Sudan – marching amid the thorns of wars

Published January 17th, 2007 - 02:50 GMT

Global Investment House – Sudan Economic & Strategic Outlook – Sudan is the largest and one of the most diverse countries in Africa, home to deserts, mountain ranges, swamps and rain forests. It borders the Red Sea and located between Egypt and Eritrea. Sudan has plenty of natural resources; its main resource is petroleum. Others are iron ore, copper, chromium ore, zinc, tungsten, mica, silver, gold. Sudan’s population is about 41mn (Jul-06 estimates), with a growth rate of about 2%.

Sudan has turned around a struggling economy with sound economic policies and infrastructure investments, but it still faces formidable economic problems, starting from its low level of per capita output. From 1997 to date, Sudan has been implementing IMF macroeconomic reforms. In 1999, Sudan began exporting crude oil and in the last quarter of 1999 recorded its first trade surplus, which, along with monetary policy, has strengthened the exchange rate. Increased oil production, revived light industry, and expanded export processing zones helped improve nominal GDP growth at 22.2% in 2004 (17% in 2003); real GDP grew at 5.2% in 2004 (5.6% in 2003). Agricultural production remains Sudan's most important sector, employing 65% of the work force, contributing 38.6% of GDP, and accounting for significant part of GDP growth, but about half of the farms remain rain-fed and susceptible to drought.

The country was engaged in  two prolonged civil wars during most of the remainder of the 20th century. These conflicts arose from northern economic, political, and social domination of largely non-Arab southern Sudanese. The first civil war ended in 1972, but broke out again in 1983. The second war and famine-related effects resulted in more than 4mn people displaced and, according to rebel estimates, more than 2mn deaths over a period of two decades.

Peace talks gained momentum in 2002-04 with the signing of several accords; the Government of the Republic of the Sudan and the Sudan People's Liberation Movement/Sudan People's Liberation Army (SPLM/A) having met in continuous negotiations between May-02 and Dec-04, reached an agreement named Comprehensive Peace Agreement (CPA). Under the CPA a Government of National Unity has been established, bringing together the former warring factions and other political parties together. Democratic elections are expected to take place within four years of its establishment. Prior to the signing the accord, several important issues were agreed upon by the two parties, which included the sharing of oil revenues (50:50), the application of Islamic religious law (will not be applied in the South), and self-determination for the southern Sudan (a referendum on secession will be held after a six-year transitional period). Under CPA the government envisaged to implement new currency Sudanese Pound in place of Sudanese Dinar. It materialized in last half of December 2006 when the Sudanese authorities announced that Sudanese Pound will replace the SDD January 9, 2007 onwards in a phased manner. This would enable Sudan to deal with the distortion in the circulation of currencies of neighboring countries of Southern Sudan.

There are mainly three sectors which plays a major role in Sudan's economy namely the Agriculture (38.6% of GDP as in 2005; sub sector: Agrarian, Live Stock), Services (33.6% of GDP; sub sector: Financial Services, Commerce and Hospitality) and Industrial (27.8% of GDP; sub sector: Petroleum, Manufacturing, Electricity & Water and Building & Construction).  Agriculture making more than 1/3 of the GDP, which is heavily dependent upon natural conditions i.e. whether it’s a rainy season or a drought, makes Sudanese economy vulnerable and its growth too. Similarly petroleum that makes significant portion of GDP and a major driver of growth for last three years is also very volatile and its prices are dependent on various factors such as supply demand, which in turn is affected by the overall condition of global economy. In addition, Sudan is likely to become member of OPEC in near future and this could affect investment in the sector. Exports of goods has grown at a rapid pace from 12.7% of GDP in 2001 to 17.4% of GDP in 2005.

The external debt is one of the major problems that Sudan currently faces. Total external debt position of the Sudan as at Dec-05 amounted to US$27.7bn (100% of GDP), which was higher in $ value compared to year 2004 position of US$26.8bn. The increase was attributed to the burden of penalty interest rates and, contracting of new loans from some bilateral countries and multilateral institutions, an estimated 88.1 percent of it in arrears. However, the debt position should ease in coming years on the back of rising government revenue. According to a study made by PFC Energy, the Sudanese government could collect as much as US$30bn or more in total oil revenue by 2012.

Sudan began to implement the privatization policy since 1992 aiming to arrest declining economic performance and improve efficiency within the framework of the liberalization policy. Following are the main objectives of privatization:

• Reduce Budget deficit, absorb excess liquidity and curb inflation,
• Encourage the private sector to increase expenditure and investments, and cause private companies to increase their capital stocks to assist in mobilizing the economy,
• Utilize liquidity available to the private sector according to priorities

The first program covered the period 1992-95 whereby 57 units were  privatized and it secured an amount of SDD554mn for the Treasury. The privatization yielded a good amount in 2002, SDD11.1bn. However, it thinned out to meager SDD0.3bn in 2005. It shows that government needs to renew its thrust for the privatization.

Nevertheless, year 2005 was a year of spectacular growth for the country with nominal GDP growing at 28.2%. Exports grew by 27.7% to reach US$4,825mn, imports also grew by 65.8% and registered a figure of US$5,946mn in 2005. Economy registered a trade deficit of US$1,121mn. The deficit is explained by huge growth in import on the back of increased demand in aftermath of very fast growth in economy since 2001. As a result of rapid growth in economy and economic reforms taken by the government, Sudanese Dinar (SDD) strengthened by 5.7% in 2005 as compared to year 2004 (reference currency US$).

Looking forward, the economy is likely to do better as average oil prices have been higher for the year 2006 and Sudan has been producing more oil per day as compared to the last year.

 

 


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