Economic Development

Economic Development

Historically, the colonial government was not interested in balanced economic growth and instead concentrated its development efforts on irrigated agriculture and the railroad system throughout the Anglo-Egyptian condominium. Incidental government investment had gone mainly into ad hoc projects, such as the construction of cotton gins and oilseed-pressing mills as adjuncts of the irrigation program. A limited amount of rainfed mechanized farming, similarly on an ad hoc basis, had also been developed during World War II. After the war, two development programs-- actually lists of proposed investments--were drawn up for the periods 1946-50 and 1951-55. These plans appear to have been a belated effort to broaden the country's economic base in preparation for eventual Sudanese independence. Both programs were seriously hampered by a lack of experienced personnel and materials and had little real impact. Independently, the private sector had expanded irrigated agriculture, and some small manufacturing operations had been started, but only three larger industrial enterprises (meat and cement plants and a brewery) had been constructed, all between 1949 and 1952. As a result, at independence the new Sudanese government's principal development inheritance was the vast irrigated Gezira Scheme (also seen as Jazirah Scheme) and Sudan Railways.

Not until 1960 did the new government attempt to prepare a national development plan. Since that time, three plans have been formulated, none of which has been carried through to completion. Work on the first of these, the Ten-Year Plan of Economic and Social Development, for the fiscal years ( FY) 1961-70, began in late 1960, but the plan was not formally adopted until September 1962, well over a year after its scheduled starting date. The total ten-year investment was set at £Sd565 million, at the time equivalent to more than US$1.6 billion. The private sector was expected to provide 40 percent of the amount. Unfortunately, the goals were overly ambitious, and the government had few experienced planners. The plan as prepared was not adhered to, and implementation was actually carried out through investment programs that were drawn up annually and funded through the development budget. Projects not in the original plan were frequently included. Investment was at a high rate in the first years, well beyond projections, and a number of major undertakings had been completed by mid-plan, including the Khashm al Qirbah and Manaqil irrigation projects, a sugar factory at the former site, another at Al Junayd irrigation project, and the Roseires (also called Ar Rusayris) Dam.

As the 1960s progressed, a lack of funds threatened the continuation of development activities. Government current expenditure had increased much faster than receipts, in part because of the intensification of the civil war in the south, and government surpluses to finance development vanished. At the same time, there was a shortfall in foreign investment capital. The substantial foreign reserves held at the beginning of the plan period were depleted, and the government resorted to deficit financing and foreign borrowing. The situation had so deteriorated by 1967 that implementation of the Ten-Year Plan was abandoned. Sudan's international credit worthiness became open to question.

Despite major financial problems, real economic gains were nevertheless made during the Ten-Year Plan, and per capita income rose from the equivalent of US$86 in 1960 to about US$104 at the end of the decade. Late in the 1960s, the government prepared a new plan covering FY 1968 to FY 1972. This plan was discarded after the military coup led by Nimeiri in May 1969. Instead, the government adopted a Five-Year Plan of Economic and Social Development, 1970-74. This plan, prepared with the assistance of Soviet planning personnel, sought to achieve the major goals of the May revolution (creation of an independent national economy; steady growth of prosperity; and further development of cultural, education, and health services) through socialist development.

During the plan's first two years, expenditures remained low, affected largely by uncertainties that stemmed from the civil war. After the war ceased in early 1972, the government felt that the plan failed to provide for transportation improvements and large-scale productive projects. In 1973, the government therefore established in the Interim Action Program, which extended the original plan period through FY 1976. New objectives included the removal of transportation bottlenecks, attainment of self-sufficiency in the production of several agricultural and industrial consumer items, and an increase in agricultural exports. To accomplish these goals, proposed public sector investment increased from £Sd215 million to £Sd463 million (however, actual expenditures during the five years, excluding technical assistance, were £Sd250 million). Private sector projected investment was estimated at £Sdl70 million originally, but the nationalizations carried out in 1970 and 1971 discouraged private investment in productive undertakings. Foreign private capital investment became negligible, and domestic private capital was put mostly into areas considered less subject to takeover, such as service enterprises, housing, traditional agriculture, and handicrafts. The denationalizations since 1972 resulted in increased private foreign investment in development. The final investment total during the first five years was considerably above the original plan projection. The plan failed to achieve its goal of a 7.6 percent annual growth rate in gross domestic product ( GDP), however, and was extended to 1977.

From FY 1973, after introduction of the Interim Action Program, through 1977, development expenditures grew to more than 1 billion Sudanese pounds. The government initiated several irrigation projects at Rahad, Satit southeast of Khashm al Qirba, Ad Damazin, and Kinanah; and established factories at Sannar, Kinanah, at Shandi on the Nile northeast of Khartoum, Kusti, Kaduqli, Nyala, and Rabak on the White Nile south of Khartoum. Roads between Khartoum and Port Sudan were paved with tarmacadam. Excavation began on the Jonglei Canal. Chevron discovered oil. The original plan called for almost half of investment to be provided by surpluses in the central government budget. Although this assumption appeared highly optimistic in view of the modest surpluses attained during the last half of the 1960s, tax revenues did increase as projected.

Earnings from public corporations, however, fell short of projections, and growth in government current expenditures greatly exceeded revenue growth. As a result, not only were there no surpluses in the public sector, but the government had to borrow from the Bank of Sudan to cover the current expenditure account. Foreign capital, although abundant, also did not equal the spending on development, and, contrary to the expectations of the plan's drafters, the government had to resort to domestic borrowing to proceed with project implementation.

In early 1977, the government published the successor Six- Year Plan of Economic and Social Development, 1977-1982. Its goals and projections also appeared optimistic because of the worsening domestic economic situation, which was marked by growing inflation. The inflation stemmed in large part from deficit development financing (printing money), increasing development costs because of worldwide price rises, and rising costs for external capital. During the plan's second year, FY 1978, there was no economic growth as the deficit development financing in the mid- and late 1970s led the Sudan into a deepening economic crisis. At the same time, external debt pressures mounted, and Sudan failed to meet its scheduled payments. A substantial cutback in further development expenditures became unavoidable. The result was an abandonment of Six-Year Plan projections, a restriction of expenditures generally to the completion of projects under way, improvement of the performance of existing operational projects, elimination of transport constraints, and a series of short-term "rolling" programs that particularly emphasized exports.

In October 1983, the government announced a three-year public investment program, but efforts to Islamize the economy in 1984 impeded its implementation, and after the Nimeiri overthrow in April 1985, it was suspended. In August 1987, an economic recovery program was initiated. This program was followed, beginning in October 1988, by a three-year recovery program to reform trade policy and regulate the exchange rate, reduce the budget deficit and subsidies, and encourage exports and privatization. There was little possibility for early economic recovery offered by the military government of General Umar al Bashir that took office on June 30, 1989. The government's economic policies proposed to Islamize the banking system, but foreign business interests viewed this measure as a disincentive to do business in Sudan, because no interest would be paid on new loans. Furthermore, Islamic banks and other economic supporters of the regime were to be granted disproportionate influence over the economy, which led to widespread resentment among other sectors. Finally, the government did not go far enough to satisfy the International Monetary Fund ( IMF) or other major creditors that it had sufficiently reduced subsidies on basic commodities, thus reducing its budget deficit. Bashir had announced an economic recovery program in mid-1990, but in 1991 its results were still awaited.

The late 1970s had seen corruption become widespread. Although always present, corruption never had been a major characteristic of the Sudanese economic scene. The enormous sums that poured into Sudan in the late 1970s from the Arab oil- exporting countries, the United States, and the European Community, however, provided opportunities for the small clique that surrounded Nimeiri to enrich themselves. This corruption fell into three principal categories: embezzlement of public funds, most of which left the country, agricultural acquisition schemes, and investment in the mercantile sphere.

The most common ways of embezzling public funds were acquiring liquid assets from banks or government agencies, selling the state's assets, selling state land, and smuggling. The siphoning off of liquid assets usually required the connivance of a high government official. Between 1975 and 1982, more than 800 cases were reported of embezzlement of, on the average, more than £Sd1,000. In one case, principal bank officials embezzled £Sd3 million; another bank made a loan of £Sd200 million to a businessman whose business was fictitious.

State property sold by embezzlers included gasoline and medicines. State officials also sold real estate in residential areas at below the market price. An impressive residence would then be built on the property for rental to diplomatic officials or executives of multinational companies. In the past, small operators penetrating the vast and unpatrolled borders of Sudan carried out smuggling, but in the late 1980s it became a vast and sophisticated business. Of the smuggling operations uncovered, one involved £Sd2.5 million in cloth, another £Sdl million in matches, and a third £Sd0.5 million in automobiles.

Another highly profitable form of corruption was the selling of state farmlands, each about 30,000 feddans (1 feddan is equivalent to 0.42 hectares). Mechanized Farming Corporation (MFC) officials sold large numbers of feddans at low prices to senior officials in Khartoum; many of the latter exploited the land for profit at the expense of the peasantry and caused profound ecological deterioration.

As corruption ran rampant during the late 1970s until Nimeiri was overthrown, commercial companies, particularly in the export- import trade, profited through their influence on public policy and through special permits they received. The Islamic institutions that dominated Sudanese banking facilitated this corruption. These banks, of which the most important was the Faisal Islamic Bank, possessed privileges not enjoyed by Sudanese national banks, such as exemption from taxation and the right to transfer profits abroad. An example of the combination of political power and financial capital was the Islamic Development Company. Established in 1983 as a limited shareholding company with an authorized capitalization of US$1 billion, the company was chartered to invest in agriculture, industry, services, construction, and Islamic banks. In practice, it concentrated on the export-import trade, where high profits could be made quickly and easily, in contrast to the slow returns of agricultural development projects. The board of directors consisted of ten persons, four Sudanese and six foreign nationals, mostly Saudis, including a son of the late King Faisal ibn Abd al Aziz Al Saud. Of the Sudanese, three belonged to the National Islamic Front, and the fourth was the son of the leader of the Khatmiyyah, a Muslim religious group associated with the National Unionist Party. All had connections with Islamic banks and the Sudanese parliament. Their purpose was to strengthen the Islamist movement's economic power by tying their commercial enterprise to the state in order to achieve a privileged position in the marketplace. They accomplished this aim by granting shares valued at US$100,000 to founding members and to prominent persons, ranging from the republic's president to wealthy Muslim businessmen.

Between 1978 and 1985, agricultural and industrial production had declined in per capita terms. Imports during much of the 1980s were three times the level of exports. By 1991 the value of the Sudanese pound against the dollar had sunk to less than 10 percent of its 1978 value, and the country's external debt had risen to US$13 billion, the interest on which could be paid only by raising new loans.

Two reasons for this decline were the droughts and accompanying famine occurring in the 1980s and 1991, and the influx of more than 1 million refugees from Eritrea, Ethiopia, Chad, and Uganda, in addition to the persons displaced by the continuing war in southern Sudan who were estimated to number between 1.5 million and 3.5 million. Nevertheless, the decline in Sudan's agricultural and industrial production had begun before these calamities. Few development projects were completed on time and those that were failed to achieve projected production. After 1978 the GDP steadily fell so that the vast sums of money borrowed could not be repaid by increased productivity. Sudan found itself in a cycle of increasing debt and declining production.

These economic problems had two fundamental causes. First, in planning little thought was given to the impact of any one project on the whole economy and even less to the burden such huge projects would place on a fragile infrastructure. Some ministries undertook projects by unilaterally negotiating loans without reference to the Central Planning Agency. Second, remittances by Sudanese laborers in the Persian Gulf (thousands of workers were based in Kuwait and Iraq, until many of them were expelled) placed a stress on Sudan's economy, because the government was forced to relax its stringent currency controls to induce these workers to repatriate their earnings. Such funds were largely invested in consumer goods and housing, rather than in development projects.

https://www.afdb.org/en/countries/east-africa/sudan/sudan-economic-outlook/
http://countrystudies.us/sudan/54.htm


Country Studies main page | Sudan Country Studies main page