VZCZCXYZ0016
PP RUEHWEB

DE RUEHKH #0902/01 1581656
ZNR UUUUU ZZH
P 071656Z JUN 07
FM AMEMBASSY KHARTOUM
TO SECSTATE WASHDC PRIORITY 7521

UNCLAS KHARTOUM 000902 
 
SIPDIS 
 
DEPT FOR AF/SPG, AF/EPS, EB/IFD, AND EB/ESC 
DEPT PLS PASS USAID FOR AFR, AND ALSO PASS USAID 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: PREL PGOV EFIN ECON EAID KHDP SU
 
SUBJECT: REACTING TO THE SANCTIONS - SUDANESE GOVERNMENT SELLS 
SHARES OF SUDATEL AND IMPOSES NEW RESTRICTIONS ON FOREIGN CURRENCY 
TRANSACTIONS 
 
¶1.  (U)  SUMMARY:  As the Sudanese Government of National Unity 
(GNU) issued a decree decrying the latest U.S. sanctions, newspaper 
reports, government announcements, and interviews with businessmen 
have revealed that the GNU has already taken a number of defensive 
economic measures.  Within a week of the May 29 announcement of 
tightening U.S. economic sanctions, the GNU began selling its shares 
in Sudatel and instituted new restrictions on foreign currency 
transactions.  While the GNU states that these actions are not 
related to U.S. sanctions, their timing and economic impact 
indicates the contrary. END SUMMARY. 
 
¶2.  (U)  On June 6 and 7, the Sudanese National Assembly held a 
special session discussing the latest U.S. sanctions in Sudan.  On 
the first day of discussions, Foreign Minister Lam Akol delivered a 
harsh critique of U.S. sanctions, and the following day the National 
Assembly voted to issue a parliamentary decree rejecting the 
sanctions.  Earlier in Washington, the Sudanese Ambassador to the 
U.S. threatened reciprocal measures for Coca-Cola, claiming Sudan 
could stop supplying gum Arabic, a necessary ingredient to the soft 
drink and a natural resource which Sudan controls 80% of the world's 
supply. While the parliament issues edicts and discussion continues, 
the two actions described below, may provide a more practical 
indication of how the GNU is reacting to U.S. sanctions. 
 
--------------------------- 
SELLING SHARES OF SUDATEL 
--------------------------- 
 
¶3.  (U)  One day following the announcement of tightened U.S. 
sanctions on Sudan, the Sudanese Arabic daily newspaper "As-Soudani" 
reported that the GoS is planning to sell its remaining shares of 
Sudatel.  Sudatel is one of thirty companies specifically designated 
in the U.S. sanctions announcement.  The article reports that the 
GNU will sell its remaining shares of Sudatel which stand at 24% of 
all shares in the company, after it already sold 2%.  The value of 
the transaction was estimated to be 33 million dollars or the 
equivalent of 15 million shares.  The article revealed that this 
transaction took place after the usual operational hours of the 
Sudanese exchange.  As an unnamed investor from the United Arab 
Emirates purchased the government's shares, the article cited 
complaints that the government should have made its shares available 
to Sudanese investors. 
 
¶4.  (U)  On June 4 former Sudanese Finance Minister, Abdul Rahim 
Hamdi, commented on the relationship between the U.S. sanctions and 
Sudatel.  In a Sudan Tribune article, Hamdi is quoted as saying "For 
now, the only Sudanese company that truly risks being affected by 
the US measures, is Sudatel, Sudan's largest cell phone provider, 
because it is listed on the stock exchange in the United Arab 
Emirates and is largely owned by foreign investors." 
 
--------------------------------------------- ---- 
NEW RESTRICTIONS ON FOREIGN CURRENCY TRANSACTIONS 
--------------------------------------------- ---- 
 
¶5. (U)  Also on May 29, in an action widely understood as a measure 
designed to prevent capital flight, the Central Bank of Sudan's 
Foreign Exchange Administration announced an amendment to its 
foreign accounts regulations.  Effective immediately, the decree 
prevents Sudanese citizens from buying foreign currencies from money 
exchanges for imports or for personal accounts in Sudan.  Depositing 
in both old and new foreign accounts is banned by the following 
methods:  cash deposit; buying from foreign exchange offices or 
banks either in cash or checks; transfers issued from private 
accounts, with some limited exceptions.  The amendment also changes 
the regulations on import purchases with a letter of credit and 
through deferred payments. 
 
¶6.  (U)  The English daily newspaper "Sudan Vision" speculated that 
there will be two major effects of this new law.  This regulation 
may create a black market for foreign currency transfers and it may 
weaken the Sudanese pound against the dollar.  While analysts have 
stated that this is an attempt to end capital flight, Badr Addin 
Abbas, the Deputy Governor of the Central Bank of Sudan, rejected 
the relationship between the U.S. sanctions and this decision, 
stating, "The new policy is more regulation - more discipline for 
the market." 
 
¶7.  (U)  In an interview with EconOff, prominent Sudanese 
Businessman, Abdallah Bakheet, noted that these new regulations may 
harm his plastic manufacturing, refrigeration, and general trading 
companies, stating "I'm negatively affected by both the U.S. 
sanctions and the government of Sudan's response to it." 
 
¶8.  (U)  COMMENT:   Prior to the announcement of tightened U.S. 
sanctions, the GNU had already announced measures to make up for its 
budget shortfalls.  The budget of the GNU is highly dependent on 
 
 
oil, which provides over 80% of all revenues.  In the 2006 and 2007 
budgets, the GNU overestimated first the price per barrel and later 
the overall production of oil.  These shortfalls in revenue have 
forced the government to scramble for funds.  On May 20, the GNU 
announced an increase in the value added tax from 10 to 12 per cent. 
 The budget shortfall, along with the tightened U.S. sanctions, may 
force Sudan to continue to restructure its assets, seek further 
foreign direct investment from China, Malaysia, India, and the 
Arabian Gulf states, and reorganize government expenditures. 
 
¶9.  (U)  Comment continued: The two decisions described above, made 
within twenty four hours of the announcement of U.S. sanctions, 
indicate that the GNU is quickly attempting to prevent damage to its 
already fragile economy.  The selling of GNU assets in Sudatel may 
be considered a move to "cash out" before Sudatel suffers the 
effects of U.S. sanctions.  Likewise, the amendment to foreign 
currency policy signals that the GNU is taking steps to prevent 
capital flight from Sudan. END COMMENT. 
 
FERNANDEZ