Investors Flee South Sudan

By DAN KEELER

Juba-Nimule Road 2014-04-03 at 9.51.58 AM

Juba-Nimule Road — “These are our friends, and they will be our friends for good, …This is an achievement that should not be forgotten,” Salva Kiir thanking the USAID for building the only highway in South Sudan.

April 03, 2014(Nyamilepedia) — On a sweltering day in early December, more than 600 people gathered in a giant tent in Juba, the capital of South Sudan, to hear the country’s president explain why the world’s newest country was also the world’s most exciting investment destination. Among the crowd were representatives from some of the world’s biggest companies including Samsung016360.SE 0.00%, Coca-ColaKO -0.51%, John Deere, Caterpillar, and GE International.

Wearing his trademark black cowboy hat, President Salva Kiir regaled his audience with a compelling vision of a new country, rich in natural resources and keen to form partnerships with foreign investors. Everything was possible: the country needed new infrastructure, hotels, manufacturing facilities and communications networks. With huge oil reserves, some of the most fertile arable land in Africa and a population eager to get to work building a better future, South Sudan was poised for explosive — and lucrative — economic growth.

Less than two weeks later, the president was back on stage, but this time he was dressed in military fatigues, announcing that his security forces had foiled an attempted coup launched by his former deputy, Riek Machar, whom Mr. Kiir had fired abruptly in July. Within hours, the international firms that had flocked to South Sudan in the hopes of participating in a huge investment boom were scrambling to get their people out of Juba, taking with them the hopes that the recent investor conference would trigger a surge in new investment to South Sudan.

“There has been an exodus of the foreign investment community,” said Paul Gabriel, East Africa analyst for risk consultancy Control Risks. “Companies we’ve spoken to have committed to evacuating all non-essential staff from Juba and other areas in South Sudan. This is very damaging for investor confidence.”

One of those evacuated the day after the alleged coup was announced is a senior investment advisor for a US-based consultancy. Talking by phone from South Sudan, the advisor, who asked not to be identified, said: “Some of the projects that are ongoing will continue but many of the new investors will certainly not be coming back. This may stop any new investment in the next six months, possibly more.”

Opinions are divided on how disruptive the turmoil will be in the longer term. Evan Pressman, a Partner at Ergo, an intelligence and advisory firm, has no doubt the turmoil will scare off potential investors: “This situation may worsen before it improves and it is certainly a setback in terms of securing foreign business and investment,” he said. Others are more optimistic. Larry Seruma, Managing Principal of Nile Capital Management, said the investment case is as strong as ever: “South Sudan has enormous potential. If you have the patience, this is the right time to invest. The returns you can get now will be higher than after the dust settles.”

Phil Heilberg, a former Wall Street banker who has invested heavily in agricultural land in South Sudan, argues that the violence could lead to a political shake-out that may be beneficial for the country in the long run. “If they can get the security situation under control this will be a big benefit,” he said. “But if this goes on for a while it will impact business in a big way.”

How long it takes for the situation to stabilize is a crucial question. Although the fighting in Juba was short-lived, reports on Wednesday suggested violence had spilled out of the capital and troops loyal to the ousted vice president, Mr. Machar, were said to be on the move. At the same time, signs were emerging that Mr. Kiir would be open to engaging in talks with Mr. Machar, which could help avert what many describe as the worst case scenario: a civil war.

Jake Cusack, Co-Managing Partner at frontier markets investment advisory firm, CrossBoundary, believes Kiir’s apparent willingness to engage in talks is an encouraging sign. “The next several days will be critical in determining the outlook for business in South Sudan for months to come,” he said.

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