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