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Cablegate: Citibank and Goss: Optimism On All Sides

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OO RUEHWEB

DE RUEHKH #1765/01 3421359
ZNR UUUUU ZZH (CCY 080999/MSI3097)
O 071359Z DEC 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2503
INFO RUCNIAD/IGAD COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS KHARTOUM 001765

DEPT FOR AF A/S FRAZER, SE WILLIAMSON, AF/SPG, AF/E, EEB/IFD,
EEB/ESC/ESP, EEB/CBA
NSC FOR PITTMAN AND HUDSON
DEPT PLS PASS USAID FOR AFR/SUDAN
DEPT PLS PASS TREASURY FOR OIA AND OFAC
ADDIS ABABA ALSO FOR USAU

SENSITIVE

SIPDIS
C O R R E C T E D C O P Y (TEXT)

E.O. 12958: N/A
TAGS: EFIN ECON PGOV PREL KPKO SOCI UNSC SU
SUBJECT: CITIBANK AND GOSS: OPTIMISM ON ALL SIDES

1. (SBU) SUMMARY: In a three-day visit to South Sudan, officials
from Citibank Kenya conducted a series of productive meetings with
senior Government of South Sudan (GoSS) officials in an effort to
develop a relationship between the Bank of South Sudan (BoSS) and
Citibank. As Citibank officials used a "soft sell" approach to
convince the GoSS of the utility of such a relationship, GoSS
officials enthusiastically entreated them to open commercial
branches in South Sudan. GoSS Vice President Riek Machar even went
so far as to chide the group for not immediately erecting a Citibank
sign to announce their intention to deal with the GoSS. While the
visit pointed out the deep shortcomings of the South Sudan banking
sector, and several OFAC-related hurdles that need to be cleared
before any real relationship can commence, Citibank officials
returned to Nairobi optimistic and ready to return. END SUMMARY.
2. (SBU) In a meeting with CG Datta, Citibank Corporate Banking Head
for Africa Asim Rana explained that Citibank intends to establish
South Sudan as one of their "non-presence" countries, in which the
bank operates in the country but through a correspondent bank, in
this case the Juba-based Buffalo Commercial Bank. In association
with the correspondent bank, Citibank would initiate their
operations in Juba by providing USD in cash to international
organizations and NGOs, similar to what Citibank currently does in
Khartoum, where it provides cash to UNMIS and UNAMID by delivering
packaged dollars to Khartoum from Nairobi.

3. (SBU) Additionally, Citibank sees a business opportunity in
establishing a formal relationship with the Bank of Southern Sudan
(BoSS), although Charles Macharia, Citibank's relationship manager,
and Mary Sabwa, Citibank's East Africa head of sales, expressed
concern that Office of Foreign Asset Controls (OFAC) restrictions
may hinder the relationship because while businesses in South Sudan
are exempted from USG sanctions, technically the BoSS remains a
branch of the Central Bank of Sudan (CBoS), which will require
Citibank to obtain an OFAC license.
4. (SBU) Othom Rango Ajak, Director of Banking Operations and
Foreign Exchange of the BoSS, told Citibank representatives that
sanctions still require banks dealing with the BoSS to procure an
OFAC license, a not entirely insurmountable hurdle, as the BoSS
currently has SWIFT numbers and active accounts with four different
banks - Kenya Commercial Bank, Stanbic Nairobi, Commercial Bank of
Africa (Nairobi), and The Arab Investment Corporation (TAIC). Ajak
said that the CBoS and the BoSS hold oil revenues in a joint account
at TAIC in Bahrain, and through their shared account at TAIC, the
CBoS has stopped dealing in U.S. dollars, preferring to deal in Euro
or pounds sterling. In turn, demand for dollars in South Sudan has
jumped to unprecedented levels recently, and currently the BoSS
requires Stanbic to physically transport US$10 million in packaged
cash to Juba every week. Dier Nachong, deputy director of banking
operations of BoSS, told Citibank that the South Sudan banking
sector is highly inefficient: delays hinder the speed at which
electronic transfers take place; commercial banks demand exorbitant
fees for simple services; and competition is limited as 30 banks
closed after South Sudan changed from Islamic to conventional
banking.
5. (SBU) Brutally honest about business practices in South Sudan,
Minister of Energy, Mining and Industry John Luk Jok told Citibank
representatives that South Sudan business leaders are weakened by
their underdeveloped banking sector. "Currently, they put their
money into sacks and wait for the bus!" The chairman of the GoSS's
commercial oil corporation NilePet, Jok said NilePet's long-term
goal is to create market security for oil coming from South Sudan.
"The infrastructure for oil is all in the north. If South Sudan
votes yes to independence in 2011, where does it leave us in terms
of the oil that we have? It leaves us vulnerable. We must have oil
refineries, and look at the market opportunities for our oil in the
main markets in East Africa." Citibank's Asim Rana, quickly assured
Jok that Citibank is part of the financial consortium that is
financing construction on Kenya's oil pipeline, and could assist
similarly in South Sudan.

6. (SBU) Kuol Athian Mawien, Minister of Finance and Economic
Planning, explained to the Citibank representatives that he sees a
role for Citibank in South Sudan because it can assist his ministry
with its central issue - proper management of the oil revenue coming
from Khartoum - in addition to helping to encourage
foreign direct investment. "In five years, we'll have so many
foreigners here who can import and export. When we have a pipeline,
we will export our own oil. So many investors are going to come,"
he boasted, and then stressed the importance of Citibank being a
vital link as the private sector begins to take over from the public
sector.


7. (SBU) Mawien detailed how the BoSS currently pays creditors
through banks in Kenya to avoid using banks in Khartoum, but its
balances within the banks in Kenya are non-interest bearing and
subject to significant delays. Additionally, South Sudan's currency
reserve, kept in the BoSS, currently earns no interest as well, a
problem which Citibank representatives said they could quickly
remedy. Mawien was amenable when Rana proposed opening an account
for GoSS at Citibank in Kenya, saying he could quickly activate the
account with a signed letter from the minister; the Citibank
representatives pledged to act quickly to initiate the process.

8. (SBU) Vice President of South Sudan Riek Machar welcomed Citibank
representatives by blurting out following their introductions, "When
can you start?" He then went on to thoroughly needle the group on
its intentions to operate a "non-presence" relationship with South
Sudan out of Nairobi. "So your non-presence presence is the same as
being present? People prefer a bank to be present, not a bank to
deal with them on a hit-and-run basis," he told the representatives,
who in turn stressed the case that a "non-presence" relationship
would develop over time into brick-and-mortar banks throughout South
Sudan. Machar did admit that he saw a benefit to a relationship
between the GoSS and Citibank - "If Citibank came, U.S. businesses
would come," he said - but begged them to erect "even a CitiBank
placard on a container. If I made a press conference, and said, 'By
the way, Citibank is in Juba,' do you know what would happen? All
the banks in Khartoum would move to Juba, and South Sudan would be
an economic bastion of all Sudan."

9. (SBU) Minister of Presidential Affairs Luka Biong Deng expressed
delight at Citibank's visit, admitting that the fledgling
semi-autonomous state's economy needs assistance in expanding its
scope and creating demand for its products. As South Sudan receives
over US$400 million in foreign aid yearly, absent foreign direct
investment, Deng views the growing shortage of dollars within South
Sudan as a persistent burden Citibank could ease by establishing a
"non-presence" through the correspondent Buffalo Central Bank. Deng
was honest about the shortcomings of South Sudan's banking sector,
and was more supportive than his colleague Machar of opening a
non-presence relationship. "I think Citibank can be helpful by
assisting the BoSS, and exploring how the BoSS can encourage
microfinance. For doing everyday banking business, we need
assistance."

10. (SBU) Following their meetings with GoSS officials, Citibank
representatives expressed optimism that Citibank's Kenya offices
would begin to turn their attention to the budding relationship with
Juba, even beginning to calculate a rough return on its
"non-presence" operations. Using figures provided by the BoSS for
the freight costs charged by Stanbic for U.S. dollar shipments from
Nairobi to Juba, the representatives calculated that by offering the
BoSS a better deal, and saving it the per dollar subsidy the BoSS
currently provides to local banks, Citibank could earn US$1 million
per year on cash transfers alone. Their initial projections for
profits based on business transactions with the BoSS indicated that
Citibank may be able to bring in up to US$5 million in revenue a
year, a number which far surpasses revenue from Citibank Kenya's
next-highest earning client, a Nairobi-based telecommunications
firm. Envisioning that he and his colleagues would return at least
every quarter, Citibank Kenya's Relationship Manager told Poloff,
"We must strike while the iron is hot."

11. (SBU) Comment: Post has strongly supported the creation of a
robust banking sector in South Sudan as a necessary step to
promoting real economic development in the region. The lack of most
basic financial services is a serious constraint on private-sector
development and foreign investment, as was highlighted during the
first ever U.S. trade delegation visit to Juba in October 2008.
CitiBank's pledge to draft documents and set their Kenya office to
work on establishing a mutually beneficial relationship is a
powerful first step that can have a major impact on promoting the
development of a strong private sector in Southern Sudan. Given
that the BoSS already has obtained SWIFT numbers and OFAC licenses
to create relationships with international banking institutions,
most likely Citibank will manage to obtain an OFAC license as well.
Post would strongly support a decision by OFAC to permit Citibank to
deal with the BoSS, as it would have positive ramifications
throughout South Sudan, and simultaneously help to weaken Khartoum's
economic stranglehold on the GoSS.

FERNANDEZ

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