Economic Uncertainty Grows Ahead of Secession

15 June 2011

Khartoum — The Sudanese government announced that it has crafted an economic plan to weather the effects of the separation of the oil-rich south next month.

The people of South Sudan voted last January almost unanimously to split from the Arab-Muslim dominated North but the new state becomes official only at the end of the interim period next July.

A number of key issues remain outstanding however, particularly the post-secession sharing formula for the oil wealth that is stationed mostly in the South.

The Comprehensive Peace Agreement (CPA) states that the North and South shall equally split the revenue from oil exports during the six years following the signing of the accord.

While most of Sudan’s proven daily output of 500,000 oil barrel is extracted from oilfields in the south, the pipelines infrastructure and refineries are based in the north. The South will therefore be required to pay a fee to transport its oil and ship it abroad from Port Sudan terminal.

The minister of finance and national economy Ali Mahmood Hassanein in an address before the national assembly said that 73% of the country’s oil lies in the South, 26% in the North and 1% in the contested region of Abyei.

Speaking to reporters afterwards the Sudanese official unveiled a 3-year plan that will emphasize maintaining the economic gains achieved so far, balancing revenue and expenditure, stabilizing macroeconomic demand and supply through increased production of strategic goods and combating factors that contribute to lower standards of living.

Furthermore, Khartoum will press ahead with restructuring the government and curtailing federal spending, Earlier this year an austerity package was passed that partially removed subsidies on petroleum products and sugar. It also reduced allowances and salaries for government officials.

Hassanein said that the North will lose a third of its income and will see lower inflows of hard currency.

“Sudan will lose 36.5 percent of its income from July 9 because this is the percentage of oil revenue that the government gets from the oil produced in the south,” he said.

However he said that the North will compensate for the loss through expanding tax umbrella, oil infrastructure it has, attracting foreign investments, developing talents and reducing unemployment rate.

He gave an example of gold production which generated $1.2 billion to the state so far.

The International Monetary Fund (IMF) in a report released last April said that the North “will need to adjust to a permanent shock” particularly given the limited access to external financing. Sudan is under comprehensive economic sanctions since 1997.

In a related issue, the top finance official in the country disclosed that they have sent a letter to the South informing them that they will close the oil pipelines unless a deal is reached on fees for transporting the crude.

“We have sent a letter to south Sudan, to inform them that they cannot use the pipelines or the refinery or the [Red Sea] port after July 9 unless we reach a deal about the price of renting this infrastructure,” Hassanein said.

The New York Times (NYT) say that much of Sudan’s oil is so thick that the pipelines could get clogged, causing hundreds of millions of dollars in damage, if the flow of oil is suddenly stopped.

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