The Southern Sudanese government has been pushing through investment reforms to create a solid foundation for a market-driven economy, vital for a new state.
The International Finance Corporation (IFC), a World Bank Group member, has been instrumental in helping to kick-start the needed reforms.
"We were asked in 2005 by the Government of Southern Sudan to come and help them prepare the environment for investors," said IFC Private Sector Specialist Catherine Masinde.
Early signs of an improving business environment have been the emergence of a banking sector, improvement of the telecommunications sector and increases in investments in manufacturing as well as agribusiness, according to the IFC.
Key priorities for investment climate reforms to bolster the local economy were the establishment of a legal and institutional framework as well as business registry.
The Southern Sudan Investment Authority was established in 2006 and formalized in 2009 after the Investment Promotion Act was enacted. In 2009, the GoSS Ministry of Commerce launched a business registration campaign that has seen an estimated 10,000 businesses formally register.
During the same period, 13 laws, including the Investments Promotion Act (2009), were drafted, nine of which have since been enacted.
"These laws include the Partnerships Act, Limited Partnerships Act, Registration of Business Names Act, Agency Act and the Contract Act," said Jean Phillipe Prosper, IFC Director, Eastern and Southern Africa.
A pioneer in the banking sector, KCB Sudan Limited, opened its first branch in Rumbek, Lakes State, in 2006. Although the Kenyan-owned subsidiary originally aimed to provide banking services for the foreign community, the bank's head of credit, Ituu Ngacha, said that Southern Sudanese now make up the majority of their customers.
Previously, Southern Sudan offered Islamic banking. "We came in to offer conventional banking services which were not the norm at the time," said Mr. Ngacha. "We knew that there was a chance for immense growth, if the CPA (Comprehensive Peace Agreement) succeeded, as it has now."
After an initial investment of $15 million, KCB now has 17 branches offering banking and money transfer services. "From the statistics available, KCB has 40 per cent of the market share. We are in nine of the 10 states, except Northern Bahr El-Ghazal. We expect to cover all the states by end of March," Mr. Ngacha said.
While skilled local professionals were scarce when KCB first started operations, the situation has now changed. "Initially we used to advertise for positions and we did not get enough responses," said KCB Head of Risk Joseph Chepkurgor. "Today more than three quarters of the staff, from entry level to senior management, are Sudanese nationals.
The growth of credit services has, however, stagnated. "Credit facilities have been limited by the lack of collateral by most loan-seekers," said Mr. Ithuu.
Companies like KCB have been assisted by a growing telecommunications sector.
Vivacell Managing Director Amin Mardam Bey noted that communications was a major enabler for economic growth, as it acted like a pillar for all other investments.
The mobile phone service provider began operating in Southern Sudan in February 2009. "Communications (at that time) was left unattended by the national operators, who were focusing their operations on the more lucrative areas of Sudan, with South Sudan being a mere extension of their operation, more of an obligation and a liability," said Mr. Bey.
He added that Vivacell now had a leadership position in telecommunications, according to statistics, despite being the sixth licensed operator in Southern Sudan. "Currently, Vivacell is the only operator fully established in Southern Sudan."
In the manufacturing sector, trailblazer SAB Miller PLC subsidiary Southern Sudan Beverages Limited (SSBL) set up a base in the capital Juba in 2009. SSBL locally manufactures four brands of beer, Club Minerals soft drink in nine flavours and Source bottled water.
"Although the cost of doing business is higher in Southern Sudan, the profit margins still compare with international standards," said SSBL Managing Director Ian Alsworth-Elvey.
To date, SSBL has invested $50 million and has penetrated nine of the 10 states.
"We are not in Malakal, Upper Nile State," the managing director said. "The logistics to get to Upper Nile are very difficult. Currently the only way to get products there is via the Nile River on barges and the costs are prohibitive at the moment."
Akuei Deng Akuei, undersecretary in the Ministry of Investment, identified acquisition of land, insecurity, lack of capital and multiple taxation (at the payam, county, state and national levels) as major hindrances to investment.
"The issue of land is a roadblock for investment," said Undersecretary Akuei. "The Comprehensive Peace Agreement indicates that land belongs to the community."
And the taxation system needed streamlining, according to SSBL director Alsworth-Elvey. "In particular, the payam, county, state and national taxes that are duplicated."
Poor infrastructure, high illiteracy levels, corruption and lack of legislation as well as skilled local professionals have also been identified as hurdles for foreign investors.
But Mr. Alsworth-Elvey is unconvinced that infrastructure is a hindrance. "People who use poor infrastructure as an excuse not to invest here in my view are not serious in business, because you can do things to overcome the poor infrastructure and still run a good business, which gives you good returns," he said, adding that SSBL generated its own electricity and disposed of its own waste.
KCB's Mr. Ngacha agreed. "With all the numerous mobile phone companies, communication has not been a problem, neither has transportation. Most of the major towns are connected by air. The challenge is (the high) costs of (these services)."
Infrastructure had not been a problem for his company, said Vivacell director Bey. "Poor infrastructure was well known before embarking on the project and was taken into consideration in our planning."
Legislation and government institutions are also now in place. The Investment Promotion Act (2009) regulates 10 areas, including starting a business, work permits, construction permits, registering property, enforcing contracts, paying taxes, trading across borders, getting credit facilities, employing workers and closing a business.
According to Mr. Prosper of the IFC, registering a business begins at the Ministry of Legal Affairs, where a certificate of registration is issued. For investments above $100,000, applicants go to the Ministry of Investment to obtain a certificate of investment.
The Ministry of Commerce issues import and export business licenses, while traders obtain their licenses from the state level ministry.
The way forward
The GoSS and the IFC launched a Private Sector Development Programme to be spearheaded by the Ministry of Investment on 28 February. It has three main components -- investment climate reforms, small and medium enterprises (SME) and access to finance, said Ms. Masinde of IFC.
The SME component will improve the capacity of small businesses to function competitively. The access to finance aspect will work with commercial banks to enable them to offer small businesses finance and promote microfinance as well as mobile money transfer.
The IFC has also been asked to help with business disputes. "The court system in Southern Sudan is not functioning efficiently yet," said Ms. Masinde. "Given the many disputes that are arising between businesses, we have been asked to develop an alternative dispute resolution mechanism to resolve cases between businesses."
To deal with the lack of collateral borrowing problem, the programme will also pilot a secured lending project. "Secured lending is a concept used for non-fixed asset collateral," the IFC specialist said. "A register will be created for collateral that is not land, because we do have an issue with land here in South Sudan. This will help banks to lend without relying on collateral. You can register your cows or your bicycle in order to borrow money."
The Deloitte Partner responsible for Southern Sudan, Robert O'Hanlon, said his firm had received many enquiries from potential investors who wished to invest in Southern Sudan.
"These (enquiries) range from property development to manufacturing enterprises,' Mr. O'Hanlon said. "All have the potential to create significant employment opportunities."
He added that these investors would want their financial affairs managed to international standards. "At present, there is a significant shortage of qualified and experienced Southern Sudanese financial management professionals. Our role is to assist the investors in ensuring they are properly registered. understand the tax and regulatory systems, and set up adequate systems of internal control and reporting."
Donor interest in Southern Sudan will also increase, Head of the Joint Donor Team Michael Elmquist said. "We certainly expect that the level of donor interest is not going to go down. It is quite likely going to increase. We expect much more funding from the European Union."