“I’ve had enough of Sudan and will go to Saudi Arabia,” said
Taha. “I am so tired of this country, the (economic) crisis, the
corruption.”

Taha, who has been working in an office accounts department
for two years because he could not find a professional post, has
just been hired as an engineer by a construction firm in Saudi
Arabia – a move that will increase his salary sevenfold to 2,500
Saudi riyals ($670) a month.

“I also want to find my wife a job as a teacher in Saudi
Arabia because she makes only 600 (Sudanese) pounds ($95) a
month here. We cannot live on our salaries.”

Like thousands of other Sudanese, Taha is escaping a country
gripped by economic crisis since losing 75 percent of its oil
production, its lifeline, when South Sudan seceded in July 2011.

Analysts estimate unemployment is running at between 20 and
30 percent, although there is no official data.

Annual inflation topped 41 percent in April and the Sudanese
pound has more than halved in value against the dollar since
South Sudan’s independence, making life unbearable for many.

Nearly 95,000 Sudanese, from labourers to teachers, nurses
and engineers, left the country last year compared to only
10,032 in 2008, according to official data. Some analysts say
the number is even higher because travel movements are hard to
monitor.

Net migration contrasts with some other African countries,
including South Sudan, that are seeing skilled professionals
return home as the continent’s economic development and
increasing foreign investment create career opportunities.

For Sudan, struggling with a high budget deficit and a
shortage of foreign currency needed to pay for imports,
migration has economic benefits.

The World Bank estimates migrant workers remitted $1.13
billion to Sudan last year, up from $442 million in 2011. That
helped to offset the country’s goods and services trade deficit,
estimated at $6.7 billion by the International Monetary Fund.

The exodus of workers should also help reduce unemployment.
A prolonged “brain drain” of professionals, however, would put
further pressure on the country’s deteriorating public services,
adding to the country’s economic problems.

“We are suffering under the economic hardship,” said Omar El
Fadli, who left Sudan in 1974 to study in Britain and then
worked in France and the United States before coming back in
2005 to buy a restaurant in central Khartoum.

“To be honest with you we have been trying to sell (the
restaurant) for over two years … It’s not profitable anymore.”

At the visa office in Khartoum, women in dark blue robes,
representatives from government-approved employment agencies,
are on hand to help applicants fill in the required paperwork.

“We sort out the paperwork for doctors going to the Gulf,
especially Saudi Arabia which is requesting a large number of
Sudanese doctors to work there,” says Hamda Kassem, one of the
employment agency staff.

While the Sudanese government allows labour agencies to
arrange work contracts for doctors heading to the Gulf, a
government-commissioned study published in January also
expressed concern about the exodus of healthcare professionals.

DOCTORS LEAVING

More than 6,000 Sudanese doctors left for Saudi Arabia alone
between 2009 and 2012, according to the government study,
commissioned to assess the reasons for migration. Around another
1,000 doctors have gone to Libya since the ousting of ruler
Muammar Gaddafi in 2011, it says.

That is leaving health services in Sudan vulnerable as
countries in the Gulf and elsewhere snap up the country’s
leading specialists. Newspaper reports of patients dying in
Sudan hospitals after being misdiagnosed by ill-qualified
doctors are not uncommon.

“There is a very bad effect on medical services,” the
government study says. “The emigration to Saudi Arabia will
result in the loss of specialists which will be felt directly
… in the provinces.”

Sudanese medical colleges pump out up to 4,000 doctors
annually but some colleges use textbooks that are more than 10
years old and have no surgical equipment.

The study forecasts that emigration from Sudan will continue
to increase in the next few years due to economic, social,
security and political reasons.

Sudan has for been plagued by insurgencies. Long confined to
remote regions such as Darfur, rebels struck a central region
last month, triggering fears they might attack Khartoum again
like in 2008.

Few Western engineering firms operate in Sudan due to a U.S.
embargo in place since 1997, making the country reliant on
mostly Chinese companies to build infrastructure and they tend
to import their own workers.

Sudanese government efforts to combat unemployment by hiring
more young people for public sector jobs and starting
infrastructure projects have been hampered by the budget crisis.

Young people complain that corruption also makes it hard to
find work – jobs in the public sector, the biggest employer,
often go to people with the right connections, known as wasta,
they say.

“You cannot find a job without wasta,” said Hisham Hassan,
who graduated in civil engineering from the Sudanese university
of Atbara in 2008 but has yet to find work.

“I can’t afford to get married or anything,” he said after
receiving his exit permit at the visa office.

He has landed a job at a Saudi builder paying him a monthly
salary of 3,000 riyals – in Qassim, one of the most conservative
regions of Saudi Arabia. “It will be fine. I have no choice
anyway,” he said.

Concerns about personal freedom in Sudan are also
encouraging emigration. Security agents have cracked down hard
on small street protests organized mainly by students dreaming
of an “Arab spring”. Divisions in the weak opposition and the
army’s support for President Omar Hassan al-Bashir mean Sudan
has avoided the uprisings seen in Egypt or Tunisia.

SUDANESE SKILLS

Sudanese professionals have a tradition of going overseas to
gain experience and make money. In the 1960s and 70s, they
flocked to the Gulf as those economies took off.

Opportunities dried up after the 1991 Gulf war when
President Bashir failed to back the U.N.-led military operation
to end Saddam Hussein’s occupation of Kuwait. In retaliation,
Gulf countries deported thousands of Sudanese once Kuwait was
liberated.

With governments in the Gulf spending billions of dollars on
roads, schools and universities again, Sudanese are back in
demand although prospects in Saudi are dampened by a crackdown
on illegal workers and policies to replace foreigners with
locals.

Sudanese are also looking further afield. At the Goethe
Institute in Khartoum, run by the German government, there’s a
waiting list of up to three months to enrol in German classes.

Ahmed Shamun is making a living from the rise in migration.
Having worked in Abu Dhabi as an English translator for 13
years, he returned in 1993 and now runs an employment agency in
Khartoum, fixing up Sudanese with jobs in the Gulf. Yet, he
still laments the trend.

“It’s not just doctors or engineers leaving, most of them
are workers,” he said, sitting in his small office next to a
travel agent selling air tickets to Saudi Arabia.

“I don’t like it but what else can young people do? There
are no jobs here.”

The African neighbors agreed in March to resume cross-border oil flows, ending a row over pipeline fees that prompted landlocked South Sudan to shut down its entire production of 350,000 barrels a day in January 2012.

Sudanese Oil Minister Awad al-Jaz told SUNA the first oil from the South had arrived at Heglig, an oilfield controlled by Sudan along the disputed border.

Sudan and South Sudan came close to war a year ago but pledged in March to end the conflict over oil fees and a disputed border.

The oil shutdown threw both into turmoil, because they depend on oil revenue and pipeline fees to fund food and other imports.

In Heglig, which was damaged during weeks of skirmishes between the two armies in April 2012, water will be removed from the oil before it be will be piped to Port Sudan on the Red Sea to be loaded on to vessels.

South Sudan has resumed production of oil at the small Thar Jath oilfield in Unity State across the border from Heglig.

On Sunday, the government also turned on wells again at the Palouge field, the country’s largest, in Upper Nile state in the northeast.

SLOW PRODUCTION

The return of production is going slower than planned. South Sudan hopes within a month to pump up to 180,000 barrels per day in Palouge where Dar Blend, a heavy sour crude, is produced.

But damage caused by the skirmishes means South Sudan can only gradually ramp up output in its Unity State oilfields, which is mixed to produce Nile Blend, a light, sweet, waxy crude. Its production is likely to remain at around 30,000 to 40,000 bpd for at least six months, experts say.

Originally the country had planned to have resumed oil exports by January, but mistrust between the neighbors delayed the set up of a border buffer zone, a condition for Sudan to let through southern oil.

South Sudan expects to start getting paid in June as the first exports will be lifted in Port Sudan only by May 20, according to its oil ministry.

South Sudan seceded from Sudan in 2011 under a 2005 peace deal, which ended one of Africa’s longest civil wars. However, the two remain at loggerheads over control of disputed territories and other issues.

(Reporting by Ulf Laessing; editing by Jane Baird)

Sudan lost most of its oil reserves – the main source of dollar revenue to pay for food imports – when South Sudan seceded in 2011, driving down the local currency, taking inflation to almost 50 percent and fuelling dissent.

The neighbors, embroiled for decades in a civil war that ended in 2005, agreed in September on access to two pipelines and Port Sudan. Juba had stopped all exports last January after clashes in a disputed border area over oil revenues and land.

The oil flow restarted in April and, analysts say, fees will be paid from around June.

“Our estimate is that in 2013 Sudan will receive just under $500 million from South Sudan,” Paul Jenkins, the IMF’s resident representative in Sudan, told Reuters. “That reflects that oil will be flowing only for part of a year,” he said.

This amount – less than half of the up to $1.2 billion forecast by Finance Minister Ali Mahmoud last month – would make “a big contribution” to plugging its deficit, Jenkins said. The IMF estimates Sudan will get $1.5 billion in fees next year.

The oil deal expires in 2017 when South Sudan hopes to have a pipeline of its own, bypassing Sudan.

“If they don’t use the period wisely, if expenditure increases in response to the oil money then the inflation rate will continue to rise and the exchange rate will continue to be under pressure,” Jenkins said.

The IMF is one of few bodies with access to Sudanese government data and does not lend to Sudan which has not repaid previous loans since the mid 1980s.

“It is important to avoid the temptation of using the oil money which is temporary in nature to put in place expenditure increases like salary increases for public servants that are pretty much likely to be permanent,” Jenkins said.

Sudan agreed in principle to a salary increase for public servants in January.

The government has been addressing the loss of oil with austerity measures including scaling back fuel subsidies. The central bank, which is funding the deficit with high-yield Islamic bond sales, has also devalued the Sudanese pound.

More needed to be done to diversify and improve the economy such as tightening up tax collection and building up alternative industries such as agriculture sector, Jenkins said.

“Eighty percent of the people pay less than 20 percent of taxes they owe,” he said.

Sudan’s tax yield, the ratio of revenues to gross domestic product, is 7 percent compared with 20 percent in neighboring Kenya, a disparity analysts blame on corruption and cronyism.

The government is overhauling its budget forecast to include the oil deal. It projected in December a 2013 deficit of 10 billion pounds, or $1.6 billion based on black market rates.

(Editing by Louise Ireland)

A tribal leader was shot dead in the same incident, while in separate violence along the neighbors’ volatile border, the Sudanese army clashed with rebels of the SPLM-North, which is trying to topple President Omar Hassan al-Bashir.

Sudan and South Sudan in March agreed to resume cross-border oil flows and defuse tensions which have plagued them since the South seceded in 2011 after an independence vote.

But they were unable to decide on the ownership of Abyei which both the Dinka tribe, allied to South Sudan, and the Arab Misseriya tribe, allied to Sudan, call their home.

Kuwal Deng Mayok, the top Dinka leader in Abyei, was travelling with a U.N. convoy when he was killed by members of the Misseriya in a clash on Saturday that risked fuelling new tensions in the flashpoint area.

An Ethiopian peacekeeper was also killed and two others were seriously wounded by a Misseriya tribesman, U.N. Secretary-General Ban Ki-moon’s office said.

“The Secretary-General urges the governments of Sudan and South Sudan and the … Dinka and Misseriya communities to remain calm and avoid any escalation of this unfortunate event,” it said in a statement.

The Sudanese foreign ministry said in a statement it would carry out an “urgent, transparent, thorough and fair” investigation. It urged all parties to exercise restraint.

NEW CLASHES

Abyei straddles the border between the neighbors, who fought one of Africa’s longest civil wars. It is prized for its fertile land and small oil reserves.

Like South Sudan, Abyei was meant to have an independence vote, agreed under the 2005 peace deal which ended the civil war between the north and south. But both countries have been unable to agree which tribal members should participate.

Ethiopian peacekeepers have been running a temporary administration for Abyei since Sudan seized it in May 2011 following an attack on a convoy of U.N. peacekeepers and Sudanese soldiers which the United Nations blamed on southern forces. Khartoum later withdrew its forces under a U.N. peace plan.

In separate fighting, the army clashed on Sunday with rebels of the Sudan People’s Liberation Movement-North (SPLM-North) in the Sudanese state of South Kordofan, bordering South Sudan.

Army spokesman al-Sawarmi Khalid told state news agency SUNA his troops had repulsed a rebel attack in the area of Um Burmbita, killing many fighters of the SPLM-North.

SPLM-North spokesman Arnu Lodi confirmed “heavy clashes” but denied his troops had been defeated.

(Reporting by Ulf Laessing in Khartoum and Lou Charbonneau in New York; Editing by Mark Trevelyan)

Six days earlier, hundreds of insurgents had stormed in, spraying bullets and killing up to 13 civilians and soldiers, before pulling out as government planes started flying overhead.

A week on, Um Rawaba’s traders and shoppers cheered and gave “thumbs-up” signs as the latest government reinforcements arrived and drove past buildings still bearing the scars of the attack.

Even as government minders looked on, some citizens acknowledged they were worried.

“This was the first time we had such an attack … We want security,” trader Omar Kuf told Reuters on Thursday.

Sudan has long been plagued by rebel attacks – but there were at least two main reasons for the Khartoum government to sit up and take particular notice after this assault.

Almost all the past turmoil has sprung up in the country’s distant and arid peripheries, not in North Kordofan, the region that includes Um Rawaba and forms part of Sudan’s commercial heartland, a hub for its agriculture, livestock and gum arabic industries.

Second, many of the earlier uprisings have been focused affairs – between the government and rebels fighting over grievances in their particular territories, among them Darfur, South Kordofan and Blue Nile.

But this was a coordinated attack by members of those rebel groups, fighting together under the single banner of the Sudanese Revolutionary Front (SRF) with a nation-wide agenda.

It was biggest assault yet by the umbrella group of fighters who have vowed to topple President Omar Hassan al-Bashir and end what they see as his elite’s stranglehold on the whole country – an accusation he denies.

The government has previously played down the threat posed by the rebels, and called Um Rawaba’s attackers “terrorists” holding civilians as “human shields”.

NEW FRONTS

Diplomats and analysts said the raid on Um Rawaba appeared to be a bid to stretch Sudan’s army ever thinner, across an ever-changing line of battle in Sudan’s savannahs and scrublands, rather than an attempted land grab.

“They now feel the government forces are weak, that they can strike anywhere,” said Faisal Saleh, a Sudanese journalist.

Bashir, in power since 1989, has been facing small street protests over an economic crisis and also dissent inside the army and his ruling circles.

One of SRF’s member groups – Darfur’s Justice and Equality Movement (JEM) – has already shown its ability to spread chaos beyond its home territory by launching an unprecedented assault on Khartoum in 2008.

The attack on Um Rawaba, North Kordofan’s second biggest city, 500km (300 miles) south of the capital, was much larger than initial reports indicated, officials said.

“They came with 140 cars, each manned with between four and six people,” said Um Rawaba commissioner Sharif Fadhil, who, like other local officials, said the situation was now under control.

In the first official toll, Fadhil said 13 civilians and soldiers had been killed. Four other people died in other areas that the rebels had also attacked, officials said.

“Life returned to normality within 48 hours. Now life here will be better than before,” said Adam Abdallah, head of a union representing local workers. “The army has spread out everywhere. Citizens stand by the government, army and authorities.”

Around 19,000 people in North and South Kordofan have been affected or displaced by the fighting since Saturday, Haroun Abdallah, the government’s humanitarian aid commissioner for South Kordofan, said by phone.

Security was tight in Um Rawaba on Thursday. Army trucks with mounted machine-guns were parked in front of all government buildings.

But something like normal life had returned to the streets. Women shopped in the packed market and men drank tea in the shade of makeshift cafes.

Outside the city, a backup transformer at the main power plant had been connected after the old one was set ablaze by the attackers.

“We are happy that power is back and shops open,” said Khalid Ezzedin, speaking again in the presence of government minders. “We demand security from the government.”

(Reporting by Ulf Laessing; Editing by Andrew Heavens)

“I come here every day. I love to be here and smoke water pipe with my friends and socialize,” said Ali, sitting at a table in a noisy shisha cafe on the top floor of a hotel.

Enormously popular across the Middle East and in North Africa, shisha smoking is frowned upon in conservative Muslim countries such as Sudan or Saudi Arabia on “morality” grounds.

Khartoum city authorities revoked the licenses of shisha cafes two years ago after radical preachers said the practice – which involves inhaling flavored tobacco, or shisha, through a water pipe also known as a hookah or arghila – not only damaged the health but also provided unmarried men and women an opportunity to mix.

But the realities of the country’s moribund business environment and economy since South Sudan seceded in 2011 mean it is creeping back into daily life.

Local authorities have allowed shisha smoking back in “touristic hotels and restaurants”, and they tend to look the other way in some other venues.

A few large restaurants have also started to stage live music events that they stopped with the shisha ban because some Islamists deem such performances as “haram”, or forbidden.

The return of the cafes is welcome news for the young Sudanese who complain about the capital’s dull nightlife.

While Cairo’s Nile banks bustle with diners, there are hardly any cafes on the river promenade in Khartoum. The dusty streets are deserted from 11 p.m., when most restaurants and the country’s only shopping malls close.

“If I don’t have a shisha, I’m unhappy,” said Mohamed Ismail, another smoker in the busy hotel cafe.

Hotel owners hope the business of shisha will offset a sharp drop in the occupancy rates since southern secession.

The loss of oil reserves has drained the government’s coffers and hit spending on infrastructure, driving away executives from China and other Asian countries who used to do a good business in Sudan. Most Western firms shun Sudan due to U.S. sanctions over its human rights record.

“Demand for rooms is very weak. I’ve been thinking of closing one floor,” said Majid Osman, a lawyer who owns the hotel with the shisha lounge.

“We have some 70 people coming every day, spending at least 20 (Sudanese) pounds ($3.20),” said Osman, who has to pay an annual fee of 5,000 pounds for the shisha license.

“There are other places who even sell 500 shishas every night,” he said.

Mohamed Ali spends $200 a month there on water pipes alone. Like other regular visitors, the cafe has reserved a personal shisha for him with his name written on it.

STILL VERY CONSERVATIVE

But the relaxation of the water pipe ban doesn’t mean Khartoum is not still a very conservative place. Alcohol is banned, and those caught brewing beer at home are flogged.

The few tourists who make it to the capital these days would never know from walking Jumhuriya (Republican) street now that this was once the heart of a cosmopolitan capital with a nightlife as vibrant as Dubai or Beirut today.

Home to shops selling mainly cheap Chinese goods during the day and deserted and unlit at night, the street was lined in the 60s and 70s with luxury shops selling the latest Italian fashion, delicatessen shops offering French cheese – and bars and nightclubs.

“Here was an ice cream parlor where you would get the same standard like in Europe,” said Omar El Fadli, showing a small stall opposite his restaurant, the Papa Costa.

Further down he points to an empty strip of land where once stood a nightclub founded by British colonial rulers who left in 1956.

“Life was completely different. It was amazing,” said 56-year-old Fadli, who left in 1974 to study in Cambridge and came back in 2005 when Sudan made peace with the south.

“Businesses were booming. We had a large community of expatriates. Greeks, Italians, Armenians, Egyptians, who were mainly running businesses. Even social habits were different,” he said, sitting in his almost empty restaurant.

“We had entertainment, parties, weddings which started at midnight and would go until 4 o’clock in the morning.”

His restaurant, founded by Greek merchants in the 1950s initially as a bakery, is one of the few outlets from the old times that still exist on the street. It doesn’t serve alcohol anymore, of course.

The booming scene was harshly curbed when late President Jaafar Nimeiri decided to introduce Islamic law in 1983, closing all bars and banning alcohol.

“They took it (the alcohol) by truck loads and dropped it into the Nile,” said Fadli, laughing.

What little was left of the nightlife was snuffed out in the 1989 Islamist revolution of President Omar Hassan al-Bashir, which made Sudan in the 90s a haven for Islamic militants such as Osama bin Laden. “Morality” police started hassling diners, who hurried home early to beat the curfew.

The mood relaxed in the early 2000s when the government tried to open up more to the West, but tightened up again as the time for southern secession approached.

NO FORMAL BAN

There is currently no formal law in Sudan banning shishas, but Khartoum authorities are handing out licenses selectively because of health concerns, said Rabie Abdelati, a senior official at the ruling National Congress Party.

“Five-star hotels and restaurants can offer shishas, but there is a local act not to allow them in public places,” he said. “The government is also trying to ban (cigarette) smoking in public offices due to health concerns.”

Although the government is trying to soften its Islamist image, many hotel and restaurant owners are wary of any future swing in sentiment.

Lawyer Osman only allows men to smoke shisha in his cafe, and Fadli said the water pipes will not be featured on the menu at the Papa Costa anytime soon.

Fadli said he tried to offer shisha and it ended up being bad for his restaurant business, even after accounting for the extra money it brought in, because of its associations with loose morals and independent women, even prostitution.

“Yes, it makes money but it can affect the reputation of a place. It can attract … women who like to smoke shisha,” Fadli said. “That brings a conflict with families who come and find young girls (hanging around). It doesn’t go together and is not accepted.”

Other restaurants offer shisha but, without official licenses, keep a low profile to avoid attracting attention.

The city’s biggest shisha place, a garden cafe in an upmarket villa area visited by hundreds of people every day, is shielded from prying eyes by bushes. There is no sign at the unlit entrance.

In a residential building on an unpaved side street close to the cafe, its owner has opened a special section for trusted regular customers who enjoy fast service and comfortable chairs.

“I come here every night because you cannot go all the time to Cairo and Ethiopia to enjoy yourself,” said a man who gave his name only as Abdallah, like others worried about attracting the attention of the police.

“There is so little to do in Khartoum.”

(Editing by Sonya Hepinstall)

The attack marks the biggest push by a rebel alliance that is seeking to topple President Omar Hassan al-Bashir. Fighting had hitherto been limited mainly to remote regions of Darfur and South Kordofan and Blue Nile states, which border South Sudan.

The Justice and Equality Movement (JEM), which launched an unprecedented assault on Khartoum in 2008, said the rebel alliance stormed Um Rawaba in North Kordofan state, around 500 km (300 miles) south of the capital.

JEM did not say whether it would try to advance further.

Sudan’s army told state media that it was still fighting rebels inside Um Rawaba, the state’s second largest city. It accused insurgents of destroying a power plant, petrol stations and a telecommunications tower.

“Battles are still ongoing,” army spokesman al-Sawarmi Khalid told state news agency SUNA.

Armed men in 20 trucks drove into Um Rawaba, an important market for a major Sudanese agricultural export product, gum arabic, and looted a market and several banks, residents told Reuters. A JEM spokesman denied any pillaging by rebels.

“The goal of this attack is to weaken the government to realize our strategic plan to topple the regime,” JEM spokesman Gibril Adam said.

ROAD REOPENED

The government later said it had reopened the road between Khartoum and the North Kordofan state capital El-Obeid, which had been blocked by fighting, according to state governor Mutassim Mirghani Zaki Uddi.

“The rebels have fled southwards,” Uddi told the state-affiliated news website Sudanese Media Center (SMC). “They were unable to stay in Um Rawaba.”

JEM spokesman Adam denied this and said his troops had only withdrawn from the city center to the outskirts after Sudanese warplanes started bombing Um Rawaba.

“People are in a state of panic,” said one Um Rawaba resident, asking not to be named.

On a separate front, the SPLM-North which is part of the rebel movement attacking Um Rawaba, said it had seized four villages east of Kadugli, capital of South Kordofan state. There was no immediate comment from the army on the statement.

Events outside Khartoum are difficult to verify in the vast African country. Um Rawaba is a two-hour drive from Kosti, Sudan’s biggest Nile river port.

JEM forces drove across hundreds of miles of desert to attack the Khartoum suburb of Omdurman in May 2008 and were stopped just short of the presidential palace and army headquarters.

The group was one of two main rebel forces that took up arms against Sudan’s government in 2003, demanding better representation for Darfur and accusing Khartoum of neglecting its development.

Khartoum mobilized militias to crush the uprising, unleashing a campaign that Washington and activists described as genocide. Sudan’s government denies the charge and accuses the Western media of exaggerating the conflict.

In 2011, JEM teamed up with two other Darfuri groups and the Sudan People’s Liberation Movement-North (SPLM-North) which took up arms in South Kordofan and Blue Nile states around the time of South Sudan’s secession.

They formed the “Sudanese Revolutionary Front”, which says it fights to topple Bashir to secure a fairer share of government in a country dominated by three Arab tribes.

Fighters of the SPLM-North sided with southern Sudan during decades of civil war that ended with a peace deal in 2005, which paved the way for South Sudan’s formal breakaway in July 2011.

Sudan on Wednesday started peace talks with the SPLM-North after a thaw in relations with South Sudan.

(Writing by Ulf Laessing; Editing by Mark Heinrich and Mike Collett-White)

“I was fired with many others when trading volumes went
down,” said Ayad, a man in his 30s who worked for a securities
firm in Cairo until last year. “I have been unable to find a new
job as many other people working in the financial sector have
also been laid off.”

Over two years after Egypt’s revolution ousted president
Hosni Mubarak, the stock market continues to sag, plagued by
sluggish trading turnover, a lack of new equity issuance and the
reluctance of many big foreign investors to commit money.

The effect is being felt well beyond the community of
finance professionals in Cairo and Alexandria – the market is
viewed as a barometer for business confidence, and its weakness
is preventing companies from using it to raise money.

Although Egypt’s economy is struggling, the market’s
problems are as much political as economic. Investors feel the
government is unsympathetic to them, and inclined to intervene
in the market to obtain money or settle political scores.

Two official decisions this month have raised hopes that the
government’s approach to the market is changing, and that it can
reach an accommodation with investors. But the decisions will
need to be followed by the resolution of other long-running
issues for confidence to return, analysts and investors say.

PUBLIC RELATIONS

After Mubarak’s overthrow the Muslim Brotherhood, which took
the lion’s share of political power, mounted a public relations
campaign to reassure investors that its Islamist ideology did
not conflict with their desire to make money.

By late last year the campaign appeared to be working; the
main stock index, which halved in the months after the
revolution, had recovered almost two-thirds of those losses.

But early this year, a series of regulatory incidents hit
the market. One was a clash between authorities and Orascom
Construction Industries, the market’s largest stock.

In late February the Egyptian Financial Supervisory
Authority (EFSA) intervened to suspend a multi-billion dollar
offer for Orascom’s Amsterdam-listed affiliate OCI NV
to buy out the shares of the Cairo-listed company. The EFSA said
it wanted more information about the transaction, which could
result in Orascom being delisted from Cairo.

Then in early March, the government slapped a travel ban on
Orascom chief executive Nassef Sawiris and his father Onsi
Sawiris – two of the country’s most prominent businessmen – in a
probe into alleged tax evasion by the company.

Later that month, authorities spooked the market by imposing
a new tax covering investment gains on an offer by Qatar
National Bank (QNB) to buy shares in National Societe
Generale Bank (NSGB) – and telling shareholders about
the tax only after they had agreed to sell.

Taken together, the incidents suggested the government’s
attitude to the market was not as benign as it had claimed. A
fledgling recovery of foreign fund inflows into the market was
halted; the index is down 11 percent from its January peak.

The market is still debating authorities’ motives. One
theory is that the government, with its budget deficit
officially projected to rise to 197.5 billion Egyptian pounds
($28.5 billion) in the fiscal year that will start on July 1, is
increasingly desperate to raise money – and that it sees the
market as a tempting source of cash.

If this theory is right, the government may be disappointed.
Much of the money it raises in the short term could be lost in
the long term as investors become more reluctant to trade stocks
and companies shy away from listing their shares on the market.

“They make less than $10 million, $9 million from this tax,
a very small amount for making all this trouble,” said Karim
Abdelaziz, who manages an Egyptian share fund worth 1 billion
pounds at Cairo-based al-Ahly Fund & Portfolio Management.

Another possibility is that as Brotherhood-backed President
Mohamed Mursi consolidates power, his administration is becoming
more eager to settle political scores with businessmen who
prospered under the old regime. The Sawiris, and wealthy stock
market investors, fall in that category.

In the long run, that strategy could also be
counter-productive, by deterring the business investment which
Egypt needs to create jobs and repair its economy – and which
the Muslim Brotherhood will need to retain its political
support.

Abdelaziz said the Orascom tax case could lead to a lengthy
court battle, which would risk scaring off more investors who
were already concerned about land sales that have been revoked
by the government. Authorities accuse some real estate firms of
having paid too little for land because of cosy relationships
with officials in the Mubarak era.

A third theory is that officials making decisions affecting
the stock market, some of them new to government after being
excluded from power by Mubarak, are simply too inexperienced -
or perhaps too distracted by other challenges – to make policies
with investor confidence in mind.

Hani Helmy, chairman of El Shorouq Brokerage in Cairo, said
the government was too busy dealing with street violence, fuel
shortages and power cuts to focus on helping the stock market.

“I think since the revolution until now…the stock exchange
is not a priority to deal with – maybe we are number 10, number
20,” he said.

POSITIVE SIGNS

There have been two signs this month that authorities’
approach toward the market may be becoming more benign.

One was an announcement by the EFSA that the stock exchange
would reinstate the buying and selling of individual stocks
within the same trading session from the first week of May, in
an effort to boost market volumes.

Buying and selling a stock in the same day has been banned
since the revolution destabilised the market in February 2011.
EFSA head Ashraf El Sharkawy said the resumption would increase
the number of transactions by between 30 and 40 percent and help
to alleviate “huge liquidity problems” on the exchange.

By itself, the opportunity to trade stocks more frequently
will not restore investors’ faith in the government – but it
does suggest that within the government, there are still
officials working to improve market conditions.

The second positive sign was a decision by parliament’s
economic and financial committee to scrap the tax on investment
gains and return to investors the money already levied on the
NSGB deal.

Abdullah Shahata, an aide to the finance minister, told
Reuters that members of parliament had decided the tax would
have a “negative effect on the investment climate in Egypt”.

Daniel Broby, chief investment officer of British-based Silk
Invest, said the tax saga should be seen as part of a learning
curve in economic management for Mursi, and was not a bad omen
for the market in the long run.

“The tax imposed on stock market gains…is the sort of
knee-jerk reaction that inexperienced politicians typically make
and regret,” he said.

At least two more things may need to happen for the market
to feel comfortable with the government. One is a resolution of
the Orascom tax dispute; Orascom said on Tuesday it was “in an
advanced stage of negotiations with the Egyptian Tax Authority
and will announce more details within the coming few days”.

The other thing is for the government to give clearance for
a merger of Cairo-listed EFG-Hermes, the Middle East’s
largest investment bank, with QInvest of Qatar. The
deal was originally signed on May 4 last year; a clause in the
agreement states it will lapse after 12 months if regulatory
approval is not forthcoming.

The merger is politically sensitive in Egypt because both of
EFG’s chief executives, Hassan Heikal and Yasser El Mallawany,
are accused by authorities of illegal share dealings in relation
to a 2007 transaction, along with the two sons of ousted
Mubarak. EFG has said it will defend the CEOs.

Uncertainty over whether the deal will go ahead has weighed
on EFG’s share price and caused concern about Egypt’s relations
with Qatar, which has promised billions of dollars of badly
needed financial aid to Cairo.

If such issues are resolved and confidence in the regulatory
environment revives, Egypt’s fast-growing population of 84
million could make its stock market attractive. Some
institutions are already planning based on that assumption.

“We plan to open five to six branches in the provinces in
the Nile Delta and Upper Egypt in the next three years to
attract retail investors,” said Hussein Choucri, chairman of
local firm HC Securities & Investment, which manages
assets worth almost 5 billion pounds in 14 investment funds.

Fund manager Helmy said a Muslim Brotherhood victory in this
year’s parliamentary elections, which are expected as early as
October, might actually calm the market by giving parliament a
mandate to take difficult economic decisions.

“People would accept the Brotherhood for the first two
years, and judge them afterwards,” he said.

There is little trading in the Sudanese pound but its black
market rate against the dollar is watched by foreign firms which
sell products in pounds but often struggle to convert their
revenues into dollars. Companies operating in Sudan include
cellphone operators MTN and Zain, airlines
such as Lufthansa and Turkish Airlines, and
Gulf-based banks.

Analysts blamed currency losses in the African country for a
32 percent profit drop in fourth quarter profit at Zain, which
is headquartered in Kuwait.

Last month, Sudan and South Sudan agreed to resume oil
exports from the landlocked South, under which Juba will pay in
dollars to use Sudan’s export facilities.

Since the news, a dollar has bought between 6 and 6.2
pounds, compared to around 7 previously, black market dealers
said. This is still well above the official rate of
around 4.4 pounds.

“The rise is driven so far only by hope. The central bank
has not pumped any money yet,” said one dealer.

Another dealer said the dollar would bounce back once it
became clear that the expected inflows from pipelines and port
fees would not end Sudan’s dollar shortages.

Sudan is facing an “agricultural financing crisis” because
it needs $1 billion to import food annually, al-Sahafa newspaper
quoted agricultural minister Abdel Halim al-Mutaafi as saying.

Sudan’s economy was thrown into turmoil when South Sudan
took away three-quarters of the formerly united country’s oil
output with its secession in July 2011.

As well as being a major source of revenue for Sudan, oil
also provided dollars needed for imports. Annual inflation
almost hit 50 percent in March, up from 15 percent in June 2011,
the last data before southern independence.

The black market rate is also an important indicator of the
mood of the business elite and ordinary people exhausted by
years of economic crises, ethnic conflicts and wars.

Sudan avoided the “Arab Spring” revolts which unseated
rulers in Egypt and Libya but soaring inflation has sparked
small protests against President Omar Hassan al-Bashir.

(Reporting by Khalid Abdelaziz and Ulf Laessing; Editing by
Catherine Evans)

The size of the auction – 15 times the amount the central
bank has been selling at its regular currency auctions – showed
the extent of pent up demand for dollars as Egypt struggles with
an economic crisis two years after the ousting of Hosni Mubarak.

The hard currency was sold at 6.87 pounds to the dollar -
near the official rate. The pound is trading much weaker on the
black market where most private sector importers are having to
source their hard currency needs.

The special auction follows Qatar’s pledge last week to buy
$3 billion in government bonds – a boost to foreign currency
reserves that had fallen to critically low levels below the $15
billion needed to cover three months worth of imports. At the
end of March, the reserves stood at $13.4 billion.

Foreign exchange dealers said the authorities would have to
use more dollar reserves to guarantee food supplies. Food price
inflation has stoked unrest in the past.

“The effect will be temporary because the demand is a lot
higher than this. They must do it again but it is not clear when
that will be,” said a currency dealer, asking not to be named.

The central bank has been rationing sales of dollars since
late December in a system of regular foreign currency auctions
brought in to cope with the impact of a run on the pound.

At official rates, the currency has lost a tenth of its
value since then. The central bank has been holding three
auctions per week, selling $40 million at each.

Shortages of imported fuel are disrupting transport and
leading to power cuts. Egypt, the world’s biggest importer of
wheat, has also cut back on international purchases this year in
the hope of a bumper local harvest.

Sunday’s auction was held for banks with clients importing
staple commodities such as wheat, cooking oil, tea, meat, fish,
beans, butter, corn and baby milk, components for drugs and
vaccines as well as spare parts, the central bank said.

The central bank auction coincides with the start of the
wheat harvest for which farmers urgently need fuel supplies to
run harvesters and transport the crop to storage centres.

The central bank did not say when it would hold its next
special auction, saying only that future sales would be
announced in a statement.

BLACK MARKET

Traders said the central bank was trying to clamp down on
the black market, which has flourished this year thanks to the
dearth of hard currency.

Recent pledges of foreign aid have strengthened the pound on
the black market. The foreign exchange dealer said the pound was
now trading at around 7.3 to the dollar, compared to 7.8 before
the announcement of aid from Qatar and Libya.

Reports have suggested Libya has agreed to deposit $2
billion with the central bank, though comments from its central
bank governor on Saturday indicated the funds did not amount to
a fresh injection of hard currency. He said the funds had been
deducted from other Libyan investments in Egypt.

Egypt is also in talks with the International Monetary Fund
(IMF) on a $4.8 billion loan.