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Country Report

Sudan

November 2007

Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

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Sudan 1

Monthly Report November 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007

Sudan

Executive summary 2 Highlights

Outlook for 2008-09 3 Political outlook 4 Economic policy outlook 5 Economic forecast

Monthly review: November 2007 8 The political scene 10 Economic policy 12 Economic performance

Data and charts 14 Annual data and forecast 15 Quarterly data 16 Monthly data 17 Annual trends charts 18 Monthly trends charts

Country snapshot 19 Political structure

Editors: Laura James (editor); David Butter (consulting editor)

Editorial closing date: November 2nd 2007

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 Sudan


Executive summary

Highlights

November 2007

• Disputes over power-sharing arrangements between northern and southern political leaders are expected to continue.

• Progress at UN- and African Union (AU)-mediated talks between the government and the rebels towards a new settlement in Darfur will remain slow, complicating the task of the new UN/AU peacekeeping force.

• Despite new government plans to raise revenue and cut spending, the fiscal account is forecast to remain in deficit, at an average of around 2% of GDP.

• Sudan!s taking-on of new, non-concessional debt means that it is unlikely to benefit under debt-relief programmes in 2008-09.

• Real GDP growth is projected to fall to a still healthy annual average of 8.2% over the outlook period, as a result of slowing oil output growth.

• Inflation is forecast to remain high at an average of almost 8% in 2008-09, owing to robust domestic demand and pressure for further subsidy cuts.

• The central bank is likely to allow a wider margin for the currency to float, in an effort to rebuild foreign-exchange reserves.

• The current-account deficit is expected to continue to widen, to US$4.9bn in 2008 and further to US$5.8bn in 2009, an average of around 9% of GDP.

• The southern Sudan People!s Liberation Movement has suspended participation in the national government.

• A new round of Darfur peace talks has opened in Sirte, Libya, but it has been boycotted by important rebel factions.

• The national government, dominated by the National Congress, has continued to rely heavily on its security apparatus to resolve political issues.

• In its 2007 Article IV report, the IMF has drawn attention to the need for financial and banking sector reforms in Sudan.

• The government has argued that political support for reforms is likely to wane in the absence of relief for the country!s huge external debt burden.

• The Justice and Equality Movement, a Darfur rebel group, has taken hostage five oil workers employed by foreign firms operating in Southern Kordofan.

• The US Treasury Department has clarified that Southern Sudan and the disputed border areas are exempt from trade sanctions imposed on the rest of the country.

Outlook for 2008-09

Monthly review

Sudan 3


Outlook for 2008-09

Political outlook

The Economist Intelligence Unit still expects the 2005 Comprehensive Peace Agreement (CPA) between the northern National Congress (NC) and the southern Sudan People!s Liberation Movement (SPLM) to hold over the outlook period. However, there are significant downside risks. The SPLM, which in October 2007 suspended its participation in the Government of National Unity (GNU), may resume its non-co-operation if the ruling NC fails to make substantive concessions over a number of contentious issues. These include transparency in the division of oil revenue; the delineation of the north-south boundary (especially the disputed status of Abyei, an oil-producing region); and the timetable for the redeployment of the two parties! armed forces. Ongoing disputes over power-sharing arrangements will be exacerbated by tensions over the situation in Sudan!s troubled western region of Darfur; delayed preparations for a national census due in 2008; and, in particular, the degree of political freedom that will be permitted by the NC security apparatus in the run-up to national elections due in mid-2009. The approach of the referendum on southern independence, scheduled for 2011, could also increase tensions during the outlook period if the south seems likely to vote for secession.

Following a poor start to the UN- and African Union (AU)-mediated talks between the Sudanese government and Darfur rebel groups in Sirte, Libya, progress towards a new settlement to replace the failed Darfur Peace Agreement of May 2006 is likely to be extremely slow. Mediators will continue to have difficulty persuading the fragmented rebel factions to engage fully in the negotiations, especially given their distrust of the government (which has continued to bomb rebel-held areas). Moreover, the complexity of the issues at stake, with a number of different tribal groups competing to safeguard their vanishing livelihoods in the face of drought and insecurity, is unlikely to be fully reflected in the talks. As a result, we forecast further intercommunal violence in Darfur (where at least 200,000 people have been killed and 2.5m displaced since 2003), with continued attacks on civilians and aid workers by pro-government janjaweed militias, bandits and some rebel groups. In the absence of an enforceable settlement on the ground, the 26,000-strong "hybrid" UN-AU peacekeeping force due to be deployed in Darfur in 2008 will face substantial difficulties. Its task will be complicated by fears of further attacks on international peacekeepers (following the rebel assault on the AU base in Haskanita in late September 2007), as well as by likely delays and hindrances from the Sudanese government.

Political developments in the rest of Sudan will continue to be largely independent of the crisis in Darfur. The priority for the main parties will be to cement the support of their core constituencies in preparation for the 2009 elections. In the south, the SPLM, which dominates the semi-autonomous Government of Southern Sudan (GOSS), will attempt to promote more rapid economic development, enhance its influence over the oil sector and improve its image in the face of corruption allegations, while still spending much of its

Domestic politics

4 Sudan


revenue on salaries for its armed wing. As oil revenue rises less rapidly than is popularly expected, the NC will also be forced to contend with growing social pressures, even in its northern heartlands. Although the government has budgeted for sharp increases in allocations to the state governments, it is reluctant to transfer real wealth and administrative power, which has historically been centralised in the capital, Khartoum, to outlying regions. It will therefore seek to continue its long-standing policy of co-opting regional leaders. The president, Omar al-Bashir, will secure his personal power base by allocating financial resources and high-level positions to key interests in the NC leadership, the business community, and the army and security services.

The humanitarian crisis in Darfur, exacerbated by growing tensions in other areas of the country, will continue to complicate international relations. Ongoing violence is likely to result in further discussion of sanctions against Sudan"especially if UN peacekeepers come under pressure. Nevertheless, foreign direct investment (FDI) and loans are likely to continue to flow in from Asian and Gulf Arab countries. Trade links and financing agreements with China (and, to a lesser extent, India and Malaysia) will remain the single most important diplomatic consideration for the Sudanese government.

Economic policy outlook

After discussions with the IMF in mid-2007, the Sudanese government agreed to tighten its fiscal stance, implementing reforms to widen the revenue base and improve control of expenditure. The Bank of Sudan (the central bank) also out-lined plans for a more prudent monetary policy and further financial sector reforms. However, the government, preparing for national elections in 2009, is keen to ensure that the country experiences an ongoing "peace dividend" after the end of the long civil war between north and south in 2005. In consequence, it is likely to find it difficult to cut spending, despite shortfalls in projected oil revenue, raising the prospect of an ongoing fiscal deficit. The authorities have stated their intention of continuing to fund infrastructure projects by taking on extra debt on commercial terms (up to a maximum of US$700m a year). Much of this is likely to come from China and India. Sudan has substantial existing arrears with traditional multilateral and bilateral lenders, but is unlikely to benefit under debt-relief programmes over the outlook period. The result could be a further reduction in political support for economic reforms.

Government revenue will have risen in 2007 by 23% to almost SP19.5bn (US$9.6bn), according to our estimates. It is expected to continue to rise strongly in 2008, by around 25%, owing to a combination of increased oil revenue (on the back of ongoing high international oil prices and healthy oil output growth, as a decline in production from some of the more mature oilfields is more than offset by output expansion in the new oil blocks) and rising tax receipts. As oil prices ease the following year, revenue growth is forecast to moderate to 14%"still a strong rate despite slower oil output expansion, partly because fiscal pressures are expected to result in lower allocations to the Oil Revenue Stabilisation Account (ORSA). Government spending is also expected to rise

International relations

Policy trends

Fiscal policy

Sudan 5


steadily, by around 18% in 2008 and 12% in 2009, despite plans to improve expenditure management agreed with the IMF in mid-2007. Current spending will be boosted by strong demand for salary increases and resistance to subsidy cuts as the 2009 elections approach. Transfers to the state governments, especially in the north, and to the GOSS (which, under the CPA, is apportioned half of net oil earnings from southern wells) will also rise. At the same time, capital spending will be driven up by the implementation of new infrastructure projects. The fiscal account is therefore projected to remain in deficit, with an estimated shortfall, excluding net ORSA allocations, of SP3bn (US$1.5bn) in 2007, which will narrow only gradually to an average of just over SP2.5bn (the equivalent of around 2% of GDP) over the outlook period.

Monetary policy is managed largely through the issuance of Islamic financial certificates by the central bank. The average murabaha profit margin (a sharia-compliant rate of return), which will have reached an estimated 11.8% in 2007, is expected to remain at an average of around 12% in 2008-09. According to the IMF!s 2007 Article IV report, the central bank plans to increase its emphasis on indirect monetary policy instruments, buying and selling government securities. It has also promised to end by the end of the year restrictions on foreign-currency transactions by Sudanese nationals and firms imposed in mid-2007. At the same time, the central bank aims to rebuild foreign-exchange reserves, increase credit to the private sector and focus on financial sector reforms in the wake of problems afflicting the state-owned Omdurman Bank in late 2006. Even though the central bank has demonstrated a high level of technical competence"for instance, through the successful introduction in 2007 of a new national currency, the Sudanese pound, which replaced the Sudanese dinar at a fixed rate of SP1:SD100"these goals are likely to prove challenging.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2006 2007 2008 2009

Real GDP growth World 5.3 5.0 4.6 4.7

OECD 3.1 2.5 1.8 2.6

EU27 3.0 2.7 2.1 2.3

Exchange rates ¥:US$ 116.2 117.6 105.3 96.3

US$:� 1.256 1.361 1.445 1.328

SDR:US$ 0.680 0.652 0.626 0.646

Financial indicators ¥ 3-month repo rate 0.28 0.62 0.88 1.81

US$ 3-month commercial paper rate 5.03 5.16 4.55 4.73

Commodity prices Oil (Brent; US$/b) 65.3 70.0 69.5 63.8

Cotton (US cents/lb) 58.6 64.0 72.8 78.5

Food & beverages (% change in US$ terms) 16.1 20.6 6.6 -2.5

Industrial raw materials (% change in US$ terms) 49.6 12.8 -3.1 -12.8

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

Monetary policy

International assumptions

6 Sudan


Global economic growth, which we estimate will have fallen to 5% in 2007, is forecast to decline further to an average of around 4.7% over the outlook period, largely as a result of the slowing of unusually strong rates of expansion in the non-OECD countries. Political uncertainties in several large oil producers (particularly in the Middle East) will continue to weigh on the oil markets, and the average price of the benchmark dated Brent Blend, which we estimate will have risen to US$70/barrel in 2007, is forecast to stabilise in 2008. We expect it to fall only slightly the following year, to around US$64/b, as strong growth in consumption, especially in Asia, continues to bolster demand and OPEC seeks to maintain prices through output constraints. A tight supply-demand balance means that the risks are on the upside, with a strong possibility that prices will remain higher than currently forecast.

The oil sector still accounts for only around 16% of Sudan!s real GDP, but it has become the main driver of economic growth, making up the bulk of exports and having a knock-on effect on consumption as a result of its growing contribution to the fiscal account. Rising export volumes caused by the coming on stream of new oil capacity (largely from concession blocks 3 and 7) will have boosted real GDP growth to an estimated 12.8% in 2007. Oil output is set to continue to rise over the outlook period, although more slowly, as no major new fields are due to begin producing. A decline in output in the ageing fields in concession blocks 1, 2 and 4 is expected to be offset by a small expansion in production in blocks 3, 5A, 6 and 7. Growth in the services and agricultural sectors will also continue to contribute to strong economic growth.

Private consumption will remain healthy in 2008-09, on the back of an economic boom led by strong oil revenue and high levels of FDI (particularly in Khartoum). Growth should also be supported by a modest peace dividend, focused principally on the south of the country. Government consumption is also projected to increase, as commitments to promote regional economic development under recent peace agreements and preparations for the 2009 elections result in a rise in investment expenditure on infrastructure. As a result, however, demand for imports will also increase, which, combined with a slower expansion in exports, will bring real GDP growth down to a still strong annual average of 8.2% over the outlook period.

The Bank of Sudan agreed with the IMF in mid-2007 to retain its single-digit inflation target. We estimate that consumer prices will have risen strongly in 2007, averaging almost 9% over the year as a whole, partly because of a lessening of the downward pressure on import costs, as the currency remained stable against the US dollar. Price pressures are forecast to remain fairly strong over the outlook period, owing to robust domestic demand and ongoing pressure on the government for further subsidy cuts"following the reductions in subsidies on petrol and sugar in mid-2006"to control the fiscal deficit. We therefore expect inflation to average just under 8% in 2008-09.

Officially, the central bank operates a managed float of the pound against the dollar through foreign-currency purchases and daily limits on the trading band. However, throughout most of 2007, the financial authorities managed a de facto

Economic growth

Inflation

Exchange rates

Sudan 7


peg of the currency to the dollar at around SP2.01:US$1. In late 2007 the central bank!s ability to intervene in the market was threatened by low levels of foreign-exchange reserves (which stood at just over one month!s import cover in June), and it began to allow the currency to float more freely, resulting in an immediate depreciation. Nevertheless, over the outlook period, healthy oil revenue and ongoing dollar weakness should keep the pressure on the currency broadly upward.

We estimate that export earnings will have risen by over 60% to around US$9.2bn in 2007. They are forecast to increase by around 13% in 2008, to US$10.3bn, on the back of a small expansion in oil output as well as ongoing high international prices. The rise in export earnings will be largely offset by a projected 12% increase in import spending, a result partly of increased demand for capital inputs. The trade account"which we estimate will have moved into surplus in 2007"is therefore projected to show a slightly widened surplus of US$1.1bn in 2008. In 2009, despite further growth in oil output, a drop in international oil prices should cause total export earnings to stagnate. Combined with a 9% rise in import spending, this is set to reduce the trade surplus to just over US$300m.

Sudan!s trade surplus will be more than offset by a widening non-merchandise deficit. Ongoing oil sector growth is expected to boost income and services debits, and these negative flows will be only partly offset by increased current transfers credits, as workers! remittances continue to rise. Overall, the current-account deficit"which we estimate will have reached around US$4.5bn in 2007"is expected to continue to widen over the outlook period, to US$4.9bn in 2008 and further to US$5.8bn in 2009, an average of around 9% of GDP.

Forecast summary (% unless otherwise indicated)

2006 a 2007 b 2008c 2009c

Real GDP growth 11.8 12.8 9.1 7.3

Oil production ('000 b/d) 337.5 b 504.4 556.3 593.5

Crude oil exports (US$ m) 5,087 8,668 9,821 9,758

Consumer price inflation (av) 7.2 8.7 8.0 7.5

Government balance (% of GDP) -4.3 b -3.0 -2.2 -2.1

Exports of goods fob (US$ bn) 5.7 9.2 10.3 10.3

Imports of goods fob (US$ bn) 7.1 8.3 9.2 10.0

Current-account balance (US$ bn) -5.1 -4.5 -4.9 -5.8

Current-account balance (% of GDP) -13.9 b -9.0 -8.5 -9.0

External debt (year-end; US$ bn) 28.2 29.6 31.1 32.9

Exchange rate SP:US$ (av) 2.17 2.02 2.01 2.00

Exchange rate SP:¥100 (av) 1.87 1.72 1.91 2.07

Exchange rate SP:� (av) 2.72 2.75 2.90 2.65

Exchange rate SP:SDR (av) 3.19 3.09 3.21 3.09

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

External sector

8 Sudan


Monthly review: November 2007

The political scene

On October 11th the southern Sudan People!s Liberation Movement (SPLM) announced that it was suspending its ministers! participation in Sudan!s Government of National Unity (GNU), accusing the ruling National Congress (NC) of not co-operating and not implementing the 2005 Comprehensive Peace Agreement (CPA) fully. The announcement triggered a serious crisis, because of the implicit threat it posed to the survival of the CPA, which is based on the division of ministerial portfolios and other positions between the NC and the SPLM (as well as some other opposition parties) according to an agreed formula. Nonetheless, many Southern Sudanese welcomed the suspension, seeing it as an overdue challenge to the NC, which many southerners do not believe is sincere about honouring the CPA. However, the leader of the SPLM, Salva Kiir (who is also first vice-president and president of Southern Sudan), repeatedly stressed that the SPLM was still committed to implementing the CPA and that it did not want a return to the ruinous north-south civil war.

The NC responded to the suspension angrily, accusing the SPLM of violating the CPA. However, partly responding to a request from the SPLM, the president, Omar al-Bashir, announced a cabinet reshuffle in which a number of SPLM ministers and officials were moved to new positions. Notably, Lam Akol and Deng Alor swapped positions, with Mr Akol becoming cabinet affairs minister and Mr Alor becoming foreign minister. Mansour Khalid (an SPLM presidential adviser) became foreign trade minister, and new SPLM appointees were also assigned to the ministries of higher education, humanitarian affairs, and investment. Mr Bashir also appointed two new SPLM presidential advisers, and moved one (Tilar Deng) to the Ministry of Justice as state minister. Although Mr Bashir also named five other SPLM state ministers, to the annoyance of the SPLM he refused to make Yasser Arman, a senior SPLM figure from the north, a presidential adviser.

However, the reshuffle was the least contentious of the matters that the SPLM was demanding be resolved before it resumes participation in the GNU. Southern leaders also made the following demands.

• That the government should accept the ruling of the Abyei Boundary Commission over the disputed oil-rich border area of Abyei, and agree an interim administrative arrangement.

• That the national Sudan Armed Forces (SAF) should complete their agreed redeployment out of the south.

• That the demarcation of the north-south boundary should be agreed and relevant financing and technical assistance should be provided, and that the border must be determined in time for national elections, which are due in 2009 (if not in time for the census, which is scheduled for February 2008).

The SPLM suspends participation in government

Sudan 9


Although the NC has now agreed to discuss these matters, a resolution is not immediately in sight. Border demarcation depends partly on a decision about Abyei, and for the past year Mr Bashir has been stalling on that issue, arguing that a "technical committee" investigating the border must finish its work. Meanwhile, the NC has claimed that the SPLA is more in breach of redeployment requirements than is the SAF. As of early November the crisis was still unresolved, and international concern about the CPA remained acute, as both sides insist that they want to avoid a return to war, and negotiations are ongoing. In the short term, an interim solution will probably be found to contain the situation. This will probably be enough to enable the GNU to function and CPA implementation to continue. Nonetheless, the underlying problems and dynamics of the NC-SPLM relationship will continue to resonate, especially in the context of ongoing preparations for national elections.

On October 27th, after a long build-up, a new round of peace talks for Darfur opened in Sirte, Libya"although conditions were unpromising. Amid a flurry of accusations and criticisms, three key rebel groups"the Justice and Equality Movement (JEM) and two main factions of the Sudan Liberation Movement (SLM), the SLM-mainstream of Abdel Wahid al-Nur and the SLM-Unity faction, which groups together a number of field commanders led by Abdullah Yehia"announced that they were boycotting the talks. They accused the UN and African Union (AU) mediators of bias, and complained that unrepresentative rebel splinter groups had been invited. On the first day of the talks the government announced a unilateral ceasefire, but, as with previous ceasefires, it lacked adequate guarantees and monitoring mechanisms to ensure that it would be honoured. Meanwhile, in an attempt to keep negotiations going, the mediators announced that the talks were just the start of a process, and that they would still try to persuade the absent groups to attend.

The botched start to the talks in Libya illustrates the difficulty of finding a suitable forum and framework for resolving the conflict in Darfur. Aware of the mistakes made in the run-up to the ill-fated 2006 Darfur Peace Agreement (DPA), to which only one faction of the SLM, led by Minni Minnawi, signed up, the US and Europe have avoided visible involvement in the preparation of new peace talks and have left the responsibility for mediation to the AU and UN special envoys for Darfur. Nevertheless, ongoing international support for the DPA has been to the advantage of the Sudanese government. The AU and UN mediation teams have failed to persuade the Darfur rebel movements that they are genuinely neutral, and that they do not just see the rebels as "hold-outs" who can be either ignored or pressured to sign up to the DPA in return for a minimum of concessions from the government.

Whether the talks can now be salvaged and led to a genuinely successful outcome will depend on whether the main rebel groups can be brought in, which may depend on mediators accepting the fundamental failure of the DPA. On October 31st SLM-Unity announced that 20 commanders from Mr Minnawi!s faction had defected and were joining SLM-Unity. Mr Minnawi has himself occasionally spoken out about his frustration with the lack of implementation of the DPA, and in October one of his aides, Al-Tigani Abdullah, declared in an interview with the Sudan Tribune, a Paris-based online

Darfur peace talks in Libya start badly

10 Sudan


daily newspaper, that the Sudanese government had implemented "only 2%" of the DPA. Therefore, if a new peace settlement for Darfur is to be reached, stronger guarantees are probably going to be needed to persuade the rebels to trust the agreement"and to trust the mediators.

The Sudanese government continues to see dissent in Darfur (and elsewhere in the country) as a security problem rather than a political problem. The govern-ment delegation to the Sirte peace talks was headed by Nafi Ali Nafi, an influential "assistant" to the president who is also deputy secretary-general of the NC. Mr Nafi was head of Sudan!s external intelligence service in the early 1990s, bridging the gap between the security apparatus and the National Islamic Front (the movement that created the NC). Accompanying Mr Nafi at the talks in Libya was Salah Abdullah Gosh, the current head of Sudan!s National Security Service. A protégé of Mr Nafi, Mr Gosh has played a leading role in determining the government!s security and military policies in the Darfur conflict.

The high profile of Mr Nafi and Mr Gosh at the Darfur talks, and of Mr Nafi in the ongoing negotiations with the SPLM over the breakdown of the CPA, is an indication of the extent to which the power of Mr Bashir and the ruling NC depends on the security apparatus, which remains essential to the govern-ment!s survival. In the near term, this is unlikely to change, even if the partner-ship of convenience between the NC and the SPLM grows stronger (on a super-ficial level) in the run-up to elections, or if the NC explores alternative alliances with other opposition groups.

Economic policy

In early October the IMF published the report of its annual Article IV con-sultation with the Sudanese authorities. The report provides some of the back-ground to the Ministry of Finance!s Memorandum of Economic and Financial Policies, and it gives further confirmation of the fiscal pressures facing the Sudanese authorities (October 2007, Economic policy). However, the IMF report also draws attention to the need for financial and banking sector reforms. It argues that fiscal expansion, rapid growth in credit and increasing government arrears have caused a deterioration of financial and banking sector indicators. Between September 2006 and January 2007 the Bank of Sudan (the central bank) provided a total of SP1.2bn (US$600m) in emergency assistance to the troubled state-owned Omdurman Bank, which accounts for about 44% of total bank lending and 40% of total deposits (March 2007, Foreign trade and payments).

According to the IMF, the bank!s woes were a result of prolonged "mismanagement, regulatory forbearance, and accumulation of non-liquid (and non-performing) government debt". The report also says that a number of other banks have seen a deterioration in their loan balance sheets. As a result, the Sudanese authorities have acknowledged the need to reduce the level of non-performing loans (NPLs), which stood at around 23.9% of total loans in April 2007. The Bank of Sudan has announced a second set of banking sector reforms, involving new capitalisation requirements, mergers, the modernisation

The government leans heavily on its security apparatus

The IMF recommends financial sector reforms

Sudan 11


of computer systems, the development of an interbank market, and imple-mentation of the Islamic Financial Services Board standards (the equivalent of Basel II for Islamic banks). However, these reforms will take time to implement. The debt problems of state-owned banks such as Omdurman Bank are therefore unlikely to be resolved soon, although the ongoing development of private banks in Sudan may be enough to bring about some improvement in overall financial sector indicators.

Financial soundness indicators (%)

2005 2006 2007 Dec Dec Mar AprGross NPLs/gross loans ratio 7.1 19.4 23.3 23.9

Return on assets (before tax) 5.0 3.6 2.8 3.6Return on equity (before tax) 56.0 35.4 23.4 32.0

Capital/assets ratio 12.0 14.1 13.0 n/aLiquid assets/total assets ratio 16.9 25.0 22.5 24.0

Sources: IMF; Bank of Sudan.

Notwithstanding the needs and plans for fiscal and financial reform, the IMF report warns that the main risk to Sudan!s macroeconomic stability comes not from any of the economic imbalances per se, but from "waning political support for reforms", owing in part to Sudanese officials! dissatisfaction with the lack of progress on debt relief for Sudan. As of the end of 2006, Sudan!s total external public and publicly guaranteed debt stood at around US$27bn: about US$9bn more than at the end of 2000. Most of this increase is the result of growing arrears"although some is also attributable to new loans, in particular from China and India. The report states that the Sudanese authorities have "expressed concern that, after nearly a decade of co-operation on policies and payments, no concrete progress has been made on alleviating Sudan!s external debt burden", despite its adherence to IMF strictures. By contrast, other poor countries have received debt relief under the heavily indebted poor countries (HIPC) initiative. They have therefore indicated that they will continue to contract further non-concessional loans to fund infrastructure and social development projects, up to an annual limit of US$700m"despite IMF disapproval and warnings that, under the HIPC initiative, "all creditors will be expected to contribute to the restoration of debt sustainability".

In practice, in the near term at least, Sudan is extremely unlikely to receive debt relief. This is primarily because of US and European concern about the Sudanese government!s policies in Darfur and about how it spends its oil revenue. Debt relief will therefore not be forthcoming until there is an effective peace agreement in Darfur, and possibly a new understanding over fiscal transparency. In the interim, the Sudanese authorities are likely to continue to receive new financing from Arab and Asian lenders. In October, for example, China announced that it was giving Khartoum a US$200m loan to help fund compensation for Darfur.

The government is bidding for debt relief

12 Sudan


Economic performance

In late October the JEM, a Darfur rebel group, announced that it had captured and was holding hostage five oil workers from an oilfield in Southern Kordofan operated by a consortium of Chinese, Indian, Malaysian and Sudanese firms led by the China National Petroleum Corporation (CNPC). According to a JEM official, Abdel Aziz el-Nur Ashr, the kidnapping was "a message to China and Chinese oil companies to stop helping the government with their war in Darfur". In response, a Chinese Ministry of Foreign Affairs spokesman called for Sudan to take appropriate measures to ensure the safety of Chinese personnel.

As with other kidnappings in Sudan in the past, the hostages are likely to be released unharmed, as the JEM and other Darfur rebel groups stand to benefit little from keeping the hostages (an Egyptian, an Iraqi and a Sudanese working for a US oil services firm, Schlumberger, together with one Sudanese working for a Malaysian company, Petroneed). Given that Sudan!s existing oilfields lie almost entirely outside Darfur, such kidnappings are unlikely to become very frequent. However, this situation would probably change if oil exploration and production activities in Darfur increased significantly before a peaceful settlement to the conflict is reached. This risk applies principally to the blocks clustered around the border between Western Kordofan and Southern Darfur (Block 6, which is already operated by CNPC, Block 17 and Block C), where there has recently been an upsurge in fighting between government forces and rebels. In these areas it is possible that rebels"and bandits"will try to target oil exploration teams or infrastructure more systematically.

Nevertheless, as in the oilfields in the state of Unity, the Sudan Armed Forces are likely to be able to limit rebels! ability to disrupt activities. In any case, the bulk of new oil exploration and production in Sudan over the next two years is likely to be outside Darfur. The most promising of the new concessions awarded during the past three years lie in the east"for example, Block 13 (off the coast north of Port Sudan), which is being explored by a consortium led by CNPC"and in the south. On the whole, the risks from Darfur rebel groups remain less significant than those resulting from increased tensions between the SPLM and the NC, with many of the main existing oilfields situated in the combustible north-south border areas.

At the end of October the US Treasury Department amended the US economic sanctions on Sudan, to clarify that there is an exemption for business in Southern Sudan, as well as in the three disputed areas of Abyei, Southern Kordofan and Blue Nile. The clarification is good news for the GOSS, which has been struggling to ensure that US (and European) companies are not deterred from doing business in Southern Sudan by US sanctions, which have always been directed at the national government in the capital, Khartoum. Nonetheless, despite the exemption, US companies doing business in the south still face some additional obstacles. For example, where business in exempt areas involves financial transactions or shipments that pass through non-exempt areas of Sudan (such as Khartoum, Port Sudan and most of the north), special authorisation must be sought from the US Treasury!s Office of Foreign Assets Control.

The oil sector faces political risks

The US clarifies its sanctions exemption for the south

Sudan 13


Meanwhile, Chinese companies continue to make headway in gaining infra-structure contracts across Sudan, both in the north and in the south. Strikingly, Chinese companies and investors are already visible in the southern capital, Juba, where the China National Overseas Engineering Corporation is building roads and the largest new hotel is the Beijing Juba Hotel, built by a small East African-based Chinese construction company. In October, China Chongqing International Construction won a US$25m contract to carry out resurfacing work on 80 km of road between Gadamai and Hameshkoreb in Red Sea and Kassala states. Chinese and other Asian firms are also among the pre-qualified bidders for a large contract to upgrade the oil-fired power station in Khartoum North (September 2006, The domestic economy: Infrastructure). Given the demand and opportunities for infrastructure investment in Sudan, and the limited competition from US and European companies, the visibility of Chinese, Indian and Middle Eastern firms is likely to continue to grow.

14 Sudan


Data and charts Annual data and forecast

P ro d uc t io n to rem o v e

2003a 2004a 2005a 2006a 2007 b 2008c 2009c

Gross domestic product

Nominal GDP (US$ m) 17,580b 21,472b 27,498b 36,696b 49,713 57,743 64,490

Nominal GDP (SP m) 45,884b 55,397b 67,094b 79,631b 100,288 115,919 128,657

Real GDP growth (%) 7.1 5.1 8.6 11.8 12.8 9.1 7.3

Expenditure on GDP (% real change)

Private consumption 5.4b 3.6b 9.5b 11.0b 9.0 8.0 7.5

Government consumption 6.0b 4.0b 8.0b 10.5b 7.5 7.0 8.0

Gross fixed investment 20.0b 22.5b 23.6b 17.5b 11.0 15.0 14.0

Exports of goods & services 8.0b 7.5b 3.5b 13.5b 30.0 10.0 7.0

Imports of goods & services 12.0b 18.0b 26.5b 13.0b 9.0 12.0 15.0

Origin of GDP (% real change)

Agriculture 5.2 3.5 7.2 8.3 7.5 7.5 6.5

Industry 10.5 31.0 7.6 9.0 32.0 12.5 7.0

Services 3.8 10.4 9.8 10.8 8.0 9.0 8.0

Population and income

Population (m) 35.4b 36.2b 36.9b 37.7b 38.5 39.4 40.3

GDP per head (US$ at PPP) 1,978b 2,096b 2,302b 2,598b 2,937 3,204 3,443

Fiscal indicators (% of GDP)

Public-sector revenue 16.2b 19.9b 22.0b 19.8b 19.4 20.8 21.1

Public-sector expenditure 15.2b 18.4b 23.8b 24.1b 22.4 23.0 23.2

Public-sector balance 0.9b 1.5b -1.8b -4.3b -3.0 -2.2 -2.1

Net public debt 168.5b 133.8b 103.7b 119.1b 96.9 87.7 82.4

Prices and financial indicators

Exchange rate SP:US$ (end-period)d 2.60 2.51 2.31 2.01 2.02 2.00 1.99

Consumer prices (end-period; % change) 8.3 7.3 5.6 15.7 5.3 7.7 7.4

Stock of money M1 (% change) 30.1 31.8 34.5 29.4 8.0 17.0 22.0

Stock of money M2 (% change) 30.3 30.8 43.5 29.7 8.6 17.4 21.6

Murabaha (profit) rate (av; %) 16.4b 11.2b 11.0b 11.4b 11.8 11.9 12.1

Current account (US$ m)

Trade balance 6 192 -1,122 -1,448 894 1,118 314

Goods: exports fob 2,542 3,778 4,824 5,657 9,156 10,349 10,333

Goods: imports fob -2,536 -3,586 -5,946 -7,105 -8,262 -9,231 -10,018

Services balance -794 -1,020 -1,731 -2,584 -2,854 -3,162 -3,342

Income balance -869 -1,113 -1,362 -2,014 -3,488 -3,903 -3,938

Current transfers balance 702 1,071 1,201 936 983 1,066 1,144

Current-account balance -955 -871 -3,013 -5,110 -4,465 -4,881 -5,821

External debt (US$ m)

Debt stock 24,191 26,270 27,005 28,197 29,600 31,097 32,927

Debt service paid 185 219 212 177b 241 320 366

Principal repayments 127 140 146 137 170 230 267

Interest 58 79 66 39b 71 90 99

Debt service due 997b 2,151b 880b 1,214b 1,220 1,362 1,614

International reserves (US$ m)

Total international reserves 529 1,338 1,869 1,660 1,718 1,838 2,040

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d As of September 1st 2007, the Sudanese dinar has been replaced by the Sudanese pound, at a rate of SD100:SP1.

Source: IMF, International Financial Statistics.

Sudan 15


Quarterly data P ro d uc t io n to rem o v e

2005 2006 2007

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

Prices

Consumer prices (2000=100; av) 154.3 146.3 144.6 147.9 165.8 165.5 158.9 n/a

Financial indicators

Exchange rate SP:US$ (av) 2.4 2.3 2.3 2.2 2.1 2.0 2.0 2.0

Exchange rate SP:US$ (end-period) 2.4 2.3 2.3 2.2 2.1 2.0 2.0 2.0

M1 (end-period; SP bn) 7,007 8,130 8,897 9,530 9,573 10,524 9,869 10,300

M1 (% change, year on year) 32.1 34.5 36.1 41.6 36.6 29.4 10.9 8.1

M2 (end-period; SP bn) 12,345 13,782 16,053 17,216 17,524 17,872 17,684 17,868

M2 (% change, year on year) 40.2 43.5 45.2 46.0 42.0 29.7 10.2 3.8

Sectoral trends

Crude petroleum production ('000 barrels/day)a 275.0 270.6 254.4 247.7 259.1 448.9 441.3 440.2

Balance of payments (US$ m)

Goods: exports fob 1,322 1,195 1,268 1,283 1,629 1,477 1,562 n/a

Goods: imports fob -1,578 -1,918 -1,590 -1,884 -1,779 -1,852 -1,399 n/a

Merchandise trade balance fob-fob -256.1 -722.9 -322.6 -601.4 -150.0 -374.1 163.3 n/a

Services balance -452 -528 -505 -611 -677 -790 -733 n/a

Income balance -359 -378 -363 -510 -572 -569 -538 n/a

Net transfer payments 283 360 348 257 159 172 n/a n/a

Current-account balance -783 -1,269 -844 -1,465 -1,241 -1,561 n/a n/a

Reserves excl gold (end-period) 1,864 1,869 2,214 2,604 2,408 1,660 1,135 982

a Excluding Block 6 output.

Sources: IMF; International Financial Statistics; Bank of Sudan; Ministry of Finance; Government of Southern Sudan Oil Revenue Share.

16 Sudan


Monthly data P ro d uc t io n to rem o v e

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate SP:US$ (av) 2005 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.4 2.3 2.3

2006 2.3 2.3 2.3 2.2 2.2 2.2 2.2 2.1 2.1 2.1 2.1 2.0

2007 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.1 n/a n/a

Murabaha (profit) rate (av; %) 2005 11.2 10.9 10.6 11.0 11.7 11.1 11.1 10.3 11.0 11.2 11.2 11.2

2006 11.5 11.4 11.2 11.0 11.0 11.2 11.4 11.5 11.6 12.7 11.5 10.4

2007 11.1 11.9 11.8 12.2 12.5 11.5 11.7 11.8 n/a n/a n/a n/a

M1 (% change, year on year) 2005 28.6 32.3 31.9 33.9 32.4 31.5 37.7 34.9 32.1 37.3 35.2 34.5

2006 29.1 31.6 36.1 34.8 35.5 41.6 38.4 35.2 36.6 36.2 29.6 29.4

2007 22.8 21.4 10.9 10.3 9.2 8.1 3.5 8.2 n/a n/a n/a n/a

M2 (% change, year on year) 2005 32.7 38.1 37.1 39.8 40.6 40.5 42.7 42.3 40.2 39.0 38.3 43.5

2006 39.4 41.2 45.2 44.0 44.7 46.0 45.2 41.6 42.0 43.0 37.4 29.7

2007 20.2 18.5 10.2 8.3 4.7 3.8 0.2 3.3 n/a n/a n/a n/a

Stock of domestic credit (SP m; end-period) 2005 6,193 6,514 6,920 7,051 7,200 7,132 7,080 7,259 7,202 7,382 7,411 8,491

2006 9,812 10,638 11,463 11,840 12,324 12,912 12,939 13,119 14,073 14,918 14,708 15,174

2007 14,855 15,173 15,474 15,497 15,597 15,732 15,602 15,987 n/a n/a n/a n/a

Consumer prices (% change, year on year; av) 2005 8.3 5.5 6.8 8.8 8.8 11.0 13.9 12.5 7.8 5.7 7.3 5.6

2006 4.1 5.8 5.1 1.8 2.8 4.3 1.7 5.2 15.7 11.5 12.2 15.7

2007 12.8 8.7 8.1 9.2 9.0 8.6 8.2 n/a n/a n/a n/a n/a

Petroleum production (excl Block 6; '000 b/d) 2005 298.5 286.9 294.3 295.7 283.5 289.2 270.1 276.8 278.1 270.5 270.9 270.3

2006 264.2 247.6 251.5 248.7 255.0 239.4 254.0 262.0 261.3 458.2 447.1 441.4

2007 440.0 443.8 440.1 446.0 416.3 458.3 457.5 452.2 n/a n/a n/a n/a

Foreign-exchange reserves excl gold (US$ m) 2005 1,429 1,447 1,447 1,587 1,575 1,623 1,711 1,801 1,864 1,840 1,900 1,869

2006 2,249 2,176 2,214 2,434 2,510 2,604 2,764 2,650 2,408 2,180 1,970 1,660

2007 1,485 1,256 1,135 988 896 982 1,157 1,623 n/a n/a n/a n/a

Sources: IMF; Bank of Sudan; Haver Analytics.

Sudan 17


Annual trends charts P ro d uc t io n to rem o v e

Annual trends charts

Budget balance(% of GDP)

Current-account balance(% of GDP)

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.


2.0

4.0

6.0

8.0

10.0

12.0

14.0 World Middle East and North Africa Sudan

09080706050420032.0

3.0

4.0

5.0

6.0

7.0

8.0


0908070605042003

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0 Middle East and North Africa Sudan

0908070605042003-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0


0908070605042003

Real GDP growth(% change)

Consumer price inflation(av; %)

Principal exports, 2006(US$ m) (US$ m)

Principal imports, 2006

Gum arabic50.1

Crude oil5,087.1

Cotton82.3

Sesame126.6

Livestock167.1

Wheat & wheat flour341.6

Manufactured goods1,640.8

Machinery &equipment

2,810.6Chemicals490.5

Transportequipment1,490.6


18 Sudan


Monthly trends charts P ro d uc t io n to rem o v e

Monthly trends charts

Exchange rate Consumer price inflation(% change, year on year)

Monetary aggregates(% change, year on year)

Foreign-exchange reserves(US$ m)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

JulAprJan07

OctJulAprJan06

OctJulAprJan05

OctJulAprJan2004

500

1,000

1,500

2,000

2,500

3,000

JulAprJan07

OctJulAprJan06

OctJulAprJan05

OctJulAprJan2004

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

JulAprJan07

OctJulAprJan06

OctJulAprJan05

OctJulAprJan2004

0.0

10.0

20.0

30.0

40.0

50.0 M2 M1

JulAprJan07

OctJulAprJan06

OctJulAprJan05

OctJulAprJan2004

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

(SP:US$)

Sudan 19


Country snapshot

Political structure

Republic of Sudan

Sharia (Islamic law) applies in both civil and criminal cases in the north"although there are some special provisions for non-Muslims. The south has a non-Islamic legal system

Bicameral parliament, which after 2009 will be made up of a wholly-elected 450-member National Assembly and a Council of States, composed of two representatives from each state. The current National Assembly is wholly appointed, however, according to the power-sharing quotas agreed under the 2005 Comprehensive Peace Agreement

December 2000 (presidential and parliamentary); next elections due by 2009

Omar al-Bashir, who took office following a 1989 coup and was sworn in as president in October 1993; elected in March 1996 for a five-year term; re-elected in December 2000

The Council of Ministers, appointed by the president after consulting the vice-presidents

The Government of National Unity consists primarily of the National Congress (NC; until 1998 the National Islamic Front) and the Sudan People!s Liberation Movement (SPLM), with representation from the National Democratic Alliance (NDA), an umbrella group. The Democratic Unionist Party (DUP), the Umma Party and the Popular Congress are leading northern opposition groups. The Eastern Front (EF) is an opposition movement in the east of the country, and the Sudan Liberation Movement (SLM) and the Justice and Equality Movement (JEM) have been fighting a guerrilla war in Darfur, in the west

President Omar al-Bashir (NC) First vice-president Salva Kiir (SPLM) Second vice-president Ali Uthman Mohammed Taha (NC) Assistant to the president Minni Minnawi (SLM) Assistant to the president Musa Mohammed Ahmed (EF)

Agriculture & forestry Mohammed al-Amin Issa Kabashi (NC) Cabinet affairs Lam Akol (SPLM) Culture, youth & sport Mohammed Youssef Abdullah (NC) Defence Abdel-Rahim Hussein (NC) Education Hamid Mohamed Ibrahim (NDA) Energy & mining Awad Ahmed al-Jaz (NC) Federal relations Abdel-Basit Saleh Sabdarat (NC) Finance & national economy Zubeir Ahmed Hassan (NC) Foreign affairs Deng Alor Kol (SPLM) Foreign trade Mansour Khalid (SPLM) Health Tabita Sokaya (SPLM) Industry Jalal al-Dugair (dissident DUP) Interior Zubair Bashir Taha (NC) Investment Kosti Manibe (SPLM) Justice Mohammed Ali al-Mardi (NC) Labour Alison Manani Magaya (NC) Science & technology Abdelrahman Said (NDA) Transport Kol Manyak Gok (SPLM)

Sabir Mohammed al-Hassan

Official name

Legal system

Key ministers

National government

Central bank governor

National elections

National legislature

Main political parties

The cabinet

Head of state

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