South Sudan sends mixed signals for investors
By Vahid Oloro
March 19, 2007 (NAIROBI) — Despite its vast trade and investment opportunities South Sudan has posted mixed signals in its first two years as a semi autonomous state.
While the excitement created by prospects of quick bucks had generated some form of trade boom with a wild-wild-west kind of race in petty trade, a latent fear over future stability may be responsible for a slow multi-lateral investor response.
Last week the second annual South Sudan Investment Conference was held in the Kenyan capital Nairobi.
But while South Sudan dangled juicy baits ranging from minerals, oil, an abundant agricultural potential, and lucrative manufacturing investment opportunities, at the end of the day that lukewarm attitude still prevailed.
“Despite these opportunities there hasn’t been a strong response from investors in taking up these chances,” decried South Sudan’s minister of animal industry and fisheries, Dr. Festo Kumbu.
“We would like you there to tell us which areas we need to improve on,” he asked a panel of investment experts.
Investment analysts agree that South Sudan is Africa’s latest virgin investment territory with a vast potential. But they recognise that challenges remain that must be addressed before serious investors can move in.
Risks abound, South Sudan officials in the conference agreed. The scars of war are still visible and fresh. A country bigger than East Africa but with less than 1,000kms of bitumen roads, virtually no fixed line telephony and other needed infrastructure that drives investment, analysts say it takes a big risk-taker to commit large investment into such a state.
Southern Sudan falls within the Greater Horn of Africa region touted to be the continent’s richest area.
Other countries in the region include Burundi, Djibouti, Ethiopia, Kenya, Rwanda, Somalia, Tanzania and Uganda.
This region has the largest regional population in Africa with about 300 million people. It also enjoys the second largest river basin in the world and is home to 75% of Africa’s rain forests, giving it the highest rainfall in the continent.
Its power potential is vast with the region enjoying 70% of Africa’s hydro-power potential.
The mineral wealth in the region is tremendous with vast deposits of diamonds, gold, uranium, copper, coltan, nickel, etc. Not to mention gas, oil and timber.
There is no doubt that South Sudan has made tremendous progress since the signing of the Comprehensive Peace Agreement (CPA) with Khartoum in January 2005.
Officials say many sectors in the country have quadrupled in the last two years of peace and the country’s imports through the Port of Mombasa have enjoyed an annual increase of 30%.
The rush to cash in on South Sudan’s opportunities has also led to the ever increasing number of daily flights from the Kenyan capital, Nairobi.
Efforts to rebuild the country’s dilapidated infrastructure have also been undertaken; since the CPA some 1,500kms of roads have been reconstructed.
This year South Sudan expects some 350,000 of its displaced and exiled population to return.
But investors say that for the country to become a viable destination for foreign investment, South Sudan will need to put in place comprehensive policies and legal instruments necessary for the conduct of investment and trade.
There are still glaring gaps such as laws on land, taxation, etc. The rampant red-tape is also a major problem making it hard for investors to be attracted.
Ambassador Kent Degerfelt, the head of the European Union delegation in Sudan, says the nascent state is suffering from governance issues that must be streamlined to create an enabling investment environment.
Corruption, Degerfelt says, is on the rise. The government needs to develop mechanisms to fight the scourge.
“A well functioning private sector, so necessary for sustainable development, requires a transparent and fair business environment,” Degerfelt said during the conference.
Already South Sudan is said to have received a large share of its oil revenue. Reports indicate that some US$1billion have been transferred to its coffers.
The general economic performance for the larger Sudan has been remarkable. National growth has been robust and inflation has been kept under control.
High oil prices have supported the balance of payments and allowed the government to accumulate foreign reserves. Structural reforms on the fiscal and financial sectors have also been undertaken.
In general Sudan’s GDP growth is envisaged to rise by 8 to 10% per annum and inflation is expected to remain within one-digit figures.
Economic analysts said last week that this robust growth reflects the on-going investment boom in the country and the prospects created by the stabilisation of Southern Sudan.But analysts argue that amidst this rosy picture there are still lingering risks. The main one is the country’s ability to sustain that growth and economic stability while reducing the widespread poverty.
Experts say that these difficulties cannot be underestimated.
“Economic and social structural reforms are imperative,” Degerfelt said.
The crisis in Darfur is another challenge with ripple effects across the country including into the semi-autonomous South Sudan.
The bigger problem for South Sudan however, is that its economy is almost entirely dependent on oil revenue, making it vulnerable to fluctuation. Moreover it depends on transfers of funding by Khartoum that manages the oil business.
South Sudan’s officials complain that transfers have been lower than forecasted.
Ambassador Andruga Duku, South Sudan’s representative in Nairobi, says that the detailed framework on the management of oil revenues as per the CPA, has not been followed.
Although expected to be involved at all levels of the oil transactions, South Sudan officials have been sidelined making it difficult for them to know the exact revenues accruing from the oil business.
Worse; despite the recent increase in production, the average price for Sudanese oil has fallen. This means that oil revenues are not expected to increase over the 2006 budget estimates. This scenario portends a crisis for the young economy dependent on oil.
Experts say it is crucial for South Sudan to diversify its investments, opening opportunities in other sectors including agriculture, mining, fisheries, to enable the country generate non-oil revenues.
Given that everything in South Sudan is to be built afresh, opportunities are vast.
(East African Business Week)