PARASTATALS - THE REGIME,S GRAY COMPANIES WILL

C O N F I D E N T I A L SECTION 01 OF 04 KHARTOUM 000374 SIPDIS SIPDIS DEPARTMENT FOR AF A/S FRAZER, AF/SPG, SE WILLIAMSON, EEB/ECS/ESP, NSC FOR BPITTMAN AND CHUDSON, DEPARTMENT PASS TREASURY FOR OFAC E.O. 12958: DECL: 03/13/2018 TAGS: EAID ECON EFIN EPET PHUM PREL SU SUBJECT: PARASTATALS - THE REGIME,S GRAY COMPANIES WILL KEEP IT ALIVE, SAY BUSINESSMEN REF: A. 07 KHARTOUM 1662 ¶B. KHARTOUM 98 KHARTOUM 00000374 001.2 OF 004 Classified By: CDA Alberto M. Fernandez, Reason: Section 1.4 (b) and (d ) ¶1. (C) SUMMARY: Sudanese businessmen, former government officials, and American consultants in Sudan separately told econoff that the Sudanese economy is dominated by parastatal companies connected to the Northern ruling elite. One contact, a National Congress Party adherent, ex-manager of the state controlled Gum Arabic Company, and self-proclaimed "gray company researcher," stated that there are over 400 Sudanese parastatal companies whose funding and activities will "allow the NCP to win the 2009 elections, and if they are ever removed from power, still control the economy." With unprecedented specificity, contacts named individual companies allegedly tied to security, intelligence, and military loyalists. END SUMMARY. THE GRAY COMPANY INVESTIGATOR -------------- ¶2. (C) On March 4 and March 12, Dr. Musa Karama, the former NCP-appointed General Manager of the Gum Arabic Company and National Islamic Front loyalist, told econoff that since 2005 he has been investigating Sudan,s semi-public "gray companies," concluding that there are 413 parastatal companies that dominate Sudan,s economy. (Karama stated that his previous membership in the NCP, his former role as General Manager of the state-owned Gum Arabic Company, and his ongoing personal relationships with many of Khartoum's business and political elite allow him unique access to information about these entities. Karama stated that he is currently producing a document on these companies with two other colleagues, a former military officer and a high-ranking bank manger. See bio note in paragraph 16.) ¶3. (C) According to Karama, "the structure of Sudan's economy is entirely skewed to government loyalists." Karama stated that many ministries reward loyalists in military, police, and intelligence by giving them control over semi-private companies. Karama stated that the regime then unfairly rewards these "gray companies" with government contracts. (For example, Karama stated that the son of the Minister of Education, Ibrahim Ahmed Omer, passed away in 2007 and that, although unemployed, he had 120 million U.S. dollars in his private account. His wife attempted to claim it, but the NCP stated that it was "entrusted to him by the party." According to Karama, the NCP seized the money and moved it into another individual's account.) "Without tackling the problem of these gray companies, you will not be able to truly address the inequality of wealth in Sudan," stated Karama. Karama predicted that the number and influence of these companies will expand until 2011, and that funds will continue to be siphoned off, corruption will continue, and companies will refuse to be audited. Karama predicted that NCP will win in the coming elections, at least in part because of this independent source of money for the NCP. ¶4. (C) Karama stated that government officials and ministries have not been limited to establishing domestically-based parastatals, as establishing foreign companies allows them to access tax breaks, diminish the effect of U.S. sanctions, and more easily move money in and out of Sudan. Karama specifically claimed that the Department of Treasury does not monitor non-Sudanese companies as closely as domestically-based enterprises. According to Karama, government officials use oil and agricultural revenues to feed foreign accounts, create foreign companies, and then buy public companies when they are privatized. He also stated that the amount of foreign direct investment coming into Sudan is elevated as many Sudanese use foreign companies for their domestic investments. He said that the "Fly Over Seas" company is one such "foreign" company whose board and ownership is entirely Sudanese, but is registered as a foreign company." Karama stated that Sudanese have also partnered with regional businesses to reinvest their assets. He named the Rotana Hotel and Afra Mall as two international projects with Sudanese backing, mentioning the connection of former government officials Abd Al-Basit and Mohammad Abbas to these enterprises. ¶5. (C) According to Karama the following companies have ties to these government ministries: KHARTOUM 00000374 002.2 OF 004 INTELLIGENCE: - "Al-Nahda" - Agricultural company focusing on food commodities. - "Al-Hadath" - Personal security company. - "Al-Hadath Petroleum" - "Al-Hadath Steel" - "Kasr Al-Lulu" - Construction company. (Note: On March 4, the Sudanese daily "Al-Sahafa" reported that Kasr Al-Lulu was awarded a large contract for the construction of Khartoum's new airport. End Note) MINISTRY OF DEFENSE: - "Nasr" - Allegedly managed by the Army's Finance and Accounting office. - "Silash" - Telecommunications and electronics company (allegedly managed by the Intelligence office of the military). - "Chemical United" - "Giat" - Car manufacturer. - "Danfodio" - Large company involved in large-scale trade, construction, and manufacturing. Supposedly started as an Islamic charity. MINISTRY OF INTERIOR - "Ribat University" - Private, profitable university receiving public land grants. - "Hamco" - Sugar exporter and Toyota distributor. (Karama claimed that Hamco was the main provider of land cruisers used in the government's campaign against Darfur's rebels and civilian population. He claimed that indicted ICC suspect and Minister of State for Humanitarian Affairs Ahmed Haroun had direct involvement with this company.) - "Awab" - Uniform provider. ¶6. (C) Karama stated that the budgets of some of these companies rival entire ministries, and that most of the profits for these companies are stored in banks in Dubai, Malaysia, Singapore, Macao, and Hong Kong. According to Karama, the parastatals managed by the National Congress Party are the most complicated companies, as no single ministry or individual has clear control. He stated that Sudanese company "Citco" is one example of an NCP company which dominated the wheat market from 1996 to 2003 and has since moved into electronics, communications (especially Thuraya satellite phones) and petroleum services. ¶7. (C) In addition to the companies listed above, Karama stated that the regime has focused on developing the north through funneling "underground off-budget resources" to the Dams Administration Unit. Karama stated that the regime's inner circle uses this institution to build up their native areas inhabited by the Ja'aleen, Shaggiyah, and Donagala tribes who have ruled Sudan since independence. (Note: The Dam's Unit Administrator Osama Abdallah reports directly to President Bashir and is reportedly very close to the President, as Bashir's and Osama Abdallah's wives are sisters. End Note). Karama stated that the Dams Administration Unit is responsible for the underground off budget expenditure that builds roads, bridges, airports, and other large scale-infrastructure projects "under the guise of supporting the dams" but actually providing porkbarrel projects for the NCP's core constiuency. Karama stated that "right now, there are so many development projects going on in the North that it seems like it is a miniature country." Karama alleged that the Dams Administration is building a military airport near Abu Hamad that will "provide security in case Khartoum collapses." ¶8. (C) Karama claimed the highest echelons of the Government of Sudan are involved in these parastatals. Karama claimed that Salah Al-Gosh was directly knowledgeable of the companies within his intelligence service and that Vice President Ali Othman Taha "is definitely involved" and Presidential Advisor Nafie Ali Al-Nafie "is also to a lesser extent, as he probably got into the game late." According to Karama, the new Minister of Finance, Awad Al-Jaz, formerly a very capable Energy Minister, is "in it for himself." (Karama stated that he worked with Al-Jaz from 1982-1987, and even though he did not have access to power then, he was a guarded and dubious figure.) Karama stated that some in the government realize that these companies are a problem, but there is no way to solve the problem. Karama reported that the Sudanese judiciary has actually stated in official proceedings that they have attempted to audit a number of these gray companies, but been impeded by individuals from other ministries. KHARTOUM 00000374 003.2 OF 004 ¶9. (C) Karama stated that the financing for some of these parastatals comes from the Omdurman Bank. He stated that Omdurman's fiscal difficulties are at least in part due to defaulted loans from these gray companies. He claimed that Hamco (see paragraph 5) defaulted on 250 million USD to the bank and The Nasr company also owes the Omdurman bank money. ¶10. (C) On March 4, Karama told econoff that he may be able to share his work, but on March 12, Karama reported that his colleagues were not comfortable sharing their report with a U.S. official. Econoff thanked Karama for this information and promised to be in future contact with him, but cautioned that without his report (and especially the further evidence, sources, and overall information that it would provide,) it may be difficult to accept many of his claims. Karama responded that he understood, will keep in contact with the Embassy, and will attempt to convince his colleagues to share their written work with the U.S. THE OPPOSITION LEADER -------------- ¶11. (C) In a separate meeting on February 6, Mohammad Abu Garga, General Manager of Abu Garga Engineering and President of the Umma Party of Khartoum State, told econoff it is easy to identify government companies as they are successful and are able to make a profit very quickly. Abu Garga stated that these "hit and run" parastatal companies have essentially undermined his own business in the last ten years. He stated that the NCP was initially "blind to the business environment in the early 1990's, but now they have learned the importance of the economy and attempt to control it." Garga stated that there is a growing frustration within the Umma party's businessmen about their inability to receive government contracts. He added that some Umma leaders want to align with the NCP for economic, not political, reasons. "The NCP is relaxed because they have built up their accounts," added Abu Garga. THE EXPATRIATES -------------- ¶12. (C) On February 12 and 25, Patrick Williamson, an American businessman working for the Kuwaiti Aref group, told econoff that Sudan Airways senior leadership are tied to Sudanese security, intelligence, and military. (NOTE: The Aref group purchased part of Sudan Airways in a much publicized deal of 2007. Aref is a publicly traded Kuwaiti company established in 1975. END NOTE.) Even after Aref's takeover, Williamson stated that these former government officials remain in senior positions and are resistant to Aref's management and anti-corruption efforts. Williamson specifically noted that Aref tried to institute e-ticketing to modernize its system, save money, and fight corruption, but that the senior leadership in Sudan Airways tied to the regime have resisted as they are personally profiting from the paper based system. "It is an absolute mess. The current assets are in disrepair, and the leadership is resistant to change," stated Williamson. ¶13. (C) On January 23, longtime Khartoum resident, entrepreneur, and honorary Counsel General of Finland in Sudan, Hashim Abou Lela, told econoffs that security-controlled companies have dominated Sudan's economy in recent years. "We, the old business people, are keeping a very low profile right now. The security people have learned how to be business people very quickly," stated Abou Lela. According to Abou Lela, foreign investors do not know what they are getting into when they come to Sudan, citing Zain telecommunications as one example of a foreign company that has struggled with Sudan's oppressive, and ever-changing business environment. (On March 11, Zain's CEO Khaled Al-Muhtadi told econoff that he was personally indicted and interrogated in January 2008 after his company refused to pay a new "IT fund tax" instituted by the Ministry of Communications. He stated that a resolution was brokered by President Bashir, and he personally "may have reigned in the ministry a little." Having just come to a resolution, Muhtadi was reluctant to discuss corruption at length.) Abou Lela stated that many ministries continue to change the terms for their contracts, leaving only their own insider companies as eligible. For example, Abou Lela stated that he recently submitted a contract for the construction of the new Petrodar building in Khartoum, but the terms of the contract suddenly changed leaving his business ineligible. Although he eventually won the contract after petitioning many government KHARTOUM 00000374 004.2 OF 004 leaders, Abou Lela said that "the only way you can maintain your independence is to avoid working with the government." "This is the strongest regime ever in Sudan. They do not joke or mess around and they know the economy is the source of their strength," concluded Abou Lela. COMMENT -------------- ¶14. (C) Although post has reported on the existence of parastatal companies before (reftel),recent contacts have more frequently raised this as a more pressing concern, and one that has profound political and economic consequences for Sudan's political future. Certainly the nexus between parastatals, state revenues (especially oil) and the control of the organs of repression strengthen the NCP's position should elections occur on time in 2009. Karama's information is the most detailed and extensive that we have heard regarding parastatal companies. Nonetheless, many of his claims warrant a healthy degree of skepticism, while others (specifically his allegations regarding Danfodio, Kasr Al-Lulu, and Al-Hadath) appear more credible as they have been cited by multiple independent sources. At the very least, many of the companies mentioned above merit further investigation and may be potential candidates for future U.S. sanctions should policy deem it necessary. ¶15. (C) BIO NOTE: Dr. Musa Karama is the Managing Director of Danjadeed Company for Gum Arabic. He is the former General Manager of the Gum Arabic Company of Sudan. He received a bachelor's degree from the University of Khartoum and a Master's degree and PhD from the University of Tokyo, Japan. He was a technical expert on wealth sharing for the African Union during the Abuja talks. He is a native of Nyala, Darfur and married to woman from Northern State. He was part of the government for almost 30 years until he started an NGO called the Center for Population Studies. FERNANDEZ