DR.ISAM ELZEIN ELMAHI

1. CAPITAL FLOWS BETWEEN SUDAN AND THE NORTH AFRICAN COUNTIES DR.ISAM ELZEIN ELMAHI

3. FDI IN SUDAN

4. In Sudan, the Encouragement of Investment Act, 1990 (1990 Act No. 64), defines foreign direct investment (FDI) in the context of "invested capital". In the Act, invested capital means, among others, the foreign exchange transferred through one of the banks, registered with the Bank of Sudan, and used in the establishment, operation, modernization, rehabilitation or expansion of the project; the local exchange which is discharged with on the approval of the bodies concerned, to meet obligations in foreign exchange due for payment to the investor. The Bank of Sudan collects data on FDI inflows intothe country. The data on annual inflows of FDI were also gathered from the tapes provided by the International Monetary Fund and the Organization for Economic Co-operation and Development. In 1974, the government of Sudan implemented the Development and Promotion of Industrial Investment with an eye towards attracting investors with concessions such as tax incentives of up to 15 years. The policy was extended in May 1980 into the Encouragement of Investment Act, which provided customs, tax and other benefits to the investors with the agricultural, petroleum and mining industries. Foreigners have played a leading role in the development of Sudan’s oil industry, funding the building of upstream resources, the construction of industry infrastructure including the export pipeline, and downstream facilities such as the new al-Jeili refinery. As the success of these projects has become apparent, the government has sought private partners to boost investment in other sectors with some success. This includes the power sector, where the country’s first build operate- transfer power plant came on stream in 2004. In the early 1980s a United States firm, Chevron, discovered large deposits of oil in fields near Bentiu in Unity state and Melut in Blue Nile. In March 1997 Arakis had signed a consortium agreement with the China National Petroleum Corporation (CNPC), the Malaysian state oil company, Petronas, and the Sudanese state-owned firm, SudaPet, forming the Greater Nile Petroleum Operating Company (GNPOC).

5. TheSudanese Government had traditionally participated in the regional integration schemes both at the sub-regional and regional levels. As of the end of the 2005, the country belonged to several of the existing bodies such as the Intergovernmental Authority on Development, League of Arab States, Common Market for Eastern and Southern African countries, African Union and the New Partnership for Africa's Development. Sudan is party to the Cotonou Agreement for the renegotiation of the trade links between the African, Caribbean and Pacific countries with the European Union, under the Lomé Convention. In 1971, Sudan nationalized the holdings of foreign investors, mostly British. A privatization effort and a move toward a mixed economy began slowly in the early 1980s and picked up momentum via negotiations with the IMF in 1985. The 1980 Encouragement of Investment Act provided for repatriation of profits, tax incentives, customs relief, industrial rates for transport and electricity. However, the introduction of Shari 'a law in 1983 (unenforced since 1985), along with foreign exchange shortages, discouraged investors through 1986. In 1990, the government invited foreign investors to purchase companies in the parastatal sector. Key properties in the agricultural, tourist, transportation and communications sectors were identified as candidates for privatization under the National Economic Salvation Program. In 1992, the creation of four free-trade zones was announced in an attempt to encourage additional foreign investment. In 1999, a new investment act guaranteed the equal status of foreign and national projects; and encouraged investment in the sectors of agriculture, industry, and tourism, amongst others. It gave total tax exemptions for business profits and customs duties for 10 years on capital projects, and 5 years for nonstrategic industries. Foreign investment in 2000 included inflows from Canadian and Araki oil interests, as well as European investment .

6. Annual foreign direct investment (FDI) inflows were $98 billion in 1997, but rose to an average of $378 million 1998 to 2000. In 2001, FDI inflow increased to a record $574 million. Foreign direct investment is net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short- term capital as shown in the balance of payments. FDI performance in Sudan has been impressive and that Cleary shown since 2002. FDI has grown 223% since 2002 in financial services, energy and retail food sector.

8. The volume and number of foreign and foreign investment in Sudan Million US $ Million US $ The Volume of foreign and Foreign Joint investment From 2000-2007 Million US $ *Source: ministry of investment – Sudan * For 2007 this information covering the period up to June of 2007

9. The Number of foreign and foreign joint investment From 2000-2007 Source: ministry of investment – Sudan For 2007 this information covering the period up to June2007

10. When we look at the tables above, we find that the volume of foreign investment and the number of investment projects in Sudan are increasing rapidly from 2000 to 2007, and that due to the flexibility of the investment law and investment advantage offered by Sudanese government and the Sudan as well as strategic point in central and east Africa and that make easier for Sudan to attract foreign capital and investment. Also we notice that the services sector is the largest sector in terms of the volume of foreign investments and in the number of foreign investment projects. We find that the industrial sector is the largest sector since 2005. Egypt is the only country which invested in the above mentioned investments(240-250 million dollars). The rest of North African Countries have no direct investment in the Sudan.

11. Capital flows in/out Sudan

12. Capital Flows from Sudan to the North African Countries (Million US $) (-) not available Some tourism from Sudanese people who travel to Tunisia but no figure data.

13. Capital Flows From North African countries to Sudan (Million US $) (-) not available 40 m US $ from Swaidi Steel Industrial joined Giad Industrial Complex, 200 m US $ from one individual group investment in cement industry. 30 m $ from Egyptian investors paid as capital in other different investments. 60 m US $ investment in El-fatih Min September Tower 50 m US $ Sudanese people worked in Libya transfer money through different ways. This data collected through interviews and meetings with diplomats and Sudanese people live abroad but no official data.

14. Capital flows between Sudan and Mauritania Sudatel in Mauritania Since the dawn of its history, Sudatel kept participating effectively in planning the country’s future. It is forcing its way forward in a world where information became the source of power. Since its establishment Sudatel had been planning not only to promote communications within the country, but also to play roles at the regional and international levels in the communication sector. That is how the project of regional transmission of movement came into being. It was through it that the Company network expanded to Egypt and Ethiopia, and it was through it that its cables crossed the sea to Saudi Arabia, beside other projects which are still under execution to enhance this trend. In 2006 sudatel wins the bid for the third operator in the Islamic Mauritanian Republic the license consists of four “sub-licenses”. The first is related to operating a new network for mobile phones. The second is related to the establishment of a system to manufacture and produce credit cards for mobile phones. The third is related to establishment of a local network for communications and for providing internet services. The fourth sub-license is related to another communication network that works through third generation technologies. The license value amounts to $100 million. During the period extend from January 2007 to September 2007 they have spend about $ 200 million for establishing the network, structure, hardware and software. The total amount of sudatel investments in Mauritania come to its final figure 0f $ 305 million as there system of mobile now under operation.

15. Capital flows between Sudan and Egypt There are unseen figures. Although the Sudanese community in Egypt is more than 6 million but the capital flows is coming from others not from the said community. Some Sudanese people buying houses, villas, apartments and cars the estimate number of these flows to be $ 5 billion, which is about the amounts accumulated during the past several years. Capital flows kept in saving accounts in Egyptian banks to be $ 4 billion. As an accumulate figure until mid 2007 Investments on edible oil industries and meat imports estimated $ 400 million. In 2003 Swaidi Steel Industries joined Giad Industrial Complex with 40 Million US $ as a capital. Every year for spending on summer vacations, educational expenses and medical services to cover 400,000 Sudanese travelers. Every year Sudanese people spend in tourism about $ 160 million. Medical care is expected to be $ 250 million per year. (This data is collected through interviews and meetings with diplomats and Sudanese people living in Egypt but no official data). A flow from Egypt to Sudan seems to be in industry from one individual group estimated about $ 200 million(in cement industry). 80% of the Sudanese Egyptian bank paid up capital came from Egyptian investors. (estimated about $ 30 million in 2006). There are some Sudanese people who are enrolled for education in Egypt, this flows is expected to be $ 90 million every year. Some Egyptians investors have investments in Khartoum Stock Exchange.

16. Capital flows between Sudan and Libya The largest Libyan investment in Sudan is El-Fathih Min September Tower which is one of the largest hotel and shopping centers in Sudan and the cost of buying land hit 7 million dollars and total investment amounted to 60 million dollars. About FDI and portfolio investment are almost nil. Capital flows between Sudan and Tunisia Which has no weigh, some tourism from Sudanese people who travel to Tunisia but no accurate figures? . Regarding FDI and portfolio investment between Sudan and Tunisia are almost nil .

17. Capital flows between Sudan and Morocco Morocco exports to Sudan comprise mainly textiles, shoes and citrus fruits and some Sudanese students taking education in Morocco but no figure available. FDI and portfolio investment are also nil . Capital flows between Sudan and Algeria Sudan and Algeria exports oil. Algeria mainly exports to Europe, while Sudan exports to Asia (China). But In 2007 we notice some export and import between Sudan and Algeria . The export and import between the two countries are very weak . FDI and portfolio investment are also nil .

18. The investment climate and investment acts in Sudan

19. The Investment Climate in Sudan Sudan is rich with its abundant resources which are represented in vast areas of land, and various climates. It is special with its fertile agricultural lands, large amounts of fresh water, and a variety in its animal resources. The extraction of petroleum gave Sudan an important economic dimension. This is besides the distinguished geographic location of Sudan which makes Sudan a passage to other African countries which qualifies it as one of the commercial and investment inlets of those countries. The importance of Sudan has increased in the field of investment during the last period due to its increasing economic importance from one side and its abundant economic resources from another. It has become the target for businessmen from all around the globe who come to start investments in Sudan, supported by the fact that Sudan ranked second in the list of the most attractive countries for investment according to the reports of regional and international organizations. The investment opportunities will grow after the establishment of the peace process which adds an effective third dimension to the attractive investment climate. It will also allow investors to utilize natural resources abundant in Sudan's states more efficiently. The establishment of a Ministry of Investment reflects the attention that the state pays to the investment processes through creating a suitable investment climate and developing the promotion means to raise them to an international level. The Ministry has carried out efforts to prepare a suitable environment through facilitating procedures, unifying them at one window and put in place the rules and procedures to facilitate protecting investor’s rights.

20. Investment Encouragement Policies in Sudan • In order to lessen the government impact on economics and production, the policy of privatization was adopted to pave the way for the private sector to play its role in the national economy. • Adoption of Free-market policy. • Encouragement of export & import as well as interior & exterior trade. • Encouragement of agricultural production. • Implementation of new taxation policies to encourage the capital flows. • Paving all the restrictions that handicap the investment climate and environment.

21. The Investment Act Analyses The last version of the investment act is different from the oldest one so the investment law in the Sudan was reformed to be one of the laws encouraging investment in Africa. Through the policies formulated by the government to encourage the investment in the Sudan, we find that in the last five years an increase in capital flows in and out of Sudan. The law of investment gave significant features to investors and businessmen which include: -The granting of the right to own property for investment projects regardless of the source of the capital nationality, Sudanese, Arab or foreign. -Granting of strategic projects , full exemption from customs duties for capital equipment once the licensing of the project issued and for up to ten years, renewable for another five years. • If adding new production lines customs exemption on machinery and equipment for the same period for the new production line will be granted. • Offering a piece of land at incentive prices. • Giving an exemption of business tax on investment projects for up to 10 years just after the first year of beginning production. • No restrictions on the movement of capital transfers for investment projects •The investor's right to repatriate project profits abroad without restrictions.

22. And the investment climate reviwed to accelerate development by: Focused role of public sector -Clear regulatory framework -Privatization Reduction in administrative procedures -Business start-up procedures -Overlapping tax administration at federal and state level - Labor market inflexibility Strong Institutions -Enforcement of poverty rights- including land- and contracts Market access -Completion of WTO accession process -Information -Infrastructure and efficient port logistics Now that the civil war is over, the investment climate in Sudan is becoming healthier and deserves more attention from the media. The country’s economic policies, investment regulations, outward orientation, and economic performance are all good indicators of the successful path.

23. In the past three years, the foreign direct investment (FDI) inflow to Sudan almost tripled from $574 million in 2001 to $1.5 billion in 2004, according to 2005 World Investment Report issued by the United Nations Conference on Trade and Development. Out of the $1.5 billion of inward FDI, $400 million came from Saudi Arabia alone. Among Arab countries, Sudan came in third in attracting investments as the Sudanese state ministry for investments. The performance of the Sudanese economy is as impressive as its ability to attract foreign investments. • Regarding economic policies and investment regulations, Sudan is making a huge transition as the country tries to liberalize its economy. Following free market principles, the Sudanese government announced that its investment strategy includes the following economic policies and regulations: • Developing its financial market; • • Privatizing state-owned enterprises; • • Limiting state monopolies over sectors; • • Allowing capital mobility; • • Allowing the transfers of profits to foreign investors; • • Giving tax exemption incentives for foreign investors; • • Guaranteeing that private companies will not be against nationalization and confiscations ; • • Giving a free land to foreign investors for strategic projects; • • Allowing the transfer of foreign capital in case of investor’s withdrawal from the market.

24. The Sudanese government is also trying to restore its position in the international institutions after its absence during the war years. Sudan aims at regaining its seat in the International Monetary Fund. The country is also trying to join the World Trade Organization (WTO); its application is progressing in the organization. Sudan is one of 10 least developed countries trying to become a full WTO member. Sudan has come a long way in free trade. The country is a member of the Common Market for Eastern and Southern Africa (COMESA) agreement. On Oct. 31 Sudan and nine other member states of COMESA (Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe) eliminated their tariffs under COMESA rules. With all these efforts and economic indications, Sudan is showing to the world that it is coming back to secure its place after the war period. The government has finally realized the importance of joining the global economy, and for an economy endowed with resources such as Sudan, it is important for the world and Arab countries to re-evaluate its return. To promote the investment climate the Sudanese government has furnished many regional agreements aimed at encouraging investment and creating trade opportunities with other nations: •Sudan joined the COMESA trade bloc. • Sudan joined the Arab Free Trade Organization . • Sudan is looking forward to joining the World Trade Organization. •Sudan has strengthened relations with regional and international organizations and corps related to investment.

25. The Relations between Khartoum Stock Market and North African countries

26. The relations between Khartoum Stock Exchange and the North African Stock Markets are almost non-existent except the relations with Egypt. Khartoum Stock Exchange has very strong relations with Egyptian stock exchanges with regards to the exchange of expertise and training and consultation in the development of both the Sudanese and Egyptian bourses. Egyptian bourse considered one of the strongest bourses in Africa and the relations with these strong bourses is a benefit to the Khartoum stock exchange. As for relation with the other North African Countries bourses is expected soon to be very close relations especially after Khartoum Stock Exchange joined the African Union of bourses (ASEA).

27. Conclusions AND Recommendations

28. Sudan abounds with great and is the huge expanse of territory and natural resource. The advantage of fertile agricultural land and abundant water, and animal wealth and great variety. The emergence of Petroleum gave important economic dimension. The distinguished geographical location Sudan may make it a springboard for many African countries which qualified investment and commercial input to these States. The Sudanese government is aware of the need to encourage both local and foreign investment to sustain economic growth and reduce the use of public funds to undertake investment projects; it is committed to carrying out a privatization program since early 90s Sudan has increased in importance in recent times in the area of investment so as to increase its economic and multiple resources by the other. Sudan occupies fifth place as attractive for investment between Arab countries. reports regional and international institutions and the best proof guide. It also said that investment opportunities will grow at the completion of the peace process, which adds a dimension of the influential investment climate attractive, as it will enable investors from the best use of its abundant natural resources of the various holders of Sudan. Many factors have helped to create a climate attractive to invest in Sudan. On top of these factors earnest desire of the government in the development of the investment environment to attract foreign investors to the country. This has been reflected on the large number of investors who have visited Sudan with the intention of creating investments, has implemented many of those along with a successful investment.

29. Flows between Sudan and North African countries depend entirely on the adoption of trade between those countries and some of these flows are still below the level required, and therefore must develop capital flows between Sudan and North African countries by facilitating trade and investment environment among them. Through these research divisions we dealt with topics related to capital flows between Sudan and North African countries. This research is divided into five chapters. Chapter one introduces the topic by highlighting the International capital flows particularly in Africa, the objectives of the study its scope and what study shows. Chapter two shows the theoretical framework of Capital Flows. Chapter Three describe the capital flows between Sudan and North African countries; analyze its trends and volume compared to other regions in the world and take flows between Sudan with any country included (Egypt, Algeria, Libya, Morocco, Tunisia, Mauritania) and FDI trends, FDI in Sudan . In this part we analyzed the data. Chapter Four addresses the investment climate and investment acts in Sudan, analyses the investment act , the relation between Khartoum Stock Exchange and the others Capital Markets, the Monetary policy in Sudan from (1990-2007) and explaining the main obstacles to capital flows to and from the country . The concluding Chapter, Chapter Five draws lessons for encouraging capital flows between Sudan and North African countries. There are no strong correspondence relationships or agreements between North African Countries Banks and the Sudanese Banks. Also there are no direct flights or active shipping lines between the said countries and Sudan except for Egypt .Therefore the capital flows between Sudan and Egypt Seemed to be greater in size while with the other countries of North Africa very low or almost nil.

30. 1. A recognized body for all ECA countries to carry out investment studies is highly needed. 2. A special rating agency for the ECA countries economies is required. 3. An agreement between the Sudan and each ECA member country is needed for the encouragement of capital flows between these countries. 4. A strengthened information network between the ECA countries for the exchange of investment data is required. Recommendations

31. Thank you ! Dr.IsamElzein