2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

By all independent measurements available, Sudan presents one of the most challenging business environments in the world to the would-be investor. The country’s rank of 135th out of 183 in the 2012 World Bank Doing Business report is unchanged from the previous year, but Sudan recorded lower scores in seven of the ten indicators in 2012. Sudan is ranked 177th out of 182 nations in Transparency International’s Corruptions Perception Index. The nation’s political risk rating is 137 out of 140 according to the PRS Group; the Country Credit rating is 174 out of 178 according to Institutional Investor.

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Measure

Year

Index/Ranking

TI Corruption Index

2011

177

Heritage Economic Freedom

N/A

Not Graded Since 2000

World Bank Doing Business

2012

135

MCC Gov’t Effectiveness

FY12

-0.51 (20%)

MCC Rule of Law

FY12

-0.39 (17%)

MCC Control of Corruption

FY12

-0.55 (10%)

MCC Fiscal Policy

FY12

-3.2 (40%)

MCC Trade Policy

FY12

N/A

MCC Regulatory Quality

FY12

-0.63 (15%)

MCC Business Start Up

FY12

0.946 (59%)

MCC Land Rights Access

FY12

0.685 (65%)

MCC Natural Resource Mgmt

FY12

49.40 (24%)

The July 2011 secession of South Sudan fundamentally altered Sudan’s economy. Southern oil production accounted for over 75% of the country’s total, an amount that represented almost 36 percent of the government of Sudan’s revenues. In response to the loss, Sudanese government officials announced their intention to replace the revenue by expanding existing oil and gas production, increasing mining operations, particularly gold mining, and reviving the agricultural sector, the mainstay of the Sudanese economy prior to the advent of crude oil exports in 2000.

To succeed in its plans for diversification of the economy, the government of Sudan has repeatedly stressed the need for foreign direct investment. Its actions have not matched its rhetoric, however. According to the World Bank, Sudan has not introduced any significant investment reforms in the last two years and only one – a lowering of the corporate income tax rate – in the last four years. The government eliminated the Ministry of Investment in December 2011 and replaced it with a High Council on Investment.

Trade missions visit Khartoum on a regular basis, often accompanied by public announcements of signed agreements and purported deals. In many cases, the projects never come to fruition. Most foreign investment to date has been resource seeking, particularly in petroleum and gas exploration and extraction, and agriculture. China, Malaysia, and India have made major investments in the oil sector; other countries including the Gulf States, Indonesia, Turkey, and South Africa have also shown interest in expanding existing commercial relations with Sudan.

For a U.S. businessperson contemplating entry into the Sudanese market, the situation is further complicated by comprehensive sanctions that remain in place. Potential investors should bear in mind that for now, U.S. sanctions prohibit 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. Certain types of transactions specified either by sector or geographic regions within Sudan are permitted, in particular agricultural machinery and services. These regulations are subject to change. 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. 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.

While Sudanese and foreigners are permitted to hold foreign currency accounts in 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. The government of Sudan periodically cracks down on dealers involved in unlicensed foreign exchange.

Changes to policies governing currency access and conversion 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. The U.S. government is unaware of any outstanding cases involving the expropriation of property belonging to a U.S. person.

Dispute Settlement

According to the World Bank’s publication Doing Business 2012, 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. These figures are unchanged for the last five years. The World Bank reports that it takes 25 weeks to enforce an arbitration award rendered in Sudan (assuming no appeal) and 19 weeks for a foreign award.

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). Sudan has not signed the 1958 New York 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 High Council on 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. However, severe restrictions to foreign equity ownership apply in many sectors, particularly in service industries. Businesses involved in railway freight transportation, airport operations, television and radio broadcasting and newspaper publishing are closed to foreign participation. This restriction was used to shut down newspapers owned wholly or in part by South Sudanese businessmen after the secession of South Sudan in July 2011. In addition, foreign participation is limited in the telecommunications and financial services sectors.

The law does allow for the purchase of privately or publically held land in Sudan, but instances of sales are rare. The government has provided land without transferring ownership to foreign companies as an investment inducement. Land may be leased in Sudan without restrictions on the amount or the duration. The lease may not be transferred without permission.

Protection of Property Rights

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 not follow due process at times. 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

Although the Heritage Foundation has not graded Sudan in its annual Index of Economic Freedom since 2000, an analysis of selected indicators is provided in the 2012 report. In the category of regulatory efficiency, the report on Sudan states, “Sudan’s entrepreneurial environment is not conducive to private sector development. Inconsistent enforcement of regulations and other institutional shortcomings, including a dysfunctional court system, often impede business activity and prevent sustained economic development.”

Efficient Capital Markets and Portfolio Investment

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. The African Economic Outlook 2011 reports that while private sector loans and deposits doubled between 2005 and 2009, their ratios to GDP remain low (16% and 12% respectively). Non-performing loans have increased in the last two years and are currently over 20%.

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. However, there were no significant privatizations in 2011. A Kuwaiti fund company sold back its share of the national airway, Sudan Air, to the government.

Many state-owned enterprises and parastatals are owned in whole or part by military and security officials. Selling or closing these establishments would threaten entrenched interests.

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 some steps to limit the activities of terrorist groups, elements of these groups remain in Sudan and have threatened to attack Western interests. The terrorist threat level throughout Sudan and particularly in the Darfur region remains critical, and the U.S. Embassy has implemented enhanced security measures to protect U.S. government personnel assigned to Sudan.

The threat of violent crime, including kidnappings, armed robberies, home invasions, and carjackings, is particularly high in the Darfur region of Sudan, as the Government of Sudan has limited capacity to deter crime in that region. In addition, Janjaweed militia and heavily armed Darfuri rebel groups are known to have carried out criminal attacks against foreigners. In May 2010, a U.S. citizen working for a humanitarian relief organization was kidnapped in Darfur and held for over three months before being released. More recently, a number of other foreign nationals have been abducted and held for ransom by criminal groups in Darfur.

Violent flare ups break out between various armed militia groups and Sudanese military forces with little notice, particularly in the Darfur region, along the border between Chad and Sudan, and in areas on the border with South Sudan. Hostilities between Sudanese forces and armed opposition groups in Blue Nile and Southern Kordofan States, including the disputed area of Abyei, present real and immediate dangers to travelers. In addition, U.S. citizens found in these areas without permission from the Government of Sudan face the possibility of detention by government security forces. Demonstrations occur periodically, mostly in Khartoum.

Travelers can get updates by checking the U.S. Embassy website at http://sudan.usembassy.gov.

Corruption

Sudan is regarded as one of the most corrupt countries in the world, ranking 177 out of 182 nations in the 2011 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, South Africa, Turkey 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

Complete statistics reflecting the demographic situation in Sudan after the July 2011 secession of the South are not yet available. Sudan’s labor force was estimated at 12.2 million in 2010 with a participation rate of 51.4% for those aged 15-64. The government of Sudan claimed that the unemployment rate was 13% after the secession of South Sudan. Most observers believe it to be closer to 20%. Underemployment is also a significant social problem as the economy is not creating sufficient jobs for graduating university students.

The legal minimum wage is 200 Sudanese pounds per month (approximately 67 U.S. dollars). The work week extends from Sunday to Thursday and is 8 hours per day and 40 hours per week.

Foreign workers must have valid residency and work permits or face imprisonment and deportation. In practice, the majority of unskilled labor positions are filled by day workers, who are not reported or taxed.

The absence of a procedure for documenting South Sudanese who wish to remain in Sudan may be negatively impacting the availability of labor in certain sectors of the economy, including construction.

The adult literacy rate in Sudan is 69 percent. Gross enrollment rate in North Sudan in 2009 was 71%. However, only one if five children completed primary school in 2010.

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 2011, UN Conference on Trade and Development

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2006

2007

2008

2009

2010

FDI Flows

Inward

3534

2426

2601

2682

1600

Outward

7

11

98

45

51

1990

2000

2010

FDI Stocks

Inward

55

1398

20,743

Outward

-

-

-

(Millions of Dollars)

Note: The government of Sudan does not publish investment statistics on a regular basis.

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