Sudan’s Investment Scene: Brief History

Sudan has been covered by the Global Entrepreneurship Monitor (GEM), which indicates that 53.6% of the population consider that it is easy to start a new business in Sudan, and 79.4% consider that starting a new business is a desirable career choice GEM Sudan (2018).

Sudan before the uprising

In recent history, specifically in 2017 close to the end of Barak Obama’s period as the US president, he partially lifted the sanctions on Sudan which enabled over 150 companies to establish and/or resume international relations. In addition, Sudan was lifted from the US list of state sponsors of terrorism in December 2020, ending 30 years of isolation. This contributed greatly to Sudan’s awaited return to the international market and encouraged the entrance of private investors.

There has been a noticeable gap of information about entrepreneurial activities in Sudan and there is a literature gap in this field of study. Moreover, the World Bank’s Doing Business reports ranked Sudan at the bottom of the listed countries. Indeed, different studies undertaken by the World Bank reveal that entrepreneurial activities are low compared to other countries in the region (World Bank 2015). In recent years, however, and since 2018, Sudan has been covered by the Global Entrepreneurship Monitor (GEM), which indicates that 53.6% of the population consider that it is easy to start a new business in Sudan, and 79.4% consider that starting a new business is a desirable career choice GEM Sudan (2018).

Sudan’s economic productivity has been under a centralized economic planning system, and hence most of the major economic activities have been driven by the public sector. Nevertheless, since the country embarked on liberation and privatization policies in the mid-1990s, the contribution of the private sector toward the national economy significantly increased. According to the African Economic Outlook (2014), the private sector is the main source of employment in Sudan, providing about 75 percent of jobs and about 70 percent of foreign currency proceedings. Furthermore, Enterprise activities exist in the modern agriculture (mechanized and irrigated); manufacturing (food processing, clothes, and furniture), and services (banking, insurance, export and import of goods, education, and health) sectors. These sectors consist largely of small firms employing a limited number of workers. Until the late 1980s, the majority of firms were publicly owned. However, after the liberalization and privatization policies of the 1990s, the situation has started to change. The United Nations Industrial Survey (UNIDO, 2013) has found that 96 percent of industrial firms are privately owned. Moreover, the enterprise sector as a whole consists largely of private limited liability companies and sole proprietorships.

Factors that have contributed to the non-existence of private sector-led contributions to Sudan’s economic prosperity:

South Sudan Secession:

A study by the African World Bank Group (AFWBG) in 2016 on (Private Sector-led Economic Diversification and Development in Sudan) stated that over the past decades, Sudan’s economy has been subject to several domestic and external shocks and thus volatility in economic growth. For instance, the secession of South Sudan alone unleashed major impacts, such as; reduction in population and size of the domestic market; downsizing of the country’s natural resources base mainly in oil; loss of economic growth momentum; substantial internal and external macroeconomic imbalances; and lastly; adverse social impacts on the lives and living conditions of the people. Following the secession of South Sudan in 2011, Sudan has had to confront a wide-ranging set of issues that have included a decline in the importance of oil as a key source of growth for the economy, a heavy external debt burden, international sanctions, and more recently, a highly volatile macroeconomic environment characterized by major economic imbalances and continued internal conflict.

Economic Sanctions:

After the US imposed sanctions on Sudan in 1997, the private sector continued toward establishing itself although the cost of doing businesses increased. However, a devastating factor came in with the 2001 September attack when the US implemented Know Your Customer (KYC) and Anti-Money Laundering (AML) rules. The implementation of these rules led major international banks to adopt additional governance and transparency rules, and in some cases go to the extreme of avoiding transactions not only with governments of sanctioned countries but also with private businesses or individual nationals residing in these countries. The AFWBG stated that the number of international and regional banks willing to do business transactions with Sudanese entities diminished considerably in 2014 as a direct consequence of the sanctions and the huge fines imposed. The total fines imposed on international banks for violating US sanctions was reported by The Economist in 2014 to be US$19.2 billion. Furthermore, the sanctions isolated Sudan and created a significant barrier to its businesses, as a result of which Sudan lost valuable investment opportunities. Starting a business took 11 procedures and 36.5 days in 2017, according to World Bank data, with costs amounting to 27.8% of per capita gross national income. This gave the country a ranking of 170th globally.

Environmental & Social Factors:

Environmental conditions such as soil erosion and unpredictable rainfall are causing extreme poverty in rural areas of Sudan due to challenges in agricultural productivity. Desertification and recurrent droughts have forced many to flee their areas and live in poverty as internally displaced persons at the margins of cities and towns. Sudan lacks an educated labor force because of limited resources and expenditure on education. Focusing on urban areas, Sudan’s education policies give little attention to commercial, agricultural, technical, and teacher-training schools. Severe infrastructural deficiencies, with a lack of basic physical and organizational structures and facilities (e.g., roads, railways, and power supplies), make Sudan an unfavorable environment for investment.

Political and Governance Factors:

The political environment in any country determines the set of rules and policies that govern entrepreneurial activities and the overall atmosphere in which firms can operate. This factor is generally comprised of many sub-factors, among which are: competition policy; taxation policy; employment law; patent law; and regulation of financial markets. In addition, it includes the political situation (e.g. government stability, corruption) and a country’s relations with other states (David 2013; FitzRoy et al. 2012). Hence, a good set of policies and a stable political situation can contribute to increasing the likelihood of formulating and starting up a new business, and thus fostering entrepreneurship development.

Sudan’s current troubling scene is a result of historical political instabilities from numerous military coups and interventions in which it led to the interruption of a civil-based systematic government, that faced the challenges of economic and political stagnation as well as ethnic fragmentation, all hindering development efforts internally and restricting external support.

The political factor in Sudan is not a stand-alone component but one of a complex nature where cultural, social, and environmental threads played and continue to play a big role in creating the reality of Sudan’s political and economic environment today. Since independence, the country went through heavy economic circumstances while withstanding a civil war that resulted in a political secession of its South.

 

Sudan after the uprising

The Political & Economic Landscape

In two (2)  years of the transitional government, Sudan’s poverty rates have doubled, inflation rates are on the rise and the country’s economic situation deteriorated. The current government is under pressure from the public due to the lack of basic commodities such as power, medicine, and water.

Furthermore, according to the IMF (2020) “Sudan: Selected Issues”, there is an inadequate of transparency and accountability. With regards to policies and regulations, the reports stresses that to avoid reform failure, the civil society and private sector should be actively engaged in designing the policy strategy and the implementation plan to adopt it. Therefore,  communication is essential to provide the government with the buy-in it needs and the necessary time and space to implement these reforms in a way that ensures economic growth for the long term. This is equally important that such policies to be shared with the wider entrepreneurial ecosystem and potential investors to ensure long-term investment planning is made in line with governmental reforms and regulations. In addition, recently, certain reforms have been introduced and implemented toward achieving economic stability such as the removal of fuel subsidies, unification, and liberalization of the exchange rate, and recently, an increase in electricity tariffs and the elimination of the previously adopted customs exchange rates. Furthermore, the country is working with the International Monetary Fund to lift its foreign debts and is expecting a debt relief of approximately 90% in the coming years under the Heavily Indebted Countries Initiative (HIPC), this makes Sudan the largest exempted country under this initiative. Such debt relief is seen critical for Sudan’s economic development and its overall investment environment, ultimately signaling grounds of opportunity for investors with appetite to invest in Sudan.

While this is quite the achievement for the transitional government, the country still needs to reach its developmental sustainable goals to be an effective member of the international community, this will be achieved through attracting and maintaining a flow of cross-sectoral private sector. The recent conference in Paris was a leap toward positioning Sudan in the international community as an attractive investment pool in the near future.   

 

The Paris Conference

While the overthrow of a 30 years dictator regime was the turning point for Sudan and its nation, an investment turning point for the country took place in Paris recently at the Sudan-France Business Forum held in Paris on May 17th. the Khartoum delegation – which was made up of both officials, private sector, and entrepreneurs – who carried dialogues with several representatives of Western multinationals including Ericsson, Siemens, and Bolloré and others. Participants discussed several sectors, those of that the government considers offer the best investment opportunity: infrastructure, energy, mining, agriculture, and telecoms. Below are some of the data demonstrating the promising investment-related sectors.

The conference may have achieved a milestone in regard to Sudan’s hefty debts, as France declared exempting its debt estimated at 5 billion dollars, which is the largest debt owed by Sudan for a single country. This decision has paved the way to attract attention to the country’s desperate need for foreign investment and has also encouraged other countries to follow Paris's footsteps in exempting Sudan, like Saudi Arabia with debts estimated at 4.6 billion dollars.

 

Sectors Priority

Infrastructure: the sector showcases great potential of private-public partnerships, with a multi-stakeholder facet considering that the banking sector also has a role to play in designing suitable financing tools to develop and implement infrastructure projects. This supports the current government’s steps towards boosting domestic market competitiveness and facilitating national integration of isolated areas, hence market access and facilitation is essential.

The investment opportunities according to government officials; are focused on developing infrastructure, communications networks, water supply, water management, and roads network nationally and regionally for enhancing social inclusion and livelihoods improvements.

Energy & Mining: as stated by the Sudanese Prime Minister during the Paris conference for Sudan; "When we talk about the potential of the energy and renewable energy sector, Sudan is a country of solar energy” Abdullah Hamdok. In addition, the Sudanese Minister of Finance and Economic Planning affirmed that the government will work to create the enabling environment and the appropriate policies and legal reforms to attract investments and strategic partnerships in the energy and mining sectors. What’s worth mentioning, is that the electricity sector planning includes a country-wide shift towards renewable energy as the main energy source and hence developing renewable energy projects to stabilize and further increase agricultural production and others.

With the country’s noticeable and well-known rich natural resources, especially gold, oil, gas, chrome, manganese, zinc, aluminum, cobalt, and nickel. With gold specifically, Sudan is known to be the third-largest gold producer in Africa and the 9th worldwide. However, the country’s mining sector is driven by unregulated, and informal mining practices, usually risking people’s lives and bringing low benefits at a national level. If proper regulatory reforms and legal frameworks are put in place, it is expected that it will minimize the high investment and reputational risk perceived in the sector.

Agriculture: The agricultural sector accounts for one-third of GDP (33%) and 50% of employment. However, only 30% of the land is cultivated. According to figures from the CTC Group, which has been operating in this market since 1956, Sudan has 10% of the world’s unused arable land (46,025 hectares), while Brazil, Russia, and Australia together have 31%. With a potential for agricultural growth of more than five times its current capacity, the country has a lot to offer investors, the CTC Group states. There are opportunities all along the value chain (Arabic gum, sesame, cotton, and horticulture), but nevertheless, investments in Agriculture go hand in hand with investing in rural infrastructure, such as irrigation systems, and rehabilitation of rangelands and others.

This is the main sectors in the country and one that crosses all vital sectors, the investment opportunity is not only significant but essential to be leveraged. Should the right agricultural incentives and support systems be put in place, the country will not only meet its demand for food security but will also be able to supply the Middle East and North Africa (MENA) region.

Telecom: Sudanese representatives refer to the sector as a cross-cutting essential developmental goal, to support the country's needs in reaching its full potential and develop all its digital sectors, including fintech, cloud, e-commerce, e-learning, agri-tech, logistics,  and innovation centers. The sector represents a market of $1.5 billion of investment, according to GO digital services.

According to an article from The Africa Report in 2021, it referred to the country’s maritime coastline that enables Sudan to access submarine cables, via the EASSy cable, 13% of which is owned by the national telecommunications and internet service provider; Sudatel. This consequently enables the country to act as gateway access to landlocked countries like South Sudan, Chad, and Ethiopia.

 

Looking Forward

Observations of the current political and economic atmosphere, all indicate that there is hope on the near horizon for the Sudanese economy, with a shift toward a more attractive investment ecosystem. Two years into a democratic transition, Sudan is looking to attract foreign investors in five key sectors: infrastructure, agriculture, energy, mining, and telecoms, but furthermore, the country’s unique geopolitical position, places it as an attractive investment hub through various untapped channels of opportunity.