December 17, 2010

New Opportunities in Sudan

Among the risks an investor in an emerging area faces is something called political risk – the risk that a change in a regime will affect the nature and terms of the investment, and the ability of the investor to realize any return. Usually, a change in regime is viewed negatively, but it does not always have to be.

A case in point is Sudan, a country of just under 40 million that is roughly the size of the entire eastern half of the United States. For those of you who are familiar with Sudan, you know that it has been torn by civil strife for over 50 years, driven primarily by the deep ethnic, cultural and religious divides separating the northern and southern halves, and the existence of oil in the southern half. It is the home of Darfur and the ‘lost boys,’ emblems of the ‘bad’ Africa. But do you know that on January 9, 2011 a referendum will be held which will split the country into new countries, that things in Sudan have been relatively quiet for over a year, and that South Sudan has been essentially autonomous for more than a year?

Optimism is high that the split will result in better regimes for both halves. The long term success of the two new countries, however, will in no small part depend on their ongoing economic development, and that in turn will depend on continuing investment. Recent developments for both sides provide some encouraging signs that investors, too, are optimistic.

In December, Sudan’s Minister of Industry, Dr. Awad Ahmed Al-Jaz, has met with parties representing investors from Iran and Brazil to talk about planned investments in the northern half. On the Iranian side, the Iranian Electronic Manufacturing Companies Group discussed investments in for the manufacture of electronic and chemical equipment, computers and television sets. Brazilian interests, on the other hand, are in agriculture, primarily cotton, sugar cane and animal related industries (dairy and meat). On Wednesday, December 15th, Dr. Al-Jaz met with representatives of the Bank of Sudan and public sugar and agricultural companies to implement the investment agreements that were signed with Brazil earlier in the month. No monetary amounts for either the Iranian or Brazilian investments were given, but both are worth watching, as it could lead to further investment.

While South Sudan has oil, it also will need a broad array of investments to establish itself as a standalone country. Technically, South Sudan does not yet officially exist, but there are encouraging signs that investors are confident in its prospects. In November, the Luri River Waterfront Project, located in Juba, the ‘capital’ of South Sudan, was launched (see www.luririverwaterfront.com) to cater to the business and residential needs of those interested in southern Sudanese market. It is situated on 100 acres of ‘pristine’ land near the Nile River and is the first development of its kind in South Sudan. What makes this project something to watch is that it first is a privately owned company comprised of Sudanese and international investors, and second consists of real estate. Investors in real estate generally do not invest in something they believe will lose value over time. Already one group, Rumix Energy, a downstream petroleum specialist, has acquired all 33 acres of the commercial/industrial zoned area for development. In addition, 12 residential plots have been secured, and 4 large residential/commercial plots have been reserved. As with the North Sudan investments, this one also will require watching.

If, as expected, the January referendum carries, both halves will be engaging in nation building. Part of nation building is economic progress, and part of economic progress is outside investment. No one expects the process of nation building to be completely smooth (it never is), and no doubt there will plenty of naysayers. But money talks, and it looks as if Iranians, Brazilians and those behind the Luri River Waterfront Project are saying that these nations will indeed be built. Clearly, they are seeing something positive, and other potential investors need to keep their eyes open about the new Sudan.

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