Zaire has a mixed economy, with a dominant state role in the mining, utility, transportation, and communications sectors, but with private enterprise present throughout the economy. Except for petroleum products, utilities, and parts of the transportation sector, market determined prices are the norm, and many parastatal enterprises compete with private ones. Fiscal and monetary policy reforms initiated by the government under a 1983 economic adjustment program approved by the International Monetary Fund (IMF) have resulted in a more liberal and open economy.

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Between 1986 and 1988, Zaire experienced serious economic difficulties. Export earnings fell in real terms, government revenues decreased, deficit spending increased, inflation soared, the Zaire currency depreciated, and the parallel or black market for foreign exchange flourished. In 1989 the government adopted a structural adjustment program which contained the budget deficit, reduced inflation, established positive interest rates and narrowed the gap between the parallel and official exchange rates. However, in early 1990 the government abandoned the program with the result that the budget deficit, the inflation rate and the depreciation of the zaire are all increasing again.

Zaire's economy has been in decline since early 1990, but the pace accelerated sharply during the last quarter resulting in an inflation rate of 242 percent for the year brought on by massive government spending and resulting increases in the money supply. Higher international oil prices have also contributed to Zaire's economic woes. GECAMINES (Zaire's mining parastatal) production is down by 20 percent in 1990, due to strikes, transportation problems and an underground mine cave-in, leaving Zaire strapped for foreign exchange to pay for oil and other imports. Its internal transportation and distribution networks continue to deteriorate, making commerce within the country increasingly expensive and difficult. Current government of Zaire policies are not successfully addressing Zaire's economic problems.

Stated fiscal policy supports major development efforts in agriculture, transportation, and health; however, a large political and administrative bureaucracy directs most government expenditures to Kinshasa and other urban areas. Government income comes chiefly from import and export taxes, with mineral, petroleum, and coffee exports providing most foreign exchange revenue. Receipts from customs duties increased in 1989 with improved management of the customs agency. Zaire has usually financed its large budget deficits by borrowing from the domestic banking sector, which in turn has led to excessive growth in the money supply and rapid inflation.

Demand for imported products and opportunities for major project sales are limited by a low per capita income (US$180) and a shortage of foreign exchange. The best prospects for U.S. exports continue to be heavy equipment, especially mining and road equipment. Food products such as wheat, flour, frozen fish and chicken, and canned goods are a major import category, and a number of export opportunities exist for U.S. companies in telecommunications and appropriate technology equipment.

2. Exchange Rate Policies

Since the 1983-86 liberalization program, controls on foreign exchange have been lifted in a turn toward greater emphasis on market forces and private enterprise. Participants in the foreign exchange market are the commercial banks and the Bank of Zaire, with individuals and corporations purchasing it from the commercial banks. The availability of foreign exchange through official channels has depended chiefly upon world commodity prices for Zaire's major exports

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(minerals and coffee); the level of government deficit spending; and government adherence to a floating exchange rate system determined by supply and demand.

The 1989 structural adjustment program slowed the rate of devaluation. However, in early 1990 increased deficit spending and a sharp decline in the availability of foreign exchange has caused the zaire to resume its rapid depreciation and the parallel market has returned as a significant economic channel. From January through September 1990 the zaire depreciated 60 percent against the dollar. This trend is expected to continue in 1991.

The economic liberalization policy pursued by the government since 1983 has had a positive effect on commerce in Zaire. Nontariff measures which used to impede trade have been reduced and U.S. trade with Zaire has increased steadily. However, the scarcity of foreign exchange in the economy restrains imports for both consumption and production needs.

Calls for government procurement tenders are publicly made, and bids solicited actively from foreign suppliers. Government parastatal enterprises as well as the government itself buy a considerable part of their supplies abroad because in many categories of goods there is no domestic manufacturer. Special licenses are required for all petroleum product imports in order to enforce the government's policy that all petroleum imports be made through a purchasing committee. The committee is composed of the petroleum distributors and is chaired by the state oil company Petrozaire. Only petroleum products to be imported from suppliers under contract to this committee are granted import licenses. Chevron presently supplies third country crude to Zaire under such a contract.

The government encourages local manufacturing with higher duties on finished goods than on component parts and raw materials, although the degree of protection was reduced in 1989 on World Bank advice. Recent improvements in the collection of customs duties and value-added taxes on imported goods have generated increased revenue for the government. reducing customs fraud, these measures have increased the price competitiveness of locally-produced goods and legal imports.

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At the end of 1989, Zaire's outstanding debt was estimated to be $7.6 billion (excluding the IMF). Most of this debt is owed to bilateral government creditors while multilateral institutions account for 20 percent and commercial banks account for about 6 percent. Debt forgiveness plans initiated in 1989 and 1990 by Belgium, France, Germany, and the United States have improved Zaire's debt situation somewhat. Zaire received $59.2 million in debt forgiveness under Section 572 in 1990 and, if it had one of the legislatively required structural adjustment programs in

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effect, Zaire would be eligible for $67.3 million in similar debt forgiveness in 1991. Nevertheless, without debt rescheduling, Zaire would have a 50 to 60 percent debt-service ratio. However, numerous Paris Club and London Club debt reschedulings have reduced debt service payments resulting in an actual debt service ratio of between eight and ten percent. No debt rescheduling agreement was concluded in 1990 as Zaire is not in compliance with a structural adjustment program. Zaire has stopped most debt service payments to bilateral creditors and to commercial banks.

The major impediment to U.S. traders and investors probably is the chaotic economic environment created by the massive government deficits. Otherwise, import licenses are still required for all transactions in foreign exchange. These licenses are issued by the commercial banks under the guidelines of the Central Bank. The import licenses are granted liberally and have the main purpose to collect statistics on imports and foreign currency flows. The measure is applied equally to imports from all countries.

Government procurement decisions are greatly affected by the financing arrangements offered by exporters and their governments. While the Overseas Private Investment Corporation has been active in Zaire in assisting U.S. investors with political risk insurance, the Export-Import Bank does not currently finance exports to Zaire.

Zaire has a relatively open market in the services sector of the economy. U.S. companies currently compete in engineering, banking, hotel, business consulting, accounting, legal, and express package delivery services. Several areas are not open to private competitors, however, such as insurance, in which the state-owned corporation has a monopoly.

Zaire has made an effort to attract foreign investors. The 1986 investment code took important steps to restore investor confidence and mobilize foreign capital. The Bilateral Investment Treaty signed in 1984 by the United States and Zaire offers American investors additional guarantees in the areas of transfer of profits, employment of necessary expatriate technical and managerial personnel, and dispute settlement. With the exception of the minerals extraction industry, the government neither requires nor generally seeks participation in foreign investments. New commercial ventures are required to have up to 40 percent Zairian participation but this requirement can be waived. the minerals sector, the government generally takes a 20 percent share in private investments in return for concession rights, but does not participate in management.

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The government of Zaire encourages foreign firms to minimize the number of expatriate employees. It is official policy that as an investment matures, the number of expatriates should diminish. The government exercises control over expatriate employment through the issuance of residence and work permits and through a special tax applied to expatriate salaries. The Bilateral Investment Treaty assures the right of U.S.-owned firms to fill key management positions with personnel of their choice.

There are no export subsidies in Zaire, nor any government programs to assist the export sector.

7.

Protection of U.S. Intellectual Property

The government of Zaire acknowledges the value of intellectual property. The country is a party to the Berne Convention for the Protection of Literary and Artistic Works and the Paris Convention for th Protection of Industrial Property and is a member of the World Intellectual Property Organization. The government Department of National Economy and Industry protects privileged technology and production information, as well as trademarks. International franchises (e.g. Coca-Cola) operate comfortably in Zaire within the protection granted by the state. A national society of editors, composers, and authors oversees copyright protection due artists under the law, but it is a private organization and not an official agency. There is very limited production of books and sound recordings in Zaire. We are not aware of any incidents of patent infringement in the country.

The government acknowledges its duty to pursue trademark infringement, but the legal and administrative system is ill-equipped to do so. Being a large country that borders nine other states, Zaire does not control all of the goods crossing its borders. The personnel and expertise to check all goods entering for possible trademark fraud are also limited. Cartier watches, U.S. brand name jeans, and designer label clothes of questionable origin are all freely available in Kinshasa. The EC has been assisting the government with a multi-year World Bank program for the staffing and training of customs inspectors, which might enhance their future effectiveness.

8. Worker Rights *

a. Right of Association

Before April 24, 1990, the labor movement in Zaire was limited by law to one national union, the National Union of Zairian Workers (UNTZA), which was an integral part of the then sole political party, the Mouvement Populaire de la Revolution (MPR). In his April 24, 1990 democratization speech, President Mobutu also declared union pluralism. Several days later, UNTZA declared itself independent of the MPR.

Since April 1990, several workers groups have been organized and have applied to the Minister of Labor for approval as legal unions. Some of these groups, headed by former Secretaries General of UNTZA, represent an effort to reestablish unions which had existed until the late 1960's, before being amalgamated into the UNTZA. Others, notably those of the civil servants, teachers, and medical personnel, are new unions. At the end of 1990, as organizational activities proceeded, labor sought answers to such questions as which unions will be legalized, to what extent will they be legally empowered to collect dues, and whether the UNTZA would continue to be favored by the authorities.