This report from The Sentry provides details of an issue that has long been discussed, but seldom documented: the role of Eritrean businessmen in South Sudan. There is strong suspicion that they act on behalf of (and are protected by) the Eritrean government.
“Eritrean and other foreign investors were among the main beneficiaries of a $922 million
program marred by fraud and embezzlement allegations. An unpublished report by South
Sudan’s auditor general shows that companies owned by an Eritrean businessman Ghebremeskel
Tesfamariam Ghidey received contracts worth approximately $57 million between 2013 and 2015 for
the procurement of urgently-needed goods, as part of the $922 million Letters of Credit program.“
Full report here: The Taking of South Sudan
Eritrean and other foreign investors were among the main beneficiaries of a $922 million program marred by fraud and embezzlement allegations. An unpublished report by South Sudan’s auditor general shows that companies owned by an Eritrean businessman Ghebremeskel Tesfamariam Ghidey received contracts worth approximately $57 million between 2013 and 2015 for the procurement of urgently-needed goods, as part of the $922 million Letters of Credit program.
Amid a shortage of foreign currency, the initiative aimed to provide companies with the cash needed to purchase fuel, pharmaceuticals and other goods from neighboring countries. Many of the goods never arrived, and information obtained by The Sentry raises doubts about whether Ghebremeskel’s companies fulfilled their obligations.
His Ugandan company that was supposed to export a significant portion of these goods to South Sudan did not pay any export taxes until after the Letters of Credit program had concluded—and was not even registered with the tax authority until early 2016.
Eritrean Traders and the Letters of Credit Foreign investors were among the main beneficiaries of a $922 million program marred by allegations of fraud and embezzlement, according to an audit report and corporate records reviewed by The Sentry.
Cross-Border Cash Grab
Over $320 million were awarded to, or subcontracted to, companies owned by Eritrean or Ethiopian traders. Of that total, more than $57 million in contracts are linked to companies owned by Eritrean businessman Ghebremeskel Tesfamariam Ghidey, widely known as Gebre.
After South Sudan’s government halted oil production in 2012 amid a dispute with Khartoum, shortfalls in US dollars made importing goods next to impossible, so the government secured $922 million through oil-backed loans from Qatar National Bank and Stanbic Bank to finance procurement. The funds were allocated as “letters of credit” to more than a thousand private companies.
These companies were supposed to procure and import goods from neighboring countries. The cash went out, but, according to the audit report, hardly any of the goods promised reached their ostensibly intended destinations.
The investigation by South Sudan’s auditor general into the program reviewed by The Sentry identifies widespread irregularities.
Additional documents reviewed by The Sentry also indicate that many of the companies cited in the audit for failing to provide goods were owned by senior officials, members of their families or well-connected traders from Eritrea, Ethiopia, Kenya and Uganda.
Several Eritrean and Ethiopian business networks operating between Juba and Kampala, Uganda are reportedly among the largest beneficiaries of the letters of credit program. Eritrean- owned businesses based in South Sudan reportedly received at least $100 million worth of LCs.
The Sentry’s analysis of company ownership revealed that more than a third—$320 million worth—of allotted LC contracts were awarded to South Sudan-registered companies majority owned by Eritrean or Ethiopian traders, or were subcontracted to companies in Uganda owned by Eritrean or Ethiopian traders.
The Sentry found that at least $57 million in LCs identified in the audit report were awarded or subcontracted to companies owned by Gebre.
South Sudan-registered companies owned by Gebre received 21 of the letters of credit identified in the audit report, worth a combined total of $30 million. All but $1.2 million of these letters of credit were reportedly allocated to Gebre’s companies by South Sudan’s trade ministry. According to a report in the Mail & Guardian, companies owned by Gebre received $10 million in LCs to import cooking oil.
The amount corresponded to two thirds of the country’s annual consumption and, based on trade data, at best only $3.4 million of oil were imported during the LC allocation period.173 According to the audit report, Gebre’s companies applied for the LC with five separate companies he controlled. In all, Gebre appears to have accessed five contracts each worth $2 million.
Two South Sudanese government officials jointly own one of Gebre’s companies that received LCs referenced in the audit report. An LC worth $100,000 was reportedly awarded to Mayom General Trading, a firm owned by Gebre alongside Deng Ajou Ajou—an official in South Sudan’s Office of the President—and Abraham Deng Wol Kon, a military officer who is a business partner of Kiir’s brotherin-law, General Gregory Vasili Dimitry.
For many of the payments allocated by South Sudanese government ministries, the auditor general’s report also lists the so-called “LC beneficiary,” the company registered outside of South Sudan subcontracted to import the essential goods and services needed in the country. Gebre owns at least three of the Ugandan companies listed as beneficiaries for LCs allocated to Gebre-owned South Sudanese companies: G.M.A. General Trading Co., SDRA General Trading (U) Limited and Denkel General Trading.
Denkel General Trading stands out because of the number of contracts it reportedly received to export goods from Uganda as part of the letters of credit program.
Denkel was incorporated in June 11, 2014, with Gebre listed as an 80 percent shareholder. The company is listed in the report as the beneficiary for 44 letters of credit—worth a total of $27.3 million—issued by 12 different South Sudanese government ministries.
However, three issues surrounding Denkel raise red flags about whether the company was able to deliver the promised goods.
First, five of the letters of credit for which Denkel is listed as a beneficiary were reportedly allocated to South Sudan-registered companies within a month of being incorporated in Uganda, including two issued the day after incorporation.
Second, according to tax data reviewed by The Sentry, Denkel paid no taxes in Uganda during the period of the contracts in 2014 or 2015, during which all of the letters of credit linked to Denkel had been allocated. The company was not even registered with the Ugandan Revenue Authority until January 2016, according to data reviewed by The Sentry.
Third, Denkel is listed as the beneficiary for a $400,000 letter of credit allocated by South
Sudan’s Ministry of Health to Chetan Pharmacy for pharmaceutical supplies. However, Denkel is not registered with Uganda’s National Drug Authority, a prerequisite for exporting pharmaceuticals legally from Uganda.
Gebre has been associated with other transnational financial transactions. Citing law enforcement sources investigating illicit transfers to businesses affiliated with Eritrea’s ruling party, the UN Monitoring Group on Somalia and Eritrea named Gebre as one of the recipients of “illicit funds” originating from Arlington, Virginia, a suburb just outside Washington.
Two additional sources with knowledge of Gebre’s operations told The Sentry that he has close ties to the Eritrean government and likely conducts business on behalf of senior officials in Asmara. These sources describe Gebre as influential and well connected with South Sudan’s military and security apparatus as well.
The auditor general’s report was presented to South Sudan’s National Assembly but quickly buried and ultimately never published. None of the companies that reportedly failed to deliver supplies faced sanctions or government repayments. Government officials involved in the program have also avoided consequences. The institutional failures that plagued the program have yet to be addressed.
No formal inquiry has taken place into why two large international banks were even willing to provide the loans, given that the recipient government was renowned for high levels of corruption and weak internal controls.
Amid widespread continued commodity shortages, the government amassed hundreds of millions of dollars in debt—and the next generation of South Sudan’s citizens may be left footing the bill. In March 2017, the International Monetary Fund reported that South Sudan had “an outstanding liability to the Qatar National Bank amounting to about $610 million, originating from short-term credit facilities (guaranteed by the Government of South Sudan) that fell into arrears in 2015.”