18 December 2017

Sudan: Since the Removal of Sanctions, Economy Has Actually Got Worse

Photo: AMAMedia/Al Jazeera
By 10am, the unforgiving morning sun begins to beat down on the dusty streets and mud huts of Hai Gabat, a neighbourhood in the east of Juba, South Sudan‘s capital. Sam, a 45-year-old water seller from Uganda, has been up for four hours. He is busy securing the last of six jerrycans on to the rusty frame of his old, heavy bicycle.

Sanctions held back Sudan's economy, but not nearly as much as the government's own policies.

On 6 October, the US government announced that it would revoke the majority of economic sanctions imposed on Sudan. Many of them had been in place for two decades.

Numerous governments, organisations, and commentators welcomed the decision. Sudan expert Alex de Waal called the move "long overdue", while UN Special Rapporteur Idriss Jazairy noted the negative effect sanctions had had on Sudan's vulnerable populations.

Many in Sudan also celebrated the announcement. After all, in principle, the removal of sanctions will help grow the economy. Previously prohibited foreign companies will be allowed to do business in the country again, while Sudanese banks again will be able to complete dollar transactions and reconnect to the international financial system.

However, in practice, the economy continues to show little gain and numerous problems. The most glaring derive from the government's misguided economic policies, especially its massive spending on military and security combined with underinvestment in health care, housing, education, and infrastructure.

Until the government of President Omar al-Bashir commits to significant economic reforms, the removal of sanctions will do little to improve the economy or better the lives of most Sudanese.

Money trouble

Since the US government removed sanctions, Sudan's economy has actually worsened. The Sudanese pound briefly strengthened following the announcement, but the modest gain proved short-lived and the currency continues to weaken. On 17 November, it reached a historic low in the parallel market. The pound fell to SDG 28 to $1, even though the official exchange rate remains SDG 6.8 to $1. Several businesses stopped trading, citing significant losses due to the devalued currency.

The government is clearly at a loss. After initially blaming gold traders for the pound's decline, Finance Minister Mohamed Othman Rukabi declared that state companies could not request hard currency and that the government would limit foreign currency transfers.

Even more discouraging, the currency low came only a few days after the government announced plans to take steps to close the discrepancy between the official and unofficial currency exchange rates. The government has since arrested a number of major currency dealers and issued arrest warrants for some outside the country.

In addition to the declining value of the pound, inflation remains high. It surpassed 35% in September and has held at similar levels since. This has contributed to a continued rise in the consumer good prices throughout the country. Unemployment also remains a problem. The government estimates the unemployment rate to be nearly 20%, though many economists believe it to be much higher.

Furthermore, corruption is endemic. This October, al-Tayar Editor-in-Chief Osman Mirgani and columnist Mohamed Zine al-Abidine were arrested and convicted after reporting on the Bashir family's involvement in corrupt business activities. Meanwhile, the country again ranked near the bottom of Transparency International's annual Corruption Perceptions Index, coming in at 170 out of 176 countries. Few expect significant foreign investment until the government mitigates this problem.

The blame game

In September, President Bashir trotted out a familiar narrative. "The unjust sanctions imposed on our country since 1997 have primarily weakened the state and its institutions, and caused hardship to our people immensely," he said.

There is some truth to this statement, but the Sudanese government's own policies have done much more to undermine growth and discourage investment. Sanctions did not force Bashir's government to squander the enormous influx of oil revenue, which saw the state budget jump from a little under $1 billion in 1999 to over $11 billion in 2008. Nor did they force the government to allocate as much as 70% of its budget towards the military and security sectors, even as half the population lives below the global poverty line.

The government's actions since the removal of sanctions do not suggest it is about to implement economic reforms that would benefit most Sudanese people. In October, it again allocated as much as 75% of the state budget towards defence and security. Moreover, following the announcement, government officials quickly signalled their intent to focus on the oil and extractives industries. This was even though the World Bank noted Sudan's oil dependence and neglect of agriculture and livestock as main determinants of poverty. In late October, State Oil Company Canada reportedly signed a Memorandum of Understanding to resume exploration activities, while Sudanese officials reported meeting with Russian and US firms to develop its oil and natural gas industries.

A predominant focus on oil and extractives will not increase prosperity for most Sudanese. If anything, it will likely further consolidate already high levels of socioeconomic inequality. Instead, the country needs economic reforms. As the International Monetary Fund reiterated in September, Sudan's "economic outlook hinges on implementing bold and broad-based reforms to stabilize the economy and strengthen growth."

With the excuse of sanctions removed, it is now up to the government to address these shortcomings. But many are sceptical it will do so. As Sudanese economist Siddig Kabello notes, "Unless the government's internal politics change in terms of security and rule of law, the [sanctions] lifting will not lead to any change that would attract foreign investment." Likewise, opposition leader and former Prime Minister Sadig el Mahdi said that the removal of sanctions "reveals that the problem in the Sudanese economy . . . has nothing to do with external factors."

A political question

Some observers, such as former EU Special Representative to Sudan Rosalind Marsden, have questioned whether economic reform in Sudan is even possible without significant political reform. In all likelihood, it is not.

This underscores the need for the US and other governments to continue to push Sudan to take measureable steps to improve its human rights record, including insisting upon more democratic and inclusive governance. While Sudan is endowed with considerable natural resource wealth and economic potential, the country will need strengthened human rights, a more inclusive political process, and adherence to the rule of law it can realise this promise.

At the very least, President Bashir is now no longer able to blame the country's woeful economic performance on US sanctions. This in itself may help Sudanese citizens hold him and his ruling government to account.


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