Africa: Foreign Investors Poised to Profit in Scramble for South Sudan
By Ariel Bardi, 3 June 2013
As the world's newest nation, South Sudan has offered few opportunities for
foreign investors since gaining independence from Sudan in 2011, but the
financial landscape of the country may be changing.
Former International Monetary Fund (IMF) head Dominique Strauss-Kahn, who
famously resigned from his post following allegations of rape just two
months before South Sudan's founding, made a surprise visit to Juba last
week to helm the opening of the new National Credit Bank.
While initial reports on the bank are contradictory (some say the venture
has Romanian and Israeli backing, others Swiss and Sudanese, still others
Luxembourgeois) the message is clear: as Strauss-Kahn put it, "There is a
lot of opportunity for business [here]. It's something which has to be
done."
In a country whose economy remains almost entirely oil-dependent, "external
investment is vital," Jon Temin, Sudan and South Sudan program director at
the United States Institute of Peace, tells MediaGlobal News.
"The need for diversification is abundantly clear," Temin says. But without
legislation currently in place to protect the interests of the South
Sudanese or foreign investors, the result is "an inconsistent environment
where the rules change as you go along."
According to a 2011 World Bank Report, "Doing Business in Juba," South
Sudan's capital ranks 159 out of 183 economies in ease of doing business. It
ranks a promising 123rd in starting a business, but falls only 10 from the
bottom in protecting investors, and sits 181st--just two from the end of the
list--in trading across borders (to import a single container, an
entrepreneur must wait two months, fill out a dozen forms, and forfeit close
to $10,000).
Given the labyrinthine spools of red tape in place, not to mention South
Sudan's current history of ethnic conflict and limited infrastructure, is
foreign investment really a viable means of promoting stability in the
still-volatile region? If so, who stands to reap the rewards?
For Temin, these questions are moot: "Anytime there's an opportunity like
there is in the South Sudan, the investors are going to come. That's just
the world we live in," he tells MediaGlobal News. "Foreign investment is
happening in South Sudan right now. It's going to happen and it's not going
to stop."
The real question, Temin says, "is how to make it as transparent and
regulated as possible, and that's not happening."
While there exist certain restrictions to safeguard domestic economic
interests, their parameters are often less than clear. The 2009 Land Act
stipulates that locally acquired land "reflect an important interest for the
community or people living in the locality," presumably subduing the threat
of foreign-led land grabs, while the 2012 Companies Act requires that all
medium and large companies maintain 31 percent South Sudanese shareholders.
Still, there is ample room for funds to leave the fledgling country just as
quickly as they came in.
After the country's independence referendum in early 2011, the number of
commercial banks in South Sudan nearly doubled. According to Juba-based
lawyer and human rights activist Peter Reat Gatkuoth, these banks, usually
Kenyan, Somali, or Ethiopian, profit greatly from their activities in South
Sudan only to funnel funds back home.
"These industries just come to collect money and take them back to their
countries... without investing in the development of the country," he tells
MediaGlobal News. South Sudan's money pool, explains Gathouth, is
essentially virtual. Tied to the nebulous world of finance, and unconnected
to any tangible developments in the country's vulnerable infrastructure,
there is no guarantee that it stay put. He compares the system to a fishing
camp, where "people come and fish," he to MediaGlobal News, "and return back
without paying anything."
Gatkuoth is not the only one to have raised the alarm about foreign banks.
Writing for South Sudan's Upper Nile Times in June of last year, journalist
Kachuol Wa Mabil warned against outside profiteers who see South Sudan as
purely an advantageous venture, without taking into account the country's
more pressing humanitarian needs. Considering their activities to be "pure
exploitation," he likened the image of South Sudan, a nation that is largely
unroaded, oil-rich, and about the size of France, to "virgin land to conquer
by foreign investors."
Underneath Mabil's charged rhetoric is a real concern. Dogged by charges of
corruption, the South Sudanese government has proven itself remarkably inept
at protecting the interests of its citizens, giving banks freer reign to
come and "conquer."
The coming months will reveal how European-backed banks affect South Sudan's
rocky financial climate, and whether Strauss-Kahn's financial call-to-arms
will help or hinder development efforts.