Abrupt drop in oil revenue sinks Sudan's economic hopes

KHARTOUM // Arrayed on either side of the Nile as it flows through Sudan's capital are tall, shiny buildings - the most visible sign of the oil boom that has transformed the economy of this historically poor country.
But just a ten-minute drive away, in the central market where donkeys haul wobbly carts along dusty red streets, women dressed in traditional multicoloured tobes hesitate to buy fruit and vegetables at stalls where prices have more doubled in the past year.
"These grapefruits were 18 dirhams for a dozen a year ago, they're 35 now," said one stall holder, shrugging as he said simply that there were many problems these days.
Sudan, a year after the secession of its oil-rich south, mired in conflicts with its new neighbour and along its borders, has seen an abrupt fall in its oil revenue and is struggling with soaring inflation, dwindling currency reserves and unpopular austerity measures.
"It's very tough for the ordinary people," said Khalid Tigani, editor of Elaff, a weekly newspaper in Khartoum with a business focus. "It's as if the government was taken by surprise by secession."
Since the late 1990s, oil increased to form 90 per cent of the country's export earnings - transforming Sudan, especially Khartoum. There was huge investment in infrastructure, 40 per cent of which was financed by key oil-buyer China.
According to a World Bank paper from June 2011, infrastructure projects helped stimulate growth. The length of the road network doubled to 6,200km between 2000 and 2008, and has increased since. Power generation capacity tripled between 2005 and 2007.
But when the south of the country voted for independence in July 2011, in a decisive referendum following decades of civil war, Sudan abruptly lost more than a quarter of its gross domestic product, equivalent to more than $11bn (Dh3.67bn), most of which came from oil.
Hopes that a deal would be struck where South Sudan would pay its northern neighbour to pipe oil to Port Sudan for export have been crushed as talks to set payments have repeatedly stalled. At the moment, the south exports no oil and both countries suffer economically in the stalemate.
The impact on Sudan has been dramatic. Annual inflation was estimated by the International Monetary Fund at 42 per cent in July, with particularly sharp increases in food prices. The price of a sheep at Eid, for instance, more than doubled. Despite a good harvest this year, there is expected to be food shortages, especially in rural areas, in a country where more than three million people suffer "food insecurity", according to World Food Program estimates.
With no resolution to the oil issue nor systematic investment in alternative industries in sight, some people have turned to new sources of revenue.
Along the road from the northern border with Egypt to the capital are grim little camps; temporary homes for people sifting through the desert dust for gold. Since the collapse of the oil industry, the export of mined gold has gone from 29 tonnes in 2011 to about 50 tonnes this year. Much of this is smuggled out of the country, although the central bank buys some finds directly from these panhandlers, encouraging the gold rush.
But the industry cannot sustain many of the country's 34 million people.
The bleak situation is being exacerbated by an exodus of the best and brightest, said a report by the labour ministry last month. According to local media, the public report said migration reached a peak in 2012 with 75,631 Sudanese leaving the country - of whom more than 14,000 were doctors and scientists - compared with 10,032 migrants in 2008.
Although remittances from migrant workers help support Sudanese families, the loss of the professional classes hinders development.
In June, the government adopted measures laid out in an International Monetary Fund strategic plan. These included the first steps in a phased elimination in fuel subsidies but the move sparked riots and the strongest swelling of political opposition the country has seen in years.
Planned reforms for the next five years include tax increases, the end of price-fixing of sugar and a reassessment of the number of people employed by government.
The reforms are meant to be cushioned by wage increases for civil servants and a hike in social benefits. But the increases have yet to materialise, and this month the volatility of public opinion was plain as more protests were held and the university again shut down.
Political tension is also increasing. The head of the labour union, Ibrahim Ghandour, said this week he was angry that the 2013 budget did not include wage increases, brushing aside the finance ministries protestations that the country could not afford them.
"There's a general political fatigue," said Magdi El Gizouli, a fellow at the Rift Valley Institute a research and training organisation working mainly on Africa. "The unrest will increase."
A series of arrests last month, that authorities said were linked to a coup attempt, could well be the beginning a serious splits in the political and especially military classes. Soldiers and parliamentarians, just like everyone else, he said, had been affected by wages not adjusting to rampant inflation, their accustomed middle-class comforts suddenly out of reach. However, he added, it was not clear that any opposition movements have easy economic answers.
"Sudan is facing structural problems," he said. It is possible that in the fluid political climate, a group could push its way to power, through uprising, force or both.
But as far as the economy is concerned, said Mr Gizouli, "what would they do differently?"
afordham@thenational.ae