- Reforms are a capital idea -

Sudan's rather unwieldy financial markets are heading for a major shake-up as the government draws up plans to reorganise the local banking sector. President Al-Bashir has said that he is in favour of privatising state banks in the commercial sector. He has also emphasised that restructuring should focus on agricultural and industrial banks as well as mortgage banks. As to the timing of the reforms, central bank governor Sabir Hassan has said they will go into effect in June this year.

The government's aim is to induce mergers between big and small banks in order to reduce the number of institutions in the market. At present, Sudan has at least 28 locally-owned banks. Reform is also intended to increase the capital base of the banking system. The government's plan is that individual banks, which are unable to raise fresh capital to meet this requirement, should consolidate with others who can.

The shake-up of the banking system is expected to create opportunities for foreign banks to increase their presence in the Sudanese financial sector, either by acquiring an interest in a local bank or by forming a partnership with one. The government's decision to privatise some state-owned banks is also expected to open up the sector. "The general economic environment is improving and, with the oil exports, there are new opportunities for banking investment," explains Mr Hassan. "We welcome foreign investors into the banking sector or for joint ventures."

Preparations to accommodate new investors are under way at the state owned Bank of Khartoum, one of the oldest and biggest banks in the country. "We are now in the process of reform in order to give private investors the chance to come and invest in the Bank of Khartoum or in any other Sudanese bank," says general manager AL-FADLI 'We believe we are going to have the biggest share' Abubakr Yahia al-Fadli. "We believe we are going to have the biggest share of the banking system, especially if we can find foreign partners to come and participate in our bank," he adds.

The bank is installing new technology and systems in a bid for greater efficiency and growth prospects. Rahman Ahmed Ibrahim, IBRAHIM 'We are planning to focus on the agricultural sector' general manager of Al Baraka Bank, believes that the government's success in restoring stability to the foreign exchange market in Sudan will help the bank to build up its capital and expand its operations during the next five year period. The bank, which is an offshoot of a large financial group based in Saudi Arabia, intends to play a major role in assisting those foreign investors attracted by Sudan's improving economic outlook.

"Major changes are taking place in the country due to oil exports and the stability of the currency, and these will in turn help the change in the economy of the country," says Mr Ibrahim. "We are planning to focus on the agricultural sector, which is where I think Sudan's future lies. It is important because Sudan is very rich agriculturally and this is our main source of capital. What we need is good capital and investment in order to be able to reactivate this sector." Most of the potential investors are from abroad, he says. "We are now trying to encourage investors and we will provide them with the best services." The next step after agriculture, he adds, will be investment in industry.

Tadamon Islamic Bank, a privately-owned institution supported by shareholders in the Gulf, is also preparing itself for a friendly invasion by investors. "We are in a new era, the exchange rate is stable, and this will encourage investors to come to Sudan," says general manager <p>ELNAGA 'We are in a new era with a stable exchange rate' </p>Salah Abu Elnaga. "Sudan, with its many resources, is ready to accept and adopt as many investors as possible." The bank switched the focus of its operations to foreign exchange transactions when local currency rates collapsed a few years ago. In the process, the bank built up an extensive network of working rela-tionships with banks in Europe, Asia and the Arab world. "We are expecting many foreign investors, especially from the Arab countries, and we are training our people and developing their technological skills to meet the standards of those coming into the country," says Mr Elnaga.

The bank has also taken steps to increase its capital base and hopes to be able to expand on its own, preferring to remain independent rather than merge or consolidate with other local banks. "We can work alone and get foreign investors to help in raising the capital," says Mr Elnaga. His intention is that Tadamon Islamic Bank will become Sudan's leading bank in the import-export sector. As its name implies, the bank conducts its business under Islamic rules, which include a specific prohibition against usury, and this affects the way it operates quite considerably. In effect, Islamic rules do not allow it to make a profit from the interest paid on the deposits it places with overseas banks. "We have to keep our deposits according to Islamic rules and therefore most of our deposits are in Arab Islamic banks," Mr Elnaga explains.

The Khartoum Stock Exchange is actively seeking overseas business

In addition, Islamic law does not allow it to make a profit from the interest earned on deposits. The solution is for the bank to open separate accounts for interest income and distribute these funds to the poor, he adds. Restructuring and privatising the banking system will inevitably have an impact on other activities in the financial sector, such as the Khartoum Stock Exchange. Founded in the early 1990s, as Sudan embarked on the switch from central planning to a free market economy, the stock exchange is now actively anticipating a big inflow of foreign investment.

Abdul Raheem Hamdi, chairman of both the stock exchange and the Financial and Investment Bank - and former finance minister of Sudan - says there is a "huge need" for foreign investment. "Our development should come from outside, especially in infrastructure such as roads, telecommunications and air transport," he explains. "Then there is the energy sector. The mining sector has been neglected, and traditional sectors such as livestock production will have to be developed and modernised. We need investment for the coming years."

When the stock exchange was first set up, the idea was for Sudan to develop share-trading based on local companies, providing these newly-privatised entities with access to a sound financial footing. Times have changed, and today the stock exchange is deliberately seeking out business with foreign investors. "The legal situation is very stable and very liberal," says Mr Hamdi. "It allows investment by outsiders with little instruction from the finance ministry."