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South Sudan

3. Legal Regime

Transparency of the Regulatory System

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.

The private sector is governed by a mix of laws from Sudan, the pre-independence semi-autonomous Government of Southern Sudan, and since 2011, the Government of South Sudan. The Transitional National Legislative Assembly (TNLA) passed laws to improve the transparency of the regulatory system, including the 2012 Companies Act and the 2012 Banking Act, however enforcement regulations are still lacking and there is little transparency. The government does not consult with the public about proposed regulations and information about regulations is not widely published. Several key pieces of legislation governing customs, imports and exports, leasing and mortgaging, procurement, and labor have not been approved by the government and are needed to improve the business environment in South Sudan.

The oil sector is the major industry that attracts FDI, but transparency in the oil sector is absent, despite it being mandated by law. The Ministry of Petroleum does not share data at an institutional level with the Bank of South Sudan and does not release it to the public. The Ministry of Petroleum does not publish oil production data. The contract process for oil companies that are planning to bid and invest in South Sudan is controlled by the Ministry of Petroleum, but the law appears to grant this authority exclusively to the National Petroleum and Gas Commission. Bidding and tender information is not publicly available.

There are no known informal regulatory processes managed by NGOs or private sector associations that would affect U.S. investors. National and state bodies are the main source of regulation, but county and sub-county level officials also impose regulations. In 2018 and 2019, international non-governmental organizations regularly reported that local officials demanded taxes and fees that differed with those set out in national policy. An opaque Presidential Decree issued in late 2018, for example, resulted in weeks of customs clearance disruptions at the country’s main land border in Nimule. COVID regulations also created delays in the spring of 2020. NGOs report regular discrepancies between tax and labor rules issued by the national government and those enforced by local authorities. At some state levels, private contractors moving goods earmarked for humanitarian relief have been prevented entry at state borders. Failure by the transitional government to establish leadership for states and administrative areas as of April 2020 has further complicated the tax regime nationally.

There are no publicly listed companies. Government accounting is non-transparent. In 2019, the legislative assembly held public budget hearings, but in general, most bills and regulations are passed without public comment and are poorly disseminated. There is no centralized online location where key regulatory actions are published. There is no ombudsman. Parliament has not been able to provide effective oversight of government ministers. There were no significant corruption cases prosecuted in 2019.

No enforcement reforms have been announced or implemented. The establishment of the National Revenue Authority was expected to provide a stronger foundation for development and implementation of accounting and regulatory standards. South Sudan is working to develop sources of non-oil revenue, including more centralized and effective enforcement of personal income tax. If transparently collected and managed, these funds could assist in development of the country’s infrastructure. The summary removal of the former National Revenue Authority Commissioner General in 2019 casts doubt on whether there is enough political will to achieve such goals.

South Sudan’s parliament is responsible for developing laws, but bodies such as the National Revenue Authority have also been influential in developing tax procedures, for example. There is no indication that regulations are informed by quantitative analysis and public comments received by regulators are not made public.

Laws and regulations are randomly enforced and are not well-publicized, creating uncertainty among domestic and foreign investors. The Ministry of Labor, for example, rarely if ever conducts inspections, but NGOs and foreign investors have reported that employees have colluded with labor inspectors to extort fines from business managers.

South Sudan’s public finances are extremely opaque. The government released some debt obligation information during budget hearings in 2018 regarding certain infrastructure loans, but to date has not disclosed the amount of forward-sold oil (the country’s main source of revenue). As of March 2019, the IMF evaluated short-term oil advances at USD 338 million or 7.3 percent of GDP but noted that this estimate might not capture all outstanding advances as authorities were unable to provide a full list of contracted oil advances and their repayment terms, complicating fiscal projections. The FY 2019/2020 budget infrastructure expenditure line increased to USD 611 million. At 47 percent of total expenditures, this was a large increase by percentage, up from three percent of total expenditures in FY 2018/2019. Per documents from the third reading of the budget, roughly USD 602 million of this increase will go to the Road Infrastructure Fund. It is widely understood these monies will be used to pay for the USD 711 million oil-collateralized road construction contract with Chinese-firm Shandong Hi-Speed Group for the Juba-Rumbek road. The government also plans to build two additional roads (Nadapal-Torit-Juba-Bor and Kaya-Yei-Raja) though no further details have been released.

In the energy sector an Egyptian company called Elswedy Electric Company in December 2019 signed a contract with the government of South Sudan, represented by South Sudan’s Ministry of Energy and Dams to build a USD 45 million hybrid photovoltaic project with a battery storage system. The contract includes engineering, procurement, and installation of the project by Elswedy Electric, and the project is scheduled to be operational in 2020. The project was not reviewed by parliament as required by law.

International Regulatory Considerations

South Sudan became a member of the African Union in 2012 and the East African Community (EAC) in April 2016. It is making progress in adapting its national regulatory system to regional standards. South Sudan has joined the customs union of the EAC but is behind in implementing regulations. With the establishment of the National Revenue Authority, South Sudan had begun to implement EAC customs regulations and procedures. In March 2020, the President established the Ministry of East African Community Affairs in accordance with the peace agreement, which is tasked with overseeing integration into the EAC. South Sudan currently has nine members in EAC parliament and one South Sudanese judge in the EAC Court of Justice. While the government claimed it paid its arrears to the EAC in the fall of 2019, this has not been independently confirmed. South Sudan is not a member of the WTO.

Legal System and Judicial Independence

South’s Sudan’s legal system is a combination of statutory and customary laws. There are no dedicated commercial courts and no effective arbitration act for handling business disputes. The only official means of settling disputes between private parties in South Sudan is civil court, but enforcement of court decisions is weak or nonexistent. The lack of official channels for businesses to resolve land or other contractual disagreements has led businesses to seek informal mediation, including through private lawyers, tribal elders, law enforcement officials, and business organizations. As a part of its membership in the EAC, South Sudan is subject to the jurisdiction of the East African Court of Justice (EACJ). The EAC treaty gives the EACJ broad jurisdiction including trade disputes and human rights violations, but the court only reviews 40 cases annually and results for South Sudanese legal community have been inconclusive.

The executive regularly interferes in judiciary matters. Parties to business disputes have been arrested by state security forces and held at length without charges. 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 by authorities and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

The lack of a unified, formal system encourages ‘forum shopping’ by businesses that are motivated to find the venue in which they can achieve an outcome most favorable to their interests. Many disputes are resolved informally. U.S. companies seeking to invest in South Sudan face a complex commercial environment with extraordinarily weak enforcement of the law. While major U.S. and multinational companies may have enough leverage to extricate themselves from business disputes, medium-sized enterprises that are more natural counterparts to South Sudan’s fledgling business community will find themselves held to local rules.

Laws and Regulations on Foreign Direct Investment

Despite some improvements to the taxation system, the opacity and lack of capacity in the country’s legal system poses high risk to foreign investors. South Sudan’s National Revenue Authority had centralized and standardized collection of Personal Income Tax and customs duties but many of these gains appear to have been lost since the removal of the Commissioner General in August 2019. A One-Stop Shop Investment Centre (OSSIC) was established in 2012 but there is no website or advertised physical office. In practice, someone who wishes to register a business must rely on a local lawyer to register the business with the registrar at the Ministry of Justice and with other relevant authorities such as tax authorities.

Competition and Anti-Trust Laws

South Sudan does not review transactions for competition-related concerns. There were no significant developments in 2019.

Expropriation and Compensation

The Investment Promotion Act of 2009 prohibits nationalization of private enterprises unless the expropriation is in the national interest for a public purpose. However, the current law does not define the terms “national interest” or “public purpose.” According to the law, expropriation must be in accordance with due process and provide for fair and adequate compensation, which is ultimately determined by the local domestic courts.

Government officials have pressured 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 they were not included in a formal agreement.

Although officially denied, credible reports from humanitarian aid agencies indicate that money is routinely extorted at checkpoints manned by both government and opposition forces to allow the delivery of humanitarian aid throughout the country.

In practice, the government has not offered compensation for expropriated property. For example, in October 2018 the government expropriated the assets of Kerbino Wol Agok, a high-profile prisoner of the National Security Service, with no apparent judicial process. The government seized his companies and their bank accounts, and all employees fired. In 2019, a court sentenced Kerbino to ten years in prison for acts committed after his arrest; he was released in January 2020 under presidential pardon.

Due to the insufficiencies in the legal system, investors should not expect to receive due process or have the terms of their contracts honored. Investors face a complex commercial environment with relatively weak enforcement of the law.

Dispute Settlement

ICSID Convention and New York Convention

South Sudan signed and ratified the ISCID Convention on April 18, 2012 and it entered into force on May 18, 2012. Currently South Sudan is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

There is no specific domestic legislation that enforces awards under the ICSID convention.

Investor-State Dispute Settlement

South Sudan does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.

Numerous private companies, including at least one U.S. company, claim the government has reneged on or delayed payment for work under contract in recent years. For example, in November 2017, South Sudan stopped issuing and renewing passports and other travel documents after its production system was shut down for two weeks by the country’s German supplier, due to the government’s failure to pay an annual software license fee of around USD 500,000. The government again failed to pay its annual fees in November 2019 and the service provider stopped issuing passports for South Sudan for two weeks – the last week of December 2019 and the first week of January 2020.

In March 2018, the government suddenly suspended a Lebanese-owned cell phone service provider, which had previously been South Sudan’s largest telecommunications company with a 51 percent market share and equipment installed throughout the country, due to an alleged failure to pay taxes.

There is a history of extrajudicial action against foreign investors. Parties in contract disputes are sometimes arrested and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

International Commercial Arbitration and Foreign Courts

There are no official arbitration bodies in South Sudan. South Sudan lacks any dedicated legal framework for rendering enforceable court judgments from foreign courts.

As a part of its membership in the EAC South Sudan is subject to the jurisdiction of the East African Court of Justice (EACJ). The EAC treaty gives the EACJ broad jurisdiction beyond trade disputes, including human rights violations. Though results have proved inconclusive, members of South Sudan’s legal community have taken cases to the EACJ in the past. The capacity of the EACJ is limited, however, as it only hears about 40 cases per year. Moreover, cases must be filed in Arusha, Tanzania. Plans for opening an office in Juba are ongoing.

Bankruptcy Regulations

The 2011 Insolvency Act provides for both personal and corporate bankruptcies. Given the lack of commercial courts, there is little information available about the rights of creditors in practice. South Sudan is tied for last place in the World Bank’s 2020 Doing Business Report ranking for “resolving insolvency.”

4. Industrial Policies

Investment Incentives

The Investment Promotion Act provides for various tax incentives, including capital allowances ranging from 20 to 100 percent of eligible expenditures, deductible annual allowances ranging from 20 to 40 percent, and depreciation allowances ranging from 8 to 10 percent. A foreign tax credit is granted to any resident company paying foreign taxes on income from business activities outside South Sudan. In practice, the exact incentive structure is somewhat unclear.

Applications for fiscal incentives are made to the Ministry of Finance, Commerce, Investment and Economic Planning through the One Stop Shop Investment Centre (OSSIC). Tax exemptions and concessions on machinery, equipment, capital and net profits were approved for stated periods by the Ministry of Finance, at its discretion. In May 2019, the National Revenue Authority became the institution that approved tax exemptions. Fiscal incentives also include capital allowances, deductible annual allowances, and annual depreciation allowances.

The government has been known to guarantee foreign direct investment projects with oil deliveries. However, due to a lack of transparency in government procurement and finance, it is unclear to what extent the country’s oil production has been leveraged and thus it is impossible to ascertain the likelihood that the country will honor such commitments.

Foreign Trade Zones/Free Ports/Trade Facilitation

South Sudan has not established any free trade zones. On June 22, 2013, the government of South Sudan announced the construction of the Juba Specialized Economic Zone (SEZ), near the capital. In addition, the government proposed a SEZ in Terekeka, Central Equatoria State and Renk, Upper Nile State. The government of South Sudan left the development of the SEZs to private investors, but development of the areas has not progressed.

Performance and Data Localization Requirements

South Sudan’s 2017 Labor Act dictates that 80 percent of staff at all levels of management must be South Sudanese nationals. Additionally, authorities in some areas of the country have demanded that NGOs employ people local to a specific area, or from a specific ethnic group, although there is no basis for this practice in South Sudanese law. The law makes no specific mention of senior management and boards of directors. The government requires work permit fees for foreign nationals. These are typically several thousand dollars per employee, but the exact amounts change regularly. Foreigners are also subject to a variety of registration requirements, which also change regularly and unpredictably.

In consideration of entitlement to an investment certificate, the Investment Act encourages, but does not require, technology transfer, increases to foreign exchange through exports or import substitution, use of local raw materials and supplies, and contributions to the local community. For entitlement to an investment certificate, the Investment Authority is required by law to assess if the investment will create employment for South Sudanese, allow for South Sudanese to acquire new technological skills, and contribute to tax revenues. The use of domestic content in goods or technology is encouraged, but not required.

The Investment Authority may revoke an investment certificate due to breach of performance requirements, with 30 days’ notice. There are no provisions regarding maintenance or adjustments to performance requirements. The Investment Act applies these requirements equally to domestic and foreign investors.

There are no known requirements for foreign IT providers to turn over source code or provide access to encryption. No measures are known to exist to prevent companies from transferring customer or other business data outside the country. There are no known rules on maintaining data storage within the country.

Investment Climate Statements
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