Options for Economic Stabilization, Recovery and Inclusive Growth
Other resource
Published 3 October 2019
Updated 27 September 2024
ISBN: 978 1 78413 362 7
The Chatham House Africa Programme designed the Sudan Stakeholder Dialogues series to help identify the factors that have led to the current economic crisis, the immediate steps that need to be taken to avert collapse and stabilize the economy, and the longer-term structural reforms required to set Sudan on the path to recovery. The project is funded by Humanity United.
There is an opportunity for Sudan’s transitional government not just to take action to stem the immediate economic crisis, but to develop a new national vision of establishing a more inclusive, representative and equitable system of economic governance for all sectors of society. This comes as Sudan nears the end of its largely unsuccessful five-year economic reform plan for the period 2015–19. Creative leadership is required to align Sudan’s abundance of youth, natural resources and favourable geopolitical location within a national project that will reassure the domestic population and signal to the international community that a genuine long-term strategy for reform is in place. In order to stimulate the generation of revenue and employment, the transitional government will need to develop strategies to boost growth and improve regulation in key productive sectors such as agriculture and livestock, manufacturing, services and extractives.
The agricultural sector has the potential to be a cornerstone of Sudan’s economic recovery. Agriculture contributes over 30 per cent of Sudan’s GDP, and the sector is the dominant source of employment, deeply linked to the wellbeing, stability and social security of the Sudanese people. However, the sector has been vastly underperforming, with less than a quarter of the estimated 70 million hectares of arable land in Sudan under cultivation. A lack of investment and poor productivity has minimized yields and undermined the competitiveness of Sudan’s exports – which stand at approximately $2 billion annually, as against total imports of $9 billion. Only 10 per cent of farms are using modern irrigation, with most still reliant on traditional rain-fed methods.15 The Gezira scheme, once the largest irrigation project in Africa, has fallen into serious disrepair due to administrative mismanagement and corruption.
There is a real opportunity to improve production levels through expanded agro-industry, and manufacturing can add significant value to agricultural outputs – for example, by producing cotton garments, exporting processed meat, and supplying leather and hides to industry. Moving towards a system of supplemented irrigation and encouraging the use of fertilizers would increase smallholders’ production capacity and would improve predictability and access to formal markets. Other potential growth areas include dairy production, investment in wildlife and forestry, and the introduction of new livestock breeds.
Larger farms could benefit from introducing mechanized systems, and green and sustainable technology could bring comparative advantage, particularly in renewable energy sources. Developing these areas will require ‘smart capital’ – bringing skills transfer as well as investment to build capacity within Sudan. A national centre of research should be established to lead this strategy, which could be funded partly by the private sector. Central to any strategy should be the engagement of currently marginalized areas, with the aim of ensuring that industrial growth is inclusive and equitable.
Although the service sector is estimated to account for around 45 per cent of Sudan’s GDP,16 this figure may be more reflective of weaknesses in agriculture and manufacturing than of the service economy’s strengths. Modern services companies – such as in marketing or distribution – have appeared in recent years, but these mostly remain extremely small, and the sector is dominated by telecoms and banking. Within telecoms, prepaid mobile subscriptions currently account for approximately 95 per cent of the Sudan’s 31 million mobile users, but internet services now represent the main driver of growth, while also offering significant opportunities through coordination with other sectors such as banking.17 Mobile penetration in Sudan stands at 73 per cent, but the ‘banked’ population is estimated at just 6 per cent – suggesting that the introduction of e-banking mobile technologies could help Sudan to leapfrog traditional development and financing pathways.18
Gold and oil production are vital sources of revenue for Sudan. The oil sector was a key lifeline for the former regime, which had been looking to increase output to offset recurrent fuel shortage crises.19 However, a chronic lack of transparency has made the scale of the industry difficult to access, with different figures circulating for both reserves and current production levels. Sudan is Africa’s third largest producer of gold, with production in 2018 officially stated to be 93 tons (equivalent to $4 billion),20 and gold is now Sudan’s main source of hard currency. However, artisanal mining still accounts for approximately 80 per cent of activity, and inconsistent regulatory policies, heavy taxation,21 corruption and patronage have incentivized the smuggling of up to 75 per cent of gold from the country.22 Irrespective of the lack of verifiable data, it is clear that revenues from oil and gold have not translated into significant investment in infrastructure and service provision. The transitional government should begin planning and consultations with a view to establishing a sovereign wealth fund that ensures sufficient revenues from national resources are invested in the provision of infrastructure, services and social welfare.
Reforms are needed on several fronts if Sudan is to maximize growth in its productive sectors. Inflation and the persistence of multiple exchange rates have destroyed competitiveness within agriculture and industry. This not only creates difficulties for potential exports, but also impedes imports of agricultural inputs for companies that have been unable to compete with the government-affiliated enterprises that benefit from preferential rates.
Furthermore, excessive duties and taxes on exports are stifling growth in the private sector. The former government used the productive sectors for patronage and to secure loyalties, creating huge inefficiencies and leaving companies tied to political interests and the security services. The gold trade in Jebel Amir, for instance, is controlled by Sudan’s Rapid Support Forces (RSF) – a formal part of the Sudanese armed forces and influential within the transitional authorities. The RSF and other security agencies will need to be part of Sudan’s reform processes, including formalizing hitherto opaque financial dealings. Banks and telecommunications companies have also been subject to significant political interference: in the case of the former, to provide financing on non-commercial terms; and in the latter case, to restrict internet access during periods of social upheaval. Such political entanglements often restrict the space for newer or smaller actors across sectors.
The expansion of the productive sector is also being held back by limited infrastructure, including transport and communications, which hinders the supply and delivery of goods for industry. Unreliable energy presents difficulties for manufacturing and agri-processing. Dependence on generators for electricity means that all productive sectors remain highly sensitive to diesel costs. Long-term investment in infrastructure is critical, enabling the development of multiple growth poles across Sudan and connecting these via trans-regional initiatives along the coast or across a central agricultural belt.
A further challenge is a lack of technical expertise in Sudan to help companies implement reforms or develop business strategies. The negative effect of this lack of expertise has often been compounded by an unwillingness to change or replace poorly performing executive structures, especially those with political connections, or wasta,23 as well as an inability to develop and retain capable middle management.
Investment will be critical to financing improved performance in the productive sectors. There is a lack of long-term domestic financing and insurance available in Sudan, and traditional bilateral funding from donors such as the EU is constrained. Potential new sources of investment from the European Investment Bank and regional institutions such as the AfDB and the Eastern and Southern African Trade and Development Bank (TDB) could help bridge the gap. At the end of 2018, for instance, the AfDB approved a $75 million loan to DAL Group, one of Sudan’s largest food and agriculture businesses, in order to expand its vertically integrated food and agriculture operations.24
Sudan’s agricultural and industrial potential is amplified by the proximity of large and easily accessible markets, such as neighbouring countries in the Intergovernmental Authority on Development (IGAD) region, with a combined population of some 250 million; or the Common Market for Eastern and Southern Africa (COMESA), with a population of around 460 million; as well as with the wealthy Gulf Arab states, which have significant food import requirements.
Sudan’s economic recovery is significantly linked to that of South Sudan, due principally to the oil economy and cross-border trade potential, as well as sizeable remittance flows. A failure to adequately prepare for the proper integration of the two countries’ economic activities following the independence of South Sudan in 2011, as well as the subsequent civil war in the south, has had a devastating impact on Sudan’s economy. A new partnership that can facilitate greater integration and formal trade between Sudan and South Sudan is in the interest of both countries. In September 2019 Prime Minister Dr Abdalla Hamdok and President Salva Kiir of South Sudan took a step towards this by agreeing to reopen certain border areas between the two countries.25
