Sudan - Economy

When South Sudan seceded from Sudan in 2011, the new country gained 75 percent of the oilfields which had accounted for more than half of the former Sudan's gross domestic product. Oil exports were also the main source of hard currency in former Sudan. After South Sudan seceded, Sudan's economy fell into a downward spiral. Inflation has soared in the past few years, leaving many unable to afford basic commodities, while half of Sudan's population lives below the poverty line, according to the World Bank. In the months before the 2018 protests, Sudan's national economy was facing additional strains. Shortages of fuel and cash had resulted in long queues forming in front of banks, ATMs and petrol stations. Amid a lack of hard currency in the country, the price of some imported medications soared, while some medicines became scarce. The government has responded to the protests by blaming its economic woes on US sanctions that were imposed in 1997 but lifted in late 2017. It has also accused those protesting of being influenced by what it calls "foreign powers aiming to destabilise the country". Sudan is an extremely poor country that has had to deal with social conflict, civil war, and the July 2011 secession of South Sudan - the region of the country that had been responsible for about three-fourths of the former Sudan's total oil production. The oil sector had driven much of Sudan‘s GDP growth since it began exporting oil in 1999. For nearly a decade, the economy boomed on the back of increases in oil production, high oil prices, and significant inflows of foreign direct investment.

Sudan’s economy has been struggling with soaring inflation and depreciation of Sudanese pounds since South Sudan’s independence. Following South Sudan's secession, Sudan has struggled to maintain economic stability, because oil earnings now provide a far lower share of the country's need for hard currency and for budget revenues. Sudan is attempting to generate new sources of revenues, such as from gold mining, while carrying out an austerity program to reduce expenditures. Services and utilities have played an increasingly important role in the economy. Agricultural production continues to employ 80% of the work force and contributes a third of GDP.

By 2014 economic conditions were mixed. Preliminary data suggest that economic growth, at 3.1 percent, supported by gold extraction and a strong harvest, is broadly in line with expectations for the year. Fiscal consolidation is helping to contain the large deficits and reduce reliance on central bank financing of the deficit. External imbalances are gradually declining as a result of the September 2013 exchange rate adjustment and the improvement in the fiscal position. However, monetary policy needed to be further tightened. Inflation through the end of August 2014 remained high at about 46 percent. Though this is partly due to the one-off effect of the September 2013 price adjustments of fuel prices, the injection of excess liquidity by the central bank through gold purchases at the parallel market rate was significantly contributing to inflation while also adding to the wide gap (52 percent) between the parallel and official exchange rates.

Sudan introduced a new currency, still called the Sudanese pound, following South Sudan''s secession, but the value of the currency has fallen since its introduction and shortages of foreign exchange continue. Sudan also faces rising inflation, which has led to a number of small scale protests in Khartoum. Ongoing conflicts in Southern Kordofan, Darfur, and the Blue Nile states, lack of basic infrastructure in large areas, and reliance by much of the population on subsistence agriculture ensure that much of the population will remain at or below the poverty line for years to come.

In 2004, the cessation of major north-south hostilities in Sudan and expanding crude oil exports resulted in 6.4% GDP growth and a near doubling of GDP per capita since 2003. The aftereffects of the 21-year civil war and very limited infrastructure, however, presented obstacles to stronger growth and a broader distribution of income. The country continued taking some steps toward transitioning from a socialist to a market-based economy, although the government and governing party supporters remained heavily involved in the economy.

The July 2011 secession of South Sudan had an immediate and profound impact on Sudan's economy, and the reverberations from the split will continue to resound in the coming years. While the composition of what the “new” Sudanese economy will be is unclear, the country will not be able to rely on the oil production and export that had served as the principal driver of growth since 2000. With much of its oil production having come from what is now South Sudan, Sudan has suffered a dramatic decline in its oil revenues. The government has targeted agriculture, mining, and enhanced oil production as sectors for development. With conflicts continuing on its southern borders, a virtual cessation in cross-border trade with the new South Sudan, and unresolved issues with both oil revenue sharing and an arrangement for transporting South Sudan oil to Port Sudan, Sudan and its people are not able in the near future to reap the benefits from its natural resources, rebuild its infrastructure, increase oil production and exports, and be able to attain its export and development potential.

Sudan's oil production began in the late 1990s and grew rapidly starting in July 1999 with completion of an export pipeline that runs from South Sudan through the North to the Port of Sudan. Sudan produced an estimated 401,000 barrels per day (b/d) in 2005, which brought in about $1.9 billion and provided 70% of the country’s total export earnings. As of 2007, oil production in Sudan was at 466,100 barrels per day. In 2010, oil accounted for over 90% of Sudan’s foreign exchange earnings. Prior to South Sudan's July 2011 secession, roughly 75% of Sudan's oil production, representing almost 36% of government revenues, came from fields located in the South. Remaining production in Sudan barely covers domestic use.

Agriculture, which was the economy’s mainstay prior to oil, accounted for about a third of GDP prior to secession. It represented 90% of Sudan’s 2009 non-oil exports, and the sector employed about 80% of the labor force. Sudan’s authorities are looking at increasing agricultural production in an effort to diversify growth; only an estimated 15%-20% of Sudan’s arable land is cultivated. The authorities have launched an Agricultural Revitalization Plan to invest some $5 billion in the sector through 2012, and hope to attract strategic foreign investors. Cotton and gum arabic remain its major agricultural exports. Grain sorghum (dura) is the principal food crop, and millet and wheat are grown for domestic consumption. Sesame seeds and peanuts are cultivated for domestic consumption and increasingly for export. Livestock production has vast potential, and many animals, particularly camels and sheep, are exported to Egypt, Saudi Arabia, and other Arab countries. However, Sudan remains a net importer of food. Problems of irrigation and transportation remain the greatest constraints to a more dynamic agricultural economy.

Sudan’s non-oil private sector remains nascent. Sudan ranked 154 in the Doing Business survey in 2010. Firms identify the top three constraints holding back growth and investment as political instability, corruption, and economic uncertainty. Transparency International ranked Sudan as 172 out of 180 countries in its 2010 corruption perception index. Competitiveness remains low due to high transaction costs, poor market institutions, lack of infrastructure, and high administrative barriers.

Several factors accounted for the relative economic insignificance of the industrial sector. Historically, during the colonial period, Britain had discouraged industrialization, preferring to keep Sudan as a source of raw materials and a market for British manufactured goods. Following independence, a paucity of development programs as well as better employment opportunities in the Persian Gulf states have contributed to a shortage of skilled workers. In the early 1990s, Sudan also had limited energy sources--only small amounts of petroleum in the south between Kurdufan State and Bahr al Ghazal State and a few dams producing hydroelectric power.

In addition, transportation facilities; were limited; there existed only a sketchy network of railroads and roads, many of the latter being impassable in the rainy season. Inland waterways could also be difficult to use because of low water, cataracts, or swamps. The lack of a good transportation network hindered not only the marketing of produce and consumer goods but also the processing of such minerals as gold, chrome, asbestos, gypsum, mica, and uranium. The lack of capital accumulation also limited financial resources and necessitated funding by the government, which itself had inadequate revenues. Some northern Sudanese hoped that the rise of Islamic banks might result in more capital being invested in private industrial development, especially after the World Bank refused to extend further loans to the country.

Sudan’s growth was historically unbalanced, with the majority of its manufacturing firms and irrigated land concentrated in the northern states of Khartoum and Gezira. The World Bank reports that there is a large disparity in development indicators between the best- and worst-performing states. Sudan’s capital city Khartoum consumes nearly a third of Sudan’s total electricity production, while less than 7% of households in the country have access to the national grid. Sudan’s limited industrial development consists of agricultural processing and various light industries located in Khartoum North. In recent years, the GIAD industrial complex introduced the assembly of small autos and trucks, and some heavy military equipment such as armored personnel carriers and the proposed "Bashir" main battle tank. Although Sudan is reputed to have great mineral resources, exploration has been quite limited, and the country’s real potential is relatively unknown. Small quantities of asbestos, chromium, and mica are also exploited commercially.

Since the global financial crisis of 2008 and the collapse of crude oil prices, Sudan faced a severe foreign exchange reserves shortfall. While data is not made public on a regular basis, the International Monetary Fund reported that reserves at the Central Bank of Sudan fell below 2 weeks of import coverage at one point. As a result of the shortage of foreign currency, the Government of Sudan has significantly tightened conversion and transfer policies. Domestic businesses have no assurance of obtaining needed levels of foreign currency for international transactions. Foreign companies operating in Sudan must have the permission of the Central Bank of Sudan to repatriate profits and foreign currency. Changes to policies are introduced without warning and generally become effective immediately upon announcement.

Sudan has a severe external debt burden, with large and protracted arrears that limit both its relations with the international financial institutions (IFIs) and integration into the world economy. The country has not serviced the majority of its external debt since the early 1990s, although some creditors, including some offering more recent financing, are receiving repayments. The United States accounts for $2.2 billion, of which $2.0 billion is in arrears. Sudan is subject to a variety of legal sanctions and legislative mandates that would complicate U.S. Government participation in IFI normalization and debt relief. Reducing U.S. claims would also require significant appropriations. Sudan’s ruling NCP party views the provision of debt relief as critical for the North’s economic prospects in view of Southern secession and closely links debt relief to the division of the country’s oil revenues.

Historically, the U.S., the Netherlands, Italy, Germany, Saudi Arabia, Kuwait, and other Organization of Petroleum Exporting Countries (OPEC) have supplied most of Sudan’s economic assistance. Sudan’s role as an economic link between Arab and African countries is reflected by the presence in Khartoum of the Arab Bank for African Development. The World Bank had been the largest source of development loans but is currently unable to lend.

During the late 1970s and 1980s, the International Monetary Fund (IMF), World Bank, and key donors worked closely to promote reforms to counter the effect of inefficient economic policies and practices. By 1984, a combination of factors--including drought, inflation, and confused application of Islamic law--reduced donor disbursements, and capital flight led to a serious foreign-exchange crisis and increased shortages of imported inputs and commodities. More significantly, the 1989 revolution caused many donors in Europe, the U.S., and Canada to suspend official development assistance, although not humanitarian aid.

As Sudan became the world’s largest debtor to the World Bank and IMF by 1993, its relationship with the international financial institutions soured in the mid-1990s and has yet to be fully rehabilitated. The government fell out of compliance with an IMF standby program and accumulated substantial arrearages on repurchase obligations. A 4-year economic reform plan was announced in 1988 but was not pursued. An economic reform plan was announced in 1989 and implementation began on a 3-year economic restructuring program designed to reduce the public sector deficit, end subsidies, privatize state enterprises, and encourage new foreign and domestic investment. In 1993, the IMF suspended Sudan’s voting rights and the World Bank suspended Sudan’s right to make withdrawals under effective and fully disbursed loans and credits. Lome Funds and European Union agricultural credits, totaling more than 1 billion euros, also were suspended.