KHARTOUM, June 7 (Reuters) – Sudan’s boom economy is likely to take a downturn after Washington strengthened sanctions against Khartoum and Sudan’s central bank restricted foreign currency transactions, analysts and traders say.
Last week the United States imposed further sanctions on Sudan to pressure the government to halt the violence in its Western Darfur region and the central bank introduced measures to limit foreign exchange transactions and curb imports.
Despite U.S. sanctions since 1997, Sudan’s largely cash economy has enjoyed real growth rates averaging of 7 percent over the past 10 years and hopes to reach 10-13 percent in 2007.
But the new measures may scare off investors and slow economic growth.
“I think this will have a very bad effect on foreign investment in Sudan,” said businessman Hashim Sid Ahmed.
“It is very clear that if you have tense relations with the West, do not expect big foreign investment in your country,” he said. “And …then you come with a policy which restricts the remittances of foreign exchange to the investors.”
Two Sudanese companies named by the United States on the sanctions list, Sudan’s national Sudan Telecommunications Co. (Sudatel) and al-Sunut, a joint venture to develop Khartoum, were seen as the biggest hit.
“Trading in Sudatel usually takes up 60 percent of the day’s trades,” said trader Jamal Abu Youssef. “But since the last decisions (sanctions and the central bank policy) it’s become weak and fallen to 10 percent.”
He added one reason for this was because foreigners mostly traded in Sudatel, one of the few Sudanese companies to also be listed outside the country on the Abu Dhabi bourse.
“Before a broker could buy foreign exchange from any exchange bureaux and change money within 24 hours but now with the central bank policy the process could take 7-10 days and for foreign investors outside this is too long,” he addded.
He said not only was the slower process to repatriate funds scaring off foreign investors, but the U.S. sanctions also made investors more cautious.
Sudan’s finance ministry said the embargo would have little effect on the economy, as investment came mainly from Asia and the Gulf rather than the West.
But Sid Ahmed disagreed. “Sanctions means you are closing the door to foreign investment in Sudan,” he said.
Also badly hit was the real estate development company al-Sunut. Its mention on the U.S. list has left the ambitious $4.5 billion project to transform Khartoum into a high-rise 21st century city in difficulties.
To date it has sold just over half its business office blocks and not yet begun its residential development on prime real estate where the Blue and White Niles meet in Khartoum.
Osama Dawoud’s private Dal Group managing the project has a good reputation. Al-Sunut is a joint venture with Khartoum’s state government and the National Social Insurance Fund.
Dawood also has the agency for Coca-Cola in Sudan.
Sources in Khartoum’s trading community said Dal Group now faced two choices. Pull out of al-Sunut or buy out any government share which could cost between $50-80 million. But there was no guarantee they would then be off the list.
Al-Sunut declined to immediately comment.
Pressure from Khartoum’s business community forced the central bank to say it may review one part of the new policy, which requires all importers to pay at least 40 percent of their letters of credits with banks up front.
Sudan’s 2006 trade deficit almost doubled to $2.4 billion. But in a country where, after decades of war, goods are only now appearing freely on the market and are already expensive, businessmen said the measure would cause massive inflation.
Al-Amin al-Sheikh Mustafa, a former big businessman who now runs schools to provide free education for children, said imports should not be curbed. Rather depressed local industries needed to be overhauled. “You need to raise exports,” he said.
Sid Ahmed agreed, saying the government had appointed political allies rather than qualified experts to head up local industry, which had damaged exports.
“Political affiliations are more important than credentials,” he said.
The central bank did not say it would revise the currency restrictions, which apply to Sudanese nationals, specifying they could only deposit cash sent from outside Sudan into dollar bank accounts and that any amount over $10,000 being taken out of the country had to be declared.
The bank said it was trying to combat money laundering.
Traders said a black dollar market had already begun, with the dollar buying 2.04 Sudanese pounds on Thursday compared to 2.01 in the banks.