Sudanese founders face unfair sanctions

Biography:

Yousif Yahya is the founder of Savannah Innovation Labs, a startup incubator in Khartoum, Sudan’s capital. He is also a venture partner at African Renaissance Capital, an East Africa-focused VC. 

The crux of the issue

It may seem insensitive to talk about the Sudanese economy as the country reels in humanitarian disaster. I disagree, because weak economic development is what has, in large part, caused this disaster. 

If Sudan’s private sector cannot offer enough jobs to Sudanese youngsters, many will turn to fighting or exile. Joining an armed group provides what a job should provide: community, sense of purpose and a salary. This Faustian bargain has catastrophic consequences. Thousands of Sudanese mercenaries, some of them children, fought in Yemen for money. Putting their life on the line for a conflict that isn’t theirs shows the level of economic desperation. Today, many of them are involved in a bloody civil war. 

The scale of the horror going on in Sudan deserves all of the coverage it can get, if not more. But this shouldn’t occult everything else. Companies are still operating in Sudan, ports are still loading and unloading containers. Admirable startups such as Cashi are providing life-saving digital financial services to the Sudanese population. This, too, should be extensively covered. 

Avoiding the next humanitarian disaster implies building a vibrant Sudanese private sector. The startup scene in particular holds promise, both in terms of quality of jobs created and societal utility of the companies it props up. 

In that vein, attention should be paid to the issues Sudanese startups face. A big one is sanctions. 

Outdated, yet painful

For nearly 30 years, Sudan was ruled by Omar al-Bashir, a dictator. He was deposed in 2019 following a wave of popular protests and the army turning against him. Since then, the country has gone through interim governments and is now torn apart by a rebellious faction of the army fighting the national army for control. 

During the al-Bashir years, Sudan was subject to a punishing sanctions regime. Sudan as a state was considered a “sponsor of terrorism”. This locked Sudanese people out of the global financial system. Visa and Mastercard didn’t work. Sudanese students couldn’t take a course on Coursera. Sudanese founders couldn’t use AWS. Sudanese marketers couldn’t run Facebook ads. 

My dad’s Amazon account got banned because he bought a book while in Sudan. Such blanket sanctions didn’t delineate between the state and the individuals within it. Everyone and everything was considered to be “harboring terrorism”. 

With al-Bashir’s fall came an easing of said sanctions. In 2020, Sudan was removed from the “state sponsor of terrorism” list. This opened new possibilities. Mastercard expanded into the country. In theory, Sudanese founders could rejoin the global, connected financial world. There are still sanctions on Sudan, but they target individuals and entities linked to the civil war. They are nowhere near the blanket sanctions the country was slapped by during the al-Bashir years.

Out of sight, out of mind

Unfortunately, not all large tech companies have updated their policies. Sudanese founders are still blocked out of some of them, despite there being no legal reasons for them to be. This is painfully unfair. Coursera still restricts Sudanese users. Sudanese founders can’t open a bank account on Wise. It may be challenging for Sudanese tech freelancers to work for clients abroad because of the outdated perception that Sudanese people are still sanctioned. Both the government and the private sector sometimes struggle to acquire foreign hardware and software for that same reason.

This confusion (and willful ignorance, to make the distinction) between blanket and individual sanctions damages the ecosystem. It is what I have to elucidate every day to foreigners interested in our ecosystem. 

I’ll repeat it here. Sudan as a country isn’t sanctioned, specific individuals are. Sudanese diaspora working at these large tech companies could play a role in getting these policies updated. Instead of individual actions, the Sudanese diaspora in the legal sphere should band together and lobby under a single voice, similar to diaspora groups leading humanitarian relief efforts. 

Internal challenges

Lifting these outdated restrictions is only half the battle. The ecosystem itself has a lot of work to do, under complicated circumstances. The incubator I run, Savannah Innovation Labs, was taken over by the RSF (one of the warring factions) a couple of months ago. We have re-established operations in Port Sudan, in the country’s east, while I work out of Cairo. 

The potential tech startups hold for Sudan’s future make this work worth it. There are two verticals on which we need to advance: regulation and unlocking internal capital.

Let’s start with regulation. Before the war, there was little engagement between the Sudanese government and broader ecosystem actors. This needs to change, despite how shaky the current government is. What matters isn’t who is in power, but is the ecosystem updating the laws it needs to. 

The Sudanese tech sector should plant the regulatory seeds, so that it can move swiftly when the war ends. The company registration process has to be redesigned and digitized, for example. Today, the same laws apply to a company making $10 and a company making $10M. Everything still happens through pen and paper.

Adjacent to regulation, Sudanese founders need to shrewdly operate the political sphere, because they depend on it. 

I was a founding team member of Bloom, a Sudanese fintech startup that raised $6M and was Sudan’s first Y-Combinator startup. One of the mistakes the company made was not adapting to the Sudanese Central Bank’s pace. Initial emphasis needs to be placed on educating regulators. This is something the Egyptian ecosystem does particularly well. By being too impatient, you end up losing the regulator’s ear. Licensing issues slowed Bloom down and killed its initial plan (it has since pivoted and rebranded). This is a shame, because I deeply believe the market was ready for what the company was building. 

Additionally, local capital needs to be unlocked. It will be hard to attract foreign VCs if no startup investment is happening within the country itself. 

Sudan doesn’t lack these funders. Large, family-owned conglomerates could act as the country’s first LPs. Most of these family groups’ capital is tied up in operational matters. Some do set up startup funding initiatives, but these are closer to grants than actual investments. They’ve never really viewed VC as a proper asset class. I believe that’ll change after the war.

Conclusion

Little is understood about wartime economies. Media coverage focuses on the violence and destruction which, while worthy of being recounted, isn’t intellectually complete. In Sudan, the dynamism of the economy is both a culprit and a cure for this war. Alongside institutional reforms, it is the vehicle through which we will keep future conflicts at bay. 

Deep attention should be paid to it. And if international institutions and governments truly wish to rebuild Sudan, they should remove the illegal sanctions companies still impose on Sudan’s economic actors, including its startup founders. 

The Realistic Optimist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice.