Categorie archief: Reports 2001

March 2001

March 2001

March 2001

South America, assesssed

Introduction

The South American continent has experienced many ups and downs in its history and big political changes in its recent history. Internal struggle, coup d’etats by the militaries, subsequent political suppression and a return to democracy have been the common history in South America. The northern part of South America have been thereby, after the political struggles, confronted with criminal organisations combined with leftist guerilla organisations who undermine the society. These countries have experienced a new kind of intra-state conflict. Guerilla movements who have become relatively independent from outside support through the involvement in criminal activities. Beside kidnappings and tax extortions in the territories they control they have found a new and very profitable source of revenue. The protection of criminal organisations who grow, process and transport illegal substances, read cocaine, heroine and marihuana, in the territories they control.

The drugs producing, processing and transporting criminal organisations have corrupted many societies, governments, in these regions and these organisations have been more than willing to use violence to reach their goals. The free flow of narcotics and free access to the profits of their trade.

The leftist guerilla organisations have become a great problem in some countries. Especially if they could connect their political case with the financial possibilities of the drugs trade. This have made those guerilla groups very powerful as they can buy the weapons they want and they can even take care of their soldiers and administer the territories they control.

The country most under threat by leftist guerillas and narco-organisations is Columbia. The country is facing incredible problems which will continue in the foreseeable future as they are essentially independent in their policy and financing.

A diplomatic solution will be very difficult as the concerning parties do not trust eachother and maybe more importantly, they both want to have their maximum demands fulfilled, e.g. the take over of power.

The activities of the Columbian based guerilla organisation even start to cross the borders with neighboring countries to increase their revenues and fighting power.

Other countries are also experiencing problems with the combination of criminal organisations and guerilla movements. But not on the scale as in Columbia.

The South America continent is facing other tensions on a different level. At least three countries have differences about the exact demarcation of the border. These problems have been kept under control but any unexpected action or even an increase of internal political problems could lead to an increase in external tensions to take the pressure of the internal problem.

The border differences are in the northern part of the continent which also face the biggest problems with the economy and problems with leftist guerilla organisations.

The countries further to the south are more stable internally and externally. They do not have problems with guerilla organisations nor other organisations which want to change the political landscape by the use of violence. They have like the majority of the countries on the continent some problems with the economic development, national account and monetary / currency problems but they are still more or less controllable.

Argentina

After the military junta in Argentina had been replaced by an elected government, the political internal problems have disappeared. All political parties are in the position to be part of the system and operate in it.

The problems of Argentina are of another dimension, they are of an economical nature. The economy of Argentina has been improved but remains weak. The government has problems to keep the cost under control, the currency is under pressure, even if it is, and partly because of it, connected to the US dollar and the economy is to one sided directed at agriculture.

Argentina failed to create a significant middle class with the the accompanied industrial base. The modernisation of Argentina is lagging behind.

Chile

Chile is the economical bell weather of South America. The economy has shown a admirable development in the last decade. The change to an elected government has also increased the political stability in the country. There are therefore no movements who want to change the government by the use of violence.

The government is stable and the military is not showing any will to become involved again in the running of the country. Chile is the most stable country on the South American continent.

Paraquay

The situation in Paraquay is also pretty stable, but the economic development is slow and is more or less undermined by smuggle activities into Brazil and Argentina. The government is however able to keep the situation under control.

The government of Paraquay is however facing some problems with former generals who have some support in the armed forces and the population who disagree with the current government. They are however not yet strong enough and bold enough to try to replace the government by force.

Uruguay

Uruguay has become a stable country after the military dictatorship had been replaced.

The political situation is very stable and seems not be under threat by any vilent opposition movement. The military is also showing none what so ever ambition to become involved again in the running of the country.

An additional advantage is that the current president, Jorge Battle Ibenez, is very popular and is largely responsible for the current positive political and economical development of the country.

Brazil

The largest country of the continent, Brazil, is a very diversified country. It is very rich in natural resources and has a large population. The country is more or less stable, there are no political opposition movements which could challenge the government with violence.

The economic situation is however more concerning, there is a very large gap between the rich and poor part of the population. The economy is also very much based on agriculture and lacks any large scale modernisation policy.

There is also, like in Argentina, a lack of growth in the middle class with an industrial base. The better off, the elite, is to much focussed on the agriculture. The elite controls vast tracts of the countryside which is very often not cultivated but only in their possession out of culture, inheritance, and as a collateral to finance an abundance lifestyle or business activities. The business activities are then mostly trade or some other kind of relatively quick money kind of business activities.

The economic development is further hampered by government regulations and problems with the national currency.

The only bigger problem in Brazil are the criminal organisations which control the slums in the big cities of the country. They use the slums as a safe haven to run their criminal activities, especially drugs trade. But these organisations are to small and not interested in government affairs and pose no threat to the political stability a such.

Bolivia

The landlocked Bolivia is politically relatively stable, there are no political organisations which are undermining the government with the use of violence.

The problems of Bolivia are also of economical nature. The development is slow and seems to be unable to get an impetus from the government or from abroad.

Bolivia is only facing some problems with the increased activities of criminal organisations and guerilla organisations out of Columbia who are increasing their working territory to the neighboring countries.

The incursions out of Columbia are at the moment of small scale but if they get any hold they will quickly increase. This will undermine the government as corruption will increase and will be bad for the stability in the country.

Peru

Peru is a typical South American country with a history of suppression and a return to democracy. The Peruan society is like many of its neighbors divided into a small elite, of wealthy people, and a large group of poor people with little to none possesions. The elite is living from the natural resources the country can deliver, the poor are living to support the elite. There has been none to little modernisation in the country. A middle class has not been given the chance to develop therefore no creation of a small to medium scale industrial structure. The country lacks any substantial modernisation policy which will damage any bigger development.

The recent abdication of former president Alberto Fujimori, which had to leave office after a dubious running of the presidency and more importantly black mail attempts by his former SIN intelligence chief, Vladimori Montesinos, of parliament members left the country in a weak position. The new interim president Valentin Paniagua, is doing his best to consolidate his position against possible coup d’etat attempts by the armed forces and the Montesinos clan.

The weak economy and new president is a problem but Peru has three other problems. One external, one in and external and one internal. Peru has a territorial conflict with Ecuador, and both even had a small fight about the disputed territory. This dispute is at the moment under control with support of the United Nations but it remains to be seen if both are satisfied with the current arrangement on the longer term.

The internal and external problem of Peru are the increased activities of criminal organisations which are engaged in the production and processing of illegal substances, read cocaine. These organisations are supported and sometimes even controlled by the Columbian FARC, guerilla movement. The FARC is increasingly using Peru as a new territory to increase its revenues and as a support base for its activities in Columbia. These activities undermine the security in Peru and more important it will create an uncertain situation in Peru. The drugs business will create more corruption and will damage the stability in the country.

The internal problem of Peru has become less in recent years through the successes of the armed forces againt the Sendero Luminoso, Shining Path, left wing guerillas and the MRTA, the left wing city guerilla. The activities of both are severly contained but they still exist and their threat could increase in the future.

Ecuador

Ecaudor the relatively small country is facing a difficult future. The oil wealth with which Ecuador has been blessed has not delivered the development and wealth it promised. The economy in Ecuador is in a bad shape, there has been also none to little modernisation and no creation of a middle class. The country is divided into a wealthy elite and a large poor group.

Ecuador has been further undermined by an internal and a external problem. The internal problem is about new subservice / terrorist groups in Ecuador which became visible by a number of bombings in the country against foreign countries, especially the U.S.A. and installations of foreign companies. These small groups do not now and on the short term pose a threat to the government. But they are highly irritating and might hinder the econoic developmet of the country.

The external problem, the territorial disaagreement with Peru, is at the moment under control, but there is still a problem with the exact demarcation of the border with Peru. This will need extensive negotiations to solve the problem forever.

Columbia

Columbia is facing the biggest problems of all , the country is being undermined by several criminal organisations and even more threatening leftist guerilla organisations who already control substantial parts of the country. The situation in Columbia is further complicated by the AUC, a rightwing militant organisation. The AUC is an answer to the leftist guerillas at first supported by the wealthy elite and the government but at the moment more or less independent.

Columbia as a country is severly limited in its actions, souvereinity, the country is effectivily under siege. And it does not have the abilities to change this situation on the short term. At best they can stabilise the situation. The armed forces of Columbia are not able to defeat the guerilla movements. The armed forces are to occupied with protecting important installations and persons and the absolute bare minimum of training. This leaves only a relatively small part of the armed forces free to be used effectively against the guerilla movements.

The main opponents to the Columbian government are two leftist guerilla movements. The largest is the FARC, Fuerzas Armadas Revolucionaries de Colombia, or in English the Revolutionary Armed Forces of Colombia. The FARC has occupied large parts of the country and has been given a refuge by the government in exchange to join negotiations of 40.000 square kilometers. The FARC is financed by taxes they collect in the territory they control, smuggling of narcotics and protection money from narcotic growers and organsations. The steady flow of revenue from own resources has made the FARC very independent. They cannot be influenced by outside parties and forced into a deal.

The second opponent is the ELN, National Liberation Army, the second strongest opposition party / force in Columbia. The ELN is smaller than the FARC and is also funded by tax collection, smuggling, protection money and by kidnappings. The ELN have established their name by these kidnappings and by the destruction of oil pipelines and electricity masts. The ELN also requested a refuge from the government of about 20.000 square kilometers, but the government declined to accept that demand in exchange for negotiations. Because the ELN is a lesser threat and the bad experiences they made with the FARC territory.

It is estimated that the FARC and ELN control approximately 40 % of the territory of Columbia but operate in an even larger area, at least the double of that.

To make the situation even worser, Columbia is also undermined by right wing paramilitary organisations. There are several right-wing paramilitaries which are leaded and funded by rich landowners and also narco organisations to combat the leftist guerillas and the narco organisations which operate without their permission. With extreme violence they suppress the rural population and the guerillas and the competing narco organisations. One of them, AUC, Autodefensas Unidos de Columbia, or in English the United Self Defence Forces of Columbia, has grown larger and became more independent.

As the left wing guerillas they quickly found out that they can earn enough to have their own business and do not need the funding of the elite and/or government. There are still some covered contacts with some government officials, read military officers, but they have none to little influence over the AUC.

The AUC has become something of a unwanted organisaton to the government at first they came in handy but as they became uncontrollable and even an important opponent of the FARC and the ELN all want to get rid of the AUC. The cruelty with which the AUC operates and the threat they pose to the FARC and ELN make them unwanted.

All calls of the AUC to be involved in any negotiations was therefore refused by all parties. The FARC even occasionally demanded of the government to eliminate the AUC before to continue negotiations.

The much publicised and many negotiations between the government and FARC have until now led to nothing. It were mere exchanges of demands, especially the FARC uses the negotiations to ventilate their wishes but do not really negotiate with the government. The FARC still has the impression that they can get what they want, e.g. a change of government, with the use of violence.

The continued fighting in the country between the different sides has devasted the Columbian economy. The small business sector has been undermined by the activities of the guerilla movments, which levy taxes and make doing business extremely difficult. Columbia relies on its revenues on the export of oil and other raw materials. The most succesful commodity, export product, of Columbia still remains cocaine and other illegal substances. The narco organisations even produce at the moment their own heroine and slowly move into designer drugs.

Columbia will remain in the foreseeable future very unstable as none of the parties involved is able to change the situation to their advantage. All are simply not strong enough to defeat eachother nor are they willing to cooperate to defeat one or two opponents.

Venezuela

The situation Venezuela is different from the one in Columbia. It is largely an economic problem. Many years of government mismanagement has created a very bad economical situation. Another problem is that Venezuela is, like Brazil and Peru, targeted by the Columbian FARC as a new area for revenues, read drugs, and as a support base. This will bring all problems related to the drugs problem to Venezuela. Government corruption and the destruction of the local farm business and country structures will become more common. The production, processing and transport of cocaine is much more profitable thus easily accepted by the poor farmers in the outback of Venezuela.

Venezuela has however a much more threatening problem which could destabilise the region. Venezuela has a claim on large parts of neighboring Guyana.

The election of Hugo Chavez as president, which promised to bring economic progress and an end to the governmental mismanagement and corruption has not brought prosperity until now. Chavez introduced some regulations, popular with the population and promised to do more things like those but all he did and promisses to do in the future has not been really beneficial for the country, and he changed the law and constitution rather illegally. This all has not brought any larger improvement. The rise of the oil price was more benefiacial than anything Chavez has done until now.

To worsen the situation even further Chavez called on an old claim on territory of Guyana. This to rally support in the population and as a kind of scape goat to draw attention away from the worsening economy.

The increase in the oil price improved the economic situation of Venezuela and the position of Chavez but this increase in revenues will only have temporary effects.The price of oil might fall and you get used to easily to the increased revenues and expenditures.

The claim on Guyana will be on the table again on the short term. Worsening the regional stability and consequently the economy of the whole region. Venezuela remains an uncertain place to invest. To many threats to any investment., from a legal, economical and from a security perspective.

Guyana

Guyana is experiencing a lot of economical problems, the economic development is stagnating and to make things even worser it has been threatened by Venezuela. Years of governmental mismanagement has caused a lot of problems and will have effects in the years to come.

If the threat out of Venezuela could be eliminated Guyana could have chance of getting into better and safer waters but until then it will remain an uncertainty for Guyana and the attractiveness for investments.

Surinam

Surinam is also experiencing an economical crisis, the growth has been very slow, non existent to negative, the inflation has risen and the currency in a free fall. The political stability has been under threat by a possible coup d’etat by former president Desi Delano Bouterse. A threat which has been lessened after the recent elections and rumors of financial difficulties of Bouterse but it remains uncertain at which level the relations with the military and his political party are.

There are sign of improvements in Surinam but the economy is still having difficulties to restart and show some bigger growth figures. The new government has a chance to change the situation but will need support from abroad. An improved relation with the former colonial master, the Netherlands, and if the last tranche of the money set aside after the liberation is set free, there are some possibilities. Especially with a prudent policy and restrained spending.

Conclusion

The South American continent is a very differentiated continent, from wealthy and stable to relatively poor and unstable. The countries in the south of the continent, Chile, Argentina, Uruguay and Brazil are more or less politically stable countries. Argentina and Brazil face some problems with the expenditures, high debts, modernisation and currecny stability, but they can be brought under control if all efforts are put to it. Chile is economically the most succesful with Uruguay on a good second.

Then there is a large group of countries in between, countries like Paraquay, Bolivia, Ecuador and Surinam. These countries are more or less politically stable, the chances on a change of power through the use of violence, or even that there will be any violent actions of one or more groups will be negligible or on a very small scale. The problems with these countries are about the lack of economic development and pressing problems with the country’s finances and currencies.

Then there is a group of countries on the edge, which are at the moment politically stable but this just happened or a new development could change the current situation. The economy of these countries is troubled which could easily lead to political instabilty. Countries in this group are Peru and Venezuela.

Finally the last group of countries is the smallest and consists out of one country, Columbia. Columbia is politically and economically unstable. The country is under threat, it needs to fight for its existence, by three dangerous movements which want to change the current government. Criminal organisations involved in narcotics are worsening the climate in the country. The economy is undermined as rebel movements are weakening the infrastructure and businesses. The export of raw materials and illegal substances are the only means of income for Columbia.

In general it can be stated that South America, with the exception of Chile and possibly Uruguay, is having a number of problems. The majority of the countries are politically stable, the governments are elected and the democracies are functioning more or less. The problems of South America are of an economic nature.

The societies in South America are divided in a very wealthy elite and a large group of poor people. In most countries the middle class is very small. The economy is still to much dependent on agriculture and raw materials. There has not been any, or just a little, modernisation of the economy.

The industrial development has been neglected and the middle class has not been given an opportunity to develop and grow. The majority of the countries lack any dynamic development of an industrial and service sector. Everything has been limited to agriculture and raw materials. The elite could live very well on those two sources but this has not created any progress for the people or the country for that matter. All institutions, including the government and legal system, were aimed at maintaining the current situation. Any new development especially in the business sector has been very difficult in this situation.

The continent has to do a lot to change this situation of slow development. The governments should stimulate the development of the economy, read the modernisation of the industry and the society. The government should start with the creation of a balanced budget, restructuring of the debts, have a stable currency and a clear development policy.

The development policy should include new legislation, including property rights, education and housing for the population. The new legislation is necessary to make it easier to start new businesses and property rights to make sure that the new ventures belong to the people who started it. This will make it also easier to get financing if it would be necessary. Another advantage would be that the poor people will be finally be able to get, build, houses on their own property. At the moment it will take over 20 to 30 permits in some South American countries to get a property title.

The government should also have a housing policy to eliminate the often very bad circumstances in the slums. Which are very unhealthy and are often the headquarters of criminal organisations and in the slums they are nearly untouchable for the police forces.

Probably the most important factor will be the education of the population. A large group of youths need to be educated in the new sciences to stimulate the creation of new companies and attract foreign companies and investments.

This potential large pool of workers and the entrepeneurs could become the new middle class. Economic growth could be attained by this policy. All this can be done at relatively low costs, especially if compared by the cost of an insurgency. Which might happen if the current structures in the society will last and hinder any economic development. The unemployed youths will become dissatisfied and become targets of small groups who want to change the society by the use of violence.

Standaard
February 2001

February 2001

February 2001

The future of the Democratic Republic of Congo, DRC

The Democratic Republic of Congo

The Democratic Republic of Congo, DRC, the former Zaire, has been a very turbulent country in the previous years. The country, one of the largest in Africa, with an abundance of potential with large reserves of several kind of minerals and an even larger agricultural potential, has been thrown into a war with many facets. It is an internal conflict but can be as good described, because of the foreign involvement in the conflict, as an war between several African countries. Nearly all neighboring countries are involved in the conflict and support one of the many sides in the conflict. The war in the DRC has been called by some as the first African Great War, and they are right with this statement.

The conflict started rather small as Ugandan and Rwandan forces moved into the DRC, at that time still Zaire, with the objective the eliminate violent opposition groups which used the DRC as a homebase. Several Congolese opposition groups used these actions to start an insurgency to get rid of the much disliked dictator Sese Seko Mobuto.

The much fractioned opposition could be united with rather dubious methods, many leaders disappeared, by Laurent Desire Kabila, Kabila became the new leader of the opposition which had become much more effective through the unification. With support of the Rwandan and Ugandan government and military the opposition movement was now able to take over power and dispose Mobuto.

Kabila became president with high expectations of the Congolese population, who expected an end to the decayed and rotten Mobuto government and the economic misery. Unfortunately Kabila was however not the salvation he promised to be. Kabila simply replaced the people but not the system and on the shortest possible of time span he could alineate his former allies, Rwanda and Uganda, by allowing and even supporting the Ugandan and Rwandan opposition movements in the DRC and by discriminating the Banyamulenge and other Tutsi descendants in the east of the country.

The ones united opposition quickly found refuge in the east of the country and started to fight the new regime in Kinshasa with support of Uganda and Rwanda. Essentially three major opposition movements and many more tribal groups came into existence since the second rebellion started.The three major organisations are the Mouvement pour la Liberation du Congo, MLC, the Rassemblement Congolais pour la Democratique-Mouvement Liberation, RCD-ML and the Rassemblement Congolais pour la Democratique-Goma, RCD-Goma The MLC is supported by Uganda and the RCD’s are supported by Rwanda.

The situation worsened even further as Burundi which is involved in a some kind of civil war also has some opposition movements operating out of the DRC became involved in the conflict. Another enemy for Kabila and an supporter for the rebel movements.

The combined opposition, rebel movements, against Kabila could conquer large parts of the DRC and nearly the whole eastern side of the country is under their control. The opposition is however not united and the contradictions increased in time. The divisions are not only limited to the MLC, RCD-M and the RCD-Goma which occassionally combat eachother but also local Ugandan and Rwandan forces are involved and even fight with eachother. The problems in the rebel movements increased as all have a stake in the DRC cake and all want to profit from its mineral wealth.

The oppostion in the east is a collection of groups with three large groups the MLC, RCD-M and the RCD-Goma and many other tribal groups like the Banyamulenge and small local groups with each a rather independent warlord. Sometimes they cooperate but mostly they are outright hostile towards eachother. As mentioned before they are all primarily interested in getting their share of the wealth in the country.

Kabila could withstand the opposition only by the large support it received from its supporters, Angola, Namibia, Zimbabwe and the Sudan. These countries support Kabila out of their own interests and certainly not for the good of the DRC.

Angola and Namibia want to limit the operations of the UNITA, which is combatting the Angolan government in a two decade long civil war and are creating havoc in Namibia. Zimbabwe is supporting Kabila out of pure commercial interests as the Zimbabwan political and military elite received generous exploitation contracts of minerals in the DRC and they need to be protected. Sudan is supporting Kabila because Uganda is supporting the Sudanese opposition, the SPLA.

As the war continued with this strange collection of enemies and supporters, the intense fighting has decreased. The territory hold by each side has been more or less stabilised. But this does not mean an end to the fighting which became clear as all peace initiatives collapsed and no site was really willing to concede and cooperate.

The future of the DRC

The year 2001 started surprisingly, or not, with the succesful assassination of the president of the DRC, Laurent Desire Kabila. The strongman in the DRC government who could get together an alliance of supporters which were willing to support him in the struggle against the opposition, rebel movements, in the east of the country.

Laurent Desire Kabila was killed, shot, by a bodyguard. It is still uncertain which organisation is behind the person who killed him. There are several rumors, conspiracy theories, which are blaming the rebel forces in the east of the country, or the former political allies like the CNRD, or see an involvement of Rwanda, Angola and even the CIA or Belgium as the former colonial ruler. So there is no certainty at the moment.

The death of Kabila could have large implications for the country. His death could start a fundamental change in the country as no man in his government will most likely not be able to control the government forces and keep the alliance together. The alliance of supporters are getting more and more problems at home and might be tempted to witdraw their support. And this would quickly mean the end of the current government.

The successor of Kabila is at the moment his son Joseph Kabila, which was already the Chief of Staff of the armed forces. Joseph Kabila will be the next president but it is uncertain if he will remain very long president. He has the support of the other cabinet members, all close friends and appointees of Laurent Desire Kabila, and the armed forces. But the support is not certain as some stronger cabinet members and some military commanders do not fully support Joseph Kabila. Some of them have ambitions of their own for a higher position, read the presidency.

The opposition parties in Kinshasa like the Democratic Opposition for Congo, who still believe in a peaceful change to a democratic Congo and the opposition, rebel, groups in the east do however oppose Joseph Kabila and are not willing to accept him as the new president. They will at the moment not use the current situation to actively fight Joseph Kabila but in the future they certainly will.

The survival of Joseph Kabila depends on the support he can get from within the government and if the foreign supporters are willing to continue the support they have been given in the recent years. The Angolan, Namibian and Zimbabwan support is of the utmost importance to survive against the political and rebel opposition in the country. If one or more end their support, withdraw their forces, the chance of survival of the Kabila government is as good as non-existent.

Momentarily, Angola and Zimbabwe are committed to the alliance and the artificial stability in the areas they control. They do not have another option on the very short term. Angola and Zimbawe even increased the number of forces in the DRC to avoid any resistance, uprising, in the DRC during the transistion of power and ofcourse to secure their position.

The Kabila alliance

The three most important supporters as Angola, Zimbabwe and Namibia. The Kabila government could probably survive the withdrawal of Namibia but if one of the other two would end the support the end of the Kabila government is just a matter of time.

The Kabila government is highly dependent on the support of Angola, considerable Angolan armed forces are deployed in the DRC. Geographical conditions and the activities of the Angolan forces stabilised the expansion of the rebel forces, stopped them from moving further to the west.

The Angolan government was/is however not very satisfied with the Kabila government as they did not, could not, curtail the activities of the UNITA in the DRC. The Angolan armed forces do their best to control the UNITA in the DRC but they are in a sense overstretched. Operating on two battlefields in the DRC, first, against the rebels in the east and second, against the UNITA in the west, is to much for the quantity of forces deployed in Angola. Especially as it gets ever more difficult to send and maintain the forces in the DRC and at the same time keep the pressure on the UNITA in Angola proper.

The Angolan government is therefore at the moment busy to reassess the current situation. It might be more effective to withdraw their forces from the DRC and instead use them to increase the pressure on the UNITA in country and to improve the control on the border, e.g. closing the border.

The Zimbabwan support for the Kabila government is equally important as they stopped the rebel advance to the south-west. The number of Zimbabwan armed forces in the DRC is about as large as the Angolan contribution. Around 14.000 men, including a small number of light attack aircraft, are deployed in the DRC. These forces are necessary to protect the Zimbabwan commercial interests in the DRC. The Zimbabwan involvement is absolutely necessary as if they would withdraw the rebel movements could win and the Zimbabwan interests would be lost.

Zimbabwe has however a number of internal problems which could mean the end of the support towards the DRC. The economy of Zimabawe is close to bankruptcy and the dissatisfaction in the country is growing by the day. The people are dissatisfied because of the bad economic situation and because of the high cost of the involvement, in money and casualties, in the DRC. The anger is increased because the Zimbabwan involvement is largely to protect the interests of the political and military elite of the country, so there are not really national interests at stake.

The Namibian support for the Kabila government is the smallest of the three, approximately 2.000 men are deployed in the DRC. The Namibian armed forces are essentially in support of the Angolan forces. Their importance is therefore, militarily, small but politically significant as it is another voice, vote, in favor of the Kabila government. The Namibian deployment is also less certain as Namibia is facing some internal problems with UNITA forces crossing into Namibia and an independent movement, at the moment more or less under control, in the Caprivi strip.

On the short term all the countries in the Kabila alliance are willing to continue their support not withstanding de internal difficulties in these countries. They do so as the other options look to be less secure and /or profitable.

The Kabila government is pressured to maintain the Angolan and Zimbabwan support and they will do the utmost to keep that support. The death of Laurent Desire Kabila will not make it any easier and the increasing internal problems of all three make the continuation of the support uncertain and out of control of the Kabila government. They can do very little than to wait, hope and promiss that the Kabila government will do everything possible to fulfil the wishes of Angola and Zimbabwe. The only advantage of the Kabila government is that Angola and Zimbabwe have already invested so much in the DRC adventure and have none viable other option on the short term.

The opposition

The oppostion to the Kabila government can be divided in two groups, the democrats who mostly use peacefull means to introduce change in the DRC and the more dangerous oppostion, rebel, groups in the east of the country who are fighting to receive a better position in the DRC.

The political opposition can be controlled as long as they are unable to rally massive support in the population. The death of Laurent Desire Kabila, which was seen at the start as the hero, liberator, of the Congolese people but turned out to be just like his predecessor Mobuto with just another name was able to keep the dissatisfied populaton under control but his son Joseph does not has his father’s fame to do the same and he will be much more busy in keeping his enemies in the cabinet, army and party under control. There are to many ambitious people looking at the presidency. The only advantage of Joseph Kabila is that none of them has the personality to quickly take over control in the country. It will take some diplomacy and time for a candidate to get enough support to take over power.

The rumor, true or not true is not important, that Joseph has a Tutsi mother could be equally damaging for the presidency of Joseph Kabila as the Tutsis are far from being popular in the DRC. This fact could be especially benificial for the political opposition to gain support in the population.

The rebel groups in the east pose however a bigger threat to the Kabila government as they have the potential to eliminate the Kabila government. The advantage of the Kabila alliance is that the internal problems within the rebel groups will weaken the rebel’s case and the strong presence of Angolan and Zimbabwan armed forces will make any advance of the rebel groups very unlikely but they are still to strong to be defeated by the Kabila government even with the support of Angola and Zimbabwe.

A change in the current situation, a defeat of the rebel movements, is unlikely as Angola and Zimbabwe are not really inclined to support a large offensive operation in the east as their objectives, controlling the UNITA and protecting the commercial interests can be done from the territory they already control.

Future prospects for the DRC

The future of the DRC is very uncertain and everything seems to be possible. The rebellion in the east of the country, the large presence of foreign forces on DRC soil, Ugandan, Rwandan, Burundi, Zimbabwan, Angolan and Namibian armed forces, the political organisations in Kinshasa, the former allies of Kabila which have been in one or the other way treated unfair by Kabila in the quest for power and the power struggle for the position of the presidency make the country very unstable.

This instability could result in four possible scenarios but this is dependent on the transition of power in Kinshasa and are highly dependent on the level of support from Angola and Zimbabwe. These two countries are the linchpin to the future of the DRC. If they decide the involvement has become to expensive or it is not viable anymore it will mean the end as the DRC as we know it today.

Firstly, the situation will remain the same with Joseph Kabila as president with the support of Angola and Zimbabwe. This will demand that Joseph Kabila is able to subdue the internal opposition in the government and the political opposition organisations.

Secondly, Joseph Kabila will be removed from the presidency and another minister or general is able to receive enough support, including Angola and Zimbabwe, to continue the battle against the rebellious east.

Thirdly, the power struggle for the presidency is taking longer, the infighting increases and the political opposition in Kinshasa can rally support of the masses.

This will mean the end of the current government, a weakening of the fight in the east and a reassesment of the support of Angola and Zimbabwe. Angola and Zimbabwe, considering the internal situation in Angola and Zimbabwe, would then probably witdraw or they might lessen the support to the level just enough to protect their own interests. To continue a fight without any Congolese partners could be very dangerous and unproductive for Angola and Zimbabwe. The attitude of the rebel movements in the east and the new president will then be decisive in the DRC. A military advance from the east or a diplomatic solution is than possible.

And fourthly, there could be a longer struggle for power in Kinshasa, Angola and Zimbabwe might withdraw or lessen their support, out of internal and external considerations, and the rebel movements in the east start creating three new countries in the territory they control. This scenario is likely if the rebel organisations in the east are not able because of the troubles between eachother to exploit the weakness in Kinshasa, e.g. to advance further to the west and if the supporters of the rebel movements, Uganda and Rwanda, are satisfied with their current sphere of influence in the DRC and limit their support to the rebel organisations.

Which scenario will come through is dependent on the skills of Joseph Kabila to consolidate his position or on his successor to quickly take over control and stabilise the situation and for both to acertain the support of Angola and Zimbabwe.

Standaard
January 2001

January 2001

January 2001

Portfolio management in the new century

The new century

After we have entered the new millennium with the year 2000, the year 2001 signals that we enter the twenty first century. A new century which hopefully delivers the good things of the previous century but without the large number of conflicts including two world wars of the last century. The year 2001 will be a new chance to the world, might that be the political, economical or the personal dimension, to achieve great things which would make a difference.

The last two decades of the prevous century proved to be very beneficial for the investor. The U.S. economy experienced a booming market lasting longer then ever before, Asia had their incredible development in the nineties which unfortunately ended in the Asian crisis of 1997 but it showed the economic potential of the Asian region and finally Europe started slowly to recover after the slowdown since the end of the cold war. This positive economic environment has been very beneficial to the growth on the stock markets around the world. Year after year new highs were reached and records broken. The Asian crisis and especially the fall of the tech stocks in 2000 and the slower growing U.S. economy ended the fairy tale for the moment.

This correction of the stock markets punched the bubble of the ever improving, growing, stock market. The values returned to more acceptable levels at which a purchase would make sense. The year 2001 will be most likely flat and volatile with just a small number of stocks able to show an above average growth. It is an emotional market were small incidents can result in sell offs and heavy buying on other moments but not as relentless as in the heydays of the IT fever. The slowing world economy will suppress abundance growth but nevertheless there are some hopes for improvement.

The market in general

The stock markets of the world have shown a very differentiated view. The U.S. and European stock markets were sligthy negative, the big tech sell out, but a number of overseas markets, the Asian Tigers and the emerging markets, did deliver some better results. The recovery of the Asia crisis of 1997/98 could continue despite the worser results in the western world and some equity problems in some emerging markets.

The stock markets in Europe and especially in the U.S. have seen a dramatic fall in value because of the flight out of the tech stocks and the waiting attitude of the institutional investors to re-invest the available money. The difficulties in selecting a new president in the U.S. and the increased oil price had also a part in the depressed market situation.

The year 2001 could however deliver a turn around to the fortunes of the U.S. and European stock markets. The U.S. stock markets will most likely be positively influenced by the election of the new president, especially George W. Bush seems to have the trust of the investors to be good for business. But especially the next conditions will be beneficial for the stock market. The probability that the Federal Reserve, Fed, will cut the interest rates, the economy seems to manage a softlanding, a large number of the businesses seems to be confident that the earnngs in the first quarter of 2001 will increase by at least 10 % and finally the market has most likely bottomed as it is oversold.

The election of George W. Bush as the new president of the U.S. will be, according the election program, beneficial to the financials, drugs, tech, HMO and defence sectors. The Fed will very likely be certain that the inflation is under control, the recent decreases in sales and the slow down of the economy will probably allow the Fed to lower the rates. The expectations of positive earnings figures and the oversold market will encourage the institutional and private investors to re-invest and invest new money in the stock market.

The European stock markets will also see somegrowth in 2001 as the economies are improving, unemployment is coming down, the common European currency, the Euro, will most likely improve in value and the goverments are busy to improve the business climate in Europe. The further integration of Europe will be a boost for the economy of Europe and will be equally positive for the stock market.

The Asian Tigers and emerging markets will also continue their recovery as the demand and earnings will increase, the companies are more or less restructured and the governments are doing their best to improve the business environment, e.g. less corruption and nepotism, better tax and corporate legislation and lesser direct government involvement in business affairs.

Problems and consequences

There are however a number of emerging markets like South Korea, Indonesia, Turkey and Argentina which have equity problems and need support from the IMF. This might damage the growth of the stock market as the currencies will be under pressure and a decreased demand in those countries. The profits of the stocks will be surpressed by the lower demand and will be eliminated by the currency devaluations.

Parts of the emerging markets call for caution and the slowing world economy could make it for these countries more difficult to solve their problems.

The world is however delivering a very diverse picture with good, mediocre and bad countries and companies. We therefore expect in the end a small positive development The small improvement of the western stock markets and a continued improvement of a number of emerging markets could lead to an improvement of the majority of stock markets.

The future growth will be most likely spread along a larger group of sectors and will be smaller than before. But one thing is certain it will not be an easy ride. Uncertainty, conflicts and pre-announcements/warnings will create some volatility in the market.

The future might be positive but there are some negative influences which could play a larger role as they should. The inflation is more or less under control in the west but this could get out of control as the oil prices remain high, the costs are increasing, demand is getting lower and the economic growth is becoming much more less than anticipated. The negative possible developments are present but they do not need to become real. What road will be taken will depend on many factors, at the moment we are the cross roads. But we are inclined to believe the positive scenario.

The Portfolio

The year 2001 could be a very turbulent, the market will show some ups and downs, will move sidewards and probably move up. All is dependent on the company, sector, country and region. Some of these developments have a larger repercussions and have an effect on the whole market.

In this market you should spread your investments over different regions and sectors/industries to minimise any negative developments on your portfolio. The best way to play the stock market of 2001 is to invest in mutual funds which are spread by region and sector. Individual stocks are more risky as just the happy few will be in a position to acquire such a diverse portfolio and get the necessary attention to react on possible developments which require quick changes to the portfolio. The average investor is better serviced with a number of mutual funds.

The portfolio is of course dependent on the time horizon of every investor, e.g. how many years you want to invest. But the rule of the thumb is that you increase your number of stocks as longer you invest and you lower the number of stocks and increase cash and bonds if your investment horizon is short. (See for a full account of investing models and region allocation our January 2000 report which is still valid for 2001)

You can invest into stocks or into mutual funds. Mutual funds are the preferred road if your amount of money to invest is relatively modest and if you want to invest in Asia and other emerging markets. In the U.S.A. and Europe you can invest in stocks as the choice, information, trading companies and the legal system are clear and well secured. Asia and the emerging markets are another ball game where you need more knowledge and especially reliable trading houses and legal systems to be safe with your investments. And ofcourse survive the currency changes which might destroy all gains overnight.

The U.S. portfolio

The portfolio should, as a direct investor or mutual fund investor, include the following sectors/companies. These will have a big chance to show an above average growth and secure your investments against any possible deveopment.. Our selection is based on long term growth potential of the companies.

The sectors we prefer are technology, oil/energy, medical/drugs, financials, insurance, airlines and some defensive stocks like food and utilities.

We still like technology as it still has a lot of potential on the product and on the earnings side. The tech sell off was justified considering its Earning Per Share ratio and its value in general. The tech/ICT sector remains one of the most promising sectors especially after the sell off. If the tech market bottoms it will be a golden chance to get involved in a sector which has a lot of potential for the future.

There is however a big difference between the several tech companies. Just a few have the potential to survive in a smaller and more competitive market. The internet industry, market, will change dot com is not a guarantee for success, instead the companies need something to offer and show results. The internet should be looked at as an enabler, a system to do business, to improve the process, as a part of the business. The internet should strictly viewed as a support instrument in operations, sales, marketing, communications and research. And not as the subject, the raison d’etre, of business. With the exception of an internetprovider but they will have a number of difficulties of their own with gaining enough business, earnings, to be attractive for investors

In the processorgroup we like Texas Instruments, Intel, AMD, Xilink and Applied Materials. They should be able to regain their good performance of the last years. In the hardware we like Dell, Sun and Palm. In the software group we like Microsoft, Adobe, Red Hat, Linux VA and Oracle. In the integrator/consultant group we like CSC, Cisco Systems, Juniper, Sycamore, IBM and Nortel. In the communication group we like Nokia, US West, Qwest, BellAtlantic and Qualcomm. The tech group will not bring results in the first half year but in the second part of 2001 they could regain their strength.

The tech group will further introduce a new very big opportunity for the future. The internet has brought new technologies but they are not yet mature enough to deliver the big profits. The future will belong to the companies who are able to deliver a real time connection/exchange between the producer, seller and customer triangle without the interference of data storage and warehouses. In short, an extension of chain management and Enterprise Resource Planning into the full product cycle. Only more flexible in applications and inter and intra company in structure. A company like Cisco should be able to play an important role in this development.

Oil and energy and the supporting companies will probably also continue to grow in 2001. The big integrated oil companies like Exxon, Royal Dutch/Shell and British Pertroleum but also the offshore/service companies like Diamond Offshore, Halliburton, Baker-Hughes and Schlumberger could belong to the winners. As the oil price will be levelling at around 25 U.S. dollar the earnings will remain buoyant.

The medical/drugs sector will also see an improvement in 2001. The pharmaceuticals will finally return to the winning side after two disappointing years. Companies like Pfizer, Merck, Johnson&Johnson, Schering Plough and Bristol Myers Squibb could be among the winners. The shares of the HMO’s will also show better results as the restructurings are finally over, the value bottomed and the investor is regaining trust in the hospital sector.

The financial sector is also on its return as it is behind the market for the last one and a half year, the Fed will most likely ease the interest rates and a number of financial companies have delivered a nice return in the last year. The large global integrated financial institutions like Chase, Citigroup, J.P. Morgan and State Street will be very promising. But also the large trade houses like Merril Lynch, Morgan Stanley DW and Goldman Sachs.

The insurance sector is also becoming a profitable sector.with companies like AIG, Allstate and American Express.

The airline group is also increasing its position as the passenger and freight levels are improving and the price of the tickets could be brought in line with an oilprice of 28 to 30 U.S. dollar. Companies like AMR, United and Southwestern could belong to the best performers of the group.

And finally we like a number of defensive stocks like Heinz, Sara Lee, Pepsico, Colonial Gas and Eastern Utilities. You could also consider to ad companies like Procter & Gamble and Safeway in the defensive play. They offer very likely a good return and offer an opportunity to survive another sell off.

In this volatile and uncertain market it is important to be involved in the defensive stocks but be aware of a shift if the economy gathers pace. By then it will be time to shift into more more offensive stocks in the ICT sector.

The European portfolio

The European market is much more fragmented as each country has its own stock market and companies. The market is coming together but some companies are still to much focussed on the home market instead on the European and world market.

The majority of the companies and the governments are improving their policy and we expect a lot of this development but the changes are slow and could be interrupted by a number of causes.

In all Europe will be a promising market with a steady growth for the next couple of years. It will most likely be more profitable than the U.S. stockmarket.

The sectors we like in Europe are financial, oil/energy, tech/coomunications, food and drugs. We prefer the big caps as they can offer the stability to survive the ups and downs of the volatile stock market.

The financial sector will profit from the European integration as it will increase the business, it opens up new opportunities, the general improvement of the European economy and the consolidation in the sector. In Europe we like firms like BBV Argentaria, Deutsche Bank, Societe Generale, Fortis, ABN-AMRO, ING, Royal Bank of Scotland and Banca di Roma.

In the insurance group we like Allianz, Muencher Ruck, and Generali Ass.

The oil/energy group will also be very promising with companies like Royal Dutch/Shell British Petroleum, TotalFina-Elf and E.ON.

The tech group is also offering some good companies in Europe although smaller in number and with the need of some patience. Companies which will probably offer good results are Alcatel, Cap Gemini, Siemens, SAP, Infineon, CMG, Nokia, Logica, Sage and Invensys.

Closely related to the tech are the communication companies. After a really disappointing year for the telecom sector we expect some improvement. British Telecom, C&W, and Deutsche Telekom could offer some growth potential. The same is valid for VNU who is ever more becoming an internet enabler/service company with above average prospects.

The more defensive stocks we like in Europe are Nestle, Numico, Danone, Diageo, Cadbury Schweppes and Unilever. Despite the growing market we expect these food stocks to be able to follow the growth of the market and more importantly keep or even increase in value if the worst case scenario might come through.

Finally the drug companies will also benefit from the improving market and the increased opportunities in the world. Companies with good prospects are Bayer, Glaxo-Welcome, SmithKline Beecham, Roche and Astra-Zeneca.

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