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Sudan Just Shrugs off Sanctions

The U.S. economic boycott over the violence in Darfur isn't working. Oil wealth is fueling a boom.

 

August 18, 2007

KHARTOUM, SUDAN --

 

Sinking back in a poolside lounge chair at Khartoum's first five-star hotel, Sitona Abdalla mused recently about whether U.S. sanctions were hurting Sudan.

 

"I guess they must be," said Abdalla, one of Sudan's new elite, who can afford to bring her nephews to Al Salam Rotana Hotel's $42-a-plate weekend brunch. "But I would have to say," she added, smiling at the children splashing in the pool, "life here is better."

 

Ten years after the U.S. imposed an economic boycott against what is territorially Africa's largest country, it's hard to see much effect on the streets of Khartoum, the capital. Unlike the case of Iraq, which was crippled by United Nations sanctions in the 1990s, Sudan has blossomed economically since the sanctions were put in place in 1997 because of its alleged support of terrorism and attacks against southern rebels.

 

President Bush tightened sanctions in May, citing the military regime's failure to resolve the crisis in the violence-plagued western region of Darfur, where an estimated 200,000 people have died, mostly from disease and hunger in the early days of an ethnic conflict. An additional 2.2 million people have been displaced.

 

But by most measures, Sudan's economy is booming, expected to grow 13% this year, far faster than those of most other African nations. Oil exports are generating more than $4 billion a year, and heavy investment by China and other Asian nations has allowed the country to escape crippling economic pain.

 

"We are not afraid of sanctions," Interior Minister Zubair Bashir Taha said. "Not at all. We have been able to develop our oil industry, our communications. No country has leapfrogged the way we have."

 

 

 

Surging investment

Foreign investment in Sudan has quadrupled since 1996 to about $2.3 billion last year, according to figures from the Investment Ministry. China, which buys about two-thirds of Sudan's oil, has invested $7 billion, mostly in oil projects, roads, bridges, dams and other infrastructure projects, officials said.

 

Such growth has transformed Khartoum. Three years ago, the Nile River city resembled Baghdad before the war, with dusty roads, dilapidated government offices and moldy hotels.

 

Today, giant construction cranes are busy all over town, promising to give Khartoum a skyline. In addition to the $300-a-night Rotana, an egg-shaped hotel is being built near the river with Libyan capital. At the outdoor Ozone cafe, Palm Springs- style water misters cool patrons in Khartoum's 100-degree heat.

 

"The sanctions haven't made much of a difference," said Safwat Fanous, head of the University of Khartoum's political science department. "The government has learned how to evade them."

 

In imposing new sanctions against 30 Sudanese companies in May, Bush called upon President Omar Hassan Ahmed Bashir "to end the campaign of violence that continues to target innocent men, women and children" in Darfur. He vowed to tighten enforcement of existing sanctions.

 

Amid a growing international divestment campaign, some European firms, including Siemens, Rolls-Royce and Land Rover, recently announced they were pulling out of Sudan. But no other countries have yet joined the U.S. boycott.

 

Sanctions also have been partly undermined by numerous loopholes and exemptions that permit some U.S. companies to continue working with Sudanese partners.

 

Coca-Cola Co. and PepsiCo Inc. have licenses to sell their syrup to Sudanese factories. Gum arabic, a gooey tree sap used in scores of consumer products as an emulsifier, was left out of sanctions by Congress because Sudan controls most of the worldwide market. Some oil firms and financial institutions are able to operate here by funneling business through foreign-based subsidiaries of U.S. companies.

 

At least 16 Americans have invested in small to mid-sized business ventures in Khartoum during the last four years, according to the Investment Ministry. Asked how the Americans avoided U.S. sanctions, a Sudanese official said, "We don't ask. That's not our headache."

 

 

 

A rush to fill the gap

For the most part, large U.S. firms have steered clear of Sudan, including Chevron Corp., which helped discover Sudan's oil but left the country before being able to profit from it.

 

Investors from China, Malaysia and India have rushed to fill the gap, offering financing, technology and construction services.

 

Sudan's rising oil production lured public and private investors from China, but now the Asian nation is finding Sudan to be a thriving outlet for Chinese goods, from soccer shirts to coffee tables. Economists estimate that for every dollar China pays for Sudanese oil, it earns back 50 cents through sales of products and services.

 

"Turning to China was the best thing this government ever did," said El Khider Mohammed Nour, who runs an investment consulting firm in Khartoum.

 

Best of all for Sudan's Muslim government, China rarely puts political strings on its financial partnerships. It was only after intense international pressure and the specter of a boycott campaign against the 2008 Olympics in Beijing that China recently agreed to use its clout to nudge Sudan to accept U.N. peacekeepers in Darfur.

 

Sudanese officials had hoped sanctions would be lifted in 2005, after they signed a landmark peace agreement with southern rebels. By then, they'd also begun cooperating with U.S. security agencies, including the CIA, in fighting terrorism. But the Bush administration decided to retain the sanctions as leverage in the then-emerging crisis in Darfur.

 

Sudanese government officials now complain that the Bush administration never intended to lift the sanctions.

 

"As soon as one hurdle is overcome, another one is erected," said Osman Khalid Mudawi, a ruling party official and chairman of the parliament's foreign affairs committee. "They really don't want to normalize relations. They just want to deflect attention from the daily tragedy unfolding in Iraq."

 

 

 

For 'American audience'

Mudawi said the latest round of sanctions appeared targeted at an "American audience" rather than at Sudan because it affected mostly Sudanese companies and individuals who were already covered by sanctions and had no links to the United States.

 

Despite Sudan's strong economic growth, some say the boom may be short-lived and that it is benefiting only a minority of rich and powerful in Khartoum.

 

Just a 15-minute drive from the marble-floored Rotana hotel, slum dwellers in Salama have seen little change. The electricity poles stop near the edge of the district, as does the paved road.

 

People in the poor area, including many families displaced by violence in southern Sudan and the Nuba mountains in the center, are growing increasingly disturbed by the lavish new city they see emerging across town.

 

Bakri Habi, 42, a government budget officer, moved to Salama five years ago and built a one-room house that he shares with a family of 12. Each day the contrast between his home and the city where he works grows starker.

 

"When we go to the city, we fill our eyes with all these beautiful things," he said. "We can't help but suffer psychologically. I see all these new places. But I'm not part of that society."

 

Economist Abda Yahia El Mahdi, a former government finance minister who runs an economic consulting firm, worried that Sudan was spending too much money on luxury projects in Khartoum, and not enough on developing schools, roads, water systems and hospitals in other parts of the country.

 

"We're heading directly into the oil curse," she said. "We're spending and becoming a consumer economy. All of the boom is focused in one area. There's no public investment plan to see the country into a new era.

 

"What are we going to do when oil prices drop?"

 

Some continue to pin their hopes on the eventual return of U.S. companies, if sanctions are lifted. Despite China's strong economic support during Sudan's early development, many believe this country needs U.S. support to maximize its economic potential.

 

"We need the Americans back," said Nour, the consultant. "When it comes to credibility, honesty, science and technology, the Americans are still the best."

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