2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report

Overview of Foreign Investment Climate

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2010

172

Heritage Economic Freedom

N/A

Not Graded Since 2000

World Bank Doing Business

2010

153

MCC Gov’t Effectiveness

2010

-0.62 (16%)

MCC Rule of Law

2010

-0.61 (11%)

MCC Control of Corruption

2010

-0.71 (6%)

MCC Fiscal Policy

2010

-3.7 (17%)

MCC Trade Policy

2010

62.1 (25%)

MCC Regulatory Quality

2010

-0.73 (15%)

MCC Business Start Up

2010

0.939 (59%)

MCC Land Rights Access

2010

0.548 (30%)

MCC Natural Resource Mgmt

2010

52.91 (28%)

For the U.S. investor, Sudan presents one of the most daunting business climates imaginable. A comprehensive sanctions regime that prohibits almost all economic transactions between the United States and Sudan, civil war, the Darfur conflict, a lack of basic infrastructure, rampant corruption, an entrenched one-party state intent on its own survival, and near total dependence by much of the population on subsistence agriculture have resulted in negligible commercial activity between the two countries.

Nonetheless, recent developments and the potential for further fundamental changes to the political, social and economic landscape of Sudan have opened the possibility for a resumption of more significant economic ties with the United States. In January 2011, citizens of Southern Sudan voted in a referendum to determine whether the autonomous region of Southern Sudan would secede and form an independent country. U.S. administration officials and congressional leaders spoke openly in the lead up to the referendum of removing sanctions, provided that the government of Sudan respects the process and peacefully implements the results.

In October 2010, the U.S. Government established a licensing regime through which U.S. persons can request specific authorization for the commercial exportation or reexportation of U.S.-origin agricultural equipment and services to an area of Sudan other than the Specified Areas of Sudan. The purpose of this new licensing policy is to benefit the Sudanese people by enhancing local food production and strengthening the agricultural sector in a chronically food insecure country. U.S. persons are already authorized to export and reexport such equipment to the Specified Areas of Sudan, which include Southern Sudan, Southern Kordofan/Nuba Mountains State, Blue Nile State, Abyei, Darfur, and marginalized areas in and around Khartoum. Specific licenses may be issued on a case-by-case basis authorizing the commercial exportation or reexportation of U.S.-origin agricultural equipment and services to the non-Specified Areas of Sudan. Investors should bear in mind that for now, U.S. sanctions prohibit all U.S. persons from engaging in any financial transactions with Sudan or with entities owned or controlled by the Sudanese government and generally prohibits U.S. trade with Sudan unless licensed. Investors interested in business opportunities in Sudan are strongly encouraged to contact the Office of Foreign Assets Control at the U.S. Department of the Treasury: http://www.treasury.gov/resourcecenter/sanctions/Programs/pages/sudan.aspx.

Conversion and Transfer Policies

Since the global financial crisis of 2008 and the collapse of crude oil prices, Sudan has faced a severe foreign exchange reserves shortfall. While data is not made public on a regular basis, the International Monetary Fund reported that reserves at the Central Bank of Sudan fell below two weeks of import coverage at one point. As a result of the shortage of foreign currency, the government of Sudan has significantly tightened conversion and transfer policies. Domestic businesses have no assurance of obtaining needed levels of foreign currency for international transactions. Foreign companies operating in Sudan must have the permission of the Central Bank of Sudan to repatriate profits and foreign currency.

In November 2010, the Central Bank effectively devalued the Sudanese pound by allowing banks and licensed exchange bureaus to offer a premium in addition to the official exchange rate for the purchase of hard currency in a bid to match the black market rate. In December 2010, the Central Bank announced that account holders of hard currency accounts (known as “special accounts”) would not be permitted to make foreign currency withdraws for domestic purposes. In January 2011, the government of Sudan announced that it would freeze the bank accounts of state-owned companies that did not turn over all foreign currency to the Central Bank.

Changes to policies are introduced without warning and generally become effective immediately upon announcement.

Expropriation and Compensation

Sudanese investment law states that “just compensation” must be offered in the case of nationalization or confiscation of all or part of any investment for “the public interest.” No mechanism for determining compensation is specified; no definition of public interest is provided.

Dispute Settlement

According to the World Bank’s publication Doing Business 2010, enforcement of a commercial contract in Sudan takes an average of 53 procedures and 810 days at a cost of almost 20 percent of the claim.

The investment law does provide for international arbitration, and Sudan is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

Performance Requirements/Incentives

Investors must begin their projects within six months of receiving a license; submit reports every six months during the period in which the project receives special privileges; keep regular books and maintain records on the assets of the project exempted from customs duties, and exempted imported materials; and present, to the Minister, the Competent Minister and the State Minister, annually, during the period of validity of the privileges, a copy of the annual report of the project, approved by a certified auditor.

Sudanese investment law specifies certain sectors as strategic for the purpose of providing additional or special incentives: (1) infrastructure, including roads, ports, electricity, dams, communications, energy, transport, contracting business, education, health and tourist and information technology services and water projects; (2) natural resource extraction and exploitation; and (3) agriculture and industrial production.

Investments in strategic sectors are exempt from tax on profits for a period of ten years. The Minister of Investment may grant non-strategic investments an exemption of five years. The government may also extend benefits including free land and exemptions from other taxes and fees to strategic and non-strategic investments. Such projects may include, but are not limited to investment in the least developed areas of the country; investments that assist in the development of export capabilities; investments that contribute to rural development; investments that increase employment; investments that are charitable in nature; and investments that develop scientific and technological research.

Right to Private Ownership and Establishment

A business may be registered as a sole trader, partnership, limited liability company (private or public), or branch of a foreign registered company. A business can have 100 percent foreign shareholding if it does not engage in commerce (import and/or export). Trading companies must have majority Sudanese ownership.

Protection of Property Rights

According to the World Bank’s publication Doing Business 2010, registering property in Sudan is not as bureaucratic or time-consuming as in other countries in the region. Securing rights to property takes an average of six procedures over nine days and costs, on average, three percent of the property value. However, protecting property rights can be problematic. Military and civil authorities do follow due process. The judiciary is unduly influenced by other branches of government, exercises little or no independence, and is widely perceived as being corrupt.

Transparency of the Regulatory System

Sudan's regulatory environment can be characterized as corrupt and lacking transparency. The lack of transparency is attributable not only to a lack of capacity, but also to the absence of legislation providing public access to government information. African Economic Outlook 2010 reports that Sudan performs marginally well with respect to trading across borders and enforcing contracts, but that it performs poorly in dealing with construction permits, access to credit and starting a company. According to the World Bank's Doing Business 2010, starting a company, registering property, dealing with licenses and permits, and paying taxes, among other tasks, generally involve less cumbersome bureaucratic procedures, less time and lower costs than regional averages.

Efficient Capital Markets and Portfolio Investment

According to the IMF, Sudan’s financial system is relatively small by regional standards. The banking sector is comprised of 32 banks, including five foreign and four state-owned banks. Sudan remains under-banked, with banking and other financial institutions concentrated around Khartoum. Competition in the sector is reduced by the large presence of public banks which account for about 50 percent of total banking sector assets. Nonperforming loans (NPLs) are estimated at 20 percent.

Competition from State-Owned Enterprises (SOEs)

According to a 2009 World Bank report, “the state indirectly owns enterprises through government officials and political parties in addition to direct ownership of enterprises by all levels of government (National, GoSS, and State). The broad range of activities in which the state participates as direct or indirect owners of enterprises distorts competition in those markets, as the presence of state firms provides a strong disincentive to private entry. This undermines policies both at the national level and in Southern Sudan to allow greater entry of the private sector.”

In October 2010, the government of Sudan announced its intent to conduct mass privatizations in 2011. While Sudan has experienced previous success in privatizing SOE’s in the telecommunications and financial sectors, many observers believe that the majority of remaining state-owned companies are inefficient, bloated with excess labor forces, and dependent on government subsidies and undeserved access to credit from the domestic market in order to survive. Selling or closing these establishments may threaten entrenched interests and could create instability by increasing unemployment.

Corporate Social Responsibility

Activist organizations and advocacy groups for corporate social responsibility routinely target multinational corporations with economic interests in Sudan for protest and economic boycott. As a result, many universities, mutual and hedge funds, and philanthropic organizations have divested their share holdings of companies that do business in Sudan. The Chinese government and the state-owned China National Petroleum Corporation have come under severe international criticism for their involvement in the Sudanese petroleum sector.

Political Violence

While the Government of Sudan has taken steps to limit the activities of terrorist groups, elements of these groups remain in Sudan, and have threatened to attack Western interests. In January 2008, two U.S. Embassy employees were assassinated by a group of Sudanese extremists while traveling on a street in Khartoum. The persons who carried out this attack were convicted and sentenced to death by a Sudanese court, but escaped from custody in June 2010; three of the attackers remain at large. The terrorist threat level in the Khartoum area and in the Darfur region remains critical.

Corruption

Sudan is regarded as one of the most corrupt countries in the world, ranking 172 out of 178 nations in the 2010 Transparency International Corruption Perceptions Index.

Sudanese law does not provide criminal penalties for official corruption, and officials frequently engage in corrupt practices. The government does not investigate officials suspected of corruption, and government officials are not subject to financial disclosure laws. There are no laws ensuring public access to government information.

Sudan signed the UN Anticorruption Convention in 2005 and the African Union Convention on Preventing and Combating Corruption, but has yet to ratify either agreement.

Bilateral Investment Agreements

Sudan has bilateral investment agreements with Germany, Netherlands, Switzerland, Egypt, France, Romania, China, Indonesia, Malaysia, Qatar, Iran, Morocco, Oman, Turkey, Yemen, Bahrain, Ethiopia, Jordan, Syrian Arab Republic, United Arab Emirates, Switzerland, Egypt, Libya, Tunisia, Algeria, Kuwait, United Arab Emirates, Lebanon, Chad, Djibouti, India, Vietnam, Netherland, Bulgaria, and Italy. Sudan has bilateral taxation treaties with Egypt, United Kingdom, Malaysia, and Syria.

Sudan and the United States do not have a bilateral investment agreement or a bilateral taxation treaty.

OPIC and Other Investment Insurance Programs

Sudan is not eligible for Overseas Private Investment Corporation (OPIC) programs because of comprehensive U.S. economic sanctions. Sudan has been a member of the Multilateral Investment Guarantee Agency (MIGA) since November 7, 1991. MIGA is not currently active in Sudan.

Labor

Sudan’s labor force is estimated at about 12 million. The agricultural sector is the largest employer, accounting for 65 percent of the total workforce. Approximately 90 percent of agricultural labor is self-employed.

The current unemployment rate in Sudan is approximately 20 percent. The legal minimum wage is 200 Sudanese pounds per month (approximately 67 U.S. dollars). Due to the low level of salaries, people often have two or three untaxed jobs to supplement their income. Work is generally menial and provides a standard of living at the subsistence level. The work week extends from Sunday to Thursday and is 8 hours per day and 40 hours per week. The adult literacy rate in Sudan is 61 percent; in Southern Sudan, the rate is 27 percent.

Sudan has signed and ratified all major ILO conventions protecting workers rights, but falls short in practice of international standards.

Foreign Trade Zones/Free Ports

Sudan has established two free trade zones: Suakin on the Red Sea near Port Sudan and Aljaily near Khartoum. According to the Free Zones and Free Markets Law of 1994, industrial, commercial or service investments which are licensed in the free zones enjoy the following advantages:

-- Exemption of the projects from tax on profits for 15 years, renewable for an extra period dependant on the decision made by the concerned minister;

-- Salaries of expatriates working in projects within the free zones are exempted from personal income tax;

-- Products imported into the free zone or exported abroad are exempted from all customs fees and taxes except service fees and any other fee imposed by the board of the Sudan Free Zones Company;

-- Real estate inside the free zones area is exempted from all taxes and fees;

-- Invested capital and profits are transferable from Sudan to abroad through any bank licensed to operate in the free zone;

-- Money invested in the free zones may not be frozen or confiscated.

Foreign Direct Investment Statistics

From the World Investment Report 2010, UN Conference on Trade and Development

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

1995-2005

Annual Avg.

2006

2007

2008

2009

FDI Flows

Inward

700

3541

2436

2601

3034

Outward

-

7

11

98

45

FDI Stocks

Inward

166

1398

13662

16262

19296

Outward

-

-

-

-

-

(Millions of Dollars)

[This is a mobile copy of Sudan]