Will Southern Sudan’s Independence End The Investment Stigma?

This July south Sudan is to become the Republic of Southern Sudan. In January’s plebiscite nearly 99 percent of southern Sudanese voted to secede from the north. Sudan’s president, Omar Hassan al-Bashir, has pledged to abide by the outcome.

The creation of Southern Sudan will conclude, symbolically as well as formally, more than five decades of bloody civil war that led to independence but also gave rise to a humanitarian crisis in Sudan’s western region of Darfur. Will this hopeful new peace hold? Does Southern Sudan have a future as a sovereign state?

An uneasy truce in the civil war has held since 2005, although rebels in Darfur agreed to their latest cease-fire only last year. Moreover, the underlying causes of the conflict remain sensitive: the south’s oil riches (and the north’s relative lack thereof) and ancient tribal rivalries and religious schisms. Freedom for the south could exacerbate old tensions.

The revolution casts a spotlight on the role played in Sudan by Western financial firms, including Franklin Templeton, JPMorgan Chase and Vanguard — all current investors in PetroChina, whose parent, China National Petroleum Corp. (CNPC), does extensive business with the corrupt regime of Bashir, which has been accused of genocide.

TIAA-CREF divested its shares in PetroChina at the end of 2009 after it failed to persuade CNPC to stop subsidizing the violent activities of the Bashir government. “Our sense after making this effort and not having any success was that this wasn’t a way to leverage our ownership in the company,” says John Wilson, director of corporate governance for TIAA-CREF.

Still, he adds that even with an independent south, the same dubious financial links will remain between the oil business and the government in Khartoum. “I don’t think the fundamental factors of our decision have changed very much,” Wilson says. Significantly, the West’s broad sanctions against Western oil companies doing business in Sudan will remain in place for now.

Fidelity, too, essentially divested its PetroChina holdings, perhaps in part because of a lobbying campaign by Investors Against Genocide, a privately funded Boston nonprofit. IAG head Eric Cohen testified to Congress in November that stricter transparency laws are needed so that investors can readily discern whether their investments are, as he puts it to II, “genocide-free.”

Fidelity sold all but a fraction of its shares in 2007 and today holds a “negligible percentage,” according to a spokesman. On its web site the firm defends the principle of remaining invested in a company as potentially the best way to influence it to mend its ways.

Former diplomat David Raad, who represented the U.S. in the negotiations that led to Sudan’s peace agreement, says investors should ask themselves if their participation can positively affect the behavior of a corporation. “If the answer is no,” he says, “then it’s probably time to divest.”

TIAA-CREF is taking a wait-and-see approach to whether the south’s independence justifies taking another look at PetroChina.

“We’re going to be asking the same questions we asked before,” Wilson says. “Are we comfortable owning this company, and do we feel like we’re going to be asking our participants to profit from genocide by doing so?”