2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013
Report

Openness To, and Restrictions Upon, Foreign Investment

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 are trying 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.

The government of Sudan has repeatedly stressed the need for foreign direct investment but its actions have not matched its rhetoric. Sudan has introduced two significant investment reforms in the last three years, lowering the corporate tax rate and capital gains tax and improving the timeliness of customs clearances. In January 2013, the Economic Development Sector of the Council of Ministers passed the National Investment Encouragement 2013 bill but it has not passed the National legislature.

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; the Gulf States have made major investments in agriculture; other countries including the Indonesia, Turkey, and South Africa have also shown interest in expanding existing commercial relations with Sudan. The 1999 Investment Encouragement Act (amended in 2003) specifically prohibited discrimination based on the source of investment. This act was replaced by the National Investment Encouragement Act 2013 (Provisional Decree) signed by the President on March 04, 2013, which also prohibits discrimination against foreigners. The Act establishes the National Investment Council, chaired by the President of the Republic.

There are foreign investment restrictions in the transportation, media and communications, and Sectors such as railway freight transportation, airport operation, television broadcasting, and newspaper publishing are closed to foreign capital participation. Foreign ownership is also restricted in the telecommunications, electricity, 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. Those monopolies, together with a high perceived difficulty of obtaining required operating licenses, make it more difficult for foreign companies to invest.

For a U.S. businessperson contemplating entry into the Sudanese market, the situation is further complicated by comprehensive sanctions. Potential investors should bear in mind that 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 by the Department of Treasury’s Office of Foreign Assets Control (OFAC). Certain types of transactions specified either by sector or geographic regions within Sudan are permitted, in particular agricultural machinery and services, and some types of medical equipment. These regulations are subject to change. Investors interested in business opportunities in Sudan are strongly encouraged to contact OFAC: http://www.treasury.gov/resourcecenter/sanctions/Programs/pages/sudan.aspx.

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Measure

Year

Index/Ranking

TI Corruption Index

2012

177

Heritage Economic Freedom

N/A

Not Graded Since 2000

World Bank Doing Business

2012

135

MCC Gov’t Effectiveness

FY13

-0.52 (20%)

MCC Rule of Law

FY13

-0.35 (27%)

MCC Control of Corruption

FY13

-0.43 (15%)

MCC Fiscal Policy

FY13

-2.0 (68%)

MCC Trade Policy

FY13

55.4 (8%)

MCC Regulatory Quality

FY13

-0.54 (18%)

MCC Business Start Up

FY13

-0.940 (71%)

MCC Land Rights Access

FY13

0.69 (82%)

MCC Natural Resource Mgmt

FY13

5.6 (11%)

MCC Access to Credit

FY13

12 (12%)

MCC Inflation

FY13

18.3 (13%)

Conversion and Transfer Policies

Sudan has a severe foreign exchange reserves shortfall. As a result, 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. The new Investment Act 2013 allows the right of foreign and domestic private entities to establish and own business enterprises, to repatriate capital and profits, on condition that investor has to open investment account at the Central Bank of Sudan (CBOS) before entering into business. There are several official exchange rates, for different types of transactions, and a thriving black market rate.

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 six 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. Sudan’s Arbitration Act of 2005 governs all arbitration matters, to include foreign investments.

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, animal and industrial production. Some of these strategic sectors require a minimum investment; the sum is dependent on the sector.

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 not to exceed 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

The new Investment Act 2013 allows the right of foreign and domestic private entities to establish and own business enterprises, to repatriate capital and profits, on condition that investor has to open investment account at the Central Bank of Sudan (CBOS) before entering into business. Foreign and domestic private businesses may be registered as a sole trader, partnership, limited liability company (private or public), special concession, 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 new Investment Act 2013 allows foreign participation in communications and financial services sectors, on condition that a prior approval from National Telecommunications Corporation (NTC) and Central Bank of Sudan.

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

According to the World Bank, securing rights to property takes an average of six procedures over nine days and costs, on average, three percent of the property value. This has not changed in three years. 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 2013 report. In the category of regulatory efficiency, the report on Sudan states, “Inconsistent enforcement of regulations and other institutional shortcomings often impede business activity and undermine economic development. Launching a business takes more than 30 days, and completing licensing requirements costs over twice the level of average annual income. The labor market remains underdeveloped, and much of the labor force is employed in the informal sector. Monetary stability has been severely undermined.”

Efficient Capital Markets and Portfolio Investment

Sudan’s financial system is relatively small by regional standards. The banking sector is comprised of 32banks, 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.”

Despite the government announcing a mass privatization campaign was to begin in 2011, relatively few government corporations are privatized. On January 19, 2013 President El-Bashir issued a Presidential Decree privatizing 13 government agencies and liquidating five companies owned by the government. 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 ruling National Congress Party (NCP), military, police and National Intelligence and Security Services (NISS) officials. Selling or closing these establishments would threaten entrenched interests. In addition, many of these government and party officials own and operate private businesses that receive favorable treatment at the hands of the government, including favorable exchange rates and awarding of contracts. It is commonly reported that major government contracts are awarded first to a firm controlled by one of these officials and then subcontracted to a firm or firms that will actually perform the work.

Corporate Social Responsibility (CSR)

Activist organizations and advocacy groups for corporate social responsibility routinely targeted 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.

The government of Sudan does not require companies to publicly disclose information relating to issues of corporate social responsibility. Labor and employment rights are not regularly enforced and there is no consumer protection law. Although independent NGO Sudanese Consumer Protection Society exists, it primarily focuses on medicinal protections and lobbying the government over price issues and is not considered to have much influence at this time.

A number of the large Sudanese-owned corporations have active and full CSR programs that compare favorably with what one would see in the U.S. The results have been positive and foreign investors should consider an active CSR program to build goodwill among local communities, their employees and the national, state and local governments.

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, and a number of other foreign nationals have been abducted and held for ransom by criminal groups in Darfur. There have been attacks on foreign business operations in the conflict-torn southern and western states, such as on road building operations.

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 and business operators. 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’s public sector is perceived as one of the most corrupt in the world, ranking 173 out of 174 nations in the 2012 Transparency International Corruption Perceptions Index. In a November 2012 address to parliament, Sudan’s Auditor General declared 175 million dollars had been stolen from September 2011 – August 2012.

Sudanese law does not provide criminal penalties for official corruption, and officials frequently engage in corrupt practices, to include cronyism, patronage, and embezzlement. The government does not investigate officials suspected of corruption. In January 2012, President Bashir established an ant-corruption committee. In January 2013 the President issued a Presidential Decree establishing a Financial Disclosure Inspection Committee to inspect the constitutional post holders. In April 2013 the Minister of Justice announced new investigations into corruption. There have been some but few convictions for corruption. In April 2013 a court convicted a government official at the Ministry of Guidance and Endowments to 10 years imprisonment and a fine of 3 million Saudi Riyal for embezzling public money (the Ministry’s rent in Saudi Arabia).

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, Islamic Republic of Iran, Morocco, Oman, Turkey, Yemen, Bahrain, Ethiopia, Jordan, Syrian Arab Republic, United Arab Emirates, Libya, Tunisia, Algeria, Kuwait, Lebanon, Chad, Republic of Djibouti, India, Vietnam, 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 President issued a Presidential Decree in January 2013 increasing minimum wage to 420 Sudanese pounds per month (approximately 71 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.

There are no clear procedures for obtaining residence permit for South Sudanese who wish to remain in Sudan, unlike other foreigners, but students can easily get resident permits. As part of the September 2012 cooperation agreements between Sudan and South Sudan, Sudan is supposed to grant liberal labor rights to Southern Sudanese; while in April 2013 there was finally some movement towards establishing committees to implement the agreements, there has been little progress. A “Four Freedoms” preferential labor agreement exists with Egypt; Sudan enforces the freedoms in general for Egyptians.

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.

The government has been in the process of creating a free trade zone in Kosti, near South Sudan.

Foreign Direct Investment Statistics

(Millions of Dollars)

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FDI Flows

2008

2009

2010

2011

Inward

2601

1816

2064

1936

Outward

98

89

66

1936

FDI Stocks

2008

2009

2010

2011

Inward

18,047

20,111

22,047

Outward

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

Source: United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2012

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