On January 13, 2017, US President Barack Obama authorized the removal of all commercial sanctions on Sudan, most of which had been in place since 1997. While this is an exciting development for multinational firms looking to tap into new opportunities in Sub-Saharan Africa, the story in Sudan is complex and offers risks as well as opportunities.
What does the removal of sanctions mean?
All commercial trade that was previously prohibited between the two countries—covering both companies and individuals—will now be permitted. However, it is worth noting that the removal of sanctions is subject to a 180-day delay from the date of the executive order, as the US wants to encourage Sudan to take further steps toward improving human rights protections and ending military conflicts within its territory. This means that the sanctions currently remain in place, and the final decision to remove them will rest with President Trump and his administration. As Sudan is still designated a sponsor of terrorism by the US, and was one of the countries included in President Trump’s recent travel ban, the president could still decide to retain sanctions on Sudan for political reasons before the 180-day delay expires.
As a result of the restrictions that sanctions have imposed on Sudan, some sectors of the economy have struggled to fulfill local demand over the last two decades. This is partly because in recent years the US government has rigorously enforced penalties against US companies that have violated these sanctions. For example, in July 2016 Alcon agreed to pay a fine of US$ 7.6 million to the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) after it was discovered that the company had made sales to Sudan and Iran. Anecdotal evidence suggests wealthier Sudanese citizens travel abroad in large numbers to access drugs and treatments that are not available in the country, illustrating the impact of sanctions on the healthcare industry.
What opportunities could this create for MNCs?
Sanctions removal could therefore provide some opportunity for MNCs to capture pent-up demand for products that have been difficult to attain, notably those manufactured and distributed by US companies. Costs of doing business for MNCs in Sudan are likely to fall, including costs related to making cross border transactions such as repatriating earnings.
More broadly, once sanctions are removed and as foreign direct investment increases, the outlook for economic growth could improve from the IMF’s current forecast of 3.5% year-on-year through 2020. Furthermore, scarcity of foreign currency is likely to abate slightly, a corollary being that the gulf between the official and parallel US dollar exchange rate will narrow further.
What are the risks to investment in Sudan?
Nevertheless, companies seeking growth opportunities should manage their expectations for the market by keeping perspective of Sudan’s low wealth, economic drivers, and level of development. Operational challenges, including high inflation and security risks in rural areas are also unlikely to abate soon.
While the government is in the process of implementing structural reforms, a protracted period of austerity means opportunities to capture public procurement contracts are constrained and will expand from a very low base. The country’s economy is still adjusting to the loss of the majority of its oil reserves following the secession of South Sudan in 2011, and therefore growth is unlikely to return to its oil-driven boom years of the 2000s.
Opportunities for MNCs will be kept relatively niche and limited, and competition from local companies will be stiff as they take advantage of lower operating costs that will allow them to free up capital for investment in expansion. As a result, Sudan is likely to remain an interesting opportunity for MNCs that have a very broad presence across the region and have already captured major opportunities. For other companies, opportunities in less challenging parts of Sub-Saharan Africa such as Cote d’Ivoire and Kenya are likely better options for expansion in 2017.