Crisis in South Sudan shows major business risks remain in parts of Africa

The past years have seen a rising interest in Africa’s potential as a foreign investment destination, supported by strong economic growth in many countries.

While the people of southern Sudan are anticipating their own independent state, many business people are eyeing opportunities in the region.

Recent violence in South Sudan affects business in the country.

However, if recent events in South Sudan are anything to go by, businesspeople should realise that some countries on the continent still face significant challenges that can present risks for investors.

In 2011 South Sudan became the world’s newest nation when it voted in favour of secession from Sudan. Since independence, the country has seen the entry of a number of foreign companies. South Sudan has few industries outside the oil sector and almost non-existent infrastructure. Professional services firms Deloitte and EY have opened offices in the capital Juba. South African-based Standard Bank Group has established itself in South Sudan, while Kenya’s Equity Bank has also rolled out a number of branches. Even before independence SABMiller invested in a brewery that produces the country’s own lager brand, White Bull.

However, on 15 December 2013 the capital Juba descended into chaos after President Salva Kiir accused former vice president Riek Machar of attempting a coup, leading to intense fighting between supporters of the two leaders. Hostility has spread to other towns in the country. It is generally believed that some of the violence is ethnically motivated, with supporters of Kiir, a member of the Dinka tribe, and supporters of Machar, from the Nuer tribe, targeting each other. It has been reported that at least 1,000 people have been killed and nearly 200,000 displaced in the conflict.

Nathan Tunal*, an expat that manages a company in South Sudan, says the crisis could erase much of the country’s progress since independence. Although South Sudan’s infrastructure remains grossly inadequate, the country has seen some development in recent years – roads have been built, office blocks are popping up, and the retail experience has improved. “Everywhere you drive there is construction,” says Tunal.

After the outbreak of the violence, Tunal and most of his employees fled to neighbouring Uganda. The company is currently keeping a skeleton staff in Juba and has a wait-and-see approach towards the situation in the country. Tunal says most expats have left the country and mentions at least one company that has temporarily shut down operations.

Although the violence is generally not directed at foreigners, Tunal says the situation has become too dangerous. He notes that many of the people using weapons are not adequately trained to use them. “The chance of getting caught in crossfire is very good.”

Tunal told How we made it in Africa that while there have been tribal tensions since he first arrived in the country, this generally didn’t manifest in Juba, where people from different tribes lived together.

Wanting to return home

Tunal says he anticipates that many of the foreigners who have left the country will not return. This could create opportunities for companies that continue to do business in South Sudan due to less competition.

He says operating in South Sudan is very challenging. Services such as water and electricity are often not provided and companies need to drill their own boreholes and generate their own power from generators. Tunal notes that while companies can achieve high profit margins in South Sudan, overheads are also substantial.

He says inconsistent and changing rules and regulations make it difficult for companies to do proper planning. “You never know what is going to happen tomorrow.”

Tunal calls South Sudan home and wants to return when the situation stabilises, highlighting immense business opportunities, especially in agriculture and mining. He says the country has too much potential to simply ignore.

*Not his real name