Key political risks to watch in Congo, Posted by Meosha Eaton

By Jonny Hogg

KINSHASA, April 1 (Reuters) - Democratic Republic of Congo is seeking political stability, battling economic woes and rebel insurgencies as it gears up for elections this year.

The polls for the presidency and parliament, due to start in November 2011, will be the second since the official end to the 1998-2003 war, which drew in six foreign armies and resulted in the deaths of 5 million people.

Here are some factors to watch:

POLITICS

President Joseph Kabila came to power when his father was assassinated in 2001, winning presidential elections in 2006. But he still relies other parties such as PALU, a longstanding opposition party, for a parliamentary majority.

Rather than pushing through steps towards decentralisation set out in the constitution, analysts say Kabila's rule has seen a concentration of power and rising political oppression.

On Jan. 15, parliament backed constitutional changes reducing the presidential vote to a single round -- scrapping the possibility of a run-off between the two leading candidates if neither has an absolute majority. The change means the winner can claim the presidency with less than 50 percent popular support and is seen boosting Kabila's chances.

What to watch:

-- Can Congo's fractured opposition unite around a single candidate for the first round? There is talk of a possible triumvirate, with veteran opposition figure Etienne Tshisekedi linking up with Vital Kamerhe, a former campaign manager of Kabila's, and Jean-Pierre Bemba's MLC party.

-- Bemba's trial. The former vice president and leader of opposition MLC party is being tried before the International Criminal Court in The Hague accused of war crimes in the Central African Republic. Many in Congo say he would be a strong presidential contender were he acquitted in time, and any verdict could be incendiary on the streets of Kinshasa.

-- Electoral planning. With voter registration completed in only 2 of 11 provinces and questions remaining over financing, there are fears about the country's readiness to hold credible polls in November.

-- Political crackdown. There are already allegations from opposition politicians that their supporters are facing intimidation at the hands of the authorities.

THE ECONOMY

Despite concerns over governance, Congo secured debt relief from most lenders last year, including $7.53 billion from the Paris Club in November, leaving a total stock of $2.9 billion. It has taken measures to stabilise its economy and keep in step with conditions for a three-year $550 million IMF loan.

Interest rates have come down to 22 percent, from 42 percent in mid-2011. Congo's inflation is running at an annualised rate of 8.35 percent, down from 69 percent last January and beating a 15 percent target. The Congolese franc has stabilised, hovering at 920 to the dollar.

Sustained economic growth is vital to a country where 80 percent of a population of 67 million live on less than $2 a day and the country struggles with a budget of $5.69 billion. Congo is aiming for growth of 5.4 percent in 2010 and 6.83 percent in 2011, while the IMF forecasts 5.4 percent and 7 percent.

What to watch:

-- Impact of debt relief. Congo says from 2011, $520 million a year intended for debt service will be freed up as a result, but the IMF warns against taking on more expensive debt.

-- Macroeconomic policy. A looming election year may prompt a hike in spending over the next 12 months, although the 2011 budget was praised by the IMF for maintaining fiscal discipline.

INVESTMENT CLIMATE

Congo moved up four places in the World Bank's 2011 doing business rankings to 175 of 183 countries, short of a 20-place hike targeted by the president. Investors still complain of high risks and several are pursuing international arbitration.

Model contracts in accordance with the new mining and oil codes have been drafted, but not yet decreed by government.

What to watch:

-- First Quantum case. The Canadian firm is seeking international arbitration after its $750 million KMT project was closed and rights handed to mining group ENRC, after the Kazakh company said it would pay $175 million for five Congo projects acquired through listed and offshore entities.

-- US traceability laws. New industry standards to tackle `conflict minerals' come into force in April. The government says traceability programmes are being launched but some fear a virtual embargo on Congolese minerals, particularly in the troubled east of the country.

-- Congo's nascent oil sector. Following a tussle with the government over two oil blocks, London-listed Tullow Oil has said it's pulling out of Congo. There is also growing friction between British oil company Soco International and conservationists over plans to prospect for oil within Virunga National Park.

French Oil giant Total has taken a percent in another eastern oil block near Virunga. After buying into a block in the west, Italian major Eni would also like oil blocks in the east.

SIMMERING CONFLICTS

Intervention by Rwanda in 2009 helped end fighting by Rwandan Tutsi-led CNDP rebels, whose leader Laurent Nkunda was arrested and is awaiting trial in Kigali.

CNDP have since officially been integrated into the army, but rights groups and the United Nations say they maintain control of swathes of land, extract taxes and mine cassiterite and coltan.

Congo's army continues to try to oust Rwandan Hutu FDLR rebels, whose numbers are down to 2,500 according to the U.N., and several other rebel groups, including the former pro-government Mai Mai militia, LRA and Islamic ADF-NALU fighters.

The UN's head of mission in Congo has struck a positive note about the situation in the east, saying security is getting better, although localised violence remains a serious problem.

Mass rapes of civilians are continuing, underlining Congo's precarious security and raising questions over the effectiveness of Congolese and U.N. forces. The jailing in February of nine soldiers found guilty of a New Year's Day mass rape was seen as an important step towards ending impunity but attacks continue.

What to watch:

-- The fall-out from an attack on one of the residences of Kabila by dozens of armed men on Feb. 27. DRC has recalled its ambassador from neighbouring Congo-Brazzaville over alleged involvement in the plot.

-- U.N. peacekeepers. The United Nations acquiesced to Congolese demands and withdrew 1,494 troops last June, leaving 17,625 in country. It says further withdrawals will depend on the security threat, but Kabila's calls for a full withdrawal could become stronger if he is re-elected.

-- Crackdown on the army. Pressure on the army is rising as more human rights abuses and illegal mining come to light, and Congo may seek to launch investigations into criminal networks.

-- CNDP ex-rebels. Current leader General Bosco Ntaganda is wanted by the International Criminal Court for war crimes, but says he is second-in-command of U.N.-backed army operations, and the fragile alliance with the army is under strain.

-- Land and ethnicity. These two issues remain at the heart of Congo 's simmering conflicts, especially in the east.

-- LRA threat. Attacks by the Ugandan rebel LRA in north-eastern Congo have risen sharply this year, with Ugandan and Congolese officials sayingits leader, Joesph Kony, is back in the country.

-- Intervention from neighbours. Relations with neighbouring Uganda and Rwanda have warmed but remain fragile. Meanwhile analysts say latent tensions with Angola over offshore oil in the west could destabilise the country if they worsen. (Editing by David Lewis)