Does American education remain the most popular choice for universities in the Middle East and North Africa (MENA) region? Recently, rumors circulated that Al Akhawayn University in Ifrane (AUI), Morocco switched from the traditional American model of education to the French system of tertiary learning. The rumors seemed counter intuitive during a time when the whole world, including the MENA region, is shifting to the American style of higher education which, in addition to the usage of English as the primary language of instruction and research, focuses on creative thinking and problem solving instead of rote memorization.

Rethinking the American model of education would have not only been counter to popular notions of higher education but would have affected the foundations on which AUI is based. Located in a country desperate for efficient human capital, any move by AUI away from the American model would have brought into question the effectiveness of the school in developing the country’s next generation of leaders.

Founded in 1993 with a large endowment from Saudi Arabia to Morocco to aid an oil spill that was never realized on the country’s coasts, AUI represented a move in international diplomacy between the “two brothers”, a namesake which currently adorns the university and acts as a tribute to the then kings of each country – King Fahd of Saudi Arabia and Morocco’s King Hassan II. Nestled in the mountainous village of Ifrane, AUI is the articulation of the late King Hassan II’s vision to create a university based on the American style of education.

In the institution’s bylaws, which were signed by Morocco’s king, it is made “very clear that it’s an institution where English is the official teaching and research language,” according to AUI’s President and former Minister of Education Rachid Benmokhtar Benabdallah. He also believes AUI “is an institution built on the American model of education and American standards of education and all of the associated criteria. The laws are clear and are there, so we cannot change them”. In an interview with Executive he dispelled the rumors, noting that “nothing changed at the university level.”

Trilingual brothers

The source of confusion came from a shift in the direction of AUI’s primary and secondary schools. Families in Ifrane who send their children to AUI’s primary and secondary schools are having trouble coping financially and logistically with their physical move from the isolated town or in cases where students transfer to other schools.

What were once American system schools under AUI’s direction are now international schools. “For the Moroccans”, according to President Benabdallah, “we have a problem with the primary and secondary schooling and the problem is that if the students attend then they will only learn English, but what happens if they have to go elsewhere, if they move to another city, or if they switch schools? They will not find another school on the costs side which is affordable for them.”

He believes that the other American schools in Morocco are very expensive and people do not have the means to pay the yearly fees of $13,500-16,000, meaning that if AUI’s primary and secondary schools remain purely American, the service offered will essentially be for the international community and not Moroccans. Hence, a university-wide discussion was started and the solution found was to convert the pre-university education into an international school.

The new ‘international school’ will have three languages: French, English, and Arabic. In searching for a new management team for the school, AUI had two options, but chose an international school instead of running the school under the international baccalaureate mandate, because the latter “gives you just the rules, what you should do, and they come for evaluation, assessment, and so on, but they don’t manage the school, so it remained a problem”, according to AUI’s president.

After negotiating with a French organization, AUI’s leadership found a solution by changing to an international school with courses in French, but with six hours of English weekly, and three hours of Arabic, which can be expanded to six hours a week of Arabic for Moroccans. The mix of languages will help students master all three to become tri-lingual before university, but the added benefit will give the families of students more flexibility when they head elsewhere in Morocco.

In addition to the change in instruction in the primary and secondary schools, according to Abdessamad Fatmi, the school’s Director of Communication, further confusion came from an AUI-commissioned study on the ways to improve the university. As with many third-party studies, the product provided several options, including switching AUI to the French system, yet the school did not follow the advice.

Encouraging English

As Fatmi pointed out, at the university level the attention to educate in English will be maintained since “we are in the process of evolving as a university as we are growing to make sure that our students master the language, which is very important, and the reason is that they can pass the Testing of English as a Foreign Language (TOEFL) exam, and that we ensure that at the end of study they pass another test for professional English before leaving campus.”

In the end, Benabdallah maintains that “nothing changed and we will stay the way we are as the Moroccan university under the American model of education.”

By promoting the right infrastructure development a country might attract capital from foreign firms looking to move the production of goods and services overseas. For Morocco, developing sites for foreign companies to conduct their operations overseas is part of a wider movement across francophone North Africa.

As countries like Algeria, Morocco, and Tunisia diversify their means to attract foreign capital by encouraging the growth of market-based competition, they are increasingly aware of their valuable position denoted by a common language, which unites them with Europe as well as their close proximity to the continent. While European firms look to stay competitive on international markets, many are choosing to delegate their business processes overseas.

Further slides in the US Dollar are making dollar-denominated economies more competitive on international markets as the factors of production are relatively cheaper against the more expensive euro and other currencies not pegged to the greenback. A continued fall in the dollar will likely serve as an impetus for European firms to ‘offshore’ a portion of their business to North Africa to cut costs and remain competitive.

Morocco develops its offshore industry

For Morocco, developing infrastructure to host offshoring sites is part of the wider 2005 Emergence Plan aimed at deriving the economic benefits from a burgeoning offshoring industry. Through developing a successful offshore industry, the kingdom calculates that more capital and workforce in the country will increase gross domestic product (GDP) by $12.3 billion while at the same time creating nearly 440,000 jobs and slashing its trade deficit in half.

One such offshoring site the kingdom developed is Casablanca’s NearShore Park, which opened its doors at the end of 2007 and currently hosts such companies as BNP Paribas, Dell, and Tata Consulting for a total occupancy rate of 100% within its 57,000 square meters. Other parts of the park are also being constructed and businesses continue to fill them up at the park’s price of $12 per square meter, taxes included.

According to NearShore Park’s management “we do not have a [single] local standard. We are working with our customers on the final version of the product.” Confident in the industry’s future in Morocco, another 200,000 square meters are planned over the next two years while an additional 350,000 square meters are set for construction through 2011. Atos Origin, Novedia Group, and Novative already expressed interest in the park as an offshore location for future operations.

Moroccan officials are trying to use Casablanca’s strengths to the city’s advantage, which have currently placed the economic capital in the “top 5 most popular offshore destinations in the world, according to a study conducted on 37 foreign cities,” said Mohamed Lasry, CEO of NearShore Park. Other contenders for Europe’s offshore operations include Prague, Czech Republic, and Sofia, Bulgaria, where low manufacturing costs, coupled with policies aimed at harnessing foreign direct investment (FDI) encourage the development of industry for many Western European firms looking to cut costs.

To compete with others, including the very popular Asian outsourcing hubs in India, Southeast Asia and China, Morocco is still preparing its workforce to match the same number and degree of talents in their pool of human resources, including training engineers and other experts in information and communication technology.

According to Mohamed Kabbah, Governor of Casablanca, the NearShore Park “is an incentive for getting Moroccan engineers abroad to come and work in Morocco.” The NearShore Park is also associating itself with institutions of tertiary learning, including universities and vocational schools to harness the talent still left in Morocco as “Morocco is fighting for its place in the knowledge economy,” according to Kabbah.

The advantages to a firm situating itself in the NearShore Park include office facilities held up to international standards as well as a private telecom loop run by Maroc Telecom within the park, at prices cheaper than those offered to consumers elsewhere. Public transport plans to offer connections are in the works and NearShore’s chief operating officer Joseph Hoffman promises no less than five bus lines through the park with a bus coming every two minutes.

Casablanca is not alone

While Casablanca might be aiming to become the biggest, it is certainly not the only Moroccan spot for Europe’s offshoring industry. The country’s political capital Rabat has begun its own Technopolis with a first phase completion date of June 2008 and a $58 million price tag. The remaining construction will hopefully be completed by 2015 for a cost of $500 million. The Technopolis aims to attract talent to serve as an arena for software support.

With the aim to build its technology industry as one driver of human capital development, Rabat has welcomed ST Microelectronics who installed a microchip design research and development (R&D) site for 180 engineers at a price of $13.6 million. With a focus on hardware design, clients include the American giant Texas Instruments.

The challenges of Morocco succeeding in attracting international firms is partly based on exogenous market factors, including currency movements, but the country’s success is also largely on par with Morocco’s own challenges of developing human capital. The country will continue its efforts to develop an economic environment favorable to industry and competitive against regional rivals such as Algeria and Tunisia who have thrown their hat in the race and are pursuing their own plans to create hubs for service sectors and R&D.

Algeria’s accession to the world economy is moving forward with a surprising amount of support from the North African country’s Arab and European neighbors. In the past decade, the country integrated slower than its neighbors and was surpassed by both Morocco and Tunisia, who acceded to several trade agreements with the European Union (EU) and multilateral trade accords with Arab neighbors.

Despite a long history of being stalled under the country’s socialist-oriented economic policies, Algeria’s economy finally began to show promise when it began talks to join the World Trade Organization (WTO) in 1998. Ten years later, Algeria is still not a member, while Morocco and Tunisia have benefited since their accessions in 1995 by using the organization as a platform and mechanism for their continued liberalization and privatization plans.

Governments and businesses with connections to Algeria are poised on the sidelines as the country is set to finally join the plethora of other members during the second half of 2008.

A successful accession to the WTO is not by any means the final step on the path to liberalization, but it certainly is indicative of prior progress and future cooperation of the government with others in the global trading order. However, not all news of Algeria’s accession is positive and the country is attracting criticism from officials for not moving fast enough in key industries such as energy and services, where government reform plans are not satisfying the appetite of the world’s economies.

Regional connections

Like the many developing countries before it, Algeria’s progression towards the WTO began through a series of moves aimed at integrating the country’s economy with regional groups through regulatory and trade policies. Most WTO-aspirants follow the formula of increasing bilateral and multilateral trade with proven partners. Doing this helps the state create trade norms and learn to deal with more competitive markets. Understanding these norms and establishing trade policies on a small level helps the country manage tariffs and other protectionist measures to maintain a solid pace to improve and develop.

In the past decade, Algeria established connections with its Arab and European neighbors. For Algeria-EU relations, the success was attributed to the idea “that trade and economic integration helps to strengthen competitiveness and better face the remaining competition from other economies,” according to the European Commissioner for External Relations, Benita Ferrero-Waldner.

Neighbors in the Maghreb

For Algeria, proof of the country’s growth in regional trade is found in its burgeoning trade relationship with Morocco, its immediate neighbor to the west, but one with which it still shares tense relations regarding territorial disputes. The rise of Algeria-Morocco trade includes a year-on-year growth of 13.5% for Moroccan exports to Algeria, but more impressive is the astounding growth of Algerian exports to Morocco: 26.9% in 2006. The growth is attributed mostly to price increases in Algerian natural resource commodities, including the export of natural gas.

In the future, Algeria will need to depend on fellow members of the Arab Maghreb Union (AMU), especially Morocco and Tunisia, to service and govern parts of the two natural gas pipelines that connect Algeria’s main exports of natural gas, amounting to 98% of total exports, to its European markets. Tunisia will continue to oversee the Trans-Mediterranean (Transmed) pipeline from Algeria to Sicily, while Morocco remains part of the consortium controlling the Maghreb-Europe Gas (MEP) pipeline.

Liberalization via the WTO route is likely to foster better economic diversification, shying away from the natural gas industry as a main export driver, to include operations in services, research, and manufacturing, all of which are likely to be determined through relationships formed by Algeria under the WTO umbrella.

Many pundits consider the AMU defunct, which is why any analysis of the institution is given in small doses, since it seeks to formalize and bond a North Africa that to a large extent remains disconnected.

Going forward, the country’s WTO membership will most likely promote adhesion between AMU members and can serve as an impetus for more formalized applications of the idea behind the AMU. This model would be unique in that countries first regionalize and then globalize, but in Algeria’s experience, integrating with the WTO will bring it more formal results than its ties to the AMU.

In fact, Morocco voiced its support in January. Although the country remains a regional rival of Algeria and the land border between the two has been closed since 1994, Morocco expressed its support for Algeria’s accession plans. The ongoing dispute between the two countries — regarding the territory of the Western Sahara and the secessionist Polisario Front — has not has not interfered significantly  with their mutual desire to integrate their economies and those of the all the AMU states.

According to Mohammed Loulichki, Morocco’s Ambassador to the United Nations in Geneva, “The adhesion of Algeria to the World Trade Organization will reinforce the presence of the countries of the Arab Maghreb Union at the heart of the WTO, will ameliorate the economic and commercial interaction between its members and will permit them to contribute more to the rapid development of world trade.”

Arab investment in Algeria

However, in addition to increased trade movements to immediate Maghreb neighbors, Algeria’s connections with other Arab countries are likely to be cemented by the country’s WTO-accession plans. Algeria has been attracting a lot of business and investment from many Arab countries. Between 2001 and 2007, foreign direct investment (FDI) from Arab countries to Algeria jumped by $7 billion.

Looking forward to the next two years, Arab-Algeria investment flows will hit $19 billion, of which “90% was already approved by the government,” according to Djamel Zeriguine, Algeria’s Division Chief of the Promotion of Foreign Direct Investment. These $19 billion are destined to finance projects in downstream industries dependent on natural resources, including aluminum, cement, and other construction materials, but the money will also develop social infrastructure in health care as well as the tourism and hotel industries.

Such flows are likely to spillover into nascent industries such as research and development, as well as manufacturing, as the government moves forward with increasing private enterprises, encouraged by fellow WTO members during Algeria’s accession talks.

Selling Algeria’s geo-economic benefits

Europe is equally as encouraging of Algeria’s WTO accession plans as the country’s other Arab counterparts. For Europe, Algeria offers a host of potential for import diversification and strategic partnership. Although manufacturing and research sectors are piquing the interest of European firms, Algeria is likely to primarily remain a hedge in the short term against disruptions to Europe’s energy supplies. For Algeria, connecting with the EU offers it a chance to continue to privatize, liberalize, and economize.

The partnership is a matter of EU geo-economic security and a hedge against disruption of the continent’s energy supplies. Undoubtedly, Europe is looking to source petroleum supplies from several different entities since Russia first pulled the plug on its feed in 2005, demanding higher prices without a moment’s warning.

Further integration to the WTO trading order will help strengthen the relationship and interdependence of the two economies: for Europe, a liberalized Algeria will offer the hedge they are seeking while Algeria will benefit in the long run from increased competition and the most-favored-nation (MFN) status it will enjoy as a co-WTO member. Ferrero-Waldner believes that Algeria “is already an important energy partner for the EU,” citing the country’s status as third largest energy supplier to the Union.

She further indicated that “several gas transportation projects are already underway that will in the close future significantly increase Algerian supplies to the EU.” Other plans, such as a strategic energy partnership between the EU and Algeria that will enhance the EU-Algeria energy relationship are also in the planning stage.

Whether or not the EU’s courting of its gas-rich southern neighbor as a hedge against Russia’s geo-political maneuvering — through tampering with the EU’s gas supplies — will result in the establishment of a wider array of relations with Algeria, what is clear is that Europe is one of Algeria’s most fervent supporters for WTO accession.

The three year relationship Algeria has had with the EU is mainly attributed to the 2005 Association Agreement, through which Ferrero-Waldner believes “good progress has been reached so far, namely through the implementation of the tariff dismantling according to the planned schedule.” She holds that the Association Agreement in general is a “bonus for the domestic economy by generating new trade opportunities and increasing foreign direct investment.”

Philippe de Fontaine Vive Curtaz, Vice-President of the European Investment Bank (EIB), concurs with this positive picture and added that Algeria’s reforms have “improved the investment climate” of the country. Algeria’s reforms — which place the highest priority on privatization of public entities and restructuring certain infrastructure sectors like telecommunications and energy — are likely to be fostered with WTO membership.

Curtaz indicated that in February 2008 Algeria and the EIB signed partnership agreements aimed at the development of two reformed sectors, the private sector and the financial sector. To this end, the EIB, which manages the Euro-Mediterranean Investment and Partnership Facility (EMIPF), in 2007 gave nine southern Mediterranean countries $2.16 billion, of which 68% is for its private sector. Since the first aid package in 1980, the EIB has given a total of $3.4 billion to Algeria for the development of its private sector.

Deeper and faster reforms

However, not all news from Europe has been rosy. In fact, during a February 2008 visit to Algeria, European Trade Commissioner Peter Mandelson said that Algeria was “too late to allow a timid attitude” towards advancing commercial reforms. He expressed his dissatisfaction as to the current application of the Association Agreement, which outlines the reforms Algeria must take to integrate its economy with those of EU member states. To this end Mandelson said that “it will be necessary to look for a new partnership agreement before 2010 to improve commercial conditions.”

Touching upon the EU’s bilateral market access negotiations, which constitute part of Algeria’s WTO accession plan as members can negotiation regulations bilaterally, the EU trade official believed further improvements had to be made in trading energy and services, which remains a tough international issue as Algeria’s energy price is more expensive on international markets. However, Mandelson thought progress had been made on energy pricing and the two bodies are now in “the phase of final clarifications,” although the issue of liberalizing services remained untouched. The commissioner refuted suggestions that the EU was contributing to the postponements in Algeria’s WTO accession talks, indicating that other WTO members also had concerns.

The meaning of a WTO Algeria

Beyond being a mere indicator of economic liberalization, the WTO label carriers with it several ties which will bind Algeria to the global trading order. The most important of the WTO standards is the group’s most-favored-nation (MFN) status, which applies to all WTO members by guaranteeing them the most advantageous terms of trade with any other WTO members.

For Algeria, the MFN status would mean increasingly favorable treatment of exports to its main trading partners, like the EU, and in particular the country’s top six bilateral trading partners — the United States, Italy, Spain, France, Canada, and Belgium — all of which are WTO members.

On the import side, Algeria need not worry as the country is enjoying a positive trade balance of $37.22 billion in 2007, largely attributed to the country’s extensive reliance on its hydrocarbons sector, which dominates 98% of exports and whose price rises in oil and gas is the reason for the country exporting twice as much in dollar value as it imports.

However, foreign investors will take note of the MFN application to their exports to Algeria as a market in which the country can spend its foreign exchange earnings. Algeria’s other industrialists are likely to move on the WTO green light as the county explores economic liberalization and diversification from its reliance on natural resources.

The country will also benefit from the WTO’s technical assistance for developing countries. According to the organization, the benchmarks set for less-developed economies are usually met with success through the group’s technical assistance and cooperation as markets move from command-based to market-based. The WTO experiences of its neighbors Morocco and Tunisia seem to show a marked amount of success, although significant challenges remain in both economies.

Indirectly, Algeria’s WTO accession is likely to help the country’s trade relationship with the further integration of the AMU, in addition to the country’s trade relationship with the EU. According to Ferrero-Waldner, the EU is trying to help Algeria “embark on negotiations on services, on trade in processed agricultural and fisheries products and on industrial standards and conformity assessment.”

She believes that together “these new negotiations could be effective drivers for speeding up internal market reforms, enhancing the diversification of Algeria’s exports and deepening bilateral trade cooperation.”

Next stop, the World

According to El Hachemi Djaaboub, Algeria’s Minister of Commerce, 31 of 35 countries involved in Algeria’s accession talks with the WTO “officially” expressed their wish for Algeria’s rapid accession. He continued “The option to adhere is irreversible … the laws of the republic conform to international expectations; there is no discrimination between nationals and foreigners, nor oral rules nor recourse to tariff barriers in which the consolidation came back to 2000.”

Further integration into the WTO order is unlikely to damage other international relationships, as other countries’ experiences have shown. According to Ferrero-Waldner, “the EU has constantly expressed its support to Algeria’s integration in the multilateral trading system and the world economy as a necessary condition for its further development. WTO accession remains the top priority for Algeria. The EU welcomed recent progress and improvements on main key trade priorities in discussions in WTO both on bilateral and multilateral levels.”

As the European Union reaches its saturation point for fruit imports and chooses domestic options over those from abroad, Morocco is looking to strengthen its citrus industry through a strategy of export market diversification as the kingdom is reaching out to Eastern European markets.

Russia is currently the foremost choice among Morocco’s citrus exporters, who send 44% of their product to Russia each year at a value of $102 million. Looking forward, Russian appetite for the Maghreb’s citrus is set to rise by 50% in 2008. At the same time, Morocco is currently identifying other potential markets on the way to Russia, including other Eastern European markets such as Poland, Bulgaria, Hungary, and the Czech Republic.

A garden for Russia

The burgeoning Eastern European market has changed the nature of Morocco’s citrus export business as Western Europe, particularly France, has moved away from its role from being the leading destination for Moroccan citrus exports relying instead on inter-EU production. According to Ahmed Ait-Oubahou, professor of horticulture at Hassan II University, “Morocco used to be the garden of Europe.” He attributes the recent drop in Moroccan citrus exports to Europe to an increasingly competitive Spain, which has boosted production in its citrus industry reaching 6 million tons a year, four times more than what Morocco produces.

In addition to Spain’s overwhelming supremacy in output, favorable trade conditions between EU member countries is adding to the repositioning of sourcing citrus production. According to the Morocco’s National Citrus Sector Analysis, “a maximum tonnage limit is imposed on Morocco for fresh oranges totaling 306,800 tons from December 1 until June 31 and for fresh mandarins totaling 143,700 tons from November 1 till the end of February. In addition, during these periods, an entrance reference price applies and it is of $407 per ton for oranges and $747 per ton for mandarins.”

While its access to EU markets remains limited by protectionism, Morocco is looking to safeguard and enhance its citrus sector, which accounts for 20% of agricultural production, by securing important new trade partners. Experts remain hopeful but are somewhat weary about exports to the American market, which should be encouraged under the new Free Trade Agreement between Morocco and the United States.

Although the hopes are there, the US might not be able to supply the gap left by the EU’s waning demand as the country continues to maintain regulations on imported citrus, including ‘cold treatment’, a process which subjects citrus products to temperatures of 2 degrees Celsius for up to 18 days, which some consider harsh and damaging. While this requirement aims to reduce the risk of spreading the Mediterranean fruit fly to North America, it has not prevented the bug from reaching citrus states such as Florida and California.

Industry experts consider the process a soft form of protectionism aimed at maintaining domestic production in the face of more efficient foreign competition. For Morocco, which has never exported fly-ridden fruit to the US, the regulations seem overly stiff. “The US should open their markets” said Ait-Oubahou, who claims Moroccan citrus will not compete with America’s domestic citrus since they are not produced during the same period. “If you find different crops, this is better for the consumer. Some like mandarins, some navels … we must give a wide variety to consumers.”

It remains to be seen whether the Free Trade Agreement will lead to an increase in citrus exports to America. In the meantime, Russia and Canada are enjoying access to Morocco’s succulent citrus. In the winter of 2006, 30% of Russia’s winter crops were destroyed by a deep freeze. This reduction in domestic fruit production led to a rise in fruit imports, notably in apples from China, and to a shift in consumption to less expensive fruits like bananas and citrus.

The evolution of the Russian market over the last decade as well as an improvement in quality of life has corresponded with increased fruit consumption among Russia’s 140 million inhabitants. Federal Customs Services reports that although bananas are still Russia’s leading fruit import, citrus products are not far behind, particularly oranges, tangerines, lemons and grapefruits. With EU markets increasingly unattainable, Russia represents an important harbor for Moroccan fruit, and possibly a first step in the conquest of emerging Eastern European markets.

Pushing domestic citrus on international markets

Morocco currently belongs to the top five citrus producing countries, following Spain, Italy, Egypt and Turkey. However, those countries have been actively investing in expanding production, while in Morocco production is actually on the decline. Reports indicate that over the past decade, Moroccan citrus production has been stagnant, or even slightly declining. Lower production means fewer exports. If Morocco was exporting upwards of 700,000 tons a year in the early 1980s, in 2006, citrus exports were reported to be at only 450,000 tons a year.

Frequent droughts and erratic rainfall over the past few decades are partly responsible for lowered overall productivity in the agricultural sector, although climactic conditions have improved since 2001. In contrast, production of oranges in Turkey nearly tripled in the period between 1965 and 2005, and in Egypt production is also on the rise. Egyptian citrus is already competing with Moroccan citrus for dominance of the Russian market, and Turkey, given its geographical proximity, could pose a serious threat to the future of Moroccan citrus exports to Russia and Eastern Europe.

Is there a future in fruit?

Morocco’s unemployment and poverty levels are likely to be affected by any market movements in citrus as Morocco’s agricultural sector as a whole accounts for nearly half of Morocco’s employment. In the coming years, increased investment in the sector is expected to fund industry expansion and hopefully to develop the kind of production surpluses aimed for it to expand into new markets abroad and maintain industry employment levels.

Coming in second to citrus are Moroccan tomatoes, which have shown promising signs for the country’s agricultural industry. In 2007, Morocco experienced a 40% increase in tomato exports to EU markets. With citrus exports averaging 460,000 tons a year, tomato exports are not far behind at 300,000 tons a year.

However, Morocco’s citrus remains a favorite for its taste. The colorful fruit, ripened on Morocco’s sunny southern cost in December at a time when Muscovites are bearing below-freezing temperatures, will brighten the short days of many Russians for winters to come.

Just outside South Sudan’s three-year-old capital, a stationary line of ancient Fiat and Bedford trucks are at the end of hundreds of dusty,  rough kilometers from Kenya,  bringing with them the cans of tuna, vegetables and soap on which the town depends. The last leg of the journey is to cross the one half of Juba’s bridge that still spans the Nile, but before they can enter  town, the traders will have to pay again for the goods they already cleared through border customs.

The South’s tax and investment laws, together with a mass of new

legislation, are still being developed. In the meantime businessmen and traders are facing a complex and shifting set of costs especially in the form of multiple taxes. These, they say, are keeping costs of goods high and maintaining Juba’s reputation as Africa’s most expensive capital.

On the other side of town trucks from Uganda pile up for another set of officials. They are bringing tomatoes that cost $2 for five and cabbages that sell for $2.50 a piece. Sugar, oil, spaghetti and even loaves of bread are all consistently priced far above the average in neighboring East African countries.

The 2005 peace deal between northern and southern Sudan ended more than 20 years of war and for the first time opened up the South to development and trade. Keen to encourage investment, the new semi-autonomous southern government — allowed for by the peace accord — set customs taxes fairly low; mostly under 10%.

But there are other, “unofficial” agents at the border and on the roads, and because Central Equatoria State, the governorate where the southern capital is located, also taxes businessmen on entry to Juba, the overall cost of bringing food or building materials can be as high as 30-40% of their value.

“The charges at the border you can calculate, but at Juba it can be anything,” one businessman said. “It depends on the guy’s mood.” He added that drivers’ papers from the border were sometimes torn up outside Juba and then declared useless.

“That cost is dumped on the consumer,” said Ram Sundaram, who works with Amla Distribution and has the exclusive distribution rights for Heineken and Amstel beers for the region.

Sundaram has also had problems predicting the varying cost of clearing goods across the last barrier into the capital, and has paid clearance to Central Equatoria State even if he only passed through Juba to other parts of the South. His trucks are often held for up to three days. “They don’t respect official letters. It’s all a mess and at the end of the day you just want to retrieve your goods so you pay,” Sundaram said.

Only certainty is insecurity

South Sudan is bristling with small arms massed during the conflict and the two main trade routes into Juba — from Kenya and Uganda — have both suffered spats of insecurity from bandits, leftover militiamen and other armed groups. The empty and burnt-out shells of trucks that met their end at the hands of the Ugandan rebel Lord’s Resistance Army, who moved into the thick southern bush before the peace deal, litter the roadsides.

Doing business in the South means taking a risk, entrepreneurs say, and the harassment of truck drivers by soldiers, who are also double or sometimes triple-taxed by seemingly legal officials, can seem an unfair addition to the struggle.

On a day’s drive on one of the South’s main trade roads, the traveler meets several unofficial roadblocks, manned by armed soldiers from the South’s former rebel army.

Cars pass without problems but trucks carrying goods are waved down. A borehole drilling team recently reported having to pay soldiers $50 per truck; a fine levied because the drivers were wearing open-toed sandals. All truckers make sure they have plenty of small change to lubricate their trip.

“It’s blatantly getting worse, it is almost mandatory to bribe,” said Eritrean businessman Aron Hiwet.

Confusion reigns

South Sudan’s President Salva Kiir, also Sudan’s First Vice President, often calls for “illegal” road blocks to be dismantled but so far without complete success. Businessmen say central government officials are aware of the cost presumably legal state authorities are putting on their trade, and have agreed to try and help cut down on costs.

But a key promise of the southern rebels who now run the government was devolution of powers from central government to the states and Juba’s officials are not keen on now again taking away authority from state administrations.

The peace deal is also ambiguous on taxation. While customs are under the authority of the national government in Khartoum, different levels of government — including state authorities — are also allowed to tax. Until a legal system is established that makes it clear how, how much and by whom taxes can be levied, observers say southern and foreign businessmen will likely continue to face problems.

Officials from Central Equatoria agree that there is a problem with the high costs of basic commodities in the town but also say that they are “entitled to certain taxes according to our competencies.” But Leonard Logo Mulukwat, head of the state assembly’s finance body,

admitted that in the confusion practices are taking place that should be stopped, and that some individuals who should not be taxing, are.

A member of parliament in the state assembly explained that, officially, the Central Equatoria State Revenue Authority puts down a 10% charge on all goods entering the town; far higher than the official southern customs tax. Traders entering Juba might also have to pay a 10% tax to the central Ministry of Trade and Commerce if they do not already have a license, and a 22% customs tax if they do not have the correct paperwork from the border, far higher than official border costs.

But the border points themselves are also a challenge for traders, explained Agrey Tisa, undersecretary in the South’s Ministry of Finance.

“(Officially) the maximum cost at the border is 20% for a luxury car. A lorry would be 8-10% … (most goods are) between zero and five percent,” Tisa said. “But there are definitely shortcomings, people collecting revenue who should not be there. There are people collecting without books or receipts.”

Tisa said in some border posts, like Kaya or Nimule on the Ugandan border, there had been up to 12 taxing agents from county, state, South Sudan and national authorities as well as different ministries and tribal chiefs, each getting a cut. 

A National Problem

The irony for the southern government is that they are not yet receiving any money from customs, despite their efforts to try and make costs for businessmen interested in the South considerably lower than in northern Sudan.

During the conflict, southern rebels controlled the posts and towns along the borders with Kenya and Uganda. The hand-over to Khartoum, who under the peace accord will control all national borders and customs, is still not complete and the official taxes have remained at the rates set by the rebels, and many of the collecting officials remain the same, although they are now under the authority of Khartoum. Much of the money collected was lost to southern graft in 2006, but officials now claim the customs cash is sent to Khartoum.

The southern government is due half of all revenues collected in the South but still has not received anything from the national government.

“At the moment, the two rates, South Sudan and Khartoum’s are not yet harmonized,” Agrey said, adding that a committee has now been formed to decide how the two systems can be brought together. The same body is also supposed to calculate how much official customs money has been collected in the south. Half of that sum, which Agrey estimated could be about $50 million, will then be funneled back to the southern government.

Khartoum has also continued to collect taxes — at much higher national customs rates — in the former garrison towns including Wau, Malakal and the capital Juba.

Clearing customs in Juba is furiously expensive. Goods from satellite telephones to sodas are charged 25% customs tax and 15% VAT. Clearing a car through Juba customs will set the owner back 40% in customs, 50% in business profit tax and, of course, 15% in VAT.

This hits average southerners hard, and not just investors and businesses. As the state government begins to come down harder on vehicles without plates, the thousands of Juba residents who are dependent on their cheap Chinese motorcycles will need to clear them through this office. The cost of the motorcycle itself is only around $600, but clearance will add another $300 to the overall bill, too much for southerners struggling to survive.

More than one businessman described the taxes as killing the South’s tiny new economy and encouraging dealers to bring in substandard machines and materials in order to cope with the costs.  Or as Sundaram put it, “This kind of ‘power in hand’ way is not attractive to the investor.  Some days you just think, there’s got to be an easier way of making money.”