FACTBOX-Key political risks to watch in Congo

KINSHASA, Sept 1 (Reuters) - Democratic Republic of Congo is still seeking political stability, battling economic woes and must decide on the future role of U.N. peacekeepers ahead of elections, due next 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.

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 on the support of other parties such as PALU, a veteran opposition party, for a parliamentary majority.

Factions within the coalition have complained about Prime Minister Adolphe Muzito, from PALU, while opposition parties in parliament have repeatedly tried to topple the government by seeking votes of no confidence.

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

This perception was exacerbated in June when leading human rights activist Floribert Chebeya was mysteriously found dead in his car, prompting the suspension and questioning of police chief John Numbi, previously thought to be a key Kabila ally.

What to watch:

-- Growing political instability. With politicians looking to 2011 elections, factions within and outside the coalition have already started jockeying for positions. Vital Kamerhe, a key Kabila ally in 2006 and a popular leader of the lower house of parliament, has spoken of the need to change the old order. Etienne Tshisekedi, based in Belgium and head of the UDPS long-time opposition party, has already said he will run.

-- Provinces seek more power. Congo missed a May 15 deadline for decentralisation, which would see its 11 provinces divided into 26 and receive more local funding. The failure to do so has led to several districts, including oil-rich Ituri, to declare themselves as provinces. Further moves by other districts would worsen instability and deepen the discontent between them and their distant capital.

-- Political crackdown. Should the coalition waver or face serious internal opposition, it could trigger unrest given the the government's track record of cracking down on dissent.

THE ECONOMY

As part of efforts to secure $8 billion debt relief, achieved at the start of July, and keep in step with conditions for a three-year $550 million IMF loan, Congo has taken steps to stabilise the economy. [ID:nN01156507]

Interest rates have come down to 22 percent, from 42 percent at the start of July. Congo is on target to reduce annualised inflation to 15 percent by the end of the year, from 69 percent in January. The Congolese franc has stabilised against the dollar in the past months, hovering just above 900 Congolese francs to the dollar after falling 40 percent in 2009.

The central bank forecasts growth of 5 percent in 2010. But 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.

What to watch:

-- Impact of debt relief. Congo won debt relief despite G8 member Canada raising concerns over a row with Canadian mining firm First Quantum (FM.TO). Congo says from 2011, $520 million a year intended for debt service will be freed up as a result, allowing more to be spent on social spending.

-- Macroeconomic policy. The central bank and ministry of finance have kept spending down this year, but a looming election year may prompt a hike over the next 12 months.

INVESTMENT CLIMATE

The World Bank ranks Congo as the second worst place to do business after Central African Republic in a list of 183 nations. Kabila wants the country to rise 20 places.

Model contracts in accordance with the new mining and oil codes have been drafted, but they are yet to be decreed by government. And in a series of disputes, several investors are seeking international arbitration and complaining about how contracts are awarded.

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 (ENRC.L), after the Kazakh company said it would pay $175 million for five Congo projects acquired through listed and offshore entities. Rights to two other First Quantum site have also been disputed. First Quantum may go after the third parties in the courts too.

-- Vodacom (VODJ.J) dispute. A shareholder dispute between Vodacom Congo's minority shareholder CWN and Vodacom, which holds 51 percent, is also to go to international arbitration.

-- Congo's nascent oil sector. After awarding two oil blocks on the Uganda border to surprise new entrants, both claimed by South Africa President's nephew Khulubuse Zuma, Congo may face legal action from the ousted Tullow Oil (TLW.L) and South Africa consortium Divine Inspiration Group. After announcing it had bought into a block in the west, Italian major Eni (ENI.MI) has also signalled it would like oil blocks in the east.