KHARTOUM, Jan 5, 2011 – Profound uncertainty surrounds Sudan\’s economic future, but with the possible secession of the south, where most of its vital oil reserves lie, a bad situation may soon get worse in the north, analysts say.
Soaring inflation, caused by the sharp devaluation of the Sudanese pound over the past three months, large external debts, and the collapse in oil prices three years ago have done nothing to allay fears about the impact of the referendum on southern independence which kicks off on Sunday.
Observers are predicting overwhelming support for separation.
But if that happens, no one knows how Africa\’s largest country will share its future revenues from oil, with the north and south currently negotiating a formula that could see Khartoum getting little more than transport fees.
Oil accounts for 90 percent of Sudan\’s exports and the country currently produces around 500,000 barrels per day, but around three quarters of this is pumped from the south.
President Omar al-Bashir acknowledged the prospect of a fall in the north\’s oil income in a speech in Khartoum on December 31 to mark 55 years of Sudanese independence, and repeated the government\’s intention to diversify the economy.
"Our policy to have a stable and flexible economy continues, taking into account international changes and to guard against the impact on our national income from the loss of oil revenues," he said.
But others doubt north Sudan\’s ability to protect itself from a future drop in oil earnings, especially given the poor state of other key economic sectors like agriculture, industry and mining.
"The development of Sudan\’s traditional exports, like agriculture, this will take time." said Mohamed el-Jak, professor of economics at Khartoum university.
"There is no source of external financing, because of the government\’s accumulated debt and its international isolation," Jak explained.
He said one way the government was likely to raise extra revenues was by hiking taxes, this despite the fact that last year it spent more than 75 percent of its budget on defence and security.
Issam Mohamed, another Sudanese economist in Khartoum, agreed that more taxation on northerners was a probable consequence of the south breaking away.
"Right now we cannot export any products other than oil," he told AFP.
"We need to buy around 80 percent of our wheat from outside Sudan, which you have to pay for. Sudan\’s agricultural sector is not providing enough food for the country. So for sure we will continue to need oil revenues," Mohamed told AFP.
"With the fall in revenues from oil produced in the south, the government will try to raise taxation levels. I expect in another six months, if the situation continues in this way, that the living situation here will be very difficult."
The UN food agency FAO warned in its November food outlook report that international food price increases could have severe implications for Sudan.
With its vast swathes of arable land, north Sudan\’s potential as a crop producer is the envy of many Arab and Asian countries, from Qatar to Korea, some of whom have rushed to acquire long-term rights to Sudanese farmland in a bid to enhance their own food security.
Agriculture Minister Abdel Haleem al-Mutafi said late last year that the revitalisation of its once-prosperous agricultural sector would see Sudan achieve self sufficiency in wheat production within five years.
"If the government can make money out of agriculture, he\’s the man to do it," said a Western political analyst based in Khartoum.
"But there is a difference between making it a sustainable driver of economic growth, and making a quick profit by renting land to countries like Saudi Arabia, Indonesia and South Korea."
He noted that nothing has yet been agreed on, in terms of the four post-referendum issues that Khartoum and Juba plan to negotiate, which include security, citizenship and the sharing out of natural resources — especially oil.
"The extent of the drop in (north Sudan\’s) oil revenues depends on what kind of deal they reach. It is not yet clear. But it might not be as drastic as the southerners say."