Business and aid: a role for the private sector in Sudan’s humanitarian response

As international aid actors struggle to reach those in need and local volunteers come under attack, some businesses are offering critical products and services to the Sudanese population. This blog by Anette Hoffmann, Guido Lanfranchi and Khansa Alhag discusses why aid actors and donors should support businesses that contribute to the humanitarian response, while mitigating the risks associated with providing such support.

This blog is the fourth blog of the series ‘Humanitarian access, local action and conflict sensitivity dilemmas in Sudan since April 2023’ which showcases different perspectives important for a conflict sensitive aid response in Sudan. These blog posts do not necessarily reflect the Conflict Sensitivity Facility’s (CSF) views nor those of all actors engaged in the response. However, we are hoping that this series will contribute to the ongoing discussions around the aid response and will encourage the sector to assess the wider implications of its actions on fostering peace in Sudan.  

By Anette Hoffmann (Clingendael), Guido Lanfranchi (Clingendael) and Khansa Alhag (249Startups)

Sudan’s humanitarian crisis

Over nine months after the outbreak of the war on April 15^th, the humanitarian situation in Sudan is more dire than ever, and continues to worsen. The war has so far killed at least 13,000 people (a very conservative estimate, as the UN announced that between 10,000 and 15,000 people have been killed in one city in Darfur alone) and displaced more than 7 million. The recent expansion of the fighting to Al-Jazira state, southeast of the capital, has further worsened this crisis, displacing hundreds of thousands of people for a second time. Barring a drastic change of events, the next months are set to see an even worse scenario: by May, several areas in the country are expected to witness catastrophic levels of hunger, leading to mass starvation. This will force even more people to seek refuge outside in other places, both in other areas of the country and abroad.

In this context, it is all the more worrying that aid delivery through traditional structures and mechanisms is failing. Despite the skyrocketing needs, the humanitarian response in Sudan remains severely underfunded. The aid supplies that are available are often blocked, looted, or diverted by the conflict parties, in spite of their commitments to provide unimpeded humanitarian access. As a result, the burden of delivering assistance to the population falls largely on the shoulders of local committees of volunteers, who strive to provide basic services such as food and health to the population, while escaping frequent persecution by both conflict parties.[1]

A role for the private sector   

In this environment of imminent state collapse, failing international aid and civilian volunteers under attack, another type of actor has stepped in but remains largely overlooked: Sudan’s private sector. Despite the immense losses businesses incurred due to destruction and looting, many of them continue to provide essential products and services to the ailing population. Partly, this is because they have nowhere to go and need to make ends meet. Yet, their ability to adapt to the extreme challenges of a raging war also draws on the resilience and innovation Sudanese businesses have developed during decades of military dictatorship and international isolation.

Al-Bashir’s rule (1989 – 2019) led to the expansion of vast kleptocratic networks within Sudan’s private sector. The military, paramilitary, and intelligence services all encroached on the economy and established their own network of companies. Instead of creating value, these businesses focused on accumulating profits and held the economy hostage to their patron’s power ambition. Next to these compromised businesses with poor business plans but powerful connections, little breathing space was left for independent companies to survive, let alone grow and compete. Yet, a handful of larger dedicated family corporates and some younger innovative entrepreneurs succeeded in doing business, despite these security-business networks and Sudan’s isolation from the international financial markets.

During Sudan’s democratic transition, these two segments of Sudan’s private sector – the family corporates and the independent SMEs – were at the forefront of economic reforms towards an enabling environment for all businesses. Precisely because these reforms would have constituted a milestone in realising Sudan’s democratic transition, the generals perceived them as a threat. In response they gripped power from the civilians, before turning against each other to secure their political and economic supremacy with brutal force.

Even since the outbreak of the war, many companies belonging to this beleaguered private sector have played a vital role. Whether in the field of agriculture, health, finance or technology, these businesses – small and larger ones alike – have stepped up to fill the void a collapsing state and struggling aid agencies have left. So far, however, their role in supporting the humanitarian response has not been fully recognised, let alone harnessed – as shown for instance by their limited participation in the Sudan Humanitarian Crisis Conference of November 2023.

To make the humanitarian response in Sudan more effective, aid actors and donors should support the businesses that are already contributing to such response, providing critical goods and services to the population, while also keeping markets alive. Providing this support does not come without risks – including that of diversion. Yet, as this blog post will show, it is possible to harness the private sector’s potential while effectively mitigating those risks.

Inject cash to maintain market structures of agricultural inputs distribution

In the agriculture and food sector, state systems and key infrastructure have largely collapsed. Located in the capital Khartoum, Sudan’s major food processing industry has ceased operating due to the army’s air strikes and RSF shelling, severely undermining the country’s ability to process food. Another significant blow to Sudan’s food processing capacity was the destruction of Samil factory, which used to produce 60% of the therapeutic food for under-nourished children. In addition, central markets have been burned to the ground and looted, paralysing the trade and distribution of food.

Yet, some companies keep operating against all odds. Even after the fall of Wad Medani, key importers and wholesalers of seeds, fertilisers and other agricultural inputs have managed to secure stocks in East Sudan. However, companies that used to distribute these critical inputs and farmers who need them are struggling to mobilise the required funding for it. Next to insecurity, a lack of access to finance has become the main obstacle to local food production.

Rather than sticking to the handful of larger distributors they used to work with, these wholesalers are keen to increase their flexibility and ability to mitigate risks by working with a larger amount of smaller enterprises from different localities to distribute their inputs. However, having incurred significant losses already, they are no longer able to sell their inputs on credit.

To counter the looming hunger catastrophe, donors could inject grants to farmers and consumers, and offer de-risking mechanisms for wholesalers and SME distributors (e.g. via a risk-sharing facility or SME credit guarantees) to facilitate the distribution of available inputs, thus keeping existing market structures alive. As attacks on humanitarian workers and bureaucratic hurdles prevent food aid from accessing those who need it most, aid actors should start providing cash transfers, as a complementary tool to in-kind food aid. While not a silver bullet, cash transfers have been widely recognised (including by the WFP) as effective and efficient ways of delivering aid, particularly when markets are still functioning. A thorough understanding of the context of implementation can help minimising the positive effects of these transfers, while minimising the risks.

Use functioning mobile money tools to channel funds directly to local partners, farmers, consumers

Private sector driven innovations in the finance sector offer ways to operationalise cash transfers. Mobile money transfer solutions – like the Bank of Khartoum’s bankak application, or Cashy, a peer-to-peer transaction system developed by a Sudanese start-up – are currently being used to send and receive money inside Sudan, and have proved to be a critical lifeline for many Sudanese. The transparent nature of these tools, which allow for the tracking of money transfers, makes it possible to mitigate some of the risks associated with cash transfers, such as their diversion or misappropriation.

Despite the difficulties, there are also systems in place to channel international funds into Sudan. Some money transfer companies are still being used by Sudanese abroad to send money to their families. Moreover, Sudanese company owners who hold bank accounts inside and outside of Sudan have emerged as “Swift and Swap” operators, able to receive international funding from donors or international NGOs, to then disburse payments or grants via bankak to local partner organisations, small businesses and farmers. As this mechanism allows to track the identify of both sender and receiver, some donors have been able to successfully use this scheme to implement programmes after the start of the war, reducing the associated risks through specific mitigation measures (e.g. setting up ad hoc accounts).[2]

Given that most of these mechanisms to channel money depend on access to internet, aid actors and donors should spare no effort to ensure such access for as many people as possible. This may entail including access to internet as a key point during negotiations on humanitarian aid, but also supporting the emergence of alternative internet providers, such as for instance Starlink in Darfur.

Support micro entrepreneurs offering life-saving health services

Private enterprises not only provide life-saving coping mechanisms in the agriculture and finance sectors. Small, mostly informal businesses have emerged in the health sector as well. By last September the public health system had largely collapsed, with only a third of healthcare facilities still operational, health workers systematically being attacked, and stockpiles of pharmaceutical supplies running low.

Faced with hundreds of thousand chronically ill patients and disease outbreaks, micro entrepreneurs jumped in to save lives, coordinating the distribution of medicine still available in the country to those in need, but also setting up mobile laboratories and private clinics. Examples include Bait Alafiya, a clinic in Wad Madani that hosted displaced doctors and whose founder, after fleeing from Wad Medani, set up similar services in Port Sudan. Humocare is another example of a community self-financed business that offers laboratory services in El Fasher, North Darfur. To keep these essential businesses running, donor-funded membership cards could be introduced to ensure that patients can access the services. This would allow people to access much needed health services, while also providing a sustainable income for doctors and health service providers

Conflict sensitivity considerations and the risk of inaction

Given the dire situation in which Sudan finds itself now, supporting the country’s private sector does not come without risks. Sudan’s armed forces, the RSF, and armed groups have a strong presence in the private sector, and any mechanism geared to support businesses should ensure that aid is not hijacked by these security-business networks.

Thankfully, there are best practices that can be implemented to support the private sector in a conflict sensitive way. For instance, a strong due diligence process, involving multiple local stakeholders with in-depth knowledge of the context, can help to select the right beneficiaries, distinguishing legitimate companies that should be supported from kleptocratic businesses tied to conflict actors. Another strategy is to disburse funds through many smaller tranches targeting a wide array of beneficiaries. This can reduce the incentive for kleptocratic businesses to set themselves up as beneficiaries, while also minimising the damage in case a few tranches end up in the wrong hands. Finally, the use of transparent mechanisms to channel funds digitally (e.g. via bankak) can mitigate concerns about traceability and accountability in the use of funds.

Through measures like these, the risk of aid diversion can be significantly mitigated. In fact, if well implemented, these mechanisms of aid provision are likely to results in lower risks levels as compared to some of the current mechanisms – such as for instance the large-scale delivery of in-kind food aid, which has so far struggled to reach those most in need, and has been systematically diverted or looted.

While a degree of risk is inevitable when providing assistance in a conflict setting, this risk should be weighed against the risk of doing nothing – which, in Sudan’s context today, equates to condemning a country of over 45 million people to bear mass starvation and state collapse on its own. This is a risk that no one can afford.

[1] On the 16^th of January, the acting Minister of Federal Governance in Port Sudan issued a decree banning all Committees of Change and Services in Sudan. These committees had been set-up during the revolution or during the war, providing life-saving support to people in need. This move raises concerns about the marginalisation of community-led initiatives, the loss of valuable local knowledge, and is reminiscent of the old practices of suppression and co-optation of civil society used by al-Bashir regime.

[2] As part of the WE-RISE! project funded by EU, AICS Khartoum is implementing a Fund Manager mechanism to allocate private and public funding to entrepreneurs and farmers in Kassala, Gedaref, and Red Sea State. Oversight of this mechanism is provided by an Internal TA & Investment Committee, which evaluates service packages based on criteria such as innovation, expansion potential, and alignment with Social Development Goals (SDGs). Funds will be disbursed from an offshore bank account. The project has conducted two investment committee meetings, reviewing a total of 80 applications, with an anticipated 800 direct beneficiaries. Despite being in its early stages, the project aims to address challenges encountered by the productive sector amidst the ongoing conflict.

About the Authors:

Anette Hoffmann is a senior research fellow at Clingendael’s Conflict Research Unit. For the past 20 years, her work has focused on the interaction between economic and political drivers of conflict and peace, with a particular focus on the Horn of Africa. She spent 10 years living and working in the Sudan and Ethiopia.

Guido Lanfranchi is a research fellow at Clingendael’s Conflict Research Unit, where he focuses on Sudan, Ethiopia and Somalia. Guido’s research interests revolve around the interplay between economic, political and security dynamics, with a focus on how economic interests and business elites shape governance arrangements and conflict patterns.

Khansa Alhag is a Sudanese entrepreneur, distinguished for her profound expertise in promoting entrepreneurship and development of the private sector, especially in areas afflicted by conflict. Currently, she serves as the Managing Partner and Director of Programs at 249Startups. In this capacity, Ms. Alhag also leads the Inclusion Task Force, which is dedicated to the empowerment of entrepreneurs from marginalized communities. She is an active member of various business networks at the local and international levels, where she plays a pivotal role in fostering discussions and initiatives aimed at promoting business and economic growth.