Are President al-Bashir's efforts to diversify the economy too little too late?
What started as a student movement against spending cuts in Khartoum a month ago has since spread to other segments of the Sudanese population and country, and developed into broader protests against President Omar al-Bashir's regime. The growing dissatisfaction with al-Bashir undoubtedly has some roots in the president's authoritarian hold on power and oppressive policies, but the main catalyst for the unrest lie in economic issues.
In June, al-Bashir's regime announced the gradual phasing out of fuel subsidies coupled with an increase in VAT and other forms of tax in an effort to make up a $2.4 billion budget deficit. Al-Bashir also made cuts at regional and state government levels and slimmed down his cabinet in an effort to reduce spending. The effects have been devastating. Gas prices have jumped by almost 50%, food prices have risen dramatically, inflation reached 30% in May, and the country's currency has been devalued.
Backlash of independence
The independence of South Sudan a year ago was ostensibly the cause of Sudan's current economic crisis. Sudan has long been over-reliant on its oil resources for government revenue and when South Sudan seceded, the infant nation took at least three-quarters of the nation's oil with it. Oil transportation fees were theoretically going to cushion the loss, but negotiations with South Sudan about the costs of running southern oil through northern pipelines and refineries quickly soured. Earlier this year, South Sudan suspended oil production (which accounts for 98% of its own revenue) indefinitely in protest against the high transportation fees demanded by Khartoum and against Sudan's alleged theft of its oil.
This has led to a war of attrition in which both sides have suffered immensely. South Sudan is being superficially held together by foreign donors, although seeing Khartoum's regime weakening will only strengthen its resolve to continue on its current trajectory. The leaders in Juba know they can exact an economic toll on a former adversary as they did when South Sudan invaded Heglig in Sudan, temporarily reducing the production of one of Sudan's most vital oil fields.
A short lived boom
Sudan's economic woes today can be attributed in large part to its over-reliance on oil. Within the last decade, Sudan's economic growth looked almost unstoppable thanks to an oil boom. But since the country started exporting oil in 1999, it has exhibited the characteristics of a 'rentier state' in which rents derived from oil exports were used to curry favour and prop up the regime. In this process, other sectors such as manufacturing and agriculture (for which Sudan has considerable potential) have been largely neglected. And the regime has left little space for civil society and private industry outside state control.
While these rentier state strategies were effective when Sudan had the wealth and resources to keep the centre of the nation well-fed and happy, the loss of oil revenue has proven to be the undoing of this model.
When commodity prices plummeted in 2008, Sudan was caught in a downward spiral. Meanwhile, Khartoum continued to face military threats from marginalised regions of the country such as the south and Darfur - while the oil boom forever changed Khartoum's skyline and brought prosperity to the centre of Sudan, many peripheral areas saw little development. Ongoing military and counter-insurgency operations therefore took a heavy economic toll on the regime too. With a standing military of 110,000 troops and its own domestic military industry, Khartoum has continually spent heavily on defence spending. Indeed, even following the economic crisis, the regime has given no indication defence will be subject to austerity measures.
While condemnation has been rolling steadily in from around the world at al-Bashir's alleged excessive force and torture of protestors, the regime has taken steps to at least appear to alleviate the economic crisis. Weeks after the beginning of the protests in Khartoum, Sudan signed an oil exploration deal with multiple foreign firms for oil blocks located around the country. This at least suggests foreign investors have confidence in Sudan's stability and al-Bashir's capacity to enforce contracts in the coming years. The government also issued $160 million worth of sukak bonds to raise revenue and opened the continent's largest sugar plant. While the bonds were in all likelihood a kneejerk reaction to try to raise revenue quickly, the opening of the plant could ease Sudan's dependency on food imports.
What lies in store
The claims of an 'Arab Spring' type uprising in Khartoum have been dismissed repeatedly by President al-Bashir. Nevertheless, the demonstrations could gain further momentum and Sudan continues to face serious economic threats. Sudan has recently taken some steps to develop and diversify its economy but these efforts may be too little too late. If the regime were to fall, al-Bashir's poor human rights record would no doubt be cited as a catalyst. In reality, however, the fall would first and foremost be the result of the economy and regime collapsing under its own weight.
Aaron Blitz is a graduate from the MA programme in Counter Terrorism and Homeland Security at the Interdisciplinary Centre (IDC) in Israel. BA from Indiana University.