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In the Face of Sanctions, Sudan Gets Down to Business -- WSJ

19 Jul 2017 6:33 am

Entrepreneurs find new avenues as U.S. delays lifting sanctions; Gulf states fill a void
By Matina Stevis 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 19, 2017).

KHARTOUM, Sudan -- In the capital of a country widely deemed a pariah state, the hustle is always on.

"We bring in all the stock in suitcases from Dubai and Doha," said Ali Kamal Ali, whose tiny electronics shop is heaving with smartphones and cases featuring the Eiffel Tower and the Grand Mosque of Mecca. "Why do you think those flights are always packed?"

But nearly two decades of U.S.-led international economic sanctions, which the U.S. delayed lifting last week, have locked this nation of 40 million people out of the Western financial system and spooked many investors.

The financial isolation -- along with the strategically important country's designation as a terror sponsor and the International Criminal Court's pursuit of longtime President Omar al-Bashir for war crimes -- has fostered a special kind of business acumen in executive suites and sand-caked streets: forcing businesses in this former colonial outpost to snare alternative sources of finance, sidestep trade barriers and find creative ways to import consumer goods.

The International Monetary Fund says investments from Persian Gulf states have been critical in keeping this struggling economy afloat, especially after 2011, when the oil-rich south seceded to become independent South Sudan, taking most of the country's revenue with it.

Pockets of Khartoum are starting to look like Gulf capitals. Skyscrapers bankrolled by Saudi, Kuwaiti and Qatari investments tower over the Blue and White Nile rivers that converge here. One recently developed business and residential district is called Riyadh.

Osama Abdellatif, the country's most prominent tycoon, built a desert conglomerate that employs 8,500 people, working mostly with Middle Eastern banks and selling to the Gulf's wealthy consumers.

"The impact of these sanctions on our business has been extreme, the biggest problem being banking," said Mr. Abdellatif, at his sprawling DAL Group compound, where state-of-the-art German and Swiss machines churn out thousands of bottles of Coca-Cola, packs of flour and cartons of milk a day. "Banks are extremely scared of doing business here," he added.

A $8.9 billion fine against French lender BNP Paribas in 2015 after it admitted violating sanctions, sent a chilling message to major financial institutions. Correspondent banks, financial institutions that were intermediaries between Sudan and the rest of the world, pulled out soon after, rendering trade finance virtually impossible, according to the IMF.

While the government and big business has turned to the Gulf for finance, the U.S. blockade has become a fact of life for Sudanese consumers.

There are no international automated-teller machines and debit-card payments are impossible, but that hasn't deterred would-be entrepreneurs.

At the swanky Impact Hub, a co-working space featuring a coffee bar and hipster furniture, tech-savvy Sudanese youth are trying their hand at startups, many focused on smart solutions to mitigate the impact of sanctions.

Ahmed Abdalla, a cybersecurity expert by day at African mobile giant MTN, is working on a mobile-payments platform, SIM Pay, which uses prepaid mobile-phone airtime to allow people to transact across the country.

"People were counting down with the hope sanctions would be lifted," he said.

Diplomats here expect Washington to drop sanctions in the fall, as planned during the final days of the Obama administration, not least because they failed to achieve some key goals.

"When the sanctions were implemented, the hope was that there would be a popular uprising against Bashir," one Western diplomat said. "Twenty years on, I think we can safely say that didn't work."

Some congressmen and rights activists have campaigned against ending sanctions, suggesting a shift to "smart sanctions" on individuals and businesses connected to Mr. Bashir, in office for 27 years, and with alleged links to terrorism.

Sudan was first placed on the list of state sponsors of terrorism in 1993, when it harbored Osama bin Laden and other terrorists in Khartoum, and was placed under comprehensive economic sanctions in 1998 by the Clinton administration after the bombings of the U.S. embassies in Kenya and Tanzania.

The sanctions were bolstered in 2007 by President George W. Bush as well as Congress in response to worsening fighting in Sudan's Darfur region.

Even if the U.S. lifts sanctions in October, Sudan's crippled economy will take many years to recover.

As part of a separate set of sanctions that aren't under review, the U.S. is blocking debt relief. Sudan owes more than $55 billion to external lenders, about half its economic output, the IMF says.

Unless Washington reverses that policy, Khartoum can't apply for debt forgiveness, even though it technically qualifies under the Highly Indebted Poor Countries program that relieved several sub-Saharan African nations from crippling debts in the 1990s.

For now, businesses in sweltering Sudan must wait to come in from the cold.

After the U.S. delayed its decision last Wednesday, the dollar jumped 10% on the black market, said currency traders, as they tried to fan away the heat with wads of notes.

"Sudanese love to buy new technology, they want to be part of all fashions," said Ahmed Murad, whose market stall sells knockoff Chanel T-shirts emblazoned with the misspelt "CHANNEL." "When the sanctions go, I'll get the real stuff and open a boutique," he said.

Write to Matina Stevis at matina.stevis@wsj.com

(END) Dow Jones Newswires

July 19, 2017 02:33 ET (06:33 GMT)

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