the Congo transport system, but thex-ploitation des Transports au Congouasi government agency responsible for most river transport, now can handle no more thanercent of8 volume of traffic. The loss has been felt especially hard by agriculture because almost all cash crops are moved by water. (For photographs of transportand facilities, see

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 bridges either have fallen or have been so weakened that only tho lightest vehicles can pass.

A truck shortage has made the problem worse. The Societe des Chemins de Fer Vicinaux du Congohe main road hauler in the northeast,rucksut now has onlyrucks, many of which are sidelined for lack of spare parts. Because of recurring disorders, VICICONGO has been unable to increase its truck inventory. In for example, mutinying Katangan troopsmany 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.

ile-long narrow-gaugewhich traverses the northern Congoto the river port of AJteti, iscarrier of agricultural goods. Butonly about one-third of Dreindependencerailroad officials estimate that even withoutuprisings theevel will not beat least fivo years.

transport routes are available tothe Katanga Copperbelt. Two of themall-rail routes, one throughand Mozambique to the Indian Ocean andthrough Angola to the Atlantic coast. has urged mining companies to use anroutethe Voie Nationaleto savebut thisuch less efficientnow can handle less than half of themainly because of deterioratedthe loss of trained personnel routenvolving rail-barge-rail useTanzania to the Indian Ocean port of Darcan handlemall portion of

Decline in Internal Trade

deterioration of theharp decline in regional trade andof the regional specializationthe colonial period. Modern economicis concentrated in the generallyof the lower Congo region near Kinshasa and

the Cooperbelt. While these two areas havo grown, other once imoortant commercial centers such as Kisangani alemi nd 3ukavu have deteriorated.

populace of the vast rural areas,themselves or to the disruptive whims ofhave fallen back to growing just enoughfamily consumption and little if any forfarmers in the lower Congo, however,from tho disorders. The populationincreased9 tohile food shipments fromsupDly areas, Kasai anduarter of9 level- 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 outputesponse to the rise in food Drices which was much more rapid than the rise in" prices of manufactured products.

Agricultural Losses

Official

Cash crop production (largely for export which was seriously affected by thes about half the level of thes. Offici agricultural exoorts valued at0 million annually prior0 were only about half this7 (see the chart. illionillion 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,9 the Congo producedetric tons of cotton, about two-thirds of which was exported, but6 the crop was only0 metric tons, and the Congo had tocotton to keep its textile mills operating.

The oostindependence chaos had its most disastrous impact on native Congolese farmers whose output of cash crops plummeted. otton grown by the Congolese was onlyercent of the ore independence level, riceercent, and corn

ercent (tee the chart, The decline occurred mainly because the highly organizedschemes developed during the colonial period collapsed as the Belgian supervisoryleft the country. The output of most other Congolese cash crop producers also drooped rapidly because they were dependent on Belgian firms to provide credit, seed, and other supplies, and to buy, process, and transport their output. extension services and research organizations also have been severely weakened.

wereetter positionindividual farmers to continue operationsbecause thev were able to supplytheir own needs- Output was relativelythe Simba rebellion, whichnorth and east where most plantations are Many of these large estates wereand plantation output dropped by about*

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copt available

figure 4

96

million us $

Productiont*dProducts in Conoo

1

2

er.s

93

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. because cash croo production of individual Congolese has fallen so sharply, plantations now account for mora thanercent of all agricultural exports.

Problems in the Honcopper Mining Sector

volume of output of gold, diamonds,which accounts for most mined productionCooperbelt, declined byercentnd their combined export value was down

ercent. (For volumes of production, see 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 Many gold mines have closed because rising costs, combinod with fixed world prices, have made them unprofitable .

exports of industrial diamondsbecauseeterioration in worldwhich is partly of the Congo's owna third of Congolese stones sold abroadillegally on mining company property,the country, and sold at prices belowby the Central Selling Organizationinternational diamond marketing cartel. Inmaintain pricesarket further depressedincreasing use of raanrnade substitutes, thereduced the legal output in the Congo,for three-quarters of the Freeoutout of industrial diamonds, toear from the previousillion carats. illion carats

are smuggled out annually.

smuggling has cost theear in foreign exchange earningsmillion dollars in government revenues.

attempted to reduce these Illegal exports but has failed largely because of

CorrUD*fon- Forhen tne Army was celled on to enforce the law, smuggling

blyt it soon re?

rHT,t 7 mayaillion carats. The government's failure to halt illegal

Wdstems largely from the susceptibility of the Armv and the judiciary to

Ille9aldW9ers are soon released

ntenCefl'<hey

The Special Case of Xatanca

..v. 2l' ctors have kept the modern sector of theconomy from complete collapse: the maintenance of output by Union Miniere du Haut Katanga (umhk) and massive foreign aid. Production of cooper, cobalt, and line, the UMHK's three most important minerals, reached an all-time highercent higher than The value of output,5 million, also was at a ecause of soaring copper prices. The WJHK. unlike most other foreign firms, continued its large investment program in the Congo for someer independence. This paid off in thes

ore 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.

t' As, economic activity declined in other sectors, the Congo became increasingly dependent on Katangan mineral sales. Katanga's share of total exports rose

Dercent in the Mediate preindependence

efcenVnexchange

earnings from mineral exports are reduced byabroad for mining supoliesortion of the expatriates' salaries,-oreign exchange obtained bv the Congo from 05 een Slzable. amounting0 million Government revenues from UHHK operationsa third of total treasury receipts

0 to about half

27. omhk kept up production after independence because it hadree hand in running its Katangan enterprises. The Copperbolt has been operatedelf-contained comoany town. fPor

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a man of the Katanga Copperbelt, see Figureor photographs of equipment and facilities, see 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-processingoal mine, hydroelectric power complexes, an electrical- distribution system, cement andplants, and agricultural processing firms. Most independent companies in Katanga depend on sales to UMHK or its employees. Furthermore,0 UMHK workers and0 dependents are housed, educated, and given medical treatment by the company.

After UMHK was nationalized at the endhe operation of the Katanga mining complex remained essentially unchanged. The Congolese have established their own ooerating companyociete Generale Congolaise de Minerals (GECOMIN)o 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. GECO.MINxpatriate employees inut by the year's end moread left. The expatriates left in two waves: the first because thev were reluctant to work for the Congolese government and had good offers at home, and the second wave, because of the mercenary-led mutiny in7 and the subsequent excessesby the Armv. As security improved, the remaining Beloians stayed chiefly because their social status and living standards are much higher in Katanga than they would be in Belgium. The number of GECOMIN foreicn personnel has stabilized at,ufficient number to maintain the present annual output ofetric tons of dditional foreignwould be required to carry out long-range research and exploration.

The agreement between Soci6tfe Genfcrale de Minerals he management company for the copper properties, and the Congo government has assured continuation of cooper production, but it poses serious implications for the industry's future. SGM is oaidercent of sales, less taxes, for managingcomplex. SGM can increase its profits only if output is increased. Because processing facilities are being utilized at near capacity, SGM

one ui majoi kydzocZecii'LccompizKZi pn.odixc.lns&oi Zht Coppzibtlt

assures

is working only the richest ore bodies. This ess the largest possible quantity of copper and other minerals per ton of ore processed. Forthe company's first year inooper output was slightly above6 level, but the amount of ore processed drooped about 10 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. 2anufacturing output increased by aboutercent, mainly in the Kinshasa area and Katanga. Restrictions on imoorts 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 Dukavu and Kisangani have declined because of civil strife.

31. Despite the rapid growth of manufacturing, many plants have been plagued by shortages. teady flow of imports is especially imoortant because most of the manufacturing plants are essentially assembly operations and because nearly all soare parts are imported. US loans to the Congo government to purchase such goods in the United Stated havoajor 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 industry 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 The Copperbelt, for example, produces its own explosives, sulfuric acid, and many other chemicals used in processing minerals, whileZambia's much larger cooper industry ison South Africa and Rhodesia for these supplies.

efforts at Financial and Economic Refo

rn

On7 the government, with suooort from the International Monetary Fund (IMF),sweooing reforms to correct the country's distorted financial svstem. The kev provision of the program7 percent devaluation in the official exchange rate for the Congo currency to bring it more in line with its actual ourchasing nower. ove immediately imoroved the profit position of companies oroducing for exoort thus stimulating foreign sales. Some of the increased nrofits earned by exnorters from devaluation is being sinhoned off through higher taxes in an effort tomall budget surplus.

34. The government has liberalized the import control system, honing to eliminate much of the corruptive practices of importers and thus to offset some of tho Drice increases of imnorted goods. Also considerably eased were restrictions on payments abroad for services such as transDort and travel and the remittance of earnings by Belgian and other The reforms are also designed to attract new foreign investment through such measures as allowing orofits to be repatriated starting

35. The IMP" suonorted the reform orogram by giving the Congoillion standby credit. In return the Congolese government oledged itself to certain IMF-suggested guidelines intended to orevent the dissipation of all the immediate gains of devaluation. Wages are auonosed to rise onlyercent in the firstonths after devaluation desoite an expected doubling of Drices. There are credit ceilings on loans bv the private sectororatorium on anv new government borrowing from the banking svstem. Recurring government expenditures are to be constrained sufficiently to0 percent budget surplus, which is to be soent on development projects.

Year of Reforms

LeSS than two weeks afCer the monetary re-aK2OUnCed' therevolt broke

ccuniedcommercial center of

eastern Congo cameear standstill. Elsewhere

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in the country the antiwhite brutality of the Army resulted in the departure of0 Europeans, causing further dislocation. An abortive mercenary invasion from Angola in7 completely disrupted manganese mining in western Katanga for manv months. The Congo economv weathered these crises, however, as Mobutu's efforts to improve security slowed down the departure of Europeans and permitted near normal operations in the Coooer-belt and at most other important economic

ear the financialbenefited from the Drolonged USwhich kent coooer prices high. Thisallow the Congo to balance its budget duringfirst year despite higher than plannedsoending. imilarly favorable situationin the Congo's external accounts. exchange holdings increased steadilyS6 million on73 million

by the end ofnd the Congo has not yet had to utilize the standby credit extended by the IMF. hird of the reserve buildup reflects the sale of cooner that had been produced andduring the disDute with the UMHK inlthough the more liberal terms granted for salary remittances by foreign nationals as well as thecomplete removal of restrictions on Congolese spending abroad increased foreign exchangein the last halfhere was andecline in imnorts. Foreign purchases were held down by delays in qetting the liberalized licensing system under way andlack in demand caused by the sharolv increased orices following devaluation. mall reduction in reserves may occur beforeowever,arge volume of imports has been ordered to replenish low inventories.

the financial situation hashas been able to generally follow the Wages and orices have increased about

as Planned. Kinshasa has generally refrained from borrowing from the banking svstem, has set asideercent of its budget receipts for develooment, and has restricted private credit. Although economic activity in the northeast agricultural areas has revived somewhat, this iseflection of better security rather than the reforms. There are,complaints from plantation owners that

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increased export duties on agricultural exportsnow an extraordinarily highercentaremuch of the profit incentive gained from

Prospects Beyond

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 orogress is expected in these areas. The government's attention will be focused on the lower Congo and the Copnerbelt, where it has betterand most of the Congo's develooment will occur here.

Prospects for moreodest rise in agricultural 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 wouldong and costly process. Moreover, there isritical shortage of trained personnel.

will be even more difficult tosales by Congolese farmers, whoentirely on expatriate-run institutionsgoods and credits and to buy and The number of private traders andnot likely to increase sufficiently, especially

in the agriculturally important northeast, because of the government's inability to maintain security there. Although the cash croo oroduction offarmers over the next several years will almost certainly rise above the very low levelt seems unlikely to achieve the level of thes Even if output should increase significantly, sales to major economic centers and for export would be hampered by deficiencies in the marketing andsystem.

hopes that,opperwilletrichanut orosDects for achieving

this goal are poor. 5 percent rise could be achieved soonew ore concentrator,several years ago, is scheduled to be completed late this year. The additionalercent increase would entail new investment of0 millionarge 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 toarge increase in coDoer output are not bright. Acost-Drice squeeze is developing in copper, and the Congo will find orofits barely adequate towornout equinment. Cooper prices, which at their peak in8 wereound, began to fall after the us strike was settled in By the end of April they fell tond are likely to fall further, perhaps to abouter pound by the end of the year, or aboutercent below the average price received during the last two years. World outDut has been increasing much faster than demand, and Free World consumption may not catch ud to Droductive caoaclty for several years. On the cost side, wages in the Congo will continue to rise8 as workers attemDt to recouD much of the purchasing oower that they lost when the currency was devalued inhe mining sector will also have to pay higher prices for goods and services purchased locally as suppliers pass on their increased costs.

President Mobutu's attemot to find funds abroad for coooer expansion is not likely to be successful. He has tried to sellercent of GECOMIN's stock to such larqe foreign concerns as Anglo-American Comoany, Roan Selection Trust, and the Rothschild-controlled organizations in France and Belgium. Mobutu has done virtually nothing to settle the issue of comoensation for prooerty ex-orooriated from UHHK, however, and until this issue is resolved most foreign firms will not invest in the Congo.

Ininshasa signed anwith the Nippon Mining Comnany to investigatearge conper deposit south of Lubumbashi, outside the original UMHK concession area. The Japanese hope that production could startt an annual rate0 metric tons. Because

of technical and mining problems, however, this project would be economically feasible only if Kinshasa granted generous tax concessions. Lengthy haggling and procrastination typical of Congolese authorities are likely to delay the project atear or so beyond the2 goal.

outout of other minerals in the Congolikely to increase. Most companies workingand scattered tin and gold mines ofare content if they can maintainthe expirationS agreement at the endto buy aboutercent of the Congo'sfor the strategic stockpile, theindustrial diamonds is likely to soften. new customers for these stones will beUS firm may exploit columbite deposits, butwould be small and would not makecontribution to government revenues.

.Most of the Congo's manufacturing plants are operating well below capacity largely because of shortages of imoorted 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 Dossible in the short run, however. Sizable increases inproduction in the important Kinshasa center wouldhortage of electrical oower, which would be relieved only afterillion Inga hydroelectric plant is completed0 Prospects for manufacturing in the CODPerbelt are also limited except in the unlikelv event that raining 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 befor many years in these areas.

The financial situation is likely tofor the next several years. The modest budget surolus recorded during the first few months ofis already giving way to deficits, which will grow as copper orices fall. onsequence,include recurring budget deficits, inflation,

a decline in tho international value of the Congolese currency, and continued smuggling. However, the moderating influence of the IMF and the expatriate advisers with the National Bank, whosehave 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 years5 millionillionhis wouldajor benefit to the Congo's balance of payments.

Development in the Congo is impededhortage of skills and investment funds. Thefor significant tax increases is small; taxes on company revenues now are among the highest in the world and any new tax hike would dampenincentives 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 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 earnings over the next several years, the Congo would soon find repayment of large short- and medium-term loans difficult.

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 now0ear 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 keep the economy afloat. The United States and Belgiumarqe portion of this aid and would be reluctant to provide much developmentin addition. The largest increase in aid for the next few years probably will come from the European Common Market's development fund, which alreadv hasillion in project This aid is to be spent primarily ontransport and agriculture.

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 wouldarrier to any major develop ment effort. It will be atecade or so before the Congolese caneasonable level

of sophistication andrained cadre able to run the modern sector of the economy. Meanwhile the number of foreign experts in the Congo, already

inadequate, has been declining. The Belgianassistance programby far the largesthas been cut overercent 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 Pranceew other countries have expanded their programs, they have only made upmall part of the loss.

51. Lack of develooment will not necessarily cause serious problems. Kinshasa mav be relatively contenttatus quo economy over the next few years. ew prestigious develooment 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. Violenceew round of chaos is, however, alwaysew Simba type of uprising, another period of xenophobia, or the passing of Mobutu could lead to further major disruptions in economic activities.

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