Policies Towards Foreign Direct Investment
The easing of U.S. sanctions also included lifting section 908(a)(1) of the Trade Sanctions Reform Act (TSRA) (22 U.S.C. 7297(a)(1)) that included export assistance restrictions limiting U.S. Embassy Khartoum’s ability to provide the kind of support that the Mission and the Foreign Commercial Service typically provided, 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. American investors interested in understanding more about the lifting of U.S. sanctions on Sudan are encouraged to visit the U.S Department of the Treasury’s website: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170113.aspx
Sudan has been more vigorous in promoting foreign direct investment since the lifting of sanctions holding a number of well-attended conferences on banking, agriculture, and mining. Sudanese officials promised to make significant investment reforms but its corporate tax rate is at an historical high of 35 percent. Other plans discussed were: lowering the corporate tax rate and capital gains tax, and improving the timeliness of customs clearances, although challenges remain with associated costs. The GoS places the tax burden primarily on large businesses that pay much higher than their official tax rate, which averages 10-15 percent of profit. In World Bank’s Doing Business Report 2017, Sudan had the lowest ranking in the region in the area of Protecting Minority Investors.
Trade missions, mainly from Saudi Arabia, China, 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. The Gulf nations are becoming more involved with infrastructure and real estate projects. China, Malaysia, Brazil, and India have made major investments in the oil sector, and Arab Gulf states, Brazil, and Egypt invested mainly in Sudan’s agricultural sector primarily in animal fodder. Gulf states have reportedly acquired large areas of agricultural land to grow feed for livestock. Sudan gave Saudi Arabia permission to use one million acres to cultivate agriculture in Northeastern Sudan in July 2016. GoS signed a MOU with Chinese companies in August 2016 that allowed the companies to grow cotton on one million feddan (420,000 acres) of agricultural land (1 feddan = 0.42 acres.).
The Ministry of Investment is the authority on doing business in Sudan. There is also an umbrella federation of all Sudanese businesses. 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.
Challenges for American investors and export-import firms to conduct business in Sudan persist, including high taxes, and opaque contract award processes, which discourage foreign direct investment.
U.S. businesses should be aware that at present, investors could face difficulties in transferring money to Sudan as international financial institutions (IFIs) continue to exercise caution in processing transactions. Their caution could be related to Sudan remaining on the State Sponsors of Terrorism List or because IFIs are taking time to complete due diligence or considering the practicality of absorbing the high costs of assessing the Sudan market, taking into account Sudan’s long absence from international banking. Those who decide to pursue permissible commercial activity should be advised that U.S. banking institutions are independent entities and the U.S. government or Embassy does not influence their business decisions.
Sudan is becoming a large market for a variety of U.S. agricultural harvesting equipment and inputs. Sudanese farmers represent a significant source of demand for new seeds adaptable to Sudan’s hot and dry climate. 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 three years. As mining concessions have increased, inquiries about American mining equipment have become more prevalent.
Sudan has a formal private sector, led by several business associations, one of which is working with the U.S. Chamber of Commerce. These business groups are dominated by a number of large, often family-owned industrial, agricultural, and consumer products conglomerates. Currently, there is no established Sudan-American Chamber of Commerce. Many Sudanese corporate leaders studied in the United States and Europe and are fluent in English.
Sudan presents one of the most challenging business environments in the world to the would-be investor. Sudan lowered its ranking from 168 (2016) to 170 out of 190 countries on the 2017 World Bank-International Financial Corporation’s “Doing Business Report – Ease of Doing Business.” It is ranked 175 of 180 countries on Transparency International’s 2017 Corruptions Perception Index, tied in ranking with Libya. On the 2015 UN Human Development Index (HDI), Sudan is ranked 165 out of 188 countries. An estimated 47 percent of Sudan’s population (40,234,882) live on USD 1.90 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 currently flies to Sudan. Two private domestic airlines service Port Sudan, other regional Sudanese cities, and Juba, South Sudan. International airlines have decreased the number of weekly flights traveling to Khartoum because of the difficulties they face repatriating money.
In response to the loss of oil production and revenue following the secession of South Sudan in 2011, the Sudanese government is attempting to recover revenues by expanding existing oil and gas production, increasing mining operations (particularly gold mining), and expanding the agricultural and livestock sectors that had been the mainstay of the Sudanese economy prior to the advent of crude oil exports in 2000. Current oil production is estimated at between 85,000 and 100,000 barrels per day (bpd). Under the FY 2017 budget, the Government of Sudan projected an increase production to 115,000 bpd. Challenges the oil industry face include lack of security/conflicts near the oil fields, antiquated drilling equipment and oil wells, and lack of access to the latest technology.
According to the Public Authority of Geological Researches (TAGR), Sudan’s confirmed gold reserves amount to 533 tons, and only 20 percent of Sudan’s land is being exploited for gold. The TAGR reports that 47 tons of gold, two million tons of zinc, 500,000 tons of copper, 3,000 tons of manganese and 3000 tons of silver are in the Red Sea between Sudan and Saudi Arabia. In December the Geological Research Authority of Sudan said that the country reached 105 tons.
In 2017, gum Arabic exports are predicted to be 150,000 tons with proceeds of USD 200 million, according to Central Bank of Sudan (CBOS.) Sorghum production in 2016 was reportedly 130 percent more than in 2015, millet production was 64 percent more than in 2015, and 2016 wheat production was reported as two percent more than in 2015. UAE-associated investment company, Jenaan, established an agricultural project in Northern State that it hopes would begin yielding 240,000 heads of cattle for export in 2018. Sudan has 104 million herds of livestock, according to Ministry of Industry.
Limits on Foreign Control and Right to Private Ownership and Establishment
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.
The GoS regularly promotes trade with South Sudan and highlights its location and natural resources to attract foreign direct investment. The annual International Trade Fair held in Khartoum is widely attended by the local population with a growing number of international businesses in attendance.
Other Investment Policy Reviews
In the past three years, Government of Sudan was reviewed annually by the World Bank and IMF on its overall economic picture. See: The World Bank in Sudan: http://www.worldbank.org/en/country/sudan/overview . Sudan has not undergone third-party investment policy reviews through OECD, WTO, or UNCTAD. Sudan aspires to WTO accession but has not, so far, met the requirements to join. The IMF held its Article IV visit to Sudan September 13–September 26 2017 to look at the previous year’s economic conditions. The IMF concluded that while Sudan had made some improvements, there was much to be done stating, “… unsustainable fiscal deficits persist, inflation is high, and economic growth remains below potential.” https://www.imf.org/en/News/Articles/2017/09/27/pr17373-imf-staff-completes-2017-article-iv-visit-to-sudan . The World Bank and IMF have offered Sudan technical assistance to address its monetary problems. The World Bank on February 2017 commenced a public private partnership with Sudan aimed at “strengthening Sudan’s investment climate and agribusiness.” http://www.worldbank.org/en/news/press-release/2017/02/02/world-bank-group-and-government-of-sudan-launch-public-private-partnership-support-program-for-sudan .
Facing a severe foreign exchange reserves shortage, the Sudanese government tightened conversion and transfer policies. Domestic businesses have no assurance of obtaining needed levels of foreign currency for international transactions. The government strictly controls incoming hard currency from exports and business owners wishing to retrieve cash can only make withdrawals denominated in Sudanese pounds at the time of this report. Foreign companies operating in Sudan must have the Central Bank of Sudan’s permission to repatriate profits and foreign currency. The Investment Act of 2013 enshrines the right to repatriate capital and profits, provided the investor has opened an investment account at the Central Bank of Sudan before entering into business. To avoid banking delays, many Sudanese firms complete a significant amount of transactions outside of official channels or complete transactions abroad in U.S. Dollars, Euros, Riyals, or Dirhams. Whether or not the government will revise its practices to ensure a steady stream of foreign exchange once international correspondent banking resumes, remains to be seen. The Act also established courts to handle investment issues and disputes.
The gap between the black market and official exchange rates has decreased since the government lowered the buying rate to SDG 29: 1 USD. The parallel/black market rates fluctuate — around 33 SDG: 1USD. Nonetheless, this divergence adds to the difficulty and complexity of settling accounts and repatriating profits and foreign exchange. While Sudanese and foreigners are permitted to hold foreign currency accounts in private commercial banks, access to the currency can be delayed and/or limited without prior notification. Individuals and businesses often resort to obtaining hard currency on the black market. Local businesses may avoid holding significant cash in domestic deposit accounts altogether. Sudanese authorities periodically crack down on dealers involved in unlicensed foreign exchange transactions. In 2014, in order to encourage the development of productive export industries, the Sudanese government prohibited banks from lending to real estate development and financing automobile loans.
The GoS has introduced changes to policies governing currency access and conversion without warning, and such changes have generally become effective immediately upon announcement. Sudan’s inflation rate (in 2017 was 32.35 percent and) as of April 2018 is 55.6 percent up from 54.3 percent in February 2018. The rise in inflation has been attributed to the increase of food commodities, devaluation of the Sudanese currency, and shrinking imports.
Sudan Ministry of Investment lists the process by which businesses must register to operate at: http://www.sudaninvest.org/English/Default.htm . The website outlines procedures for companies that wish to invest including forming and ending relationships and license applications.
“The Companies Act, 2003” provides for regulations for incorporating/registering businesses, both foreign and domestic, in Sudan. There are a number of women business leaders in Sudan who are members of the major business associations. The Sudanese Businesswomen’s Association includes about 100 women business owners in the oil, education, and commodities industries.
A few months after the United States lifted sanction on Sudan; the Sudanese government conducted a number of events to promote foreign direct investment. Several American companies participated in its annual Khartoum International Trade Fair. Other U.S. companies sent exploratory teams to Sudan to test the waters and its investment climate. The Sudanese government has consistently given warm receptions to investors. A number of Sudanese companies visited the United States and made large-scale purchases of U.S. products, dairy cows, irrigation equipment, and services. The host government does not restrict domestic investors from investing abroad, yet seeks to have oversight in companies’ overseas transactions. Sudan’s export sector to any country is tightly controlled by the GoS.