By David Lewis KINSHASA, Nov 25 (Reuters) - Congo's eastern war, tumbling mineral export prices, doubts over government handling of mining investment and popular anger over graft and inefficiency have created a "perfect storm" of pressures for the African giant. President Joseph Kabila's weak and chaotic army has suffered embarrassing defeats by eastern rebels led by Laurent Nkunda, and his government is coming under pressure from the United Nations to open peace talks with the dissident Tutsi general. The recent fighting in Democratic Republic of Congo's east has coincided with a global financial crisis, which has reduced demand for Congo's copper and cobalt. An official 2009 growth forecast has been revised downwards from 12 to 9 percent, but a government commission fears growth may drop far lower. Misgivings over a multi-billion-dollar investment deal with China, combined with popular anger at government inefficiency and corruption among officers in the poor-performing army, are fuelling frustrations at a lack of progress in rebuilding Congo. "The dynamics are not good for Congo. Copper is down, there is the (mining contract) review process, and the financial crisis has hit. There are even bigger things than the war in the east," said one foreign mining executive who works in Congo. "We are in the middle of a perfect storm," he added. The vast former Belgian colony is still struggling to recover from a 1998-2003 war which sucked in six neighbouring armies and created a humanitarian catastrophe that has already killed 5 million people. The latest fighting is making it worse. U.N.-backed elections in 2006 returned President Kabila to power and lured in investors who pledged billions of dollars for mining, especially in the southeast copper region of Katanga. But world copper prices have slumped 60 percent from a record high of $8,940 in July as demand has fallen. London Metal Exchange copper <MCU3> for three month delivery fell on Tuesday to a low of $3,560 a tonne. MINING FEELS THE PINCH The government says that over 40 mining and processing firms that provide incomes for thousands in Katanga have stopped operations completely as profit margins evaporated. Firms like Katanga Mining <KAT.TO>, Anvil Mining <AVM.TO> and Central Africa Mining and Exploration Company <CFM.L> have suspended some Congo activities as costs rise and prices fall. Even long-term Congo optimists concede the war and economic downturn have created what they call a "double whammy". Investor confidence has also been hit by a long, drawn-out review of all mining contracts that was called last year to improve the government's stake in deals. Originally due to have been completed in six months, it has lasted 18 months so far. "Everyone has talked, but not everyone is prepared to be pressured," the mining executive said. Congo's newly installed government has called for the process to be completed soon. A senior member of the Federation of Congolese Businesses (FEC) said several companies were complaining about fiscal harassment as the government tried to boost revenues. Congo's copper and cobalt mines are far from North Kivu, where the recent fighting has displaced 250,000 people. But rebel chief Nkunda -- who now says his four-year-old revolt, originally launched to defend fellow Tutsis, is aimed at "liberating" all Congolese -- has added to his demands the renegotiation of Congo's $9 billion investment deal with China. DELAYS IN CHINA DEAL The deal gives Chinese companies access to mines in return for loans for five strategic development projects. Analysts say bringing the Chinese deal into the conflict equation is a ploy by Nkunda to dispel the image of a localised rebellion. But he is also tapping into popular frustration at apparent lack of progress in the Chinese infrastructure projects. "His (Nkunda's) ally is the crisis as Kabila's margins are very small. Kabila is losing face in the east and the "5 Projects" are not working," a diplomat told Reuters. The FEC official said an initial $350 million Chinese cash injection had been delayed due to legal wrangling and some of the deal's parameters had been altered due to Chinese fears over falling copper prices and IMF doubts over debt sustainability. Some economists now fear that inflation will also take off as a result of higher military spending due to the eastern war. A government commission studying the financial crisis' impact envisaged three scenarios, which saw growth ranging from 7.4 to 5.7 percent, well down from the hoped-for 12 percent. But Kabila's administration overruled the commission, setting a revised 9 percent growth forceast for 2009. Concerns are also growing about Congo's future oil prospects. The country now produces 22,000 barrels per day on its Atlantic side, but has been negotiating exploration blocks with foreign firms on the shores of eastern Lake Albert. Security sources fear Tutsi rebel Nkunda may be linking up with resurgent militias in this area bordering with Uganda. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/) (Editing by Pascal Fletcher and Mark Trevelyan)
Wrecked cars are seen outside a damaged building in Wudu town, Longnan city, Gansu province in this video grab from CCTV footage of November 20 released November 21, 2008. The governor ...
