Capital Flight After the War Empties Sudan’s Investment Basket

Sudan Events – Agencies

Contrary to the state’s declared direction of attracting more foreign and local investments, the cases of national capital flight have increased after the significant destruction caused by the war to the assets and properties of local investors. This has led them to dismantle what remains of factories, with some relocating to safer states, while others have moved their investment activities outside Sudan. What are the circumstances surrounding the flight and migration of Sudanese capital, and what impact does it have on the deteriorating economic situation? Is there any hope of these funds returning to the homeland?

Between Internal and External Factors

Experts and researchers believe that the migration of capital and investments is a result of the extensive destruction and massive losses to the country’s economic and service infrastructure due to the ongoing war between the army and the “Rapid Support Forces” since mid-April 2023. Many businessmen were forced to dismantle their investment assets, including factories, institutions, and companies, and relocate them outside the country after the halt of production operations. Meanwhile, others sought to continue their
activities in safe areas and states within the country after the massive destruction in Khartoum, Al-Jazeera, and parts of Darfur.

Experts consider the flight of national investments as one of the repercussions of the war and a heavy toll the country is paying. They believe that the return of these funds to the country poses an extremely difficult and complex challenge, as it is directly tied to the cessation of the war, the return of security and political stability, and issues of reconstruction and economic reform.

Internal Obstacles

Unofficial reports indicate that a significant amount of capital fled Sudan after the war, involving around 750 local investors who moved their businesses to neighboring African countries. In addition, a large number of medium-sized business owners, who had a substantial impact on Sudan’s economy, relocated their activities.

The reports highlighted that the battles, along with the exchange of air and artillery strikes, inflicted severe losses on the country’s economy and investments. Hundreds of companies, institutions, and factories were burned, looted, and destroyed, affecting large, well-established investments owned by Sudanese investors.

These reports also pointed out that bureaucratic hurdles, procedural complexities, and the high fees imposed by state governments on industrial land allocation contributed to the increase in business migration rates, especially among those who intended to relocate their remaining equipment and machinery to safer areas to resume operations domestically.

More Capital Flight

In this context, economic researcher Fadel Abdelaziz warned that the continued war and its expansion will lead to further capital flight, especially as investors have lost hope in the near-term stabilization of the political and economic situation in the country. He pointed out several factors, either individually or combined, that exacerbate the migration of capital, including the war, political instability, economic uncertainty, high inflation rates, and the continued devaluation of the local currency.

He also warned of the ongoing deterioration of the country’s economy, the erosion of infrastructure, resources, and productive capacities due to the ongoing fighting, which will lead to long-term consequences that complicate any future recovery efforts. The war has caused comprehensive security, economic, and political collapse.

Abdelaziz emphasized that the private sector, which encompasses most of the national capital, plays a crucial role in driving the economy, increasing GDP, raising production rates, and providing goods and services. It also generates employment opportunities, as relying solely on the state budget is insufficient to sustain the economic cycle, including services, living conditions, and agriculture. Therefore, the private sector and the banking sector must participate in stimulating developmental financing to enhance the economy’s ability to grow again.

Poor Planning

Abdelaziz also noted that the ongoing war has revealed significant flaws in the country’s economic and developmental planning, as more than 70% of industries are concentrated in Khartoum State and some central states. This has resulted in extensive destruction of infrastructure and halted industrial production across much of the country, destroying productive capacities, buildings, machinery, equipment, and stocks of raw materials and semi-finished products.

He added that, without an investment roadmap and given the level of destruction to vital services such as electricity and water facilities, as well as the weak road and telecommunications networks, along with the series of taxes imposed on investors by the states, the country will not be attractive to investors any time soon, regardless of the expected profits. Military spending and the humanitarian situation still dominate budget priorities, meaning that any international or bilateral support or financing will likely be consumed by these areas in the current phase, along with efforts to alleviate living conditions and maintain the limited services available.

Challenges and Greed

Economist and professor of economics Mohamed Al-Nayer also believes that the current investment climate in the country faces a host of major challenges resulting from the war. The most prominent issues are the instability of exchange rates, the sharp decline in the value of the local currency, and high inflation rates, all of which make the overall economic environment unattractive or discouraging to investors.

He further explained that the significant losses suffered by the private investment sector in the fields of industry, agriculture, and trade due to the war have prompted many investors to move their businesses either to safe and stable states within the country or to neighboring countries.

Al-Nayer called on national investors to recognize their social responsibilities by easing the burden of war on citizens during these difficult times, rather than exploiting the war for excessive profits that unfairly strain citizens, as is currently happening in the petroleum sector. He criticized the government for leaving the importation of petroleum products to private sector companies, which are charging some of the highest prices in the world.

Mining Boom

On the other hand, the Director-General of the Sudanese Mineral Resources Company, Mohamed Tahir Omar, attributed the increase in gold export revenues during the war to the shift of national capital towards traditional gold mining after investments and economic and commercial activities had slowed down.

Sudan’s Minister of Investment and International Cooperation, Ahlam Madani, confirmed her ministry’s readiness to receive investor applications across various sectors, including agriculture, industry, and services.

During her meeting with a Qatari investment delegation in her office in Port Sudan, the minister discussed Qatari investments in the country, particularly in real estate, tourism, hotels, and banking in the Red Sea State and other regions of Sudan.

Madani explained that the ministry has developed ambitious plans for the transition phase and will make every effort to attract more investments to the country to help rebuild what the war has destroyed. Despite the challenges, Sudan still has untapped and promising investment opportunities, and the country is moving towards a major victory that will see it recover from many of its afflictions and position it for a better future.

Boundless Capital

In a related context, economist and member of the Sudanese Communist Party’s Central Committee, Sidgi Kablow, described the departure of local investors as a forced capital flight due to the war. The fixed assets of capitalists were destroyed, their movable assets were looted, factories, buildings, equipment, and goods were destroyed, and raw materials were lost, making it impossible for them to continue operating in any way.

Kablow explained that capital, by its nature, always seeks the highest rate of profit, regardless of borders or nations. The war has paralyzed all economic activities, destroyed infrastructure, and constricted the national market as markets in cities, villages, and rural areas have disappeared due to looting or bombing. Moreover, transportation and communication routes have been cut off.

He believes that investors and capitalists chose to escape with whatever they could retrieve or whatever funds they had abroad, as it became a forced migration after workplaces closed, state institutions halted operations, and artisans and farmers migrated. There was no longer a demand for goods or products.

Kablow does not foresee a quick return of fleeing capital even after the war ends, linking its return to the complete restoration of security, the rule of law, and the rebuilding of infrastructure, including electricity, water, transportation, and communications, as well as the normalization of the banking sector and local and international markets. Nonetheless, he acknowledges that other complications could affect the decision to return capital, including the liquidation of existing foreign businesses and the assessment of profitability and expected returns from returning to Sudan.

As for foreign capital, Kablow is skeptical that it will return or enter into new investments in the country until the situation fully stabilizes and the conditions for attracting investment are met domestically. However, he suggested that some foreign construction companies might come in to rebuild the infrastructure destroyed by the war, but not as long-term investors.

Shock and Contraction

The shock of the war dealt a significant blow to Sudan’s already fragile economy. Production rates plummeted as most private sector factories went offline, forcing the country to rely on imports to meet most of its commodity needs. This, in turn, put pressure on foreign currency reserves and contributed to the collapse of the exchange rate of the national currency.

Since the war broke out between the Sudanese army and the “Rapid Support Forces” nearly 17 months ago, the estimated losses to Sudan’s economy have reached about $150 billion. The country has lost more than 25% of its GDP in the first year of the war, and the overall economy has contracted by more than 40%, with projections of further contraction during this year.

While public spending, particularly military spending, continues to rise significantly, the war has caused state revenues to decline by more than 80%. This, along with the continuous depreciation of the national currency against the U.S. dollar, has led the dollar’s black-market exchange rate to rise from 570 Sudanese pounds before the war to around 2,800 pounds this week.