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COUNTRY REPORT

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4th quarter 1999

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

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Sudan 1

EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999

Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 2000-01

11 The political scene

20 Economic policy

22 The domestic economy22 Economic trends23 Oil and gas27 Agriculture29 Infrastructure

30 Foreign trade and payments

32 Quarterly indicators and trade data

List of tables

6 Forecast summary24 Nile Blend attributes30 External debt32 Quarterly indicators of economic activity33 Foreign trade

List of figures

11 Gross domestic product11 Sudanese pound real exchange rates

.

Sudan 3


Summary

4th quarter 1999

Fighting will continue over the forecast period, but the rebels will be on thedefensive. The formal peace process will remain deadlocked, but the governmentwill be more successful in its efforts to co-opt opposition factions away from therebel alliance. Rivalry between pro-government militias in the south willcontinue to generate instability, posing a threat to oil production. Inflation willfall and growth rates will remain fairly strong at around 5.5% per year, thoughinfrastructure shortcomings and the cost of the war will inhibit more rapiddevelopment. The trade account will move into surplus but the current accountwill remain in deficit, though this will narrow as oil earnings rise.

There have been fresh efforts to break the deadlock in the peace process, but nosignificant breakthrough. A successful rebel attack on the oil export pipelinehas strengthened hardliners on both the government and opposition sides, butthe parliamentary speaker, Hassan al-Turabi, has gained greater authoritywithin the ruling National Congress. The government has had difficultiespreventing its allied militia forces from fighting one another. The US remainshostile toward the regime, but EU and Arab ties have continued to improve.

Sudan has pressed ahead with its structural reform programme. Moves to replacethe Sudanese pound with the dinar have been completed. The government hasliberalised trade laws but progress on privatisation is slow.

• The IMF points to consistent growth and sharply improved price stability,despite subsidy cuts, but major infrastructure problems. Fiscal reforms havehelped to close the budget gap, but military spending still imposes a heavy burden.

• Oil exports have begun at the modest level of 85,000 b/d, though theGNPOC is encouraged by the strong prices generated for its Nile Blend crude.The al-Jaili refinery is to open later than scheduled, probably in mid-2000.

• The government is to examine problems in the country’s large irrigationprojects, which have failed to keep up with developments in the rain-fedsector. The central bank has offered additional financing for irrigation projects.

• An ambitious plan for additional hydroelectric power generation seemsunlikely to receive adequate financing. However, funds are available forrefurbishment of the North Khartoum and Roseires hydroelectric plants.

The IMF’s decision to lift its non-co-operation order on Sudan is likely to openthe way for negotiations with the country’s other creditors. However, Sudanseems to have been removed from a major debt forgiveness initiative.

Editor: Keren UziyelAll queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023

Next report: Our next Country Report will be published in February

November 1st 1999

Outlook for 2000-01

The political scene

Economic policy

The domestic economy

Foreign trade andpayments

4 Sudan


Political structure

Republic of Sudan

Sharia (Islamic law) is applicable to both civil and criminal cases, with partial exemptionfor southern Sudan

A 400-member National Assembly, of which 264 members are elected and 136 appointedby the president

March 6th-17th 1996 (presidential and parliamentary); next elections due March 2001(presidential and parliamentary)

Lieutenant-General Omar Hassan Ahmed al-Beshir, who took office following the1989 coup and was sworn in as president in October 1993; elected in March 1996 for afive-year term

A joint military-civilian cabinet, the Council of Ministers, last reshuffled in March 1999

All political parties were banned following the June 1989 coup that was backed by theNational Congress. The National Congress—which was known as the National IslamicFront (NIF) until it changed its name in January 1999 as part of a programme of politicalreforms—remains the dominant political force. Since January 1999 other political partieshave been allowed to register, although major opposition groups refuse to do so

National Democratic Alliance (NDA) includes the Umma Party and the DemocraticUnionist Party (DUP); the Sudan People’s Liberation Movement (SPLM); the SudanPeople’s Liberation Army (SPLA), the SPLM’s military wing, fighting a guerrilla war in thesouth, and now split into several factions, of which only the mainstream movement, ledby Colonel John Garang, is part of the NDA; Sudan Allied Forces (SAF), a guerrilla forcealso in combat in the south

President & prime minister Omar Hassan Ahmed al-BeshirFirst vice-president Ali Osman Mohammed TahaSecond vice-president George Kongor Arop

Agriculture & natural resources Osman al-Hadi IbrahimCabinet affairs Mohamed al-Amin al-KhalifahCommerce Adam al-Tahir HamdunDefence Abdel-Rahman Sirr al-KhatimEducation Hamid TurainEnergy & mining Awad Ahmed al-JazEnvironment & tourism Mohamed Tahir EliaFederal relations Ahmed Ibrahim al-TahirFinance Abdel-Wahab OsmanForeign affairs Mustafa Osman IsmailHealth Mahdi Babu NimrIndustry Badr-eddin SuleimanInterior Abdel-Rahim Mohamed HusseinJustice & attorney-general Ali Mohamed Osman YassinLabour Agnes LukuduSocial planning Al-Tayyib Ibrahim Mohamed KheirTransport Lam Akol Ajawin

Sabir Mohamed al-Hasan

Hassan al-Turabi

Official name

Legal system

National legislature

National elections

Head of state

National government

Main political parties

Main opposition groups

The cabinet

Key ministers

Central bank governor

Parliamentary speaker

Sudan 5


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998

GDP at market pricesa (SD bn) 205.0 360.8 850.9 1,344.7 1,569.2

Real GDP growth (%) 4.3b 4.4b 4.7 6.7c 5.0c

Consumer price inflation (av; %) 115.4 68.4 132.8 46.7 17.1

Population (m) 29.0 26.7 27.3 27.9 28.5a

Exports fobd ($ m) 524 556 620 594 596

Imports fobd ($ m) 1,045 1,066 1,340 1,422 1,732

Current-account balance ($ m) –602 –500 –827 –828 –957

Reserves excl gold ($ m) 78.2 163.0 106.8 81.6 90.6

Total external debt ($ bn) 16.92 17.60 16.97 16.33 16.77a

Total debt service ($ m) 3 69 48 58 54a

Exchange rate (av; SD:$) 28.96 58.09 125.08 157.57 200.80

October 29th 1999 SD256:$1

Origins of gross domestic product 1998c % of total Components of gross domestic product 1997a % of total

Agriculture 39.3 Private consumption 85.9

Trade, transport and communications 27.3 Government consumption 8.8

Other services 15.2 Gross fixed capital formation 8.7

Industry and mining 9.2 Change in stocks 2.6

Construction 8.1 Exports of goods & services 2.6

GDP at factor cost incl others 100.0 Imports of goods & services –8.6

GDP at market prices 100.0

Principal exports 1998 $ m Principal imports cif 1998 $ m

Livestock 120 Manufactured goods 592

Sesame 105 Machinery & equipment 348

Cotton 96 Petroleum 256

Groundnuts 64 Transport equipment 193

Oil 39 Chemicals 157

Sugar 29 Wheat 73

Total incl others 596 Total incl others 1,925

Main destinations of exports 1998 % of total Main origins of imports 1998 % of total

Saudi Arabia 21.5 China 16.7

Italy 11.9 Libya 14.3

France 6.8 France 10.2

Germany 5.2 Saudi Arabia 8.0

Jordan 4.3 UK 6.9

Egypt 4.3 Germany 4.7

Thailand 3.9 India 2.7

a EIU estimates. b Fiscal year (July-June) starting in calendar year indicated. c IMF estimates. d Balance-of-payments basis.

6 Sudan


Outlook for 2000-01

Forecast summary

($ m unless otherwise indicated)

1998a 1999b 2000c 2001c

Real GDP growth (%) 5.0b 4.0 5.5 5.5

Consumer price inflation (av; %) 17.1 19.0 15.0 12.0

Merchandise exports fobd 596 757 1,502 1,713

Merchandise imports fobd 1,732 1,698 1,434 1,549

Current-account balance –957 –859 –138 –110

Exchange rate (av; SD:$) 200.8 258.0 272.0 290.0

a Actual. b EIU estimates. c EIU forecasts. d Balance-of-payments basis.

The civil war is set to continue over the forecast period. Although there hasbeen a lull in fighting over the past three months, this reflects poor weatherconditions, rather than a change in the attitude of either side in the conflict.As the ground dries after the rainy season, confrontation will resume—possiblyas soon as November—and will continue into 2000. The opposition militiaswill launch offensives from bases close to the Eritrean and Ethiopian borders,seeking to attack government positions close to Kassala and in Upper and BlueNile provinces. The military position and strength of the rebels in the east ofthe country has been eroded by the government’s successful efforts to improveties with Ethiopia, and to a lesser extent Eritrea, both long-time supporters ofthe Sudanese opposition. However, government relations with Eritrea appearto be faltering, providing rebels allied to the National Democratic Alliance(NDA) opposition movement with an opportunity to launch attacks in theeast. The southern front, which has been relatively quiet in 1999, is likely toremain so into 2000. The international community will continue to applypressure on both the government and the rebel Sudan People’s LiberationArmy (SPLA) to avoid fighting in the south that could jeopardise internationalaid flows into the area.

The rebels will probably attempt to attack government outposts guardingstrategic targets in the east, notably the Port Sudan-Khartoum highway, the oilexport pipeline, the Damazin hydroelectric plant and central-southern oilfields.Opponents of the government believe that a successful offensive against one ormore of these targets would strengthen their weak political positionconsiderably, forcing the regime to deal with them seriously at the negotiatingtable, and boost flagging morale within opposition circles. The rebels also believethat a major victory would intensify factional rivalry within the regime, openingthe way for a coup. Even if this did not occur, a high-profile military defeatwould badly undermine government efforts to draw in foreign investment.

However, the rebels are unlikely to succeed. Although they have madeadvances in the past—and will probably do so in future offensives—they haveproved unable to hold them. Given the divisions within the opposition andthe disarray among their external backers, it is unlikely they will be more

—with the rebels likely totarget the oil industry—

—but with little prospectof success

Fighting is set to resume—

Sudan 7


successful in 2000-01. The recent successful attack on the oil export pipeline,while a morale booster for the opposition, is unlikely to mark the start of asuccessful campaign, and isolated incidents will not disrupt the functioning ordevelopment of the oil sector. The attack also underlines the political dilemmathe opposition faces in its armed campaign. It strengthened the position ofhardliners within the regime, allowing the government to present the groupsthat carried out the attack as a threat to economic development in Sudan.

A more serious security threat to the regime’s position, however, is likely tocome from government-allied militias in the south. Rivalry among these groupsis intense, particularly in the key, oil-rich areas in Wehida (Unity) state. Faction-fighting is likely to re-erupt during the forecast period as the groups battle overthe division of spoils from the oil sector, leaving the government highlyvulnerable militarily in those areas where it depends on militias to defend itsposition. The government will seek to establish some form of a coalitionbetween the factions, using oil revenue to cement the alliance. The regime hassaid that some of its oil revenue will be channelled into the oil states. However,at least some, if not all, of these funds earmarked for the state governments willprobably be given to the militia groups rather than spent on local developmentprojects. However, the government’s relationship with the militias will never bea stable one, given the militias’ links with the southern opposition and theimportance of oil development in the area to the regime.

Unless there is a significant breakthrough in the war, there is little prospect ofthe deadlock in the peace process being broken within the forecast period. Thegovernment’s political and military ascendancy means it has no need to makereal concessions to the opposition. Moreover, the gap between the negotiatingpositions of the two sides will remain wide, despite efforts by external powersto mediate. The regime hopes to entrench its position further, especially withoil exports now on stream. The opposition, meanwhile, has continued to loseground and has little leverage at the negotiating table. The commitment of theSPLA—the main southern rebel group—to an agreement with the governmentis also open to question. As a result, direct talks through the Inter-Governmental Authority on Development (IGAD)—a regional peacemakingbody—will remain moribund, even as meetings continue to take place.

Meanwhile, the government will continue parallel efforts to exploit divisionswithin the opposition, aimed at co-opting its opponents into the governingsystem. It has used this tactic with some success in the past, and its efforts atconstitutional reform are in large part designed to draw across oppositiongroups by promising them a role in Sudan's new “democratic” system. Theregime’s main target will be Sadiq al-Mahdi’s Umma Party, one of the mainnorthern opposition groups. Talks between Hassan al-Turabi—theparliamentary speaker and main force behind the regime—and Mr Mahdi havesuffered some setbacks during the past quarter. Nevertheless, the EIU believesthat a deal is likely within the forecast period, which will see the former primeminister take up a senior government position in return for additionaldemocratic reforms. This would effectively put an end to the NDA—anumbrella group that joins the northern and southern opposition movements—

The regime’s allies mayprove a liability

The peace process willremain deadlocked—

—but the government willcontinue efforts to co-opt

the opposition—

8 Sudan


and leave the SPLA as the only active anti-government militia, particularly ifUmma’s northern rival, the Democratic Unionist Party, also co-operates withthe government.

This will depend, however, on the conciliatory wing of the ruling NationalCongress (NC) coming to the fore. Mr Turabi, who has championed thisapproach, has been forced on to the defensive in recent months. However, weexpect him to reassert himself and gain more direct influence overpolicymaking, though rumours that he will seek to become president in the2001 elections are unlikely to be true as he will probably prefer to maintain hisbehind-the-scenes influence. In this environment, we expect a continuation ofthe domestic reform programme. This will not, however, lead to a real erosionof the NC’s grip on domestic political power, which will be maintainedthrough its grip on the electoral process and the machinery of government,and underpinned by its control of the military.

Externally, the thaw in Sudan's relations with European states will continueover the forecast period, opening the way for an improvement in diplomaticand commercial links. Relations with the UK—which were downgraded in1998 following the UK’s endorsement of a US air strike against Khartoum—have been restored to full ambassadorial level. This move underlines a broadertrend, as a growing number of previously hostile states have recognised thatthe current government is likely to remain in power. Many of these countrieshave concluded that entering into a dialogue with the regime is the onlymeans through which they are likely to exercise influence over Sudan, or seetheir firms benefit from trade and investment opportunities. We expect thispattern—which has also seen Arab governments set aside their differences withthe Sudanese regime over its support for Iraq in the Gulf war—to continue.Nevertheless, periodic crises over Sudan's alleged human rights abuses maycause occasional setbacks in bilateral relations, particularly with EU states.

The US, though, will remain outside the trend, and will maintain its hardlineopposition toward the regime. The US position will be driven by Congressionalaccusations that the Sudanese government permits the practice of slavery andactively persecutes its Christian minority, as well as supporting terrorism.However, the administration itself continues to echo this stance, refusing toacknowledge that its 1998 air strike was an error, as the Sudanese governmenthas demanded. The appointment of a new US presidential envoy to Sudan, whohas already established relations with the opposition, will do little to easebilateral tensions. Moreover, the charged political atmosphere in the run-up tothe 2000 US presidential election will make a change in attitudes toward Sudaneven less likely. We thus expect relations with the US to remain poor throughout2000 and 2001, with US sanctions against Sudan set to be maintained.

Economic policymaking will continue to focus on stabilisation andliberalisation, in line with the goals outlined in Sudan's IMF staff-monitoredreform programme. There have been some impressive gains over the past 18months, notably in the management of inflation and the successful flotation ofthe dinar (SD, formerly the Sudanese pound) at close to its free-market rate.

—as the Turabi wing of theruling party asserts itself

Economic policy willpursue IMF goals—

Ties with Europe and theMiddle East will

strengthen—

—but the US will not softenits hostile stance

Sudan 9


Price stability will remain a key policy objective over the forecast period, as thegovernment seeks to create an environment conducive to growth and toincreased domestic and foreign investment. The government will continue tocut direct and indirect subsidies, both to encourage greater efficiency and boostthe private sector, but also in a bid to restrict the fiscal deficit.

The other focus of economic policy will be the continued development of theoil sector. Oil exports began in late August at a modest rate of some85,000 barrels/day. The government will seek to work with the GNPOC foreignoil consortium to lift this rate, and will probably see total production rise toaround 225,000 b/d by the end of the forecast period. More importantly, thegovernment will seek to use the successful completion and operation of thepipeline—Africa’s longest—as a means to draw in other foreign firms todevelop additional oilfields. However, the success of this policy will depend toa large extent on there being no further deterioration in the securityenvironment. Development in the sector will also be limited by the designcapacity of the pipeline—currently around 250,000 b/d—and the difficulty ofusing other routes.

Nevertheless, government reforms will need to extend beyond the oil sector ifthe economy is to develop further. Liberalisation in irrigated agriculture—a keycomponent of the primary sector, which generates the largest proportion ofSudan’s GDP—is being undermined by a sharp deterioration in infrastructurequality that has already begun to reduce yields, and will continue to do sounless additional funding is made available. Power generation is also wellbelow what is required to support manufacturing development.

Government efforts will be undermined further by the demands of defencespending to support the military’s position in the civil war. A large share ofgovernment spending is hence channelled into unproductive sectors. Thisspending is extremely difficult for the regime to control, putting pressure onTreasury efforts to restrict monetary expansion. Moreover, earlier cuts meanthat there are few areas beside military expenditure, and an existing policy ofreducing subsidies, where spending can be pruned further. The lack ofaccurate data on defence spending also calls into question all government andexternal assessment of the fiscal balance. In addition, government revenueprojections are based on an assumption of 6% annual GDP growththroughout the forecast period, whereas the EIU expects growth to averagearound 5% per year in 1999-2001. However, the inflow of oil earnings intogovernment coffers from late 1999 onwards should help to ease fiscalpressures during the forecast period. We therefore expect the budget deficit tofall from an estimated SD238bn ($1.2bn), 15.1% of GDP, in 1998 to 7.5% ofGDP in 2000 and 4.5% in 2001.

Reliance on the agricultural sector—which not only accounts for some 40% ofGDP but is also by far the largest employer, thus driving privateconsumption—leaves economic growth exposed to poor weather conditionsand changes in global demand for Sudan’s main export products, such ascotton. Heavy rains in 1998 badly damaged the 1998/99 harvest, which we

—and the development ofthe oil sector—

—but serious impedimentsremain

Growth will continue—

10 Sudan


believe has contributed to the expected deceleration in GDP growth in 1999, toaround 4%. However, growth will continue over the forecast period, reachingabout 5.5% in both 2000 and 2001, albeit from a very low base. Much of thegrowth will be export-led, as the oil sector establishes itself and agriculturalproducers and related industries take advantage of the liberalisation of theforeign-exchange and trade regimes. An improvement in the external accountsshould also support an increase in intermediary and capital goods imports,notably for the textile sector, which should register growth from late 2000.

We expect the authorities to consolidate the gains in controlling inflationmade in 1997-98. After averaging well over 100% as recently as 1996, theannual consumer price inflation rate dropped to an average of 17% in 1998.This reflects a deliberate and effective government attempt to control pricegrowth through tighter control of both monetary and fiscal policy. We expectthis approach to be maintained throughout the forecast period, drivinginflation down close to single digits. Despite government efforts, pricemovements will be volatile, as the value of the dinar continues to movesharply against the dollar, with a direct impact on the price of the manyimported goods on which Sudan relies. Efforts to reduce subsidies, coupledwith the impact of extra-budgetary defence spending, will also fuel pricegrowth, particularly outside Khartoum, from where much of the government’sprice data is drawn. The government claims to have reduced financing fromthe banking sector substantially over the past two years, but monetisation ofthe fiscal deficit is likely to continue for as long as the civil war lasts.Nevertheless, based on the data available, we expect inflation to average 15%in 2000 and 12% in 2001.

The start of oil exports has begun to have a beneficial impact on Sudan's tradebalance, which will become more pronounced in 2000 and 2001 as capacityexpands. The EIU expects oil exports to average 130,000 b/d in 2000, rising toan average of 175,000 b/d in 2001 (assuming domestic consumption of around50,000 b/d by then). We expect international oil prices to strengthen further,with the benchmark Dated Brent blend averaging $18/b in 1999 and $19.50/bin 2000, before easing to $17.75/b in 2001. Oil exports should generate $878mand $1.1bn in the two years of the forecast period. Assuming that harvests arenot hit by bad weather, this should provide Sudan with total export revenue ofsome $1.5bn in 2000 and $1.7bn in 2001, compared with a projected $757m in1999, a rise of 226% over the duration of the forecast period.

The development of the oil sector will also end the need for energy imports,which in 1998 made up 13% of the total import bill. The completion of the oilpipeline will reduce import spending on raw materials too, though this may beoffset by further development work on the oilfields themselves. Likely cuts toimport volumes will also be eroded by the expected increase in internationalnon-food commodity and manufactured goods prices in both 2000 and 2001.In addition, efforts to revitalise the manufacturing sector may lead to anincrease in imports of capital and intermediate goods. Overall, we expect thisto lead to an import bill of $1.4bn in 2000 and $1.5bn in 2001, generating asmall trade surplus—Sudan’s first since at least 1980—in both years.

—and inflation will remainrelatively low

Oil earnings will improvethe trade account—

Sudan 11


Despite the vast improvement in the trade sector, the current account willremain in deficit, as it has been each year since 1984. Invisibles debits willincrease over the forecast period, as oil firms begin to repatriate profits from oilsales and recoup their development outlays. Service payments will also remainhigh, given the size of Sudan’s import bill relative to GDP, and the country mayalso be required to make additional payments on its interest arrears on itsincomes balance if it successfully negotiates a debt agreement with its externalcreditors. We therefore expect the invisibles deficit to grow from $185m in1998 to $531m in 2000, rising to $601m in 2001. Overall, however, we expectthe current-account deficit to fall sharply during the forecast period, from anestimated $859m in 1999 (9.5% of GDP) to $138m in 2000 and $110m in2001, equivalent to 0.8% of GDP.

Sudan’s financing situation should improve considerably over the forecastperiod, with foreign investment set to increase as oil and other sectors attractoverseas interest, and with the current-account deficit expected to fall. However,the IMF and other major creditors are likely to demand that Sudan uses its oilrevenue to repay a larger portion of outstanding claims than in the past, in orderto benefit from a wider debt rescheduling or forgiveness programme.

The political scene

Hopes for a breakthrough in peace talks that would ease, if not end, Sudan’slong-running civil war have receded in recent months. Secret negotiationsbetween Hassan al-Turabi—the parliamentary speaker and head of Sudan’sruling National Congress (NC)—and the former prime minister and northernopposition leader Sadiq al-Mahdi appear to have collapsed. Meanwhile, formalnegotiations between the government and the main southern oppositiongroup, the Sudan People’s Liberation Movement (SPLM; the political arm of theSudan People’s Liberation Army), have also foundered.

The two sides held direct talks in July under the auspices of the Inter-Governmental Agency on Development (IGAD), a regional conflict resolutionorganisation. The IGAD process has effectively been deadlocked since both sides

—as a fresh round of IGADtalks—

Peace efforts losemomentum—

—but the current accountwill remain in deficit

12 Sudan


agreed last year on broad principles for a peace settlement (2nd quarter 1998,pages 14-15). The plan centres on an agreement to hold a self-determinationballot in the predominantly African (Christian or animist) south. However, theIGAD process has proved unable to translate this general agreement into adetailed settlement. The two sides have failed, for example, to agree on thegeographical area that constitutes “the south”. Negotiations have also failed toreach a consensus on when the ballot should be held, and what form of interimpolitical arrangements should be put in place prior to a referendum.

There was no progress on any of these issues at the July talks. This in partreflects the differing visions of the two parties for the future of Sudan.However, it also underlines the contrasting political and military fortunes ofthe two sides. At the recent meeting, the government was able to call for acomprehensive ceasefire—confident that this would gain the regime positivepublicity if the SPLA rejected it, or freeze in place its current dominantposition if the SPLA accepted. The southern opposition, meanwhile, has nopolitical or military leverage to exact real concessions from the government,and is under pressure from its external allies to carry on the armed struggle,rather than make concessions that enable the Islamist regime to consolidateits position.

The only agreement at the end of the session was on a proposal to establish aNairobi-based IGAD secretariat to work for a settlement comprising permanentdelegates from both sides of the Sudanese conflict. The decision was greetedwith some enthusiasm by IGAD itself and by the predominantly Western IGADPartners’ Forum. However, while both sides agreed to participate in thesecretariat, it had not been inaugurated by mid-October, and there were clearsigns that the government at least had become impatient with the whole IGADprocess. The government instead appears to be favouring a parallel track ofpeace negotiations, newly instigated by Libya.

Following the stalemate at the IGAD talks, Libya—which has been seeking toestablish a role for itself as a regional peacemaker—put forward its own peaceplan, later endorsed by Egypt. The Libyan-Egyptian proposal called for animmediate end to hostilities and the formation of a “national dialogue”committee that would draw together government and opposition delegatesand seek to broker a settlement under joint Libyan and Egyptian control. Thegovernment accepted the proposal immediately. Its response was unsurprising,given that the plan was very close to proposals already outlined by thegovernment, which is also eager to draw Arab states into the peace process tooffset the perceived bias of the African countries which make up IGAD.

Unusually, the Libyan proposal appeared to have been endorsed by theNational Democratic Alliance (NDA), the umbrella organisation that drawstogether Sudan’s opposition groups. The NDA had held several days of talks inTripoli before the initiative was launched, and immediately afterwardsappeared to support it, even though the government’s call for an immediateceasefire had been rejected at IGAD. However, the NDA subsequently“clarified” its position, arguing that, while it welcomed the Libyan initiative, it

—fails to break thedeadlock

Libya puts forward its ownproposals—

—which the oppositionsupport but later reject

Sudan 13


could not call an end to the fighting until the regime “had created conditionsconducive to talks”—including the suspension of the new constitution. TheNDA also suggested that the Libyan initiative could be pursued through IGAD,though it is clear that the IGAD members and the Partners’ Forum—hostile toexpanding Libyan influence—would reject any such moves.

The parallel peace tracks have divided the opposition. The SPLA leader, ColonelJohn Garang, has stated that his movement will only support the IGAD peacetrack, which deals with southern Sudanese issues and involves the SPLM/SPLAexclusively in talks with the government. In contrast, the Egyptian-Libyantrack has so far focused on government dialogue with northern elements of theNDA, of which the SPLM/SPLA is a part. Mr Garang is clearly concerned thathis group’s influence may be diluted by a separate peace initiative involvingother opposition groups. The government, probably aware of the divisiveimpact on the NDA of separate frameworks, has expressed support formaintaining both structures.

However, talks between Mr Turabi and Mr Mahdi, head of the oppositionUmma Party, also appear to have broken down. The two leaders, who arebrothers-in-law, held secret talks in Switzerland in mid-1999 (3rd quarter 1999,page 12). News of the meeting prompted considerable speculation that theymight have reached agreement on a power-sharing deal that would drawMr Mahdi back into government in return for constitutional reforms. Theregime has long favoured this tactic of striking piecemeal deals to co-optelements of the opposition into the governing system above the formalnegotiating channels, seeking to exploit divisions and mistrust within thefractious NDA.

However, despite signs that the secret talks had made progress—includingrumours of a deal to bring Mr Mahdi back to Sudan from exile in Eritrea—negotiations have since stalled, with no indications that any further meetinghas taken place. Reports suggest that a French effort in July to host freshdiscussions failed. In part, this appears to reflect the massive criticism fromwithin the ranks of the NDA—including from members of Mr Mahdi’s ownparty—that news of the talks generated.

It is also clear that there is significant resistance within the regime toMr Turabi’s programme of national reconciliation. Much of the opposition tothis is centred on President Omar Hassan al-Beshir, who enjoys limited personalpower but is closely associated with old-guard hardliners within the military,which was at the heart of the 1989 coup that brought the regime to power.When news of the secret talks between Mr Mahdi and Mr Turabi emerged,Mr Beshir claimed that the latter had been acting with the full knowledge andsupport of the government. However, rumours later suggested that he had beenunaware that the meeting was to take place, and that he and his supporters hadbeen deeply alarmed by its reported content. These rumours appeared to besubstantiated by a speech in which Mr Beshir described the opposition as“hypocrites and supporters of Satan” who, he said, would be required to“declare repentance and wash to purify themselves from the sins they have

Secret talks between thenorthern opposition and

the government—

—also break down—

—as hardliners in thegovernment assert

themselves—

14 Sudan


committed against the Sudanese people” before they could expect to enterdialogue with the government.

The position of hardliners on both sides has been reinforced by a bomb attackon the newly completed oil export pipeline near Atbara, north of Khartoum(see Oil and gas) in mid-September. The Joint Military Command of the NDAclaimed responsibility for the bombing, though it appears that it was themilitary wing of Umma that executed the attack. There have been signs ofdivision within the Umma movement, with Mr Mahdi seeking to play downthe incident. However, his son, Mubarak al-Mahdi, the leader of Umma’smilitary wing, said it had carried out the attack to punish the government anddemonstrate that the pipeline could not be secured without a peace agreement.

The regime has claimed that Umma bore primary responsibility for the attack,reporting that it had found a party emblem in the area where the explosion tookplace. This has made further talks between Mr Mahdi and Mr Turabi difficult.Moreover, in the aftermath of the attack, the regime began a crackdown on theUmma Party. Demonstrations were organised in Khartoum, with speakersfiercely condemning Mr Mahdi. The government said that it would seek to sue

—and an attack on thepipeline makes

negotiations impossible

Sudan 15


and prosecute NDA members responsible for the attack and began proceedingsto extradite senior opposition members from neighbouring countries to standtrial in Khartoum. The security services also arrested and questioned UmmaParty members inside Sudan, including several of Mr Mahdi’s relatives, breakinga previous understanding that while the party was illegal, it was tolerated as thepolitical organisation of the Ansar sect in the country.

The attack has also provided the regime with the justification to launch a widercrackdown on dissent. In a speech delivered at a rally held after the pipelinebombing, Mr Beshir accused journalists of being a “fifth column” for theopposition. The government-controlled National Press Council later closeddown the independent newspaper al-Rai al-Akher indefinitely, and anotherpublication, al-Rai al-Aam, for several days for printing “misleading articles”that the council said had prompted complaints from the military and thereligious authorities. The tone of the statement and the decision to shut downthe critical newspapers stood in sharp contrast to guarantees of politicaldiversity contained in the new constitution (1st quarter 1999, page 11), whichthe opposition have long claimed the regime would not honour.

However, despite being forced onto the defensive, Mr Turabi remains the mostpowerful political actor in Sudan. This was confirmed at a conference of theruling NC in October. Although the conference voted to make Mr Beshir theparty’s candidate for the next presidential elections—scheduled to take place in2001—it also confirmed Mr Turabi as secretary-general. More significantly, theconference also abolished the leadership office and leadership council—whichhad previously been headed by the president and dominated by hissupporters—leaving Mr Turabi as the undisputed head of the party. The moveis a significant victory for Mr Turabi, whose efforts in late 1998 to gain greaterformal authority over the NC were blocked by internal opposition within theparty (1st quarter 1999, pages 12-13). Mr Turabi will be required to step downas parliamentary speaker, which the EIU expects him to do in April 2000 whena new parliament is formed.

The onset of the rainy season has led to a temporary decline in the number ofclashes between opposition militia and government forces on all fronts of thecivil war, as has been the pattern over the 15 years of the conflict. Moreover, adecision by the government and the SPLA in October to extend an existingceasefire—covering Bahr al-Ghazal and the other areas of the south mostaffected by famine—for a further three months is unlikely to prevent fightingin other parts of the country and between militia factions. Underliningexpectations that the downturn in fighting is temporary, there have beenreports that both sides have been strengthening their positions along theeastern front near the Eritrean border, apparently in preparation for a fresh dry-season offensive, probably in November.

In fact, the government’s decision to declare a unilateral ceasefire in Augustprobably reflected its need to regain the initiative in the internationalpropaganda war, after it was accused of dropping bombs containing chemicalagents on rebel-held territory close to Lainya in Eastern Equatoria province in

The rainy season forces alull in fighting—

—but the party conferenceconfirms Mr Turabi’s power

Hardliners mount acrackdown on the press—

—and the government facesaccusations over chemical

weapons

16 Sudan


late July. The UN’s World Food Programme (WFP) made the original claim,though it later seemed to back away from the accusations. Similar claims havebeen made in the past—particularly by the SPLA—but these were given greatercredence when it was reported that several aid workers operating under theauspices of the WFP had developed symptoms associated with the use of crudechemical weapons after travelling through the area shortly after the attack. TheWFP said it would look into the incident, but later said that it had not taken soilsamples from the area for analysis by outside agencies—apparently because itdid not wish to jeopardise its already tense relations with the government.Whatever the truth of the allegations—which are strongly denied by theregime—they are particularly damaging for the country’s internationalstanding, especially in the light of repeated US allegations that Sudan has beenmanufacturing chemical weapons.

Meanwhile, order has been re-established in the oil-rich central-southern stateof Wehida (Unity) after a series of clashes between rival pro-governmentmilitias for control of the area (3rd quarter 1999, page 15). By mid-August theUnited Movement Militia, led by Paulino Matip, had driven the SouthernSudan Defence Forces (SSDF), led by Riek Machar, out of the province andestablished full control. Other than a minor incident in which a number ofChinese workers were reported to have been abducted briefly, the clashes andswitch in control had no impact on the oil industry or on foreign firmsworking in the area and Mr Matip was reported to be co-operating fully withthe central government.

However, the reimposition of order in the area has come at a cost. Mr Macharwas the most senior of the southern rebel commanders who defected from theSPLA to join the government under the 1997 Khartoum peace agreement.Under the deal, he became an assistant president to the national governmentand head of the Southern States Co-ordination Council (SSCC)—ostensibly theexecutive branch of central government in the southern region. Thisframework—although viewed with scepticism by most opponents of the NC—enabled the regime to claim that it was a government that drew from both thenorth and the south. Mr Machar’s appointment also enabled the governmentto demonstrate to other potential opposition defectors the rewards available tothem if they struck an agreement with the regime. These gains had alreadybeen compromised, as the government had failed to honour many of itspower-sharing promises. They have now been effectively destroyed by thegovernment’s reluctance to come to Mr Machar’s aid. Underlining this, therewere reports in the aftermath of the defeat that several of the other formerrebel leaders had split off from the United Democratic Salvation Front (USDF; agrouping of former government opponents who had signed the Khartoumagreement), while some of their fighters had returned to the SPLA.

The emergence of Mr Matip as the dominant force in Unity state also underlinesthe weakness of the regime’s position there. The government in Khartoum lacksthe support and strength to secure this area through the use of the army or theNC’s Popular Defence Forces and is thus forced to rely on local warlords and triballeaders such as Mr Matip to maintain order. The recent clashes show how volatile

—highlighting thegovernment’s own

weakness

—but at considerable cost—

Mr Matip establisheshimself in Wehida—

Sudan 17


such relations can be, while Mr Matip’s execution of several provincial ministersin August and four pro-government tribal leaders in September shows that thegovernment relies on, but does not control, such figures. In September militialeader Kerubino Kwanyin Bol, who had repeatedly changed sides during the civilconflict, was killed during faction-fighting between militia groups. In late Octoberthere were reports that Bentiu, the Unity state capital, had come under sustainedshelling from troops led by Peter Gadiet, a former rebel allied to Mr Matip’s forces,who seems to have defected back to the SPLA in September. The split with Mr Matipfollows a dispute over the division of oil revenue among pro-government factions.Continued in-fighting among pro-government militias and the prospect thatdisaffected groups could realign themselves with the opposition weakens thegovernment’s military position, particularly in the oil-rich areas.

Death of a warlord

The life and death of a militia leader, Kerubino Kwanyin Bol, illustrate many of thedifficulties associated with the government’s alliance with local warlords. Mr Bol was thelocal strongman in his home area of Bahr al-Ghazal province, in south-west Sudan. Hewas one of the founders of the SPLA and a close ally of its leader, John Garang, until thelate 1980s, when relations deteriorated. With little ideological compunction, he used hisstrength in Bahr al-Ghazal as a bargaining chip to negotiate arrangements favourable tohimself with both the government and the opposition. He became notorious for thebrutality with which he ruled Bahr al-Ghazal and was accused by many aid agencies ofcreating the conditions that prompted the 1998 famine in which 60,000 people died,and of manipulating the delivery of international aid to his own advantage. He switchedsides in the conflict frequently, most recently in 1997, when he signed the Khartoumpeace agreement to join the regime from the SPLA, before suddenly attacking thegovernment garrison town of Wau and briefly taking control. Although this appeared toplace him on the rebels’ side, he was accused in 1998 of trying to assassinate Mr Garangby ordering a bomb attack on the SPLA leader’s home in Kenya. Mr Bol is believed tohave been trying to negotiate a return to the government side through Paulino Matipwhen he was killed, apparently by one of Mr Matip’s own commanders who was in theprocess of defecting back to the SPLA from Mr Matip’s group.

There has been no thaw in Sudan’s relations with the US in recent months.Hostility toward Sudan continues to be driven from the US Congress, wheretwo members of the House of Representatives (Donald Payne and TomTancredo) and a Senator (Sam Brownback) have turned Sudan into a significantissue. They have focused their campaign on the government’s alleged supportfor slavery, its persecution of Christians and its production of chemical andbiological weapons—successfully building a strong anti-Sudan body of opinionin Congress. This led to the unanimous approval in July in both houses ofCongress for tough resolutions condemning the Sudanese government andcalling on President Bill Clinton to step up political and materiel support forthe opposition, including the supply of anti-aircraft weaponry. Congress hasalso tried to step up pressure on foreign oil firms investing in Sudan.

Congressional pressure has ensured that the US administration has not easedits hostile stance toward the Sudanese government. In August Mr Clinton

—on which theadministration acts—

The US Congress maintainspressure on Sudan—

18 Sudan


appointed Harry Johnston as his first special envoy to Sudan, with a brief topress for improvements in the human rights situation there while also seekingways to end the war. Mr Clinton said that the appointment of the specialenvoy—a long-standing congressional demand—was meant to signal theimportance the US attaches to the Sudanese conflict. Since his appointment,Mr Johnston has held talks in Washington with the northern and southernopposition groups.

Sudan was also one of seven governments characterised in a US StateDepartment report as “severe” violators of religious freedoms. The list was partof the State Department’s first annual report on religious persecution aroundthe world under the 1998 Religious Freedom Act. It alleged that non-Muslimsin Sudan were “subject to killing, prolonged arbitrary detention orimprisonment, threats, violence and forced conversion to Islam” and claimedthat these abuses were directly and indirectly the result of government action.The listing will have no direct impact on Sudan, which is already subject topunitive US sanctions because of its alleged support for international terrorism.Nonetheless, the report entrenches the US position further, making it evenharder for there to be a significant breakthrough in diplomatic ties. Sudan hasresponded angrily both to the report and to Mr Johnston’s appointment. Thecountry’s foreign minister, Mustafa Osman Ismail, forcefully rejected all theallegations of human rights abuses. Mr Ismail also criticised the US forappointing the special envoy without consulting or notifying Sudan andsuggested that, as a result, the government would neither recognise nor dealwith him.

US animosity toward the Sudanese regime was highlighted during a visit toKenya in late October by US Secretary of State Madeleine Albright, when shecriticised the Sudanese government’s human rights record and policy towardsthe south. Although Mrs Albright met representatives of several Sudanesegroups, including SPLA leader John Garang, she did not meet any Sudanesegovernment representatives during her visit. Mrs Albright announced anextension from three to five years for the Sudan Transitional Assistance forRehabilitation (STAR) programme that provides democratisation training toopposition and other groups in southern Sudan. However, the US governmenthas so far resisted congressional pressure to supply the SPLA with directlogistical and military aid. Mrs Albright also announced financial aid for theIGAD secretariat and made clear the US preference for the IGAD peace talksrather than the Egyptian-Libyan initiative. The Sudanese government hasresponded by accusing the US of trying to derail the peace process.

In August the government marked the first anniversary of the US air strikeagainst the Al-Shifa pharmaceutical factory on the outskirts of Khartoum witha series of anti-US demonstrations in the capital. The factory’s owner, SalahIdris, also announced that he had begun legal action against the US to gaincompensation for the destruction of the factory. The attack on the Al-Shifaplant has become a source of considerable embarrassment to the US. Itcontinues to claim that the factory was destroyed because it was engaged in theproduction of chemical weapons, but it has failed to produce convincing

—to Sudan’s annoyance

Sudan marks theanniversary of the Al-Shifa

bombing

Sudan 19


evidence. Earlier this year the US was forced to release Mr Idris’s US assets(2nd quarter 1999, page 18), which had been frozen after the attack on thefactory because of its owner’s alleged links with terrorism. When challenged ina US court, the government was forced to back down on its allegation,claiming that it had proof but that it was unable to release details withoutendangering its intelligence sources.

The US’s hostility toward Sudan appears increasingly out of step with theapproach of many of its most important international allies, which are activelyseeking to restore links with the country. This has been most apparent inrelations between Sudan and the UK. In 1998 the UK was the only countrythat endorsed the US air strikes against Sudan. This led to a sharp decline indiplomatic relations between Sudan and the UK, including the closure of theirrespective embassies. However, it is clear that, despite having publicly backedthe US position at the time, the UK has become increasingly sceptical and hadexpressed its doubts in private to Sudan. This prompted a thaw in bilateral tiesand led to a visit by the Sudanese deputy foreign minister to London in mid-1999, after which the two countries announced that they would re-open theirembassies at chargé d’affaires level (3rd quarter 1999, page 17). This wasfollowed by a meeting between Mr Ismail and his UK counterpart, Robin Cook,at the UN in New York in October, after which the two sides agreed to upgraderelations to full ambassador level and “open a new page in relations”.

Relations have also strengthened with France, which is positioning itself asSudan’s entry point for better ties with the EU. In recent months France hasreceived visits from officials in Sudan’s foreign and oil ministries and also soughtto host a meeting between the government and a northern opposition leader inJuly. The visit of an oil minister, John Dor, may prove to be of particularimportance if rumours in the oil industry that France’s Total Fina is close toannouncing its return to Sudan (see Oil and gas) prove correct. French efforts topromote Sudan to the EU have also begun to bear fruit, with an EU envoy,Xavier Marchal, quoted by the official Sudanese news agency, SUNA, as sayingthat Sudan had “taken practical steps that will lead to the full normalisation ofties with the EU”. Mr Marchal also said that while the EU noted US concernsover Sudan, the organisation would not be influenced by them.

Sudan’s ties with other Arab states have also continued to improve. In a clearreference to the US, a meeting of Arab League foreign ministers in Septemberpromised support for Sudan against any external power that sought to interferein Sudanese domestic affairs. Sudan’s acceptance of Libya’s peace initiative (seeabove) has also helped to cement ties with that country, as well as with Egypt,which also endorsed the plan. Sudan’s demand after the oil pipeline attack inSeptember (see Oil and gas) that Egypt extradite leading opposition membersin Cairo to Khartoum for trial had put some strain on bilateral relations.However, the matter appeared to have been resolved when Egypt asked thegovernment’s principal suspect, Abda Rahman Saed, to relocate to Eritrea.

Sudan’s most significant gain during the past quarter, however, has been therestoration of full diplomatic relations with Kuwait. Ties were broken off in the

—while France continues tocourt the government—

Sudan and the UK upgradediplomatic relations—

—and Arab ties strengthen

20 Sudan


aftermath of the 1990 Iraqi invasion of Kuwait, which Sudan appeared tosupport. The re-opening of the embassy draws a line under the issue, puttingan end to the damage inflicted on Sudan’s international ties by its stance in theGulf war. The normalisation should also open the way for further developmentof commercial ties with Kuwait and other Gulf states, which will become ofparticular importance as Sudan seeks to draw on their experience and expertiseto develop its own oil sector.

However, there has been much less progress in Sudan’s relations with itsAfrican neighbours. Over the past year Sudan has been able to exploit theconflict between Ethiopia and Eritrea—traditionally two of its most implacablefoes—to its own advantage. It claimed a particular triumph earlier in the yearwhen Qatar brokered a peace treaty between Eritrea and Sudan, under whichEritrea undertook to restore full relations, as well as ending its support for theSudanese opposition based in Asmara and preventing it from carrying outattacks from Eritrean territory. However, it has become apparent in recentmonths that the treaty has not been honoured, with Sudan claiming, rightly,that the opposition is continuing to mount attacks from Eritrea. AlthoughEritrea has denied this, relations have worsened significantly during the pastthree months. Diplomatic ties have not been re-established and the NDAcontinues to use the Sudanese embassy as its political headquarters, as it hasdone since diplomatic relations were broken off in 1995.

At the same time, Sudan has faced renewed accusations that it is intervening inthe civil conflict in the Democratic Republic of Congo (DRC) in favour ofPresident Laurent Kabila. According to opposition fighters in the DRC, theSudanese air force carried out several bombing raids on villages under rebelcontrol in the north of the country, killing some 500 people. The allegationshave not been substantiated by outside observers, but they prompted animmediate escalation in tension with Sudan’s most southerly neighbour andlong-time foe, Uganda, which is directly involved in the war in support of therebel movement. Sudan later claimed that Uganda was massing troops in theEquatoria region to mount an invasion of the Sudan in support of the SPLA.Ugandan officials have accused Sudan of carrying out bomb attacks in Uganda(4th quarter 1998, pages 15-16; 3rd quarter 1999, page 17) and of supportingthe Ugandan rebel Lord’s Resistance Army (LRA).

Economic policy

The government has continued to set economic policy within the parametersof the structural reform programme drawn up in consultation with the IMF.The strategy so far has focused on stabilising Sudan’s war-torn economy andliberalising tight restrictions on private-sector activity. It has enjoyedsignificant success in generating reduced fiscal deficits, faster growth rates, andlower inflation than Sudan has seen for many years (see Economic trends). Inaddition, the government hopes that the development of the oil sector willboost both government revenue and export earnings (see Oil and gas).

African links remaindifficult—

Economic policy is focusedon stability—

—as tensions betweenSudan and Uganda escalate

Sudan 21


Nevertheless, the continuing civil war remains a major obstacle to economicdevelopment, creating major dislocations within the public and private sector,and damaging international investor confidence.

As part of its effort to control inflation, the government finally replaced theSudanese pound with a new currency, the dinar. The two had been operatingalongside one another for three years, but on August 1st the dinar became theonly legal tender, with all prices, the budget and bank accounts revalued indinars at a rate of S£10:SD1. The switch appears to have taken place successfully.Finance minister Abdel-Wahab Osman said the move would aid the battleagainst inflation, as well as marking a final break from Sudan’s colonial past (thepound was introduced by the UK, the colonial power at the time).

In addition to stabilising the macroeconomic situation, the government hassought to liberalise the economy and reduce state control in a bid to encourageprivate-sector activity. This strategy has enjoyed some success, particularly withreforms to the foreign-exchange regime. The authorities have succeeded inunifying the official and parallel-market exchange rates and have alloweddomestic businesses to retain their hard-currency earnings. This has beencoupled with reforms to trade legislation, easing the bureaucratic process bywhich imports and exports are approved, and abolishing export taxes on mostgoods. In its annual assessment of the country’s economic performance, the IMFsaid that this element of the liberalisation process had been directly responsiblefor improved performance in the agricultural sector, which had beenencouraged to step up export-oriented production. In a further bid to attractforeign investors into the oil sector and liberalised industries, the governmenthas eased visa requirements for foreign businessmen wishing to travel to Sudan.

The third key element of policymaking has been an effort to address Sudan’sexternal debt arrears and work to improve relations with creditors. It achieved itsfirst significant success in this area in August, when the IMF lifted its declarationof non-co-operation on Sudan—some nine years after it was first imposed. Sudanhas been making small monthly payments on its arrears over the past two years,and this, coupled with its adherence to the staff-monitored reform programme,has been sufficient to persuade the IMF to lift the non-co-operation order. TheIMF has also raised the prospect of restoring Sudan’s voting rights within a year ifdebt payments continue—a significant success for the country, considering thatit came close to outright expulsion from the Fund as recently as 1997. Thedecision should also open the way for negotiations between Sudan and its otherexternal creditors—notably the Paris Club—on fresh repayment andrescheduling deals (see Foreign trade and payments).

Nevertheless, this achievement is only the first step on a very long road. It willbe at least a year before Sudan has its voting rights restored and it will have torepay or reschedule much of its arrears to the IMF before it can expect to regainaccess to IMF financial support. As these stand at over $1.5bn—the largest ofany member state—this will take time, especially if Sudan continues to face thepolitical hostility of the US, the Fund’s most powerful member.

—and the government hassought to liberalise where

it can—

—as a new currency isintroduced—

—prompting the IMF to liftits non-co-operation order

22 Sudan


As part of its liberalisation process, the government has sought to privatise state-owned firms in a bid to boost the private sector and to raise revenue. The strategysaw the formation of Sudatel from the Ministry of Post and Telecommunicationsin 1993, and the firm has successfully raised domestic and foreign capital to funda much-needed expansion programme (2nd quarter 1999, page 26). However,while the government remains committed to the strategy in principle, theprocess has lost momentum. The finance ministry has raised the prospect ofleasing out the rail network to a private operator (3rd quarter 1999, page 21) andundertook to finance the upgrade of much of the existing infrastructure.However, the cost of the refurbishment, the potential security implications and aresulting lack of interest from foreign firms appear to have led the authorities toput the project on hold. The government is also known to be eager to find aprivate partner for the national airline, Sudan Airways, but the project has failedto generate interest from foreign or domestic investors.

The domestic economy

Economic trends

The IMF has issued a detailed report on the Sudanese economy following itsannual Article IV consultations held in May (3rd quarter 1999, pages 18-19).The report presents a positive assessment of Sudanese economic performanceover the past five years, and of government policy—which the IMF estimatesdrove real growth of around 5% per year in 1995-98. The Fund attachesparticular significance to the consistency of growth over the period, in sharpcontrast to the boom-bust pattern that characterised much of the 1980s.

Much of the real expansion has been driven by growth in the agricultural sector,which accounts directly for some 40% of GDP. The sector employs 80% of thelabour force, making its performance the key factor for private consumption andsavings levels, as well as driving activity in the services sector, especially in areassuch as trade, transportation and agro-industries. The IMF report suggests thatagricultural GDP expanded by some 5% per year between 1992/93 and 1997/98,pulling the rest of the economy along in its wake. This is attributed to a switchin cropping patterns away from traditional produce such as cotton and gumarabic towards sesame seed and groundnuts. Much of the growth has also beenexport-driven, with export volumes increasing by 7% per year over the past fiveyears, a direct result—according to the Fund—of moves to liberalise traderegulations and lift most restrictions on foreign-currency earnings.

However, although the economy remains dependent on agriculture, the reportalso points out the growing importance of the manufacturing sector. What theIMF terms the “secondary sector” (industry, mining, energy and construction)grew at an annual rate of around 13%, boosting its share of GDP from 11% in1992 to 18% in 1998. Manufacturing and mining combined are estimated tohave expanded by some 14% per year from 1992 to 1998, with their share ofGDP rising from 5.5% to over 9% of GDP. This was driven in large part by the

—but also by industry andmining

—driven by agriculture—

Growth rates remainhigh—

The privatisation processloses momentum

Sudan 23


initiation of joint-venture gold-mining projects and the expansion of the agro-industrial sector, particularly sugar refining. Construction also expanded overthe period, driven largely by developments in the oil sector, includingpreparations for the construction of the oil export pipeline.

The IMF also reports that Sudan’s finance ministry has had considerable successin restoring discipline to the government’s fiscal balances. According to thereport, the fiscal deficit fell from some 11% of GDP at the start of the 1990s tounder 1% in 1998. The improvement has been driven largely by developmentson the expenditure side, notably a sharp cut in development spending, whichfell from 16% of total expenditure in 1993 to some 2% in 1998. Currentexpenditure remained broadly stable, a significant achievement, which appearsin part to reflect improved central control over ministry spending. Revenuedevelopments, however, have been less positive with data in the reportpointing to a fall in government income as a percentage of GDP over most ofthe period, mainly as a result of declining direct and indirect tax receipts.

While it is clear that the fiscal reforms implemented by the government haveclosed the budget gap significantly, the figures presented in the report are opento question. In particular, it is surprising that the report makes no reference atany stage to military expenditure, despite the fact that the government hasbeen required to finance a civil war throughout its 10 years in power. The oftenpressing importance of defence spending for the security of the government inKhartoum, together with the influence of the powerful military establishmentover the regime that it brought to power, make it extremely difficult for thefinance ministry to exercise any real control over this area of the budget.

The government has clearly had considerable success in bringing downinflation over the past three years. Government data highlight a sharp fall inannual consumer price inflation, from slightly over 100% at the start of 1997to an annualised 8% by the end of 1998. This downward trend continued intoearly 1999, largely as a result of tight monetary policy, restrictions on bankcredit creation and the declining fiscal deficit. According to the financeministry, financing of the fiscal deficit through the Bank of Sudan (the centralbank) has fallen from around 5% of total financing in 1996-97 to 0.5% in1999, easing inflationary pressure from the banking system. The improvementcomes despite the gradual devaluation of the Sudanese dinar to its black-market level, which has markedly raised the local-currency cost of importedgoods on which Sudan depends. However, measures to reduce inflation havecoincided with an ongoing programme to reduce subsidies on a wide range ofbasic goods. Although these measures have resulted in one-off surges in theprices of goods when the subsidy has been cut, most prices appear relativelystable when compared with the 1994-96 period.

Oil and gas

Sudan exported its first oil on August 31st, pumping 600,000 barrels of NileBlend crude on to a tanker at its purpose-built export terminal of Bashayir,

Inflation stabilises

—although data are opento question

The fiscal deficit narrows—

Oil exports begin—

24 Sudan


south of Port Sudan. The delivery came some 20 years after foreign firmsbegan to explore for oil near Bentiu in central-southern Sudan. It has requirednot just the construction of an export point, but also a 1,600-km oilpipeline—Africa’s longest—as well as the development of oilfields near thefront line of the civil war. For the overwhelming majority of this work—estimated to have cost over $2.5bn—the government has had to secureforeign finance and the participation of foreign oil firms in the face of rebelthreats and stiff opposition from its powerful external opponents.Nevertheless, the pipeline was finished on time in June. The completion ofthe project and the development of the oil industry will ease Sudan’s pressingbalance-of-payments problems, generate additional growth and open the wayfor further investment in hydrocarbons and other sectors. As such, it wasrightly hailed by the government as its most important economicachievement since coming to power in 1989.

Production at the Heglig and Unity fields, which are providing most of theexport oil, has begun to rise slowly, reaching 140,000 barrels/day by mid-September. The EIU expects oil production to stay at this level for the rest of1999. This has provided oil exports of some 85,000 b/d, with the remainingoutput being used for domestic consumption and to fill the reservoir at theexport terminal. The oil export pipeline has an initial capacity of 250,000 b/d,which the Greater Nile Petroleum Operating Company (GNPOC)—thepredominantly foreign consortium that has developed the oil sector and builtthe pipeline—has indicated could be raised to 450,000 b/d with theinstallation of additional pumping stations. This is likely to be a long-termproject, however, as GNPOC has suggested that production will not reach theinitial 250,000 b/d ceiling until 2001. Meanwhile, GNPOC has continuedwith an extensive development programme, including the drilling of 23exploration wells. The consortium hopes to complete testing by the end of1999, in addition to starting to develop existing but as yet unused wells.

Nile Blend attributesHeglig Unity Nile Blenda

Gravity (API) 28.7 31.4 30.6

Density (20°; g/cubic m) 0.8796 0.8651 0.8693

Water (%) 0.7 0.12 0.22

Sulphur (%) 0.0596 0.0642 0.0635

Pour point (°C) 6 24 19

Flash point (°C) 62 47 48

Salt content (mg) 48.2 41.4 40.9

Acidity (mg) 0.39 0.25 0.28

Wax content (%) 20.95 18.81 18.94

a Nile Blend is a mixture of Heglig and Unity crudes at a ratio of 3:7.Source: Sudanese Ministry of Oil.

Although initial exports have been fairly low, the first deliveries of Nile Blendhave shown that it can command high prices on the international markets.The initial cargo was sold in August to a Singapore refinery at a discount of $1

—at modest levels—

—but good prices—

Sudan 25


to the East Asian benchmark Indonesian crude, Minas. However, a subsequentload was sold to the Italian oil firm Saras at Dated Brent minus $0.10. Thisreflects the quality of Sudanese oil, which, although waxy, is relatively light,with a low sulphur content.

Under the production-sharing agreement that governs the first phase of thedevelopment, 42% of the profit from the sale of Nile Blend accrues directly tothe government—some of which the government will then disburse to thestates—and 20% to the GNPOC consortium. The remaining 38% currently alsoreverts to the consortium to recoup its investment costs—a process that weexpect to take three to four years, depending on the strength of internationaloil prices. When the investment outlay has been recovered, that share of theprofits will accrue directly to the government. The government has stated thatit earned $2.2m from the sale of the initial 600,000/b sale. Assuming that thisrepresents 42% of the total profit, it would point to costs of around $4/b—higher than the costs incurred by producers in the Gulf but competitive byinternational standards. It also indicates that, contrary to the claims of somesceptics (2nd quarter 1999, page 25), the oil sector will remain profitable evenwhen oil prices are weak.

With the pipeline and export terminal operational, the government believesthat it will be able to attract additional foreign firms to explore opportunitiesin the country’s oil sector. To that end, John Dor, an oil minister, has travelledto Europe several times in recent months, and has held talks with QatarGeneral Petroleum Corporation, Royal Dutch-Shell, Totalfina, Petronas andNimr Petroleum. Mr Dor is not believed to have approached US firms—whichare barred under US sanctions from purchasing Sudanese oil, let alone in-vesting in the oil industry—although the Sudanese oil ministry has said in thepast that it would welcome US involvement in the oil sector.

Sweden’s Lundin Oil is already active in exploration in a block adjacent toGNPOC’s fields. However, the only company to have responded positively tothe government’s most recent overtures is believed to be the Franco-Belgianfirm, Totalfina. Total (Totalfina’s predecessor) was one of the first oil companiesto carry out exploration work in southern Sudan in the early 1980s. Itwithdrew in 1985, concerned that deteriorating security conditionsendangered the safety of its staff in the area. However, unlike other firms thatwithdrew during the same period, Total did not sell its concession. In OctoberThierry Monmot, the director of East African exploration at Totalfina, statedthat the improvement in the security environment could make the time rightfor the firm to return to its exploration block, which he said had “hugepotential”. Mr Dor, meanwhile, announced that Totalfina had bid for anadditional concession in Block 5 in south-eastern Sudan, but said that nodecision would be made until later in the year.

However, the existing oil project and plans to develop it further continue toface threats from the armed opposition. The rebels have long warned that theyregard the oil sector as a legitimate target, but effective security has prevented

The government seeksadditional foreign

partners—

—and Totalfina is reportedto be very interested

A successful attack on thepipeline—

—with profits dividedbetween the government

and the consortium

26 Sudan


them from acting on their threat. In September, however, the oppositionsuccessfully attacked the oil export pipeline near Atbara, north of Khartoum.

According to a spokesman for the umbrella rebel group, the NationalDemocratic Alliance (NDA), the attack was carried out by a special commandounit that detonated explosives, destroying 75m of piping. The attack was asignificant morale-boosting victory for the rebels, who were able todemonstrate that they are still a force to be reckoned with in the area. It wasalso well-timed, as it coincided with the visit to Khartoum of a board-leveldelegation from a Canadian firm, Talisman—part of the GNPOC consortium—and enabled the opposition to undermine government claims to have thesecurity situation under full control.

Nevertheless, the attack is unlikely to discourage firms from entering theSudanese oil sector, or badly disrupt oil output. The oil pipeline is buried formuch of its route, which does not make attack impossible, but does make itdifficult to damage large portions of the pipe in any single incident or carry outthe fast “hit and run” attacks that would be required, given that it runs throughgovernment-controlled territory. The attack in September occurred close to apumping station at the point where the pipeline comes above ground. This isthe most vulnerable area of the pipeline but, as there are only six pumpingstations on the entire route, it should have been recognised as such andprotected. The fact that rebels were able to attack probably points tocomplacency among the consortium or the army unit in the area rather than amore general vulnerability to the pipeline. The weakness has probably beenrectified by the reported deployment of additional government forces followingthe attack. Pipelines are relatively easy to repair, and pumping was resumedshortly after the attack, without causing any disruption to scheduled deliveriesfrom the export terminal. It should be noted that pipelines elsewhere continueto operate in the face of more adverse security conditions, for example inAlgeria, Turkey and Yemen, where the highly vulnerable pipeline is frequentlybombed by tribesmen, without production or export being disrupted.

Development of the sector would be undermined, however, if the rebelssucceeded in attacking the oil production areas in the south where foreignpersonnel and assets are stationed. It was attacks in these areas that promptedthe pull-out of foreign firms in the 1980s, and there would be furtherwithdrawals if such attacks resume. Although the rebels have threatened tostrike these areas, they have so far been unable to do so. However, thegovernment is relatively weak in the major oil areas of Wehida (Unity) state,where it is heavily reliant on alliances with local warlords, many of whom areformer rebels, to defend the oilfields. Rivalry between the disparate pro-government forces could yet undermine the security environment in the area,or open the way for successful rebel strikes.

Although the bombing of the pipeline is unlikely to deter investors, foreigncompanies operating in Sudan will remain vulnerable to political pressure fromcampaign groups opposed to the government. The American Anti-Slavery Group(AASG) has been focusing its campaign on Canada’s Talisman, calling on US

—unless it affects the fieldsthemselves

Talisman is facing politicalpressure at home

—is unlikely to discourageinvestors—

Sudan 27


pension funds with stakes in Talisman to divest their interests in the Canadiancompany. Talisman has also faced demonstrations in Canada (3rd quarter 1999,page 26) against its activities in Sudan. There are no reports that any of thepension funds targeted by the AASG have sold their stakes in Talisman, but thecampaign may discourage some Western firms who do not want their corporateimage to be tarnished by association with the Sudanese regime.

In late October Canada’s foreign minister, Lloyd Axworthy, stated that hisgovernment was concerned that serious human rights abuses were continuingin Sudan and that oil revenue may be directed toward the war. (Canada is amember of the IGAD Partners’ Forum.) Mr Axworthy announced that private-sector oil companies would have to make efforts to help end the conflict andease the humanitarian situation in the region or face economic and tradesanctions. Although Mr Axworthy did not single out Talisman directly, and nosubstantive measures were announced, the company’s share price fellsignificantly following the announcement. However, foreign investment fromthe Middle East and from Asia is unlikely to be affected by such concerns.

Sudan has also made progress in the refining sector. In July the Concorprefinery was commissioned, with a capacity of 10,000 b/d. The US firmChevron, which was active in Sudan’s oil sector in the early 1980s, began workon the refinery but sold it—at a heavy discount—to Concorp in 1992. Thegovernment has also signed a supply contract with the Saudi Usama companyto build an 840,000-gallon (20,000-barrel) storage facility to feed the new al-Jailirefinery, currently under construction on the pipeline route, just to the north ofKhartoum. The plant is a joint venture between the government and the ChinaNational Petroleum Corporation (CNPC), part of the GNOPC consortium. Thegovernment had initially suggested that the refinery could be completed by theend of 1999, but Chinese sources now say that delays to the delivery of partsmean that building work will continue until the end of the first quarter of 2000.The plant is likely to be commissioned in mid-2000, with a capacity of around50,000 b/d. The ministry of energy and mining has also announced plans toupgrade the Port Sudan refinery, raising output from 25,000 b/d to 70,000 b/d,but financing and a partner for the project have yet to be found.

Agriculture

The agriculture minister, Osman al-Hadi Ibrahim, told the National Assemblyin July that the government would establish a high-level committee toexamine problems in the country’s large irrigation projects. In his report,Mr Hadi conceded that the sector had experienced acute difficulties since statesupport for the schemes—including the giant al-Gezira irrigation complex—was reduced in 1992 and production subsidies were cut as part of thegovernment’s liberalisation strategy. Mr Hadi said that the schemes had notbeen ready to stand alone as self-financing operations and, as a result,maintenance of the vital irrigation channels and water pumps had fallen farbehind schedule. In one example he cited, only three of the 11 water pumps inthe Rahad project near New Halfa were operational in mid-1999.

The government highlightsproblems in the irrigated

sector—

Downstream developmentcontinues

28 Sudan


The IMF, while broadly supportive of the government’s efforts to reduce statesupport for the agricultural sector, also notes that the infrastructure of theirrigated sector has deteriorated over the past five years. In its most recentreport on Sudan, the Fund suggested that although the irrigated sector has thegreatest potential for development in Sudan, because it can support high-valuecrops such as cotton and wheat, it has failed to keep pace with growth in therain-fed sector. It notes that canal maintenance is now carried out in large partby private firms, but that the difficulty in exacting payment from farmers hasled to the complete blockage of the outer canals and silting in the main canals.As a result, the total area under cultivation on the al-Gezira scheme began tocontract in 1997/98, after having remained broadly unchanged since the early1980s. The IMF warns that this has already had an impact on the yield ofwater-intensive products such as cotton and wheat, and that it will continue todo so until remedial measures are taken.

To offset some of these difficulties, the Bank of Sudan (the central bank)announced in August that it had made additional finance available to all mainirrigation projects, including a credit facility of SD500m ($2m) to the al-Geziraproject. Sudan’s finance minister, Abdel-Wahab Osman, also said during a recentinterview in London that there were no plans to allow a foreign operator to takecontrol of any of the irrigation schemes, countering rumours that thegovernment was in negotiation with a South Korean consortium (3rd quarter1999, page 23). However, these measures fall well short of a return to the earlierenvironment in which the government, through the Bank of Sudan, took onmuch of the costs and risks of production from the irrigation schemes.Continued pressure on the government’s fiscal position makes a return to thissystem economically difficult—and politically it is almost impossible, given theIMF’s opposition to moves that would appear to signal a return to direct subsidies.

Instead, the government is trusting that its liberalisation programme willeventually lead to the emergence of a more efficient, export-orientedagricultural sector. It has already broken up or reformed the marketing boardsthat controlled prices for agricultural products and has removed export taxes onagricultural goods to boost trade. In a recent address to the Halfa AgriculturalCorporation, the vice-president, Ali Osman Taha, said the government plans tocut, or even cancel, taxes levied on farmers in 2000 in a bid to boost agriculturalactivity. This approach has had some success in the past, notably in encouragingdiversification away from traditional products such as cotton to high-valuegoods such as sesame, which was Sudan’s single most important export (prior tothe start of oil exports). However, with banks unable or unwilling to providesufficient long-term finance to meet the cost of vital refurbishment work to theirrigation network, the sector may continue to stagnate.

Meanwhile, the UN’s World Food Programme (WFP), one of the principalagencies leading relief work in Sudan, reported in September that the countrywas unlikely to experience a repeat this year of the 1998 famine, in which60,000 people died. November has traditionally been the month when Sudanhas been most vulnerable to famine. It marks the period when what aidagencies dub the “hunger gap”—the period when the produce from one year’s

—but policy remainsbroadly unchanged—

—though steps are taken toencourage exports

The WFP is more upbeat

—which are borne out byIMF assessments—

Sudan 29


harvest has been consumed and the next is yet to be ready—is most likely toemerge. The WFP reports that local food production is up on last year’s levels,even in Bahr al-Ghazal province, which had previously suffered the most acutefood shortages. The agency said that aid deliveries in August-October weresome 60% below 1998 levels, adding that it had reduced the fleet of aircraft itretains for relief work in Sudan as a result.

Infrastructure

Irrigation and water minister Kamil Ali Muhammad announced in early Augustthat he is seeking to oversee the construction of 10 new dams on the Blue Nile,White Nile and Atbara rivers over the coming 10 years to meet Sudan’s growingpower needs. The largest of the proposed new projects is the Merowi dam,720 km north of Khartoum, which would have a storage capacity of some 8bncubic metres and an installed power generation capacity of 600 megawatts. Thegovernment is also planning the construction of a smaller dam, 90 km north ofKhartoum on the sixth cataract, with capacity of around 100 mw.

The need for additional power resources is widely acknowledged, with the IMFestimating that the state-owned National Electricity Corporation (NEC) hassufficient generating capacity to meet only 20% of domestic demand.However, it seems likely that few, if any, of the proposed new dams will beconstructed, as the projects will prove extremely difficult to finance. The waterminister has said that the government’s hydroelectric strategy would cost$1bn—a conservative estimate, but nonetheless beyond the reach of its ownresources. Mr Muhammad said that the government would look to foreigndonors and foreign direct investment to meet costs that it could not fund.However, given Sudan’s existing debt arrears, continued restrictions onelectricity pricing and concern over the likely environmental impact of such alarge dam-building project, it is unlikely that sufficient funds would beforthcoming. In addition, the government would be required to fund acomplete overhaul of the current distribution system to enable the country toabsorb the power that the new dams would provide. An initial feasibility studyby a specialist consulting firm, Lord Gibb, suggested that this would be asignificant obstacle to the proposed development work, noting that thenetwork must be able to absorb power quickly if the water flow is to be keptsufficiently rapid to limit losses through evaporation.

More immediately, the government is believed to have secured $60m from theIslamic Development Bank (IDB) to finance the refurbishment of the NorthKhartoum power plant, Sudan’s largest generating unit. It is unclear what workwill be undertaken, but the agreement may be related to a technical assistancedeal signed between NEC, which operates the Khartoum plant, and power firmElectricité de France to improve operations at the generating station. The Frenchfirm has apparently agreed to base two Western advisers at the station for up to ayear, and establish a long-term technical support and training relationshipbetween the plant and one of the company’s French power stations.

—though more realisticdevelopments are also

announced

—that appears tooambitious—

The government unveils aplan for the energy sector—

30 Sudan


The IDB has also agreed to finance refurbishment work at the Roseireshydroelectric plant near Damazin in eastern Sudan. The government has longhad plans to boost capacity there by raising the height of the dam wall, thoughthe EIU understands that the initial IDB grant will be used for maintenancework. The government is also believed to be close to completing negotiationswith a Spanish firm to expand capacity at the Sinner dam, also operated by NEC.The work is expected to cost $100m but it is unclear how it will be financed.

Foreign trade and payments

The Sudanese authorities have had some success in discussions over debt reliefwith Arab lenders (3rd quarter 1999, page 27), including a debt write-off of some$300m from Libya. Additionally, we expect the IMF’s decision to lift its non-co-operation order on Sudan to open the way for negotiations with Sudan’s otherexternal creditors. The IMF had encouraged Sudan to begin wider negotiationson debt relief during its annual Article IV discussion with the country. Thegovernment will seek to use its record of meeting its agreed repaymentschedule—some $3m per month—with the IMF over the past two years topersuade its other creditors to discuss a fresh schedule for its arrears. Althoughthese monthly repayments are a tiny fraction of what Sudan owes the Fund, thegovernment can also point to the expected increase in its export earnings as theoil project develops as proof that it could make some payment on its debt.

However, fresh debt data demonstrate the scale of Sudan’s debt. The IMFestimates its end-1998 total debt stock at $22.3bn including arrears—with Sudanin arrears on $19.3bn, 86% of the total stock (and 100% of its commercial debt).The Fund estimates that Sudan’s contracted (as opposed to actual) debt-servicepayments would have amounted to $1.36bn in 1998, equivalent to 220% of itsexport earnings. Of this, around 83% ($1.14bn) is made up of interest arrears.

External debta

($ m)

1994 1995 1996 1997 1998

Multilateral 2,277 2,373 2,432 2,392 2,524 of which: IMF 1,736 1,763 1,697 1,570 1,614

Paris Club bilateral 3,663 4,423 4,746 4,934 5,425 of which: rescheduled 2,867 3,553 3,826 3,992 4,374

Non-Paris club bilateral 4,331 5,073 5,463 5,741 6,123 of which: OPEC countries n/a 4,459 4,869 5,115 5,446

Commercial 3,466 4,440 4,576 4,897 5,239 of which: banks 2,824 3,641 3,570 3,819 4,087

Total external arrears 13,738 16,310 17,217 17,964 19,312

Total debt stock 17,105 19,798 20,516 21,269 22,355

a Data differ from EIU figures, which are based on World Bank statistics.Source IMF: Sudan Recent Economic Developments, June 1999.

The IMF deal opens the wayfor debt negotiations—

Sudan 31


Nevertheless, despite the scale of its debt, Sudan is unlikely to benefit from amajor debt forgiveness programme known as the heavily indebted poorcountries (HIPC) initiative, organised through the World Bank and IMF tomark the start of the new millennium. Sudan appears to have been included inthe initial estimates of the cost of the programme, but has since been removedfrom the list. A Sudanese official at a meeting in London in October said hehad not received an official account of Sudan’s status within the initiative, oran explanation as to why it seemed to have been removed.

Sudan’s omission comes despite the level of its debt—most of which wasincurred by a previous regime—the approval its efforts at economic reformhave gained from the IMF and the famines the country has experienced in the1980s and 1990s. However, it is possible that Sudan may have alienatedofficials overseeing the programme by making clear its reluctance to accept theeconomic and political conditions that will be attached to the deal. Morepressingly, it is likely that Sudan has not received approval because itsinclusion would make it harder to get the broader package approved by theUS—which will underwrite much of the initiative—given the US’s clearhostility toward Sudan’s Islamist regime.

Meanwhile, Sudan has received additional disbursements from the IslamicDevelopment Bank (IDB) and the International Fund for AgriculturalDevelopment (IFAD)—two of the few agencies to which Sudan is not in arrears.The IFAD facility is small, at $10.5m, and is to be used for an agriculturaldevelopment project in Northern Kordofan province. Funds from the IDB,meanwhile, are to be used to fund refurbishment work at the North Khartoumpower plant and the Damazin hydroelectric facility (see Oil and gas). Inaddition, the Jeddah-based IDB has agreed to extend a $5m loan to Sudan forthe construction of veterinary and livestock facilities. Saudi Arabia is alsoreported to have agreed a grant of SR100m ($30m) to fund drinking water,health and education projects. In addition, the Kingdom has agreed to provide1.1m tonnes a year of heavily subsidised cement.

Construction work began in August on a free-trade zone mid-way between PortSudan and Suakin on the Red Sea coast. The zone will be connected to themain Port Sudan-Khartoum highway, and will benefit from continuingdevelopment of nearby Bashayir as Sudan’s oil export terminal. In the firstphase, the zone will cover 26 sq km, with plans in place to increase this to600 sq km in the long term. According to Ali Mahmoud al-As, the director-general of the free zones, there have already been 75 applications frominvestors who wish to set up import-export businesses in the zone, mostlyfrom Arab companies in the Gulf and Jordan.

—but Sudan is unlikely tobenefit from the HIPC

package

Arab agencies provide newdisbursements

A free-trade zone is underconstruction

32 Sudan


Quarterly indicators and trade data

Quarterly indicators of economic activity 1997 1998 1999

2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Prices Monthly avConsumer prices: 1995=100 325.6 362.2 373.7 371.3 379.9 423.3 424.9 423.6 n/a change year on year % 60.3 31.9 25.9 22.0 16.7 16.9 13.7 14.1 n/aCotton: Liverpool index US cents:lb 79.53 80.68 76.44 69.80 66.33 68.14 57.85 56.23 58.71

Money End-QtrM1, seasonally adj: S£ bn 882.6 829.0 874.3 1,286.0 1,192.4 1,068.8 1,120.5 1,694.9 1,603.3 change year on year % 44.5 28.6 29.2 44.7 35.1 28.9 28.2 31.8 34.5

Foreign trade Qtrly totalsExports fob $ m 156.5 139.5 170.9 180.7 162.1 123.9 129.1 n/a n/aImports cif “ 344.1 456.5 426.6 408.9 512.3 517.5 475.9 n/a n/a

Exchange reserves End-QtrForeign exchange $ m 101.0 92.2 81.6 74.5 79.4 87.8 90.6 121.6 153.1

Exchange rateMarket rate S£:$ 1,587.3 1,655.0 1,722.0 1,815.0 1,960.0 2,205.0 2,378.0 2,471.0 2,568.0

Note. Annual figures of most of the series shown above will be found in the Country Profile.Source: IMF, International Financial Statistics.

Sudan 33


Foreign trade($ ‘000)

Total Saudi Arabia China France UK Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998

Food 237,936 263,732 17,183 4,462 1,735 839 34,978 46,145 4,653 2,158Petroleum & products 292,708 255,664 109,757 110,412 322 2,925 3,316 255 4,257 8,529Chemicals 189,891 157,025 6,133 14,048 7,565 10,948 17,085 14,267 18,162 10,307Manufactured goods 352,519 635,409 39,155 115,262 34,843 161,374 5,542 39,965 17,079 24,971Machinery incl electric 269,748 348,151 13,806 24,057 46,014 74,319 13,620 15,580 35,955 43,533Transport equipment 173,182 192,735 16,774 23,255 12,743 13,142 4,647 10,143 10,634 8,966Total incl others 1,579,716 1,924,649 207,216 297,852 99,146 265,619 79,269 128,235 94,320 101,080

Total Saudi Arabia Italy UK Germany Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998

Live animals 77,525 119,186 n/a n/a n/a n/a n/a n/a n/a n/aMeat 32,058 30,372 n/a n/a n/a n/a n/a n/a n/a n/aSugar 26,399 29,269 n/a n/a n/a n/a n/a n/a n/a n/aHides & skins 22,805 20,196 66 90 4,875 11,969 745 9 142 18Cotton, raw 105,662 95,546 0 0 9,285 11,606 42 35 25,623 14,574Gum arabic 26,966 23,666 0 0 1,496 3,375 2,520 3,192 1,076 2,070Sesame seeds 117,312 104,752 10,115 17,537 1,589 1,107 4,419 2,000 1,739 352Groundnuts 7,064 14,197 0 0 277 1,864 2,453 2,000 0 16Oilseed cake & meal 15,386 11,266 599 826 1,987 544 2,243 630 40 0Gold 47,249 43,781 n/a n/a n/a n/a n/a n/a n/a n/aTotal incl others 594,182 595,741 111,214 145,168 55,803 58,994 69,860 57,510 40,733 32,349

Source: Bank of Sudan, Foreign Trade Statistical Digest.

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