Enabling Environment for private- sector led growth Presentation for Sudan Consortium

1. Enabling Environment for private- sector led growthPresentation for Sudan Consortium 19 March 2007 Ms. Layla O. Bashir Director for Economic Policies and programs Ministry of Finance and National Economy

2. The challenge • To enhance the role of the private sector in growth sustainable, inclusive, broad-based and pro-poor • To increase job creation through both wage employment and entrepreneurial (self-employment) activity • To increase public revenues through broadening the tax base • To increase the role of the private sector in delivery of public services

3. Key roles for private sector • Government’s policy is to withdraw from any function that the private sector can deliver more efficientlyز • Private sector is already involved in high value service delivery, heath, and education. • Services require massive capital investment and continuous maintenance so efficiency is paramount: • Lowering the per-unit cost of delivering these services and using. • Power of competition to spread service delivery and improve quality • Allow public sector to focus on critical public goods and low-income segments • Some sectors – telecommunications, urban transport, air transport – have improved and/or expanded remarkably after private entry • Key contribution of the private sector is not only in raising capital for service delivery, but increasing value for taxpayer and service user. • Private participation may include management contracts, leases, or ownership • In all cases, transparency and competition are the keys to obtaining efficiency

4. Structure of private sector • Agriculture and informal sectors comprise over 70% of employment • Manufacturing sector comprises around 24,000 firms, 57% of which in food and beverage sector • Manufacturing employment only 1.7% of total employment, 162,000 employees (Industrial survey 2001) • Of manufacturing employment, 40% in small scale industries • Dynamic change in private sector, with decline of traditional industries (edible oil, textile, leather) and growth of new industries (construction, food and beverage)

5. Geographic distribution:The Sudanese private sector exists throughout the country

6. But large firms – and particularly foreign invested firms – are highly concentrated in Khartoum

7. Investment Policy: a qualified success • The reform package: • Macroeconomic stability . • liberalizing prices of most commodities • financial sector reforms and liberalization : -Opening sector to foreign competition. - Consolidation through minimum capital requirement. • Privatization • More than 150 enterprises privatized, including important players in financial and telecommunication sectors • Investment law: • Clear policy stance toward property rights • Tax incentives for strategic industries including manufacturing • One-stop shop to streamline entry processes • Signingthe CPA

8. Impact: Substantial increase in FDI flows • FDI has grown 223% since 2002 • Over 70% of capital investment is in petroleum sector • Excluding energy, most FDI capital in services (banking, telecommunication, construction)

9. But neither investment nor financial sector reforms have created broad-based growth • Investment growth concentrated in few sectors: energy, banking, telecommunications, construction, services • Geographic concentration in Khartoum state where infrastructure and services are available • While FDI has improved urban services, little backward linkage to rural areas or to small producers • Lending practices remain risk averse, primarily short-term and secured with real property

10. Barriers are still very substantial • Sudan’s Doing Business ranking is very low with slight rise in 2006. Doing Business 2007

11. … for example, lengthy and bureaucratic import-export procedures (Doing Business 2007)

12. Contractual enforcement extremely slow

13. To Increase broad-based growth and job creation.- GONU requested support from the World Bank to diagnose the situation. - The Diagnostic study financed by the World Bank was supposed to include: - - Admin. Barriers; - Micro-Finance.- Enhancing Private Sector role in delivering public service.- Public – Private dialogue.- Investment Climate Survey.

14. Administrative Barriers study • FIAS review of Administrative Barriers completed in 2006 • Cabinet resolution endorsed recommendations • Recommendation: Entry • Streamlining and clarifying the business registration procedures for all enterprises • Extending facilitation beyond Khartoum by streamlining string thering MOI capacities and simplifying land registration • Revising and publishing the Companies Act of 1925, the Business Registration Act • Reviewing the immigration requirements to make them less rigid to reflect a pro-business strategy. • Location • Streamlining land acquisition and utility connection. • Revising the Land Thence Act of 1994 to match with the Investment Act.

15. Operations • Streamline the tax administration process to eliminate unnecessary procedures; • Reduce exemptions and concessions and apply tax law uniformly across sectors; • Eliminate the current income assessment process and adopt modern self assessment systems; • Apply a unified registration system for all types of taxes. • Improve customs Administration to comply with the global indicators. • Apply the system of one stop shop at pots level to streamline clearance process.

16. MDTF Microfinance project. Objectives: • Based on Central Bank of Sudan strategy Create a Vibrant microfinance sector to contribute to broad-based growth throughout Sudan. • Establish an independent wholesale institution Professionally managed by public-private board • Provide technical and financial support to qualify retail microfinance institutions to provide efficient funding mechanism that meet rational demand. Project quantified targets: • 10-15 microfinance institutions established, serving at least 200,000 clients. • Several institutions moving toward commercial viability in four years.

17. Enhancing the private sector’s role in delivering public services (infrastructure and social services) • Castalia Strategic Advisors prepared detailed review of policy and institutional capacity to support PPP - Electricity, water, transportation, telecommunications. • Covered North and South. • Reviewed private sector capability and capacity. • Recommendations not yet endorsed. • Key findings • Demand for services is vast. • Government is constrained by limited fund and limited expertise. • PPP provides posterity for bridging the gab. • Major risk factors make private involvement difficult. • CPA is gradually addressing these risks. • Hesitant reform steps in key sectors, but no rigorous drive towards significant change • Aside from telecommunications and air transport, few competitive sectors with multiple private operators.

18. Study recommended a number of policy and institutional reforms: • Establishing attractive legal framework for investors. • establishing public-private partnerships • National level • Major effort on rehabilitation and renewal • Reduction of role of state in key aspects of service delivery • Opening sub-sectors of service delivery chain to private sector (rail, electricity) • Addressing subsidy issue: Target subsidies to poor rather than through price control • Off-grid where necessary • South • Public private partnerships in basic infrastructure (industrial zone, wholesale market) • Develop streamlined approach – concessions rather than regulatory bodies • Improve risk management: • Simplifying legislation. • Building capacities in the private sector.

19. IV. Establish Focused Public-Private Dialogue Forums • For identifying impediments and proposing solutions • Feedback channel for government • Increasing in transparency and policy coordination • Structure • Co-chaired by Government and Private Sector • Sectoral working Groups, each representing relevant sector • Government has already endorsed a Forum to be established

20. Next Steps - Investment Climate Survey; - How to stimulate broad-based growth; - Region Focus; - Sectoral Focus. - Focus on building the capacity of domestic private sector.