US sanctions not the cause of Sudan’s economic problem

Days after the official easing of sanctions, the economic situation in Sudan has prompted the view that US sanctions are not in fact and have not perhaps been the direct cause of Sudan’s economic problems!

The claims come from economists and political commentators that have spoken to MEMO and seem to contradict the long-held view that Sudan would be vastly different if the economic embargo imposed by the US over two decades ago was lifted.

In the few hours after the announcement on 6 October, the dollar fell from 21 Sudanese pounds (SDG) to 15 SDG on the informal foreign currency market to meet the official rate set by Sudan’s Central Bank and suddenly there was a new sense of euphoria, a sense of relief that was then followed by a real sense of hope.

If the truth be told, Sudan’s expedition in the fight to lift sanctions has been a long, painful and complex journey: from the ending of political and economic ties with Iran to the continued exchange of intelligence with the West in the fight against international terrorism; from the pledges to stay neutral in the South Sudan conflict to putting a stop on the war against rebel groups in Darfur, in South Kordofan and the Blue Nile, and lately; to the promises to end diplomatic and military ties with North Korea. Arguably, the stage had been set for a long-waited transformation and kick start to Sudan’s ailing economy.

Read: Sudan’s Al-Bashir thanks Saudi for role in lifting US sanctions

Nonetheless, if we are sticking to the truth, the impact of Sudan’s relationship from 2002 to 2012 with the French commercial bank BNP Paribas to some extent minimised the effect of the sanctions when throughout that period, BNP covertly acted as the de facto “Central Bank of Sudan” and oil exports resulted in an average GDP growth of between 5-7 per cent per year during the whole of the early 2000s. In practical terms the sanctions may have only really been in full effect for the last three to four years after the breakaway of South Sudan and the interception of BNP who later had to pay a $8.9billion penalty for it’s “illegal” propping up of Sudan’s economy.

In the light of those two truths and after the US finally removed, some but not all the economic barriers, the reality of the task in front of its National Reconciliation Government has begun to sink in and the expert view is that the lifting of sanctions alone will not bring a sea change to the economic situation in the country.

Not least because Sudan has virtually no foreign reserves but has a high demand for foreign currency, has a manufacturing industry that remains less than 20 per cent of GDP and in most cases, produces goods below international standards, has lost 75 per cent of its petroleum revenue stream and desperately lacks investment in agricultural and mineral mining production. Worse still, Sudan is still subject to sanctions as its name remains on the list of state sponsors of terror and is therefore not entitled to any form of debt relief which currently stands at $60 billion or 70 per cent of GDP.

Observers of Sudan’s economic performance are quick to seize on missed opportunities to diversify the economy and make economic reforms during the oil rich years; forgetting perhaps that costly wars and internal conflicts has sapped the nation’s wealth since the 1989 ascension of the current government to power. Nevertheless, some analysts say Sudan’s centralised wealth distribution, antiquated administrative systems and its mismanagement of public funds remains a key factor in producing an economic turnaround.

In the past few days, the dollar has returned to its pre-sanctions high of SDG 22, banks are reporting difficulties in getting foreign currency in the country, leading economists are forecasting doom and gloom and opposition politicians are blaming the economic crisis on internal restrictions rather than external constraints.

Read: US sanctions created hardship for people in Sudan

Editor-in-Chief of the economic weekly newspaper Elaff, Dr Khalid El-Tigani, identified one of those problems when he told MEMO: “We are not going to see any real changes. US sanctions is not the problem. Until Sudan changes the complex bureaucratic administration that facilitates mismanagement there will be no real change.”

Coupled with the “brain drain” and the ailing education system, Professor Hamid Ali, economist and head of the Department of Public Policy and Administration at the American University in Cairo, also told MEMO: “The permanent lifting of the trade embargo on Sudan as declared by Washington has mostly a ‘feel good’ psychological effect for various business sectors, but whilst the lifting of the sanctions opens doors for free trade and investment, Sudan has little to sell, so there will be no tangible change in the economy for some time to come.”

In addition, Ali said 50 per cent of the most productive areas of Sudan are in conflict zones.

“Around one-third of the country’s export comes from Darfur, the Blue Nile and the Nuba mountain areas represent another ten per cent each. Without the resolution of these conflicts or with hard currency from oil or gas exports, progress will be slow and investors will be reluctant to pour money into Sudan in the short term,” he explained.

Added to the economic woes, within Sudan there’s an understanding that political stability and the lifting of the outstanding sanctions are part of the equation that will prove attractive to long-term investors. It may be early days, but there’s a consensus that the balance of power that currently unites most opposition groups following the national dialogue process must remain and continue to bear fruit, at least until the next general election in 2020 and a new constitution is agreed, otherwise internal divisions could further undermine Sudan’s chances of prosperity and of an economic recovery.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.