China’s model a better fit for Sudan
The US announced last week that it would lift most of the toughest economic and trade sanctions on Sudan it initially imposed two decades ago, citing the country’s progress in various areas such as fighting terrorism. The decision, effective as of Thursday, has been welcomed in Sudan, with people seen on local TV holding US and Sudan national flags and cheering on the streets. This is certainly an occasion worthy of celebration. The lifting of sanctions clears the way for Sudan to be reintegrated into the global financial markets, making it easier to attract badly needed investment, as well as boosting the country’s trade and economic prospects.
However, the significance of the US decision remains a topic of debate. The negative impact of the long-standing sanctions has been gradually diluted over time with friendly countries like China offering investment to help Sudan overcome its economic challenges. Moreover, Sudan has weathered a tough period in its history following the independence of South Sudan in 2011, which took away two thirds of Sudan’s oil revenue, a vital source of foreign exchange earnings. Instead of suffering a total economic collapse, which some observers had predicted, the country survived and its GDP expanded at a reasonable rate of 3.5 percent in 2016. In this sense, the removal of the US sanctions is not as timely or important as it might have been.
What remains undisputed is that vigorous reforms are needed in Sudan to get the full benefit that the removal of sanctions could bring for the country’s economy. This is also a time when Sudan needs Chinese investment more than ever to help it seize the opportunity to bring about change and focus on long-term economic sustainability.
For over two decades, Chinese companies have been investing in Sudan despite the challenging local conditions and the US sanctions that have obstructed investment through threats and fines imposed on firms and banks that deal with Sudan. Revocation of the sanctions means the risk of investing in Sudan will be lowered, as Chinese investors won’t have to worry about being a target of investigations. And with a freer flow of foreign currencies, it will be easier for Chinese companies to recoup their investment in foreign currencies. At the same time, removal of the economic sanctions means the door for more diversified investment will be opened and Chinese investors will face competition from Western investors. But despite the anticipated arrival of Western investment, Chinese investment will remain popular. In fact, the Chinese model of investment is still a better fit for Sudan, as it has key advantages over the Western model. First, Chinese investors have first-mover advantage in the Sudan market, given the absence of investment from major Western economies in the past two decades. Chinese companies are engaged in a wide range of industries in the country, including infrastructure, oil, mining and agriculture. This foothold won’t be shaken in the short term. More importantly, compared with Western investment, Chinese investment comes with no attached conditions, while Western investment is usually tied to conditions and used as a tool to impose pressure on the government of Sudan. This can be seen even in the latest US decision, which still kept Sudan on the US list of countries sponsoring terrorism, indicating that Washington wants to use it as leverage to exert pressure on Khartoum. This is totally different from the Chinese approach to engaging with Sudan, which emphasizes a reciprocal, sustainable partnership and lack of political interference.
The big challenge facing Sudan is how to industrialize its economy. Over more than three decades, China has put in place a complete industrial system, setting up a model that Sudan can emulate. Chinese investors are seeking to help Sudan establish a complete value chain for its pillar industries as well. Such a vision can easily be achieved under the Chinese model because Chinese investment usually comes on a large scale and in a systematic manner, which ensures it can carry through large projects and recoup investment over a long span of time.
Also, Chinese investors are willing to accept higher risks. This is different from the Western model of investment, which usually comes in a fragmented pattern and focuses on short-term gains. Take investment in the oil industry. Chinese oil and gas firm CNPC has helped Sudan establish a complete oil industrial chain from exploratory drilling for oil to building pipelines and a refinery, which has allowed the country to export finished oil products and climb up the global value chain in the oil industry. If the same project were contracted to a Western company, it would be subcontracted to different service providers, which lacks consistency and increases the risk of failure.
Moreover, the long-term presence of Chinese investors in Sudan allows them to understand the market better and to be well-versed in cost control. The decision-making process of Chinese investors is much faster and they are quick to start financing and executing projects once deals are signed, unlike investors from other economies.
That said, a greater Western presence in Sudan would not be a problem for China. China welcomes diversified sources of investment in Sudan and would be happy to see other major economies boost their investment in the country. But if the US and other major Western economies leverage the lifting of sanctions to force Khartoum to accept their unreasonable conditions and to give them an unfair advantage in the country, it will surely damage their interests and fail to meet the expectations of the Sudanese people.