Monthly Archives: September 2012

Annex to “Change: An Inevitability in Sudan”: A Note on the Status of the Sudan Economy

When it signed the CPA, Sudan had a world of possibility before it, enjoying peace, substantial revenue, and a boom in Foreign Direct Investment. However, because of inept economic management, these opportunities have been squandered. Sudan increased its dependence on the oil sector, despite the obvious signs that this revenue source was drying up. By 2007, foreign investors grew weary of ongoing political risk and high levels of corruption, resulting in a decline in investment levels.

Meanwhile, the government borrowed to fuel its expenditure binge. Despite an approximate US$60 billion in oil exports, the country’s external debt has risen by US$15 billion since the advent of oil production, reaching US$40 billion overall. New debt accrued is unsustainable, in the form of harsher term non-concessional loans given that the regime’s political and human rights issues have impeded access to concessional lending. The regime’s self-inflicted international isolation has also meant debt relief continues to be out of reach.

The government allowed unchecked expansions in public spending. Most of this money would be destined for the security and political sectors, with only a small share going to infrastructure development, industry, and social safety nets. Agriculture, which is the main source of livelihood for 80% of the population, and other productive sectors have been systematically neglected alongside health, water and education contributing to Sudan’s woeful Human Development Index, ranking 169 of 187 overall, the lowest of all MENA countries.

The regime failed to build any type of sovereign fund for future generations or develop its hard currency reserves despite unexpectedly high oil prices in 2007 and onwards. Instead, it managed its currency to bolster GDP through increased consumption, supplied by imports.

Today, Sudan exhibits the signs of the Resource Curse – an increasingly narrow export and employment base, with manufacturing and agriculture in long-term decline. Ironically, the resource has now mostly gone.

The loss of oil exports has had a resounding impact on the economy: the current account balance has drastically turned into a large deficit, officially estimated at US$2.4 billion, and the Sudanese pound has depreciated by approximately 125 percent since secession. Wars in Darfur, Blue Nile and South Kordofan that, by the government’s own admission, have cost Sudan approximately US$4 million per day are depleting resources that the country can ill afford in the midst of an economic crisis caused by the loss of oil revenues and litany of other fiscal maladies.

Consequently, the economic outlook for Sudan is dreadful. The IMF projects 7.2% contraction in 2012 and a 13% decrease in GDP over the next three years, assuming the country pursues a modest policy response to its current circumstances. The response adopted by the regime, in an attempt to address its bottom line, was to amend its budget for 2012, which projected 28% of revenues from oil transit fees and has not been realized. These so called ‘austerity’ measures have been undertaken in an effort to reduce the widening budget deficit by bolstering non-oil revenues and rationalizing expenditures. However, actual expenditure cuts have been cosmetic, not only falling short of announcements but have not been applied to military, security and the sovereign sector in general, spending on which has increased. It is important to note that the government’s now defaulted 2012 budget included 82% spending on the security and political sectors, while 49% of total cross sector expenditures went to public wages and salaries, of which 88% was for these two sectors alone. On the other hand, agriculture received just 3% of total expenditure while the health and education sectors respectively received 2.4% and 2.3%.

The ‘austerity’ measures, which have increased fuel, sugar, VAT, customs and excise duty and have devalued the Sudanese pound by 125%, have served only to exacerbate the already high cost of living and to bring the economy to a tipping point. Inflation continues to accelerate, partly due to the rising cost of basic imported goods, which in turn has increased economic hardship for the poor and vulnerable. Inflation reportedly reached 37.2% in June 2012, double the level in the same month one year ago. The cost of food items has also jumped 41.4% from a year earlier while the price of meat, all of it local, has risen by 150% – today, a kilo of meat costs 50 pounds ($11.4 at the official rate) as opposed to 20 pounds one year ago. For July, figures just released by the Central Bureau of Statistics indicate a staggering year on year inflation of 41.6% – bearing in mind that these statistics are widely believed to be underreported for political reasons. Although some savings were made from the partial removal of the oil subsidies, no social safety net has been implemented to reduce the burden on the poor ensuring that poverty, estimated at 46.5% overall and 57.6% in rural areas in 2009, grows more acute by the day.

Therefore protests against austerity measures over the last two months are not about short-term price increases, but the rejection of government attempts to force the poor and middle classes to pay for a decade of economic mismanagement. The regime’s management of oil revenues, which could have transformed Sudan into an emerging economy, has instead become glaring evidence of its pervasive corruption.

The recent oil deal with South Sudan is yet to be implemented, and while its implementation may provide modest short-term relief it is presumptuous to think it can halt or reverse the deterioration. The announced financial support package will be disbursed over a period of three and a half years and falls well short of covering the fiscal deficit. While officially estimated at US$2.4 billion, privately the regime admits to a deficit closer to US$10 billion. This deficit continues to widen given the economic mismanagement of resources and lack of diversification beyond oil.

The regime also can no longer rely on the heavy investments it was previously able to attract from Asia and the Middle East, especially in the oil sector where credit was readily available. The situation has now changed drastically – both politically and economically. With the loss of oil exports, Sudan’s creditworthiness has decreased. This combined with the existing large debt obligations and arrears situation, the heightened political risks and the prevailing economic uncertainties have made it extremely difficult for Sudan to obtain external financing. As never before, Sudan will need to have access to debt relief for it no longer has the ability, it previously had, to attract foreign loans or to service the harsher terms associated with non-concessional ones. However, there are several reasons that currently render such debt relief virtually out of reach for Sudan. The major obstacle that has stood in the way of Sudan benefitting from such debt relief in the past is political and this situation is now more acute than ever before. To benefit from any official debt relief program, Sudan’s Paris Club creditors will need to be satisfied that the government has taken significant steps in solving its political and human rights problems. With the instability in Darfur, the unrest in Abyei, the conflicts in Southern Kordofan and Blue Nile States and the humanitarian situation in these areas together with the legacy of the ICC ruling, the Sudanese government is a far cry from meeting the minimum political and human rights requirements for debt relief.

An economic turnaround will require drastic restructuring of the allocation of resources towards productive sectors and poverty reduction. With more than 80% of government current spending inflexibly devoted to state transfers and security expenditure, a rationalization of public spending of the required magnitude can only be implemented within a comprehensive restructuring program of the overall government machinery. The large outlays for military and security would need to be curtailed through the dissolution of illegal militias and regime forces, as well as agreements to end civil conflicts. These reforms are at odds with the very existence of the National Congress Party regime given that expenditure is solely designed to sustain its grip on power through patronage, division and extermination of dissent.

The only solution is a political turnaround that facilitates strong pro-poor economic and structural economic reforms.

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Change: An Inevitability in Sudan

Introduction

Change in Sudan has become inevitable. The question is how and when?

There are a number of factors that combine to make change possible:

1. The collapse of the economy. The economy is not revivable without political change as the regime’s means of survival contradict with economic reform. The government’s now defaulted 2012 budget included 82% spending on the security and political sectors, while 49% of total cross sector expenditures went to public wages and salaries, of which 88% was for these two sectors alone.

2. The military confrontation and growing regime fragmentation. Other than costly economic attrition, with the wars in Darfur, Blue Nile and South Kordofan costing, by the government’s own admission, approximately US$4 million per day, these conflicts are causing unrest within the army and NCP ranks.

3. International isolation (resolutions, sanctions and the ICC) and their ramifications.

4. Emancipation from fear. People all over the country took to the streets over June and July 2012 and this is likely to reoccur given the factors above.

This piece will discuss popular uprising, its challenges and prospects for success. It will also discuss the alternative to the present regime and the myths surrounding it.

Outlook

Sudan is headed towards a popular change. The scenarios of 1964 and 1985 may be repeating; in both, students took to the streets and were joined by citizens, after which a general strike ensued that brought the country to a standstill and led to the army’s interference on behalf of the people. A transitional period then preceded general elections.

This time around, such an event is hindered by the lack of independent professional bodies, which have been banned by the regime along with most institutions that could have potentially played a major role in coordinating strikes and other forms of civil disobedience. There are also doubts about the army’s neutrality (regime-dominated), as well as concerns regarding the violent roles that may be played by the regime-driven National Intelligence and Security Service (NISS), the ‘jihadist’ Popular Defense Forces (PDF), and the litany of irregular militias employed by the National Congress Party (NCP) to protect its rule.

Regardless, change is inevitable. The regime has lost control of a now free-falling economy [See Annex: A Note on the Status of the Sudan Economy]. The IMF projects 7.2% contraction in 2012 and a 13% decrease in GDP over the next three years, assuming the country pursues a modest policy response to its current circumstances. The response adopted by the regime, in an attempt to address its bottom line, was to amend its budget for 2012, which projected 28% of revenues from oil transit fees that have not been realized. These so called ‘austerity’ measures have been undertaken in an effort to reduce the widening budget deficit by bolstering non-oil revenues and rationalizing expenditures. However, actual expenditure cuts have been cosmetic, not only falling short of announcements but have not been applied to military, security and the sovereign sector in general, spending on which has increased. The ‘austerity’ measures, which have increased fuel, sugar, VAT, customs and excise duties and have devalued the Sudanese pound by 125%, have served only to exacerbate the already high cost of living and to bring the economy to a tipping point. Although some savings were made from the partial removal of the oil subsidies, no social safety net has been implemented to reduce the burden on the poor, ensuring that poverty, estimated at 46.5% overall and 57.6% in rural areas in 2009, grows more acute by the day.

The recent oil deal with South Sudan is yet to be implemented, and while its implementation may provide modest short-term relief it is presumptuous to think it can halt or reverse the deterioration. The announced financial support package will be disbursed over a period of three and a half years and falls well short of covering the fiscal deficit. While officially estimated at US$2.4 billion, privately the regime admits to a deficit closer to US$10 billion. This deficit continues to widen given the economic mismanagement of resources and lack of diversification beyond oil.

An economic turnaround will require drastic restructuring of the allocation of resources towards productive sectors and poverty reduction. With more than 80% of government current spending inflexibly devoted to state transfers and security expenditures, a rationalization of public spending of the required magnitude can only be implemented within a comprehensive restructuring program of the overall government machinery. The large outlays for military and security would need to be curtailed through the dissolution of illegal militias and regime forces, as well as agreements to end civil conflicts. These reforms are at odds with the very existence of the National Congress Party regime given that expenditure is solely designed to sustain its grip on power through patronage, division and extermination of dissent.

The current situation that has seen inflation reach an unprecedented 41.6% – bearing in mind that these statistics are widely believed to be underreported for political reasons – serves as further motivation for coordinated civil action. Ignited by short-term price increases and in rejection of government attempts to force the poor and middle classes to pay for a decade of economic mismanagement lawyers, doctors and workers, amongst others, have started to come together to coordinate action such as the recent doctor’s strike and lawyer’s sit-in protest in front of the courts both in Khartoum and across several states.

The regime’s fiscal constraints will further exacerbate existing internal divisions that would weaken the security response to popular uprising as well as rally support from regime forces around it. The economic constraints also deprive the regime of its opportunistic support secured by patronage that is becoming increasingly difficult to sustain. As a result the ruling clique is fragmented: top Islamists and National Congress Party members are divided; President Bashir (the military) is calling the shots and has monopolized decision-making. In addition factions, discontented with the regime’s political direction, are forming within the military itself. The regime is struggling to finance wages and salaries of the armed forces, and this has manifested in looting by forces stationed in areas such as Kutum and Mileit. A growing core of regime ‘mujahedeen’, cadre and youth are turning against the ruling clique.

Given this situation, there is wide realization that Sudan is now ready for change. In response a provisional agreement is in the works between the civil and armed opposition to unify over an alternative charter and to mobilize support bases. This agreement would provide leadership and coordination to the change movement, which includes youth groups and civil society actors that have become increasingly active both inside Sudan and in the diaspora, as evidenced by recent events.

A more popular pressure could influence forces guarding the regime (also victims of economic hardship) and dissidents within the Islamist movement and National Congress Party. Dialogue of sorts is already extending between active members of the change movement and those calling for change, amongst both youth and senior figures within the regime. This would be an ideal and stabilizing scenario given the acceptance amongst most groups that the army could be the conduit for transition, as happened previously in Sudan, and recently in both Egypt and Tunisia.

The Alternative and Skepticism Surrounding It

An alternative charter, building on that previously signed by opposition political forces in July 2012 and inclusive of armed movements, youth, and civil society would provide the framework for an interim national government encompassing all stakeholders.

Removal of the current regime would pave the way to eradicating conflict and reversing marginalization by tackling the prevalent governance issues. Striving to resolve these issues through piecemeal bilateral means has proven untenable, and the evidence supporting this is clear – Abuja and Asmara (Eastern Sudan) have failed; Doha appears stillborn; while Naivasha split the country, producing two hostile states. The governance crisis must be addressed at its root – the center. Conflict in Darfur, Blue Nile and Southern Kordofan can only be resolved through a new political dispensation that brings about a civil democratic state with a federal set-up and equitable wealth sharing. This would be buttressed through the dissolution of illegal militias, disarmament and establishment of reformed security, military and police organs based on professionalism and reflective, at all levels, of the ethnic diversity of the country.

The alternative regime would further work to promote stability with South Sudan, utilizing their leadership’s standing relations with the ruling Sudan People’s Liberation Movement (SPLM). The potential win-win benefits of strengthened cooperation can be wide-ranging when considering the considerable potential social, economic and political opportunities that exist for both nations and for the North-South Border States in particular.

Most importantly, a new regime would facilitate the political change to ignite strong pro-poor and structural economic reforms. Whole-scale economic reforms would involve a drastic restructuring of the allocation of resources towards productive sectors and poverty reduction. In addition, the economy, through access to debt relief and concessional financing, would benefit from endeavors by the interim government towards normalization of Sudan’s relations with the wider international community.

Regime-driven propaganda and several myths repeated by international actors have resulted in skepticism with regards to the existence of such an alternative. For instance, many in the international community have bought into the NCP fallacy that regime collapse invariably means a Sudanese collapse. This couldn’t be further from the truth. The regime, made up of a Muslim Brotherhood minority in alliance with partisan army officers and a wider patronage network, lacks popular or grassroots support. Moreover, it is the regime’s system of governance – a sequence of failures and fraudulent policies – that has placed Sudan at threat of collapse. It is this system that has brought Sudan three new wars and entrapment in an endless cycle of conflict through rekindled tribal divisions; acute poverty and marginalization; internally displaced people; a bankrupt economy; a dismal education and health system; gross human rights abuses; and tense relations with its neighbors. In fact, experience dictates that removal of the regime, rather than being a trigger, is the only remaining means to avert an all-out collapse.

Some in the international community rule out a democratic alternative because they perceive national parties, led by archaic figureheads, to be weak. The opposition’s apparent ineffectiveness is in no small part due to regime efforts to divide these parties and other organized groups perceived as political threats. Seeing this, they overlook that these parties have deep rooted support and a unifying role in a society that evolves from tribal to sectarian to party. Furthermore, these parties are encountering a generational struggle wherein the old archaic leaders are increasingly being recognized as stagnating the change process, complacent in their positions. Change at the level of government will extend to these parties that need a democratic atmosphere to reform and introduce new leadership. The international community fails to recognize the fact that Sudan since independence started as a liberal democracy – unique to the entire region. Democracy struggled to sustain in Sudan with neighboring dictatorships, uninterested in its survival, conspiring to support military coups and insurgencies in the country. The Sudanese however have continually strived for democratic transformation, installing democratic governments following the overthrow, through popular uprisings, of two military dictatorships in 1964 and 1985.

Some observers put Shari’a forward as an impediment to an agreement over a democratic alternative. Those claiming this are misled by the NCP’s false use of Shari’a as a political tool to consolidate their hold on power. The NCP’s supposed ‘Islamic State’ has been exposed as a form of religious manipulation no longer bought into in Sudan. In reality the civil state is widely recognized by Sudanese religious scholars as well now as Al-Azhar as embodying all of the grand principles of Shari’a – justice, equality, freedom and rule of law. Contrary to the view that religion may prove a saboteur, it has always been a unifying factor in Sudan. The nature of Islam in Sudan is Sufism, a very tolerant brand of Islam. Furthermore, in 1995 opposition forces agreed in Asmara that the Sudanese state would be multi-ethnic; based around citizenship rather than religion; and that religion would not be used in politics. The founders of the larger national parties, although religious leaders, never pushed Islam as a divisive tool in politics. Islam, for instance, did not deter the South from joining the Mahdist revolution. The Umma Party, the political derivative of the Sufi Mahdist movement, stood against President Numeiri’s manipulation of Shari’a in politics, an act which resulted in its entire leadership being imprisoned for two years. National parties have stood against the same with the NCP regime.

The issue, therefore, is not religion; the issue in Sudan now is peace, equality, justice, wealth sharing and freedom – all of which cannot be achieved within the current political dispensation.