Oil on Sudan's troubled waters
Next January the people of southern Sudan will vote in a referendum to decide whether or not to separate from the north. An independent southern Sudan would leave the Khartoum government without its main bread earner: almost 500,000 barrels of crude oil daily. Since most of Sudan's oil lies in the south, this raises the question of how the north would survive without the billions of dollars of annual revenue that oil brings in.
The Obama administration fears the government could move militarily to maintain control over the oilfields possibly reigniting the civil war that ended in 2005. The reality, however, is more complicated. Oil could well lead to war, but two questionable assumptions underpin the idea of a straightforward confrontation: that southern Sudan will be blessed with huge oil wealth, and that the north is nothing without petro-dollars.
If southern Sudan does decide to go its own way, the oil party after independence may be short-lived. Although the oil minister, Lual Deng, is hoping that production will increase to 650,000 barrels per day next year, such ambitious forecasts have a long record of failure in Sudan.
The oil ministry's own reserve estimates give Sudan a mere decade of commercial production, and the IMF thinks output levels will decline from 2012-13 onwards. This could have a huge impact on the viability of an independent south. With 98 per cent of government revenues coming from oil and reserves that will soon be running dangerously low, the future of landlocked and infrastructureless southern Sudan is bleak. Thus it is Khartoum that may have the last laugh if the south separates.
When the Islamists came to power in 1989, Sudan was on its knees economically. There were food and fuel shortages even in the capital. A ruthless recovery programme broke the back of powerful trade unions, but also stabilised inflation and prevented a Somalia-like meltdown.
The combination of unorthodox economic policies and oil exports led to dramatic improvements. The World Bank found that Sudan's economy grew fivefold from 1999 to 2008: oil enabled a massive expansion of physical and social infrastructure, including a doubling of Sudan's road network, electricity generation, and a sharp increase in primary school enrolment. These are remarkable results, especially in the face of long-standing US sanctions and a huge debt mountain; they allowed the ruling National Congress party (NCP) to build extensive support networks in the northern Sudanese heartlands.
Sudan's economic growth has been deeply unequal, and many regions remain scandalously poor, deprived of even the most basic services. But it needs to be recognised that substantial constituencies in the north have never had it so good.
They have grown strongly loyal to the regime. Oil has been crucial to this success, but Khartoum knows it will eventually run out and has been preparing a post-oil future. Khartoum is hoping to attract more than $1 billion (Dh3.67 billion) in foreign direct investment in the coming year for agricultural projects around the Nile. Kuwait, Saudi Arabia and Jordan, driven by worries about global food prices, are pouring money into northern Sudan. China is also set to play a big role in the country's agricultural future, with its companies vying for acreage. These are key components of an attempted recalibration of Sudan's political economy that should help withstand a possible separation between north and south. The northern Islamists are falling back on the core areas of their territory where investment, service delivery and irrigated agriculture are concentrated. Close partnerships with China, Gulf Arab investors and globalised entrepreneurial elites are helping to entrench the NCP's political hegemony. The role of oil is not what it seems. Khartoum loves the dollars and will feel a foreign-exchange crunch as oil revenues dissipate. This has important implications for international interventions to keep the peace in Sudan.