Sudan economy keeps struggling as war rages in South

BEIRUT: The civil war raging in South Sudan^[1] has cost the lives of thousands and internally displaced close to a million people. The humanitarian costs have been vast and the impact of the war has spread throughout the region, especially to the north in Sudan. Sudan’s economy has been struggling since South Sudan separated in 2011. Upon separating from Sudan, South Sudan took three quarters of the country’s oil wealth but the pipelines, refineries and ports to export the oil are all located in the north. After drawn-out negotiations and flare-ups of fighting along the border, the two nations came to an agreement on how to divide revenue last year. Since the outbreak of war in South Sudan, this revenue has decreased markedly.

According to Alsir Sidahmed, veteran journalist, author of the books Sudan and Oil Years in Sudan and member of the Sudan, South Sudan Dialogue Group, the neighboring states agreed that South Sudan would pay its former countrymen three fees: a transit fee, a fee to use the central processing facilities and the long-disputed transportation fee. In a report released last November, the IMF forecast that Sudan was expected to retrieve $1.42 billion in fees for transferring and processing oil in 2014. But as the civil war rages, the flow of oil has come to an abrupt stop.

There are two pipelines connecting South Sudan to Port Sudan: one through the west and another closer to the east.

“After the eruption of the violence and the closing of some oil facilities, all the oil that was transported by the western pipeline stopped. Which Sudan levies [a transportation fee of] $8.40 per barrel. This amounted to a loss of 50,000 barrels a day,” Sidahmed says.

The eastern pipeline, which levies a transportation fee of $6.50 per barrel, has also slowed down production. “The eastern pipeline used to ship something like 200,000 barrels a day. There are now shipments of around 140,000,” he adds.

With a transit fee of $1 per barrel and a central processing fee of $1.50 per barrel, the total lost revenue is over $1 million a day. Revenue that the central government in Khartoum desperately needs as it faces a tirade of economic problems.

To offset the losses of oil revenue following the separation, the government sharply halted subsidies on everyday commodities, which resulted in the cost of living in Sudan rising by 35 percent from 2011 to 2012. This led to a series of demonstrations against the government.

Dr. Anders Hastrup, author of “The War in Darfur: Reclaiming Sudanese History,” describes the situation, “Khartoum is picking up very much now on the expense of the normal Sudanese people. It was already an expensive place to be but now it’s dreadfully expensive to live in Sudan. Even compared to Beirut. Beirut is a cheap city compared to Khartoum.”

The war has added further strains on local residents, as there has been an influx of refugees heading north due to the conflict. UNHCR has registered close to 100,000 refugees entering the Sudanese states bordering South Sudan since the outbreak of the violence on Dec. 15, 2013. With 27,000 of those in the White Nile state alone.

Another major loss due to the violence is the expected revenue from the Transitional Financial Arrangement. Under this arrangement, agreed to after drawn-out negotiations in March 2013, South Sudan is to pay Sudan $3.028 billion over three and a half years to help ease the impact of the sudden loss of three quarters of its oil revenue. But these payments are made as a percentage of oil exports. Decreased exports means decreased payments. As long as fighting continues in the oil rich Unity State, exports will continue to decline and so will payments.

One of the most worrying outcomes of this war, from the economic perspective of Sudan, is its ability to obtain debt relief. Over the years, Sudan has accumulated approximately $44 billion worth of debt. As part of the separation agreement, South Sudan was to begin sharing payments with Sudan from March 2013 onward.

Sidahmed says Sudan had been quietly hoping to use South Sudan’s high profile in the international community to obtain some debt relief. “They’ve started making joint delegations to address the international community, IMF and all these people ... Sudan and the South were banking on the feeling that the international community is helping, or is sympathetic to, South Sudan because up till March 2015, if no agreement was reached, Sudan and South Sudan will shoulder the debt,” he adds.

The international community holds little sympathy for Sudan. Omar al-Bashir, Sudan’s president, is wanted by the International Criminal Court on charges of genocide and the country has been under tight sanctions from the United Sates since 1997. The U.S. has recently increased pressure on businesses that violate the sanctions. This led to a series of European and even Saudi Arabian banks halting their business with Sudan. This has greatly hampered commercial activity as hundreds of thousands of Sudanese live and work in Saudi Arabia and now have to look for alternate means to transfer money to their families at home.

Due to its poor standing with the international community, Sudan was banking on the widespread sympathy for the world’s newest nation, South Sudan, to secure debt relief. Since the war, the international community has lost a lot of that sympathy. Ban Ki-moon, secretary-general of the United Nations, recently suggested setting up a tribunal in South Sudan to convict those guilty of war crimes and the U.S. has also threatened sanctions against key political figures.

Continuing payments would be an added strain on Sudan’s fragile economy, as Sidahmed explains: “When you have debt you have less chances of getting into the international community to enter in financial markets and even if you do, you pay high interest and it’s very expensive.”

A cease-fire was signed between South Sudan’s warring leaders, Riek Machar and Salva Kiir, on May 9 in Addis Ababa. While many thought this agreement would hold, reports of fighting and bloodshed continue to flow out of the country.

As long as the war rages, Sudan’s economy will continue to suffer.

References

1. ^{^} Sudan (www.dailystar.com.lb)