Sudan: Major improvements
- Delivering Growth and Opportunity
Africa Riskwatch - Issue 10 - July 2017
Sudan: Major improvement in business environment beckoning as permanent sanctions removal looks increasingly likely
Compared to the fanfare surrounding the removal of sanctions against Iran, Myanmar or Cuba, the approaching end of US economic sanctions against Sudan has received scant attention. The decision to lift sanctions after more than 20 years was made in the last days of former US President Barack Obama and overshadowed by the inauguration of President Donald Trump. Few companies took notice at the time. The decision to lift sanctions has also been delayed by making it subject to a review on 12 July 2017, forcing Sudan to show continued goodwill and giving the Trump administration a chance to make a final decision on the subject.
President Trump has so far failed to give a clear indication on whether he will approve the removal of sanctions. However, signs coming out of the US administration indicate that he will likely support his predecessor’s initiative. Collaboration between the CIA, FBI and the Sudanese security agencies has significantly intensified over the last weeks and both US agencies are planning to step up their presence in the country. Sudan has long collaborated with the US on anti-terrorism matters and is positioning itself as an important partner in the region.
Khartoum has also made significant efforts to improve its international image and meet various criteria set out by the US administration. The country has cut ties with Iran and switched support to the UAE and Saudi Arabia, including by sending combat troops to fight in Yemen. Domestically, the Sudanese government has agreed on humanitarian access to conflict zones in the south and political concessions that led to the formation of a National Consensus Government. Although human rights activists point to continued violations in the country, a recent CIA report suggests that Sudan has met the conditions for the removal of sanctions in July.
Back in business
The lifting of US sanctions is set to significantly improve the business environment and drive the growth of Sudan’s economy, already more than 1.5 times the size of Kenya. Although a number of US companies have previously been active in Sudan through their non-US subsidiaries, the removal of US sanctions will make doing business in the country considerably easier. In particular, the ability to transfer funds in and out of the country, previously severely restricted for both US and non-US companies, is set to gradually improve as more and more banks recommence processing Sudan-linked payments. The likely lifting of most sanctions also reduces reputational risk, which acts as a further driver of foreign investment.
Sudan is likely to pursue a strategy of establishing itself as a hub for Arab-African trade. Gulf countries - in particular Saudi Arabia - have previously expressed interest in investing in land and agribusiness to improve food security at home. Many companies in the Gulf are looking for new investment opportunities as growth has stagnated in markets closer to home. A shared language, cultural links and similarities mean they are likely to consider Sudan familiar enough to include it in their expansion strategy.
Renewed interest in oil and gas is likely as companies benefit from improved security in parts of the country as well as more favourable conditions from a government keen to attract investment in exploration work. The gold mining sector is likely to continue to see a rapid expansion that has helped Sudan become Africa's third largest gold exporter in just a few years. Activity in the nascent financial services sector, agriculture, pharmaceuticals and chemicals and consumer goods sector is also likely to increase.
Proceed with caution
While it is hard to overstate the potential for improvements that will come with the removal of US sanctions, Sudan will remain a challenging investment environment. Political reforms are largely cosmetic and power remains firmly in the hands of President Omar al Bashir and the National Intelligence and Security Service (NISS). As a result, contract re-negotiation, arbitrary tax demands, corruption and political interference will remain key risks. This includes, for example, the promising gold mining sector where the NISS has a strong influence and will likely retain control even after the end of US sanctions.
Nonetheless, these challenges are not unique to Sudan but can be found in many other jurisdictions in the region, many of which have attracted international investors operating successful businesses. Some of these companies have already expressed tentative interest in expanding their business to Sudan. While an immediate flood of investment is unlikely following 12 July, we expect momentum to build up gradually as companies go through the careful process of weighing up opportunities and risks, a balance which is about to look more favourably than it has for many years.