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 South Sudanese 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 on their website. The contracts process for oil companies that are planning to bid and invest in South Sudan is controlled by the Ministry of Petroleum. This information is not publicly available on the Ministry’s website.
There are no known informal regulatory processes managed by nongovernmental organizations 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. 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.
There are no publicly listed companies. Government accounting is non-transparent. In 2018 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 2018.
No enforcement reforms have been announced or implemented. The establishment of the National Revenue Authority may 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.
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). The Ministry of Petroleum particularly lacks transparency, as does the Ministry of Finance. Allegations of corruption plague both ministries. The state-owned oil company Nilepet has consistently refused public auditing.
International Regulatory Considerations
South Sudan is a member of the African Union and the East African Community (since April 2016) and is making progress in adapting its national regulatory system to regional standards.
With the establishment of the National Revenue Authority, South Sudan has begun to implement EAC customs regulations and procedures. 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.
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 has centralized and standardized collection of Personal Income Tax and customs duties. 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 2018.
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. His companies and their bank accounts were seized and all employees fired.
Due to the insufficiencies in the legal system, investors should not expect to receive due process. Investors face a complex commercial environment with relatively weak enforcement of the law.
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.
In recent years South Sudan has reportedly failed to pay for some services provided to it by private companies. 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. In addition, numerous private companies, including at least one U.S. company, claim the government has reneged on or delayed payment for work under contract.
In March 2018, the government suddenly suspended Lebanese-owned cell phone service provider Vivacell, 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.
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 2019 Doing Business Report ranking for “resolving insolvency.”