Oil on Su­dan's trou­bled wa­ters

The Pak Banker - - Editorial5 - Harry Ver­ho­even

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.

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