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Oil’s decline threatens Sudan government

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Oil’s decline threatens Sudan government

Officials, who have used petrodollars to solve their political problems,
may not be able to quell public anger over a troubled economy.

By Edmund Sanders
LA Times March 23, 2009
Reporting from Khartoum, Sudan — Ask a Sudanese citizen what troubles
him these days and he might not even mention Darfur or the International
Criminal Court arrest warrant against the president.To many here, it’s
the economy that is keeping them up nights.
Sudan’s once-hard-charging economy, a source of national pride over the
last five years, is in danger of grinding to a halt because of
plummeting oil prices.With the nation’s oil-dependent budget in tatters,
government employees are facing pay cuts. Newly opened luxury hotels are
slashing rates. Even supermarkets are feeling the pinch.”People don’t
have as much money,” said grocery store owner Nassir Aldin, who said his
sales were down 50% since last year. Aldin was once able to sell
Kellogg’s Corn Flakes, a luxury item here, for $12 a box. Now it’s down
to $9, and still no one is buying.
For Sudan’s embattled government, which is facing increased
international isolation because of the ICC war crimes case against
President Omar Hassan Ahmed Bashir, the financial crisis is the latest
unwelcome development, and one that could have a steep political
cost.For years, the government has used rising oil revenues to fund a
military buildup and buy political support, including paying off
opposition leaders and arming private militias such as the janjaweed in
the Darfur region.”Oil is what has kept them in power,” said Mohamed
Ibrahim Nugud, secretary-general of the Communist Party in
Sudan.Economists predict that if oil prices don’t rebound, public anger
over the economy could cause much more domestic frustration than Darfur
or the ICC arrest warrant. In 1985, protests over rising gas and food
prices helped bring down the government.”This is the fuel of
revolution,” said Elhaj Hamed M.K. Haj Hamed, a political economist at
the Social and Human Development Consultative Group here in Khartoum.
Sudan has been one of Africa’s fast-growing economies since it began
exporting oil in 1999. Oil revenues account for about 65% of the
national budget and 97% in the autonomous southern region.Beginning in
2006, the rise in crude prices helped transform this dusty capital into
a modern city with dreams to build a skyline that would rival Dubai’s.
The growth was all the sweeter to many Sudanese because it came despite
U.S. sanctions, imposed over the bloodshed in Darfur and the
government’s support of organizations on Washington’s list of terrorist
groups.When the international credit crunch hit last year, Sudanese
officials joked that U.S. sanctions had insulated them. But when oil
prices sank from above $140 a barrel last summer to as low as $35
recently, they stopped laughing.”The era of oil dependency is over,”
Finance Minister Awad Ahmed Jaz told state governors this year.Now
monthly oil revenue is half last year’s level. In February, officials
said they’d collected barely enough to cover expenses.The government is
scrambling to cut costs and raise revenues. Last month, state employees
in the south went unpaid. In Khartoum, government doctors went on strike
to protest missing paychecks. Sales taxes were raised to 20%and duties
went up for cellphone calls and car imports.The government of southern
Sudan has ordered a 10% salary cut for its senior officials and approved
the first income tax on its citizens, who are among the poorest in
Africa.”But raising taxes is not the answer,” said Abdulla Mursi, sales
manager at a new Nissan dealership in Khartoum.Higher import levies, now
about 137%, pushed up the price of a Nissan Tiida compact, known as the
Versa in the U.S., from $33,000 to $41,000. Mursi said sales had dropped
so much that tax revenue from his dealership had gone down the last two
months.Real estate values and rents also are falling, particularly in
high-end neighborhoods, said Syman Osman, a Khartoum broker. He blamed
the ICC case, which made some foreigners nervous about possible
reprisals.”Foreigners were about half of our rental business, but they
all got afraid” because of the ICC, he said.
Besides oil revenue, much of the recent development has come with help
from Arab nations and China, which buys most of Sudan’s oil. The
recently opened Merowe Dam was built with about $2 billion in foreign
assistance. But falling oil prices are also hurting Sudan’s Middle East
partners. And the ICC case, which alleges that Bashir orchestrated a
brutal counterinsurgency in Darfur, could increase international
pressure to boycott the country.Sudan will be hard-pressed to get a
bailout from the World Bank or the International Monetary Fund, some
say, because the country defaulted on its existing $30-billion debt.
“The oil money gave them the income to ignore the international
financial institutions over the years,” Hamed said.The government in the
south, led by the former rebel group the Sudan People’s Liberation
Movement might find a warmer reception from international lenders. But
the crisis is likely to be much more severe in the south.The recent oil
price drop is forcing the southern government to live on a quarter of
the money it budgeted.
That’s slowing down the south’s efforts to transform its rebel army into
a 150,000-soldier professional military.Already southern officials have
come under fire from citizens who question where $6 billion in oil money
has gone since the south started receiving a 50% share of the national
proceeds in 2005. Roads, schools and electricity are still rare in much
of southern Sudan.The crisis is “very serious,” said Pagan Amum, SPLM
secretary-general. But he noted that southerners are used to hardship
and that just a few years ago the SPLM was surviving in the
bush.”Compared to where we came from, we are in a much better position
today,” he said.Ali Abdalla Ali, an economic analyst and co-founder of
the Khartoum Stock Exchange, said oil revenue should have been used to
build up other industries, such as cotton, gum arabic, nuts and
agriculture.”We’ve not been able to diversify our oil resources,” he
said. “The problem with oil is that once you have it, you think it will
just go on and on. This is a good lesson for us,” he said.Many Sudanese
complain that the oil party is ending before anything trickled down to
them. Standing in an unemployment line in front of the United Nations
compound in Khartoum, electrical engineer Mike Abadi, 35, acknowledged
the new roads, streetlights and office towers around him. But he said
his life hadn’t changed. He’s found only one job in the last decade,
with a Chinese contractor that finished its work and closed.”Are things
worse?” he asked. “When was it better? Every day for me has been the
same. “I’ve never seen anything from the oil,” he said. “Some of us
never even knew Sudan had oil.”


Written by torit1955

March 24, 2009 at 12:12 pm

One Response

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  1. Interesting analysis. And if low oil prices are troubling Khartoum, imagine their impact on Juba. Have you written more on this subject?
    Also: I would like to print out your text, but can’t seem to get past a gray first page. Suggestion?

    David Morse

    December 6, 2009 at 2:13 pm

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