FEATURE-South Sudan: land of opportunity, if you don't mind risk

Newswire

* Entrepreneurs eye farming, banking and telecoms

* Hurdles to business include lack of roads, laws

* Oil still dominates war-ravaged economy

By Alexander Dziadosz

JUBA, Nov 30 (Reuters) - Ugandan motorbike taxis weave through rutted streets. A Kuwaiti telecoms firm prepares to lay fiber-optic cable. Chinese and European delegations file down the oil ministry's scruffy halls.

An influx of adventurous entrepreneurs has helped fuel a small business boom in the world's youngest country, South Sudan, which declared independence in July under a 2005 peace deal that ended decades of civil war with the north.

They've been drawn to one of the ultimate "frontier markets" by demand for practically everything -- from roads and banks to office furniture and private security -- despite the snags posed by a dearth of infrastructure and clear regulations.

"It's the only place in the world today where there's an opportunity to start from scratch, from zero," said Tamir Gal, an Israeli businessman, as he greeted clients and officials at an agricultural trade fair. "If you start from zero, you have 100 percent to grow."

The effects of new money are plain in Juba, the ramshackle capital. Billboards hawking insurance, mobile phones, beer and prefabricated housing line roads clogged with shiny 4x4s and Indian and Chinese motorbikes. A handful of upscale restaurants buzz with expatriate workers.

Permanent concrete structures are rising, albeit slowly, amid the tents, prefabs and cargo containers that often serve as offices and homes. Juba's sprawling Konya Konya market bustles with vendors peddling vegetables, shoes and phone cards.

The former rebels now running the country have so far welcomed investors and say they want more to help build an economy ravaged by Sudan's civil war, which killed an estimated 2 million people, and wean it off its dependence on oil.

There is plenty to do. The nation roughly the size of France has just about 100 km (60 miles) of paved roads, and hospitals and schools are still scarce. Oil accounts for some 98 percent of government revenues.

That means opportunities for risk-tolerant investors, but it also can mean frustration. A World Bank report this year ranked Juba 159th out of 183 economies on the ease of doing business, noting "several fundamental laws and institutions are still missing."

"THE LAWS ARE SKETCHY"

Convoluted bureaucracy and a lack of clear laws are among the most immediate challenges, businessmen and officials say.

The fear that ownership titles could be challenged in a nebulous legal system dissuades many businesses from building factories or making other long-term investments, they say. It also makes it harder for banks to find collateral for loans.

"Right now the laws are sketchy, and sometimes that's why banks are a little bit cautious" about lending large amounts, said Petro Maduk Deng, corporate relationship manager at the Juba office of Kenya Commercial Bank (KCB), which set up in the southern capital the year after the peace deal.

"There are companies that can borrow a substantial amount of money, but what happens if there is a dispute? That is not clear. The government has to come up with something to resolve these disputes."

Authorities, while keen to lure foreign capital, are often inexperienced. Shifting or hazy administrative hierarchies can be confusing. Businessmen stress that patience and strong relationships with the right officials are vital.

Many also complain that corruption -- whether it is soldiers demanding bribes at checkpoints or officials taking their cuts from deals -- can impede the free flow of commerce. The government says it is cracking down on graft.

"It's the classic thing where you're trying to build a plane while you're flying the plane," one Western businessman said. "That's what they're trying to do here, but they don't even know how to build the plane because they've never done it before."

The country's meagre infrastructure can also prove daunting. Recurrent power outages mean many businesses use costly diesel generators to keep the lights on. Internet connections are often slow and depend on satellite links.

Road travel is arduous. Some vehicles might pass through as many as four checkpoints every 100 km, the finance minister said in a speech last week. Much of the country becomes inaccessible by road during the rainy season.

NEW OPPORTUNITIES

Businesses have learned to work around the hurdles.

KCB has opened branches in each of the country's 10 states and has even built a small loan portfolio, getting around the lack of collateral or other guarantees with a system whereby government employees can arrange for a portion of their salaries to go straight to the bank for loan repayments.

John Carvalho, a Ugandan businessman making furniture, said he saw his opportunity in South Sudan's dependence on imports, which drives up prices for goods as varied as cement and tomatoes.

He now hopes to compete with the flimsy imported Asian furniture that dominates the market by making sturdier fittings out of local wood.

"It has become like a dumping market for furniture products from Southeast Asia here in South Sudan. Almost every office you go to and hotel you go to is made of well-designed but non-durable furniture," he said, sitting by an array of desks and chairs.

Carvalho said he sees his business expanding into a variety of "sustainable forest products" and predicts that eventually South Sudan's natural grandeur will draw enough tourists to make ventures like setting up campsites for sightseers viable.

Executives also see cell phone sales booming. The managing director of Zain Sudan, a unit of Kuwait's Zain estimated in July that the number of South Sudanese mobile phone owners would treble within two years.

Gal, the Israeli businessman, said his company has been enjoying an active business selling satellite Internet connections. Like others, he said South Sudan's economic future is likely to be in agriculture -- another field he works in, along with telecoms and security.

"They have good land, they have a lot of water, good weather, good people, a lot of resources," Gal said. "There is no reason they will not succeed soon."

For now, oil is still king. South Sudan took about three-quarters of the united country's crude output with it when it seceded. Indian, Chinese and Malaysian firms are active in the sector.

U.S. officials hope American firms will soon be able to join them, and are drawing up new guidelines to permit U.S. oil companies to operate in South Sudan -- which still depends on its northern neighbour's pipelines to export crude -- without running afoul of U.S. sanctions on Khartoum.

Juba's tense relations with Sudan and a lack of resolution on key issues related to the split including oil, debt and the position of the shared boundary have unnerved some investors.

Fighting between rebels and government troops has flared on both sides of the border, and disputes over cattle -- a vital part of the indigenous economy -- often erupt into clashes.

South Sudan's Ministry of Commerce, Industry and Investment Undersecretary Elizabeth Manoa Majok dismissed security worries.

"Cattle raiding has nothing to do with investors, and it is in particular pocket areas in South Sudan," she said. "Security is not a big, big thing."

A LOPSIDED BOOM

By and large, South Sudanese share Gal's optimism. Many saw secession as the end of a long struggle against political and economic marginalisation and are now eager for the long-deferred chance to control their own economy.

"The resources of the south were being used to develop the north. That was a fact," Majok said.

"Independence surely will provide a more conducive environment for us. Just to have peace of mind you are in control of your own affairs

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