ADVISORY: U.S. Embassy Khartoum advises that certain limitations exist on the U.S. Government’s engagement with American businesses that export goods or services to Sudan. In particular, section 908(a)(1) of the Trade Sanctions Reform Act (TSRA) (22 U.S.C. 7297(a)(1)) provides: “Notwithstanding any other provision of law, no United States Government assistance, including United States foreign assistance, United States export assistance, and any United States credit or guarantees shall be available for commercial exports to …Sudan.” The export assistance restriction limits U.S. Embassy Khartoum’s ability to provide the kind of support that the U.S. and Foreign Commercial Service typically provides—including business matchmaking services, market research on specific products or services, export advocacy, and provision of information concerning business opportunities. See, e.g., 15 U.S.C. 4721. END ADVISORY
There are limited possibilities for American investors and export-import firms to conduct business in Sudan. U.S. and other economic sanctions, high taxes, and frequent changes to the investment code are all factors discouraging foreign direct investment. To date, gum Arabic is the only Sudan-originated product that is permitted to enter the American market, and U.S. purchasers of Sudanese gum Arabic must obtain an import license from OFAC. Additionally, U.S. sanctions prohibit Americans from engaging in any business transaction involving the Government of Sudan (GoS), including state-owned companies. At present, the Bank of Khartoum is the only Sudanese bank not designated under OFAC sanctions.
Potential investors should bear in mind that U.S. sanctions generally prohibit U.S. persons from importing or exporting goods, services, or technology from or to Sudan, and generally prohibit U.S. persons from engaging in financial transactions with the Sudanese government, among other prohibitions. Certain types of transactions, specified by economic sector or geographic regions within Sudan, are generally licensed, such as the export of certain agricultural commodities, medicines, and medical devices to certain areas of Sudan. In mid-February 2015, the Treasury Department issued a General License D on information and communications technology (ICT), including handheld mobile devices and U.S.-manufactured computers, laptops, and notebooks.
In addition, otherwise prohibited transactions may qualify for OFAC licenses. American investors interested in business opportunities in Sudan are strongly encouraged to review the Code of Federal Regulations chapter on “Sudanese Sanctions Regulations,” Chapter 31 C.F.R. Section 538. Information on how to apply for an OFAC license is found at http://www.treasury.gov/resource-enter/sanctions/Pages/licensing.aspx.
OFAC’s page on Sudan is found at http://www.treasury.gov/resource-center/sanctions/Programs/pages/sudan.aspx.
Investors should be aware that even when operating pursuant to an OFAC license, many U.S. businesses face difficulties in transferring money to Sudan as international financial institutions exercise extreme caution in processing transactions related to Sudan. Since mid-2014, correspondent banks have closed accounts of clients in Sudan and refused to conduct financial transactions if Sudanese individuals, businesses, or institutions were involved—including ones with OFAC licenses. Those who decide to pursue permissible commercial activity should be advised that the issuance of an OFAC license can take several weeks.
For companies operating with appropriate licenses, Sudan is becoming a large market for a variety of agricultural harvesting equipment and inputs. Sudanese farmers represent a significant source of demand for new seeds adaptable to Sudan’s hot and dry climate. Exports of agricultural equipment and other inputs such as seeds require a specific license. General commercial exports to Darfur and the “Two Areas” (South Kordofan and Blue Nile States) have a general license exempting these specified regions from U.S. sanctions. Currently, about 16.8 million hectares are under cultivation in Sudan; however, 84 million hectares are suitable for agriculture. Rain-fed traditional farming practices continue to dominate, but large-scale mechanized farming is growing, especially along the Nile and its tributaries. There is a robust market for American-manufactured pivot irrigation systems, water pumps, and well-drilling equipment. Sudan’s major dairies began buying thousands of American-breed dairy cattle in the past year.
Sudan has a formal private sector, led by the Sudanese Businessmen and Employers Association. The private sector is dominated by numerous large, often family-owned industrial, agricultural, and consumer products conglomerates. Many Sudanese corporate leaders studied in the West and are fluent in English. While there is no U.S. Chamber of Commerce in Sudan, in late 2014 a small group of Sudanese business leaders believed to have no connection with the government formed the USSBC. The USSBC emphasizes its activities on people-to-people engagement to draw awareness to the consequences sanctions has had on the Sudanese people and the private sector.
Although considered among the fastest growing economies in Africa, Sudan presents one of the most challenging business environments in the world to the would-be investor. Sudan ranks 159 out of 189 countries on the June 2015 World Bank-International Financial Corporation’s “Doing Business Report – Ease of Doing Business.” It is ranked 165 of 167 countries on Transparency International’s 2015 Corruptions Perception Index, ahead of only North Korea and Somalia. On the 2015 UN Human Development Index (HDI), Sudan is ranked 167 out of 187 countries. An estimated 47% of Sudan’s population lives on less than $2 per day, according to the HDI.
Political risk is also of concern. In addition to regional instability with countries bordering Sudan, the central government is involved in two internal conflicts: in Darfur and in the “Two Areas” of South Kordofan and Blue Nile States. Sudan and South Sudan have yet to demarcate their common border and continue to dispute the sovereignty of the territory of Abyei. Armed UN peacekeeping missions (UNAMID and UNISFA) are located in Darfur and Abyei.
International air service to Khartoum is limited. Egypt Air, Ethiopia Airlines, Flynas, Kenyan Airways, Saudia Airlines, Turkish Airways, Bahrain’s Gulf Airways, and several Emirati-based carriers (Etihad, Emirates, Fly Dubai, and Air Arabia) are among the major carriers that serve Khartoum; no American carrier is permitted to fly to Sudan. Tunisia Airlines is scheduled to begin operations in the summer of 2016. Two private domestic airlines service Port Sudan, other regional Sudanese cities, and Juba, South Sudan. International airlines continuously review decreasing the number of weekly flights traveling to Khartoum because of the difficulties they face repatriating money and the weakening of the Sudanese Pound.
In response to the loss of oil production and revenue following the secession of South Sudan in 2011, Sudanese officials are attempting to recover revenue by expanding existing oil and gas production, increasing mining operations (particularly gold mining), and reviving the agricultural and livestock sectors that had been the mainstay of the Sudanese economy prior to the advent of crude oil exports in 2000. As a result, Sudan’s agricultural revival through the GoS five-year plan increased the demand for agricultural inputs which are exempt from U.S. sanctions. Sudanese conglomerates are moving toward corporate farming primarily of fodder exports to the Gulf States.
Sudan emphasizes its desire for more foreign direct investment. Sudan has officially introduced two significant investment reforms in the last three years: lowering both the corporate tax rate and capital gains tax, and improving the timeliness of customs clearances. However, interlocutors have informed the GoS places the tax burden primarily on large businesses that pay much higher than their official tax rate.
Trade missions, mainly from Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates, visit Khartoum on a regular basis, often accompanied by public announcements of signed agreements and purported deals. Most foreign investment to date is related to natural resources, particularly in petroleum and gas exploration and extraction, and agriculture. China, Malaysia, Brazil, and India have made major investments in the oil sector, and Arab Gulf states and Brazil, and Egypt have made major investments in Sudan’s agricultural sector primarily in animal fodder.
In January 2013, the Economic Development Sector of the Council of Ministers passed the National Investment Encouragement Act of 2013, later adopted by the National Assembly. This act ensures that foreign investors enjoy the same protections as Sudanese nationals. Foreign investors, however, do complain that they are often asked for bribes to establish businesses or undertake economic projects in Sudan. There is often a difference between treatment provided by law and treatment received in practice. Investors face noteworthy corrupt activity in their encounters with midlevel government bureaucrats for the provision of administrative services such as issuing licenses, certificates, and documents.
Despite the legal protections guaranteed under the National Investment Encouragement Act of 2013, there are foreign investment restrictions in the transportation sector, specifically in railway freight transportation, inland waterways barge service, and airport operations. Most telecommunications and media, including television broadcasting and newspaper publishing, are closed to foreign capital participation. Foreign ownership is also restricted in the electrical power generation and financial services sectors. In addition to those overt statutory ownership restrictions, a comparatively large number of sectors are dominated by government monopolies, including, but not limited to, those mentioned above. Such monopolies, together with a high perceived difficulty of obtaining required operating licenses, make it more difficult for foreign companies to invest.