Investment In Sudan

SOME SUDANESE COMPANIES ARE EXTRAORDINARILY PROFITABLE AND MUTUAL FUNDS,AS WELL AS GOVERNMENT  bonds, give good yields. Sudanese law requires that citizens hold the majority share in any company, but this actually makes it easier for foreigners to do business in Sudan. Joint venture agreements are
drawn up by commercial lawyers who handle the processing of all necessary documents. It is not necessary for ordinary foreign investors to get high level permission from government. Even in the case of a large scale project, the Sudanese partners or management team leader can in conjunction with a lawyer facilitate official requirements
Today many Sudanese are involved in successful joint ventures with foreign investors.

Chinese National Petroleum Corporation, the principal partner in the Greater Nile Petroleum Operating Company, is very happy with Sudan. CNPC’s general manager maintains that the experience in Sudan has been financially rewarding for the company and socially pleasant for its staff. In particular, she expressed satisfaction with the
security from criminal assaults and molestation. She described the Sudanese as polite, conscientious and honest. CNPC, she said, is looking forward to a future of rewarding investments in Sudan. Of Sudanese women, the manageress said that behind their traditional manner of dressing and reserved comportment, she found them technologically enlightened and politically aware.

With a total population of between 35-40 million, and about 6 million people concentrated in Khartoum State, Sudan offers a sizable domestic market, to which is added a major metropolitan area. As a member of the 19 member state Common Market of East and Southern Africa (COMESA) and one of the 10 member state signatories to COMESA’s free trade zone, Sudan offers its investors access to markets in Egypt, Djibouti, Mauritius, Seychelles, Comoros, Kenya, Zambia and Zimbabwe.

COMESA has a total population of about 400 million. The infrastructure situation in Sudan has improved tremendously in recent years. Although a substantial portion of Sudan is still without electricity, hydroelectric
projects currently under way will enable supply of electricity to the virtually entire country. The telecommunications system is already world class and is from this year competitive. Travel to and from the major commercial centers is safe, though the paved road network is still limited. Sudan, like other African countries, is particularly, though not
only, interested in investments that will add value to its raw materials.

As a major world cotton producer, realization of a dynamic world class textile industry remains a goal for Sudan. However, the dismal state of the textile industry, first established in the 1960s, questions the logic of placing continued hope on evolving from merely a raw cotton to major textile producer. Presently, less than 10% of installed textile and yarn production capacity is utilized, with 52 out of the 56 textile plants idle. However, textile plant provider UnionMatex of Germany, which now helps in market survey and procuring finance, is optimistic that if Sudan focuses on high grade textiles, for which it has the long fibre cotton, it can yet realize its dream of becoming a major fabric producer. Presently, China is the world’s leading producer of cotton yarn, specializing in the lowest cost varieties, for which its mammoth domestic market and low labour costs provide a seemingly unchallengeable advantage.

Sudan, on the other hand, is strategically positioned to penetrate the high per capita income Gulf Arab markets. Although the principal Gulf Arab state, Saudi Arabia, is rapidly expanding its industrial sector, there is an
increase in Gulf capital, particularly from the United Arab Emirates into Sudan. Although most of the investment is in services and petroleum, it stands to reason that long term growth in these sectors cannot be sustained in the
absence of a substantial industrial base.

Kuwaiti capital found an ever profitable niche in Sudan’s sugar industry, remaining a prominent stakeholder in Kenana, which is one of this country’s and Africa’s greatest industrial success stories. Consistently competent management, enabling production efficiency, including cost control that translated into competitive
pricing, led to Kenana roundly dominating the domestic sugar market and exporting a marginal portion of its output. Hundred percent Sudanese owned Sayga Flour Mills has also done phenomenally well in an industry
that had for years been characterized by survival struggles. Unlike Kenana, which operates massive sugar plantations to feed its refinery, Sayga imports virtually all of its wheat from Australia, but this has not dulled the company’s profitability profile. Both Sayaga and Kenana enjoy turnover above $200 million, which is to say that Sudan has a lucrative domestic market.

Leather is another natural field of industrial ambition for Sudan, but here too, as with textiles, local manufacturers have failed to capture the domestic market, which could no doubt well sustain them. Actually, the quality of Sudan’s footwear is often better than imports flooding the market, but supply shortages and lapses put them at a disadvantage. It would appear that neither the textile nor leather industries have ever had the management quality
that Kenana and Sayga now boast of. The implication from the success of Kenana and Sayga is that management savvy investors could succeed in Sudan’s textile, garment, and leather products markets, provided they come in well
capitalized, with sufficient scale and skillful marketing programes.

Sudan has invested a considerable amount of money in GIAD Automotive Industries, which envisages attracting investment in auto feeder industries, so that the local content of its brands will gradually increase, displacing imported parts. However, the performance of the industry has not been incremental. With a capacity for 16,244 assorted units, GIAD Automotive Industries in 2003 produced at only 19.2% of its capacity, with saloon car sales falling by 31%. While in the food and beverage industry overall low capacity utilization usually reflects dominance by
major players and competition from cottage industry, producers, Sudan’s automobile industry is faltering in a competitive domestic market dominated by imports.

Unless some new policy thinking is brought to bear on the situation, investment in auto-feeder industries would not be practical. Significantly, the new GIAD Hyundai Sonata is appearing in greater numbers on Sudan’s roads, but the Accent model is outdated and facing sales decline. The Mehera station wagon, for which a production capacity of 1,800 units annually was installed, has been a tragic case, with 26 produced in 2002 and only 20 in 2003.

Meanwhile, the number of Volkswagen Tauregs and Toyota Land Cruisers on the roads increases weekly. GIAD Automotive Industry is 100% owned by government and carries political as well as economic significance. It remains to be seen how far the industry will sink before affirmative action is taken, but it is clear that the Sudanese market is strong enough to sustain an automobile producer the size of GIAD, along with feeder industries. The pharmaceutical industry appears to be saturated for the moment, with local manufacturers dominating. There are presently 17 pharmaceutical factories operating. Although pharmaceuticals are listed as a priority area, it seems that the wisest
move for any interested investor in the premises should be exploring joint venture arrangement possibilities that infuse expansion and development capital into existing companies.

In fact, Sudan’s law requiring citizens of the country to hold the majority shares in any enterprise necessitates foreign investor collaboration with either the parastatals or private Sudanese entrepreneurs. However, there is a
number of attractive privatization offerings, such as Bank of Khartoum, which has the largest asset base in the financial sector, El Neilin Industrial Development Bank, and Sudan Airways.

Then Minister of Finance and National Economy, Abdul Rahim Hamdi, announced to the National Assembly on December 5, 2001 that 105 government concerns were slated for privatization. These were not the first
establishments to be privatized in Sudan since the enabling law went into effect in 1990; however, it marked a final decision for government to remove its hands from the management of concerns that should be strictly commercial.

Implementation of the privatization program was planned for three stages. In the first stage, a majority of the equity in 57 parastatals was scheduled to be sold to private investors, 31 in the second stage, and the remaining 17 in the
last stage. The Council of Ministers, however, passed a bill requiring government to retain between 25-30% of privatized establishments. That means that minimum participation of private Sudanese entrepreneurs would be 21-
26%, leaving 49% available for foreign investors.

No sooner had the official privatization announcement been made, the Arab Investment Company (AIC) invested $10 million in various government interests. Much of the state’s industrial interests have already been privatized and the official report on subsequent operations indicates substantial improvement in efficiency and financial results. For example, some tanning establishments have been revived and become going concerns. Sata, the shoe company, was sold to Sudanese African Development Company (SADC), which is now producing world-class quality leather footwear. SADC also bought the state’s paper products company. One of the banks bought a state-owned saw mill. A
major textile parastatal that had been operating at a loss is now in the hands of Daewoo. Daewoo has also taken over the management of Khartoum’s Friendship Hall in a joint venture ownership arrangement with the government.
A number of hospitality trade establishments have been privatized, including the Khartoum and Port Sudan hotels managed by Hilton, both of which are now owned by Sudanese-Kuwaiti Hotels Ltd. Grand Holiday Hotel, now Grand Holiday Villa, has been leased to Malaysia’s Grand Holiday Villa International. Sudan Hotel is under the management
of a Chinese company and exclusively reserved for staff of the Chinese National Petroleum Company. All of these hotels are very beautiful and offer five-star service.

The management of some federally owned operations has now been taken over by state governments and it is also possible for private investors to enter joint ventures with states. Red Sea State has taken over the management
of federal tourism assets in its domain. Animal Resources Bank and Sudan Railways Company have taken over the state enterprise for livestock marketing; Sudan Railways Company is nonetheless up for privatization. Federal electricity and water works management has also been given to the state. Sudan Free Zones & Markets Company was being floated on the Khartoum Stock Exchange in September 2002 at a listed value of SD22.982 billion ($86.726
million) and is now worth more than four times that amount. Nuba Lake Fisheries, a canning company and a date plantation, has also been taken over by state governments.

The flexibility of the privatization program in offering the establishments on a variety of terms, has been one of the keys to its success. In principal, all the companies to be privatized henceforth must become public liability corporations. Core investors link with other parties to comprise the founding shareholders and the companies are then listed on the Khartoum Stock Exchange. However, if alternative propositions are forthcoming in the absence of the requisites for KSE listing, the government policy is to act with due flexibility. The government’s sound discriminating approach to the selection of its partners and discipline in keeping strictly out of the affairs of management have earned the privatization program invaluable confidence capital from both private investors and the public.

In the first batch of 57 parastatals, we find a number of major national establishments. Apart from Sudan Airways and Bank of Khartoum, several other high profile entities are slated for privatization forthwith. Sudanese National Shipping Lines, National Electricity Corporation, Al Gizera [agricultural scheme], Sudan Railways, Atbara Cement, and establishments in the chemical and iron works industries have all been offered for privatization in the first stage of the exercise. Before the final phase of the privatization program is over, the government intends to have sold El
Neilin Industrial Development Bank Group and Savings and Social Development Bank, as well as diminish its holdings in Animal Resources Bank.

There had apparently been some discussion about offering shares to employees in the privatized establishments, because there was at first news that the workforce at Bank of Khartoum would be included among the foundation
shareholders. But the final policy from the Ministry of Finance & National Economy is that all employees, individually or organized, could buy shares on the stock market if they are interested. Workers rarely welcome privatization
and some African countries have indeed experienced labor unrest during government divestitures, but Sudan’s policy makers obviously gave deference to the investment market where interested parties may not want to be
forced to have labor on the board of directors with management. The best way for labour to assert their interests is to organize funds for share purchases.

The Financial Investment Bank is the principal investment consultant, mutual fund operator, and stock broker in Sudan. However, there are 15 other brokerage firms conducting transactions on the Khartoum Stock Exchange.
Through the various mutual funds and government equity certificate offerings, one can easily move money in and out of Sudan’s capital market. Returns on Government Equity Certificates give an indication of the perform-ance of privatized companies in which government retains shares. The return rates fluctuate from 35% down to 15%, depending on the time the certificate lot was issued. Aside from regular primary market issues of Government
Equity Certificates, secondary market trading in these instruments is dynamic. Mutual fund return rates over the past six years have fluctuated from 40% down to 7.5%, depending on the period the fund performed and its investment focus. Sudatel shares funds usually perform quite well. There are funds that are financed with and return U.S. dollars, as well as Sudanese dinar denominated funds.

Livestock and agriculture, the most vibrant sectors of the Sudanese economy, are perennially attractive for those interested in project operation. Investment in modernized livestock production and plantation projects is much needed and promising as well. To, encourage investors in these areas, the government is offering tax holidays for a minimum of ten years.
Investment fields that the Ministry of
Investment is particularly interested in are:
1. Transport and quarantine facilities
2. Ranching and husbandry improvement technology adoption
3. Fodder, feed production and processing
4. Chilled and frozen meat facilities and transport
5. Meat processing, packing, and distribution
6. Animal route management, water, feed, and drug supply
7. Specialized dairy operations integrated with fodder production and milk collection, processing, and marketing
8. Facilities for skin and hide production and manufacturing
9. Fish farming or catch in fresh or marine water as well as processing
10. Breeding farms for race camels
11. Poultry production
12. Game animal farms
13.Veterinary drug manufacturing and vaccine production
14. Financing and export business

For fisheries’ investment, the government is also disposed to giving optimum tax holidays for strong investors. Sudan’s fishing potential is indicated by the 800-kilometre coastline on the Red Sea and about 42 billion square metres of fresh water stretched in the form of lakes and rivers, the most important of which are the River Nile and its tributaries, the reservoirs at Sennar, Roseiris and Jebel Awlia Dam, in addition to the Nubian Lake at Wadi Halfa.
Fish inventories in fresh and marine waters amount to several hundred thousand tons. There is also potential for commercial exploitation of oyster shells and troncus shell, as well as mother-of pearl shell.

Aside from principal oil sector investment opportunities in exploration, production, pipelines, refineries, liquid gas, lubricant blending, and petrochemicals, there are regular contract offerings for equipping field stations, road links, bridges, communications, supply of vehicles, and catering. Growth of the oil sector has also increased the need for power stations and development of river transport systems.

The investment picture in Sudan is certainly one of the best in Africa and the several billion dollars in Direct Foreign Investment that has poured into the country in the past five years attests to this. Leading companies make substantial profits, although most of Sudan’s major companies are not yet listed on the stock exchange and therefore not obliged to publish their financial results. The Sudatel Group, which is expected to declare profits exceeding $200
million for 2004, appears to be the pace-setter. But, in addition to other successful new generation conglomerates, there are several longstanding ones, like Haggar Holding Company Ltd., established in 1904 and presently the country’s principal cigarette and refrigerator manufacturer, apart from having a leading carbonated beverage brand.

In the final analysis, the banal saying that “only the strong survive” speaks for Sudan’s investment scene.