ASSESS COMMERCIAL RISK FOR DOING BUSINESS WITH CONGO AND SUDAN

Chirag Janyani 10 Dhanyashree Thykatil 12 Dhiren Boricha13 Ishani Potfode 18 Neha Hallale 23 Vikrant Kotkar50

COMMERCIAL RISKS SUDAN

REPUBLIC OF SUDAN
Capital: Khartoum (N.Sudan), Juba (S. Sudan) Independence : 1956 Currency: Sudanese pound Population: 34,206,710 (includes population of South Sudan) President: Omar al-Bashir Language: Arabic, English Literacy rate: 61.1% North of Sudan with closer ties with Arab is predominantly Arab or Muslim while South is predominantly non- Arabized or Christian

HISTORY
Independence : 1956 First Sudanese Civil War: 1955-1972 Second Civil War : 1983 Darfur conflict Comprehensive peace agreement Separation: 9th July 2011 Deteriorating relationship between South and North Sudan Widespread humanitarian crisis persists

The nation is deformed by the sins of war

ECONOMY
Sudan is an extremely poor country, which is fighting with itself since more than 50 years GDP growth rate: -3.9% Unemployment rate : 18.7% Industries : Oil, Cotton ginning, textile, cement, petroleum refining, sugar Exports: $8.79 billion Export partners: China 68.1%, Japan 14.3%, India 5.6% Imports: $8.08 Billion Import partners: China 20.2%, Saudi-Arabia-9.1%, UAE 6.7%, India 6.3%

PREFERRED SECTOR FOR PRIVATE INVESTMENT

Meat processing River and rail transport Food processing Animal husbandry Roads and bridges Sugar Telecommunication Airports Hotel and resorts Refrigerated warehouses

ADVERSE IMPACT OF SECESSION ON ECONOMY

Current Account: After a substantial surplus of US$ 2.7 billion during Jan-June 2011 prior to the secession, the current account balance drastically turned into a large deficit of US$ 1.5billion during July-September 2011, and f due to the loss of oil export Foreign Exchange: Loss of main source of foreign exchange through oil exports have left Sudanese pound depreciating by 50% Inflation: Inflation has increased to a staggering 28.6% mark Exports: Exports have drastically comedown by 74%, particularly petroleum exports have dramatically dropped to US$678 million from US$6.6 billion

Major sectors contributing to growth

A v e ra ge gro wt h ra t e ( 2 0 0 0 - 0 8 ) 39.3 Oil Other mining Co nstructio n Other services Electricity & water Trade, restaurants and Transpo rt & co mmunicatio ns Rainfed cro ps M anufacturing Irrigated cro ps Livesto ck 0 1 .2 3 6 9 1 2 1 5 1 8 2.9 4.9 4.2 Tradable secto rs 1 .5 1 1 .3 1 1 0.5 1 0.3 1 0.2 7.3 M ining & no n-tradable secto rs

The discovery and exploitation of oil in Sudan has generally been associated with a shrinking of the non-oil tradable goods sector All of Sudans fast growing sectors were either related to oil or nontradable services, while the growth of agriculture and manufacturing has been slower than the growth rate of the overall economy Sudan missed the opportunity to build the foundation for a diversified and sustainable economy

SUDAN HAS FAILED TO BUILD THE FOUNDATION FOR PRIVATE SECTOR LED GROWTH
100 Share of GDP (in %)

80

60 Private sector 40 Public sector

Following the dominance of the oil sector, the public sector has become the principal contributor to the growth process, while private sector growth has been considerably weaker.
During the last ten years, the public sectors share in GDP has increased from 6 percent to nearly 40 percent, which has become an impediment to the development of a robust private sector

20

1998 2000 2002 2004 2006 2008

COMMERCIAL RISKS INVOLVED IN DOING BUSINESS IN SUDAN

Commercial environment is highly challenging: - Doing business 2010 rank: 154 out of 183 countries Infrastructure : - Quality of roads, rail, ports and airport is low - Inadequate infrastructure is one of the major deterrent for investors Corporate governance - Establishing a business is a lengthy and cumbersome process - Investor protection is inadequate Capital accounts Exchange regulations - Resistance includes non-resident purchase of shares - controls on non- residents acquiring commercial or financial credits

Country risks are on high priority to enable investors take major decisions. Sudan and Congo have high country risks hampering future investment plans

ECONOMY OF YOUR COUNTRY

Explain which goods and services are produced in your country. How do people typically provide for the needs of themselves and their families?

NON-TARIFF BARRIERS
Sudan Non-Tariff barriers are a major obstacle to trade
Documents required for export (number) Time required for export (days) 6 32 2050 6 46 2900

Region average
7.8 33.6 1941 8.8 39.4 2365

OECD average
4.3 10.5 1089 4.9 11 1145

The process and costs incurred are comparatively higher to OECD

Cost to export (USD per container) Documents required for import (number) Time required for import (days) Cost to import (USD per Container)

LEGAL AND REGULATORY ENVIRONMENT

Sudans judicial environment is complex and unreliable Contract enforcement is a lengthy and costly procedure Sudan score -1.50 in World banks, Worldwide Governance indicators, reflecting the unreliability of the judicial system, its proneness to political interference and manipulation

CORRUPTION AND SECURITY RISK IN SUDAN

Over years Sudan has become synonymous with corruption 2011 corruption perception index 176 out of 180

Sudan suffers from Inter-and intratribal conflicts

Such conflicts get polarized in an ethnic political environment

SOUTH SUDAN THE YOUNGEST NATION OF THE WORLD

Separated from Sudan with which it had engaged in over 50 years of political and economic conflict Challenges before economy - Over regulation on investments - Poor human capital - weak infrastructure - establishment of an effective constitution Experts foresee a bright future for South Sudan, but they do not expect change to happen over night

COMMERCIAL RISKS CONGO

DEMOCRATIC REPUBLIC OF CONGO

Location Central Africa 2nd largest country in Africa 4th most populous country in Africa and 19th in world Capital Kinshasa Official Language French Independence from Belgium in 1960 Currency- Congolese franc President - Joseph Kabila Prime Minister - Augustin Matata Ponyo Referred as Zaire from 1971 to 1997 Main Religion Groups Kongo,Luba,Mongo 252 Languages out of which Kikongo Kituba, Lingala, Tshiluba and Swahili have the status of national language About 600,000 Pygmies are aboriginal people of DR Congo. 95% Population Christian Contains great biodiversity

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SECOND CONGO WAR

Began in August 1998 and Ended in 2003 Deadliest War in Modern African History Involved 8 African countries and 25 armed groups Killed approximately 5.4 million people Establishment of Transitional Government of Democratic Republic of the Congo Following agreements were signed The Sun City Agreement (imposing democratic government and regular elections in the Congo The Pretoria Accord, under which Rwandan troops agreed to withdraw. A separate treaty, the Luanda Treaty, followed, between Uganda and the Congo Establishment of Transitional Government of Democratic Republic of the Congo First Election - 30th July 2006 Continuing death toll due to disease and famine Almost 45000 people dying every month 2/3 rd of the population affected by Malnutrion

CURRENT ECONOMIC SCENARIO

Home of vast potential and mineral wealth Untapped deposits of raw mineral US $ 24 trillion Informal Sector major part of economy(not reflected in GDP data) GDP growth 3% per year GDP by sector Agriculture(34%),Industry(11%),Services(34%) Largest Producer of cobalt ore, major producer of copper and industrial diamond Establishment of SEZ for revival of its industry Possess 50% of African forests and river system that could provide hydro-electric power to entire continent Poor transport system Water transport accounts for 2/3rd

CONGO- EXPORTS AND IMPORTS

Export partners (2010)
China 47.30% Belgium

Import partners (2010)

South Africa Belgium Zambia Zimbabwe

Finland
United States Zambia

China
Kenya France

POLITICAL RISK
Regime of President Modatu lasted 32 yrs(1965-97) Toppled by Laurent Kablia in May 1997 by Uganda and Rwanda Transition from Civil War to Semi Presidential Republic Highly unstable and lack of transparent political process Corruption(Ranked 168 in Report by Transparency International) Ministers are frequently arrested and released with no judicial process Lack of effective legal system Sudden Eruption of conflict(Congo Wars and regional fights) Geographical Remote Central Government Frequent arrest of Government leaders Dealing with issues of local content and empowerment Government officials in desperate need of revenue have been known to extract dubious taxes and fees from local business

SOCIAL RISK
Poor Infrastructure No road network which leads difficulty in fuel distribution Extremely depilated Rail Network Inefficient and Unsafe air transport Significant legal and risks also as per African standards Weak Judicial System(According to World bank Report178th rank in 183 economies) Chart 250 ethnic groups Second highest rate of infant mortality Educational Rate- 67% Worst numbers of woman Sexual violence and rape cases in world Role of Media The constitution provides for freedom of speech and the press, the government has restricted this right in practice. Arrests, murders and other harassment of Journalists is frequently reported. Great difficulty for print media both in gathering of information and physical distribution

ECONOMIC RISK
Drop in national output and government due to Congo War I & II Second lowest nominal GDP per capita (216$) High Risk of Natural Disaster Tortuous procedures for closing a Business(5.2 yrs to resolve bank currency proceedings) Weak Banking System 40% corporate income tax 3% to 50% personal income tax Separate Tax Regime for Mining Sector

INVESTMENT CLIMATE
Congo was beset with political and economic problem which discouraged foreign investment Improved political stability lead to Effectively exploits its vast wealth of mineral and agricultural resources Congo has had a bilateral investment treaty with countries such as united states, Belgium, china, Egypt, France, Germany, Greece, Israel, South korea Conversion and Transfer policy: Local Currency Right to private ownership and establishment: Protection of property rights: Labor

CORPORATE TAX RATE

LEGAL ASPECT-CONGO
1. 2. 3. 4. Legal and regulatory risks are significant as the standard of governance is extremely weak, even by African standards Weak Judicial System Inconsistent application of complex legal and administrative codes and the lack of due process are the primary problems Weak Judiciary i.e. prone to corruption Difficulties in enforcement of commercial contract which includes Number of Procedures(43) Higher cost involved than any sub African country Administrative time involved (610 days) Tortuous procedures for closing a Business(5.2 yrs to resolve bank currency proceedings)

MAIN CHALLENGES OF DOING BUSINESS IN CONGO

High Cost of doing Business (For small and medium sized enterprises) Poor or non existent infrastructure Regulatory and tax uncertainty Difficult and costly logistics Surfeit of bureaucracy Skills shortages Finance(Banks have perception of high risk in Africa) Different language and Business Culture Choice of local Partners Weak Local Private Sector A lack of market Information Problems with work permits Non-payment of contracts Onerous requirement for operating licenses The cost of tendering for contracts The security of people and assets Reputation Risk

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