SUDAN WATCH: INVESTOR RADAR-What investors are watching in Sudan

Wednesday, May 13, 2009

INVESTOR RADAR-What investors are watching in Sudan

INVESTOR RADAR-What investors are watching in Sudan
By Andrew Heavens, May 13 (Reuters) KHARTOUM:
Sudanese president Omar Hassan al-Bashir has clung on to power since the International Criminal Court issued an arrest warrant for him on charges of war crimes in Darfur.

While he has held off that external threat, internal pressures in Khartoum, Darfur and the south are mounting.

Growing insecurity remains the biggest risk for investors in Africa's largest state and the nine countries on its borders.

Investors are watching the following issues closely:

CENTRAL OILFIELDS SECURE?

Flashpoints are looming along Sudan's north-south border, left undecided in the fragile 2005 Comprehensive Peace Agreement that ended two decades of civil war between the north and south. Any return to conflict would cripple surrounding oil operations.

In coming months, the Permanent Court of Arbitration in The Hague is expected to reach a ruling on the borders of Abyei -- a region claimed by both the north and south and that is close to oilfields and a key pipeline. The court will struggle to reach a solution pleasing both parties. Northern and southern forces clashed over the region as recently as December. It will not take much to spark more fighting.

The surrounding region of Southern Kordofan, which saw some of the fiercest fighting in the north-south war, remains highly charged. Khartoum has raised the stakes by appointing Ahmed Haroun as the region's governor. He is a divisive figure distrusted by southerners and wanted by the ICC for alleged war crimes in Darfur. Some Arab groups, who feel they have not received a fair share of oil revenues, have turned to kidnapping oil workers.

TRIBAL VIOLENCE CONTAINED?

Many of the south's key oil regions, among them Jonglei and Upper Nile, have been paralysed by bloody tribal clashes in recent months, many linked to long-standing rows over cattle.

There are fears this fighting could spread further among the territory's highly armed population, which is growing increasingly disaffected by the slow spread of development.

Investors will be particularly worried by a recent outbreak of fighting on the outskirts of the south's capital and business centre Juba. Any disruption of key trade routs with Kenya and Uganda will be particularly harmful.

WHAT NEXT FOR DARFUR?

Darfur's powerful rebel Justice and Equality Movement has been re-grouping, re-arming and recruiting scores of commanders from other insurgent groups. Everyone is waiting for its next move, which could range from resuming stalled negotiations with Khartoum to repeating its shock attack on the capital last year.

JEM has ambitions to control Darfur and neighbouring Kordofan, with all its oil interests. Any aggressive action from JEM will further worsen relations between Sudan and Chad, which supports the rebel group.

ECONOMIC PROSPECTS?

Sudan is trying to diversify and strengthen its economy to make up for plummeting oil revenues. Ministers have been wooing agricultural investors, particularly from the Arab world. Finance and National Economy Minister Awad Ahmed al-Jaz said the state would control spending and forecast a fall in inflation to 8-9 percent by the end of 2009 from 18-19 percent in 2008.

This is potentially good news for investors, as is a modest revival in oil prices. But investors will be waiting for clear signs that Sudan really has the will and discipline to cut red tape and impose fiscal discipline, at a time when there are so many demands on its coffers. Sudan also still has to make up for decades of under-investment in its agriculture industry, and infrastructure, particularly in the south.

Some companies doing business in the south have complained of late or part payments from the cash-strapped southern government.

COULD SANCTIONS BE LIFTED?

There have been signs of a thaw in relations between Sudan and the United States, which imposed heavy trade sanctions on Khartoum in 1997. Khartoum will have to make some very concrete concessions in Darfur and its relations with the south before the Obama administration will consider lifting its trade ban or removing Sudan from its list of state sponsors of terrorism.

Sanctions have had a crippling impact on investment, effectively isolating Sudan from the West's banking sector, depriving it of U.S. technology and scaring off companies concerned about being found guilty by association.

ONE SUDAN OR TWO SUDANS?

The 2005 Comprehensive Peace Agreement promised national elections in 2009 and a referendum on southern secession in 2011. Anyone drawing up an investment plan for Sudan over the next two years will have to factor in the possible break up of the country. If any major party in the coming elections -- now delayed till February 2010 -- feels cheated by the result, or if the south suspects it is not going to get its referendum after all, the contingency planning will also have to include the possibility of a return to full civil war.

(Additional reporting by Skye Wheeler in Juba; Editing by Giles Elgood)

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