In April, months of protests finally succeeded in unseating Sudan's authoritarian leadership — offering a glimmer of hope in a country whose economy and people suffered greatly under former Sudanese President Omar al Bashir's tyrannical three-decade reign. As stand-in civilian and military leaders now tussle over what the country's next government will look like, the stakes for Sudan and potential investment opportunities will be high. Should a civilian-led government eventually emerge from the fray, the country's new trajectory could translate into the United States taking Sudan off its terrorism list — a longtime and key hurdle for business engagement with the East African country.
The recent ousting of Sudan's authoritarian leader after three decades in power has come at a time of profound transformation in the Horn of Africa and East Africa regions. As both Ethiopia and Sudan grapple with their new trajectories, the region has increasingly captured the attention of foreign investors eager to explore new opportunities on the continent.
If Sudan's leadership gains domestic and international legitimacy, it could allow Sudan to capitalize more on its relative advantages, which include its strategic location on the Red Sea, a population of more than 40 million and some of the most fertile land in Africa. Indeed, if its changes are done right, the long-abandoned nation has the potential to be Africa's next economic success story — representing a new zone of untapped opportunity for adventurous investors and businesses alike. But much of that prosperity will be contingent upon whether Khartoum's stand-in civilian and military leaders can agree on an acceptable roadmap to a political transition in the weeks ahead, officially closing the chapter on its tumultuous past.
Making Enemies With the U.S.
Sudan's international isolation over the past 30 years can largely be traced back to the United States' contentious relationship with its former leader. Upon coming into power after a successful coup in 1989, al Bashir quickly drew Washington's ire by publicly backing Saddam Hussein's invasion of Kuwait during the Gulf War. Then in 1993, the U.S. State Department placed Sudan on its list of State Sponsors of Terrorism due to Khartoum's links to Islamic fundamentalists, including al Qaeda leader Osama bin Laden.
Relations between the two countries continued to sour, and Washington barred all U.S. companies from doing business with Sudan in 1997. This effectively cut Sudan out of the global financial system, with multinational firms now actively avoiding the country for fear of irking Washington. As a result, foreign direct investment critical to development dried up, and Sudanese banks were not able to transact in U.S. dollars. While the United States eventually lifted its business ban in 2017, Sudan has nonetheless remained on the United States' sponsors of terrorism list, which also bars the country from accessing aid from international institutions such as the International Monetary Fund and World Bank.
Going It Alone
Without access to external help, al Bashir turned to Sudan's oil reserves to maintain relative order in the country for more than 20 years. Revenue from oil exports provided the government with the means to placate its population — effectively suppressing political demands by giving citizens public sector jobs, subsidized energy and food products, as well as generous financial incentives for political allies. Meanwhile, other sectors in the country, including its promising agriculture sector, fell by the wayside as the government focused all its time and attention on oil.
This makeshift method largely kept the country afloat until 2011, when the loss of South Sudan removed three quarters of the country's oil wealth. Such a sudden loss of revenue usually prompts austerity measures. But in al Bashir's case, cutting government spending would have meant removing popular subsidies and unproductive public sector jobs — likely bringing disastrous political repercussions for his authoritative system. Thus, the government instead pursued a reckless monetary policy to cover the budget deficit, spurring hyperinflation and deteriorating the country's currency while racking up a massive amount of external debt. Sudan's continued downward spiral ultimately left al Bashir with little choice but to cut subsidies on food and gas prices for revenue — igniting the latest wave of protests among poor and hungry Sudanese that ultimately ended with his regime's ousting in April.
The Promise of a New Day
Following al Bashir's removal, a transitional military council has acted as Sudan's interim government. Since the council has taken control, the United Arab Emirates and Saudi Arabia have already announced they will provide $3 billion in aid to Sudan, including the injection of $500 million into the country's central bank to mitigate hyperinflation. Also sensing the changing times, several Sudanese economists have called on the country's new leadership to accelerate accession to the World Trade Organization, which would grant it access to financial, logistical and technical support from the world body and others.
Shortly after coming into power, the military council announced plans to send a delegation to the United States as well, with the aim of convincing the White House to remove Sudan from the list of state sponsors of terrorism. But Washington said it would only consider the removal on the basis of a fundamental change in Sudan's leadership — namely, a civilian-led government. Should such a government emerge from current negotiations among Sudan's civilian and military leaders — and Washington's terrorism designation be removed as a result — Khartoum will then likely turn its attention to new international investment in the following key sectors:
Business Services: Even after decades of international isolation and oil losses under al Bashir, Sudan's Gross Domestic Product (GDP) per capita is still almost twice that of neighboring Ethiopia's, despite having less than half its population. Thus, there is potential for rapid economic growth in the short- and mid-term, and the service sector stands to benefit significantly from increased consumer spending among the country's citizens.
In addition to instilling a sense of stability in Sudan, a civilian-led government would likely pursue reforms aimed at removing bureaucratic roadblocks to business and investment.
Despite the United States' removal of economic sanctions in early 2017, Western companies have continued to avoid doing business in Sudan, which has left the services sector open for Middle Eastern and Asian companies. Upon entering the Sudanese market in 2018, for example, the Uber-owned Emirati company Careem quickly became the most popular ride-sharing service in the country. But if a new civilian-led government also prompts Washington to remove Sudan from its terrorism blacklist, that opens the door to the West as well.
Sudan's cumbersome business environment, combined with frequent comings and goings of government officials, has also helped deter foreign investment in the country's services sector. Large businesses often end up paying much higher taxes than the official rate due to the country's uncoordinated tax collection system. It also remains unclear where, exactly, the federal government cedes power to regional administrations, forcing investors to largely navigate Sudan's system blind. However, a transition from an authoritarian regime could not only help instill a sense of political stability, but would likely yield reforms to remove these bureaucratic roadblocks for foreign and domestic entrepreneurs.
International Suppliers: Over the course of the past 30 years, several multinational companies that either sold aviation products or supplied parts to Sudanese oil and electricity companies pulled their business for fear of ruffling U.S. feathers. This includes Switzerland's ABB, the United Kingdom's Rolls Royce, Germany's Siemens and Canada's CHC Helicopter. However, if Washington chooses to remove Sudan from its terrorism sponsors list, it could provide numerous Sudanese utility and other government companies access to vast export opportunities. Sudan's national air carrier, for example, could start making new planes again after years of being unable to find a willing supplier for parts.
Infrastructure: As al Bashir's government went into survival mode beginning in the 1990s, policies and long-term projects beneficial to Sudan's economy were minimized due to upfront costs. And as a result, investors and business stakeholders often noted the country's acute lack of electricity, paved roads and logistical efficiency at ports.
Sudan's next government, however, will likely pursue more projects to facilitate trade and improve connectivity within the vast country. Projects that have been dragging behind schedule, such as a railway expansion between Port Sudan and Khartoum, will gain more attention as contractors gain more access to machinery, equipment and financing from international suppliers.
Economic reforms that include easing food and utility subsidies will also free up funding in the government's budget to pursue needed infrastructure development, such as building roads, energy plants and railways. Russia has already shown an interest in building a nuclear plant to supply electricity in the energy hungry nation. In the meantime, the soon-to-be completed hydroelectric dam in neighboring Ethiopia will also improve access to electricity for the Sudanese people and its investors, as the nation pursues its own energy sources.
Mining: While the exact number remains unknown, Sudan is estimated to have around 1,550 tons of gold reserves. The country produced more than 100 tons of gold in 2017, making it one of the largest producers in the world. However, the central bank's method of forcing miners to sell half their production at a below-market rate has encouraged smuggling gold out of the country. In May, authorities seized 241 kg of illegal gold exports en route from Sudan to Morocco under the guise of a Moroccan company.
Such illicit trade of minerals on a large scale has largely been driven by international mining firms' reluctance to get involved in a country blacklisted by the United States and at odds with other Western powers, which has left the market open for warlords and local youth to exploit. Al Bashir had also allowed several militias to maintain access to mines in an attempt to gain their alliance to keep rebels and anti-government forces in check — turning a blind eye as they smuggled gold across borders.
In addition, war-torn parts of Sudan in the east have long been off the radar for investors. This includes the Darfur region, which is known to have vast amount of natural resources, including minerals such as uranium, copper and oil. Should Sudan's next government restart peace talks with Darfur rebels, it could open a previously untapped mining market that could help boost Sudan's economy in the coming years by drawing in more foreign dollars. There's also a chance that Sudan's next leader could decide to use the country's gold reserves as a guarantee to secure international financing, which could help mitigate the economic woes inherited from the country's past regime.
Tourism: Terrorism threats, combined with an unfriendly former government, have deterred tourism in Sudan over the past several decades. However, both of these factors were largely the result of the former regime's hostility toward the West. A new civilian-led government would normalize relations with the international community, providing an opportunity to kick-start a tourism sector brimming with opportunity.
Once home to ancient civilizations that thrived along the Nile, Sudan actually hosts more ancient pyramids than its northern neighbor Egypt (a fact many are unaware of), and it has several ancient mosques that date back over a millennium. In addition, several islands and coastlines on the Red Sea present an opportunity for resorts and multinational hotel chains, similar to those that have flocked to neighboring countries such as Egypt and Israel in recent years. The relatively modern sect of Islam practiced in Sudan also makes it easier for locals to accommodate foreigners and welcome them into their culture compared with more conservative Islamic countries such Saudi Arabia.
Agriculture: Sudan has long been poised to become the future breadbasket of the Middle East because of its proximity to the region and its agricultural assets. The country is reportedly home to over 200 million acres of arable land that stretches across its northeast. Fresh water supply from the world's longest river, the Nile, penetrates the land, making it ideal for year-round agriculture. In the past, farmers often struggled to manage the floods that destroyed their produce during the winter (which runs from May through August) due to increased rainfall. But a new mega dam under construction in Ethiopia on the Nile is now expected to stabilize the water flow, including during the winter months.
Additionally, these arable lands are located in close proximity to Sudan's Red Sea ports, which will help facilitate the export of agricultural products. Port Sudan, the main transit point for the nation's imports and exports, is situated on the Red Sea along one of the busiest shipping lanes in the world. In December 2018, Sudan reportedly proposed that Russia help construct East-West Trans-African Railways, which would stretch from Port Sudan to Senegal in the West — shortening the travel time for shipments.
Sudan is undergoing a period of major change as it works to find its footing after decades under authoritative rule. The political uncertainty during this transitory time naturally carries the potential for future risk. However, more direct threats to foreign stakeholders have so far largely been constrained to the country's burgeoning agriculture industry.
Numerous Middle Eastern nations have already signed long-term leases on Sudan's fertile agricultural lands in the hopes of securing a food source for their growing populations. However, requirements to hire local workers were not included in these leases, denying Sudanese farmers access to their lands with no promises for employment in the mega farms. This, in turn, has angered many locals who have seen few economic benefits and accuse the Gulf nations of land grabbing.
After 30 years of global isolation, Sudan has the potential to be Africa's next economic success story — representing a new zone of untapped opportunity for adventurous investors and businesses.
Sudan's new transitional government also recently received backlash upon accepting $3 billion in aid from Saudi Arabia and the United Arab Emirates — signaling citizens' distrust toward the intentions of Gulf nations. In addition, a booming agriculture sector could complicate matters with Sudan's neighbors. Sudan is currently entitled to 18.5 billion cubic meters of water from the Nile, although much of that water flows through the country unused. However, if Sudan begins using more of it for a booming agriculture sector, the country risks complicating relations with neighboring Egypt, who fears a decrease in its own water flow from the river.
Turning the Page
Multinationals willing to risk political uncertainty stand to potentially benefit from access to Sudan's diverse and largely untapped markets — all of which are in need of financing, better technology and expertise. The opening of these markets, however, remains largely contingent upon creating the type of government needed to sufficiently convince the United States to remove Sudan from its terrorism blacklist.
Negotiations between Sudan's Transitional Military Council and the civilian opposition over the composition of the transition body have suffered numerous setbacks in recent weeks, but they have more recently shown signs of progress. On May 15, civilian and military leaders announced they had reached an agreement on a civilian-majority legislative body. The details of the deal are still up in the air, since the council suspended talks shortly after reaching the agreement. But the agreed-upon 300-seat body (along with the other transitional structures) would reportedly be in power for the next three years — after which time elections would be held to allow Sudanese citizens to decide on its next composition. Thus, depending on the composition of the remaining sovereign council and executive Cabinet, Khartoum may be on its way to forming an accountable and pragmatic political system in the long-term.
Home to diverse and untapped markets brimming with opportunity, Sudan has all the makings to kick-start its economy and emerge as one of Africa's more promising investment markets in the years ahead. But whether its next chapter will be one marked by economic success or stagnancy lies in the hands of its stand-in leaders. Until then, foreign stakeholders who stand to gain from Sudan's resurgence will be keeping a close eye on this defining political moment in the country's history.