Forty years of civil war in the past half century have meant Sudan has rarely enjoyed the political stability that is vital for economic development. The Comprehensive Peace Agreement (CPA), signed in 2005, ushered in a period of relative calm. But political challenges still dominate and are likely to continue to do so in the medium term.

Rising tensions

The CPA paved the way for a referendum on the future of the southern part of the country in January 2011, which returned an overwhelming vote in favour of independence. The organisation of the referendum, which, against all odds, took place on schedule, was impressive. So too was the relative peace and stability in which the vote took place.

An estimated 50 per cent of Sudan’s government income and 90 per cent of its exports come from oil

International Monetary Fund

Peace and stability will be crucial to the economies of the North and the South in 2011 and beyond, however, there is no guarantee that they can be attained. The CPA has now entered a six-month interim period in which preparations are being made for the formal split of Sudan on 9 July. But since the January referendum, tensions have again flared along the border between the North and South, and analysts expect conflict to continue in the months before and after the separation.

These are not the only political concerns. The wave of protests in demand of political change and improved economic conditions that has swept the Middle East and North Africa region has been replicated by demonstrations in the North against the government of President Al-Bashir. Al-Bashir faces political opposition brought about by his failure to attain a united Sudan. There is also ongoing international scrutiny of his treatment of the populations of Darfur and the east of the country, and this is likely to be a key determinant in whether sanctions are lifted against the North’s economy after 9 July.

In the South, fighting has intensified between government forces and rebel groups, despite a peace deal agreed just days before the referendum began on 9 January.

In March, opposition parties withdrew from the committee responsible for reviewing the South’s interim constitution, claiming that the Sudan People’s Liberation Movement, the party of government, was dictating terms.

Sudan GDP breakdown by sector, 2009
(Percentage)
Agriculture 31
Petroleum 7
Mining and quarrying 0.5
Manufacturing 11
Power and water 2
Construction 3
Trade, restaurants, hotels 8
Transport & communication 10
Finance, real estate and business services 12
Government services 14
Other 1.5
GDP=Gross domestic product. Source: Central Bank of Sudan

Talks are under way between representatives of the North and South to agree how the two economies will function and to what extent they will co-operate following separation. The negotiations include such thorny issues as how oil resources will be shared and whether the South will be liable to pay off some of Sudan’s national debt. But as the date nears, there has been little progress towards a formal deal.

Both countries are likely to struggle. Three quarters of Sudan’s oil production comes from the South and the North is likely to lose the 50 per cent share of revenues from these fields that it enjoys under the CPA. An estimated 50 per cent of Khartoum’s income and 90 per cent of export revenues come from oil.

Hydrocarbon reserves and production in Sudan
Oil production (thousand barrels a day) 490
Oil reserves* (billion barrels) 6.7
Oil proven reserves* (share of world total) 0.5
*At end of 2009. Source: BP Statistical Review of World Energy

The payments that the North is likely to receive from the South for the use of export pipelines to Port Sudan will not compensate for the loss of revenue and foreign currency. The Washington-based IMF estimates that separation will not only result in a 75 per cent fall in the North’s oil output, but also a 10 per cent decline in its non-oil gross domestic product, a drop in oil-related services, and a higher import bill to make up the shortfall in petroleum products.

The resolution of the debt issue will be crucial to both North and South. Sudan has accumulated an estimated $38bn of international debt, more than $30bn of which is in arrears. While the North claims this should be split, the South, as a new country, wants no part of it. The debt would be crippling to either party and particularly to the South. Local analysts say that it is likely to remain the responsibility of Khartoum following separation. For an economy shorn of foreign currency reserves, debt relief will be crucial for the North.

Oil dependence

Even assuming the South is able to take control of revenues from its oil production and is not made liable for a share in Khartoum’s debt burden, it faces the huge challenge of creating a functioning state, and with it, a functioning economy. The South has an enormous infrastructure deficit, including basic requirements such as roads and power and water infrastructure, and an estimated 50 per cent of the population lives below the poverty line.

The need to diversify the economy will be most pressing. About 98 per cent of the revenues of the interim government of South Sudan come from oil, but Sudan’s proven reserves will only last another 37 years at current output, according to BP’s latest Statistical Review of World Energy. International support will be vital to the creation of a sustainable economy in the South, and so will political stability.