Transparency of the Regulatory System
Bureaucratic procedures for opening a business are long and cumbersome, particularly for foreigners trying to navigate the system without the assistance of a well-connected national.
The private sector is governed by a mix of laws from Sudan, the pre-independence semi-autonomous Government of Southern Sudan, and since 2011, the Government of South Sudan. The Transitional National Legislative Assembly (TNLA) passed laws to improve the transparency of the regulatory system, including the 2012 Companies Act and the 2012 Banking Act, however enforcement regulations are still lacking and there is little transparency. The government does not consult with the public about proposed regulations and information about regulations is not widely published. Several key pieces of legislation governing customs, imports and exports, leasing and mortgaging, procurement, and labor have not been approved by the government and are needed to improve the business environment in South Sudan.
The oil sector is the major industry that attracts FDI, but transparency in the oil sector is absent, despite statutory reporting requirements. The Ministry of Petroleum does not share data at an institutional level with the Bank of South Sudan and does not release it to the public. The Ministry of Petroleum does not publish oil production data. The contract process for oil companies that are planning to bid and invest in South Sudan is controlled by the Ministry of Petroleum, but the law appears to grant this authority exclusively to the National Petroleum and Gas Commission. Bidding and tender information is not publicly available.
There are no known informal regulatory processes managed by NGOs or private sector associations that would affect U.S. investors. National and state bodies are the main source of regulation, but county and sub-county level officials also impose regulations. In 2018 and 2019, international non-governmental organizations regularly reported that local officials demanded taxes and fees that differed with those set out in national policy. An opaque Presidential Decree issued in late 2018, for example, resulted in weeks of customs clearance disruptions at the country’s main land border in Nimule. In April 2021 hundreds of commercial trucks importing goods into South Sudan had been stuck at Elegu border crossing on the Ugandan side, protesting the killings of Ugandan and Kenyan truck drivers along the Juba-Nimule highway, Juba-Mundri, and Yei-Juba roads. The drivers demanded security guarantees from the government of South Sudan. After two days of negotiation between Ugandan and South Sudanese security chiefs, the striking Ugandan and Kenyan truck drivers resumed cargo deliveries to South Sudan. COVID regulations also created delays in the spring of 2020. NGOs report regular discrepancies between tax and labor rules issued by the national government and those enforced by local authorities. At some state levels, private contractors moving goods earmarked for humanitarian relief have been prevented entry at state borders in 2020. As of January 2021, there are appointed governors in each of South Sudan’s ten states and chief administrators for three administrative areas. However, tax collection and enforcement at the state level remains limited, uneven, and unpredictable.
In October 2020 the IMF reported that the COVID-19 pandemic has severely disrupted South Sudan’s economy, leading to a sharp decline in projected growth (-3.6 percent in FY20/21, about 10 percentage points below the pre-pandemic baseline) and a contraction of oil export proceeds (the main source of exports and fiscal revenue), causing an urgent balance of payments need and opening a large fiscal financing gap.
There are no publicly listed companies. Government accounting is non-transparent. In 2019, the legislative assembly held public budget hearings, which was the latest public budget hearing, due to delay in reconstituting the parliament in February 2020. The government did not pass or publish a budget for FY 2020/2021. In general, most bills and regulations are passed without public comment and are poorly disseminated. There is no centralized online platform publishing key regulatory actions. There is no government ombudsman. Parliament has not been able to provide effective oversight of government ministers. There were no significant corruption prosecutions in 2020.
No enforcement reforms have been announced or implemented. The establishment of the National Revenue Authority in 2018 was expected to provide a stronger foundation for development and implementation of accounting and regulatory standards. South Sudan is working to develop sources of non-oil revenue, including more centralized and effective enforcement of personal income tax and customs revenue. If transparently collected and managed, these funds could assist in development of the country’s infrastructure. In October 2020 South Sudan hired a Tanzanian national to lead the National Revenue Authority as Commissioner General. Since then, non-oil revenues have increased dramatically, in some months showing a 100 percent increase over the previous year, suggesting strongly that prior revenue collection efforts were corrupt, inept, or both.
South Sudan’s parliament is responsible for developing laws, but bodies such as the National Revenue Authority have also been influential in developing tax procedures. There is no indication that regulations are informed by quantitative analysis and public comments received by regulators are not made public.
Laws and regulations are randomly enforced and are not well-publicized, creating uncertainty among domestic and foreign investors. The Ministry of Labor, for example, rarely if ever conducts inspections, but NGOs and foreign investors have reported that employees have colluded with labor inspectors to extort fines from business managers.
South Sudan’s public finances are extremely opaque. The government released some debt obligation information during budget hearings in 2018 regarding certain infrastructure loans, but to date has not disclosed the amount of forward-sold oil (the country’s main source of revenue). As of March 2019, the IMF evaluated short-term oil advances at $338 million or 7.3 percent of GDP but noted that this estimate might not capture all outstanding advances as authorities were unable to provide a full list of contracted oil advances and their repayment terms, complicating fiscal projections. As noted, there was no official budget in FY 2020/2021. The FY 2019/2020 budget infrastructure expenditure line increased to $611 million. At 47 percent of total expenditures, this was a large increase by percentage, up from three percent of total expenditures in FY 2018/2019. The vast majority of this increase was earmarked for the Road Infrastructure Fund. It is widely understood these monies will be used to pay for the $711 million oil-collateralized road construction contract with Chinese-firm Shandong Hi-Speed Group for the 392-kilometer Juba-Rumbek road, still under construction as of May 2021. As of May 2021, the company has resumed work on the road, installing eleven modern bridges. The government had halted work on the road in May 2020 after heavy flooding washed away some sections of the unpaved and poorly constructed road.
The government has three other major road projects. Construction on the oil revenue -funded 204-kilometer Juba-Bor road started in February 2020 and is expected to finish in 2021. The project’s contractor African Resource Company (ARC) is thought to have close ties to President Kiir. Construction started on the 365-kilometer Juba-Torit-Nadapal road in August 2020. This road will connect Juba with a key border crossing to Kenya, reducing transit times and costs for key imports and eliminating the need for a circuitous detour via (better) Ugandan roads. from that country. The government also has announced plans for a Kaya-Yei-Raja road upgrade.
In December 2019, the Egyptian company Elswedy Electric Company signed a contract South Sudan’s Ministry of Energy and Dams to build a $45 million hybrid photovoltaic project with a battery storage system. The contract includes engineering, procurement, and installation of the project and is expected to supply electricity to 59,000 homes in Juba by May 2022. Despite the statutory requirements, South Sudan’s parliament did not review this project.
International Regulatory Considerations
South Sudan became a member of the African Union in 2012 and the East African Community (EAC) in April 2016. It is making progress in adapting its national regulatory system to regional standards. South Sudan has joined the customs union of the EAC but is behind in implementing regulations. With the establishment of the National Revenue Authority, South Sudan had begun to implement EAC customs regulations and procedures. In March 2020, the President established the Ministry of East African Community Affairs in accordance with the peace agreement, which is tasked with overseeing integration into the EAC. South Sudan currently has nine members in EAC parliament and one South Sudanese judge in the EAC Court of Justice. While the government claimed it paid its arrears to the EAC in the fall of 2019, this has not been independently confirmed. South Sudan is not a member of the WTO.
Legal System and Judicial Independence
South’s Sudan’s legal system is a combination of statutory and customary laws. There are no dedicated commercial courts and no effective arbitration act for handling business disputes. The only official means of settling disputes between private parties in South Sudan is civil court, but enforcement of judgements and awards is weak or nonexistent. The weak civil justice system has led businesses to seek informal mediation, including through private lawyers, tribal elders, law enforcement officials, and business organizations. As a part of its membership in the EAC, South Sudan is subject to the jurisdiction of the East African Court of Justice (EACJ). The EAC treaty gives the EACJ broad jurisdiction including trade disputes and human rights violations, but the court only reviews 40 cases annually and results for South Sudanese legal community have been inconclusive.
The executive branch regularly interferes with the work of the judicial branch. State security forces have arrested and detained without charge parties to business disputes. The detention continues until the party agrees to make payments as directed by the authorities to “resolve” the case. High-level government and military officials are immune from prosecution in practice and frequently interfere with court decisions.
The lack of a unified, formal judicial system encourages “forum shopping” by businesses motivated to find the venue in which they can achieve the most favorable outcome. U.S. companies seeking to invest in South Sudan face a complex commercial environment with extraordinarily weak enforcement of the law. While major U.S. and multinational companies may have enough leverage to extricate themselves from business disputes, medium-sized enterprises (the more natural counterparts to South Sudan’s fledgling business community) will find themselves held to often capricious local rules.
Laws and Regulations on Foreign Direct Investment
Despite some improvements to the taxation system, the opacity and lack of capacity in the country’s legal system poses high risk to foreign investors. South Sudan’s National Revenue Authority had centralized and standardized collection of Personal Income Tax and customs duties. A One-Stop Shop Investment Centre (OSSIC) was established in 2012 but there is no website or advertised physical office. In practice, someone who wishes to register a business must rely on a local lawyer to register the business with the registrar at the Ministry of Justice and with other relevant authorities such as tax authorities.
Competition and Antitrust Laws
South Sudan does not review transactions for competition-related concerns. There were no significant developments in 2020.
Expropriation and Compensation
The Investment Promotion Act of 2009 prohibits nationalization of private enterprises unless the expropriation is in the national interest for a public purpose. The act does not define the terms “national interest” or “public purpose.” According to the act, expropriation must be in accordance with due process and provide fair and adequate compensation, which is ultimately determined by the local domestic courts.
Government officials have pressured development partners to hand over assets at the end of programs. While some donor agreements call for the government to receive goods at the close-out of a project, local government officials have seized assets even in the absence of a formal agreement.
Although officially denied, credible reports from humanitarian aid agencies indicate that both government and opposition forces routinely extort money at checkpoints to allow the delivery of humanitarian aid throughout the country.
In practice, the government has not offered compensation for expropriated property. For example, in October 2018 the government expropriated the assets of Kerbino Wol Agok, a high-profile prisoner of the National Security Service, with no apparent judicial process. The government seized his companies and their bank accounts and fired all company employees. In 2019, a court sentenced Kerbino to ten years in prison for acts committed after his arrest; he was released in January 2020 under presidential pardon.
Due to the insufficiencies in the legal system, investors should not expect to receive due process or have the terms of their contracts honored. Investors face a complex commercial environment with a relatively weak civil justice system.
ICSID Convention and New York Convention
South Sudan signed and ratified the ISCID Convention on April 18, 2012 and it entered into force on May 18, 2012. Currently South Sudan is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
There is no specific domestic legislation that enforces awards under the ICSID convention.
Investor-State Dispute Settlement
South Sudan does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.
Numerous private companies, including at least one U.S. company, claim the government has reneged on or delayed payment for work under contract in recent years. For example, in November 2017, South Sudan stopped issuing and renewing passports and other travel documents after its production system was shut down for two weeks by the country’s German supplier, due to the government’s failure to pay an annual software license fee of around $500,000. The government again failed to pay its annual fees in November 2019 and the service provider stopped issuing passports for South Sudan for two weeks.
In March 2018, the government suddenly suspended Lebanese-owned cell phone service provider Vivacell, which had previously been South Sudan’s largest telecommunications company with a 51 percent market share and equipment installed throughout the country, due to an alleged failure to pay taxes.
There is a history of extrajudicial action against foreign investors. Parties in contract disputes are sometimes arrested and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.
International Commercial Arbitration and Foreign Courts
There are no official arbitration bodies in South Sudan. South Sudan lacks any dedicated legal framework to enforce foreign judgments.
As a part of its membership in the EAC South Sudan is subject to the jurisdiction of the East African Court of Justice (EACJ). The EAC treaty gives the EACJ broad jurisdiction beyond trade disputes, including human rights violations. Though results have proved inconclusive, members of South Sudan’s legal community have taken cases to the EACJ in the past. The capacity of the EACJ is limited, however, as it only hears about 40 cases per year. Moreover, cases must be filed in Arusha, Tanzania. Plans for opening an office in Juba are ongoing.
The 2011 Insolvency Act provides for both personal and corporate bankruptcies. Given the lack of commercial courts, there is little information available about the rights of creditors in practice. South Sudan is tied for last place in the World Bank’s 2020 Doing Business Report ranking for “resolving insolvency.”