CITIBANK AND GOSS: OPTIMISM ON ALL SIDES

UNCLAS KHARTOUM 001765 DEPT FOR AF A/S FRAZER, SE WILLIAMSON, AF/SPG, AF/E, EEB/IFD, EEB/ESC/ESP, EEB/CBA NSC FOR PITTMAN AND HUDSON DEPT PLS PASS USAID FOR AFR/SUDAN DEPT PLS PASS TREASURY FOR OIA AND OFAC ADDIS ABABA ALSO FOR USAU SENSITIVE SIPDIS C O R R E C T E D C O P Y (TEXT) E.O. 12958: N/A TAGS: EFIN ECON PGOV PREL KPKO SOCI UNSC SU SUBJECT: CITIBANK AND GOSS: OPTIMISM ON ALL SIDES ¶1. (SBU) SUMMARY: In a three-day visit to South Sudan, officials from Citibank Kenya conducted a series of productive meetings with senior Government of South Sudan (GoSS) officials in an effort to develop a relationship between the Bank of South Sudan (BoSS) and Citibank. As Citibank officials used a "soft sell" approach to convince the GoSS of the utility of such a relationship, GoSS officials enthusiastically entreated them to open commercial branches in South Sudan. GoSS Vice President Riek Machar even went so far as to chide the group for not immediately erecting a Citibank sign to announce their intention to deal with the GoSS. While the visit pointed out the deep shortcomings of the South Sudan banking sector, and several OFAC-related hurdles that need to be cleared before any real relationship can commence, Citibank officials returned to Nairobi optimistic and ready to return. END SUMMARY. ¶2. (SBU) In a meeting with CG Datta, Citibank Corporate Banking Head for Africa Asim Rana explained that Citibank intends to establish South Sudan as one of their "non-presence" countries, in which the bank operates in the country but through a correspondent bank, in this case the Juba-based Buffalo Commercial Bank. In association with the correspondent bank, Citibank would initiate their operations in Juba by providing USD in cash to international organizations and NGOs, similar to what Citibank currently does in Khartoum, where it provides cash to UNMIS and UNAMID by delivering packaged dollars to Khartoum from Nairobi. ¶3. (SBU) Additionally, Citibank sees a business opportunity in establishing a formal relationship with the Bank of Southern Sudan (BoSS),although Charles Macharia, Citibank's relationship manager, and Mary Sabwa, Citibank's East Africa head of sales, expressed concern that Office of Foreign Asset Controls (OFAC) restrictions may hinder the relationship because while businesses in South Sudan are exempted from USG sanctions, technically the BoSS remains a branch of the Central Bank of Sudan (CBoS),which will require Citibank to obtain an OFAC license. ¶4. (SBU) Othom Rango Ajak, Director of Banking Operations and Foreign Exchange of the BoSS, told Citibank representatives that sanctions still require banks dealing with the BoSS to procure an OFAC license, a not entirely insurmountable hurdle, as the BoSS currently has SWIFT numbers and active accounts with four different banks - Kenya Commercial Bank, Stanbic Nairobi, Commercial Bank of Africa (Nairobi),and The Arab Investment Corporation (TAIC). Ajak said that the CBoS and the BoSS hold oil revenues in a joint account at TAIC in Bahrain, and through their shared account at TAIC, the CBoS has stopped dealing in U.S. dollars, preferring to deal in Euro or pounds sterling. In turn, demand for dollars in South Sudan has jumped to unprecedented levels recently, and currently the BoSS requires Stanbic to physically transport US$10 million in packaged cash to Juba every week. Dier Nachong, deputy director of banking operations of BoSS, told Citibank that the South Sudan banking sector is highly inefficient: delays hinder the speed at which electronic transfers take place; commercial banks demand exorbitant fees for simple services; and competition is limited as 30 banks closed after South Sudan changed from Islamic to conventional banking. ¶5. (SBU) Brutally honest about business practices in South Sudan, Minister of Energy, Mining and Industry John Luk Jok told Citibank representatives that South Sudan business leaders are weakened by their underdeveloped banking sector. "Currently, they put their money into sacks and wait for the bus!" The chairman of the GoSS's commercial oil corporation NilePet, Jok said NilePet's long-term goal is to create market security for oil coming from South Sudan. "The infrastructure for oil is all in the north. If South Sudan votes yes to independence in 2011, where does it leave us in terms of the oil that we have? It leaves us vulnerable. We must have oil refineries, and look at the market opportunities for our oil in the main markets in East Africa." Citibank's Asim Rana, quickly assured Jok that Citibank is part of the financial consortium that is financing construction on Kenya's oil pipeline, and could assist similarly in South Sudan. ¶6. (SBU) Kuol Athian Mawien, Minister of Finance and Economic Planning, explained to the Citibank representatives that he sees a role for Citibank in South Sudan because it can assist his ministry with its central issue - proper management of the oil revenue coming from Khartoum - in addition to helping to encourage foreign direct investment. "In five years, we'll have so many foreigners here who can import and export. When we have a pipeline, we will export our own oil. So many investors are going to come," he boasted, and then stressed the importance of Citibank being a vital link as the private sector begins to take over from the public sector. ¶7. (SBU) Mawien detailed how the BoSS currently pays creditors through banks in Kenya to avoid using banks in Khartoum, but its balances within the banks in Kenya are non-interest bearing and subject to significant delays. Additionally, South Sudan's currency reserve, kept in the BoSS, currently earns no interest as well, a problem which Citibank representatives said they could quickly remedy. Mawien was amenable when Rana proposed opening an account for GoSS at Citibank in Kenya, saying he could quickly activate the account with a signed letter from the minister; the Citibank representatives pledged to act quickly to initiate the process. ¶8. (SBU) Vice President of South Sudan Riek Machar welcomed Citibank representatives by blurting out following their introductions, "When can you start?" He then went on to thoroughly needle the group on its intentions to operate a "non-presence" relationship with South Sudan out of Nairobi. "So your non-presence presence is the same as being present? People prefer a bank to be present, not a bank to deal with them on a hit-and-run basis," he told the representatives, who in turn stressed the case that a "non-presence" relationship would develop over time into brick-and-mortar banks throughout South Sudan. Machar did admit that he saw a benefit to a relationship between the GoSS and Citibank - "If Citibank came, U.S. businesses would come," he said - but begged them to erect "even a CitiBank placard on a container. If I made a press conference, and said, 'By the way, Citibank is in Juba,' do you know what would happen? All the banks in Khartoum would move to Juba, and South Sudan would be an economic bastion of all Sudan." ¶9. (SBU) Minister of Presidential Affairs Luka Biong Deng expressed delight at Citibank's visit, admitting that the fledgling semi-autonomous state's economy needs assistance in expanding its scope and creating demand for its products. As South Sudan receives over US$400 million in foreign aid yearly, absent foreign direct investment, Deng views the growing shortage of dollars within South Sudan as a persistent burden Citibank could ease by establishing a "non-presence" through the correspondent Buffalo Central Bank. Deng was honest about the shortcomings of South Sudan's banking sector, and was more supportive than his colleague Machar of opening a non-presence relationship. "I think Citibank can be helpful by assisting the BoSS, and exploring how the BoSS can encourage microfinance. For doing everyday banking business, we need assistance." ¶10. (SBU) Following their meetings with GoSS officials, Citibank representatives expressed optimism that Citibank's Kenya offices would begin to turn their attention to the budding relationship with Juba, even beginning to calculate a rough return on its "non-presence" operations. Using figures provided by the BoSS for the freight costs charged by Stanbic for U.S. dollar shipments from Nairobi to Juba, the representatives calculated that by offering the BoSS a better deal, and saving it the per dollar subsidy the BoSS currently provides to local banks, Citibank could earn US$1 million per year on cash transfers alone. Their initial projections for profits based on business transactions with the BoSS indicated that Citibank may be able to bring in up to US$5 million in revenue a year, a number which far surpasses revenue from Citibank Kenya's next-highest earning client, a Nairobi-based telecommunications firm. Envisioning that he and his colleagues would return at least every quarter, Citibank Kenya's Relationship Manager told Poloff, "We must strike while the iron is hot." ¶11. (SBU) Comment: Post has strongly supported the creation of a robust banking sector in South Sudan as a necessary step to promoting real economic development in the region. The lack of most basic financial services is a serious constraint on private-sector development and foreign investment, as was highlighted during the first ever U.S. trade delegation visit to Juba in October 2008. CitiBank's pledge to draft documents and set their Kenya office to work on establishing a mutually beneficial relationship is a powerful first step that can have a major impact on promoting the development of a strong private sector in Southern Sudan. Given that the BoSS already has obtained SWIFT numbers and OFAC licenses to create relationships with international banking institutions, most likely Citibank will manage to obtain an OFAC license as well. Post would strongly support a decision by OFAC to permit Citibank to deal with the BoSS, as it would have positive ramifications throughout South Sudan, and simultaneously help to weaken Khartoum's economic stranglehold on the GoSS. FERNANDEZ