Sudan remains a difficult place to do business, with a groundbreaking new study uncovering signs of widespread trade misinvoicing across its oil and gold exports. However, despite its precarious economic and political situation, hopes are growing that the country could soon be in a position to open its doors to outside investment.

After Omar al-Bashir was ousted as Sudan’s president in April 2019, what was once Africa’s largest country has been under the rule of a transitional government. Headed by former UN official Abdalla Hamdok and with the support of the military, Sudan is working towards holding multi-party democratic elections in late 2022.

Though the size of its oil reserves were significantly reduced after South Sudan broke away in 2011, oil remains an important export sector. Gold exports have also increased substantially since the discovery of mineral-rich mines at Jebel Amer, in western Sudan’s Darfur region.

But a new report, Sudan and Trade Integrity, published in late May by Global Financial Integrity (GFI) – a Washington, DC-based think tank focusing on illicit financial flows – has revealed a sizeable gap between the reported value of Sudan’s oil and gold exports, and the reported value of those same transactions in importing countries.

GFI found a value gap of over US$30bn in Sudan’s trade with 70 partners between 2012 and 2018 – equivalent to nearly half of its total trade during that period. The value gap for crude oil and gold exports was US$4.1bn for each commodity.

In the case of oil, that gap is equivalent to over 85% of the total value of all oil traded. Illustrated in terms of volume, Sudan reports exporting 62.3 million barrels over that seven-year period, while trading partners reported imports of 112.2 million barrels.

Though such discrepancies are likely caused in part by poor reporting standards, they can also be an indication of illicit activity including tax evasion, trade-based money laundering or corruption. They can also indicate that governments are losing out on billions of dollars in tax and other revenue.

“We believe that where countries illegally move wealth by hiding it within the trading system, they will either over-price or under-price their imports or their exports,” says Rick Rowden, a senior economist at GFI and an author of the report.

“In this case, we believe under-pricing was happening with Sudan’s exports of crude,” he tells GTR. “Other countries importing crude oil from Sudan reported much higher values, and for us that’s a strong indicator of trade misinvoicing activity, of people trying to hide the actual value of the exports by underreporting the declared value.”


A high-risk market

For financial institutions or traders interested in entering the Sudanese market, the potential for exposure to illicit fund flows can act as a major deterrent if the risks are deemed to outweigh the potential rewards.

GFI makes several recommendations to Sudan’s transitional government, many of which seek to introduce greater transparency around trade flows.

It also exposes issues around the country’s black market, which has expanded in recent years in part due to a scarcity of foreign exchange.

“When importers cannot acquire foreign exchange to legally import goods, it creates incentives for smugglers to obtain imports through the black market at higher rates and sell the goods at higher prices,” the report says.

At the same time, high inflation erodes the value of wealth and creates “strong incentives for capital flight”, which can be another reason for under-pricing exports.

Perhaps the greatest barrier for international financial institutions, however, is Sudan’s ongoing presence on a US list of state sponsors of terrorism – alongside Iran, North Korea and Syria – a status it has held since 1993, after being accused of assisting Al Qaeda bomb US embassies in Kenya and Tanzania.

In effect, that has meant transactions linked to Sudan are well beyond the risk appetite of most financial institutions, and certainly those with ties to the US.

Long-standing efforts to have Sudan removed from that list have made progress recently. The US assistant secretary of African affairs, Tibor Nagy, said in late May that the Trump administration had reached a “common understanding” with Sudan, including an agreement Sudan would pay compensation to the families of victims of those bombings.

Whether Sudan will be in a position to pay multi-billion dollar reparations is questionable – but if it can, GFI’s Rowden says that would mark “the next big hurdle” overcome by the country.

“When that happens it’s going to unlock the door to lots of new trading relationships and increased access to trade finance for Sudan,” he says.

“There are certainly important neighbours in North Africa, and potential partners all over Africa and Europe, who would like to engage in trade with Sudan. They are now waiting for the green light, but we believe the prospect for increasing trade and trade finance are hopeful.”


A long road ahead

There are still obstacles to legitimate trade that have deep ties to the ousted Bashir regime.

With gold, for example, a 2019 Global Witness investigation based on leaked documents lifted the lid on how the Rapid Support Forces – a powerful paramilitary force headed by Mohammed ‘Hemedti’ Hamdan Daglo – was able to use front companies and banks to profit from mines seized in Darfur.

Bloomberg reported in May that a company linked to Hemedti had agreed to surrender its network of Jebel Amer mines to the transitional government.

However, for Robert Besseling, executive director of risk intelligence company EXX Africa, the ongoing presence of paramilitary groups within the government means that does not necessarily signal a clean break.

“By putting the mines under the control of the government, they are still controlled by the same people who had control previously,” he tells GTR. “I think it’s just a cleaning up of the system by creating a semblance of transparency, but it does not really change the whole structure and set up.”

And though oil remains important, Besseling points out the loss of most of its reserves to South Sudan means it is “not a massive growth sector, and any issues in South Sudan are going to have a knockback effect”.

Currently, a revenue sharing agreement between the two countries facilitates the transport of oil through a pipeline across the border from the landlocked south to Port Sudan on the Red Sea.

EXX Africa has also reported local speculation that the military will not ultimately cede power to a democratically elected government, pointing out that protests over food and fuel prices have resurfaced in April as inflation runs at over 80% according to official statistics.

“Essentially this is a country which is highly destabilised, and the reasons why Bashir was ousted last year – those root causes and grievances – are still there,” Besseling says.

GFI’s Rowden agrees that the situation is “precarious”, despite strong indicators the government is taking positive steps.

“There are a lot of people with a vested interest in the way things used to work, people that have a lot at stake, so it will be a real test to see the degree to which new levels of transparency can be established in the oil trade and gold trade,” he says.

“With increased transparency come chances for improved accountability. We’re cautiously optimistic about that.”