printable banner

U.S. Department of State - Great Seal

U.S. Department of State

Diplomacy in Action

2013 Investment Climate Statement - South Sudan


2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013
Report
Share

Openness To, and Restrictions Upon, Foreign Investment

The government of the Republic of South Sudan (RSS) officially encourages foreign direct investment, and has made some progress in recent years to open the market to foreign companies. The U.S. government’s long-standing sanctions against the Sudan were officially removed from applicability to newly independent South Sudan in December 2011, and senior RSS officials participated in a high-level international engagement conference in Washington, D.C., to help connect foreign investors with the RSS and South Sudanese private sector representatives. Until January 2012, oil production accounted for 98 percent of the government’s revenues. The shutdown of oil production in late January 2012, due to a dispute with Sudan through which oil exports were transported by pipeline, radically reduced government revenue; tax and customs revenues, through better collection, have since increased to around 12 percent of the current government budget. The government is now looking to increase investment in non-oil sectors, including agriculture, mining, and teak wood exports.

The RSS enacted several major pieces of legislation governing investment since its independence from Sudan on July 9, 2011, and continues to use legislation passed during the country’s semi-autonomous period, as part of Sudan, from January 9, 2005- July 8, 2011. Relevant key pieces of legislation penned since 2005 include the 2009 Investment Promotion Act, the 2011 Insolvency Act, the 2012 Imports and Exports Act, and the 2012 Companies Act. Under the 2009 Investment Promotion Act, foreign investors may own or control business organizations in any sector; however, South Sudan’s Investment Authority Board of Directors is authorized to publish periodically a list limiting the sectors in which non-South Sudanese nationals are permitted to invest. There is a widespread misconception that non-South Sudanese nationals attempting to incorporate new businesses in South Sudan are required by law to have 31 percent South Sudanese ownership; this requirement does not appear in the Companies or Investment Promotion Acts. Under the 2012 Companies Act medium and large companies must have 31 percent South Sudanese ownership; small companies are “to be the domain of South Sudanese nationals only.”

Despite RSS efforts to attract foreign investment, investors face an extremely challenging investment climate. According to the World Bank’s 2011 Doing Business report, the economy of Juba, South Sudan’s capital is ranked 159 among 183 economies on its “ease of doing business” scale. The legal framework governing investment and private enterprises remains underdeveloped. A new labor law, public procurement bill, and several pieces of legislation related to land ownership are either in the drafting stage or awaiting approval by the National Legislative Assembly. Laws and regulations that do exist are not always enforced and are not well-publicized. Domestic and foreign investors often have an incomplete understanding of existing laws.

Although the RSS is committed to judicial reform, the existing legal system is ineffective, underfunded, overburdened, and subject to executive interference. High-level government and military officials are often immune from prosecution in practice, and frequently interfere with court decisions. Parties in contract disputes are sometimes arrested and imprisoned until the party agrees to pay a certain sum of money, often without ever going to court and sometimes without being formally charged.

Other factors inhibiting investment in South Sudan include limited physical infrastructure and a lack of both skilled and unskilled labor. South Sudan, roughly the size of France, has fewer than 400 kilometers of paved roads, and large parts of the country are inaccessible during the rainy season (April through October). Despite the existence of three power plants, none of which are working at full capacity, the country is almost completely reliant on diesel-run generators for electricity. According to the 2008 census, 94 percent of young persons enter the labor market with no qualifications. The majority of South Sudanese work in non-wage jobs, often in the agricultural sector. The country’s literacy rate is just 27 percent.

The RSS has been operating under austerity measures since April 2012, following the January 2012 shutdown of oil production, which previously accounted for 98 percent of government revenue. The loss of oil revenue has taken a toll on the economy: the market value of the South Sudanese Pound sank as low as 5.8 South Sudanese Pound (SSP) to 1 USD from the official rate of 2.96 SSP to 1 USD; that low has since rebounded to 4.2 SSP to 1 USD as of January 2013. Annual inflation stood at 25 percent in December 2012. RSS domestic and foreign currency reserves are running very low and the RSS, due to severe budgetary cuts, has ceased paying many basic operating costs. Failure by the government to pay for services is commonplace. Some private companies claim the government has reneged on or delayed payment for contracts in which work was undertaken. Government benefits, which account for up to 50 percent of employees’ take-home pay, were drastically reduced in July 2012. The distribution of hard currency is tightly controlled by the government and limited to supporting the importation of food, medicine, fuel, and limited building materials. Many companies cite access to hard currency and convertibility of profits as major problems.

Organizations which rank countries in transparency and openness are just beginning to include newly-independent South Sudan in their analysis. The following chart lists the country’s ranking in several of these indices.

Measure

Year

Index/Ranking

TI Corruption Index

N/A

Not Ranked

Heritage Economic Freedom

N/A

Not Ranked

World Bank Doing Business

2011

Juba ranked 159

MCC Gov’t Effectiveness

FY13

-0.99 (4%)

MCC Rule of Law

FY13

-0.57 (7%)

MCC Control of Corruption

FY13

-0.77 (4%)

MCC Fiscal Policy

FY13

2.4 (94%)

MCC Trade Policy

FY13

N/A

MCC Regulatory Quality

FY13

-0.91 (9%)

MCC Business Start Up

FY13

N/A

MCC Land Rights Access

FY13

N/A

MCC Natural Resource Mgmt

FY13

71.1 (62%)

Conversion and Transfer Policies

The 2009 Investment Promotion Act guarantees “unconditional transferability in and out” of South Sudan “in freely convertible currency of capital for investment; payments in respect of loan servicing where foreign loans have been obtained; and the remittance of proceeds, net of all taxes and other statutory obligations, in the event of sale or liquidation of the enterprise.” However, many companies have trouble accessing foreign currency and repatriating profits. Foreign exchange market rules and regulations are highly restrictive. The January 2012 shutdown of oil production has resulted in a foreign currency shortfall, and South Sudan’s lack of any significant non-oil exports limits the inflow of hard currency. The Central Bank closely regulates which companies and traders are allocated U.S. dollars, making it hard for foreign investors to repatriate their locally generated income. At least one international company suspended operations in South Sudan in 2012, claiming that they were unable to convert their SSP profit to USD in order to cover operating expenses outside the country.

While the government does not engage in currency manipulation, exchange rate operations are highly inefficient. Foreign exchange is only available for fuel, food, medicine and limited building materials at the official rate of 2.96 South Sudanese Pounds to the USD, and is limited to approximately 16 million USD per week, facilitated through the banking system. The parallel market exchange rate fluctuated from 4.0 up to 5.8 SSP to the USD over the course of 2012.

Expropriation and Compensation

South Sudanese law prohibits nationalization of private enterprises “unless the expropriation is in the national interest for a public purpose.” Neither “national interest” nor “public purpose” is defined in the law. Any expropriation must be in accordance with due process and provide for “fair and adequate compensation,” as determined by the court.

There has been no known government expropriation of foreign-owned property in the private sector, and no indications that there may be such actions in the near future. However, government officials frequently pressure development partners to hand over assets at the end of programs. While some donor agreements call for the government to receive goods at the close-out of a project, assets have been seized by local government officials even in instances where it was not included in a formal agreement.

Dispute Settlement

According to South Sudan’s investment law, South Sudanese courts have jurisdiction over the resolution of business disputes. However, few commercial disputes are actually taken to court. The country’s legal framework is in flux following South Sudan’s independence, and currently includes some post-independence laws, Government of Southern Sudan laws passed when the country was a semi-autonomous part of Sudan, and Sudanese laws that have not yet been re-written. Courts are often understaffed and the existing staff are undertrained. According to a 2004 study, more than 90 percent of commercial disputes were settled in customary court.

Parties in commercial disputes, including U.S. citizens, have recently been arrested without official charge and held in prison until they agreed to pay the disputed amount. Court orders authorizing an individual’s arrest are often written in Arabic and not translated, even though the official language of the courts is English. In 2012 a U.S. citizen was detained by the National Security Service, who attempted to take him to court in Juba, despite the fact that the individual’s company’s contract stipulated arbitration in the United States.

South Sudan’s investment law allows the parties in a commercial dispute to jointly agree to use arbitration or other dispute resolution mechanisms. Legislation governing the specifics of private arbitration has not yet been passed. South Sudan became a member of the International Center for the Settlement of Investment Disputes (ICSID) in April 2012.

Performance Requirements/Incentives

The government has designated 11 sectors as priorities for investment: agriculture and agribusiness; physical infrastructure; social infrastructure including schools, hospitals, water services, etc.; mining, quarrying, energy and electricity, petroleum and gas industries; prospecting of natural resources for economic use; forestry; medium to heavy manufacturing industries; transport, telecommunications, print and electronic media, and information communications technology; commercial banking, insurance, property management, and financial institutions; pharmaceutical, chemicals, and medicinal and surgical industries; and tourism and hotel industry development.

The government offers tax exemptions and concessions in machinery and equipment, and capital and net profits. The time period for tax exemptions is not laid out in the investment law, and further regulations defining the time period have not yet been published. Capital allowances range from 20 to 100 percent; deductible annual allowances range from 20 to 40 percent; and other depreciation allowances range from 8 to 20 percent. The law allows for duty and tax exemptions on all agricultural imports, including tools, equipment, machinery and tractors, pharmaceuticals, animal feed, and seeds.

Business owners are frequently unaware of investment incentives, and many claim they are not receiving the incentives laid out in the investment promotion act. For example, two foreign-owned companies who import and sell agricultural equipment noted frequent disputes with customs authorities over their tax-exempt status.

According to the 2012 Companies Act, companies with fewer than seven employees and meeting financial requirements laid out by the Minister of Commerce, Industry and Investment are “to be the domain of South Sudanese nationals only.” Medium and large private companies are required to have at least 31 percent South Sudanese ownership.

There is an unofficial policy that at least 70-90 percent of employees in all companies must be South Sudanese. The issuance of work permits is frequently delayed due to the Ministry of Labor, Public Services and Human Resources Development’s thorough scrutiny of all work permit applications to ensure the job could not be filled by a South Sudanese national. Many expatriates report being issued work permits that are shorter than the standard 12 month period.

The 2009 Investment Promotion Act lists several “types of projects favorable for priority areas,” including partnerships where South Sudanese citizens have at least a 30 percent stake and projects which create jobs for South Sudanese. Projects which guarantee re-investment of at least 20 percent of after-tax profits in South Sudan are also given priority.

There are several local content requirements in the petroleum sector. The 2012 Petroleum Law requires businesses, including contractors and sub-contractors, to acquire materials, equipment, machinery and consumer goods produced on the local market, so long as they are of the same or “approximately the same” quality, available for sale and delivery in a timely manner, and no more than 10 percent more expensive than the foreign-produced equivalent. The law also requires companies to acquire national services so long as they are similar to those available on the international market, and the prices are no more than ten percent higher. Businesses are required to provide the Ministry of Petroleum and Mining local content plans detailing local recruitment, employment and training and the transfer of skills, knowledge, and competence to South Sudanese.

Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity, as well as freely to establish, acquire and dispose of interests in business enterprises. South Sudanese businesses are given priority in several areas, including micro-enterprises, postal services, car hire and taxi operations, public relations, retail, security services, and the cooperative services. Under the investment law, the government of South Sudan leases land to foreign investors for limited periods of time, generally not to exceed 30-60 years, with the possibility of renewal. In the case of leases for mining or quarrying, the lease shall not exceed the life of the mine or quarry. Under the 2009 Land Act, non-citizens are not allowed to own land in South Sudan.

Protection of Property Rights

South Sudan’s government intends to undertake comprehensive land reform, but the project stalled in 2011 and did not progress in 2012. Laws on mortgages and the registration of titles have not been drafted.

Under the Investment Act, the RSS or local authorities will provide land for investments in the priority sectors listed in the “Performance Requirements” section above. While the 2009 Land Act reaffirms that non-citizens can access land for investment purposes, there are currently no clear regulations governing how a business acquires land. Currently, some businesses lease land from the government, while others lease land directly from local communities. Under the Land Act, investment in land acquired from local communities must contribute “economically and socially to the development of the local community.” Businesses will often sign a memorandum of understanding with the local communities in which they agree to employ locals or invest in social services in exchange for use of the land.

Ownership of land is often unclear, with communities and government both claiming the same property. In some cases, multiple individuals hold registration certificates demonstrating sole ownership of the same piece of land.

While the investment law includes an article on the protection of intellectual property rights, in fact laws on trademarks, copyrights, and patents have not yet been passed.

South Sudan is not a member of the WTO or WIPO.

Transparency of the Regulatory System

Investors in South Sudan often lack access to basic information on how to establish a business. The private sector is governed by a mix of laws from Sudan, the pre-independence semi-autonomous Government of Southern Sudan, and the independent Republic of South Sudan. The National Legislative Assembly (NLA) has made substantial progress in passing new laws that will contribute to a more transparent regulatory system, including the 2012 Companies Act and the 2012 Banking Act. However, several key pieces of legislation are still under review by the NLA or in the drafting stage with the appropriate line ministry. Laws governing customs, imports and exports, leasing and mortgaging, procurement, and labor have not yet been passed.

Bureaucratic procedures for opening a business are long and cumbersome, particularly for foreigners trying to navigate the system without the assistance of a well-connected national. Government officials claim registering a business and gathering all of the necessary certificates to begin operations should take less than one week; however, some foreign companies report spending months registering, applying for work permits, and going from ministry to ministry to gather the necessary licenses and certificates. Fee schedules for the licenses and certificates necessary to operate a business are often difficult to find and not always adhered to. Companies are required to go through a lawyer when registering with the business registry at the Ministry of Justice, a requirement that many say adds unnecessary time and cost to the process. With the support of the World Bank’s International Finance Corporation (IFC), the Ministry of Commerce, Trade, and Investment officially opened a one-stop shop to streamline the process of establishing a business in May 2012. As of the end of the year, the shop was not yet operational.

Some companies complained of a duplicative and opaque tax system. Companies also complained that tax exemptions were applied unevenly. Tax incentives laid out in the investment act are unclear, and many businesses are unaware of their existence.

The government procurement process is unclear, and many business owners commented that tenders are not awarded to the best or least expensive bidder, but are awarded based on personal connections.

Efficient Capital Markets and Portfolio Investment

South Sudan’s financial system is small and offers few financial products. There are up to 19 banks and about 70 foreign exchange bureaus operating in South Sudan, the largest four of which hold approximately 70% of all assets. It is difficult for foreign investors to get credit on the local market, due to the lack of reliable figures or audited accounts, absence of a credit reference bureau, and failure to document land ownership properly. Banks are also unwilling to lend due to the lack of adequate laws to protect lenders. Officials of one major bank said it lends only one percent of its assets.

The government’s January 2012 decision to suspend oil production has led to a hard currency shortage. Banks continue to issue letters of credit to importers of food, fuel, medicine, and limited construction materials, but the government controls who receives letters of credit and the Central Bank allocates just 1 million USD per week to each of the private banks (and 50 thousand USD licensed forex bureaus). With considerable deposits of local currency, banks reported there is sufficient liquidity to enter and exit sizeable positions.

Competition from State-Owned Enterprises (SOEs)

The national oil company Nilepet is the only explicitly state-owned enterprise in South Sudan. It is the technical and operational branch of the Ministry of Mining and Petroleum. Nilepet took over Sudan’s national oil company’s shares in six exploration and petroleum sharing agreements in South Sudan at the time of the country’s independence in 2011. The petroleum revenue management bill, which will govern how Nilepet’s profits are invested, was still under review by the National Legislative Assembly at the end of 2012.

Domestic private businesses are often owned at least in part by government or military officials, and many officials have partnered with foreigners incorporating a company partially as a result of a common misconception that businesses established in South Sudan by expatriates must be 31 percent locally owned. Companies owned in part or full by government or military officials are anecdotally more likely to win government contracts, regardless of the quality or price associated with a bid.

Corporate Social Responsibility (CSR)

The concept of corporate social responsibility is new in South Sudan, but the few large international firms operating in South Sudan often offer some basic benefits to local communities. Many foreign-owned companies are committed to hiring and training South Sudanese employees. They occasionally engage in projects which improve access to clean water, education, or health facilities, often as part of a memorandum of understanding with the local community that grants the company access to land. The 2009 Land Act requires investment activities carried out on land acquired from local communities to “reflect an important interest for the community or people living in the locality,” and to contribute economically and socially.

Political Violence

South Sudan’s independence from Sudan came after many years of civil war between forces in the south and the Sudanese government in Khartoum, and the two countries have yet to resolve disputes over border demarcation, disputed and claimed areas, a demilitarized zone, Abyei, and other issues. In 2012 there were skirmishes between Sudanese and South Sudanese forces in the disputed border regions between the two countries, which may continue. In April 2012 the Sudan Armed Forces (SAF) aimed aerial bombardments at oil wells and production facilities in Unity State on the border with Sudan. Ongoing fighting between the SAF and forces united with the RSS’s official army, the Sudan People’s Liberation Army (SPLA), throughout early 2012 damaged oil infrastructure in the area.

In addition, there are ongoing clashes between the SPLA and rebel militia groups opposed to the government in Juba in South Sudan’s largest state of Jonglei. There are also sporadic clashes between ethnic groups in Jonglei, Unity, Warrap, Upper Nile, Western Equatoria, Lakes, and Western Bahr el Ghazal States. It is impossible at this time to predict the level of civil disturbances that can be expected in the future, but conflict in several parts of the country will almost certainly continue.

Corruption

South Sudan has laws, regulations and penalties to combat corruption, but there is almost a complete lack of enforcement, while considerable gaps exist in legislation. The government has yet to pass the Public Procurement and Petroleum Revenue Management Bills, both of which are critical legislative pieces to curb corruption. The RSS established the Anti-Corruption Commission, but the body lacks prosecutorial powers and sufficient resources to adequately pursue investigations. The Ministry of Justice is charged with prosecuting acts of corruption, but has consistently failed to do so. The government’s auditor general has published condemning audits on public financial management (the last report was for fiscal year 2008), but no reported action was taken by the government to pursue investigations. The government is cooperating with the World Bank in the investigation of corruption in a large-scale procurement case, but progress has been slow. RSS President Salva Kiir Mayardit has publicly condemned corruption and committed his government to combating it, but few concrete results have been realized.

The country has not signed the UN Anticorruption Convention, is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and is not reported to be a participant in regional anti-corruption initiatives.

U.S. firms are keenly aware of corruption and many report they are careful to avoid engaging in corruption or the perception of doing so. However, they note that navigating the legal and bureaucratic process appears considerably longer and more complex than it is for less stringent firms. At least one U.S. firm is known to have explored opportunities in South Sudan but withdrew after suspecting it was entwined in a corruption scheme.

Corruption appears to be pervasive at all levels of government and society. Government officials of all ranks are reportedly engaged in corrupt acts. The regulatory system is poor or non-existent, and dispute settlement is weak and subject to influence.

Bilateral Investment Agreements

According to the U.N. Conference on Trade and Development (UNCTAD) website, South Sudan has not yet entered into any bilateral investment treaties.

OPIC and Other Investment Insurance Programs

An OPIC delegation visited South Sudan in October 2012 and publicly announced, with the RSS Minister of Commerce, Industry and Investment, that OPIC is “open for business” in South Sudan. The bilateral Investment Incentive Agreement has been reviewed by the Minister of Commerce, Industry and Investment and he is purportedly ready to sign.

South Sudan is a member country of the Multilateral Investment Guarantee Agency

The official exchange rate of the local currency, the South Sudanese Pound, is fixed at SSP 2.96/USD, though the parallel rate is SSP 4.2/USD. While the parallel rate has remained steady for the last six months, the deteriorating financial crisis in the country may significantly weaken the SSP on the black market.

Labor

South Sudan has a shortage of both skilled and unskilled workers across most areas in the formal sector. According to the 2008 census, 84 percent of those employed are in non-wage work. Three out of five children joined the labor force by age 10, largely through cattle herding or subsistence farming. The literacy rate is 27 percent. Unskilled labor in the service and construction sectors is often performed by immigrants from neighboring companies.

South Sudan continues to operate under the 1997 Labor Act of (the Republic of) Sudan. Under that act, independent unions are permitted. The law is silent on the rights to strike and bargain collectively and does not explicitly prohibit anti-union discrimination or provide for reinstatement of workers fired for union activities. South Sudan ratified the International Labor Organization’s seven fundamental principles and rights at work conventions in November 2012. A new draft labor law widely seen as in-line with international standards is expected to be passed by the National Legislative Assembly in 2013. Government enforcement of preexisting labor laws was little to nonexistent. Most small South Sudanese businesses operate in the informal economy, where labor laws and regulations are widely ignored.

Government officials and business owners reported the government requires businesses to employ 70-90 percent South Sudanese staff, including in management positions. This is currently not formalized, but according to officials at the Ministry of Labor, Public Services and Human Resources Development, the draft labor bill expected to be enacted in 2013 will require all businesses to employ locals for at least 80 percent of their staff. The Ministry of Labor thoroughly reviews all work permit applications in an attempt to determine whether a position could be filled by a South Sudanese national. Some foreign-owned companies have reported long delays in receiving work permits for expatriate staff, and many expatriates are issued work permits for just one to three months, rather than the standard one year.

Foreign Trade Zones/Free Ports

There are currently no duty-free import zones in South Sudan.

Foreign Direct Investment Statistics

There are currently no statistics available on Foreign Direct Investment into South Sudan.

The majority of foreign investment is in the petroleum sector. Major shareholders in the joint operating companies operating in active oil fields include the Chinese National Petroleum Company (CNPC), Malaysian company PETRONAS, and the Indian company ONGC. French oil company Total and Kuwaiti company Kufpec have an exploration and production sharing agreement in Block B, a geographic area covering most of Jonglei state and parts of several other states, but have not yet been allowed to start operations. The Ministry of Petroleum and Mining recently signed agreements with U.S. and Russian companies to build two small refineries.

Other international investors include South African brewing company SABMiller; several Kenyan insurance companies; South African, Kenyan, and Ethiopian banks; and foreign-owned importers of agricultural and construction equipment. Several restaurants and hotels in Juba are owned by Ethiopians, Eritreans, Kenyans, and Ugandans.



Back to Top
Sign-in

Do you already have an account on one of these sites? Click the logo to sign in and create your own customized State Department page. Want to learn more? Check out our FAQ!

OpenID is a service that allows you to sign in to many different websites using a single identity. Find out more about OpenID and how to get an OpenID-enabled account.