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PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

African Development Bank Group Regional Development & Business Delivery Office 2016

PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN THE AFRICAN DEVELOPMENT BANK GROUP

The production of this report has been coordinated by the African Development Bank (AfDB). Designations employed in this publication do not imply the expression of any opinion on the part of the institution concerning the legal status of any country, or the limitation of its frontier. While efforts have been made to present reliable information, the AfDB accepts no responsibility whatsoever for any consequences of its use.

Ag. Vice President: Janvier Litse Regional Director (EARC): Gabriel Negatu Resident Representative (ETFO): Josephine Ngure Chief Regional Economist (EARC): Tilahun Temesgen Senior Macroeconomist (ETFO): Admit Zerihun PLEASE

Copyright 2016 — AFRICAN DEVELOPMENT BANK GROUP UPDATE Photo Credits: AfDB photo files THIS PAGE

PUBLISHED BY African Development Bank Group - Eastern Africa Regional Resource Centre (EARC) Khushee Tower Longonot Road, Upper Hill Nairobi, Phone: (254) 20 2712925/26/28 Fax: (254) 20 2712938 Email: [email protected] Website: www.afdb.org TABLE OF CONTENTS

FOREWORD ...... iii PREFACE ...... v ACKNOWLEDGMENTS...... vi EXECUTIVE SUMMARY...... vii ACRONYMS AND ABBREVIATIONS...... x

1. ECONOMIC PERFORMANCE IN RECENT DECADES...... 1 1.1 Social and Political Setting...... 1 1.2 Internal Conflict and ...... 3 1.3 Demographic Change and Labour Force Growth...... 6 1.4 Patterns of Development Since Independence...... 8 1.5 Implications for Incomes and Poverty...... 14 1.6 Challenges for Development and Diversification...... 16

2. STRATEGY FOR BROAD-BASED AND INCLUSIVE GROWTH...... 23 2.1 Private Sector-led Growth and Diversification...... 23 2.2 Resource Base of the Country...... 25 2.3 Proposed Programme for Economic Diversification...... 32 2.4 Growth Prospects for the Decade Ahead...... 34 2.5 Economic Impact of the Programme and the Benefits...... 37

3. TRANSITION TO A STABLE MACROECONOMIC ENVIRONMENT...... 43 3.1 Key Challenges for Macroeconomic Management...... 43 3.2 Re-emergence of High Domestic ...... 46 3.3 The Need for Fiscal Consolidation...... 46 3.4 and Exchange Rate Management...... 49 3.5 Trade Policy External Imbalances and Debt...... 53 3.6 Macroeconomic Outlook for the Medium and Longer Term...... 56

4. PROMOTING PRIVATE SECTOR-LED GROWTH...... 59 4.1 The Setting ...... 59 4.2 Current Profile of the Private Sector...... 60 4.3 Private Sector Productivity and Competitiveness...... 61 4.4 Investment Climate and Government Policies...... 64 4.5 Impediments to Private Sector Growth...... 65 4.6 Private Investment Requirements and Financing...... 71

5. PROMOTING AND RURAL DEVELOPMENT...... 77 5.1 Current Status of the Agricultural Sector...... 77 5.2 Performance of Individual Sub-Sectors...... 80 5.3 Policy and Institutional Arrangements for the Sector...... 88 5.4 Lessons from the Agricultural Revival Programme (ARP)...... 90 5.5 Key Challenges for the Sector...... 91

AFRICAN DEVELOPMENT BANK GROUP | i PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

5.6 Action Programme for Agriculture...... 98 5.7 Programme Investment Requirements and Financing...... 106

6. ACCELERATING INDUSTRIAL DEVELOPMENT...... 111 6.1 Current Status of the Industrial Sector...... 111 6.2 Status of the Food and Non-Food Agro-Industries...... 112 6.3 Prospects for the Manufacturing Sector...... 120 6.4 Prospects for Other Industrial Sectors...... 126 6.5 Growth Prospects for the Industrial Sector...... 128

7. CHANGING ROLE OF THE OIL SECTOR...... 131 7.1 Development of the Industry Since the 1970s...... 131 7.2 Key Challenges Facing the Industry in Sudan...... 135 7.3 Prospects for Oil Production and Exports...... 137

8. INFRASTRUCTURE SERVICES: AN AGENDA FOR ACTION...... 143 8.1 Current Status of Sudan’s Infrastructure...... 143 8.2 Transport Infrastructure...... 143 8.3 Electric Power and Energy...... 159 8.4 Water Supply and Sanitation...... 168 8.5 Information and Communication Technology...... 171 8.6 Infrastructure Expenditures and Financing...... 173

9. ROLE OF OTHER KEY SERVICES IN PROMOTING GROWTH...... 177 9.1 Key Challenges for the Decade Ahead...... 177 9.2 Expanding the Role of the Financial Sector...... 178 9.3 Programmes for Skills Development in the Labour Force...... 193

ANNEXES ...... 198 Annex 1: Demographic Data...... 198 Annex 2: Macroeconomic Accounts and Data...... 200 Annex 3: Macroeconomic Projections...... 233 Annex 4: Programmes for Private Sector Development...... 240 Annex 5: Development Programmes for Agriculture...... 241 Annex 6: Programmes for Industrial Development...... 264 Anne 7: Basic Data and Projections for the Oil Sector...... 265 Annex 8: Basic Data for Infrastructure...... 271 Annex 9: Basic Data for Services Sectors...... 283

REFERENCES ...... 288

ii | AFRICAN DEVELOPMENT BANK GROUP FOREWORD

Demand-driven analytical work is an important pillar of imperative that the roll out of the High 5s in RMCs be the African Development Bank (AfDB)’s advisory work guided by thorough economic and sector analyses that in African countries, as it remains vital in informing informs the identification, preparation and successful policy decisions at this crucial juncture in Africa’s eco- implementation of well-targeted interventions. Building nomic transformation. This study, ‘Private Sector-Led on synergies with the Sustainable Development Goals Economic Diversification and Development in Sudan’, (SDGs), the operationalization of the High 5s strongly was commissioned as a direct response to the need recognizes economic diversification as an indispens- for intellectual guidance on Sudan’s adjustment to the able pathway to fully unleashing Africa’s economic po- economic and social challenges emanating from South tential. This goal, which is hitherto a tall order for many Sudan’s secession in 2011. Indeed, the secession was RMCs, is of utmost importance to Africa’s economic hailed as a major political milestone that had a poten- transformation. tial to usher the two countries into peaceful co-exis- tence and future prosperity. However, this long-awaited It is in this context that Sudan’s stride towards a private outcome is yet to be achieved, in spite of tremendous sector-led economic diversification and development is efforts. For Sudan, the secession is noted to have trig- viewed as both timely and relevant. In Sudan, as in many gered an unprecedented fiscal crisis, resulting largely other African countries, diversification is both an eco- from the loss of oil revenue and shrinking domestic nomic and social imperative. The economic imperative market. This shock underscored the need for a robust takes cognizance of the urgent need for the country to adjustment strategy to offset its impacts and restore identify alternative sources of growth to achieve mac- macroeconomic stability, especially in the medium to roeconomic stability, especially fiscal sustainability and long-term. It also heightened the debate on the respec- maintaining the external balance. The social imperative tive roles of the private and public sectors in promoting comes from the urgent need to accelerate progress in economic diversification and generating broad-based addressing poverty and reducing regional inequalities, growth that is inclusive and job creating. by exploiting the diverging regional economic and pro- duction potentials, and tapping fully into domestic, re- For the AfDB therefore, a study on the role of the pri- gional and international markets. The robust analysis in vate sector in economic diversification and job cre- this report lays a solid foundation for Sudan to achieve ation was an opportunity to advance our lead role in this principal goal. Its forward-looking approach also providing policy advice to Regional Member Countries adequately prepares the country to deepen reforms, (RMCs). The request could not have been more time- which is key for attracting investments once the coun- ly, given the strategic focus of the Bank’s Long-Term try effectively reengages with the international financial Strategy (2013-2022) on inclusive growth, whose community. It recommends that the country prepare a implementation puts strong emphasis on five priority comprehensive economic diversification strategy that areas or the High that is, Light Up and Power Africa, includes domestic, spatial and regional dimensions, Feed Africa, Industrialize Africa, Integrate Africa, and which can lead to multiple specializations and strength- Improve the Quality of Life for Africans, By design, it is en regional, sector and market linkages, and position

AFRICAN DEVELOPMENT BANK GROUP | iii PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN the country to adequately address its development sector-led economic diversification. The African Devel- challenges. opment Bank will continue its support, within limits of the existing constraints, while encouraging Sudan to It is particularly pleasing to note that the Government accelerate efforts towards arrears clearance and nor- has started taking practical steps towards operation- malization of relations with the international community. alizing the study findings, notably through setting up a public-private sector dialogue forum that is now being mainstreamed in existing institutions. This move will not only create avenues for improving the business envi- ronment but will also enrich Government’s policy dia- logue with development partners, which is important for coordination and better targeting of development assistance to improve’ the business environment for private investors. I commend the Government of Su- dan for taking this laudable initiative of responding ef- fectively to the macroeconomic challenges engendered by the secession, through this analytical piece and the Dr. Khaled Slierif policy actions that have ensued. Vice President I have no doubt that the Government will continue this engagement as it treads towards unlocking the Regional Development, Integration anil Business country’s huge production potential through private Delivery (RDVP)

iv | AFRICAN DEVELOPMENT BANK GROUP PREFACE

Over the past decades, Sudan’s economy has been The analysis provides a range of options for the Gov- subject to several domestic and external shocks and ernment of Sudan (GoS), development partners and thus volatility in economic growth. The most recent one, investors to support private sector-led economic diver- the secession of in 2011, unleashed five sification and growth. It also identifies a pool of bank- major impacts: first, reduction in population and size able projects in key agriculture-related sub-sectors in of domestic market; second, downsizing of the coun- conformity with the country’s Medium Term Develop- try’s natural resources base including oil; third, loss of ment Strategy especially the Five Year Development economic growth momentum; fourth, substantial inter- Plan, the Agricultural Revitalization Program (ARP) and nal and external macroeconomic imbalances; and fifth, the interim Poverty Reduction Strategy Paper (I-PR- adverse social impacts on the lives and living condi- SP). It also examines the nexus between agriculture tions of the people. Government’s immediate resort to and other private sector investment options, notably in fiscal and macroeconomic adjustments proved to be the financial sector, manufacturing and industry, infra- sedative and transient, given that this was a structural structure (including ICT), trade and the social sectors. shock of a more permanent nature. The ensuing na- The investment opportunities in these priority sectors tional debate on the respective roles of the private and are matched by a matrix of potential financing options, public sectors in generating broad-based inclusive and thus creating a framework for intensifying dialogue on growth, revealed the need for a detailed economic di- Public-Private Partnership (PPP) in these priority sec- versification study to guide the process. tors.

This study is therefore a demand-driven economic and As part of our strategy to step up engagement in transi- sector work which seeks to inform policy at the highest tion countries, the Bank will remain steadfast in its sup- level and provide the country with a milieu of options port to the country’s development agenda, ensuring as it embarks on economic diversification to achieve that such interventions contribute towards the opera- macroeconomic stability and long-term growth. Its tionalization of the Long–Term Strategy 2013-2022 and objectives are to identify alternative sources of growth the achievement of the High 5s. I encourage the Gov- and generate a pipeline of bankable projects for pri- ernment of Sudan to continue to deepen policy reforms vate sector and donor financing. It identifies investment and create the enabling environment to implement the opportunities for diversifying the country’s econom- recommendations of this insightful study. ic base focusing mainly on two sectors: i) agriculture and agro-industry, and ii) the non-oil mineral sector. The agriculture and agro-industry sector is laden with economic opportunities for the development of agricul- tural value chains and the emergence of a new class of agri-preneurs with viable businesses in agriculture, employment creation and poverty reduction. The non- oil mineral sector, which has become increasingly im- Dr. Gabriel Negatu portant in the Sudanese economy, has a potential to generate foreign exchange earnings to partially com- Director-General, East Africa Resource Centre pensate for the loss of oil revenue. (EARC)

AFRICAN DEVELOPMENT BANK GROUP | v PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

ACKNOWLEDGEMENTS

A comprehensive study like this usually benefits from agers, Mr. Kenneth Onyango and Mr. Yousif Eltahir for the expertise of several people and this one is no ex- coordinating the study and reviewing various sections ception. First, the Bank would like to express its grat- of it under the overall guidance and able leadership of itude to the Lead Consultant, Mr. Russell Cheetham the Resident Representative, Dr. Abdul B. Kamara. Dr. who compiled the various components of the report, Kamara not only guided the study but also provided including financial, infrastructure, agriculture, private valuable inputs and important insights into it. We would sector, private sector profile, political economy and also like to thank the various sectoral ministries and de- macroeconomic aspects and synthesized them into a partments for their collaboration and assistance in pro- single report. The Bank is also grateful to the authors of viding data and information as essential inputs into the the aforementioned components, including Dr. Robert study. In particular, we would like to thank the Ministries Dauda Korsu (financial sector), Godfrey Matata Onyan- of Finance and Economic Planning, and the ministries go (infrastructure), El Fadil Ismail (Agriculture), Dr. Omo- dealing with agriculture, infrastructure and private sec- tunde Johnson (private sector), Dr. Amin Sid Ahmed tor matters. (private sector profile), Professor Mohamed Ahad (po- litical economy) and Dr. Elfatih Shaeeldin (macroeco- Finally, many thanks to the peer reviewers of the dif- nomic aspects). ferent components of the report, including Damian Onyema Ihedioha, Principal Agro-Industry Specialist, This study would not have been possible without the OSAN1; Rafael Jabba, Chief Investment Officer, EARC/ team spirit and cooperation of the Sudan Field Office OPSD; Mr. Tilahun Temesgen, Chief Regional Econo- which responded swiftly and generously to the Gov- mist, EARC; Mr. Linguere M. Mbaye, Consultant, EDRE ernment of Sudan’s request to embark on this study. and Mr. Girma Berhanu Bezabeh, Principal Transport In this regard, we would like to thank Mr. Suwareh Dar- Engineer, OITC2. bo, the Task Manager of the study and co-task man-

vi | AFRICAN DEVELOPMENT BANK GROUP EXECUTIVE SUMMARY

Sudan has a very substantial natural resource base that management of fiscal, monetary and foreign ex- includes agricultural land, water, non-oil minerals and change policies to restore a stable macroeconomic . Further development of the non-oil resource environment that then improves the operating envi- base can provide the foundation for successful eco- ronment for private investment. nomic diversification, whose need in Sudan has been (ii) The proposed programme will require a substantial recognised for some years now. However, with the oil increase in the level of public and private invest- boom during the 2000s, progress on this front has ment in the economy. Close attention has to be been very limited. given to creating an environment that is condu- cive for investment by the private sector, includ- Following the secession of South Sudan in 2011, Su- ing, for example, timely and cost effective business dan has had to confront a wide ranging set of issues processes, appropriate regulatory oversight of that have included a decline in the importance of oil as a business activity, and improved arrangements for key source of growth for the economy, a heavy external private sector access to land for agricultural and debt burden, international sanctions, and more recent- industrial use. ly, a highly volatile macroeconomic environment char- (iii) Successful diversification will require programmes acterised by major economic imbalances, and contin- that promote domestic and offshore private invest- ued internal conflict. The conflict in South Sudan poses ments in the production of food and raw materials, a threat to continued oil flows. This chain of events and in manufacturing. These will require explic- has underscored the importance of restoring macro- it efforts to expand farm access to basic inputs, economic stability and the adoption of programmes such as improved seeds and fertilizer, along with that will ensure that the non-oil economy becomes the improved access to domestic and international major source of growth in the decade ahead. markets. (iv) The programme will also require substantial public Proposed Strategy for Diversification: A multi- and private investment in the physical infrastructure pronged strategy is now required for a successful tran- of the country that, at present, is seriously deficient. sition to a well-diversified economy with a growth that Such investment would need to be accompanied is led by the private sector, and which is broad-based by programmes that accelerate the development and inclusive. The greatest potential for new sources of of transport and communications services, and an growth in the near and medium-term are in further in- improved supply of electric power and water. vestment by individual farmers and medium and large- (v) A large part of the required investment will have scale commercial entities in agricultural production and to be financed from the domestic market. This will value addition for the domestic and export markets. It necessitate the introduction of policies and pro- will also be important to develop the non-oil mineral grammes that promote improvements in the mo- wealth of the country and the growing range of indus- bilisation of domestic savings to secure a much trial activities in the medium and longer-term to diversify larger share of such resource in the form of finan- the economy further. This Report outlines a seven-point cial assets that are held by banks and other entities programme for diversification: responsible for domestic financial intermediation. (i) There must be early progress on establishing mac- (vi) Sudan will have to expand its access to offshore roeconomic stability as an essential foundation financial resources, including IFIs and bilateral aid for substantial increases in private sector-led eco- programmes that can provide ODA, and private nomic activity. The government has embarked on capital markets. Addressing the problems associ- a stabilisation programme that has already begun ated with the heavy debt burden of the country will to show results. It will take several years of prudent be an important first step. A high priority must be

AFRICAN DEVELOPMENT BANK GROUP | vii PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

attached to agreements with creditors in relation percent level of unemployment that has prevailed to Sudan’s debt servicing obligations, and to es- for more than a decade. tablishing the conditions necessary for debt relief (ii) The programme contributes to poverty reduction. under the HIPC initiative. However, continued ap- Economic growth of 5-6 percent a year from 2018, plication of economic sanctions will limit the extent together with improvements in basic social ser- to which Sudan will be able to mobilise resources vices, could bring the incidence of poverty down in international markets, a reality that underscores from 47 percent of the population in 2012 to about the importance of further development of the do- 30 percent by 2030. The total number of people mestic capital market and exports that can gener- below the poverty line would decline from about ate foreign exchange earnings. 17.5 million in 2012 to 15 million by 2030. (vii) The Government will need to take early action on (iii) The programme would create substantial new a series of programmes that build capacities in business opportunities in Sudan. Total investment the public sector at the national and state levels expenditures during 2014-30 are projected to be for the provision of basic services that support the about US$390 billion (at 2012 constant prices). proposed expansion in private business activities. Actions can be taken by government to ensure that These include skills development programmes for domestic business and labour market benefit from the labour force, improved government capaci- these opportunities rather than accrue primarily to ties to implement programmes for development offshore suppliers of these goods and services. of infrastructure and other key services such as agricultural research and extension services, and Increased Investment is the Key Driver for the complementary programmes that support the local Programme: Annual fixed investment (at 2012 con- business community. stant prices) would need to increase from about US$13 billion in 2014 (17.5 percent of GDP) to about US$37 The Proposed Programme Brings Substantial billion by 2030 (24 percent of GDP). Private invest- Economic and Social Benefits: The proposed diver- ment in agricultural and industrial production and in in- sification programme would provide large numbers of creased provision of related services would account for people with opportunities for productive employment about 87 percent of the total fixed investment during and improved livelihoods. Building the policy frame- 2014-30. The main constraint on investment levels is work and institutional capacities for successful diver- the mobilisation of funding for the programme. The sification will take some time, however. It is for these proposed level of investment will require an increase reasons that the growth rate for non-oil GDP would rise in the national savings rate from 17 percent of GDP in steadily from recent levels of about 3 percent a year 2014 to 21 percent by 2030. The current shortfall in to 5 percent a year by 2020, and about 6 percent a national savings is being made up with increased in- year during the 2025-30 period. The non-oil economy flows of offshore capital. FDI has been about 4 percent would account for more than 90 percent of Sudan’s of GDP in recent years, but net inflows of other capital GDP during the 2014-30 period. Three broad benefits have been quite limited, in part because of outflows of would flow from the proposed programme for diversi- capital for debt service and other claims. fication: (i) The proposed broad-based and inclusive pro- Uncertainties about the Proposed Programme: gramme of economic growth provides employ- There are two major uncertainties related to successful ment and income opportunities for both rural and programme implementation. One is whether the cur- urban populations. GDP per capita increases by rent levels of national savings and access to external 3-4 percent a year during the 2014-30 period from capital can be increased to the levels required for the about US$1,750 in 2013 to US$3,000 by 2030 (at proposed investment programme. The other relates to 2012 constant prices). With broad-based growth the pace at which capacity building programmes for of 5-6 percent a year from 2018 onwards, the non- the public sector can be executed to support improved oil economy creates substantial employment op- productivity of private sector activities in the agricul- portunities for new entrants into the labour force, tural and industrial product markets, and to improve while contributing to a steady reduction in the 15 the operating environment for private business and viii | AFRICAN DEVELOPMENT BANK GROUP investment. The Report examines an alternative low With a continuation of the current low levels of public growth scenario with limited progress on diversifica- and private investment, GDP growth would be about 4 tion. It also considers a high growth scenario with more percent a year during the 2014-30 period. In the High rapid diversification. Continued economic sanctions Growth Scenario, the pace of diversification is more are assumed to apply in both cases. The Low Growth rapid than in the Moderate Scenario. Fixed investment Scenario assumes there are extensive delays in sealing increases to 29 percent of GDP by 2030. GDP growth agreements with creditors concerning the debt arrears, increases to 7 percent a year by 2030, compared with that oil revenues are lower than in the Moderate Growth 6 percent in the Moderate Scenario. Since the bulk of Scenario, that there is slow progress in improving do- the additional financing for the programme has to come mestic savings performance and that offshore inves- from the domestic market, the key issue is whether Su- tors are cautious about investing in Sudan. dan can raise national savings from the current 17 per- cent of GDP to 27 percent by 2030.

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ACRONYMS AND ABBREVIATIONS

AAAID Arab Authority for Agricultural Investment and Development ABS Agricultural Bank of Sudan AfDB African Development Bank Group ADF African Development Fund ADI Agro Industries Development Initiative AICD Africa Infrastructure Country Diagnosis AML Anti-Money Laundering AOAD Arab Organisation for Agricultural Development ARC Agricultural Research Corporation ARIA Assessing Regional Integration in Africa ARP Agricultural Revival Programme bcm Billion cubic meters b/d Barrels per day BDC Business Development Centre CAA Civil Aviation Authority CAADP Comprehensive Africa Agriculture Development Programme CANARTEL Canar Telecommunications Company CBoS of Sudan CBS Central Bureau of Statistics CISA Credit Information and Scoring Agency cif Cost, insurance, freight (for imports) CIS Commodity Inspection Services (company located in Sudan) CFA Cooperative Framework Agreement CMI Chr Michelsen Institute CNPC Chinese National Petroleum Company COM Council of Ministers COMESA Common Market for Eastern and Southern Africa CPA Comprehensive Peace Agreement CPIA Country Policy and Institutional Initiative (of ) CPSS Committee on Payments and Settlement Systems (in Sudan) CSA Sudan Customs Authority DBI Doing Business Indicators (of World Bank) DCFB Densified Complete Feed Blocks DFID Department for International Development (UK) DJAM Dafur Joint Assessment Mission DNLR Distribution Network Loss Reduction DRC Democratic Republic of Congo DRC Domestic Resource Cost DTMRB Densified Total Mixed Ration Blocks DSIS Direct Supervision and Implementation Support (of FAO) DTIS Diagnostic Trade Integration Study DWT Dead Weight Tons EAC East African Community x | AFRICAN DEVELOPMENT BANK GROUP EAPP East African Power Pool EASSy East Africa Submarine Cable System ECA Economic Commission for Africa (of the UN) ECR Export Competitiveness Ratio ERCU Emergency and Rehabilitation Coordination Unit (of FAO) EU European Union FAO Food and Agriculture Organisation FDI Foreign Direct Investment FFAMC Fiscal and Financial Allocation and Monitoring Commission fob Free on board (for exports) FRC Food Research Institute FTA Free Trade Area FYP Five Year Plan GDP GEF Global Environmental Facility GFS Government Financial Statistics GMC Government Musharaka Certificates GMS Global Media Services (of Sudan) GNU Government of National GoS Government of Sudan GOSS Government of South Sudan GRAS Geological Research Authority of Sudan GWh Gigawatt Hours ha Hectare HAACP Hazard Analysis Critical Control Point HCEANR Higher Council for Environment and Natural Resources HDI HH Household HIPC Heavily Indebted Poor Countries HYV High Yield Varieties IAIS International Association of Insurance Supervisors ICAO International Civil Aviation Organisation ICR International Competitiveness Ratio ICT Information & Communications Technology ICTS International Container Terminal Services IDP Internally Displaced Person IFAD International Fund for Agricultural Development IFC International Finance Corporation IFIs International Financial Institutions IGAD Inter-Governmental Authority on Development IMF International Monetary Fund IPO Initial Public Offering I-PRSP Interim Poverty Reduction Strategy Paper ISA Insurance Supervisory Authority ISO International Organisation for Standardisation ISP Internet Service Provider JAM Joint Assessment Mission km Kilometres km2 Square Kilometres

AFRICAN DEVELOPMENT BANK GROUP | xi PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN kph Kilometres per hour KSE Stock Exchange Ktoe Kilo-ton of oil equivalent KV Kilovolts KWh Kilowatt Hour KYC Know Your Customer LAPSSET Lamu Port South Sudan Transport corridor LCD Litres Consumed per Day LPI Logistics Performance Index (of World Bank) m3 Cubic metres M&E Monitoring and Evaluation MAN Metropolitan Area Network MoAF Ministry of Agriculture and Forestry MoAI Ministry of Agriculture and MoARF Ministry of Animal Resources and Fisheries MDG Millennium Development Goal MDTF Multi-Donor Trust Fund (in Sudan) MoEM Ministry of Energy and Mining MoFEP Ministry of Finance and Economic Planning MoFNE Ministry of Finance and National Economy MoI Ministry of Industry MIS Market Information System MoLFR Ministry of , Fisheries and Rangelands mt Metric Ton MoTRB Ministry of Transport, Roads and Bridges MoWRE Ministry of Water Resources and Electricity MW Megawatt n.a. Not available NAIP National Agricultural Investment Plan NBFI Non-Bank Financial Institution NBHS National Baseline Household Survey NBI Basin Initiative NBS National Bank of Sudan NCC National Communications Corporation NEPAD New Partnership for Africa’s Development NGO Non-Government Organisation NHA National Highways Authority NMPTF National Medium-Term Priority Framework NPC National Payments Council NPL Non-Performing Loan NSC National Steering Committee NSFAP National Food Security Action Plan NTC National Telecommunication Network NTMP National Transport Master Plan ODA Official Development Assistance OECD Organisation for Economic Cooperation and Development OFAC Office of Foreign Asset Control (of US Government) OMO p.a. Per Annum xii | AFRICAN DEVELOPMENT BANK GROUP PAM Programme Alimentaire Mondial (World Food Programme) PCA Permanent Court of Arbitration (in The Hague) PDOC Development and Operating Company PICS Productivity and Investment Climate Survey PPP Public Private Partnership PRSP Poverty Reduction Strategy Paper PRSP Poverty Reduction Strategy Programme PWSC Public Water and Sanitation Corporation QMS Quality Management System R&D Research and Development RAMS Road Asset Management System RCA Revealed Comparative Advantage RMCs Regional Member Countries RTG Rubber-Tyre Gantry crane SDG Sudanese Pounds SEDCO Sudan Electricity Distribution Company SETCO Sudan Electricity Transmission Company SFSC Sudan Financial Service Company SHS Solar Home System SIFSIA Sudan Institutional Capacity Programme: Food Security Information for Action (of FAO) SMDF Sudan Microfinance Development Facility SMEs Small Medium Enterprises SMP Staff Monitored Programme (of the IMF) SPC Sudanese Petroleum Corporation SPC Sea Ports Corporation SPLA Sudan People’s Liberation Army SPLM Sudan People’s Liberation Movement SRC Sudan Railways Corporation SSA Sub-Saharan Africa SSDB Savings and Social Development Bank SSG Sea-to-Shore Gantry Crane SSMO Sudanese Standards and Metrology Organisation SUDATEL Sudan Telecommunications Company SV Shipment Value SWSC State Water and Sanitation Corporation TEUs Twenty-Foot Equivalent Units TFP Total Factor Productivity toe Ton of Oil Equivalent TQM Total Quality Management TSA Transitional Financial Agreement (between Sudan and South Sudan) TVET Vocational Education and Training TWh Terawatt Hours TYP Ten Year Plan UN United Nations UNAMID United Nations Hybrid Mission in UNDP United Nations Development Programme UNECA United Nations Economic Commission for Africa UNEP United Nations Environmental Programme UNFPA United Nations Population Fund UNHCR United Nations High Commission for Refugees AFRICAN DEVELOPMENT BANK GROUP | xiii PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

UNIDO United Nations Industrial Development Organisation U.S. of America VAT Value Added Tax VSAT Very Small Aperture Terminal WAN Wide Area Network WASH Water, Sanitation and Hygiene WB World Bank WEF World Economic Forum WEO World Energy Organisation WES Water and Environmental Sanitation WFP World Food Programme WGI Worldwide Governance Indicators WTO World Trade Organisation

CURRENCY EQUIVALENTS Currency Unit = Sudanese Pounds (SDG)

FISCAL YEAR = 1 January–December 31

WEIGHTS AND MEASURES 1 kilogram (kg) = 2.204 pounds (lb) 1 000 kg = 1 metric tonne (mt) 1 kilometre (km) = 0.62 miles (mi) 1 meter (m) = 1.09 yards (yd) 1 square metre (m2) = 10.76 square feet (ft2) 1 acre (ac) = 0.405 hectares (ha) 1 hectare (ha) = 2.47 acres 1 feddan (fed) = 0.42 ha = 1.038 acre 1 square km = 100 hectares 1 metric ton = 1,000 kilograms 1 metric ton of oil = 7.452 barrels of oil

xiv | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | xv PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

xvi | AFRICAN DEVELOPMENT BANK GROUP 1. ECONOMIC PERFORMANCE IN RECENT DECADES

1.1 Social and Political Setting southern war zone and -affected areas in the west and east. Sudanese account for 70 percent 1.1.1 The Republic of Sudan is located in the Nile of the population of Sudan, with the rest of the pop- Valley of North Africa. It shares borders with to ulation being Arabized ethnic groups of Beja, Copts, the north, the , and Ethiopia to the east, Nubians and other peoples. There are more than 597 South Sudan to the south, the Central African Repub- tribes in Sudan speaking more than 400 dialects and lic to the southwest, to the west, and Libya to languages. Sudan is almost entirely Muslim with most the northwest. The Nile River divides the country into citizens speaking Sudanese Arabic. eastern and western halves. Following the secession of South Sudan in July 2011, the total land area of 1.1.3 The President of Sudan is head of state, head Sudan was reduced from 2,376,000sq.km to an es- of government and commander-in-chief of the Sudan timated 1,886,068sq.km. The topography of Sudan is People’s Armed Forces in a multiparty system. Legis- divided into three regions – the , the semi-arid lative power is vested in both the government and the Sahel region, and the wetlands and rain forests. The bicameral parliament – the National Legislature made deserts in the north – the Nubian to the east of up of the National Assembly (lower chamber) and the the Nile, the Libyan Desert, and the rugged uplands to Council of States (upper chamber). The Sudanese legal the northwest of the Nile – comprise about 30 percent system is based on Islamic law. Sudan is divided into of the area of Sudan. Central Sudan is characterised by 18 states within which there are 133 districts. Sudan is the semi-arid Sahel region of steppes and low moun- a member of the United Nations, the , the tains. The southern part of Sudan has wetlands in the , the Organisation of Islamic Cooperation upper Nile area. The tributaries of the Nile – the White and the Non-Aligned Movement, as well as an observer Nile and – meet in Khartoum. Sudan is en- in the World Trade Organisation. dowed with significant natural resource wealth, metals and oil, and substantial areas of land suitable for culti- 1.1.4 As Table 1.2 indicates, Sudan has the fourth vation and pastoral activities. largest economy in Sub-Saharan Africa, with a gross domestic product (GDP) of US$160 billion when mea- 1.1.2 The population is currently estimated at about sured in (PPP) terms. Its GDP 39 million people, 66 percent of whom live in rural ar- is approximately the same as that of Angola. And with eas.1 About 80 percent of the rural population is sed- a gross national income (GNI) per person of US$1,740, entary, while the remaining 20 percent is largely no- it is classified by the World Bank as a lower middle in- madic. The largest metropolitan area, Khartoum (which come country. includes Khartoum, and ), includes some 6-7 million people, of whom approxi- 1.1.5 Sudan is ranked at 166 out of 187 countries mately two million are displaced persons from the in the UNDP Human Development Report for 2014,

1 As the discussion in Annex 1 indicates, there are a number of estimates for the current and is therefore regarded as one of the countries in population of Sudan.

AFRICAN DEVELOPMENT BANK GROUP | 1 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

2 | AFRICAN DEVELOPMENT BANK GROUP Table 1.1: Selected Economic Indicators for Sudan Indicator 1960 1970 1980 1990 2000 2010 2012 2013 2014 Population ('000) Female 3,751 5,099 7,181 9,962 13,812 17,764 18,534 18,918 19,742 Male 3,777 7,237 10,047 13,918 17,888 22,313 18,661 19,046 19,446 Total 7,528 12,336 17,228 23,880 31,700 40,077 37,195 37,964 39,188 Population growth rate (% p.a.) 3.0 3.2 3.6 3.2 2.5 2.3 2.1 2.1 2.1 Urbanization (%) 10.7 16.5 20.0 28.6 32.5 33.1 33.4 33.5 33.7 Population less than 15 years (%) 44.9 46.1 47.0 45.5 43.7 42.1 41.4 41.1 40.8 Permanent households ('000) 4,744 5,127 5,328 5,541 Average persons per household 6.2 6.0 5.9 5.8 National income per person (US$) 480 530 330 1,210 1,580 1,550 1,740 Adult literacy (% of adult population) 13 61 71 73 Life expectancy at birth (years) 49 52 55 56 58 61 62 62 Under 5 child mortality rate (per 1,000 172 152 141 128 106 83 79 77 births) Maternal mortality rate (per 100,000 720 540 390 360 360 births) Source: World Bank Development Indicator database and Annex Table 1.2.

the world where human development is less advanced. Table 1.2: Five Largest Economies in Sub-Saharan Africa, 2014 Poverty is widespread with over 46 percent of the pop- Country Population GNI GNI per GDP at capita PPP ulation living below the poverty line. The incidence and 149 527 2,950 1,049 depth of poverty are particularly high in the rural areas South Africa 54 367 6,200 705 and conflict zones, while urban poverty is also on the Angola 52 117 5,300 175 rise. There has been some progress in achieving the Sudan 39 67 1,740 160 Millennium Development Goals (MDGs) by 2015, but Kenya 46 56 1,280 133 much more needs to be done. Unemployment is high, Source: World Bank development indicators database. particularly among the youth. A significant number of the youth are new entrants to the labour market, thus ern Sudanese by northern Sudan. Peace talks gained creating pressure for jobs and income generating op- momentum in 2002-04 with the signing of several ac- portunities, and posing social and political risks. cords. The final North/South Comprehensive Peace Agreement (CPA), signed in January 2005, granted the population of southern Sudan autonomy for six years, 1.2 Internal Conflict and followed by a referendum on independence for South Economic Sanctions Sudan. The referendum was held in January 2011 and indicated overwhelming support for independence. Impact of Internal Conflict South Sudan became independent on July 9, 2011. Sudan and South Sudan have yet to implement ful- 1.2.1 Since its independence from British rule in ly the security and economic agreements signed on 1956, Sudan has been plagued by rampant ethnic September 27, 2012 relating to the normalisation of strife and internal conflict. The most pronounced were relations between the two countries. The final dispo- the (1955-1972) and the Sec- sition of the contested region (located between ond Sudanese Civil War (1983-2005) that culminated Northern Bahr al Ghazal, Warrap, and Unity states) has in the secession of South Sudan in July 2011.2 These also to be decided. A referendum was scheduled for conflicts were rooted in economic, political, and social January 2011 to determine whether Abyei would join domination of largely non-Muslim, non-Arab south- Sudan or South Sudan, but this did not occur because of disagreements over voter eligibility. Although uncer- 2 For a more detailed assessment of the political and social issues Sudan faced in the tainties over border demarcation and the ownership of post-independence period, see Deng, Francis M. (2007), Sudan at the Crossroads. Massachusetts Institute of Technology, Center for International Studies, March 2007. Abyei remain, the and Bamboo oil fields are con- This article also includes a list of references that address various aspects of the conflict in Sudan during this period and, the challenges associated with bringing peace to the country.

AFRICAN DEVELOPMENT BANK GROUP | 3 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN sidered today to be in Sudan state of South .3 1.2.4 Sudan also has faced refugee influxes from 1.2.2 The war in Dafur (2003-2010) that broke out in neighbouring countries, primarily Ethiopia, Eritrea, the western region of Darfur in 2003 displaced nearly Chad, Central African Republic, and more recently, two million people and caused an estimated 200,000 South Sudan. The UNHCR (2015) estimated that there to 400,000 deaths. Violence in Darfur in 2013 result- were about 371,000 refugees and asylum seekers resi- ed in an additional estimated 6,000 civilians killed and dent in Sudan in June 2015. The influx of refugees from 500,000 displaced. The UN and the African Union have Eritrea and South Sudan is expected to continue. The jointly commanded a Darfur peacekeeping operation Government has worked closely with the UNHCR to known as the African Union-United Nations Hybrid register refugees and address the needs of this popu- Mission in Darfur (UNAMID) since 2007. Peacekeep- lation. ing troops have struggled to stabilise the situation, and have increasingly become targets for attacks by armed Economic Sanctions groups. Several regional administrative bodies have been established by peace agreements between the 1.2.5 Economic sanctions were imposed on Sudan central government and rebel groups. Since South Su- by the United States in 1997 following the escalation dan’s independence in 2011, conflict has also broken of tensions between South Sudan and North Sudan, out between the Government and the Sudan People’s and the intense fighting between the Sudan People’s Liberation Movement-North (SPLM-N) in Southern Liberation Army (SPLA) and Sudan’s armed forces and Kordofan and Blue Nile states, which has resulted in militias. At the outset, the sanctions banned trade, aid 1.2 million internally displaced persons (IDPs) or se- and bank transactions, under which the Sudan bank- verely affected persons in need of humanitarian assis- ing sector was denied access to the US dollar clear- tance. ing system in New York. The accounts and deposits of Sudan government banks with US banks were frozen. 1.2.3 The United Nations High Commission for Ref- The (CBoS) adopted a policy ugees (UNHCR) reports that there were more than 2.3 of avoiding use of the New York dollar clearing system million internally displaced persons (IDPs) in Sudan in and instead used other correspondent banks or other mid-2015.4 Meeting the emergency needs of these currency clearing systems (for example, Euros, Saudi people for food and shelter, and in the longer-term Riyals, and Dirham). These early sanctions increased ensuring their reintegration within Sudan will remain a the cost of doing business, but the private sector still major challenge for the Government and partners such managed to function. However, following the Septem- as UNHCR, the World Food Programme (WFP), the ber 2001 attack in New York Towers, the US spear- World Health Organisation (WHO) and other interna- headed the implementation of Know Your Customer tional agencies. In the longer-term, explicit strategies (KYC) and Anti-Money Laundering (AML) rules. Cen- and programmes will be required to facilitate the entry tral banks, including CBoS, had to adopt those rules. of IDPs into the labour force. There is a continuing need The strict application of KYC and AML rules by major for close collaboration between the Government and international central banks, together with institution of these international agencies to address the livelihood, compliance departments inside each and every bank, education and health needs of these people. In that led major international banks to adopt additional gov- connection, there may be merit in undertaking a review ernance and transparency rules, and in some cases go of the experience of other African countries in dealing to the extreme of avoiding transactions not only with with conflict and post-conflict interventions. Some of governments of sanctioned countries, but also with pri- these experiences may provide valuable guidance for vate business or individual nationals residing in these further development of programmes in Sudan. countries.

3 Oil was discovered in Abyei in 1979, which escalated tensions between the North and the South. The Abyei Boundary Commission was authorised to define the territory, and in 2005, it ruled that the Heglig and Bamboo oil fields fell within Abyei. The North 1.2.6 Since the beginning of Peace talks between contested the ruling because it placed a significant portion of its oil reserves in the North and South Sudan in 2002 and up to 2005 when disputed territory. The dispute was later sent to The Permanent Court of Arbitration (PCA) in The Hague. In 2009, the PCA redefined the Abyei area and placed Heglog the comprehensive peace agreement was signed, the and the Bamboo fields outside of Abyei. 4 See the 2015 UNHCR country operations profile – Sudan, at www.unhcr.org/pag- impact of the sanctions was not severe. In fact, during es/49e483b76.html for details about refugee and IDP populations in Sudan.

4 | AFRICAN DEVELOPMENT BANK GROUP Table 1.3: Growth in Sudan Labor Force

Indicator 1990 2000 2005 2010 2011 2012 2013 2014 Population 15-64 years (‘000) 10,324 14,777 16,980 19,539 20,068 20,592 21,124 21,678 Labor force 5,750 6,766 7,728 10,479 10,790 11,110 11,443 11,782 Unemployed labor force 817 968 1,175 1,551 1,597 1,644 1,694 1,744 Employed labor force 4,934 5,798 6,554 8,928 9,193 9,466 9,749 10,038 Memo items: Labor force growth (% p.a.) 3.0 3.0 3.0 3.0 3.0 Participtation rate (%) 55.7 52.3 53.0 53.6 53.8 54.0 54.2 54.4 Unemployment rate (%) 14.2 14.3 15.2 14.8 14.8 14.8 15.2 15.2 Source: Annex Table 1.4. the peace talks, the US government undertook to lift imposed by regulators on AML and KYC issues.7 The the sanctions if the peace accord was signed. Howev- total fines imposed on international banks for violating er, when the Darfur crisis started in 2004, the US decid- US sanctions was reported by The Economist to be ed against lifting the sanctions. In 2008-09, the impact US$19.2 billion. of sanctions on private business activity and individuals became more severe when Barclays Bank of the UK 1.2.8 The number of international and regional started closing accounts of Sudanese private entities banks willing to do business transactions with Suda- and individual nationals that had resident addresses in nese entities diminished considerably in 2014 as a di- Sudan. The action by Barclays was later followed by rect consequence of the sanctions and the huge fines Lloyds, NatWest, Standard Chartered, HSBC and oth- imposed. Also, there are now undeclared sanctions on er banks. Sudan by some Arab and Asian banks. The implica- tions of these restrictions are clear. In addition to driving 1.2.7 In the United States, the Office of Foreign As- up the cost of banking services in Sudan and shrinking set Control (OFAC) of the Treasury administers and the banking network, there is likely to be an indirect enforces comprehensive or selective economic and impact on the economy, particularly on employment trade sanctions imposed on individual countries by levels, exchange rates and inflation. The indicators are the US government.5 It monitors international and likely to show a worsening scenario. As more and more banking transactions of all major international banks, international and regional banks avoid transactions especially with the sanctioned countries, and applies with Sudanese entities, the cost of doing business in hefty financial fines on banks doing business with such areas of export and import trade financing has become countries. More recently in 2014, the European Union exceptionally high in Sudan. This has made it difficult issued sanctions on Sudan, but these actions were not and in some cases impossible for private sector entities reported in the media as was the case for the US.6 The (especially SMEs) and Sudanese nationals to conduct Sudan European Union Financial Sanctions regulations simple banking transactions. The Sudanese diaspora of 2014 follows the American model in its compliance is resorting to informal, high cost, time consuming and requirements related to KYC, AML and terrorist financ- risky ways to make transfers to their families in Sudan. ing, with detailed provisions for information gathering Informal reports within Embassies, multilateral/bilateral and information disclosure on bank customers. As a re- institutions and other entities in Sudan who are exempt sult of growing concerns about compliance with these from sanctions are also affected by the refusal of for- requirements, several large international banks have eign correspondent banks to process foreign exchange been cutting off customers. According to The Econo- transactions. mist of July 5, 2014, some key international banks have dropped as much as a third of their correspondent re- lationships to avoid the risk of financial penalties being

7 The Economist reported that on June 30th 2014, prosecutors and regulators an- 5 According to the website of the OFAC, currently, there are comprehensive or selective nounced a US$8.9 billion fine they planned to impose on BNP Paribas, ’s sanctions against 18 countries, including Sudan. largest bank, for evading American sanctions on doing business with Cuba, Iran and 6 See www.legislation.gov.uk/uksi/2014/note/made. Sudan.

AFRICAN DEVELOPMENT BANK GROUP | 5 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

1.3 Demographic Change and tion in rainfall. There are also intra-year variations due Labour Force Growth to weather and production and prices. There are thus considerable risks, and some use crop sharing. The 1.3.1 As Table 1.1 indicates, the population of Su- public sector is a big employer and there is a large in- dan is currently growing at about 2.1 percent a year, formal economy. 8 having declined from much higher growth rates in the 1980s and 1990s. In the early 1990s, for example, the 1.3.4 Population movement and labour migra- population growth rate was about 4.2 percent a year, tion have historically been very high in Sudan. In the due to a rapid decline in death rates and a large inflow pre-modern economy, in most of the coun- of people from other countries. Since the mid-1990s, try had seasonal movements in search of . there has been an appreciable slowdown in the pop- These were spread all over the country, particularly in ulation growth rate as a result of a steady decline in Kordofan, Darfur, the Blue Nile and Eastern Sudan. The the natural rate of population increase in Sudan and establishment of irrigation schemes in central Sudan substantial outmigration. The population is relatively and the need for seasonal agricultural labour resulted young, with about 40 percent below 15 years present- in large migration from the less fortunate areas. During ly, down from a peak of about 47 percent in the 1980s. the 1980s, population movements were also reinforced Life expectancy has increased from 49 years in 1960 by , conflicts and the regional disparities in ac- to about 62 presently. The very high child and maternal cess to economic opportunities and basic health and mortality rates have also declined, although Sudan still education services. As a result, there was significant has one of the highest maternal mortality rates in the migration from rural to urban areas. According to the world. United Nations Population Fund (UNFPA), in 2007, about 3.7 million people reported they were new mi- 1.3.2 The urban population of Sudan grew rapidly grants to where they were staying at that time. during the 1960-2000 period, with the average growth of about 6.3 percent a year. As a result, the urbanisa- 1.3.5 In the past decade, new entrants into the Su- tion rate increased from about 11 percent in 1960 to dan labour market averaged about 280,000 a year. 33 percent in 2000. In the past decade, the growth in However, with a labour force growth rate of about 3 urban population has slowed to about three percent a percent a year since the early 1980s, and a combination year. The total urban population is currently about 13 of moderate economic growth and limited skills devel- million. It is projected to continue increasing by about opment in the labour force, the unemployment rate has three percent a year to a total of about 21 million by remained at 14-15 percent for more than two decades, 2030, at which time almost 40 percent of the popula- with unemployment among the youth at 25 percent. tion would be in urban areas. The country has not been able to generate enough jobs for young, new entrants into the labour force. A large 1.3.3 As Table 1.3 indicates, the labour force of number of college graduates have been unemployed, Sudan currently consists of about 12 million people. suggesting either a low level of job creation for these The overall labour force participation rate is about 54 entrants into the labour force or a mismatch between percent, with female and male participation rates of 31 skills and labour market demands. Consequently, the percent and 76 percent respectively. The market is du- returns to education have not been high. As the discus- alistic, with the co-existence of both rural and urban sion in Chapter 9 indicates, the number of universities markets that correspond broadly to modern and tradi- and graduates increased considerably in 2000. How- tional production systems. The urban sector employs ever, the quality of education has declined. 34 percent, with the other 66 percent employed in rural areas and mainly in agriculture. A significant share of 1.3.6 Following the secession of South Sudan in the rural labour force is self-employed as smallholder 2011, the majority of Southern Sudanese in (north) Su- farmers, along with a portion of the rural workforce that 8 According to the 2011 Labour Survey, 8.9 million people aged 15 years and above is employed on mechanised farms, on farms with ir- participated in the labour market in 2010, with paid employment accounting for 42 percent, own-account work, 39 percent, and unemployed, 19 percent. Despite the rigation and on larger commercial farms. The work is relatively high share of the wage economy, the rate of unemployment among the young aged between 15 and 24 was reported to be 33 percent. The growing level seasonal because of the nature of the inter-year varia- of unemployment among young adults is a matter of concern, in view of the lack of unemployment insurance schemes and the weak formal social protection institutions.

6 | AFRICAN DEVELOPMENT BANK GROUP Table 1.4: Growth Performance and Structural Change Since 1960 Sector Pre-Oil Export Period Oil Export Period 1960-69 1970-79 1980-89 1990-99 2000-10 2011 2012-13 Average annual growth of GDP at 2012 constant prices (% p.a.) Agriculture 3.8 3.0 7.1 5.4 -14.7 4.9 Industry Petroleum - - - - 35.5 -16.3 -17.0 Manufacturing 3.1 4.2 6.3 9.8 8.6 9.8 Other industry 3.6 0.3 8.7 9.0 -14.7 4.9 Sub-total 2.9 2.5 6.6 12.0 -3.0 -3.5 Services Commerce, 6.3 2.9 4.7 0.8 2.4 hotels, restaurants Transport & 2.1 4.9 8.7 -2.3 4.3 communications Government 2.6 10.4 10.5 -15.1 -2.1 services Other services 8.2 3.9 5.3 -5.9 2.3 Sub-total 6.1 4.5 4.0 7.0 -6.6 1.6 GDP 1.4 4.3 4.1 5.1 7.5 -8.1 2.0 Non-oil GDP 1.4 4.3 4.1 4.9 6.9 -7.5 4.2 Composition of GDP (at current market prices) Agriculture 41.9 36.8 34.3 40.3 34.1 34.1 33.5 Industry Petroleum - - - 0.6 8.3 5.0 3.3 Manufacturing 5.7 6.0 7.2 6.1 8.4 8.7 8.9 Other industry 7.5 6.4 6.8 6.0 5.6 6.7 7.5 Sub-total 13.2 12.4 14.0 12.7 22.3 20.4 19.7 Services Commerce, 19.0 20.6 15.5 16.4 16.6 hotels, restaurants Transport & 9.7 9.4 11.5 13.1 13.4 communications Government 6.8 3.5 5.2 5.4 5.5 services Other services 11.7 11.2 9.5 8.7 9.4 Sub-total 35.5 39.9 47.2 44.7 41.7 43.6 44.9 Indirect taxes & 9.4 10.9 4.5 2.3 1.9 1.9 1.9 subsidies GDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Annex Tables 2.1 and 2.4. dan migrated to their new country. Also, highly skilled value added. The three establishments from the oil sec- labour left Sudan seeking jobs abroad. About 1.3 mil- tor included in the Comprehensive Industry Survey of lion relocated to Arab countries and elsewhere. The 2005 show a total employment of 845. Yet wages in outmigration has resulted in substantial brain drain the oil sector were 18 times the average national wage. in the country, although this group now constitutes an important source of remittances to Sudan. Skills 1.3.7 According to the labour force projections set shortages in the domestic labour force resulted in a out in Annex Table 1.4, the number of new entrants into large inflow of skilled labour from abroad during the oil the labour force will rise sharply in the decade ahead. A boom. The UNFPA estimated the presence of 750,000 total of 6.5 million people are projected to enter the la- foreign workers in Sudan in the 2000s. Informal esti- bour force during the 2015-25 period, equivalent to an mates suggest that the share of the oil industry in total average of 650,000 a year. The new entrants are pro- employment was only 0.01 percent. This is very small jected to increase to an average of 700,000 a year in compared to the contribution of the subsector to GDP the period 2025-30. Absorbing the substantially larger

AFRICAN DEVELOPMENT BANK GROUP | 7 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN number of new entrants into productive employment in Sluggish Growth in the Pre-Oil Period the labour market over the next 10-15 years represents a major challenge. The challenge can only be met if 1.4.3 On the eve of its independence, Sudan had a there is sustained strong growth in the non-oil econo- predominantly agricultural economy that provided live- my of Sudan, along with a range of policies that ensure lihoods for the majority of the population. Agricultural the growth is broad-based and inclusive. activities accounted for 61 percent of GDP and gener- ated over 95 percent of the country’s foreign exchange 1.4 Patterns of Development earnings. Industry contributed a little over one percent Since Independence of GDP founded on vegetable oil extraction, laundry soap plants, ginning factories, spinning and weaving Overview mills, processing and few other consumer goods industries. Agriculture was based on traditional rain- 1.4.1 Notwithstanding several economic plans and fed subsistence farming, a nomadic pastoral system many years of development experience, Sudan has not of production and a small but important modern sys- made it beyond the factor-driven stage of economic tem of irrigated land driven by the public sector mainly development.9 The country’s dominant source of com- to produce . The latter consisted of 210,000ha petitive advantage and exports rests with natural re- (500,000 feddans) of land put under gravity irrigation, sources (arable land, , minerals, fossil energy including a little more than 100,000ha in the and abundant water) and labour. Economic activities scheme that was established by the British colonial centre on primary commodity production, relatively administration after building the Sinnar Dam on the simple manufactured products and a range of services. Blue Nile River in 1925. Another 41,200ha in Gash and However, there have been three distinct phases in Su- Baraka river deltas in Eastern Sudan was farmed us- dan’s development since independence: ing flush irrigation. Some 71,000ha in the Blue Nile and • In the first one, from 1956 to 1998, primary agricul- basin in central Sudan was also cultivated tural production was the major source of economic and put under pump irrigation. growth. • In the second phase, between 1999 and 2010, 1.4.4 Pressed to meet the high expectations of the growth was driven by a significant increase in oil people after independence, the government started a production. process of physical capital accumulation and spend- • In the third phase, which is ongoing, the role of oil ing on social and economic infrastructure. However, in the Sudan economy has been reduced substan- the accumulation and public spending processes soon tially by the secession of South Sudan in 2011. came to a halt. Low levels of domestic savings resulted in constrained investment levels in the economy, and 1.4.2 The dynamics of the first two phases differ from with limited foreign exchange earnings, the acquisi- each other,10 while the salient features of the post-oil era tion of capital goods required for increased production are still unfolding. With the sudden drop in oil revenue in capacities was also constrained.11 These constraints the past year, the country has to turn back to its pre-oil played an important role in limiting the growth of the sources of growth and tap into its previously accumu- pre-oil . However, as the analysis lated assets while venturing into new frontiers. Sudan in Chapter 3 indicates, the deeper reasons have to do also needs to look back on its development experience with poor public spending choices, inefficient project and reflect on the challenges dealt with and constraints implementation, flawed macroeconomic and develop- encountered in order to draw lessons needed to design ment management, and failures to enhance efficien- a strategy for revitalising the economy and overcoming cy, productivity, entrepreneurship, innovations, export the current development bottlenecks. earnings, savings and investment.

9 A factor-driven economy, by definition, competes primarily with its natural resources and low prices. Businesses invest in primary production that occupies an initial phase in the value chain. The economy is vulnerable to fluctuations due to various external 1.4.5 During this post-colonial pre-oil era, growth shocks. Subsequent stages are the efficiency-driven stage and the innovation-driven stage. See World Economic Forum (2008), The Global Competitiveness Report, 2008- 11 This so-called two-gap economic model was first developed by Chenery et al (1962) 2009. Global Economic Forum, Geneva, Switzerland, 2008. and was later extended to include a fiscal constraint that limited public investment 10 For a more detailed discussion of the analytical framework that underpins the analysis needed to support growth (Taylor, 1990). For the case of Sudan, see World Bank of this period in this Chapter, see Robert E. Lucas (1988). “On the Mechanics of Eco- (El-Shibly M. and Anthony Philip Thirlwall, “Dual-Gap Analysis for the Sudan”. World nomic Development.” Journal of Monetary Economics 22 (1988) 3-42. Development. 1981, vol. 9. Issue 2, pages 193-200.

8 | AFRICAN DEVELOPMENT BANK GROUP was volatile and was shaped by the following policies “Sixth-year Plan”, reflected unsettled policy direction. and programmes: Just before the end of the 1970s and despite various • Expansion of large public sector irrigated schemes problems, there was optimism about the future of man- in central Sudan, producing cotton, sugar, oil ufacturing and private sector diversification.12 However, seeds and cereals. in 1970, the government nationalised and confiscated • Expansion by smallholders in traditional rain-fed tens of enterprises in banking, commerce and industry, farms producing food for subsistence, cash crops only to reverse its policies and undo its nationalisation and animals products for local and foreign markets. measures in 1972. A period of peace and access to • Investment by the private sector in pump irrigated foreign finance helped the government to invest in in- schemes producing cotton, food and export crops. frastructure projects (Khartoum- highway), • Expansion by the private sector in rain-fed mech- agriculture (Rahad, Stait, Es Suki and Kenana projects) anised farms producing cereals and oil seeds. and industry (textiles). However, the imports of capital • Import substitution in industry led by the private and intermediate goods were not matched by a cor- sector, with a focus on basic consumer goods and responding rise in export capacity. The development agro-processing. projects were not export-oriented and the existing ir- • Increase in non-tradable services, such as con- rigated schemes witnessed decline in the exportable struction, finance, real estate and government ser- surpluses (both of cotton and groundnuts). As the vices. 1970s advanced, the trade gap and current account deficit both increased. Concessional borrowing dimin- 1.4.6 In 1960, the government adopted the 10-Year ished and the government was forced to shelve its in- Plan for Economic and Social Development (1961-71). vestment projects and borrow on a commercial basis. On the basis of this, the public sector invested in ir- Subsequently, the government had difficulties in meet- rigated agriculture (the Managil Extension of the Ge- ing its debt obligations. Officials met with the Paris Club zira Scheme, Khasm al Girba, Junaid Sugar Irrigation creditors and then adopted a stabilisation and adjust- scheme, and the Roseires Dam). The private sector, on ment programme. the other hand, invested in pump schemes and rain- fed mechanised farming. Additionally, in an attempt to 1.4.8 However, the economic performance contin- diversify the economy, the government made direct in- ued to deteriorate during the 1980s, largely because vestments in manufacturing and tried to simulate private of the collapse of the peace agreement in 1983, the investment in the sector by adopting “The Enterprise resumption of the civil conflict in the South, a severe Concession Act” in 1956. The Act offered protection drought in 1983/84 and influx of refugees from neigh- from foreign competition through tax exemptions and bouring countries. Economic conditions deteriorated subsidies. It also set up the Industrial Bank of Sudan and the government incurred large budget deficits to help finance industry. These measures encouraged averaging 11.3 percent of GDP. Inflation accelerated, several manufacturing investments. The government averaging 37 percent a year. Investment, exports and also established the Ministry of Industry and Mining in savings collapsed and GDP growth slowed down. The 1966 and enacted the Organisation of Industrial Invest- government decided in 1987 to restrict its debt repay- ment Act 1967, which offered favourable terms for the ments to 25 percent of the budget, but that led to an local and foreign investors in resource based activities, accumulation of arrears in external debt service pay- agro-based industry. The main characteristics of these ments that has persisted to the present day. industries were that they required simple skills and were labour intensive, but with little value added. The plants 1.4.9 In the beginning of the 1990s, the new gov- were largely of small or medium size. However, with ernment gave contradictory signals about its policy limited domestic resource mobilisation and capacity for orientation. Self-sufficiency was a major objective in exports, international reserves were soon depleted and its development policy, even if it was to come at the a fiscal deficit arose. 12 One expert wrote “there is every reason to believe that within the coming decade or two the Sudan will be self-sufficient in the production of a wide range of consumer 1.4.7 A series of development plans, including a goods with even a surplus to export. Already, the country is either self-sufficient or produces the bulk of such goods as confectioneries, edible oil, biscuits, beer, spirits, “Five-year Plan”, an “Interim Action Programme” and soap, matches, footwear, low grade cotton goods, paints, batteries, and refrigerators (Bushra, 1972, p. 28).

AFRICAN DEVELOPMENT BANK GROUP | 9 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN expense of allocative efficiency. The government also actual period taken for cost recovery depends on the resorted to price and import controls and introduced volume produced and the international prices of oil. Af- export retention control. However, faced with a failure ter the companies recover their investment cost, the of its administrative price regime, the government soon government’s return increases. switched to a more liberal policy. In 1992, it adopted “the Comprehensive National Strategy for Economic 1.4.12 The government revenue generated from oil Development” that included a harsh stabilisation pro- consists of its share of the income from export earn- gramme and control of public expenditures through a ings and domestic sales less the cost of transporta- cash budget system. It also lifted subsidies, privatised tion through the pipeline and refining, in addition to some of the public-owned enterprises and floated the the share of its company, Sudapet. The payments to exchange rate. With no external support to ease the CNPC for the construction of the refinery were made adjustment, the value of the local currency fell and do- out of the government’s share of the oil revenues. mestic prices and wages rose significantly. Fortunately, favourable weather conditions and an increase in ag- 1.4.13 In 2005, the Comprehensive Peace Agree- ricultural production due to price incentives led to im- ment (CPA) between the Government of the Sudan and proved growth performance. In the latter part of the de- the SPLM included provisions for sharing electricity and cade, investment in oil and oil related industries helped oil revenues between the two parties. The successful the economy to pick up. conclusion of the peace agreement resulted in a rise in oil production that reached 550,000 b/d by 2010. Onset of the Oil Boom in 1999 Government’s revenue increased sharply. But the fact that the CPA included the secession option meant that 1.4.10 The first oil discovery in the Sudan was made there was a risk the oil revenue during the six years by the Chevron Corporation following exploration at prior to the referendum would be a short-lived windfall. the border between Kordofan region in North Sudan and the Upper Nile region in South Sudan. However, 1.4.14 Economic Impact of the Oil Industry. The Chevron pulled out due to lack of security in the area. immediate impact of the oil boom was an accelerated The areas with known oil reserves and potential were GDP growth. In each of the first two years (1999 and in a war zone that involved conflict between the gov- 2000), GDP grew by more than 20 percent. As Table ernment and the Sudan People’s Liberation Movement 1.4 indicates, during 2000-2010, GDP grew by an av- (SPLM). To its credit, the government of Sudan worked erage of 7.5 percent a year in real terms. Total GDP against all odds to stimulate the interest of foreign com- increased from US$33 billion in 1998 to US$74 billion panies to invest in oil. After the withdrawal of Chevron, in 2010 when measured in 2012 constant prices and the Chinese National Petroleum Corporation (CNPC), exchange rate. As a result, there was a significant in- which was later joined by the Malaysian crease in national income per capita in this period (from and the Indian Oil and Natural Gas Company, devel- US$330 in 1998 to US$1,210 in 2010). The accrual of oped the oil fields. It constructed 10,506 kilometres of oil revenue to the government also increased substan- oil pipelines to a terminal in Port Sudan in 1999, and tially with the share of total government revenue to GDP established a refinery north of Khartoum. A series of increasing from 7 percent in 1998 to a peak of 22 per- other discoveries resulted in increased oil production cent of GDP in 2008. The expenditures by the national that peaked at about 580,000 barrels/day. government increased from about 8 percent of GDP in 1998 to a peak of almost 23 percent by 2007 (Annex 1.4.11 The oil produced is shared in accordance with Table 2.5). National savings increased, investment rose an arrangement that divides it into a cost portion and and the trade and external sector balances improved. a profit portion. The investment cost incurred by the Oil revenue also created some space for increased ex- oil companies is recouped from the portion allocated penditures on infrastructure. The availability of fuel for for cost. The profit portion is shared between the gov- local consumption, including , re- ernment (70 percent) and the companies (30 percent). duced the energy shortages and disruptions. However, The arrangement is intended to allow oil companies to as discussed elsewhere in this Report, the sale of fuel recover the investment cost in five years, though the oil was heavily subsidised by the government for much

10 | AFRICAN DEVELOPMENT BANK GROUP of the oil boom period. Table 1.5: Population and GDP After Secession Indicator 2010 2011 1.4.15 During the oil boom era, significant progress Population ('000) was made in developing roads transport, electric- Sudan 35,652 36,431 South Sudan 9,941 10,381 ity generation and communications. More roads and Total 45,593 46,812 bridges were constructed and electricity was generat- GDP (US$ mill at current prices) ed. The Khartoum-Dongola road in Northern Sudan, Sudan¹ 70,340 70,131 Khartoum El Obied to Western Sudan, Khartoum-Ko- South Sudan² 16,339 20,782 sti road along the White Nile and the link from Gedarif Total 86,678 90,914 to the Ethiopian border in Eastern Sudan, were con- Memo item structed. The completion of Merowi dam in 2009 and Sudan GDP² (US$ mill) 65,632 67,321 Source: Population data from Annex Table 1.2. Note: 1. GDP in SDG the Roseires dam in 2013 brought the total installed mill from Annex Table 2.1; 2. GDP from World Bank development electricity generation capacity to about 5,443 MW by indicators database. end of 2013. These dams resulted in a significant shift to the cheaper and more environmentally friendly hy- • Positive impact on growth, macroeconomic indica- dro-power. There was also a noticeable improvement tors and investment. in the telecommunication system with substantial addi- • Some investment in social and economic infra- tional private investment in the mobile network. Mobile structure. penetration soared from less than one percent in 2000 • Adverse relative price allocative effect on the trade to 33 percent by 2009. As Chapter 8 indicates, the and non-oil sector. penetration has continued to increase rapidly. • Weakening of governance and deterioration in the social capital. 1.4.16 The Sudanese experience is a typical case of • Widening regional and income inequalities. an economy that tumbled into low-cost oil production with large inflows of foreign exchange into the country. 1.4.17 In contrast to the pre-oil period, the savings The oil revenue had far reaching impact on the coun- and foreign exchange gaps became less binding. try, generating many advantages; but there were losses However, the oil sector was a small, capital-intensive and, at the same time, missed opportunities. Whether enclave that did not have direct linkages with the rest the discovery and exploitation of oil during the 1999- of the economy. Neither did it generate large amounts 2011 period brought with it a “curse” to Sudan or not of employment. Its economic impact was felt in three remains a matter of some controversy.13 The rapid GDP ways: first, through its effect on relative prices (the for- growth in the 2000s was due to expansion in oil pro- eign exchange rate, wages and price of goods), result- duction rather than agriculture, which had been the ing in a bias against the domestic trade sector; second, predominant source of growth in the economy prior through the volume, composition, quality and efficiency to the oil boom. The oil sector remained somewhat of public spending; and third, through weakened in- of an enclave with limited spill-over effects, mainly in stitutions. The oil windfall did not have any significant the transport services sector and construction activi- positive effect on economic diversification. ties. However, as Chapter 7 indicates, much of these services were provided by foreign firms with only lim- 1.4.18 The impact of the oil flows was transmitted ited subcontracting to domestic companies. Sudan’s throughout the economy largely by increased govern- growth in this period was mainly a reflection of the ex- ment spending and larger inflows of foreign direct in- pansion in oil production, and not growth in produc- vestment. However, the direct linkages of the oil sector tivity or the deployment of oil revenue to build non-oil with the non-oil economy remained weak. In a typical sectors. The impact of the oil revenue during the 1999- case of the “Dutch disease” phenomenon, the increase 2011 period can be summarised as follows: in oil exports led to appreciation in the value of the lo- cal currency. Wages also rose and the prices of such 13 There is an extensive literature on the so-called “Dutch Disease” effect that stems from non-traded goods as housing, restaurants and hotels large inflows of foreign exchange from export of natural resources such as oil and other minerals. For a further discussion on the impact of the oil boom in Sudan, see, soared. This gave rise to a bias against the domestic for example, Samia Satti Osman Mohamed Nour (2011), “Assessment of the Impact of Oil: Opportunities and Challenges for Economic Development in Sudan.” African traded goods and left an adverse impact on the non-oil Review of Economics and Finance, Vol. 2, No. 2, June 2011.

AFRICAN DEVELOPMENT BANK GROUP | 11 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 1.6: Key Economic Indicators for Sudan and Comparator Countries, 2012 Indicator Sudan Sth Sudan Chad Ethiopia Egypt Kenya Population (million) 37 8 12 85 83 42 35 46 Land area ('000 km²) 1,886 644 1,284 1,120 1,001 583 236 945 Population per sq. km 20 13 9 76 82 71 146 49 Urban population (% of total) 33 17 22 17 44 24 16 27 GDP at PPP (US$ billion) 134 21 25 114 878 95 49 78 GDP per person at PPP (US$) 3,607 2,523 2,206 1,343 10,638 2,272 1,430 1,692 Gross national income per capita 1,460 840 970 410 2,980 870 480 570 (US$) Poverty level (% of population) 47 51 n.a. 30 25 46 25 33 Life expectancy at birth (years) 61 53 50 59 73 57 54 58 Human development index (HDI) 0.414 n.a. 0.340 0.398 0.662 0.519 0.456 0.476 Country rank for HDI (186 countries) 172 n.a. 184 173 112 145 161 152 Source: World Bank Development Indicators and UNDP (2012), Human Development Report. Note: GDP at PPP refers to GDP at purchasing power parity.

Table 1.7: Poverty Profile of Sudan, 2009 forming loans (NPLs) in the banking system, the con- Category Population Poverty measure (%) struction of large infrastructure projects in far flung (million) Incidence Gap Severity areas, excessive cost and time overruns in public in- National incidence of poverty frastructure projects and a large amount of contractu- National 34.9 46.5 16.2 7.8 al obligations by the government have been cited as signs of weakened governance. The worst impact was Rural 23.3 57.6 21.3 10.6 not the loss of the money appropriated, but the dam- Urban 11.6 26.5 7.1 2.7 Regional incidence of poverty age to institutions and social capital. The loose pres- Darfur 8.4 62.7 24.6 12.6 sure on scrutinising public expenditure led to invest- Kordofan 5.0 58.7 23.1 11.7 ment in projects with poor returns, either as a result of Eastern 5.0 46.3 17.7 9.0 political pressure or mismanagement. It also created an Central 8.4 45.4 13.8 6.1 environment for corruption and patronisation. Addition- Northern 2.1 33.7 9.4 3.8 ally, it led to the weakening of government institutions. Khartoum 6.0 26.0 6.4 2.4 The polarisation in the society and the ensuing military Source: CBS (2009), Sudan National Baseline Household Survey, 2009). conflicts stemmed, in part, from increasing income in- equality in the country.15 sector.14 A study by Maxwell Stamp Plc (2009) noted that “notwithstanding the performance of some partic- Impact of South Sudan’s Independence ular sectors, livestock in particular, by the 1980s and 1990s, Sudan turned from a dynamic and diversified 1.4.20 The secession of South Sudan in July 2011 exporter to a stagnant exporter with a very narrow ex- had substantial economic consequences for (North) port portfolio in terms of markets and commodities”. Sudan. As Table 1.5 indicates, about 10 million people were resident in South Sudan at the time of separation. 1.4.19 Impact on the institutional environment. The Sudan Government reports that the GDP of (North) Another serious impact was the loosening of guards Sudan was about US$70 billion in 2011, while the against the misuse of public funds and corruption, de- World Bank reports that the GDP of South Sudan was scribed as government lapses during the oil boom. The about US$20.8 billion in the same year – or about 23 high cost of civil construction, the surge in non-per- percent of the combined total prior to the secession.16

14 A World Bank Report issued in 2003 about Sudan specifically alluded to the downside 15 Income inequality increased as a result of the oil boom. According to the CIA (2013), risks of oil production, arising from oil price fluctuations (which could complicate fiscal the lowest 10 percent of the households accounted for only 2.7 percent of the national management), a harmful appreciation of the value of the local currency (as a result of income, while the top 10 percent of households accounted for 26.7 percent of income large foreign receipts), rising wages, increase in the prices of non-traded goods, and in 2009 (CIA Country Facts Book, 2013). diminished traditional exports. An IMF Article IV report (2000, p 21) also warned that 16 There is a range of estimates for the GDP of Sudan as reported by the UN, IMF and “the overall challenge to the authorities will be to design a medium term policy which World Bank. As Table 4.1 indicates, the estimates of the World Bank for this period are best harnesses the oil revenue inflows in the most productive manner while avoiding somewhat lower than that of the Government. See Annex 2 for a further discussion of the dangers in mishandling oil revenue experienced by many other countries”. these differences.

12 | AFRICAN DEVELOPMENT BANK GROUP Table 1.8: Progress Towards MDGs for Selected Indicators Goal Indicator Baseline Current 2015 level Indicator Year Indicator Year target Eradicate extreme poverty Population living below US$1 per day (%) 64 2004 25 2009 32 and hunger Population below national poverty line (%) 90 1992 46.5 2009 23 Poverty gap (%) 16.2 2009 Poverty severity (%) 7.8 2009 Employment rate (%) 89 1993 85 2013 Underweight children under 5 years (% of total) 32 1995 27 2006 16 Population below minimum dietry energy 28 2009 14 intake (%) Achieve universal primary Gross enrolment in primary school (%) 48 1990 70 2012 100 education Literacy rate of 15-24 year olds (%) 27 1990 80 2012 100 Promote gender equality and empower women Primary school 48 1991 89 2012 100 Secondary 21 1991 91 2012 100 Tertiary 67 1990 113 2012 100 Share of women in employment in non- 20 1992 59 2008 agriculture (%) Seats held by women in national parliament 24 2014 (%) Reduce child mortality Under five years mortality rate 128 1990 77 2013 41

Infant mortality rate 80 1990 51 2013 53 One year old children immunized against 57 1990 85 2013 measles (%) Improve maternal health Maternal mortality ratio (per 100,000 live births) 537 1990 360 2013 134 Births attended by skilled health personnel (%) 69 1990 23 2010 Combat HIV/AID, malaria and HIV prevalence among population aged 15-24 other diseases years (%) Females 0.2 2013 Males 0.1 2013 Incidence & dealth associated with malaria Incidence (millions of reported cases) 7.5 1990 3.1 2009 Deaths ('000) 35 2001 8.8 2009 Ensure environmental Population using improved drinking water (%) 67 1990 56 2012 82 sustainability Population using improved sanitation (%) 27 1990 24 2012 67 Develop global partnership Cellular subscribers per 100 population 9 2005 73 2013 for development Internet users per 100 population 8 2005 23 2013 Source: UNDP (2012), Sudan National Human Development Report 2012 and World Bank Development Indicators database.

The most immediate impact of the secession was the Table 2.5). This dramatic change in the financial posi- loss of substantial oil export revenues, declining from tion led to a rapid deterioration in the country’s macro- US$10,991 million in 2010 to US$2,158 million in 2012 economic stability as the discussion below indicates. (Annex Table 2.6). As a result, oil revenues in the na- tional government budget dropped from 10.8 percent 1.4.21 However, the post-secession Sudan is still of GDP in 2010 to 1.4 percent of GDP in 2012. The richly endowed with agricultural land, abundant water overall budget balance went from a surplus equivalent from the Nile and its tributaries, unexploited non-oil to 0.3 percent of GDP to a deficit of 3.5 percent (Annex minerals, and some oil production. The various gov-

AFRICAN DEVELOPMENT BANK GROUP | 13 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN ernments of the pre-secession Sudan were not able to poverty mask significant disparities between the ru- develop these resources, partly due to policy oversight ral and urban areas and between the various regions. and partly because of the distraction of the prolonged Rural poverty has a higher incidence, has much more civil war from 1955-1973 and again from 1983-2005. depth and is more severe than urban poverty. In Sudan, As noted elsewhere in this Chapter, the past experi- rural poverty is closely associated with the livelihood ence of Sudan reflects the fact that underdevelopment systems of rain-fed agriculture. Traditional crop farm- and regional inequalities handicapped the process of ers and pastoralists have a higher incidence of pov- nation building. Internal conflicts have also been very erty due to their limited use of agricultural inputs and costly. modern farming techniques. Smallholder farmers are hindered by the limited size of their landholdings, low 1.4.22 Sudan has a strategic geographical location levels of farm productivity, and an inability to improve bordering seven countries (Egypt, Eritrea, Ethiopia, their incomes. The latter stems from a range of fac- Libya, Chad, Central Africa and South Sudan). It also tors, including: inadequate access to credit, marketing enjoys close proximity to the rich markets of the Gulf and distribution channels; inadequate technical knowl- countries that host over half a million Sudanese work- edge and support; and poor skills in production and ers who regularly remit foreign currency back home. marketing. Many of the heads of families seek off-farm Table 1.6 provides a comparison with some neighbour- employment. Many rural people who do not have land ing countries. Measured in PPP terms, the GDP of Su- to farm must depend on casual labour opportunities, dan was estimated to be about US$134 billion in 2012, such as collecting firewood and making charcoal, to after Egypt, the largest among these seven comparator generate income. In times of drought, an entire family countries. GDP per capita (also in PPP terms) stood at may move to urban centres. Isolation is one of the key about US$3,600 in 2012, again the second highest in factors affecting poverty. Settlements that have little or the group after Egypt. At 47 percent, Sudan’s poverty no access to road networks have very limited access to level is one of the highest in the group. And for 2012, social services and markets. it was ranked 172 out of 186 countries in the Human Development Index (HDI) of the UNDP. 1.5.3 The depth and severity of poverty is higher in western Sudan (both Darfur and Kordofan) and in East- 1.5 Implications for Incomes ern Sudan than in the rest of the country. In some of the and Poverty poorest rural communities, there are significant popula- tion pressures on fragile ecosystems. As the discussion Income Distribution and Poverty in Chapter 5 indicates, erosion, loss of soil fertility and damage to watersheds are affecting resources. Agri- 1.5.1 The 2009 National Baseline Households Sur- cultural productivity is low and farmers face problems vey estimated that 46.5 percent of the population lived associated with water scarcity. Volatile domestic prices below the poverty line (Table 1.7).17 The Survey also for food have also affected household security through- estimated a poverty gap of 16 percent, defined as the out the country. shortfall of the income of those below the poverty line relative to the poverty line. The incidence of severe 1.5.4 The 2009 Household Survey also revealed that poverty stood at 7 percent. The relatively high pover- in the rural areas, 62 percent of consumption goes to ty indicators in Sudan is a result of its weak growth food items, whereas in the urban centre, food con- throughout much of the period since independence in sumption is 52 percent. About 31 percent of the total 1956, and the prolonged internal conflict. The survey population consumes less than the minimum dietary results indicate that poverty is positively correlated with consumption requirements. There are sharp differenc- education. The higher the education, the higher the in- es among regions. In the Red Sea, 44 percent of the come. It is also gender sensitive, being higher among population do not consume the minimum dietary re- female-headed than in male-headed households. quirements, while only 15 percent of those in the Gezira and the do not meet the minimum. Another 1.5.2 These national averages in the incidence of category of people experiencing high levels of poverty

17 The poverty line is not estimated in accordance with the global definition of one dollar and poor social indicators are the displaced popula- per day. It was based on estimates by the National Survey.

14 | AFRICAN DEVELOPMENT BANK GROUP Table 1.9: Trends in Investment and Savings in Sudan (Expressed as annual average % of GDP) Indicator 1980-89 1990-99 2000-09 2010 2011 2012 2013 Gross investment 12.5 16.3 26.5 23.0 21.6 21.2 19.7 Change in inventories 0.1 5.6 5.1 2.9 2.5 2.2 1.9 Fixed capital formation Private 8.5 9.8 16.8 16.2 16.2 16.7 15.9 Public 3.9 0.9 4.6 3.9 2.9 2.3 1.9 Sub-total 12.4 10.7 21.4 20.1 19.1 19.0 17.8 Gross national savings 3.7 4.0 20.3 21.0 21.2 17.1 17.6 Foreign savings 8.8 12.3 6.2 2.0 0.4 4.1 2.1 Memo items: FDI as % of fixed capital 6.8 10.3 22.0 20.5 19.9 19.1 21.1 formation FDI as % GDP 0.8 1.1 4.7 4.1 3.8 3.6 3.7 Source: World Bank Development Indicators database and estimates by authors for 2013. tions who have been affected by the armed conflict in There are also gender inequality and geographical dis- Darfur, and Kordofan. Despite efforts parities in education. In primary education, girls make to provide assistance to those in the refugee camps, up 42 percent of the students, while in secondary these camps do not provide adequate social services schools, their proportion is only 27 percent. However, and food assistance. The camps are also more vulner- in 2009, girls constituted 42 percent of tertiary schools. able to the outbreak of disease. 1.5.7 The poor health and education indicators are 1.5.5 The country has widespread malnutrition and a partly the result of low public spending on health and high proportion of underweight children. The maternal education services. During the 1980s and the 1990s, mortality rate is 360 per 100,000 live births. About 92 the country experienced a significant decline in the pro- percent of children aged 12 to 23 months are fully im- vision of public services. This was attributed to cuts munized. There are also significant regional differences in public expenditure on these services as the govern- in terms of access to education, sanitation and clean ment was forced to adjust its expenditure to achieve water. Access to safe water is available to about 56 the stabilisation objectives and to meet the cost of mil- percent of the total population. This proportion is higher itary activities within the country. in urban areas (66 percent) than in the rural areas (50 percent). Only 30 percent of the population has access Progress Towards the Millennium to improved sanitation at the national level, while the Development Goals percent for the urban and rural populations was 44 and 23 percent respectively. 1.5.8 The fight against poverty and improving the social conditions has been pursued within the frame- 1.5.6 In the case of education, the literacy rate is es- work of the government’s sector policies and budget timated at 73 percent of the population, but it is lower programmes. Additionally, efforts were undertaken among females than males. The gross enrolment ratio within the framework of the Millennium Development rose in primary education from 65 percent in 2004 to Goals (MDGs) and the recently formulated Interim Pov- 70 percent in 2012 – still well below the average for erty Reduction Strategy. According to the UNDP (2012) Sub-Saharan Africa. Though the Government is com- Human Development Report for Sudan, the country mitted to providing free and compulsory basic edu- has made some progress. As Table 1.8 indicates, there cation, it continues to grapple with the challenges of has been improvements in a number of fronts, includ- making adequate resources and facilities available to ing primary school enrolments, literacy among 15-24 schools throughout the country. Teacher training has year-olds, the number of girls in school relative to boys, been limited and there is a high turnover of teachers and the infant mortality rate. However, much remains leaving for higher paying jobs in the Arab countries. to be done to reduce poverty, maternal mortality rates,

AFRICAN DEVELOPMENT BANK GROUP | 15 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 1.10: Growth Accounting Estimates for 1960-1997 (In % per annum)

Indicator 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-97 Total

Growth in -0.96 -1.18 -0.37 3.44 -0.38 -2.42 1.03 -0.12 real GDP per worker

Contribution per worker

Physical 4.16 1.88 1.01 1.93 1.22 -1.19 -0.42 1.37 capital

Labor 0.04 0.08 0.16 0.22 0.33 0.35 -0.21 0.20

Residual -5.16 -3.14 -1.54 1.29 -1.93 -1.58 1.66 -1.69

Source: Quoted from O'Connell and Ndule (2000) by Ali and Badawi (2004). and increase access to improved water and sanitation 1.5.11 The Ministry of Social Welfare is in charge of services. assisting the vulnerable groups, the homeless, the or- 1.5.9 In the health sector, the Government has in- phans and the old. However, the challenges are much creased the focus on primary health care and rural greater than its resources. Together with donors, the health. To complement resources, it introduced cost Ministry oversees a Community Development Fund, recovery measures by instituting a National Health In- which provides support for community initiatives and surance Programme and encouraged private invest- capacity building programmes. Additionally, some ment in the sector. In the education sector, the gov- money is collected as Zakat, which is an Islamic tax on ernment adopted the strategy of “education for all” and wealth. The main purpose of Zakat is to assist the poor. aimed at universal and compulsory basic education. The responsibility of spending on the social sectors has 1.5.12 Sudan has a limited pension system, covering been entrusted to the states, which are short of funds government employees. The largest proportion of the and dependent on Federal transfers. The government’s population is unprotected in old age. However, even the pro-poor spending as a percent of GDP was 6.2 per- pensioners from the government sector have suffered cent in 2004, but it rose to 10.3 percent in 2009. How- from the high rate of inflation. They have seen the pur- ever, it is expected to have fallen after the secession of chasing power of their pensions eroded far from meet- South Sudan. Expenditure on security also diverts re- ing their basic needs. The pension fund itself is failing sources away from pro-poverty activities, humanitarian to meet its obligations as its revenue is only about one assistance and development projects. quarter of its liabilities. Thus, the government is forced to supplement the pension payments to partly cover 1.5.10 In 2011, an Interim Poverty Reduction Strat- the funding deficit. egy was prepared. Though with no assured funding, the Interim Strategy was based on five pillars, namely: 1.5.13 In 1994, a health insurance programme was To strengthen governance and institutional capacity; introduced to subsidise the health services extended to reintegrate the internally displaced persons and the ref- the poor, children and those who need intense medical ugees; develop human resources; and promote eco- care. The coverage of the insurance is at 35 percent, nomic growth and employment creation. The latter pil- but it is expected to rise. lar focuses on the creation of an enabling environment for private sector led growth, promoting the growth of 1.6 Challenges for Development the agricultural sector, developing infrastructure and and Diversification protecting natural resources and the environment. While many more resettled elsewhere in the country, Key Challenges huge humanitarian assistance is needed to meet the basic needs of the displaced population living in the ref- 1.6.1 The poor economic performance of the pre- ugees camps. Donors provide most of the assistance. oil era and associated structural and capacity weak-

16 | AFRICAN DEVELOPMENT BANK GROUP nesses stemmed from a number of policy and capacity Current Low Levels of National Savings shortcomings, and from the effects of internal conflict. and Investment Key challenges for the decade ahead include the fol- lowing: 1.6.4 As Table 1.9 indicates, fixed capital formation • Macroeconomic instability in Sudan was only 12.5 percent of GDP in the 1980s • Low levels of domestic savings and investment af- – a very low level of investment compared with many ter the loss of oil income other Sub-Saharan countries. Furthermore, with very • Lack of productivity growth and inability to develop low national savings in the 1980s and 1990s, most of competitiveness and efficiency the fixed investments in Sudan were financed from in- • Price disincentives flows of offshore funds. Inflows of FDI were small and • Limited entrepreneurship and executive capacities the bulk of the inflow was debt financing from official • Weak governance and private sources. It was these funding activities in • Inadequate physical infrastructure the 1980s that laid the foundations for the subsequent • Internal conflict that stemmed, in part, from region- difficulties that Sudan had in meeting its debt service al inequalities. obligations. However, the subsequent oil boom re- sulted in a significant increase in investment in Sudan Macroeconomic Instability during the 2000s. Fixed investment increased sharply and averaged 21 percent of GDP for the decade as 1.6.2 As the earlier discussion indicates, the mac- a whole. The large increase in fixed investment in this roeconomic environment deteriorated sharply in the period was accompanied by an impressive increase in pre-oil era, especially during the 1980s and the 1990s. national savings from an average of about 4 percent of The civil conflict in South Sudan, changing weather GDP in the 1980s and 1990s to 20 percent during the conditions and drought (in 1983/84 and 1990/91), ris- 2000s. The latter reflects the fact that a substantial part ing public expenditures to expand social services, bur- of the oil revenue was saved. geoning public services, and the monetisation of the deficit led to high rates of inflation, external imbalances 1.6.5 However, the pattern of saving and investment and increased dependence on external borrowing. The went through substantial change after the loss of oil country accumulated arrears, and was as a result de- revenues in 2011. Gross investment declined from nied access to new concessional financing. about 23 percent of GDP in 2010 to about 20 percent in 2013. With the loss of oil income, the savings per- 1.6.3 Macroeconomic instability affected the econ- formance of the country deteriorated. National savings omy through the adverse effect of inflation on invest- stood at 21 percent of GDP in 2010 and 2011, but ment and on foreign exchange availability. The latter declined to an average of a little more than 17 percent created difficulties in the purchase of fuel, inputs and during 2012-13. This decline was accompanied by a capital goods. The decline in the availability of external modest increase in foreign savings. Net inflows of FDI resources (from investors and creditors) contributed declined from an average of 4.7 percent of GDP in the to the worsening of the macroeconomic environment. 2000-09 period to an average of 3.6 percent in the While the external imbalances resulting from macroeco- 2012-2013 period. nomic instability weakened the supplies of imported in- puts, the mismatch between the increase in imports of Lack of Productivity Growth machinery and intermediate goods and the stagnation in the export capacity resulted in a binding constraint 1.6.6 During the pre-oil era, agricultural productivi- on production. The resulting debt overhang that arose ty was low and industry suffered from underutilisation stemmed from the failure to promote exports, select of capacity and inefficiencies in various supply chains. viable projects and avoid implementation delays. The Poor management, the fall in the international prices lesson from this experience was that building export of cotton and rising costs of production hit the cot- capacity to generate foreign exchange earnings would ton industry hard. Both public and private schemes have helped to sustain economic growth. could neither bring down the cost of production nor develop high yielding seed. The private sector, lacking

AFRICAN DEVELOPMENT BANK GROUP | 17 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN government support and facing an unfavourable mac- good from Sudan. Second, by fixing the prices of com- roeconomic environment, lost interest in cotton pump modities, the marketing boards denied the producers schemes. Though rain-fed mechanised farming was an incentive to expand production and discouraged the an important avenue for medium-scale commercial investors. Third, taxes on agriculture were high. private sector investment, it exhibited fluctuations and decline in output. Traditional rain-fed crop and animal 1.6.10 Strong evidence exist that price incentives are production systems provided the bulk of the population critical for sustaining growth. The increase in agricul- with food supplies and helped in diversifying agricul- tural production during the 1990s (by 10.8 percent per tural crops and exports, but only through area expan- annum) as compared with the 1980s (mere 0.6 per- sion rather than increases in yields. The manufacturing cent) was attributed in no small way to the improve- sector was also plagued with many bottlenecks and ment in the price incentives. According to World Bank constraints, including inadequate infrastructure, power (1993), though the improvement in agricultural pro- shortages, union disputes and the unfavourable mac- duction in the 1990s was partly a result of favourable roeconomic environment. weather conditions, a more important explanation for the difference in the growth performance between the 1.6.7 A macroeconomic growth accounting decom- two periods was government’s success in reducing the position analysis for Sudan covering the 1960-97 pe- macroeconomic instability and prices disincentives.18 riod was undertaken by O’Connell and Ndule (2000) Adjusting and floating the exchange rate lessened the as part of a research project on African countries. The degree of the local currency overvaluation. The bias results of the analysis that are reported in Table 1.10 against exports was reduced after the government show that in five sub-periods out of seven, the growth cancelled the export tax on agricultural products and of the residual was negative. It was also negative for the dismantled the monopolistic position of the marketing period in totality. The interpretation of these results is boards. that growth was largely a result of factor accumulation rather than productivity growth. 1.6.11 The adverse impact of imposing crops on un- willing producers was demonstrated by the significant 1.6.8 Other studies also confirmed the lack of prog- variations in performance between the four systems of ress in productivity growth in agriculture beyond ex- production during the 1990s. Production in both the pansion of cultivated areas (World Bank, 2009). Growth rain-fed agricultural farms and livestock were stimu- in per capita agricultural output and pro- lated by the improved price system alluded to earlier. duction declined. Average agricultural productivity The growth in output rose sharply from nine and two levels in Sudan are as a result lower than in countries percent to 25 and 16 percent respectively. Production with similar conditions. It has also been lower than the in irrigated agriculture also rose from an annual average levels recorded in farm research trials. Yields in mech- of 1.5 percent to 6.6 percent between the two peri- anised farms suffered from poor management, inade- ods. The growth in the production in the mechanised quate provision for fallows within planned crop rotation farms remained negative during the two periods. The and failure to use fertilizers. Such poor attention led to World Bank (1993) suggests that the general thrust degradation and mismanagement of natural resources. of incentives introduced through government policies Traditional rain-fed agriculture, on its part, lagged be- was favourable; but policies to impose price ceilings for hind in production technologies, finance, management, and to induce production in the irrigat- research, extension services, market structure, access ed agriculture had a negative impact. Farmers experi- to inputs, such as seeds and fertilizers. enced low returns from wheat production.

Price Disincentives

1.6.9 Price disincentives held down investment and production through three channels. First, overvalued currency had been disadvantageous to exports and 18 Elamin, Dirdiri H M and Nasser A El Naam (2000), “Pricing Policies and Agricultural exports in Sudan, lessons from the 1980s through the 1990s.” El Obied Research traded goods, and had reduced the competitiveness of Station (2000). Also see World Bank (1995), “Supply Prospects for the Agricultural Sector”. October 1995.

18 | AFRICAN DEVELOPMENT BANK GROUP Trade Policy and Lack of Diversity in Infrastructure Constraints Exports 1.6.14 The responsiveness of farmers and investors is 1.6.12 For a long time, Sudan’s exports were dom- often dampened by the lack of adequate infrastructure. inated by cotton, but from the mid-1980s, this com- The poor infrastructure, especially in transport and en- modity lost its dominance.19 Other agricultural crops ergy (with frequent power interruptions) resulted in high started to gain ground. In the 2000s, oil’s contribution cost of production, which drove business out of some bypassed all other exports. It accounted for 85 percent activities. By contrast, the construction of Khartoum of total merchandise export earnings before the seces- and Port Sudan stimulated large increase in agricul- sion in 2011. tural exports, although the deterioration of the railways system had a very adverse effect on the cost of trans- There have been substantial changes in the amount porting goods. Chapter 8 discusses in some detail the and composition of agricultural and agro-industrial ex- problems associated with inadequate infrastructure in ports in the past decade. Exports of cotton have de- Sudan. clined, whereas exports of , and live animals (to Middle East countries) have grown ap- Internal Conflict and Regional preciably. In 2000, for example, agriculture and agro-in- Inequalities dustrial exports accounted for about 80 percent of the non-oil exports of the country. By 2005, their share had 1.6.15 As noted earlier, the country suffers from so- increased to 86 percent. However, with the subsequent cio-economic inequalities that have their origin in a rapid rise in exports of gold, the agriculture and agro-in- range of factors, including lack of support for rain-fed dustrial exports accounted for only 26 percent of total agriculture, problems with land reform, and the distri- non-oil exports by 2010. The diversity of exports is less bution of development resources between urban and than that of the economy as a whole. Petroleum prod- rural areas. These inequalities led to prolonged inter- ucts continue to dominate exports, accounting for 57 nal conflict and resulted in large internal migration. percent of total export earnings in 2013, followed by The current spread of the country’s capital formation gold, which accounted for 15 percent last year. Agri- was caused by geography, the colonial history and the culture-related products account for 23 percent. Live- post-independence pattern of investment. British inter- stock, sesame and gum arabic continue to account est in cotton led to the development of the irrigated for the bulk of these exports. The relatively poor per- schemes in central Sudan. According to Ali et al (2004), formance of agriculture-related exports stems from a at independence, the regions now comprising the Blue range of policy and programme issues that are taken Nile, , Gezira and White Nile states enjoyed up in more detail in Chapters 3 and 5. the highest per capita (US$118), followed by the East (US$92) and the West (US$76). The Gini coefficient 1.6.13 The other significant change in Sudan’s external was 0.2635 “reflecting a fairly even distribution of GDP trade account occurred in 2014. In that year, payments consistent with the level of development”. However, as for imports of oil products exceeded earnings from the most of the post-colonial developments were made export of crude and oil products. The trade balance for in central Sudan, economic gaps with the rest of the petroleum products moved from a surplus of US$2.55 country widened. Together with droughts and conflict, billion in 2013 to a deficit of US$270 million in 2014. As this inequality led to high population movements and Chapter 7 indicates, there is a very real prospect that concentration in metropolitan Khartoum. imports of oil products will exceed oil export earning throughout the 2014-2030 period. This possibility re- 1.6.16 As a result, most of the country’s industry is inforces the case for a concerted effort to accelerate centred around Khartoum because of the large mar- development of the export market for agricultural and ket, high purchasing power and better infrastructure. agro-industrial products. Ironically, Bushra (1972) warned that “if the existing economic imbalance is to continue, it will lead to the depopulation of large areas in the countryside. In fact, 19 For a more detailed analysis of trends in the composition of exports see Nasredin A. Hag Elamin (1997). “Export Performance in Sudan: Recent: Trends and Policy Im- economically backward areas such as Darfur and pact”. Journal of Economic Cooperation Among Islamic Countries, 18, 4, pp.57-76.

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Southern Sudan are already experiencing a population do not have their own budgetary resources and de- exodus”. pend on transfers from the National Government.

1.6.17 The failure to realise a spatially broad-based 1.6.19 The 2010 MDG report of the United Nations and inclusive pattern of growth resulted in regional and maintained that “limited diversification was reflected in other inequalities, and gave rise to prolonged conflict. the expansion of the oil sector, while the nominal sec- These had a high human cost and resulted in produc- tor has been declining. The oil sector, being capital tion losses. The rise in military expenditure competed intensive, its employment intensity and hence pover- with economic and social spending, led to macroeco- ty reduction has been limited”. 21 Through contributing nomic imbalances and diverted government’s attention to sustained growth and jobs creation, diversification from the pressing development challenges of the coun- can assist in ameliorating the unfavourable social con- try.20 ditions described above. Diversification is expected to result in increased job creation. At the same time, the 1.6.18 Spatial diversification will certainly lead to the push for diversification itself will either be facilitated or exploitation of growth potentials in many other parts of constrained by the characteristics of the labour force Sudan. The decentralisation system adopted can facili- and labour markets conditions. With the existing high tate such regional development. However, issues of in- mobility of labour in Sudan, the response of the labour tergovernmental fiscal relations have to be addressed. force is likely to be supportive of the proposed diversi- The major problem with decentralisation is that states fication drive.

21 United Nations (2010), The Millennium Development Goals Report, 2010. New York, 2010 (see p.22). See also Republic of Sudan (2010), Sudan Millennium Goals Prog- 20 Ali A. Ali and Ibrahim A. El Badawi, (2004), Explaining Sudan’s Economic Growth. The ress Report, 2010. Ministry of Welfare and Social Security and National Population African Economic Research Consortium, Working Paper #9, January 2004. Council General Secretariat, Khartoum, Sudan, 2010.

20 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 21 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

22 | AFRICAN DEVELOPMENT BANK GROUP 2. STRATEGY FOR BROAD-BASED AND INCLUSIVE GROWTH

2.1 Private Sector-led Growth and programme that has already begun to show re- Diversification sults. Chapter 3 addresses the various concerns associated with establishing a stable macroeco- 2.1.1 The need for economic diversification in Sudan nomic framework for the medium and longer-term. has been recognised for some years now, but with the • The proposed programme for economic diversifi- oil boom during the 2000s, progress on this front was cation calls for a substantial increase in the level very limited. Following the secession of South Sudan of public and private investment in the economy. and the decline in the importance of oil in the econo- Close attention has to be given to development of my, Sudan has had to confront a wide ranging set of an environment that is conducive for such invest- policy issues as has been outlined in Chapter 1. These ment by the private sector, including for example, include the large dependence on oil as a key source of timely and cost-effective business processes, ap- growth for the economy, a heavy external debt burden, propriate regulatory oversight of business activi- international sanctions, and in more recent years, a ty, and improved arrangements for private sector highly volatile macroeconomic environment character- access to land for agricultural and industrial use. ised by major economic imbalances, and continued in- Chapter 4 discusses the requirements for a sub- ternal conflict. Moreover, the ongoing conflict in South stantially larger role for the private sector in the pro- Sudan poses a threat to continued oil flows. This chain posed diversification programme. of events has served to underscore the importance • The launch of a range of programmes that will pro- of restoring macroeconomic stability and adoption of mote domestic and offshore private investment in programmes that will ensure that the non-oil economy increased production of food, raw materials and a becomes the major source of growth in employment, growing range on manufactures for the domestic incomes and exports in the decade ahead. and international markets that can underpin an ac- celerated programme of agricultural and industrial 2.1.2 Sudan has a substantial natural resource base development throughout the country. In setting out that can provide the foundation for successful eco- a strategy for the medium and longer-term, the po- nomic diversification. A multi-pronged strategy is now sition taken in this Report is that the greatest po- required for a successful transition to a well-diversified tential for new sources of growth in the near-term economy with growth that is broad-based and inclu- are with further investment by individual farmers sive. The key elements of such a strategy are as fol- and medium and large-scale commercial entities lows: in agricultural production and in the processing of • Early progress on establishing macroeconomic food and non-food agricultural materials for the do- stability that is an essential foundation for substan- mestic and export markets. This will require explicit tial increases in private sector-led economic activ- efforts to improve farm access to basic inputs such ity. With assistance from the IMF, the government as improved seeds and fertilizer, increased access has embarked on a macroeconomic stabilisation to credit from the financial sector, and improved

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Table 2.1: Land Resources of Sudan Indicator 1961 1970 1980 1990 2000 2010 2011 2012 Surface area (sq. km.) 2,505,810 2,505,810 2,505,810 2,505,810 2,505,810 2,505,810 1,879,358 1,879,358 Total land area (sq.km.) Agricultural land 1,088,400 1,097,450 1,104,500 1,229,100 1,313,520 1,362,450 1,086,788 1,127,020 Forest area 763,814 704,910 699,490 550,752 550,752 Other 383,086 357,570 314,060 166,640 126,408 Total 2,376,000 2,376,000 2,376,000 2,376,000 2,376,000 2,376,000 1,804,180 1,804,180 Share of total land area (%) Agricultural land 45.8 46.2 46.5 51.7 55.3 57.3 60.2 62.5 Forest area 32.1 29.7 29.4 30.5 30.5 Other 16.1 15.0 13.2 9.2 7.0 Total 100.0 100.0 100.0 100.0 100.0 Agricultural land (sq. km.) Arable land 107,750 116,650 123,600 128,000 162,330 188,580 170,560 210,450 Land under cereal production 29,638 42,905 37,346 64,513 78,864 99,292 100,884 Irrigated land 14,493 14,810 14,810 Other 1,080,512 802,126 800,876 Total 1,088,400 1,097,450 1,104,500 1,229,100 1,313,520 1,362,450 1,086,788 1,127,020 Share of agricultural land (%) Arable land 9.9 10.6 11.2 10.4 12.4 13.8 15.7 18.7 Land under cereal producton - 2.7 3.9 3.0 4.9 5.8 9.1 9.0 Irrigated - - - - - 1.1 1.4 1.3 Other 79.3 73.8 71.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: World Bank World Development Indicators database.

access to domestic and international markets that improvements will be required for the mobilisation have substantial potential for sale of agricultural of domestic savings, including a much larger share products. Chapters 5 and 6 outline the strategy for of domestic savings in the form of financial assets diversification in agriculture and industry in the de- that are held by banks and other entities that have cade ahead. responsibilities for financial intermediation in the • The programme will also require a major step-up in domestic market. Chapter 9 discusses the range public and private investment in the physical infra- of actions that will be needed to expand substan- structure of the country that, at the present time, is tially the role of financial services in Sudan. seriously deficient. The investment in infrastructure • Sudan will also have to expand its access to off- facilities would need to be accompanied by pro- shore financial resources, including the multilateral grammes that accelerate the development of ba- financial institutions, bilateral aid programmes that sic infrastructure services, including, for example, can provide ODA, and private capital markets. An transport and communications services and an im- important first step in this regard will be to ad- proved supply of electric power. Chapter 8 sets out dress the problems associated with the current the requirements for expansion of the infrastructure heavy debt burden of the country. Sudan will need network and related services. to enter into dialogue with its creditors and come • Introduction of policies and programmes that will to agreement on the terms and conditions for re- support the further development of the domestic payment of existing debt obligations. Moreover, financial sector and related capital markets. A large continued application of economic sanctions by part of the investment required for the diversification the US and European countries will limit the extent programme will have to be financed with resourc- to which Sudan will be able to mobilise resources es from the domestic financial market. Substantial in international capital markets, a reality that un-

24 | AFRICAN DEVELOPMENT BANK GROUP derscores the importance of further development Table 2.2: Water Resources of Sudan, 2012 of the domestic capital market and export perfor- (Billion cubic meters per year) mance that can generate foreign exchange earn- Indicator Natural Actual ings. Chapter 3 addresses these issues. Total surface water • A series of programmes will be required in the Produced internally 2.0 2.0 near-term to build capacities in the public sector Water entering Sudan 99.3 99.3 at the national and state levels for provision of Total renewable surface water 101.3 101.3 basic services that support the proposed expan- Water leaving country 84.0 84.0 sion in private business activities, including, for Water secured by treaty 65.5 Total renewable surface water 35.8 example, skills development programmes for the Total ground water labour force, improved government capacities to Produced internally 3.0 3.0 implement programmes for development of infra- Groundwater leaving country (1.0) (1.0) structure and other key services such as agricul- Total renewable ground water 2.0 2.0 tural research and extension services. Capacity Total renewable water resources 103.3 37.8 building requirements and skills development are Per capita renewable resources ( m³/ 1,016 addressed in each of the chapters that follow. year) Source: FAO AQUASTAT database. 2.1.3 The priority for the near and medium-term is to accelerate the development of Sudan’s rural and km. According to World Bank data, the size of arable agricultural potential that, as the discussion below in- land stands at 210,450sq.km – equivalent to 21 mil- dicates, is substantial. But it will also be important to lion hectares – or about 19 percent of the total land develop a range of other economic activities in the me- area. About 10 million hectares are currently used for dium and longer-term that diversify the economy fur- cultivation of cereals under rain-fed conditions. Close ther and generate higher wage employment opportu- to 1.5 million hectares are under irrigation. This huge nities. These include further development of a range of arable land resource offers opportunities for substantial industrial activities, including the non-oil mineral wealth diversification of the economy in the decade ahead, led of the country, to expand the capacity of Sudan to gen- by increased investment in agriculture and agro-indus- erate foreign exchange earnings. As the subsequent tries. Such a programme can also make a substantial discussion indicates, successful implementation of the contribution to ensuring that the development is broad- diversification programme set out in this Report would based and inclusive. As noted in Chapter 1, about two- very likely raise the non-oil GDP per capita to about thirds of the current population of 38.8 million (as of US$2,850 by 2030 – compared with the 2012 level of mid-2014) live in rural areas, and most depend on agri- US$1,735 (both at 2012 constant prices and exchange culture for livelihood. rate). 2.2.2 The ecological and climatological character- 2.2 Resource Base of the Country istics of Sudan suit a wide variety of crop cultivation and . Very large natural pastures and Land Resource Base forests support substantial herds of livestock, includ- ing , and . The Generalised Land Use 2.2.1 The Republic of the Sudan has a surface area Inventory Area of (north) Sudan made by the National of about 1.9 million square km after the secession of Forest Inventory in 1998 showed that 33 percent of ar- South Sudan in 2011, of which the total land area is es- able area was under crop cultivation. Some 20 percent timated to be about 1.8 million square km (Table 2.1).22 was used for , while 33 percent was under for- About 63 percent of the land area (1.1 million square ests. Only three percent was occupied land, while the km.) is classified as agricultural land. The implication use of the remaining 11 percent was unknown (World is that Sudan has the largest area of agricultural land Bank, 2011, Annex 1.1). in Africa. The next is Angola with about 590,000sq. 2.2.3 There is a wide variation in the climatic con- 22 B World Bank terminology, the surface area of a country refers to the land area and water bodies within the country, whereas the land area refers to the total area exclud- ditions within Sudan, ranging from desert in the north ing land under inland water bodies, and national claims to the continental shelf.

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26 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 27 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

to a belt of summer rain climate in the southern part of Table 2.3: Annual Water Withdrawal, 2011 the country near the border with South Sudan. Annual (Billion cubic meters per year) rainfall varies from 25mm in the north to about 700mm Water Use Amount Share (%) in the southern part of the country. There can be con- Agriculture siderable variation in rainfall from one year to the next Irrigation 22.63 84.0 and in the location of the rain. The dry season typically Livestock and other 3.28 12.2 Sub-total 25.91 96.2 extends for about eight months each year. Rain-fed ag- Industry 0.08 0.3 riculture is mainly practiced in this part of the country. Households and other 0.95 3.5 About 85 to 90 percent of the agriculture area in the Total 26.94 100.0 Sudan is rain-fed, depending on the season. The major Per capita withdrawal ( m³/person) 739 limiting factor is not the agricultural potential, but rather Source: FAO AQUASTAT database and authors estimate the short duration of the rainy season and the erratic for irrigation use. distribution of rainfall during the growing period. isation (FAO) to be about five billion cubic metres per 2.2.4 One important matter of concern about the year (two billion of which is surface water and three land resource base of Sudan is the long history of con- billion is ground water). The bulk of the water that is flict over land (and water resources). As a result, many available is surface water associated with the Nile riv- parts of the country suffer from severe land problems. er system and other rivers and streams. Sudan’s total According to the 1972 Land Act, all land in Sudan, ex- renewable water resources are estimated to be 103.3 cept for a small area of freehold land in the Nile River billion cubic metres per year, but as a result of the Nile valley, is public land, owned by the government. Users Waters Agreement with Egypt, the total available wa- of the land, including farmers and cattle herders, have ter resources of the country are estimated to be 37.8 usufruct rights to this land through traditional communal billion cubic metres. Non-conventional water sources land policy. Land use policy has, in effect, been dele- are very limited in Sudan. However, the desalination of gated to community leaders, who are then responsible seawater was introduced recently in the town of Port for the allocation of land use rights. These land use and Sudan. ownership rights are a major obstacle for successful implementation of the proposed programme of agricul- 2.2.6 The high variability of river flows necessitates ture-led diversification of the economy. The reason is that water storage facilities. The main dams in Sudan are as because all land is deemed to be owned by the govern- follows: (i) Sennar Dam on the Blue Nile with a design ment, it cannot be used as collateral by those that farm capacity of 0.93km3 and provides flood control and irri- the land. The fact that land has no value as security for gation for the ; (ii) Roseires Dam on the additional investment is a fundamental obstacle to sus- Blue Nile with a design capacity of 3km3 and provides tained strong investment in agricultural production activ- flood control and irrigation; (iii) the Jebel Aulia Dam on ities. Chapters 4 and 5 address these ongoing concerns the White Nile with a design capacity of 3.5km3; and about land policy. (iv) the El Girba Dam on the River with a de- sign capacity of 1.3km3 and provides flood control, ir- Water Resource of Sudan and Use rigation water and hydropower. Because of increased sedimentation in the Blue Nile and Atbara River, FAO 2.2.5 Water Resources of Sudan. Water resourc- estimates that the total storage capacity of these four es in Sudan comprise three main categories: (i) surface dams has been reduced from 8.73km3 to 6.9km3. water, which contains water from rainfall and Wadis (seasonal streams); (ii) the Nile system; and (iii) ground- 2.2.7 Water Use. According to FAO, the annual water and unconventional water. Sudan shares the withdrawal of water in 2011 was 26.9 billion m3 (Table Nile with nine other countries, the waters of the Wadis 2.3), with use of water for farming and livestock ac- with three countries and groundwater with three coun- counting for 96 percent of the total withdrawal. The tries. Table 2.2 provides a summary of Sudan’s water use of water for irrigation accounted for about 84 per- resources. Internally produced water is quite limited cent of total water use in 2011. Only 3.5 percent of and is estimated by the Food and Agriculture Organ- the water use was accounted for by households and

28 | AFRICAN DEVELOPMENT BANK GROUP other non-business users. The per capita withdrawal Sudan claim primary control over the Nile waters. The of water was 739 m3 in 2011. If the annual withdrawal contemporary challenge facing the Nile Basin countries of water remained at this level for the decade ahead, is how to establish a legal framework for the utilisation the total annual withdrawal would exceed the available of the basin’s waters that is acceptable to all the ripari- renewable water resources of 37.8 billion m3 by 2027. an states. The basic issue has been that seven of these Sudan is therefore in the middle of the ongoing inter- countries (Burundi, DRC, Ethiopia, Kenya, Rwanda, national dialogue among the Nile river riparian states Tanzania and Uganda) contribute to the waters of the about the future use of these water resources. Nile, but have no formal rights to the use of these wa- ters. Several studies have shown that the tributaries of International Water Issues that Confront Ethiopia supply an estimated 86 percent of the waters Sudan of the Nile.24 In the case of Egypt, FAO data indicates about 97 percent of the actual renewable water avail- 2.2.8 As noted above, the surface and groundwa- able to Egypt comes from the Nile River. ter resources of Sudan are shared with neighbouring countries. The River Nile, which is shared among 10 2.2.11 There have been efforts by some of the ripar- countries, is the primary source of water in Sudan. And ian countries to bring about cooperation over the Nile the largest groundwater aquifer, the Nubian Sandstone waters. Negotiations for the creation of a Cooperative system, is shared with Chad, Libya and Egypt. Framework Agreement (CFA) started in 1997, but are yet to be concluded by all riparian countries. The CFA 2.2.9 Over the years, states within the Nile Basin seeks to establish a permanent Nile River Basin Com- have put agreements and treaties in place to avoid con- mission through which member countries would act flict over access to these water resources. The 1929 together to manage and develop the resources of the Agreement between Egypt and Anglo-Egyptian Sudan river. gave Egypt complete control over the Nile during the dry season when water was most needed for agricul- 2.2.12 In February 1999, the Nile Basin Initiative (NBI), tural production, put substantial limits on the amount of which is a partnership among the Nile Riparian states, water allocated to Sudan, and provided no water rights was formally launched by the then nine countries that to any of the other riparian states.23 The subsequent shared the resources of the River.25 The NBI is led by 1959 Nile Agreement gave Sudan and Egypt full con- a Council of Ministers in charge of Water Affairs in the trol and utilisation of the Nile waters. This agreement member states (Nile-COM) with the support of a Tech- allowed the entire average annual flow of the Nile (es- nical Advisory Committee (Nile-TAC). The NBI “seeks to timated to be about 84 billion cubic metres measured develop the river in a cooperative manner, share sub- at the Aswan High Dam) to be shared between Egypt stantial socio-economic benefits, and promote regional and Sudan at 55.5 and 18.5 billion m3 respectively. In- peace and security,” and in so-doing promote sustain- cluded in the agreement was an assumption that the able economic development and stability across the remaining 10 billion m3 was accounted for by losses basin. due to evaporation and related factors. The Agreement granted Egypt the right to construct the Aswan High 2.2.13 With support from the African Development Dam (which can store the entire annual Nile River flow Bank, World Bank and other donors, the NBI has of a year) and granted Sudan the right to construct the launched a substantial programme aimed at building Rosaries Dam on the Blue Nile and to develop irrigation capacities among member states and making invest- and hydroelectric power generation until it fully utilises ments in water resource development and manage- its Nile share. ment. The NBI provides a historic opportunity to man- age the Nile for the good of the peoples of the basin and 2.2.10 Based on the 1959 Agreement, Egypt and 24 See International Peace Institute (2010), Issue Brief: A Political Storm Over the Nile. 23 See, for example, Waterbury, John (1979), Hydropolitics of the Nile Valley. University of New York, December 2010. Syracuse Press, 1979; Tvedt, Terje (2004), The Nile: An Annotated Bibliography. I.B. 25 At the time the NBI was launched, there were nine member countries: Burundi, DRC, Taurus, 2nd edition, January 17, 2004; Chatteri et al. (2002), Conflict Management of Egypt, Ethiopia, Kenya, Rwanda, Sudan Tanzania, and Uganda. Eritrea, which also lies Water Resources. Hampshire, Ashgate Publishing Ltd. 2002; and McKenzie, Scott within the river basin, is not an official member of the NBI, but it does hold observer O. (2012), “Egypt’s Choice: From the Nile Basin Treaty to the Cooperative Framework status. Prior to independence in July 2011, Southern Sudan had observer status in Agreement, an International Legal Analysis,” Transnational Law and Contemporary the NBI. Shortly after independence, the Republic of South Sudan applied for full Problems. University of Iowa College of Law, Vol. 21: 571, 2012. membership of the NBI.

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to use it as a vehicle for change for the better. Within Table 2.4: Alternative Scenarios for the Decade Ahead the framework of the NBI, the Nile states are exploring Scenarios Scenario characteristics major cooperative investments in power generation, Status of Status of Private International transmission and interconnection, irrigated agriculture, HIPC sanctions investment donor response response navigation, fisheries, and related investments in land Low Case Not in place In place Weak Weak management, watershed protection and environmental Moderate In place In place Moderate Moderate conservation. These projects are a first phase of a long- Case term investment programme that will support econom- High Case In place In place High High ic development and integration in the sub-region. Source: Estimates by authors. for the level of water flow to downstream countries. A 2.2.14 Notwithstanding these developments, there tripartite committee consisting of Ethiopian, Sudanese has been continuing tension among NBI countries over and Egyptian officials was formed to assess the impact what constitutes an equitable utilisation of water. These of the dam on downstream countries. The discussions, tensions stem from an increased need of water for ir- involving international experts, have continued with the rigation and other multi-purpose uses. The NBI, which objective of reaching consensus on the way forward. is a transitional arrangement, has succeeded in bring- It is expected that the continued dialogue will address ing the riparian states together for a common purpose. the concerns of the downstream countries and avert The programme has engaged in capacity building and any negative impact on the realisation of the dam and has led the implementation of some investment initia- planned regional power systems integration. tives. However, the establishment of a permanent insti- tutional arrangement is still work-in-progress. Petroleum Resources

2.2.15 The lack of agreement among all the riparian 2.2.17 Over the past 30 years, there has been con- states indicates that the utilisation of Nile waters will siderable exploration for oil in Sudan, with important continue to pose a challenge, at least in the foresee- discoveries made in the 1970s and 1980s. Most of the able future. In 2009-10, seven upper riparian states proven reserves of crude oil and natural gas of Sudan launched the Nile Basin Cooperative Framework and South Sudan are located in the and Melut Agreement (CFA) in a bid to establish a permanent or- basins, which extend into both countries. According ganisational structure and ensure an equitable utilisa- to the BP (2013) Statistical Review of World Energy, tion among all the riparian states of the Nile. The CFA South Sudan has approximately 3.5 billion barrels of was opened for signature on 14 May 2010 for a period proven reserves, while those of Sudan are at 1.5 billion of one year until 13 May 2011. Article 42 of the draft barrels. The proven reserves of natural gas are esti- Cooperative Framework Agreement provides for its mated at about 3 trillion cubic feet. Chapter 7 provides coming into force upon ratification by at least six mem- more details about the petroleum resources of Sudan. bers. So far six riparian states have signed the Agree- ment. DRC, Sudan and Egypt have not yet signed the 2.2.18 There is considerable uncertainty about the agreement. prospect for new oil discoveries around the existing producing areas and in new areas in Sudan. There is a 2.2.16 Ethiopia is currently building the Renaissance clear case for expansion of exploration efforts for oil and Dam on the Blue Nile River to generate 6,000 MW of gas in Sudan. The power sector is an important con- electric power. Egypt and Sudan, the lower riparian sumer of energy, mainly in the form of diesel and fuel countries, have objected to the construction of the oil. In the absence of substantial increases in genera- dam by referring to the above-mentioned agreements tion capacities that make use of hydropower and other of 1929 and 1959 that allow them the full utilisation renewable energy sources (see discussion in Chapter 8 of the Nile water. Ethiopia has rejected the claims on about these options), thermal power generation based the ground that it was not a signatory of the agree- on natural gas would be a preferable lower cost op- ments and has reaffirmed its right to benefit from the tion for Sudan. However, at this stage, the natural gas water. It appears that Egypt has lately narrowed its deposits of the country are not being harnessed. The concerns to the safety of the dam and its implication gas is either flared or re-injected. And domestic capac-

30 | AFRICAN DEVELOPMENT BANK GROUP Table 2.5: Investment and Financing for Moderate Growth Scenario (In US$ at 2012 constant prices and exchange rate) Indicator Actual/estimate Projection Total (US$ mill) 2012 2013 2014 2015 2020 2025 2030 2014-30

Investment as % GDP Inventories 2.2 1.9 1.9 1.8 1.7 1.6 1.5 42,814 Fixed investment Private 16.7 15.9 15.3 15.5 15.9 19.3 19.9 340,553 Public 2.3 1.9 2.2 2.3 3.4 3.6 3.6 50,968 Sub-total 19.0 17.8 17.5 17.8 19.3 22.9 23.5 391,521 Gross investment 21.2 19.7 19.4 19.6 21.0 24.5 25.0 434,335 Financing as % GDP National savings 17.1 17.6 16.9 16.6 17.0 20.5 21.0 361,125 Foreign savings FDI 3.6 3.7 3.9 3.7 3.5 3.5 3.5 66,481 Other net inflows 0.5 (1.6) (1.4) (0.7) 0.5 0.5 0.5 6,729 Sub-total 4.1 2.1 2.5 3.0 4.0 4.0 4.0 73,210 Total 21.2 19.7 19.4 19.6 21.0 24.5 25.0 434,335 Memo items: Fixed investment (US$ mill) 12,913 14,202 12,827 13,572 18,061 27,494 37,219 ICOR 5.7 4.8 4.6 4.0 4.1 4.0 Source: Annex Table 3.2. ities for production of fuel oil are quite limited. If the gas located in Sudan, along with some offshore acreage. reserves of the country could be developed, it would 2.2.20 Another uncertainty related to the future sup- provide a low cost and relatively low-carbon fuel for ply of oil in Sudan concerns the recovery factor for oil power generation, industry and households. To facili- from existing and new fields.26 The World Bank (2009) tate these exploration activities, the Government may reported that the government expected that the re- need to review existing contract arrangements related covery factor for existing fields would be 26 percent. to the discovery and development of the gas resources It went on to note that the global average is around 35 and related marketing arrangements. percent and based on government data, an increase of 5 percent in recovery factors would increase Sudan’s 2.2.19 However, the recent large decline in internation- remaining proven reserves by 30 percent. There is a al oil prices has increased uncertainty about the extent compelling case for maintaining production in existing to which existing operators will undertake new explora- fields and increasing the recovery factor. The EIA has tion. Informal judgments suggest that the average cost reported that Sudan signed an agreement with Norway of production in existing fields in Sudan may be in the in 2012 to increase oil recovery rates in existing fields range of US$45 per barrel. In these circumstances, it from 23 percent to 47 percent. This programme will is unclear whether existing operators will be inclined to take time to produce results, but it may have significant undertake new exploration, especially if, as assumed in implications for oil and gas production in the decade Chapter 7, the recovery in oil prices will be a protract- ahead. ed process in the decade ahead. If there are no new discoveries of crude oil in the near future, there may be Other Mineral Resources a rapid decline in oil production in the decade ahead. In a number of mature fields, production is already on 2.2.21 Sudan possesses significant non-oil mineral the decline. Areas adjacent to existing fields need to be wealth that includes uranium, tin, silver, manganese, explored more intensely, along with increased attention zinc, lead, copper, iron, asbestos, gypsum, mica, co- to exploration in new areas. According to the Energy balt, chrome, nickel and gold, as well as agricultural Information Agency (EIA) of the United States, Sudan minerals (urea and phosphate). The Blue Nile State is recently launched bidding for blocks that were clearly 26 A recovery factor is the proportion of the total oil contained in a reservoir (field) that is expected to be produced commercially using current technology.

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Table 2.6: Net Inflows of Official Development Assistance to Sudan (In US$) Indicator Annual average Annual 2000-04 2005-09 2010 2011 2012 2013 Net inflow of ODA (US$ mill) 467 2,182 2,059 1,099 975 1,163 Net ODA per capita (US$) 13 52 58 30 26 31 Source: World Bank Development Indicators database. the host of the major chromite resources and mining 2.3.3 There are also risks associated with the re- started in the mid-1920s. A recent survey estimated gional and international environment, including diffi- three million tons of chromite reserves in that area. In culties in reaching agreement with creditors about the addition, the Red Sea (Atlantis area) is said to con- management of Sudan’s debt burden, and continued tain the equivalent of US$20 billion dollars of mineral imposition of economic sanctions that adversely affect resources, including substantial reserves of gold and the scope for offshore financing of development pro- zinc. Substantial additional investigation of the extent grammes in the country. There may also be difficulties of these resources is required for a comprehensive pro- associated with the equitable use of the waters of the gramme for private investment in sustainable resource Nile Basin that, in turn, have an impact on the scope for extraction and recovery. expanding the irrigation capacity of the country.

2.3 Proposed Programme for 2.3.4 For the purposes of this Report, the risks and Economic Diversification uncertainties of greatest interest are those that are as- sociated with the design, implementation and financ- Alternative Scenarios for the Decade ing of the proposed programme for diversification. It Ahead is therefore assumed that internal security in Sudan continues to improve and that there will be social and 2.3.1 This Report calls for a major programme of di- political stability through the 2020s. Moreover, it is as- versification that is built on the sustainable development sumed that the government will be successful in re-es- of Sudan’s land, water and mineral resources, and led tablishing a sound macroeconomic environment for the by increased domestic and international private sector decade ahead. activity in Sudan. However, the reality is that Sudan is a somewhat fragile state. As a result, there are many pos- 2.3.5 Table 2.4 provides a summary of the alternate sible outcomes for growth and economic development scenarios considered in this Report. The primary focus in Sudan in the decade ahead. The risks and uncertain- of the Report is on the Moderate Case that includes a ties include deterioration in internal security in the coun- steady economic recovery from the problems of recent try and prolonged conflict in South Sudan that has an years and private sector-led economic diversification in adverse effect on the economic climate in Sudan itself, the 2015-2030 period. Most of the risks and uncer- including large numbers of refugees. tainties that confront Sudan in its efforts to diversify the economy are on the downside. Possible volatility 2.3.2 Prior to the Presidential elections that were held in the domestic oil market linked to continuing conflict in the first half of 2015, the government embarked on a in South Sudan, and the fragile internal security envi- dialogue with the political opposition and some armed ronment within Sudan may slow the pace of econom- groups in the Blue Nile and regions. In ic reform. The Low Case provides an overview of the the event that this dialogue makes tangible progress in implications associated with limited progress on eco- addressing the cycle of internal instability that has pre- nomic diversification in the decade ahead as a result vailed in Sudan, the prospects for creating the condi- of much lower levels of domestic savings and private tions for economic recovery in the near term, and the investment. The High Case assumes higher domestic policy framework required for a successful programme savings rates and larger capital inflows from abroad of broad-based and inclusive economic diversification in that finance much larger investment programmes, and the medium and longer-term, will be greatly enhanced. that this then translates into stronger economic growth.

32 | AFRICAN DEVELOPMENT BANK GROUP Table 2.7: Selected Macroeconomic Indicators for Moderate, Low and High Growth Scenarios (In US$ at 2012 constant prices and exchange rate) Indicator Actual/estimate Projection 2012 2013 2014 2015 2020 2021 2025 2030 Moderate growth scenario Production GDP at market prices growth rate (% p.a.) 0.3 3.7 3.8 4.0 5.0 5.2 5.6 5.9 Non-oil GDP at factor cost growth rate (% p.a.) 0.3 3.7 3.9 4.1 5.0 5.2 5.7 6.0 Non-oil GDP as % GDP at factor cost 96.6 95.8 95.9 95.9 95.9 95.9 95.9 96.0 Income GDP per capita (US$) 1,796 1,825 1,856 1,890 2,374 2,476 2,970 Non-oil GDP per capita (US$) 1,735 1,749 1,780 1,813 2,027 2,375 2,850 Fixed investment (as % of GDP) Private 16.7 15.9 15.3 15.5 15.9 16.8 19.3 19.9 Public 2.3 1.9 2.2 2.3 3.4 3.5 3.6 3.6 Total 19.0 17.8 17.5 17.8 19.3 20.3 22.9 23.5 Memo items: Petroleum value added (US$ mill) 2,266 2,884 2,948 3,044 3,851 4,063 5,033 6,578 Non-oil GDP (US$ mill) 64,538 66,403 68,993 71,822 90,189 94,879 117,984 156,998 Gross domestic product (US$ mill) 66,804 69,288 71,941 74,866 94,040 98,942 123,017 163,576 Low growth scenario Production GDP at market prices growth rate (% p.a.) 0.3 3.7 3.5 3.7 4.0 4.0 4.0 4.0 Non-oil GDP at factor cost growth rate (% p.a.) 0.3 3.7 4.0 3.7 3.9 3.9 3.9 3.9 Income GDP per capita (US$) 1,796 1,825 1,850 1,877 2,027 2,210 2,425 Non-oil GDP per capita (US$) 1,735 1,749 1,782 1,808 1,950 2,118 2,317 Fixed investment (as % of GDP) Private 16.7 15.9 15.3 15.5 15.0 16.0 17.0 Public 2.3 1.9 2.2 2.3 3.0 3.0 3.0 Total 19.0 17.8 17.5 17.8 18.0 19.0 20.0 Memo items: Petroleum value added (US$ mill) 2,266 2,884 2,653 2,740 3,466 3,656 4,530 5,920 Non-oil GDP (US$ mill) 64,538 66,403 69,060 71,627 86,751 90,170 105,233 127,624 Gross domestic product (US$ mill) 66,804 69,288 71,713 74,366 90,217 93,826 109,763 133,543 High growth scenario Production GDP at market prices growth rate (% p.a.) 0.3 3.7 5.2 4.2 6.2 6.4 7.1 7.3 Non-oil GDP at factor cost growth rate (% p.a.) 0.3 3.7 4.7 4.6 6.2 6.4 7.2 7.4 Income GDP per capita (US$) 1,796 1,825 1,869 1,912 2,242 2,788 3,564 Non-oil GDP per capita (US$) 1,735 1,749 1,793 1,835 2,156 2,687 3,444 Fixed investment (as % of GDP) Private 16.7 15.9 15.3 16.2 19.4 22.2 23.2 Public 2.3 1.9 2.2 1.8 3.7 4.7 6.0 Total 19.0 17.8 17.5 18.0 23.1 26.9 29.2 Memo items: Petroleum value added (US$ mill) 2,266 2,884 2,948 3,044 3,851 4,063 5,033 6,578 Non-oil GDP (US$ mill) 64,538 66,403 69,507 72,689 95,935 102,110 133,487 189,709 Gross domestic product (US$ mill) 66,804 69,288 72,455 75,733 99,786 106,172 138,520 196,287 Memo items: Exchange rate 3.573 3.573 3.573 3.573 3.573 3.573 3.573 3.573 Population ('000) 37,195 37,964 38,764 39,613 44,499 49,676 55,078 Labor force ('000) 11,110 11,443 11,782 12,133 14,051 16,274 18,847 Source: Annex 3.

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Macroeconomic Stability and Fiscal mulate. Early action is required to address the se- Policy vere debt arrears problems that have resulted in Sudan being cut off from most external financing 2.3.6 In response to the secession of South Sudan, from both official and private creditors. the Government of Sudan adopted a three-year emer- gency plan (2012-14). The plan centred on the follow- 2.4 Growth Prospects for the ing actions: (i) consolidating public finances to address Decade Ahead the loss of fiscal revenue, including enhancement of tax revenue, streamlining transfers to states, and phasing Moderate Growth and Diversification out fuel subsidies by end of 2017, while strengthening Scenario the existing social protection schemes; (ii) reforming the exchange rate regime; and (iii) laying the groundwork 2.4.1 Investment Requirements for the Pro- for sustained and inclusive economic growth and diver- gramme. The proposed programme for the Moder- sification. As part of this programme, the government ate Scenario for growth and diversification is led by a adopted a first package of corrective measures in June sustained build-up in private investment in agricultural 2012, the results of which were mixed. In September and industrial production, and in increased provision of 2013, the government adopted a second package of related services. This build-up in investment is a key corrective measures. The further actions required to driver for the proposed diversification of the economy develop a stable macroeconomic framework are dis- away from the past excessive dependence on the oil cussed in greater detail in Chapter 3. sector.

Investment, Domestic Savings and 2.4.2 Table 2.5 provides a summary of the invest- Financial Intermediation ment requirements for this scenario. Fixed investment is projected to increase from an average of about 18 2.3.7 The loss of oil revenues following the secession percent of GDP in 2012-13 to 19 percent by 2020 and of South Sudan and the resulting decline in domestic 23.5 percent by 2030. Annual fixed investment increas- savings performance poses a major challenge for the es from about US$13 billion in 2012 to about US$37 design and implementation of the proposed private billion by 2030 (at 2012 constant prices). Investment by sector-led diversification programme. Given that eco- the private sector would account for about 87 percent nomic sanctions may remain in place for an unspecified of the total fixed investment during 2014-30. It increas- period, action has to be taken on four related fronts es from about 16 percent of GDP in 2012-13 to about to mobilise the financing needed to meet the require- 20 percent by 2030. Public investment, however, in- ments of the proposed diversification programme: creases only slowly from the recent very low levels of • There is a need to increase substantially the level about 2 percent of GDP to about 3.6 percent by the of domestic savings to the point where it is the pri- mid-2020s, and then remains at that level during the mary source of financing for the proposed diversi- 2020s. The concern with this level of public investment fication programme. is that there may be persistent shortfalls in meeting the • Additional initiatives will be required to improve the infrastructure requirements of the country, depending financial intermediation capacities of the domestic on the government’s ability to mobilise an increasing financial market so that an increasingly large share amount of private investment for PPP-type projects, of these savings is available to finance investments especially for infrastructure. Experience elsewhere in in agricultural production as well as industry and Africa suggests that combined public and private in- services. vestment levels of 6-8 percent of GDP for an extended • A well designed promotional programme aimed at period are typically required to overcome the infrastruc- mobilising FDI from various regions of the world will ture gaps that are common throughout Sub-Saharan be needed, followed by a marketing programme Africa. Chapter 8 provides a more detailed discussion that includes visits to various international capital of these concerns. market centres. • External payment arrears are continuing to accu- 2.4.3 The main constraint on investment levels in

34 | AFRICAN DEVELOPMENT BANK GROUP Table 2.8: Projected Change in Selected Economic Indicators Indicator Actual/estimate Projected 2010 2012 2020 2030 Population ('000) Female 17,764 18,534 22,186 27,491 Male 17,888 18,661 27,587 27,587 Total 35,652 37,195 49,773 55,078 Population growth rate (% p.a.) 2.3 2.1 2.2 2.1 Urbanization (%) 33.1 33.4 35.0 38.8 Population less than 15 years (%) 42.1 41.4 38.7 35.6 No. permanent households ('000) 4,744 5,127 7,146 9,308 Average persons per household 6.2 6.0 5.2 5.0 Life expectancy at birth (years) 61 62 63 65 Labor force ('000) 10,479 11,110 14,051 18,847 Growth in labor force (% p.a.) 3.0 3.0 3.0 3.0 Unemployment rate (%) 14.8 14.8 14.0 10.0 GDP per capita (US$ at 2012 constant 1,973 1,796 2,374 2,970 prices) Increase in consumer price index (% p.a.) 15.4 44.4 5.0 5.0 Source: Table 2.7 and Annex Table 1.1.

this scenario is the mobilisation of funding for the pro- led to the signing of the CPA in 2005, net inflows of gramme. The proposed level of investment will require ODA increased significantly during 2005-2010, averag- an increase in the national savings rate from 17 percent ing about US$2.2 billion a year – equivalent to more of GDP in 2013 to about 21 percent of GDP by the than US$50 per person. In more recent years, however, mid-2020s. Sudan would then have a savings perfor- following continued problems with debt payments to mance that is roughly in line with the current savings official creditors, net inflows of ODA declined to only levels of Tunisia, Egypt and Mauritius. The shortfall in US$26 per person per year in 2012, but then recov- domestic savings is currently being made up with in- ered to US$31 per person in 2013. The position taken creased inflows of capital from abroad. Inflows of FDI in this Report is that a high priority must be attached have been in the range of 4 percent of GDP in recent to an agreement with creditors related to Sudan’s debt years, but net inflows of other capital for investment servicing obligations and to establishing the conditions purposes have been quite limited, in part because of necessary for debt relief under an HIPC initiative. outflows of capital for debt service and other claims. However, the continuing effects of Sudan’s problems 2.4.5 Economic Growth under the Moderate with debt arrears and the sanctions imposed by the Scenario. The proposed transformation under the US and European countries have limited the inflow of Moderate Growth Scenario results in a broader pattern capital from official sources and from many creditors. of development that provides large numbers of peo- ple with opportunities for productive employment and 2.4.4 One of the potentially important sources of off- improved livelihoods. Table 2.7 provides a summary shore financing is inflows of Official Development Assis- of the projected increase in GDP, non-oil GDP, and oil tance (ODA). Sudan’s access to ODA has contracted sector value added. Key features of the programme are sharply in the past few decades, largely because of as follows: increasingly large arrears with multilateral and bilateral • The growth rate for non-oil GDP rises steadily creditors. As Table 2.6 indicates, in the early part of from recent levels of about 3 percent a year in real the 2000s, the average net inflow of ODA was about terms to about 5 percent a year by 2020, and then US$470 million a year, equivalent to about US$13 per to about 6 percent a year in the latter part of the person per year. With the successful negotiations that 2020s.

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Table 2.9: Indicative Composition of Investment Expenditures Scenario, it is assumed that economic sanctions would for 2014-2030 (In US$ mill at 2012 constant prices & exchange rate) continue to be imposed on Sudan and that there would Type of investment Amount Share be extensive delays in reaching agreements with official expenditure and private creditors on the debt arrears problems of (US$ mill) (%) the country. It is also assumed that revenues from oil Capacity building and exports would be somewhat lower than in the Moderate technical services Growth Scenario and that there would be slow prog- Technical services 5,856 1.5 ress in improving the domestic savings performance Goods and materials 1,952 0.5 and the operating environment for private investors.

Sub-total 7,808 2.0 Potential offshore investors would be cautious about in- vesting in Sudan under these circumstances. With low Capital expenditures levels of savings, limited access to external capital, the Materials 125,304 40.0 gross investment levels would be low and as a result, Services 156,614 32.0 GDP growth would be about 4 percent a year in the lon- Equipment 101,795 26.0 ger-term. In this Scenario, GDP per capita increases to

Sub-total 383,713 98.0 about US$2,430 by 2030 (at 2012 constant prices).

Total 2.4.8 The High Growth Scenario with Rapid Di- Labor services 131,159 33.5 versification. In the High Growth Scenario, the perfor- Materials 158,566 40.5 mance of the oil sector is assumed to be the same as in Capital equipment 101,795 26.0 the Moderate Growth Case. However, it is assumed that

Total 391,521 100.0 the operating environment is more conducive for private investment and that the pace of diversification is more rapid in this Scenario. As a result, the level of fixed in- • The non-oil economy accounts for more than 90 vestment during the 2015-2030 period is substantially percent of Sudan’s GDP throughout 2014-30. higher than in the Moderate Growth Case. As Table 2.6 • GDP per capita increases from about US$1,800 in indicates, fixed investment increases to 27 percent of 2012 to about US$3,000 by 2030 (at 2012 con- GDP by 2025 and 29 percent by 2030. GDP growth stant prices and exchange rate). increases to about 7 percent a year by the mid-2020s, compared with 5.6 percent in the Moderate Growth 2.4.6 An important point about the projections set out Case. By 2030, GDP per capita is about US$3,590 (at in Table 2.7 and Annex Table 3.1 is that it will take some 2012 constant prices), compared with about US$3,000 time for the full economic impact of diversification to be in the Moderate Case. felt. As the earlier discussion indicates, it will take sev- eral more years of prudent management of fiscal, mon- 2.4.9 It is assumed that economic sanctions continue etary and foreign exchange policies to restore a stable to apply in the High Growth Case, thereby constraining macroeconomic environment that in turn, improves the Sudan’s access to debt financing in international capital operating environment for private investment. Moreover, markets. As a result, the bulk of the additional financing building the policy framework and institutional capaci- for the programme has to come from the domestic mar- ties for the proposed transformation of the economy will ket. The main issue with the High Growth Scenario cen- also take some time. It is for these reasons that the GDP tres on whether Sudan can raise national savings rates growth rate is projected to increase only gradually to the from the current level of 17 percent of GDP to at least range of 5 percent a year by 2020. 26-27 percent by 2030. In the event that Sudan was able to achieve an impressive increase in domestic savings, Alternative Scenarios for the Pace of the financing constraint would be much less stringent Diversification and the prospects for sustained economic growth in the range of 7-7.5 percent year during the 2020s would be 2.4.7 The Low Growth Scenario with Limited more plausible. Progress on Diversification. Under the Low Growth

36 | AFRICAN DEVELOPMENT BANK GROUP Table 2.10: Projected Growth in Merchandise Exports and Imports (In US$ million at 2012 constant prices) Indicator Actual/estimate Projection 2012 2013 2014 2015 2020 2025 2030 Exports Crude oil 1,755 1,617 1,091 553 893 1,410 1,719 Petroleum products 257 102 163 48 - - - Gold 2,158 1,048 1,271 1,108 1,235 1,870 2,500 Other 989 2,032 1,825 2,160 4,960 7,500 10,900 Total exports 5,159 4,800 4,350 3,870 7,088 10,780 15,119 Imports Foodstuff & beverages 2,109 2,448 2,344 2,297 2,251 2,206 2,162 Petroleum products 1,052 1,460 1,524 957 2,074 4,284 6,995 Manufactures 3,018 3,055 2,844 2,729 2,976 2,950 3,140 Capital goods 2,763 2,649 2,250 2,443 3,070 4,399 5,583 Other 533 305 250 500 800 1,100 1,400 Total imports 9,475 9,918 9,211 8,927 11,172 14,939 19,279 Merchandise trade balance (4,316) (5,118) (4,861) (5,057) (4,084) (4,159) (4,160) Memo items: Non-oil exports as % of non-oil GDP 4.9 4.6 4.5 4.6 6.9 7.9 8.5 Non-oil imports as % of non-oil GDP 13.1 12.7 11.1 11.1 10.1 9.0 7.8 Source: Central Bank of Sudan, Table 7.5, Table 7.6 and estimates by authors.

2.5 Economic Impact of the 2.5.3 Third, the programme will also contribute to Programme and the Benefits poverty reduction. International experience suggests that sustained economic growth of 5-6 percent a year Economic and Social Benefits of the from 2018, together with improvements in a range of Proposed Programme social services, including health and education pro- grammes, could bring the incidence of poverty down 2.5.1 Table 2.8 provides a summary of possible out- from 47 percent of the population in 2012, to about 30 comes for key economic indicators for the period 2012- percent by 2030. The implication is that there would be 2030. Four broad sets of benefits would flow from suc- a decline in the number of people below the poverty cessful implementation of the proposed moderate pro- line by 2030. Even with the projected overall increase in gramme for diversification. First, with sustained broad- population from 37.2 million in 2012 to 55.1 million by based growth in the range of 5-6 percent a year from 2030, the total number of people below the poverty line 2018 onwards, the non-oil economy is able to create would decline from about 17.5 million in 2012 to about substantial employment opportunities for new entrants 15 million by 2030. into the labour force, while also contributing to a steady reduction in the current high levels of unemployment (in 2.5.4 Fourth, the proposed programme would cre- the range of 15 percent of the labour force) that have pre- ate a substantial range of new business opportunities vailed for more than a decade. within Sudan. Under the Moderate Growth Scenario, to- tal investment expenditures in the economy during the 2.5.2 Second, there is a steady increase in real income 2014-2030 period are projected to be about US$390 per capita within the country that will translate into im- billion (at 2012 constant prices and exchange rate). The proved livelihoods for many people. In real terms, GDP key issue here is the extent to which a range of actions per capita increases by 3-4 percent a year during 2014- can be taken by the government to ensure that the do- 30. The proposed broad-based and inclusive programme mestic business community and labour market benefit of economic growth provides employment and income from these opportunities rather than accrue primarily to opportunities for both rural and urban populations. offshore suppliers of these goods and services.

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Table 2.11: Imports of Sudan for 2013 commercial buildings, and provision of various profes- Imported product Quantity Value sional services (legal, accounting, investment adviso- ('000 mt) (US$ mill) ry services, training and others). Some US$159 billion Foodstuff would be spent on goods and materials, including, for Wheat 2,314 1,027 example, construction items such as cement, gravel, Wheat flour 27 15 asphalt, ironworks, lumber, and supplies for plumbing Sugar 1,118 646 and electrical connections. Further, about US$102 billion Dairy products 31 82 would be spent on capital equipment, including trans- Vegetables & products 82 63 port equipment of various kinds, pumping equipment Fruits & products 90 44 for water supply and irrigation, and equipment for power Animal & vegetable oils 155 149 generation and transmission, and for ICT services. Other 346 Sub-total 2,372 2.5.6 The position taken in this Report is that the Beverages & government, with the support of international donors, Soft drinks 9 27 will need to take early action on the design and imple- Other 49 mentation of complementary programmes of support Sub-total 76 for the local business community. Chapter 5 and Chap- Petroleum products 1,294 1,460 Raw materials 241 ter 6 outline the types of support that will be required. Chemicals Chapter 9 then addresses the issues associated with Fertilizer 254 136 the further development of the financial services industry Other 776 and programmes for skills development for the Sudan Sub-total 912 labour force to ensure that the increased demand for Manufactures semi-skilled and highly skilled workers can be met from Plastics 95 226 within the country, rather than from a large influx of for- Iron and steel 727 711 eign workers. Metal products 54 129 Paper products 126 141 Expanding the Role of the Private Sector Other 636 Sub-total 1,843 2.5.7 Active participation of the private sector is Capital goods central to the success of the proposed diversification Machinery and equipment 1,713 programme. As noted in the foregoing discussion, the Transport equipment 936 private sector would account for more than 80 percent Sub-total 2,649 of fixed investment in the Sudan economy during the Textiles 2014-2030 period. In addition, individual farmers and Finished clothing 173 medium and large-scale commercial businesses would Synthetic fabrics 85 account for the bulk of production activities and service Other 44 provision in the country. Sub-total 301 Other 65 Total imports 9,918 2.5.8 To take advantage of the opportunities that will Source: Central Bank of Sudan. be created by a successful programme of economic di- versification, action by the government, in collaboration with the business and farming communities (including 2.5.5 Table 2.9 provides a very rough estimate of the smallholder farmers that generate marketable surplus- composition of the proposed investment expenditures es of produce), will be needed to support the further for the economy during the 2014-2030 period. An in- development of domestic capacities for the supply of creasingly wide range of skills will be required in the la- goods and services. These actions include: (i) improve- bour force. About US$131 billion would be spent on ments in the business environment, including, for exam- labour services related to the investment programme, ple, the adequacy of the legal framework for investment including, for example, construction of infrastructure and and the extent to which there is clarity in the regulato-

38 | AFRICAN DEVELOPMENT BANK GROUP ry framework; (ii) programmes to ensure that small and cessful reformers in Sub-Saharan Africa (e.g., Ghana, medium-business entities in Sudan benefit from the , and Rwanda), which are noted for their long-term programme; (iii) measures needed to promote the de- agenda for reform of the business environment and velopment of technical skills in the labour market; and push forward continuously. Their programmes typi- (iv) in the case of the public sector, development of con- cally include all relevant stakeholders in the process, tracting arrangements for domestic supply of goods and set specific goals, institutionalise the reform effort and services for the programme. regularly monitor progress.28 The benefits can be sub- stantial. Business reforms expand the reach of regu- 2.5.9 The government will also need to develop effec- lation by bringing firms and employees into the formal tive capacities to address the concerns of international sector. Businesses pay taxes. Products are subject to investors in a timely manner. Inability to address such quality standards. In addition, formal firms gain greater concerns may result in potential investors shifting their access to bank credit to fund expansions and to courts attention to other countries where the risk-reward rela- to resolve disputes. tionship is more attractive. A country such as Sudan, having been entangled in decades of conflict, will typ- 2.5.11 Support for smallholder farmers and ically attract a wide of concerns by potential investors small and medium business: A range of initiatives in assessing the risk-reward framework.27 These range can be taken to promote the development of small and from concerns about force majeure to political risks medium business activities in both rural and urban ar- (such as changes in the regulatory environment), envi- eas of Sudan. Chapter 5 outlines in some detail the ap- ronmental risks and the current status of environmental proach that is proposed for acceleration of agricultural laws and regulations in Sudan, currency exchange risks, development throughout the country, with particular especially in cases where substantial amounts of debt emphasis on the on-farm and off-farm needs of small- financing are used and are denominated in a currency holder farmers. To promote on and off-farm smallhold- other than that of the bulk of the revenues generated er business activities, a widely used approach in other under the project, and social risks where a project may developing countries relies on the use of a network of have an important impact on local communities. Unsat- business development centres (BDCs) throughout the isfactory arrangements regarding land tenure or use of country. These centres are typically involved in training local water resources, for example, can lead to signifi- and provide support to small and medium entities to cant local opposition to a project. This may in turn result bid for and implement various types of contracts for in delays in project completion and increased comple- the supply of goods and services. Such training pro- tion costs, and could even undermine project viability. grammes include preparation of bid documents, sup- port for preparing applications to the banking sector for 2.5.10 Improving the business environment: As working capital and investment loans, arrangements discussed elsewhere in this Report, Sudan has limited for lease of equipment, and bookkeeping and record capacity for providing institutional support to the farm keeping. and non-farm business communities. Chapter 4 pro- vides a detailed analysis of the challenges associated 2.5.12 Improving the supply of technical skills with doing business in Sudan. Investors will be con- for the labour market: The proposed diversification cerned about the adequacy of the legal framework for programme will generate a large demand for a wide investment and about the extent to which there is clar- range of skilled and semi-skilled workers. It will also ity in the regulatory framework. The National Govern- create job opportunities for large numbers of unskilled ment, state governments and counties need to identify workers. As the discussion in Chapter 9 indicates, the key areas for improvement and take specific action to key policy issues here will be the manner in which peo- address these bottlenecks. The Government of Sudan ple are trained, by whom and at what cost. In the case can follow a path that is similar to that of other suc- of equipment operators, for example, it is not unusual

27 There is an extensive literature on these types of issues. See, for example, Woodside, 28 According to the IFC, 27 of 46 Sub-Saharan economies have implemented reforms Arch G. and Robert E. Pitts (1996), Creating and Managing International Joint Ven- aimed at improving their business environments. Rwanda was identified as one of the tures. Quorum Books, Westport, Connecticut, 1996; Delmon, Jeffrey (2009), Private top improvers globally. Since 2005, Rwanda has implemented 22 business regulation Sector Investment in Infrastructure: Project Finance, PPP Projects and Risk. Kluwer reforms in areas measured by the Doing Business surveys of the IFC. Other countries, Law International, The , 2009; and Bygrave, William D., Michael Hay, and such as Ghana and Mali, have initiated similar programmes. See IFC (2013), Doing Jos B. Peeters (1999), The Venture Capital Handbook. Pearson Education Ltd., Lon- Business, 2014: Understanding Regulations for Small and Medium-Size Enterprises. don, 1999. International Finance Corporation, Washington DC, October 29, 2013.

AFRICAN DEVELOPMENT BANK GROUP | 39 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN for the successful contractor to assume responsibility used, and if their technical specifications comply with for hiring and training the personnel required. To meet contract requirements: (iii) the number, size and type of the demand for skilled tradespeople, such as electri- contracts to be tendered and the extent to which local cians, surveyors, welders, among others, the issue is contracts will be geared to contractor capacities within the extent to which Sudan can build accredited training the domestic market. institutions whose programmes meet standards that are consistent with international practice. 2.5.16 A key issue going forward is the extent to which domestic suppliers of materials will be able to 2.5.13 Closely related to these concerns is the actual meet specific product standards required for these pro- accreditation of those training institutions whose pro- grammes. If it doesn’t already exist, Sudan will, for ex- grammes conform to agreed standards for the industry. ample, need to develop a uniform set of internationally In the absence of agreed standards and an accredita- accepted standards for domestic production of con- tion process, donor support for such capacity building struction materials. Without these types of standards, may be considered. In the event that the development there is a strong prospect for the award of contracts of these domestic capacities is slow, consideration to external contractors for supply of materials that can might be given to support by donors for skills train- comply with specifications in procurement notices. ing of Sudanese at appropriate qualified institutions in Again, the ISO could be approached for assistance in neighbouring countries. The Government may want to these matters. approach the International Organisation for Standard- isation (ISO) for assistance and training in these mat- 2.5.17 Further work is needed to develop a clear set ters. of policies for procurement that can help to develop domestic business activities. Early consideration could, 2.5.14 Procurement policies and programmes for example, be given to awarding maintenance con- for the domestic market: Increased attention needs tracts to qualified local firms in various infrastructure to be given to the provision of public information about sectors, initially for a year or less. As capacities of procurement opportunities generated by government these firms increase, consideration could be given to expenditures. As Table 2.5 indicates, public investment the competitive award of multi-year or so-called “pe- expenditures are projected to amount to about US$50 riod” contracts for routine maintenance. Such con- billion during the 2014-2030 period (at 2012 constant tracts might start at, say, US$100,000 a year. The size prices and exchange rate). Some of these activities will of such contracts could be increased, consistent with be carried out by government agencies themselves, the further growth of local capacities. Longer-term con- but in this period, a substantial part of the government’s tracts that are implemented according to standards re- capital works programme will have to be contracted quired can help reduce the cost of asset maintenance, out to private suppliers of goods and services. and will also permit contractors to purchase necessary equipment and meet the costs of staff training. These 2.5.15 Procurement of this amount of goods and ser- types of techniques were used with great success in a vices provides an important opportunity for the govern- number of countries in East Asia several decades ago ment to help promote domestic business activity. More to build small domestic firms into major construction work may be needed to ensure that the procurement companies that were able to compete effectively with policies of the national and state governments are in line international suppliers of such services. with accepted international standards and that these procurement processes are open and transparent. That said, a range of initiatives can be taken to ensure Import Substitution and Export that a substantial share of the procurement is awarded Promotion to qualified domestic suppliers of goods and services. Procurement policies will need to address the following 2.5.18 Opportunities for Export Promotion: The types of issues: (i) the choice of technical standards for agricultural and mineral resource base of Sudan give civil works and goods and materials to be supplied un- it the prospect of becoming a major exporter of food der contracts; (ii) to what extent local materials can be products, agro-industrial products and non-oil miner-

40 | AFRICAN DEVELOPMENT BANK GROUP al products, such as gold and cement. These are dis- ucts, such as wheat, sugar, dairy products and fruits cussed in chapters 5 and 6. The first exports of cement and vegetables for import replacement. This will require began in 2014. The main challenges limiting optimal close attention to measures that promote competi- exploitation of these export capacities are discussed at tiveness of domestic producers and compliance with some length in later chapters, but the key issues centre generally accepted product standards. Another area of on meeting international quality standards required for potential interest concerns textiles. There may be op- export markets, and improving the international com- portunities for expansion of cotton production in ag- petitiveness of potential export products. riculture to supply domestic textile industry. Chapters 5 and 6 discuss in some detail the requirements for 2.5.19 Table 2.10 includes a provisional projection for successful expansion in the production of these agri- merchandise export earnings in the 2014-2030 period. culture-related products. It is assumed that the volume of crude oil exports will increase from 11 million barrels in 2014 to about 17 mil- 2.5.22 With imports of petroleum products now at lion barrels by 2030, but that with growth in domestic US$1.5 billion a year, there may also be scope for ad- demand for petroleum products, exports of these items ditional investment in oil refining to meet the growing will cease by about 2017. This is detailed in Chapter 7. need for a range of petroleum products that are cur- Most of the growth in export earnings comes from ex- rently imported. (See Chapter 7 for a further discussion port of food products, livestock, agro-industrial prod- of these possibilities.) The country imports substantial ucts and non-oil minerals. The value of gold exports is volumes of fertilizer. The demand for such products assumed to increase steadily to about US$2.5 billion present opportunities for private sector investment in a year by 2030. Earnings from other non-oil exports import replacement activities. Moreover, there may also are assumed to grow at an average of about 10 per- be opportunities to promote a selective development cent a year in real terms during the 2014-2030 period, of capital goods manufactured in Sudan, perhaps with increasing from about US$2 billion in 2013 to about joint venture arrangements that begin by undertaking US$11 billion by 2030. local assembly of appliances and road transport equip- ment and so on. 2.5.20 Prospects for Import Substitution: As Ta- ble 2.10 indicates, merchandise imports were about 2.5.23 It is assumed that a successful programme of US$9.9 billion in 2013, and are reported by CBoS to import replacement for various foodstuffs emerges in have declined to about US$9.2 billion in 2014. The the medium-term, and as a result, there is a modest most important categories were capital goods that decline in the import of these products in the decade accounted for 27 percent of the total, foodstuffs that ahead. More detailed analysis of these various options accounted for 24 percent, various manufactures that will need to be undertaken, including the prospec- accounted for 19 percent and petroleum products that tive competitiveness of domestically produced goods accounted for 15 percent. with comparable imports, the adequacy and reliability of raw materials supplies, and existence of technical 2.5.21 There appears to be scope for development standards for domestically produced goods that are of a significant import replacement programme for Su- comparable with imported products. Assuming some dan in the decade ahead. Sudan imports a substan- progress on import replacement in the decade ahead, tial amount of foodstuffs, including products such as merchandise imports are projected to increase to about wheat, wheat flour, sugar, fruits and vegetables and US$19 billion by 2030 (at 2012 constant prices). In this related products, and animal and vegetable oils, all of case, Sudan’s merchandise trade deficit would decline which can be produced in the country. The total val- from US$4.9 billion at present to about US$4.2 billion ue of these imports was US$2.4 billion in 2013 (Table by 2030 (at 2012 constant prices). The implication is 2.11). Successful implementation of the proposed di- that the trade deficit declines from the current level of 7 versification programme would include close attention percent of GDP to 2.5 percent by 2030. to expanding domestic production of agricultural prod-

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42 | AFRICAN DEVELOPMENT BANK GROUP 3. TRANSITION TO A STABLE MACROECONOMIC ENVIRONMENT

3.1 Key Challenges for 3.1.3 As noted in Chapter 1, the recent intensi- Macroeconomic Management fication of economic sanctions against Sudan may complicate efforts to improve the domestic macro- The Setting economic environment. A continuation of the 2014 breakdown in relations with correspondent banks will 3.1.1 Since the secession of South Sudan in July very likely have a considerable negative impact on the 2011, Sudan has grappled with a challenging macro- Sudan economy. The impact may include a decline in economic environment, although the situation shows exports and imports that, in turn, may affect domes- signs of improvement. The secession led to an imme- tic consumption and production. Reduced supplies of diate significant deterioration in the economic circum- goods may increase in inflation and foreign exchange stances of Sudan. The loss of oil revenues resulted shortages may contribute to depreciation of the cur- in large budget deficit in 2012. The overall balance rency on the parallel market, fuelling inflation and un- on the budget went from a surplus equivalent to 0.2 dermining macroeconomic stability. percent of GDP in 2011 to a deficit of 3.7 percent of GDP in 2012 and 2.3 percent in 2013. Heavy reliance The Need for Macroeconomic Stability on Central Bank of Sudan financing for this budget deficit, along with a large devaluation of the currency, 3.1.4 A stable macroeconomic environment con- then translated into a sharp increase in domestic infla- tributes to growth and diversification. Restoring tion. On an end-year basis, the consumer price index macroeconomic stability is a critical condition for in- increased by 44 percent in 2012 and 42 percent in vestment, which is the main vehicle for the proposed 2013. programme of private sector-led diversification. In a stable macroeconomic environment, investors can 3.1.2 As Chapter 1 indicates, the surge in oil revenue feel more confident about the environment for medi- that began in 1999 brought great advantages to the um-term to long-term investment. Investors expect economy. But it also came with risks. Though the oil these policies to affect the real rate of return on their money was more of a windfall gain than an assured efforts; the expected real value of their investments in flow, it encouraged expenditure levels that lacked the the system over time; and the ability to transfer their backing of non-oil revenues and that became unsus- assets and earnings from the domestic economy to tainable with the secession of South Sudan and de- another country. Low inflation, capital mobility, a sta- cline in oil revenues. Furthermore, it led to appreciation ble (but legally flexible) exchange rate, and convertibil- of the real exchange rate and increased the circulation ity of the domestic currency or at least an absence of of high powered money, along with sharp increases in exchange controls, all attract investors (both local and domestic inflation. It also concealed the poor perfor- foreign) to the local economy, benefitting economic mance of the non-oil sector and may have contributed diversification and growth. to laxity in economic governance and management.

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3.1.5 The immediate post-secession policy agen- policies that encourage financial deepening and the da is to restore the internal and external balances, re- efficient intermediation between savings and investors duce inflation and stabilise the foreign exchange rate. can make an important contribution to the further de- The medium-term agenda is to broaden the base of velopment of the domestic capital market that is central production. In principle, short-term stabilisation poli- to successful implementation of the Moderate Growth cies can influence the diversification objective through Scenario discussed in Chapter 2. Closely related to the their impact on the price structure and the incentive need for improved domestic resource mobilisation is system. As the discussion below indicates, a range of the need to resolve the ongoing problems of debt ar- important macroeconomic variables (inflation, current rears. An early resolution will create opportunity for in- account balance in relation to GDP, and the fiscal deficit creased flow of concessionary financing resources and in relation to GDP) require further adjustment. Appropri- will also have a positive impact on investor perceptions ate monetary and fiscal policies, adopted together with about the merits of substantial additional investment in banking and finance sector policy measures, would in- key components of the proposed diversification pro- fluence resource mobilisation and financial intermedia- gramme. tion. 3.1.9 As indicated in Chapter 2, the Government of 3.1.6 Good fiscal management, while helping to Sudan adopted a three-year emergency plan (2012- contain inflationary pressures, will also contribute to an 2014) to address the macroeconomic impact of the improved economic performance in a number of ways: secession of South Sudan. The key features of the (i) Fiscal sustainability will create a space for govern- plan were as follows: (i) To address the loss of fiscal ment investment in the physical and social infrastruc- revenue, consolidate public finances (including the ture; (ii) on the revenue side, reform of the tax structure enhancement of tax revenue), streamline transfers to will help in achieving allocative efficiency as well as im- states, and phase out fuel subsidies by the end of proving the incentive system (for example by rational- 2017, while strengthening the existing social protection ising taxes on the agriculture sector); and (iii) on the schemes; (ii) reform the exchange rate regime; and (iii) expenditure side, clear prioritisation of expenditures will lay the groundwork for sustained and inclusive eco- ensure efficient allocation of public expenditure. nomic growth and diversification. As part of this pro- gramme, the government adopted a first package of 3.1.7 Trade policy influences the growth of exports corrective measures in June 2012, the results of which and imports and partly determines the degree of open- were mixed. ness of the economy. In that connection, a stable and appropriate foreign exchange rate is critical for export 3.1.10 In September 2013, the government adopted a competitiveness since overvalued rates inflate the price second package of corrective measures. In early 2014, of exports and deflate the price of imports, thus giving it sought the assistance of the IMF to put in place a advantages to foreign producers over local producers, Staff Monitored Programme (SMP) for the January-De- both in the domestic market and in offshore markets cember 2014 period. The objective of the SMP is to re- where they are competing. It affects the whole spec- store macroeconomic stability, strengthen social safety trum of traded goods in a number of ways: (i) Appropri- nets, and develop the required reforms to refocus the ate exchange rate policies will boost competitiveness economy on its non-resource sector, thereby laying the and help remove price distortions and disincentives, groundwork for sustainable economic growth over the especially to exports; and (ii) building adequate re- medium and longer-term. The discussion below out- serves will help stabilise the exchange rate. lines the key macroeconomic challenges that continue to confront the government, along with a summary of 3.1.8 Given the sharp decline in domestic savings, the actions being taken.29 as discussed in Chapter 1, the choice of appropriate monetary and financial policies will facilitate domes- tic resource mobilisation (savings and intermediation). 29 For a more detailed discussion on the emergence of macroeconomic instability in Su- Sound monetary policy has an impact on the availability dan and the measures being taken under the SMP to restore stability, see the recent country economic reports of the IMF, including: IMF Country Report No. 14/249 of and the cost of credit to the private sector. Financial August 2014; No. 14/203 of July 2014; No. 13/320 of October 2013; No. 12/298 of November 2012; and No. 11/86/of April 2011.

44 | AFRICAN DEVELOPMENT BANK GROUP Table 3.1: Inflation Rates in Sudan During 1961-2014 (Average annual percentage increase) Indicator 1961-69 1970-79 1980-89 1990-99 2000-09 2010 2011 2012 2013 2014 Consumer price index End year 9.3 15.4 18.9 44.4 41.9 25.7 Period average 3.4 15.3 36.2 80.4 8.7 13.1 18.3 35.1 37.1 37.5 GDP deflator¹ 39.3 53.6 9.4 13.7 25.3 30.0 16.7

Memo item: World Bank GDP deflator 4.0 16.7 42.0 73.9 9.1 19.6 21.0 27.6 36.7 29.9 Source: Central Bank of Sudan, World Bank Development Indicators and IMF country reports. Note 1. See Annex 2.3 for GDP deflator from government's national income accounts.

Table 3.2: Fiscal Operations of Central Government of Sudan (Receipts and expenditures as % GDP at current prices) Indicator 1995 2000 2005 2010 2011 2012 2013 2014 estimate Revenue and grants Oil revenue - 4.2 10.8 10.7 10.0 1.7 2.2 1.0 Non-oil 4.6 5.5 6.9 6.7 7.0 7.0 8.8 9.8 revenue Grants - - - 0.6 0.3 0.4 0.7 0.5 Total 4.6 9.7 17.7 18.0 17.3 9.1 11.6 11.4 Expenditures Recurrent 5.4 8.2 16.4 14.2 14.5 10.2 11.6 10.1 Capital 0.8 2.2 2.7 3.6 2.6 2.1 2.2 2.2 Total 6.2 10.4 19.1 17.8 17.1 12.3 13.8 12.4 Overall (1.7) (0.7) (1.5) 0.3 0.2 (3.1) (2.2) (1.0) balance Financing sources Foreign 0.5 0.3 0.1 0.4 0.6 0.1 0.4 0.1 funding Domestic funding Bank 1.1 0.2 0.9 2.2 2.2 0.8 - - financing Other - 0.0 0.4 (2.8) (2.9) 2.2 1.8 0.9 funding Sub-total 1.6 0.6 1.5 (0.3) (0.2) 3.0 1.8 0.9 Discrepancy 0.0 0.1 - - - - 0.0 - Total 1.7 0.7 1.5 (0.3) (0.2) 3.1 2.2 1.0 Memo items: Oil revenue - 548 3,699 7,518 7,020 1,187 1,352 716 (US$ million) Oil as % of - 43.2 61.2 59.3 57.7 19.1 18.6 9.0 total revenue GDP at 8,034 33,663 83,298 162,204 186,690 243,413 294,631 435,140 market prices (SDG mill) Source: Annex Table 2.7.

AFRICAN DEVELOPMENT BANK GROUP | 45 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 3.3: Revenues as 3.3 The Need for Fiscal % GDP for Comparators Consolidation Country 2012 Cape Verde 20.8 The Oil Boom and Secession of South Cote d'Ivoire 17.8 Sudan Ghana 19.4 Nigeria 5.0 3.3.1 As the IMF (2014a) has pointed out, the fis- 20.2 cal performance of Sudan over the past three decades Uganda 13.2 has been heavily influenced by two major concerns: an Zambia 21.4 unsustainable level of external debt and since 1999, Source: World Bank substantial dependence of oil as the primary source of Development Indicators public revenues. Since the oil boom began in 1999, fis- cal and exchange rate policies have been influenced by the heavy dependence on oil revenues. These revenues 3.2 Re-emergence of High accounted for about 60 percent of total government Domestic Inflation revenues during the 2000-2010 period, a dependence that then resulted in a very low tax burden on the non- Inflation in Sudan oil economy (Table 3.2). The substantial oil revenues also allowed the government to maintain an overvalued 3.2.1 Sudan has a long history of high domestic in- exchange rate. flation.30 As Table 3.1 indicates, average annual infla- tion rates per decade was less than 10 percent only 3.3.2 These longer-term problems were exacer- in the 1960s and again in 2000-2009. In the 1980s bated by the secession of South Sudan in 2011. The and 1990s inflation rates were very high. They were Government responded to the shock by adopting an brought down with more stringent monetary policy and emergency budget in 2012, reiterating its objectives exchange rate management. The high inflation rates of to control prices, restore the external balance, sus- the past have been not conducive to macroeconomic tain economic growth and support the poor and the stability in general and financial sector stability in par- vulnerable. The brunt of its short-term “emergency” ticular. The adverse impact of high inflation on the ex- response was to be undertaken through a combina- pectations and investment decisions of private inves- tion of fiscal adjustment and appropriate monetary and tors has led to lower levels of private investment and fiscal policies. Due to its arrears problem with external reduced economic growth in the non-oil economy. debt payments, the country had limited access to ex- ternal financing that could have eased the burden of 3.2.2 The current challenge is to contain the very adjustment. Thus, the challenge for fiscal adjustment high rates of inflation that emerged after the secession was to restore fiscal sustainability, realise an efficient al- of South Sudan in 2011. The end-year inflation rate for location of expenditure and high quality of government the consumer price index rose from 19 percent in 2011 expenditure. In addition, the government also faced the to 44 percent in 2012 and 42 percent in 2013. Under challenge of improving public financial management. the SMP agreed upon with the IMF, the target rate of The agenda in public financial management included increase in consumer prices for 2014 (on an end year adopting a multi-year medium-term budget, introduc- basis) was 18.1 percent. Measures taken under the ing transparency in budgeting, achieving a higher lev- SMP programme reduced the inflation to 26 percent el of fiduciary standards, consolidating fiscal reporting for 2014. The objective of the SMP that was agreed and eliminating the extra-budget units by adopting a upon with the IMF in 2014 was to bring down the rate Treasury Single Account and sub-national government of inflation to 12 percent in 2015 and about 6 percent accounting.31 by 2018.

30 See, for example, IMF (2012.a), “Sudan’s Inflation Problem: Some Lessons from the 31 Heeding the advice of the IMF, in 2001, the Government established an oil savings Past Thirty Years.” IMF Country Report No. 12/299, September 10, 2012. See also account that aimed at channelling some of the oil revenues to a protected fund that IMF (2013.d), “Monetary Transmission Mechanism in Sudan.” IMF Country Report No. could be used to hedge against revenue declines. By 2004, the Government had put 13/320 Sudan: Selected Issues. October 2013. a considerable amount of money in the account, equivalent to 25 percent of GDP.

46 | AFRICAN DEVELOPMENT BANK GROUP Revenue Performance infrastructure, which is critical for attracting investment. There is room to raise tax revenues by taxing gold pro- 3.3.3 For much of the pre-oil boom period, public duction, broadening the tax base, improving tax ad- revenues of Sudan were low – equivalent to less than 10 ministration and removing unjustified tax exemptions percent of GDP. With the start of the oil boom in 1999, (see IMF, 2013.b). In 2012, gold mining accounted for oil revenues grew rapidly and by 2005, were equivalent 40 percent of the export earnings, but generated less to 11 percent of GDP (Table 3.2). Prior to the secession than 0.1 percent of the total tax revenue. of South Sudan in 2011, oil revenues remained in the range of 10-11 percent of GDP, while non-oil revenues 3.3.7 Another key objective of the SMP is to realise were about 7 percent of GDP. Following the secession, improved mobilisation of non-oil tax revenues, a reduc- oil revenues declined to less than 2 percent of GDP in tion in tax exemptions, reform of tax arrangements for 2013 and 2014, while non-oil revenues increased from gold-related activities, and improvements in the effi- about 7 percent of GDP in 2011-12 to almost 10 per- ciency of tax collection. In the event that the ongoing cent in 2014. Total public revenues therefore dropped SMP is implemented successfully, the IMF projects that precipitously from an average of 17 percent of GDP revenues would then grow in line with GDP to reach 11 during 2005-10 to 11 percent in 2012-14. percent of GDP by 2019. Oil revenues are expected to be about 1 percent of GDP throughout this period. The 3.3.4 Beginning in 2013, Sudan began to receive position taken in this Report is that in the longer-term, additional revenue under the agreements signed with Sudan would need to continue to raise the share of Na- South Sudan in 2012.32 In 2013, Sudan received a total tional Government revenues relative to GDP. Table 3.3 of US$123 million in oil transit fees charged to South reports on the revenue performance of SSA countries Sudan, and US$248 million under the Transitional Fi- that are currently classified by the World Bank as lower nancial Agreement (TFA). In 2014, the TFA payments middle income countries, as is Sudan, and for which by South Sudan were expected to amount to about revenues are reported by the World Bank for 2012. On US$460 million. the basis of these comparator countries, a reasonable objective for Sudan would be to raise government rev- 3.3.5 However, tax revenue in Sudan as a percent- enues to about 18 percent of GDP by 2030 – a revenue age of GDP is relatively small, with low levels of taxation performance that would be roughly comparable to that on the non-oil economy. In 2012, the non-oil tax reve- of these comparator countries in 2012. Based on the nue of 7 percent of GDP was lower than that of Egypt, projections for GDP growth in the Moderate Growth Ethiopia, Kenya, Malawi, Rwanda, Tanzania, Uganda Scenario, this would put government revenues (exclud- and Zambia. There was modest improvement in 2013 ing grants) at about US$30.0 billion in 2030, compared and 2014, with these taxes rising to an estimated 10 with US$6.9 billion in 2013. percent of GDP in 2014. The low tax rate stems from a narrow tax base, low tax rates, weak administration Public Expenditure and Deficit Financing and high levels of exemptions. Currently, the tax struc- ture is dominated by indirect taxes. A value added tax 3.3.8 The total public expenditure of the National was introduced in 1998 and set at a rate of 15 percent, Government declined from 18 percent of GDP in 2010 but it was recently raised to 20 percent. Other taxes to about 14 percent in 2013 (Table 3.2). For 2013, re- include personal income tax (on wages and salaries), current expenditure was 12 percent of GDP and capital business profits tax (on individuals) and corporate in- expenditure was 2 percent. At 40 percent of recurrent come tax. expenditures, wages constituted the largest share of these outlays. In 2012, the overall fiscal deficit of the 3.3.6 Reforming the tax structure is important not national government was 3.1 percent of GDP. In the only because it will help alleviate the fiscal deficit, but absence of access to external financing, the govern- also in view of its impact on resource mobilisation and ment financed the deficit, mainly by borrowing heavily allocations and economic incentives. Additionally, it will from the Bank of Sudan. It also raised additional fund- help in creating a space for government to invest in ing by issuing various government securities, such as

32 Sudan and South Sudan signed a total of nine agreements in October 2012 covering its Investment Certificates (Shahama) and Investment a range of issues that had been under negotiation since 2010.

AFRICAN DEVELOPMENT BANK GROUP | 47 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 3.4: Trends in Management of Broad Money (M2) for Sudan and Comparator Countries Country 2000-04 2005-09 2010 2011 2012 2013 2014 Growth in Broad Money (M2) % p.a. Egypt 15.0 13.1 12.4 6.7 12.3 18.9 15.8 Kenya 9.1 15.9 22.4 19.2 14.4 12.8 17.0 South Africa 14.9 16.7 6.9 8.3 5.2 5.9 7.3 Sudan 30.0 25.3 26.3 17.7 39.1 13.1 Tunisia 9.4 11.1 11.3 9.3 7.7 6.9 7.9 Uganda 15.8 20.9 38.1 12.4 14.9 9.5 15.2 Ratio of Broad Money (M2) to Total Reserves (%) Egypt 5.5 4.1 4.8 9.6 12.4 13.0 15.4 Kenya 4.4 3.8 3.7 4.0 3.6 3.5 3.3 South Africa 9.9 7.2 6.5 6.4 5.7 5.2 5.1 Sudan 11.8 6.8 15.0 82.2 85.4 72.4 74.7 Tunisia 5.0 2.9 2.9 4.0 3.5 4.1 4.3 Uganda 1.1 1.2 1.6 1.6 1.5 1.5 1.8

Sukuk (Sarha).33 This mode of financing proved to be 3.3.10 Under the SMP, subsidies for petroleum prod- expansionary and contributed significantly to the surge ucts, wheat and sugar were identified as targets for ex- in inflation experienced in 2012 and 2013. In 2013, the penditure cuts. Action was taken in September 2013 to government discontinued its use of Central Bank of reduce the subsidies on fuel, but this action triggered Sudan (CBoS) financing. riots and turmoil. The Government has reiterated its intention to phase out fuel subsidies by 2017. How- 3.3.9 Under the SMP, the government is taking a ever, with the phase out of fuel subsidies, and with 47 range of actions to cut and rationalise spending. Re- percent of the population below the poverty line, the ductions in the wage bill of the government and in government intends to increase spending on the social the large fuel subsidies are key elements of the pro- safety net of the country in order to protect the welfare gramme. One of the largest adjustments at the national of lower income people and preserve social stability. level has been the substantial cut in transfers to the These programmes include increased budget alloca- state governments. Though the Fiscal Decentralisation tions for health and education, increased support for Act resolved a number of tax jurisdiction issues with micro-finance programmes for the working poor in the the regional governments, they have continued to de- informal sector, and improvements in health insurance pend on the Federal Government for substantial finan- and pension programmes.34 cial transfers. They have been running deficits through accumulating arrears or defaulting. Occasionally, and 3.3.11 According to the IMF (2014.c), successful im- on ad-hoc basis, they impose fees and taxes while elic- plementation of the programme was expected to bring iting the support of the Federal government. A major the budget deficit down to 1 percent in 2014. The re- responsibility of the states is to spend on social infra- duced deficit would be financed mainly from domestic structure. Further streamlining of intergovernmental fis- resources, including commercial bank and non-bank cal relations, which is currently monitored by the Fiscal financing. Financing by the CBoS was capped at 0.6 and Financial Allocation and Monitoring Commission percent of GDP – a substantial reduction from the high (FFAMC), is important. The states are also expected levels of 2012. According to the IMF, successful im- to play an important role in attracting investment nec- plementation of the National Government’s programme essary for diversification, in addition to expanding on for the medium-term would bring revenues and expen- basic social services. 34 According to the IMF (2014.b), about 11.8 million people are enrolled in the health insurance scheme, 32 percent of whom are civil servants, 44 percent are low income people, and the remaining 24 percent operate in the informal sector. Under the pro- 33 See Chapter 9 and Annex 9 for a detailed outline of the Islamic financial instruments in gramme, all medical services for those enrolled are covered at 100 percent and med- use in Sudan. icines are covered at 75 percent.

48 | AFRICAN DEVELOPMENT BANK GROUP ditures into balance by 2018. For the longer term, it is monetary policy. The existence of high excess reserves assumed that prudent management of the fiscal ac- in Sudan is characteristic of a financial sector with lim- counts of government would result in continued bal- ited money market instruments and a weak interbank ance of revenues and expenditures. market. It poses a challenge to the success of mon- etary policy. The absence of active interbank money markets has led to large excess in Sudan and a loss 3.4 Monetary Policy and of monetary control when CBoS continues to provide Exchange Rate Management credit to individual banks, while lacking flexible means to mop up excess liquidity. High excess liquidity in the Liquidity Control and Macroeconomic banking system thwarts the growth of credit to the pri- Stability vate sector. This shrinks private sector investment, with negative consequences for economic diversification 3.4.1 Macroeconomic stability, and in particular low and growth.35 and stable rates of inflation, is essential for private sec- tor development and growth. Monetary policy has a Monetary Policy and the Fiscal Deficit role to play in this regard. An effective monetary policy is reflected in successful control of reserve money as 3.4.4 By lending to the government to finance the well as broad liquidity that, in turn, has an impact on deficit in 2012, thereby allowing monetisation of the domestic inflation. As Table 3.4 indicates, the growth deficit, the CBoS was highly accommodative. The in broad money (M2) was higher in Sudan than Ken- increase in the broad money supply by 39 percent in ya, Egypt, Uganda, Tunisia and South Africa in the 2012 far exceeded the Central Bank’s target of 15 per- 2000-2009 period. Following the secession of South cent for the year. Concomitantly, there was an increase Sudan in 2011, the growth in broad money surged in in net claims on public assets and expansion in do- Sudan, and increased by about 39 percent in 2012. mestic credit. Public sector borrowing from the bank- Subsequently, the government was able to bring about ing system crowded out private borrowing. a substantial reduction in the growth of broad mon- ey in 2013, although the IMF (2014.c) reports that the 3.4.5 The objective of the CBoS is to contain infla- growth rate increased to 19.1 percent in 2014. Reserve tionary pressures and restore price stability. It has tight- money growth was also higher in Sudan than Kenya, ened its control of credit to the government to reduce Egypt, Uganda, Tunisia and South Africa for much of inflation and avoid crowding out private investment. It the past decade. The IMF (2014.c) reports that reserve has also increased reserve requirements for the bank- money growth increased by about 17 percent in 2010, ing sector. In 2012, CBoS raised the required reserve after which growth accelerated to 47 percent by 2012. ratio three times from 11 percent to 18 percent. How- Under the subsequent stabilisation programme, the ever, this has not proven to be an effective way of con- growth of reserve money was cut back to about 15 trolling money supply, nor is it conducive for economic percent in 2013. development. The CBoS operates under the Shariat law and cannot use interest bearing debt instruments. 3.4.2 Table 3.4 also shows the ratio of broad mon- The Bank is thus left with three alternative instruments: ey to total reserves for Sudan and the comparator The use of equity-based instruments, quantitative ceil- countries. Following the secession of South Sudan in ings on credit and reserve ratios. Each of these has mid-2011, the ratio of broad money to total reserves in- shortcomings. creased dramatically to 85 percent in 2012. It declined marginally in 2013 and 2014. These levels are substan- 3.4.6 The process of mopping up excess liquid- tially higher than those of the comparator countries. ity in Sudan through open market operations (OMO) is based on the use of instruments that have Islam- 3.4.3 These trends suggest the existence of high ex- cess liquidity in the banking system of Sudan com- 35 This effect is stronger when the excess reserve is more for precautionary purpose than when it is involuntary. When it is involuntary, it is driven by weak prospects for the pared to Kenya, Egypt, Uganda, Tunisia and South economy, thereby weakening aggregate demand and demand for credit. As a result of asymmetric information, increased borrower risk of default and volatility of demand Africa. Such liquidity is inimical to the effectiveness of deposit, banks often find it necessary to have more liquidity in excess of statutory requirement, which is precautionary excess liquidity.

AFRICAN DEVELOPMENT BANK GROUP | 49 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN ic banking characteristics and the legal reserve ratio. ey control available to the CBoS are less effective com- The equity-based instrument has the drawback in that pared to those in countries operating under the tradi- it cannot be priced efficiently.36 The other instruments tional non-Shariat system. In Sudan, the tendency is – quantitative ceilings and reserve ratios – cannot guar- to put more weight on direct methods of mopping up antee full control of the supply of money. As a result, excess liquidity or injecting liquidity into the system. the monetary policy framework of Sudan has to rely This has adverse effects on the growth of the private on the conventional instruments for regulating money sector, as it is through the injection of liquidity that the supply using quantitative control by fixing ad hoc credit private sector benefits from bank lending to support in- ceilings and imposing high unremunerated reserve re- vestment. In addition, it has adverse implications on the quirements. As in other Islamic banking systems, the control of inflation. This is bad for macroeconomic sta- lack of adequate monetary instruments has led to high bility as well as the growth of the private sector. In ad- intermediation cost and persistent inflationary pres- dition, the shallow nature of the stock exchange does sures. not allow the other asset price channel to be strong. Hence, the exchange rate channel and the bank lend- 3.4.7 As the IMF (2013.a) has indicated, with a full- ing (credit) channel of monetary policy transmission to fledged Islamic banking system, the monetary policy the real sector are expected to be the relevant mech- framework lacks adequate instruments for monetary anisms for transmission of monetary policy impulse to operations, liquidity management, and non-inflationary the real sector. This suggests the importance of strong financing of government deficits.37 Under an effective regulations and supervision of banks and the need for monetary policy framework, the central bank would use channelling credit to the private sector by way of boost- debt-based instruments in the interbank money market ing economic activities. and government security market to inject or mop up the flow of liquidities from the banks and transmit its 3.4.9 The manner in which the CBoS uses its in- policy intentions. Under the Islamic mode of finance, struments to achieve its objectives of low inflation and debt-based instruments cannot earn a positive rate financial system stability can have an impact on the of return through interest and cannot be discounted Sudan economy via the effects on competitiveness of in a secondary market. However, equity-based secu- different activities in the system, as well as on the ef- rities can be traded in the open market, with trading ficiency with which the economy as a whole operates values reflecting market expectations of economic per- vis-à-vis that of other countries. The key instruments of formance and rates of return. Designing equity-based monetary policy – reserve and liquidity requirements – instruments linked to government or central banking should not be used in ways that tax banks or reduce operations can pose significant difficulties because of flexibility in using their free reserves. complexities in computing appropriate profits and rates of returns.38 These constraints have limited the devel- Management of the Foreign Exchange opment of efficient instruments for interbank market Regime and central bank credit facilities. Another issue is the cost of the Shariat-based instruments in comparison 3.4.10 During the five years prior to secession of with alternative instruments or non-Shariat traditional South Sudan, the CBoS had large reserves and a sub- instruments. stantial capacity for current account payments that relieved the foreign exchange rate from pressures as- 3.4.8 The implication is that the instruments of mon- sociated with excess domestic liquidity. The rate was determined by direct transactions between banks, 36 Equity based securities can be priced on the basis of expectations of economic per- with the CBoS intervening only when the fluctuations formance or rates of return. However, as noted in IMF (2013.a) it is difficult to com- pute the expected returns and rates of profits. This characteristic has complicated the exceeded plus or minus 3 percent of the rate in the manner in which such securities can operate and it made difficult to develop efficient instruments for interbank market and central bank credit facilities. previous day. The foreign exchange rate system was 37 IMF (2013.a), Sudan: Selected Issues. IMF Country Report No. 13/320, October 2013. See also, Sundararajan, V., Marston, D., and Shabsigh, G. (1998), “Monetary classified by the IMF as a floating exchange rate. With Operations and Government Debt Management under Islamic Banking,” IMF Working the subsequent shortages of foreign exchange in 2011 Paper, WP/98/144. 38 In Sudan, the process of calculating return on most government securities depends and the fall in the reserves to the equivalent of only 1.5 on the audited accounts certified by the authorized bodies. The securities issued by the Central Bank of Sudan are based on ljara mode, where its return is determined in months of imports, the was exposed advance.

50 | AFRICAN DEVELOPMENT BANK GROUP Table 3.5 Balance of Payments (In US$ million at current prices) Item 1995 2000 2005 2010 2011 2012 2013 2014 Merchandise trade

Merchandise exports 556 1,864 4,878 12,700 11,063 5,122 4,793 5,156 Oil and products - 1,408 4,240 10,991 8,679 2,012 1,719 2,085 Gold - 47 63 1,018 1,442 2,158 1,048 1,172 Other products 556 409 575 691 942 952 2,025 1,899 Merchandise imports 1,219 1,553 5,946 8,989 8,312 8,528 8,925 8,556 Oil and products 194 137 283 385 662 947 1,313 1,612 Other products 1,025 1,416 5,663 8,604 7,650 7,581 7,612 6,943 Trade balance (663) 311 (1,068) 3,711 2,751 (3,406) (4,132) (3,400) Services (5) (341) (1,641) (2,062) (1,389) (874) (227) 131 Exports 132 28 114 259 764 1,159 1,578 1,861 Imports 137 368 1,755 2,321 2,153 2,033 1,805 1,730 Income (914) (1,887) (1,989) (5,127) (2,763) (2,422) (2,773) (2,685) Receipts 2 5 44 138 108 14 9 - Non-oil payments 916 1,269 762 1,932 1,886 2,220 2,533 2,352 Oil-related expenses - 623 1,271 3,333 985 216 249 333 Transfers 104 344 1,721 2,131 1,112 863 1,381 1,437 Private 60 315 1,487 940 439 445 945 992 Official 44 29 234 1,191 673 418 436 445 Current account balance (1,479) (1,573) (2,977) (1,347) (289) (5,839) (5,751) (4,517) Capital and financial account 206 24 2,836 (1,451) (998) 4,060 3,522 2,829 Capital account 11 21 - 174 162 320 309 232 Financial account 195 3 2,836 (1,625) (1,160) 3,740 3,213 2,597 Disbursements 86 41 309 569 606 376 344 261 Amortization (288) (265) (290) (485) (445) (402) (381) (405) Net foreign assets of banks 54 (18) (204) (429) 313 (61) 227 234 Other short-term capital flows 331 117 666 (1,641) (1,362) (731) (515) (765) Foreign direct investment 12 128 2,355 2,900 2,666 2,466 3,091 2,322 Other capital flows Public - - - (1,289) (1,388) 556 580 624 Private - - - (1,250) (1,550) 1,536 (133) 326 Errors and omissions 178 436 221 (1,720) (710) 550 67 - Overall balance (1,096) (1,113) 80 (4,518) (1,997) (1,229) (2,162) (1,688) Financing 1,096 1,113 (80) 4,518 1,997 1,229 2,162 1,688 Change in international reserves (20) (108) (745) (195) 249 (376) 75 (98) Short-term foreign liabilities 17 (82) (23) (83) (51) (164) 230 - IMF (3) (28) (31) (11) (5) (7) (6) (10) Change in arrears 1,101 1,331 719 4,807 1,804 1,776 1,863 1,796 Financing gap ------Memo items: Trade deficit as % of GDP (4.8) (0.2) (7.9) 2.3 1.9 (6.3) (7.0) (5.0) Gross international reserves 163 138 1,869 1,566 1,317 1,693 1,619 1,716 Reserves as months of imports 1.4 0.9 2.9 1.7 1.5 1.9 1.8 2.0 Source: Annex Table 2.2 and Annex Table 2.8.

GDP (US$ mill) 13,830 13,093 34,195 70,340 70,131 68,126 62,554 64,960

AFRICAN DEVELOPMENT BANK GROUP | 51 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN to heavy pressure, affecting the price level and creating 3.4.13 The continuing gap between the official and disincentives for investors. In response, the CBoS took curb market exchange rates will hinder reserve accu- a more interventionist role in the foreign exchange mar- mulation and compromise the central bank’s credibility ket. in protecting the value of the local currency. Greater flexibility in the , together with 3.4.11 Following this, the IMF reclassified the market the elimination of the remaining restrictions, is needed as a managed exchange rate system. In addition, the to reduce the persistent gap between the exchange CBoS imposed restrictions on foreign exchange trans- rates. actions. Consequently, the gap widened between the non-formal market rate and the official rate. The CBoS 3.4.14 After the devaluation in September 2013, the started using multiple foreign exchange rates. In addi- official exchange rate between the US dollar and the tion to the central rate of SDG 4.42 per US$, it adopted local currency remained constant. According to the different rates for wheat, gold and other transactions.39 IMF (2014.a), with inflation higher in Sudan than in its In September 2013, the CBoS devalued the curren- trading partners, the real exchange rate appreciated by cy by 29 percent to align it with the commercial bank about 24 percent through to end of March the follow- exchange rate of SDG 5.70 per US dollar. It is evident ing year. To avoid the loss of international reserves and that the exchange rate was not allowed to bear the full provide a shock absorber to the economy, increased burden of adjustment, perhaps because the govern- exchange rate flexibility was central to the new opera- ment was concerned about the inflationary impact of tional monetary framework anchored on reserve mon- devaluation, especially on food prices. As the CBoS re- ey. Under the SMP programme, the IMF proposed a stricted access to foreign exchange and tried to defend policy mix that was built around the following features: the currency, the gap between the official and parallel (i) Greater exchange rate flexibility; (ii) a continuation of rates widened. the tight fiscal and monetary policy stance; (iii) strength- ening prudential regulations on exchange rate risks; (iv) 3.4.12 Shortages in foreign exchange had resulted in the removal of the remaining restrictions on foreign ex- adverse effects on inflows of foreign direct investment change transactions to improve the functioning of the and domestic capital formation. They also diverted pri- market; and (v) a steady communication strategy with vate transactions, including remittances, to the curb market participants regarding the government’s policy market.40 The IMF (2014.b) has estimated that in 2013, intentions to head off some of the speculation. transactions diverted to the curb market accounted for 10 to 30 percent of total imports. This diversion of for- 3.4.15 Addressing foreign exchange imbalances is eign exchange, in turn, put pressure on the capacity crucial to restoring competitiveness. The dilemma is of the Bank of Sudan to build international reserves. that the process of exchange rate adjustment will take According to IMF (2014.b) estimates, the gap between time, but it is an issue that requires urgent attention. the official and curb market rates stood at about 35 The authorities have introduced new measures to ad- percent at the end of 2013. This gap had increased to dress the imbalances in the foreign exchange market. about 50 percent by mid-2014. The gap is the result of Nonetheless, further exchange rate flexibility will be a range of factors, including: (i) uncertainty about the needed to reduce the gap between the official and revenues from oil transit as the conflict in South Sudan non-formal market rates. These measures will enhance remains unsettled; (ii) domestic political uncertainty in the functioning of the foreign exchange market by shift- the run-up to presidential elections; and (iii) imbalances ing a significant portion of the dollar transactions to the in the foreign exchange market through pervasive for- official market.41 The measures will also help to rebuild eign exchange rationing. Sudan’s international reserves. Sudan’s support for the exchange rate in past years has kept its international

39 At that point the respective exchange rates for imported wheat and commercial banks reserves at low levels – typically less than two months were SDG 2.90 and SDG 5.55 per US dollar. There was also a gold exchange rate used by the central bank in its gold transactions. The central rate is used for fuel of imports for more than a decade now (see Table 3.5) importation, payment of government obligations, and valuation at customs. The and well below the generally accepted international commercial banks rate applies to all other transactions. See IMF (2012.b) and IMF (2013.d). standard of at least three months of imports of goods 40 Sudan has large inflows of remittances from the diaspora. These have been employing various means of transferring their money. However, gauging the size of these flows is 41 The CBoS recently issued a set of circulars allowing: (i) Foreign exchange bureaus to not easy. transact at any rate they choose; and (ii) exporters to sell their proceeds to importers.

52 | AFRICAN DEVELOPMENT BANK GROUP Table 3.6: External Debt Burden Indicators for Sudan (In US$ billions at current prices) Indicator 1980 1990 1995 2000 2005 2010 2011 2012 2013 2014 Total external debt 4.7 14.0 19.8 20.4 26.7 39.5 41.4 42.0 44.4 46.4 Total arrears in service payments

Principal arrears 0.6 5.7 7.6 7.3 7.8 8.6 9.7 10.7 11.4 - Interest arrears 0.1 3.7 5.7 4.5 5.4 6.8 4.9 5.1 5.1 - Sub-total 0.6 9.4 13.4 11.8 13.1 15.4 14.6 15.8 16.6 Memo items: Total debt as % GDP 62.3 112.8 143.2 155.8 78.1 56.2 59.0 61.7 71.0 71.4 Principal arrears as % total debt 12.9 67.2 67.5 57.7 49.2 39.0 35.4 37.5 37.3 - Source: Annex Table 2.13; IMF & CBoS for total external debt for 1990-2014; & World Bank development indicator database for total debt outstanding in 1980, & long- & short-term debt in arrears for 1980-2013. and services. Continued low international reserves, in merchandise exports continues to be dominated by oil combination with vulnerability to external shocks be- and gold. These two export products accounted for 91 cause of heavy dependence on export earnings of oil percent of export earnings in 2011 (down from 95 per- and gold, can undermine confidence in the currency cent in 2010). This dependency dropped to 58 percent and expose the domestic economy to exchange rate in 2013 as a result of the decline in recorded exports shocks. of gold. It rose again in 2014 to about 63 percent. This continued heavy concentration of earnings on these two products exacerbates the vulnerability of the Su- 3.5 Trade Policy External dan economy to external shocks – especially terms of Imbalances and Debt trade shocks. The dependency reinforces the urgency and importance of moving quickly to develop a much External Trade and Imbalances more diversified export base for the country, in the first instance built around increased exports of agricultur- 3.5.1 As noted earlier, oil export earnings led to a al products, including raw materials and processed significant improvement in the country’s external po- foods, and other harvests. sition in the last decade. Even so, the trade account was in deficit for much of the decade (Table 3.5). For- 3.5.4 The sharp deterioration in the trade account tunately, there was an increased inflow of FDI, primarily since the secession of South Sudan in 2011 has related to the oil industry. This helped to enhance the translated into a large increase in the current account overall balance of payments. deficit in Sudan’s balance of payments. As Table 3.5 indicates, the current account went from a very small 3.5.2 In the aftermath of the secession in 2011, mer- deficit in 2011 to US$5.8 billion in 2012 and again in chandise export earnings fell dramatically from a peak 2013 – equivalent to about 8 percent of GDP. About of US$12.7 billion in 2010 to US$4.8 billion in 2013. half of the current account deficit in 2012 and 2013 The balance on the goods and services trade account was financed by the net inflows of foreign direct invest- went from a surplus of a US$1.6 billion in 2010 to a ment (FDI), with most of the remainder met by a further deficit of US$4.4 billion in both 2012 and 2013, equiv- increase in arrears in payments on the medium and alent to about 6.2 percent of GDP. A recovery in oil long-term debt of the country. International reserves re- export earnings and increased income from export mained fairly stable at a little more than US$1.6 billion services, together with a decline in non-oil imports of in 2012 and 2013 – equivalent to about 1.9 months of goods and services, resulted in a decline in the trade imports of goods and services. deficit to about US$3.3 billion in 2014. 3.5.5 With successful implementation of the SMP, 3.5.3 This progress notwithstanding, the fact re- the expectation is that the balance of payments deficit mains that Sudan’s foreign exchange earnings from will gradually decline over the next five years to about

AFRICAN DEVELOPMENT BANK GROUP | 53 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 3.7: IMF Projections of the Economic Outlook for 2014-2019 Indicator IMF estimates Projected 2011 2012 2013 2014 2015 2016 2017 2018 2019 GDP at current prices (SDG billions) 179.5 225.7 317.5 435.1 547.8 631.6 711.6 792.8 884.1 GDP at 2012 constant prices (SDG billions) 230.8 225.7 233.1 240.4 248.5 258.2 269.1 281.4 294.7 GDP growth (% p.a. at constant prices) Oil value added (36.0) (59.0) 15.6 6.3 3.2 3.8 4.4 5.0 5.5 Non-oil GDP 6.8 4.7 2.7 2.9 3.4 3.9 4.2 4.6 4.7 GDP (0.3) (2.2) 3.3 3.1 3.4 3.9 4.2 4.6 4.7 Inflation (% p.a.) Consumer prices (end period) 18.9 44.4 41.9 28.7 12.4 8.6 6.5 5.7 5.3 Non-oil GDP deflator 15.2 32.6 36.3 32.8 20.8 10.5 7.3 5.9 5.9 National government budget (% of GDP) Revenues and grants 18.0 9.8 9.9 11.4 12.0 12.4 12.5 12.7 12.8 Current expenditure & transfers 16.1 12.0 11.1 11.0 11.6 11.1 10.4 9.9 9.3 Capital expenditure 1.7 1.5 1.0 1.3 1.7 2.0 2.4 2.9 3.3 Overall balance 0.2 (3.7) (2.3) (1.0) (1.2) (0.7) (0.3) (0.1) 0.3 External sector (US$ billion) Exports of oil 8.7 2.0 1.7 2.1 2.4 2.4 2.4 2.5 2.6 Merchandise exports 2.4 3.1 3.1 3.1 3.3 3.8 4.4 4.7 5.1 Merchandise imports (8.3) (8.5) (8.9) (8.6) (8.9) (9.4) (10.0) (10.5) (11.0) Net services (1.5) (1.3) (1.4) (1.3) (1.3) (1.3) (1.3) (1.4) (1.4) Current account balance (0.3) (5.8) (5.8) (4.5) (4.1) (3.9) (3.8) (3.8) (3.9) Current account deficit (% of GDP) -0.4 -9.2 -8.6 -6.5 -6.3 -6.0 -5.5 -5.1 -4.9 External debt (US$ billion) 41.4 43.2 45.0 46.4 48.0 49.5 51.1 52.7 54.4 International reserves Gross reserves (US$ billion) 1.3 1.7 1.6 1.7 2.1 2.4 2.8 3.1 3.3 Reserves as months of imports 1.5 1.9 1.9 1.9 2.2 2.4 2.6 2.8 2.9 Source: IMF (2014.c), Sudan: 2014 Article IV Consultation and Second Review Under Staff-Monitored Program. Country Report No. 14/364. December 2014.

5 percent of GDP. The bulk of the deficit would be fi- External Debt and the Problem of nanced by inflows of FDI and other short and medi- Arrears um-term capital, along with further increases in arrears on debt outstanding. At the same time, a small increase 3.5.6 As Table 3.6 indicates, the total outstanding in international reserves relative to the level of imports public debt of Sudan increased dramatically in the is expected. There are, of course, many uncertainties 1980s and 1990s. By 2000, total external debt stood associated with these projections. These include future at US$20.4 billion – equivalent to about 156 percent revenues from oil exports and from transit fees paid by of GDP. However, the debt burden relative to GDP de- South Sudan for the export of its oil. In addition, it re- clined substantially during the oil boom of the 2000s. It mains to be seen if the Government’s current efforts rose slightly after South Sudan seceded in 2011, and to attract more remittances from Sudanese working stabilised at about 71 percent of GDP from end of 2013 abroad by introducing incentives and improving ad- through to end of 2014. The government’s provisional ministrative procedures will be successful, especially in estimate for debt outstanding at end of 2014 stood at view of the possible continued impact of the economic US$46.4 billion – equivalent to about 53 percent of the sanctions imposed by the U.S. and European coun- provisional estimate for GDP in 2014. By the end of tries. 2014, total outstanding public and publicly guaranteed external debt was estimated at about US$46.4 billion,

54 | AFRICAN DEVELOPMENT BANK GROUP much of it owed to multilateral institutions, bilateral 3.5.9 A major concern for the immediate future re- (Paris Club and non-Paris Club creditors) and commer- lates to the prospects for significant debt relief. Tan- cial banks. gible evidence of agreement with creditors and con- crete action on the pursuit of a Heavily Indebted Poor 3.5.7 According to World Bank data, arrears in debt Country (HIPC) plan for Sudan would improve investor service payments accounted for about 40 percent of perceptions about the risk-reward trade-off associated the total increase in short and long-term debt of the with investment in the country. The Government has country during the 1980-2013 period. Sudan began made it clear that it attaches a high priority to obtaining to accumulate arrears on debt to external multilateral debt relief under an HIPC initiative. and bilateral creditors and private creditors in the mid- 1980s. The country was not able to honour its repay- 3.5.10 The IMF and World Bank jointly undertook a ment obligations. As a result, Sudan has a large volume debt sustainability analysis in 2013, the conclusion of of accumulated arrears. Except for non-concessionary which was to classify Sudan as being in debt distress. loans from and and some bilateral and To expand access to concessionary financing, Sudan multilateral Arab creditors, the government was unable will need to normalise relations with its creditors, agree to access concessionary financing. Continuing prob- to an approach for arrears clearance and set a road lems with unresolved arrears hinders Sudan’s access map that would lead to HIPC relief. At the present time, to global capital markets and to concessional funding the prospects for such an action are unclear. However, from the international donor community. In 2013, for the IMF (2014.a) Country Report for Sudan has reaf- example, several private debt holders brought lawsuits firmed that the country is eligible for debt relief under against Sudan. Court orders that were executed in the HIPC initiative. At the time the report was released, Bahrain and Dubai resulted in the freezing of foreign Sudan met the following conditions for the HIPC ini- assets. tiative: (i) It faced an unsustainable debt situation that could not be addressed through traditional debt relief 3.5.8 As noted in Chapter 2 (see Table 2.6), the in- mechanisms; and (ii) it has developed an Interim Pov- flow of official development assistance (ODA) declined erty Reduction Strategy (I-PRSP) document that has sharply in the 1990s after Sudan failed to meet debt been reviewed by the Boards of the IMF and the World obligations to the international donor community. From Bank.42 the early 1990s until about 2003, inflows of ODA were sharply reduced. However, the relationship with some 3.5.11 The Tripartite Committee (Sudan, South Su- members of the donor community has improved in dan, and the African Union High Implementation Panel) more recent years. As a result, inflows of ODA per met in May 2014 to agree on an outreach programme capita recovered to about US$52 per person during to major multilateral and bilateral creditors of Sudan. 2005-09. There was nonetheless a sharp decline in the Sudan will need to move forward in the near-term to net inflow of ODA during 2011-13. As this pattern of reach an agreement with existing creditors. These ar- ODA inflows suggests, Sudan has lost access to sub- rangements need to be in place prior to the launch of stantial amounts of concessional ODA in the past two the above-mentioned programme for marketing po- decades. The continuing lack of access to concession- tential investment opportunities with offshore inves- ary financing has an adverse impact on the prospects tors. Tangible evidence of agreement with creditors for accelerating development of health and education and tangible action on creation of a Heavily Indebted programmes as well as other priority areas that nor- Poor Country (HIPC) initiative would improve investor mally attract substantial donor support. These include, perceptions about the risk-reward trade-off associated for example, access to improved water and sanitation, with investment in Sudan. To reach the Decision Point, support for rural development and for accelerating the Sudan would need to undertake the following: development of small-scale farming activities that are • Obtain assurances that the bilateral official and central to the success of the proposed strategy for di- commercial creditors are willing to consider pro- versifying the country’s economy and accelerating eco- viding debt relief; nomic growth. • Obtain assurances of support for HIPC debt relief

42 IMF (2013.c), Sudan: Interim Poverty Reduction Strategy Paper. IMF Country Report No. 13/318, October 2013.

AFRICAN DEVELOPMENT BANK GROUP | 55 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

from a large majority of creditors representing at capital works in the public sector. least 70 percent of HIPC-eligible debt; • A tighter monetary stance to contain inflation • Establish with the IMF an adequate track record of and lessen exchange rate pressures: Sharply strong policy performance in the period leading up reduced budget deficits are expected to contain to the Decision Point, under an IMF Staff Monitored inflationary pressures. As noted earlier, because of Programme (SMP) judged by the Executive Board Sudan’s limited capacities to borrow on favourable to meet the policy standards associated with up- terms from offshore sources of funding, the large per-credit tranche arrangements; and deficits of recent years were, in effect, monetised • Clear its arrears with the IMF, and have a fully fi- because they were largely financed by borrowing nanced plan and a timetable to clear arrears with from the Central Bank. The proposed programme the World Bank and the African Development Bank puts clear limits on the government’s access to in order to restore its eligibility to borrow from these Central Bank financing. As a result, inflation is ex- sources.43 pected to decline steadily to single digit levels by 2016. 3.5.10 These arrangements need to be in place prior • Further exchange rate flexibility to improve to the launch of the above-mentioned programme for external competitiveness: Measures will be ad- marketing potential investment opportunities with off- opted to ensure greater exchange rate flexibility shore investors. and eliminate the current large gap between the official exchange rate and that of the curb market. 3.6 Macroeconomic Outlook for • Actions would be taken to restructure and the Medium and Longer Term modernise the banking industry in Sudan: These measures include the following: Support 3.6.1 The macroeconomic framework used in this for improvements in bank supervision, inspection Report is modelled on the projections for 2014-2019, and enforcement; termination of direct ownership which were prepared recently by the IMF in conjunc- of banks by the Central Bank; and upgrade of the tion with its second review of the SMP adopted by the legal, regulatory and institutional framework of the Government of Sudan for 2014. As noted in Chapter 2, sector to enhance financial deepening. in early 2014, the government sought the assistance • Improvement of the business environment to of the IMF by putting in place a Staff Monitored Pro- boost private sector-led growth: Details of the gramme (SMP) for the January-December 2014 peri- proposed programme are set out in Chapter 4 be- od. The objective of the SMP is to restore macroeco- low. nomic stability, strengthen social safety nets, and de- • The government should reach out to creditors and velop the required reforms to refocus the economy to normalise relations with international financial insti- its non-resource sector, thereby laying the groundwork tutions. for sustainable economic growth over the medium and longer-term. The key elements of the programme pro- 3.6.2 According to the IMF (2014b), the main mac- posed by the IMF include the following actions: roeconomic objectives for the near-term were fourfold: • Fiscal adjustment in the context of the 2014 (i) Reach a non-oil real GDP growth rate of 2.5 percent budget framed in a medium-term strategy: Im- in 2014 as a result of a rebound in agriculture, con- provement of fiscal sustainability is a core compo- tinued improvement in export performance, and pro- nent of the proposed programme, with increased ductivity gains that stem from the policy reforms being revenue mobilisation in the non-oil economy. On undertaken by the government; (ii) reduce inflation to the expenditure side, measures would be adopted about 18 percent for the year through fiscal consolida- to reduce some components of public spending tion, monetary tightening, and stabilisation of the ex- (including a phase-out of fuel subsidies by 2017), change rate; (iii) reduce the overall fiscal deficit to about but increase allocation for social safety nets and 1.2 percent of GDP through improvements in revenue collection and reduced spending; and (iv) reduce the 43 The costs to the IMF and other international agencies for providing debt relief to Sudan current account deficit of the balance of payments to were not included in the original costing estimates for the HIPC initiative. Additional financing will therefore need to be secured when Sudan is ready to clear its arrears and about 7 percent of GDP and finance the deficit from embark on the HIPC initiative.

56 | AFRICAN DEVELOPMENT BANK GROUP non-debt-related financial flows.44 nomic framework, the fiscal deficit is expected to remain at sustainable levels during the 2015-2018 3.6.3 In the latter part of 2014, the IMF (2014c) period, and then be in surplus by 2019. However, undertook a review of progress under the SMP. The the IMF projects very little improvement in the reve- review indicated that the programme was broadly on nue performance of the national government in the track, with GDP growth estimated at 3.1 percent for 2015-2019 period, with total receipts remaining at 2014, reduction in the budget deficit to about 1 percent about 12-13 percent of GDP. As a result, much of of GDP, and a current account deficit in the balance of the fiscal adjustment stems from reductions in cur- payments of about 6.5 percent. The main concern was rent spending, and only a very limited increase in the continued high domestic inflation that was project- capital expenditures from 1.3 percent of GDP in ed by the IMF to be about 29 percent in 2014, com- 2014 to 3.3 percent by 2019. pared with the SMP target of 18 percent. • After allowing for grants, the implication is that total annual spending by the National Government (in- 3.6.4 As part of the review, the IMF (2014) revised its cluding transfers to state governments) would be macroeconomic projections for 2015-2019.45 The pro- about 20 percent of GDP by 2030. jections were based on the assumption that the gov- • The current account deficit in Sudan’s balance of ernment would continue with its efforts to establish a payments is projected to decline from about 9 per- stable macroeconomic environment that would support cent in 2013 to 5 percent in 2018-2019, along with an economic rebound and the proposed programme of a steady improvement in the level of international economic diversification for the longer-term. Table 3.7 reserves to about US$3.3 billion by 2019 – equiv- provides a summary of the macroeconomic indicators alent to about 2.9 months of imports of goods and that are projected to 2019 by the IMF. The key features services. of these projections are as follows: • The external debt of the country is projected to in- • Gradual increase in GDP growth to about 4.7 per- crease by about US$9 billion during the 2014-19 cent a year by 2018. period to about US$54.4 billion by the end of 2019. • Continued reduction in the rate of inflation, with the increase in consumer prices declining to an annual 3.6.5 For the purposes of this Report, the macro- rate of about 5 percent by 2019. economic framework set out by the IMF for 2019 is • With continued adherence to a sound macroeco- assumed to prevail during the 2020s.

44 IMF (2014.b), Sudan: First Review Under Staff-Monitored Programme. Washington DC. IMF Country Report No. 14/249, August 2014. 45 IMF (2014.c), Sudan: 2014 Article IV Consultation and Second Review Under Staff-Monitored Programme. Washington DC. IMF Country Report No. 14/364, De- cember 2014.

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58 | AFRICAN DEVELOPMENT BANK GROUP 4. PROMOTING PRIVATE SECTOR-LED GROWTH

4.1 The Setting 4.1.2 Despite the changes in government’s policies vis-a-vis the private sector since independence, and in 4.1.1 Sudan has emerged from a deep historical spite of the various constraints on its development that legacy of state participation in many forms. At inde- are outlined later in this Chapter, the private sector has pendence, British colonial administrators turned over managed to expand and venture into areas wherever control of the economic apparatus supporting pro- opportunities emerged. It has proved to be capable of duction and supply of cotton and other commodities responding to opportunities, generating growth and for the government to manage. Since independence, creating wealth. the government’s attitude towards the private sector has shifted significantly. Large parastatals dominated 4.1.3 For many years, the private sector in Sudan the economy for decades following Independence. operated mainly in trading activities, helping to channel The government first invested directly in large irrigation the country’s produce to the market centres and dis- schemes, in mechanized farming and in manufactur- tributing imported goods throughout the country. By so ing. It also owned railways, hotels and airlines compa- doing, it contributed to the transition of the economy nies. Most of these state interventions were justified on from its subsistence phase to a monetised commercial the ground that the local private sector was not able production phase integrated locally and into the global to carry on such activities. Occasionally, either for con- economy. Subsequently, wholesale traders managed crete interests or ideological leanings, the government to diversify from the trade business to agro-business in crowded out and displaced the private sector in eco- the cotton pump schemes in the Blue Nile and White nomic activities that the latter could undertake efficient- Nile areas, and in rain-fed mechanised farming in the ly. The government also set up public marketing boards Gedarif region and elsewhere in the country. out of monopolistic motive. Along with Egypt, Sudan reverted to an “Infitah” policy in the 1970s, that wel- 4.1.4 As opportunities for import substitution arose, comed foreign investment but maintained a large state the private ventured into manufacturing during the role in enterprise ownership as well as industrial policy 1960s, taking advantage of the incentives provided with features of import-substituting industrialization. In by the government. After the 1980s, the government the early 1970s, it confiscated trading firms, banks and promoted private sector development and entered into manufacturing enterprises, though it quickly reversed joint-ownership of commercial banks with private en- these actions. In the 1980s, the Sudan’s financial cri- tities. Banks were allowed to operate in accordance sis precipitated a policy of privatisation, particularly fo- with the Islamic laws. In 1990, the government adopt- cused on enterprises that created substantial losses or ed market-friendly policies. It passed The Public Sector had contingent liabilities. This was carried out with min- Enterprises Disposition Bill46 and privatised many state- imal international financial support. Only 17 enterprises owned enterprises, as much as it at the same time set were initially privatised. 46 The Public Sector Enterprises Disposition Bill (1990) and State Corporation Act (1992) codified the privatisation programme, and the High Council for the Disposition of Pub- lic Enterprises was established to carry out the policy.

AFRICAN DEVELOPMENT BANK GROUP | 59 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN up a large industrial complex and participated in tele- and agriculture. communications. More recently though, the govern- ment has sought to revive the privatisation programme 4.2.4 Though export activities have been a major for remaining firms. The UNIDO (2003) industrial survey area for the private sector, public marketing boards still found that private ownership accounted for 96 percent compete or receive concessional advantages from the of business firms in Sudan in 2002. The Sudan Pro- government. In the particular case of oil and oil related ductivity and Investment Climate Survey (PICS) of 2008 sectors, foreign firms, especially Chinese, Malaysian, found that only two percent of the surveyed firms were Indian and others, have invested heavily in these activi- government owned. ties. Services for the oil production industry have largely been supplied by foreign companies, along with some 4.2 Current Profile of the Private government-initiated partnerships. The oil boom of the Sector past decade also stimulated interest in real estate, ho- tels and restaurants, creating a class of investors in this Overview area.

4.2.1 The private sector is diverse, including a tra- 4.2.5 Another important characteristic of the busi- ditional base of sectors linked to agricultural activities ness sector is its uneven distribution throughout the in the economy, and an increasing number of firms country. Few parts of Sudan offer infrastructure and that supply the growing domestic demand for a wide factor markets necessary to support large-scale, for- range of goods and services. At the same time, infor- malised manufacturing and other business activities. mal business activities have expanded in the various Khartoum and Port Sudan lead in commercial activ- urban centres of the country and now constitute a large ities. Khartoum has the biggest share of industries. segment of private sector activities. At the beginning Mechanised farming is spread in the East, Central and of the 2000s, the largest industrial sectors were food Western Sudan, though traders and ex-officials are the processing, followed by metalworking and wood pro- main participants in the sub-sector. Small firms and in- cessing.47 More traditional subsectors have been the formal enterprises are spread throughout the country, sugar industry, leather, textiles, pharmaceuticals, oil- but larger companies are located primarily in Khartoum, seed processing, soap, and cement. More recently, in and to a lesser extent, El Gezira, Nyala, Port Sudan and addition to oil refining, automotive assembly, plastics, . cable, and pipe manufacturing have been developed primarily for domestic consumption. Impact of Conflict on Private Business

4.2.2 The formal private sector consists largely of 4.2.6 Internal conflict has adversely affected large small firms, structured as private limited companies (60 areas of Sudan, impeding business activities and trade. percent) and sole proprietorships (37 percent) spread The most affected areas are Darfur, Kordofan and the over a wide range of sectors. Many of these business- Blue Nile state. All these regions are rich in natural es are family owned. Of the sample of formal manu- resources and minerals, and have great potential for facturing firms in the PICS of 2008, only eight percent crop and animal production. However, internal conflicts were partnerships and two percent were state-owned. have cut off the trade links, weakened the private sec- Three percent were listed on the Khartoum Stock Ex- tor, impeded investment, destroyed the livelihood of the change. small farmers and interrupted nomadic movements.48 A large proportion of the population either migrated to 4.2.3 In Sudan, small and medium enterprises ac- big cities (El Fashir, Nyala and Al Gunina, Ed Damazin, count for the majority of business activities in agricul- El Obied) ) or found shelter in refugee camps. Others ture, manufacturing, trade and finance, in addition to migrated to Khartoum and outside Sudan. According business companies in the construction industry, trans- to one estimate, the conflict resulted in about 25-30 port and professional services. A small number of big percent of the urban traders going out of business. In conglomerates operate in trade, industrial processing 48 Buchanan-Smith, M. and A. Fadul (2008), Adaptation and Devastation: The Impact 47 See United Nations Industrial Development Organisation (2003), Sudan: Comprehen- of the Conflicts on Trade and Markets in Darfur. The Findings of a Scope Study. Tuft sive Industrial Survey of 2001. UNIDO, Vienna, Austria, 2003. University, May 2008.

60 | AFRICAN DEVELOPMENT BANK GROUP Table 4.1: Productivity Measures for Manufacturing in Sudan and Comparator Countries (In US$ at 2006 prices) Trends in Private Investment Country Value added Capital Labor cost Unit labor per worker per worker per worker cost 4.2.9 For the past three decades, the private sec- Kenya 8,707 11,558 2,149 0.13 tor has accounted for most of total fixed investment Morocco 7,947 5,438 3,809 0.19 that has taken place in Sudan. As Table 1.8 indicates, Sudan 6,682 16,118 6,280 0.19 investment by the private sector has increased from Tanzania 3,268 1,680 899 0.15 an average of about 8.5 percent of GDP in the 1980s Uganda 1,975 1,863 880 0.22 to about 16.8 percent of GDP in the 2000s – equiva- Egypt 1,657 5,447 797 0.16 lent to about 80 percent of the fixed investment in the Ethiopia 1,509 2,588 493 0.14 country. After the secession of South Sudan in 2011, Source: World Bank (2009), Sudan: The Road Toward the level of private investment remained stable at about Sustained and Broad Based Growth, p.43. 16 percent of GDP, and then increased to 18 percent in 2013, largely because of a substantial increase in , more than 80 percent of the manufactur- FDI inflows. Within these totals for private investment, ing firms are reportedly not operating. the importance of offshore private investment in Sudan increased appreciably in the past decade, due in part 4.2.7 Buchanan-Smith, M. and A. Fadul (2008) sum- to substantial offshore investment in the oil sector. By marised the situation as follows: “Darfur’s traders have 2013, net inflows of FDI accounted for about 25 per- been put to the ultimate test by the conflict. Supplies cent of total fixed investment. have been disrupted and market structure damaged, especially the primary market network. Many rural mar- 4.2.10 Implementation of the proposed strategy for kets have been abandoned and movements restricted private sector-led diversification of the Sudan economy due to the risk of banditry. Transaction and transport will require continued high levels of private investment cost have rocketed, sometimes four-fold. As the econ- by the domestic business community, along with con- omy contracted, the response by the governments tinued large inflows of FDI. It will also require improved of the three states of Darfur has been to impose ever access to debt financing in the domestic capital mar- higher taxes on a smaller number of traders in order to ket for short-term working capital as well as long-term shore up revenue. Taxes on Darfur’s main commodi- lending for investment. As mentioned elsewhere in this ties have more than doubled compared with pre-con- Report, on a number of occasions – most recently flict levels, creating a strong incentive to trade illegal- during the crisis that followed the secession of South ly. In addition, there are numerous “informal taxes” in Sudan – the government demands on the domestic the form of protection payments to militias and check credit market have crowded out private sector access points fees. The conflict is in effect crippling the envi- to commercial bank financing for working capital and ronment in which to do business.” investment. Chapter 9 sets out the strategies required for further development of the domestic capital mar- 4.2.8 In the regions experiencing conflict, the Diag- ket to meet these needs. These may include a range nostic Trade and Integration Study (DTIS) noted that the of measures aimed at increasing the liquidity of finan- public sector was crowding out the private sector: The cial institutions and their capacity to increase resource report indicated that “the expansion in public expendi- flows to SMEs. tures has crowded private sector credit and stressed the financial sector”. With the oil revenue shortfalls in 4.3 Private Sector Productivity 2006 and 2007, the Ministry of Finance and National and Competitiveness Economy sought high levels of financing and absorbed the majority of available domestic credit. Subsequent- Labour Productivity in Sudan ly, the increase in private credit slowed considerably, growing by only 16 percent in 2007 compared to 62 4.3.1 Within Sudan, productivity varies significantly percent and 45 percent in 2005 and 2006 respectively by region and by size of firm. Labour productivity mea- (DTIS). sured as value added per worker is one of the basic

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Table 4.2: Global Sustainable Competitiveness Index, 2013 (Country rankings out of 176 countries) Indicator Sudan Egypt Kenya South Africa Tunisia Uganda Sustainable 82 97 150 159 81 108 competitiveness Natural capital 41 55 156 72 140 76 Resource intensity 7 130 58 163 95 54 Sustainable 133 153 111 107 63 99 innovation & economy Social cohesion 158 43 147 149 72 141 Memo item: WEF Global - 107 106 52 - 123 Competitive Index Source: SolAbility (2013). WEF refers to World Economic Forum. measures of enterprise productiveness. Differences in their international competitors. Firms producing food, labour productivity so measured, however, can be the garments, wood product, furniture and chemicals in result of differences in technology used, skills of work- Sudan were found to enjoy better TFP efficiency than ers, including managerial quality, as well as differences those in Ethiopia and Egypt, but not so when compared in the intensity of capital used. Gezira and Khartoum re- with counterparts Uganda, Tanzania and Kenya. The gions appear to have relatively high labour productivity. conclusion reached was that Sudan’s private sector This is due primarily to a higher concentration of large was “isolated from international markets, with only 10 firms, which are typically more productive. The PICS percent of manufacturing firms in the PICS survey able (2008) data indicate that enterprises in Khartoum, Red to export their products.” To address these concerns, Sea and Gezira are, in terms of employment, bigger on the government could consider establishing an export average compared to those in other states. They are promotion agency to help organise the implementation also more capital intensive and have better educated of agreed policies to promote exports. Such an agency managers and work force. West and South regions, could focus on ways to enhance the expertise of ex- as well as the North, other than Khartoum and Gezi- porters in such basics as quality management, export ra (e.g., Red Sea and River Nile states), have very low packaging and export marketing skills. productivity levels, including in large firms. Interestingly, microenterprises in the West outperform firms in Khar- Competitiveness at the National and toum and score higher than the national average. Sector Levels

4.3.2 The analysis of the competitiveness of Sudan 4.3.4 For the purposes of this Report, two measures in manufacturing was summarised in a 2009 World of competitiveness are considered. One is an assess- Bank study. The indicator considered was the labour ment of competitiveness at the national level. The other cost as related to value added; that is, total value add- is at the sector and industry level. At the national level, ed divided by the number of workers for the various competitiveness is ranked in the Global Competitive- firms. Sudan was found to have the highest labour cost ness Report.49 Sudan was not ranked in the 2013 Afri- in the following comparator group of countries: Kenya, ca Competitiveness Report. However, it was ranked in Morocco, Tanzania, Uganda, Egypt and Ethiopia (Table the Global Sustainable Competitiveness Report (2013). 4.1). Given its substantial natural resource base, much of

49 The Global Competitiveness Report (1996) defines competitiveness as the “ability of 4.3.3 Additional evidence used is total factor produc- a country to create added value and increase national wealth by managing assets and processes, attractiveness and aggressiveness, globality and proximity and by in- tivity (TFP), which captures the total and synergy con- tegrating these relations into an economic and social model”. This definition is further tribution of all factors of production. The World Bank clarified by Michael Porter (1990, p.73), who wrote that “the only meaningful concept of competitiveness at the national level is productivity, with which a nation’s labour study found that with the exception of food manufac- and capital are employed”. Porter added: “As the basis of competition has shifted more and more to the creation and assimilation of knowledge, the role of the nation turing firms, the other companies did not come close to has grown. … Ultimately, nations succeed in particular industries because their home environment is the most forward-looking, dynamic and challenging.”

62 | AFRICAN DEVELOPMENT BANK GROUP Table 4.3: Ranking of Sudan in Doing Business Survey of World Bank, 2014 (Ranking among 189 countries surveyed) Indicator Sudan Egypt Eritrea Ethiopia Kenya Rwanda South Sudan 2014 2013 Starting a 131 122 50 188 166 134 9 140 business Dealing with 167 166 149 189 55 47 85 171 construction permits Getting 113 106 105 95 91 166 53 184 electricity Registering a 41 37 105 184 113 163 8 183 property Getting Credit 170 167 86 186 109 13 13 180 Protecting 157 156 147 115 157 98 22 182 investors Paying taxes 108 105 148 150 109 166 22 92 Trading 155 155 83 170 166 156 162 187 across borders Enforcing 154 154 156 67 44 151 40 87 contracts Resolving 89 87 146 189 75 123 137 189 insolvency Overall 149 143 128 184 125 129 32 186 ranking Source: World Bank (2013), Doing Business 2014. Economy Profile: Sudan, 2013. which remains to be developed in the coming decades, 4.3.6 In recent years, Sudan’s international com- Sudan scored well on its natural capital ranking and petiveness has been adversely affected by exchange resource intensity among the 176 countries included rate policy as indicated in Chapter 3. The IMF (2013.a) in the survey.50 It scored much less on innovation, eco- country report that includes an assessment of Sudan’s nomic competitiveness and social cohesion. external competitiveness argued that the currency was overvalued despite the 29 percent devaluation of Sep- 4.3.5 Diversification can be achieved in an open tember 2013.51 The gap between the parallel market economy if the capacity to compete is developed and rate and the official rate has persisted. By mid-2014, additional markets are penetrated or the productivity the parallel market rate differed substantially from the of existing ones is raised. Achieving growth in compet- official rate. However, the parallel market exchange rate itiveness and productivity require an enabling policy, premium declined considerably in the second half of regulatory and administrative framework, efficient insti- 2014. Nonetheless, the appreciation of the Sudanese tutions at the national level, and efficiency and innova- currency in recent years has undermined the compet- tions at the industry and firm levels. itiveness of agricultural exports and that of domestic products that compete with comparable imports. 50 For more information about this index, see SolAbility (2013), The Global Sustainable Competitiveness Index, 2013. Ilsan, , April 2013. Sustainable competi- tiveness means the ability of a country to meet the needs and basic requirements of 4.3.7 The conclusion of the IMF study is that with- current generations, while sustaining or growing the national and individual wealth into the future without depleting natural and social capital. Sustainable competitiveness re- out more investment in agriculture to address the per- quires a number of elements: the basic structures (infrastructure, and the maintenance sistent low productivity and high costs of production, of infrastructure), business environment, quality education and R&D capabilities. The “Natural Capital” of a country refers to its land and the geography, climate, biodiver- the poor quality of packaging, the high internal taxes sity, fertility, water availability, and the availability of mineral and fossil resources. One element of sustainability is having resources at one’s disposal. Another element is and fees and the high transport costs, the competi- how efficiently the available resources are used. Whether a country does or does not possess natural resources within its boundaries, efficiency in using resources – be tiveness of Sudan’s agricultural exports will continue to they domestic or imported - is a cost factor, affecting the competitiveness and thus be undermined.52 As Chapter 3 indicates, such policies the wealth of nations. In addition, non-renewable resources that are used today will not be available tomorrow. This affects competitiveness, wealth and quality of life in the future. The absence or deterioration of social cohesion in turn leads to lower pro- 51 IMF (2013.a), Sudan: Selected Issues. IMF Country Report No. 13/320, October ductivity (health), rising crime rates, and potential social unrest. These cause adverse 2013. consequences on economic development and growth. 52 The relationship between the exchange rate and the competitiveness of the agricultur-

AFRICAN DEVELOPMENT BANK GROUP | 63 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN have to be complemented with a more flexible man- labour; (iii) the inadequacy of infrastructure; and (iv) the agement of the exchange rate. The analysis undertak- lack of access to term loans that are needed for plant en for this Report suggests that both the exchange modernisation. rate effect and the structural and institutional factors affect the competitiveness of domestic products and 4.4.2 Subsequently, a comprehensive assessment exports, including those from the agricultural sector. It of the business environment was reported by the is therefore essential that legal, institutional, financial World Bank in “Doing Business Report, 2014”. The and infrastructure-related constraints are addressed in report was based on tracking 10 different sets of busi- order to enhance the responsiveness of producers to ness-related activities. It ranked Sudan at 149 out of price changes. 189 countries – a decline in ranking from the 2013 level (Table 4.3). In comparing the business climate in Sudan 4.3.8 There also appear to be marked regional dif- with six comparator countries, the report found it worse ferences in productivity and competitiveness in Sudan. than those of Egypt, which was ranked at 128, Ethiopia According to a World Bank (2009) survey of the invest- (at 125), Kenya (at 129), and Rwanda (at 32). In five of ment climate in Sudan, firms operating in Khartoum the 10 categories, Sudan ranked in the bottom 20 per- have a higher propensity to assimilate technology and cent of the countries surveyed. There were no rankings gain market competitiveness compared to those in in the top 20 percent of these countries, but Sudan other areas.53 The TFP growth among manufacturing continued to show some strength in activities related firms in food, textile, wood and wood products, chem- to property registration and resolving insolvencies. The ical and non-metallic products located in Khartoum is worst rankings were for getting credit and dealing with higher compared to that of those operating in other construction permits. The low ranking for access to areas. Only firms outside Khartoum engaged in metal credit reflects the scarcity of information obtained on and metal products have higher TFP growth than those business and the strength of legal rights index. in the main city. This suggests that there is a big dis- parity in the productivity and competitiveness of firms 4.4.3 In comparison, best practices show “strong operating in and outside the city centre of Khartoum. legal rights for lenders and borrowers under collateral and bankruptcy laws, and an increase in the scope, 4.4 Investment Climate and coverage and accessibility of credit information”. In the Government Policies case of construction permits, the low ranking reflected the long period (270 days), the cost (249 percent of per 4.4.1 The ability of Sudan’s private sector to drive capita income) and the degree of complexity (16 proce- growth and diversify the economy depends on the re- dures) associated with obtaining all the necessary ap- moval of the constraints holding it back and undermin- provals to build a warehouse in Khartoum, connecting ing its international competitiveness. All the major inter- with basic utilities and registering the property so that national surveys that have a bearing on the investment it could be used as collateral or transferred to another climate and competitiveness suggest that Sudan’s business. performance is low relative to most of its peers.54 The DTIS that held interviews with the business communi- 4.4.4 Other areas of considerable concern to in- ty reported that the top three constraints identified by vestors that did not show any improvement over the the private sector firms in Sudan are political instability, 2013 rankings were enforcement of contracts, trading corruption, and economic uncertainty.55 The Study at- across borders and protection of investors. Regard- tributed the prevailing inefficiency in the manufacturing ing the ease of getting taxes paid, Sudan stood was sector to the following issues: (i) Taxes that were bur- ranked at 108. On average, firms in Sudan make 42 densome and not transparent; (ii) the scarcity of skilled tax payments a year, spend 180 hours a year filing, pre-

al exports has been a controversial issue in Sudan for a long time. paring and paying taxes amounting to 36 percent of 53 World Bank (2009.a), Sudan: Private Investment Survey Climate. Washington DC, De- cember, 2009. profit. Sudan should consider establishing a one-stop 54 These surveys include the World Bank’s Doing Business Indicators (DBIs), the World shop for registering a business. Rwanda established Bank, Country Policy and Institutional Assessment Ratings (CPIA), Transparency Inter- national’s Corruption Perception Index, and the World Bank’s Worldwide Governance such procedures and significantly reduced the amount Indicators (WGIs). 55 World Bank (2008), Revitalising Sudan’s Non-Oil Exports: A Diagnostic Trade Study of time/bureaucracy/cost in establishing a business. (DTIS).

64 | AFRICAN DEVELOPMENT BANK GROUP 4.4.5 Among the six comparator countries included mit procedures, trading across borders and contract in the Sudan Report for 2014, only Ethiopia and South enforcement. In addition to legal and organisational Sudan had lower rankings than Sudan. The better per- improvements to simplify and speed-up processes, forming countries are reported to have taken action the authorities should also monitor closely the imple- to implement more reforms. Some adopted a one- mentation of the rules and laws on doing business in stop-shop system and simplified procedures. Others Sudan. These surveys also highlight the importance of reduced the minimum capital requirements. In trading action on the political and security environment, includ- across borders, Sudan is ranked 155 compared to 83 ing transparency, accountability and corruption. Infor- for Egypt, 156 for Kenya, and 162 for Rwanda. Ex- mal reports suggest that taking bribes to implement porting a standard container of goods requires 7 doc- existing rules is often rife in the business environment. uments, takes 32 days and costs US$2,050. Importing As experience in other countries has shown, action on the same container of goods requires 7 documents, these fronts can generate productivity gains and bol- takes 46 days and costs US$2,900. In enforcing a con- ster private sector investment and expansion, and im- tract, Sudan was ranked 154 out of 189, compared prove efficiency in the public sector. with 40 for Rwanda, 44 for Ethiopia, 152 for Kenya and 156 for Egypt. Data shows that enforcing the contract 4.5.3 A basic reorientation of the State’s role in the takes, 810 days, costs 20 percent of the value of the productive sector is also needed. In addition to direct claim and requires 53 procedures. In resolving insolven- ownership of enterprises at national and state levels cy, Sudan was ranked 89 compared to 146 for Egypt, of government, the state indirectly owns enterprises 123 for Kenya, 137 for Rwanda and 75 for Ethiopia. It is through government officials and political parties. The estimated that it takes two years on average and costs broad range of activities in which the state participates 20 percent of the debtor’s estate to be liquidated. as direct or indirect owners of enterprises distorts com- petition in those markets, as the presence of state firms 4.5 Impediments to Private Sector provides a strong disincentive to private entry. This un- Growth dermines policies to allow greater entry of the private sector. On the other hand, there is a need for a more The Setting effective and stronger state role in the provision of pub- lic goods, such as infrastructure, and in establishing 4.5.1 Economic diversification needs a strong pri- institutions that support fair competition. vate sector. This requires the government to support the private sector by creating the relevant environment 4.5.4 Strategies for private sector development in for its growth. A concerted programme of action over countries with limited industrial development, such as the next 3-5 years that addresses these concerns can Sudan, often emphasise light manufacturing as the lay the foundations for sustained strong growth in pri- major area for policy focus. The lessons of international vate sector activities in Sudan. Within the private sector experience with manufacturing take-offs highlight the itself, the small and medium enterprises (SME) are im- importance of such industries as good areas to start portant channels for boosting growth. This action plan from. These light industries typically include textiles must therefore address the concerns of both large and and clothing, agricultural processing, meat and fish small enterprises, including the large number of fami- preservation and packaging, leather goods, and wood- ly-owned businesses that operate in Sudan. working (see Dinh et al., 2013).56 In that connection, cross-country studies of experience with programmes 4.5.2 The results of the above-mentioned interna- to promote private sector development that are com- tional surveys all point to the importance of early action parable to that proposed for Sudan have highlighted to improve the business climate in Sudan. The Sudan the following seven key constraints that are typically authorities will need to make concerted efforts to re- encountered in these types of undertakings, as report- duce administrative costs and barriers in establishing ed by Dinh, et al (2013). and operating a business, especially in relation to the regulatory regime and trade environment, including 56 The following factors seem to be critical in explaining this tendency: (1) Ready avail- ability of raw materials and labour; (2) universal demand for food and clothing; (3) access to credit, investor protection, construction per- simplicity and widespread diffusion of the relevant technologies; (4) limited capital and skill requirements; (5) absence of scale economies (Dinh, et al 2013).

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Table 4.4: Direction of Merchandise Trade, 2013 (In US$ million) Trade category Exports Imports Trade balance Oil Gold Non-oil Total Oil Gold Non-oil Total Oil Gold Non-oil Total Industrial - 123 169 291 81 1,987 2,068 (81) 123 (1,818) (1,777) countries Other - - 32 32 15 427 442 (15) - (395) (410) COMESA 49 - 169 218 241 705 946 (192) - (536) (729) Other Africa - - 191 191 5 40 45 (5) - 151 146 Asia 3,911 - 185 4,096 229 3,565 3,794 3,682 - (3,380) 302 Arab countries 54 926 669 1,648 810 1,067 1,877 (756) 926 (399) (229) Latin America - 11 11 0 143 144 (0) - (132) (132) Other - 599 599 79 524 603 (79) - 75 (4) Total 4,013 1,048 2,025 7,086 1,460 - 8,458 9,918 2,553 1,048 (6,433) (2,832) Source: Central Bank of Sudan, Foreign Trade Statistical Digests, various issues.

4.5.5 The earlier mentioned findings of the World experience has shown, substantial overvaluation of the Bank Doing Business survey for 2014 are consistent currency in the official foreign exchange market has not with the findings of these cross-country studies: helped. 1. The availability, cost and quality of inputs; 2. Inadequate physical infrastructure, especially elec- 4.5.8 To address these costs and availability issues, tricity, water, telecommunications, and land trans- trade reforms are useful as are improvements in do- portation; mestic market facilities and in government administra- 3. Access to land, especially for industry; tive costs of doing business. Most of the solutions are 4. Access to finance; within Sudan’s government control. An obvious exam- 5. Trade costs and logistics, due especially to invisible ple is to grant low tariffs (if any) on essential imported infrastructure and limited knowledge, experience inputs along with ensuring a more stable macroeco- and network in commerce; nomic environment as discussed in Chapter 3. In the 6. Limited entrepreneurial capabilities, at both techni- case of domestically produced inputs for the man- cal and managerial levels; and ufacturing firms, the government can assist as well. 7. Inadequate worker skills. For instance, government regulations can be stream- lined and administered more efficiently, and infrastruc- 4.5.6 This Report also finds that export promotion ture facilities (especially land transportation, electricity and its implications for successful economic diversifi- and water) enhanced and supplied more efficiently cation programme is an additional important concern to enable improvements in the delivery performance for the proposed programme. of domestic suppliers of inputs. In addition, private businesses that specialise in providing services in the The Availability, Costs and Quality of supply chain, such as storage and trucking firms, can Inputs also face finance and infrastructure constraints. Here too, the government can help in various ways. The 4.5.7 As the discussions in Chapters 5 and 6 indi- government could, for example, work with banks by cate, Sudan currently faces significant issues related underwriting loans to certain businesses to allow the to the regular availability of inputs (such as agricultural banks to reduce the risk assessment associated with supplies for food processing), their cost and quality. In- the loans. The government can also help by building put sourcing can be a problem because of import costs cluster facilities (such as storage facilities) for rent by and local production and supply constraints, including the business community or by purchase over a period quality shortcomings. Input costs and availability for of time. Other types of support include hosting foreign domestic manufacturing firms can be adversely affect- entrepreneurs who may be interested in joint venture ed by import tariffs and bans, regulations and licensing arrangements with the local business community. requirements, or poor local supply chains. As recent

66 | AFRICAN DEVELOPMENT BANK GROUP 4.5.9 As regards domestically produced inputs that plementation is in the self-interest of the countries.58 are often important in the case of light industries, the Sudan needs to demonstrate that it is committed to issue of quality needs to be addressed. Improved co- implementation of these standards and codes. This operation and communication between suppliers of the typically means prompt legal ratification; organisation- inputs and the manufacturing users can go a long way al set-up to implement the standards and codes; and to resolving these problems. However, the government demonstration, through steadfast and fair enforce- may also be able to help by strengthening the enabling ment, as well as transparent reporting to that effect that environment for the needed cooperation. it supports both the spirit and the letter of each of these standards and codes. Peer reviews by other countries 4.5.10 Compliance with Appropriate Internation- and international organisations will also greatly help in al Standards and Codes. As noted in Chapter 2, a the validation process. In the absence of such actions, key issue for Sudan is the further development of ap- Sudan will suffer in any assessment as a place to do propriate technical standards for both the domestic and business, especially by investors, rating organisations export markets. The Sudanese Standards and Metrol- and official regulators around the world. It will then be ogy Organisation (SSMO) has the overall responsibility at a disadvantage in attracting capital, talent and offers for setting and enforcing product standards in Sudan.57 to participate in global value chains. Increased attention to the current status of standards in Sudan and arrangements for ensuring compliance Access to Land and Services with these standards is of considerable importance at his stage. Sudan must ensure that its governance 4.5.12 As the discussion in Chapter 2 indicates, ac- structure is up-to-date in knowledge about the rele- cess to land is a major issue within Sudan, especially for vant international standards and codes, and develop agricultural activities as discussed in Chapter 5. How- expertise to design and implement the full compliance ever, manufacturing firms also require access to land processes, starting with self-assessments of the initial for their processing and storage facilities, even more state of compliance. so when they plan to form a cluster of industrial plants. The typical land requirements include the following: (i) 4.5.11 The standards and codes relevant to private Enough space to set up facilities and expand (adding sector development in areas as diverse as trade, fi- to factories and warehouses) and sometimes even pre- nancial services supervision, property rights, natural built structures immediately usable for manufacturing, resource management and freedom of expression are storage, and housing; (ii) access to reliable supplies of broad norms that have been legitimised by the interna- electricity, water and other utilities; (iii) clear rights to the tional community. They have evolved from experience; land they occupy that would, among other things, al- arrived at by agreement (via open discussion); and are low them to use the land as collateral for loans; and (iv) expected to be implemented by national authorities, proximity to attractive neighbourhoods – that is, places without a central world authority, because such im- with adequate skilled labour and affordable housing, recreational facilities, a clean and crime-free environ-

57 The Sudanese Standards and Metrology Organisation (SSMO) is a Governmental ment, and efficient services. For some enterprises (in- organisation set up under the private law of SSMO, issued in 1993. The Standards Act (2008), Metrology Act (2008) and Precious Stones Act (2008), all allocate more au- cluding producers of certain export products), proximity thority to SSMO, which has its headquarters in Khartoum and separate offices in each to an airport with numerous connections is necessary state. It has 15 laboratories in addition to those established at the SSMO Branch- es. The most important and well equipped are those at the Port Sudan Branch. The to allow for easy shipment of products quickly and, as SSMO also has an Information Centre. It is a member of ISO, the African Regional Or- ganisation for Standardization (ARSO), the Arab Standards and Metrology Organisa- needed, import of key inputs, spare parts, and skilled tion (ASMO), and Codex Alimentarius Commission, the Arab Industrial and Mining Or- 59 ganisation (AIDMO), the Islamic Institute for Standardisation, the International Institute labour. for Cereal Science and Technology (ICC), African Electro-technical Standardisation Commission (AFSEC), International Organisation for legal metrology (OIML), an affiliate member of IEC. Besides being the focal point for SPS and TBT WTO Agreements. 4.5.13 The Sudan authorities at the local, state and/ SSMO has also signed several; bilateral agreements with the following: The Kenyan Bureau of Standards (KEBS), the Korean Agency for Standardisation (KATS), the Jor- or national level may need to review existing policies dan Institution for Standards and Metrology (JISM), the Syrian Arab Organisation for Standardisation and Metrology (SASMO), the Egyptian Organisation for Standardisa- related to the development and servicing of special tion and Quality (EOS), the Standards Organisation, the Syrian Standards economic zones, with a view toward trying to develop Organisation (SASO), Emirates Authority for Standardisation (ESMA), Turkish National Centre for Standardisation (TSE), Libyan National Centre for Standardisation (LNCSM), General Administration for Chinese Standards (SAC),Uganda National Centre for 58 See Johnson (2002), who makes these points in the case of the compliance with the Standardisation (UNBS), Tunis National Institute for Standardisation (INORPI) and the Core Principles for Systemically Important Payment Systems. in the process of signing with the Ethiopian Standards Authority (QSAE). 59 See Dinh, et al (2013) and Yusuf (2008).

AFRICAN DEVELOPMENT BANK GROUP | 67 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN some for selected industrial activities with satisfactory international markets. It stresses the need to expand supplies of serviced land adequate for their uses. In beyond the present dependence on two products – oil mobilising the support and cooperation of state gov- and gold – as the primary source of foreign exchange ernments and local authorities for these types of initia- earnings. The related problem is that Sudan is heavily tives, the national government could consider guaran- dependent on a relatively small number of markets for teeing the states and the local authorities a share of the its exports. As Table 4.4 indicates, about 97 percent resulting taxes paid by the firms in zones in their states/ of oil exports in 2013 went to China, and 88 percent of local areas, with this tax share not being counted as gold exports went to Arab Peninsula countries. Exports part of the normal budget transfer from the central gov- of products other than petroleum and gold amount- ernment to the states. This plan could constitute an ed to about US$2.0 billion in 2013, a large share of important component of efforts to galvanize self-inter- which was accounted for by exports of agricultural est in favour of promoting private sector development. products to countries in the Arab peninsula. Exports If a group of firms in the same sector are encouraged to other members of COMESA, to the advanced in- to move into the same economic zone/industrial park/ dustrial countries, and to Asian states – a number of cluster, the firms would gain from agglomeration effect which are active in Sudan – are negligible. Further work (external economies), which adds to the developmental is required to create more export markets. While poten- impact. tial private investors would be expected to do much of the required work, the government can support market Access to Infrastructure Services expansion initiatives by addressing the various domes- tic constraints, including, for example, putting in place 4.5.14 The infrastructure services that are of greatest and enforcing the production of the necessary inputs to interest at this stage are access to reliable and rea- the technical standards that are required for successful sonably priced electricity services, land transportation development of these markets. (road and rail, especially for bulk freight services), water for agricultural use in small and large-scale irrigation 4.5.17 For producers who want to operate in export developments by the private sector, and for industrial markets, the standards in international markets are use. Slow and inefficient transport and poor commu- higher than in many of the domestic product markets nications can increase trade cost, reduce sales, and, of Sudan. Additionally, the competition is more intense. moreover, cause serious loss of market share over Partly for these reasons, but also because of limitations time. For exports, port facilities and controls can cause of domestic producers, due to size of firm and of in- serious delays, thereby adding to trade costs. dustry, as well as limited degree of exposure to world markets, the binding constraints on success in export 4.5.15 The various infrastructure issues that confront markets are also far more arduous than those dis- national efforts to accelerate development of the pri- cussed earlier, for many domestic firms to overcome. vate sector are discussed in some detail in Chapter (See Chapters 5 and 6 for further discussion of these 8. To underpin these initiatives, the Sudanese authori- issues.) However, given the considerable natural re- ties could supplement the findings of the recent World source base of the country, the proposed programme Bank report on Doing Business in Sudan with addition- for diversification attaches importance to the further al surveys of the business community to obtain more development of these export markets. There is need information on the nature and effect of infrastructure as for increased attention of current practices and policies a constraint on manufacturing/industrial firms, and the related to the establishment and enforcement of these extent to which the constraint differs by location, size, standards, especially for domestically supplied inputs and sector of business. required for export products. Current tools for interven- tion in support of compliance with standards may need Export Promotion and Diversification to be expanded or modified.

4.5.16 The proposed diversification programme puts Trade Costs and Logistics emphasis on the importance of expanding a wide range of exports within the region and to the broader 4.5.18 Trade costs include all costs incurred in getting

68 | AFRICAN DEVELOPMENT BANK GROUP Table 4.5: Projected Levels of Fixed Investment and FDI (As % of GDP) Indicator Actual Projection 2012 2013 2014 2015 2020 2025 2030 Fixed investment by source Private 16.7 15.9 15.3 15.5 15.9 19.3 19.9 Public 2.3 1.9 2.2 2.3 3.4 3.6 3.6 Total 19.0 17.8 17.5 17.8 19.3 22.9 23.5 Fixed investment by sector Oil sector 1.2 1.0 1.0 0.9 0.8 0.8 0.8 Non-oil sector 17.8 16.8 16.5 16.9 18.5 22.1 22.7 Total 19.0 17.8 17.5 17.8 19.3 22.9 23.5 Memo items: Gross investment (US$ mill) 12,913 14,202 12,827 13,572 18,061 27,494 37,219 Private investment (US$ mill) 11,377 12,860 11,215 11,819 15,194 24,065 32,918 of which: FDI 2,466 2,648 2,859 2,821 3,345 4,364 5,790 Other sources 8,911 10,211 8,356 8,997 11,850 19,701 27,128 FDI as % GDP 3.6 3.8 3.9 3.7 3.5 3.5 3.5 Source: Annex Tables 3.1 and 3.2, and estimates by authors. Note: US$ values for investment and FDI are at 2012 constant prices. GDP market prices (US$ mill) 68,126 70,620 73,299 76,250 95,562 124,692 165,417 a product to a final user, other than the cost of produc- quality of transport and IT infrastructure for logistics, ing the good itself. These include transportation costs the latter having improved slightly in recent years. (both freight costs and time costs), policy barriers (tariffs and nontariff barriers), information costs, contract en- 4.5.20 To promote trade, countries are typically urged forcement costs, costs associated with the use of dif- to improve trade facilitation. International experience ferent currencies, legal and regulatory costs, and local suggests that in many elements of trade facilitation, distribution costs (wholesale and retail).60 An important rapid progress is possible. This is especially true for component of trade costs is sometimes termed ‘trade the sub-category of infrastructure termed “invisible”. facilitation’ costs. These are costs related to activities These are infrastructures that essentially comprises that affect the movement of goods, persons and ser- automated procedures, software and systems – infor- vices in international trade and payments. The activities mation and communication technologies – that simplify include dealing with customs, certain infrastructure fa- and speed up data management and processing and cilities (such as border posts), international shipments, communications in economic transactions (Staples, and various tracking and tracing procedures. In gener- 2002). The government and the relevant state bodies al, low trade facilitation costs (relative to the import and can quickly put in place legislation, rules and the vari- export prices of goods) contribute greatly to low trade ous technologically related systems, and have in place costs and hence to export promotion. capable and trustworthy personnel to apply and use them appropriately. 4.5.19 In 2012, the World Bank’s Logistics Perfor- mance Index (LPI), an assessment of certain qualities 4.5.21 The absence of quantitative restrictions on ex- of trade facilitation, rated Sudan at 2.10 on a scale of ports of goods and on imports of essential inputs for 1 to 5. 61 The average score for Sub-Saharan African production helps to reduce trade costs and promote countries was 2.46. Among the LPI categories, Su- exports. So do low nominal tariff rates on imports of dan’s strongest performance was in ensuring the time- inputs and tax rates on exports. At an even more basic liness of shipments in reaching their destination and the level, the absence of delays, bribery and harassment in official trade due to behaviour of customs, border and 60 For further discussion of these issues, see, Anderson and van Wincoop (2004), pp. 691-2. tax officials, also facilitates a reduction in trade costs 61 The categories used are: customs (2.14), infrastructure (2.01), international shipments (1.93), logistics competence (2.33), tracking and tracing (1.89), and timeliness (2.31). and increases in exports. The figures in parentheses represent Sudan’s scores.

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Table 4.6: Projected Levels of Bank Lending to the Private Sector Indicator At current prices At 2012 constant prices 2010 2012 2020 2025 2030 Bank credit as % GDP 11.9 12.0 19.5 23.5 27.0 Bank credit (US$ mill) 8,218 8,016 18,338 28,909 44,165 Memo item (in US$ million): GDP at factor cost 69,058 66,804 94,040 123,017 163,576 Source: Table 9.3, Annex Tables 3.1 and 3.2, and estimates by authors.

4.5.22 Success in promoting export of goods in world ies from one region (state) to another as indicated, for markets can also be constrained by limited under- example, by the share of business managers with uni- standing of the market conditions and requirements, versity degree. The authorities may be able to support such as what is demanded and by whom, as well as programmes that help to expand the size and quali- the packaging needs. It is further limited by inadequate ty of the stock of entrepreneurial talent in the country. information on how to sell in a particular market (for One way would be to help organise and finance formal example, knowledge of shippers, storage options, entrepreneurial training in classes. Much of the man- wholesalers, middlemen and retailers, etc.), and how to agement practices of entrepreneurs can be directly obtain optimal arrangements for facilities like insurance taught in management courses. Hence, subjects such or handling errors and returns. Effective communica- as quality control procedures, inventory management, tions with buyers and various service providers can be marketing, human resource management, and finan- a problem at times, particularly with changing technol- cial management can be taught in workshops and also ogies around the world. benefit from in-house management consultancies.62 The second way would be to seek and enable expe- 4.5.23 In marketing, domestic producers new to par- rienced entrepreneurs from abroad to cooperate with ticular areas of export and domestic market activity of- the local entrepreneurs via joint actions, foreign direct ten need to obtain assistance via specialists, such as investment and consultancies. A third way is for the trading companies (service providers that, inter alia, link government to create an environment that attracts able producers with potential buyers), and/or by joining ap- entrepreneurs to operate in the country, including a re- propriate networks of producers and market experts of turn of Sudanese entrepreneurs who are currently out- the types of goods involved. Here, the government can side. Both Korea and the Philippines undertook such help in the search process and with resolute reforms programmes with their Diasporas in the 1970s and that reduce trade costs over which the authorities have 1980s. control. 4.5.26 The case for active government assistance Technical and Managerial Capabilities of is founded on two grounds. First, the government is Entrepreneurs likely to have a comparative advantage in leading the cooperation that is required for accelerated increase in 4.5.24 Successful entrepreneurs possess certain entrepreneurship in Sudan. Second, the first major en- managerial, technical, and commercial skills. These trepreneurs to achieve substantial success in important typically include capacities to spot business opportu- manufacturing enterprises are likely to generate knowl- nities; organise and run a firm; deal efficiently with cus- edge in the Sudan environment, for which they may tomers, workers, suppliers, business competitors, and not reap “fair” compensation before being copied by government officials; and an ability to assess and man- others. Hence, government assistance would enable age microeconomic and macroeconomic risks that will a socially adequate supply of such entrepreneurship to threaten the profitability and even the survival of their emerge quickly.63 businesses.

4.5.25 The entrepreneurship skill gap in Sudan var- 62 See Bloom et al (2010), for example. 63 See Parker (2009) for a good introduction to the economics of entrepreneurship.

70 | AFRICAN DEVELOPMENT BANK GROUP Skills in the Workforce and Labour and adopt an appropriate mix of policies that are suffi- Policies ciently flexible and would be fair to the workers in Su- dan. 4.5.27 Lack of skilled manpower was cited as a se- rious business obstacle by close to 40 percent of re- 4.6 Private Investment spondents to the PICS 2008 manufacturing survey for Requirements and Financing the whole of Sudan. However, there was some variation around the country. The majority of Sudan’s educated Private Sector Investment Requirements labour force is concentrated in the capital and other large cities, whereas in Nyala, for example, 56 percent 4.6.1 As the discussion in Chapter 2 indicates, for of the respondents cited lack of skills as a major to the purposes of this Report, the Moderate Growth Sce- severe business constraint. nario is one in which Sudan continues to face econom- ic sanctions by the US and European countries, but it 4.5.28 As Table 2.8 indicates, the labour force in does reach an agreement regarding the arrears on its Sudan is projected to increase by about 3 percent a external debt and is able to benefit from a substantial year during the 2012-2030 period, with the absolute increase in inflows of ODA and continued substantial number increasing from about 11 million in 2012 to inflows of FDI. In this case, successful implementation approximately 19 million by 2030. Absorbing an aver- of the proposed action programme for diversification age of about 427,000 new entrants into labour each over the next five years results in a gradual increase year in this period is a major challenge for the coun- in non-oil GDP growth to about 5.7 percent a year by try, especially in view of the fact that unemployment 2020, with growth during the 2020-2030 period con- rate has been about 15 percent for more than a de- tinuing at close to 6 percent a year. As Table 4.5 indi- cade. Addressing the human capital constraint, typi- cates, increased private investment drives this transi- cally identified as “shortage of worker skills”, in trying tion to sustained strong growth by the 2020s, together to boost manufacturing activity, involves policies in the with an operating environment that is supportive of pri- following three areas: Basic general education (having vate sector-led diversification. Private fixed investment an overwhelming proportion of the population complet- remains at its current level of about 16 percent of GDP ing formal schooling at the secondary level); improved until 2020, and then rises steadily to about 20 percent literacy; and putting in place a sound, modern, and for- of GDP by 2030. mal technical and vocational educational system that is accessible (both physically and financially) to all of 4.6.2 In this scenario, private fixed investment has those who want to participate in it. The literacy of the to increase from about US$13 billion in 2012 to about adult population of Sudan was only about 71 percent in US$15 billion by 2020 and US$33 billion by 2030 (all 2010, but this will change rapidly in the decade ahead at 2012 constant prices). Total private fixed investment as the literacy rate of 15-24 year olds was 87 percent during the 2014-2030 period is projected to be about in 2010, and is projected to increase to 100 percent US$340 billion, including US$66 billion from FDI. This within the next few years. Chapter 9 provides a detailed leaves a balance of some US$274 billion to be financed assessment of the challenges associated with building from other sources of equity and debt. The key chal- the skills of the labour force. lenge for this scenario is putting in place the policies and programmes that will be needed to mobilise the 4.5.29 Difficult issues arise in the areas labour poli- funding required for these levels of private investment. cies. The main issue is the degree of freedom and flexi- There are four potential sources of funding: investment bility that the top management will have with respect to in kind by business entities and individual farmers and hiring and firing, overtime pay, minimum wage, leave, business people, the domestic financial market, foreign treatment of unions, and hiring of foreigners at all lev- direct investment and offshore sources of debt financ- els of the firm. With the help of an international agency ing, and to a much lesser extent, retained earnings: such as the World Bank, the government could take a • Foreign direct investment is assumed to grow survey of what leading economic powers and rapidly steadily from its current level of about US$2.7 bil- growing developing countries are doing at the moment, lion a year to about US$3.3 billion by 2020, and to

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about US$6 billion by 2030 (all at 2012 constant in the economic governance and policy environ- prices), at which time FDI would be about 3.5 ment. To attract FDI, the government should ex- percent of GDP, compared with about 4 percent plicitly promote the openness of Sudan to foreign in 2012-13. As noted above, total FDI during the capital and highly skilled labour. Key elements of 2014-2030 period is projected to be about US$66 this initiative may need to be reflected in the laws billion. and regulations of the country. Such openness • Given the assumed successful agreement on the would attract foreign investment to Sudan, as well issue of arrears payments, Sudan’s access to off- as the opening of the Sudan market to skilled for- shore debt financing is assumed to improve by eign labour.64 2020. However, with continued sanctions, access • Second, enterprises that are partly or wholly for- to the offshore commercial debt markets, including eign-owned should also be given equal access to export credits, would be somewhat constrained. benefits from selective intervention policies, when • The implication is that the domestic capital market explicit government subsidies are not at issue. If of Sudan will have to play an increasingly important the intervention involves rental of government facil- role in mobilising domestic savings, and through ities or government loans to be repaid with appro- effective intermediation, make these savings avail- priate interest, for example, then enterprises that able for private sector investment. are wholly or partly foreign-owned could also be allowed to compete for the benefit. 4.6.3 Given that some of the above-mentioned • Third, the authorities should try to create an envi- US$275 billion of private fixed investment (net of FDI ronment that makes Sudan attractive for foreigners inflows) will be funded by equity contributions rather to take up residence in the country. Having a phys- than debt financing, a not unreasonable estimate of the ical environment that is attractive as a place where amount of debt financing that may be required may be people want to live and work in typically means in the range of US$20 billion a year by 2030 (equivalent that services such as transport, housing, hotels, to a debt:equity ratio of about 75:25). physical security, medical services, facilities for leisurely activities and educational establishments Outlook for Foreign Direct Investment include components that operate at appropriate international standards. 4.6.4 FDI is expected to play an important role in the private sector-led diversification programme proposed 4.6.6 Foreign investors need not necessarily help to in this Report. This inflow of investment and related manage a local firm. There could be cases in which technical and managerial skills can also play an import- FDI can simply invest in a local enterprise without any ant role in addressing some of the above-mentioned attempt to get involved in its management. Listing of a major constraints that confront private investment in Sudanese enterprise in the Khartoum Stock Exchange Sudan at this time. or direct approach to venture capitalists may lead to this kind of outcome. 4.6.5 Trade logistics – particularly for exports – and entrepreneurial skills, would likely be the most import- 4.6.7 In implementing the promotional strategy for ant areas where FDI could make an important contri- attracting FDI to Sudan, the national and state govern- bution. The federal and state governments in Sudan ments may want to make greater use of industrial parks can no doubt assist – via both policy interventions and duty-free zones that are well serviced with infra- and finance – with the availability, cost and quality of structure and other services. Such facilities would help input, infrastructure and worker skills. In other words, to assure potential investors that government policy is Sudan’s need for FDI is mainly about knowledge (espe- well thought out and that the government is serious cially technical and managerial), finance, and marketing about industrial development and export promotion. In- (especially information and logistics). In that context, vestors, entrepreneurs, and skilled workers associated the strategy to attract FDI could be built around the following three initiatives: 64 Skilled labour from abroad would still need to obtain appropriate work permits. But the policy of openness would be tailored to enable the firms in Sudan, irrespective of their • First would be to pursue business friendly reforms ownership, to be able to get the worker skills they want, including from abroad, while ensuring fair (non-discriminatory) treatment of workers of Sudanese origin.

72 | AFRICAN DEVELOPMENT BANK GROUP with the FDI would appreciate the likely gains from the the domestic banking network is that the net increase agglomeration and would be more willing to come for- in bank lending for investment and working capital re- ward with ideas to help facilitate such services.65 Such quirements would be in the range of US$4 billion a year action would also help to overcome problems associat- by 2030 (at 2012 constant prices). In this scenario, the ed with setting aside land in urban and other areas for domestic banking system would therefore finance per- sale or long-term lease for industrial activities. haps about US$3 billion a year of the above-mentioned US$19 billion a year required by the private sector, leav- Improving Access to Financing in the ing a balance of US$16 billion to be mobilised from oth- Domestic Market er domestic and international sources. If the domestic financial market is to finance a substantially larger share 4.6.8 The proposed programme of private sector-led of the private sector investment, there must be a major diversification will require funding from the domestic fi- effort on two fronts: (i) accelerate the capacity of the nancial markets for new investments and for working domestic capital market to mobilise domestic savings capital. For investment, the main sources of finance and to provide investment loans to the private sector would be own savings, friends and relatives in the case through increased lending by the banking network; and of family-owned business, micro-finance programmes, (ii) early attention to development of other forms of do- curb market loans, and the formal financial markets, mestic debt financing, such as a corporate bond mar- including banks, private equity and debt markets. For ket. working capital, the main sources would be internal cash and working capital loans from banks. An import- Access to Offshore Debt Financing ant aspect of these financing arrangements would be the existence of facilities that can meet the working 4.6.11 One of the most important offshore sources capital and investment financing needs of SMEs. of debt financing will be the export credit agencies of countries that export capital equipment to Sudan for 4.6.9 As the discussion in Chapter 9 indicates, the private sector use. As Table 2.9 indicates, a substan- total amount of bank loans to the private sector stands tial portion of the proposed capital expenditures for at about 12 percent of GDP, a very low level relative to the programme will be for transport and other capital the experience of four of the five comparator countries equipment. Given the very limited domestic capacities (that is, Egypt, Kenya, South Africa, Tunisia and Ugan- for production of capital goods in Sudan, much of the da) used for the analysis of financial development in required equipment will have to be imported. The ob- Sudan (Table 9.3). A review of the experiences of these vious source of financing for much of this equipment countries indicates that over the past three decades would be the export credit agencies of the countries (from 1980 to 2010) bank loans to the private sector that supply the capital equipment. Possibly, as much increased by a total of about 25 percentage points of as 25-30 percent of the proposed private sector in- GDP. If bank lending to the private sector in the de- vestment will be in the form of imported capital equip- cades ahead were to increase at a rate comparable ment that could be financed by accessing export credit to that of these comparators, private sector lending by from the countries of origin of the capital equipment. the domestic banking network would be about 27 per- This suggests that by 2030, about US$7 billion a year cent of GDP by 2030. As Table 4.6 indicates, this indic- could be mobilised from these sources of financing of ative benchmark suggests that total loans outstanding imported capital goods. In this connection, the govern- to the private sector for investment and working capi- ment could also consider introducing programmes that tal purposes could be in the range of US$44 billion by would facilitate private sector access to these offshore 2030, compared with $8 billion in 2012 (both at 2012 sources of official financing. With the assumed contin- constant prices) – an average growth of 9.3 percent a uation of economic sanctions by the US and European year. countries, it is unlikely that the capital goods would be imported from these countries and financed by them. 4.6.10 The implication of this scenario for lending by Alternative sources of supply would be required, includ- ing countries like China that have established capaci- 65 See, for example, Table 5.2 in Basant (2008), which summarizes the responses from cluster and non-cluster firms about their perceived advantages of locating in a city ties for the manufacture of capital goods and export cluster.

AFRICAN DEVELOPMENT BANK GROUP | 73 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN financing facilities. use donor funding to extend the maturities of domestic loans, thereby improving cash flow in the early years of 4.6.12 Concessional loans from bilateral and multilat- an investment by the borrower. Given the substantial eral donor agencies can be another important source amount of trade with Arab Peninsula countries, Sudan of debt financing for the proposed programme. While may be able to mobilise substantial amounts of aid a substantial part of these donor programmes may be from the relevant donor agencies in these countries. used to finance both national and state government in- In that connection, an ongoing dialogue with the Arab vestment programmes, a portion of the aid may also authority for Agricultural Investment and Development, be used to support private sector investment through and the Arab Organisation for Agricultural Develop- direct on-lending to local entrepreneurs and farmers, ment, may be productive. especially small and medium-scale agricultural and in- dustrial activities. In the course of developing a detailed 4.6.13 The prospects for private sector mobilisation financing plan for the proposed private sector-led di- of debt financing in international financial centres, such versification programme, donor agency funds can pro- as London and New York, are unclear at this stage, vide enhancements to domestic sources of funding. A given the continuing application of sanctions against range of techniques drawn from international experi- Sudan. ences can be considered. One example would be to

74 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 75 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

76 | AFRICAN DEVELOPMENT BANK GROUP 5. PROMOTING AGRICULTURE AND RURAL DEVELOPMENT

5.1 Current Status of the nature of the rains, farming in much of the rain-fed area Agricultural Sector is based on a low-input-low-output technology. It is fur- ther characterised by cheap access to land, allowing The Setting unlimited horizontal expansion for farmers that are able to invest, and fuel and readily available labour at com- 5.1.1 Sudan has long been regarded as having the paratively low daily rates (WFP-FAO 2011). potential to become one of the major surplus food pro- ducers in the world. 66 As the discussion in Chapter 2 5.1.3 The vast potential notwithstanding, since the indicates, with the secession of South Sudan in 2011, 1960s there has been a decline in the contribution of and the end of the oil boom, Sudan must now move to agriculture, livestock, forestry and fisheries to the GDP a broad-based programme of development that puts of the country.67 Value added by the sector declined substantial emphasis on using the vast agricultural po- from an average of 46 percent of non-oil GDP in the tential of the country to underpin an extended period of 1960s to about 36 percent of non-oil GDP in the 2010- sustained strong economic growth and development. 2013 period. In the same period, the rural population increased from about 7 million to 25 million. The agri- 5.1.2 About 63 percent of the land area of the coun- culture sector thus provided employment and incomes try is classified as agricultural land – that is to say, the for about two-thirds of the population. In the 1970s, the land is arable, under permanent crops or under pas- agriculture sector grew at an average of almost 4 per- tures (Table 2.1). The country has ecological and cli- cent a year, and then in the 1980s and 1990s, growth matological characteristics that suit a wide variety of averaged about 5 percent a year. In the decade after crop cultivation and animal husbandry. About 85 to 90 the oil boom began, the growth performance of the ag- percent of the agricultural area in Sudan is rain-fed, riculture sector was maintained at an average of 5.3 depending on the season. Because of the unreliable percent a year. If the large contraction in agriculture that reportedly occurred in the secession year of 2011 is 66 During the 1970s, Sudan, Canada and Australia were viewed as the three countries that could be the main contributors to the world food basket. More recently, Sudan excluded, the growth in value added during the 2010- has been classified as a country in which agriculture can be used as the basis for sustained strong economic growth if a productivity revolution in smallholder farming is 67 This Report uses the term ‘agriculture’ as a shorthand reference to crops, livestock, realised (World Bank, 2008.a). forestry, aquaculture and commercial fisheries.

Table 5.1: Growth of Value Added by Agriculture, Forestry and Fisheries Sector, 1960-2013 Indicator 1960-69 1970-79 1980-89 1990-99 2000-09 2010-13 Average growth rate per decade (% p.a.) n.a. 3.8 3.0 7.1 5.3 5.5¹ Agriculture share of GDP (%) Total GDP at factor cost 46.2 41.4 34.3 40.3 34.2 33.4 Non-oil GDP at factor cost 46.2 41.4 35.8 41.3 38.0 36.2 Source: Annex Tables 2.1 and 2.2. Note 1. The average growth rate excludes 2011 when an unusually large contraction in value added occurred.

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Table 5.2: Agriculture Sub-Sector Growth Rates and Share of Contribution to GDP by the Agriculture Sector for 1991/92-1999 and 2000-08 Agriculture sub-sector 1991/92-1999 2000-08 Growth rate Share of sector Growth rate Share of sector (% p.a.) value added (%) (% p.a.) value added (%) Crops Irrigated cropping 6.6 21.1 4.4 28.2 Rain-fed semi- -6.7 6.3 5.2 3.1 mechanized Rain-fed traditional 24.6 12.5 2.4 14.9 Minor crops -1.4 1.2 n.a.¹ n.a.¹ Other products 2.4 5.9 n.a.¹ n.a.¹ Sub-total 8.5 47.0 3.6 46.3 Livestock 15.9 46.9 3.6 47.2 Forestry -21.5 4.8 2.5 6.5 Fisheries 9.0 1.3 n.a.¹ n.a.¹ Total agriculture 10.8 100.0 3.6 100.0 Source: World Bank (2009), Table 4.1. Note 1: data included in the forestry sector.

2013 period has been maintained at about 5.5 percent Key Features of the Agricultural Sector a year. However, as a result of poor policy choices, rural incomes decreased in this period, thereby contributing 5.1.5 The agriculture, livestock, forestry and fisher- to an increase in poverty. By 2009, the incidence of ies sector includes the following three farming systems: poverty in rural areas stood at 58 percent. This meant traditional rain-fed farming, semi-mechanised rain-fed that about 13.4 million rural residents were below the farming, and irrigated agriculture. These farming systems poverty line at that time. During the 2000s, the total are used for both crop and livestock production. The key value of agricultural exports, including manufactures, activities of the sector can therefore be characterised as declined to 0.5 percent of non-oil GDP. As a result of follows: the effects of the oil boom, the agricultural sector was • Irrigated agriculture (with approximately 1.7-1.9 mil- essentially catering only for the domestic market in the lion ha); 2000s. The problems in the agricultural sector reduced • Semi-mechanised rain-fed farming (with approxi- incentives for farmers and discouraged the increasingly mately 5-6 million ha); large number of young adults entering the labour force • Traditional rain-fed farming (with approximately 4.2- from taking up farming. 5.0 million ha); • Livestock activities (with 105 million head as of 5.1.4 Structurally, most of the productive capaci- 2014); ty of other sectors depends heavily on agriculture as • Forests, and rangelands with 67 million a source of raw materials,68 wage goods, foreign ex- ha (669,471 sq. km.); and change earnings and a market for goods and services • Fisheries sub-sector (with a production in the range produced by other sectors (JAM 2007, CBoS 2010 and of 55,000 tons in 2014). IMF 2012). In the pre-oil boom period, the agriculture sector provided the bulk of the export products of the 5.1.6 Historically, the main cash crops in the Su- country and accounted for the bulk of the foreign ex- dan have been cotton, oil seeds, hibiscus (kerkeday), change earnings. Sudan produced a diversified range watermelon seeds, gum Arabic and sugar, whereas of exports of food and non-food products, such as cot- sorghum, and wheat were the main staple ce- ton, gum Arabic and sesame, along with substantial real foods. In the post-colonial pre-oil era, agricultural exports of sheep and other animals. The sector also growth was largely driven by the following activities: (i) provided key inputs (edibles oils, leather, and sugar, for expansion of large public sector irrigated schemes in example) to manufacturing industries. central Sudan producing cotton, sugar, oil seeds and

68 Agriculture provides raw material for almost 70 percent of the manufacturing indus- cereals; (ii) expansion by smallholders in traditional rain- tries.

78 | AFRICAN DEVELOPMENT BANK GROUP Table 5.3: Crop Production During 2005/06-2014/15 (In '000 metric tons) Crop 2005/06 2012/13 2013/14 2014/15 to 2012/13 (annual average) Cereals Sorghum 3,154 4,524 2,249 6,169 Millet 677 1,090 359 1,245 Wheat 470 250 194 473 0 50 20 48 Sub-total 4,301 5,914 2,822 7,935 Oilseeds Sesame 306 563 205 721 Groundnuts 873 1,766 963 1,871 Sunflower 98 86 56 51 Sub-total 1,277 2,415 1,224 2,643 Cotton 288 131 162 176 Memo item 2005/06 2012/13 2013/14 2014/15 Wheat imports 1,411 2,314 2,178 n.a. Source: Department of Statistics, Directorate of Agricultural Economics and Planning , 2012/13., and Annex Table 2.12 for wheat imports.

fed farms producing food for subsistence, cash crops value added of the agriculture sector. The share of the and animals products for local and foreign markets; forestry sector increased to about 6.5 percent during (iii) investment by the private sector in pump irrigated the 2000-2008 period, but the contribution of the fish- schemes producing cotton and other food and export eries sub-sector has been negligible throughout the en- crops; and (iv) expansion by the private sector in rain- tire period under review (FAO-SIFSIA N 2012).70 During fed mechanised farms producing cereals and oil seeds. the 1990’s, the traditional rain-fed sector boomed (with a growth rate of 25 percent per annum), whereas mech- 5.1.7 There has been a substantial increase in the anised farming contracted by an average of 6.7 percent importance of the livestock industry over the years. a year. The expansion in small-scale rain-fed farming at According to the Ministry of Livestock, fisheries and that time was attributable to government support for Rangelands (MoLFR), by 2013 there were about 105 small farmers to promote growth and maintain food million head of livestock throughout the country, includ- security. In the 2000-2008 period, however, the perfor- ing various breeds of cattle, sheep, goats, and mance of these sub-sectors was reversed, with tradi- (MoLFR 2012). Whereas livestock accounted for 3 to tional rain-fed agriculture increasing by only 2.4 percent 6 percent of all agricultural exports between the late a year, whereas mechanised farming grew at about 5.2 1950s and early 1970s, these percentages increased percent a year. Despite the low growth of the irrigated substantially in more recent years. By 2012, livestock sector in the 1990s and 2000’s, the contribution of the activities accounted for more than 60 percent of agri- sub-sector to total value added by agriculture increased culture’s total contribution to GDP.69 from 21 percent to 28 percent. More recently, substan- tial increases in production costs, labour shortages that 5.1.8 Table 5.2 gives an overview of the contribution stemmed from domestic conflict and immigration, and of these various sub-sectors to the overall performance the lack of macroeconomic stability as outlined in Chap- of the agriculture sector from 1991 to 2008. The crop ter 3, has had an impact on the performance of the agri- and livestock sub-sectors grew rapidly in the 1990s, culture sector. but slowed appreciably during the 2000-2008 period. They have each accounted for about 47 percent of the 5.1.9 With the secession of South Sudan in 2011,

69 Based on unpublished data from CBS, cited by Behnke (2012) and UNEP (2012). 70 The fisheries figure is an estimate by authors, as it is not separately available.

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Table 5.4: Average Area Cultivated and Harvested for Main Crops During 2005/06-2014/15. (In hectares '000) Crop Area cultivated Area harvested Harvested area as % of cultivated Average yearly Average yearly Average yearly Average yearly 2005/06-2012/13 2013/14-2014/15 2005/06-2012/13 2013/14-2014/15 2005/06-12/13 2013/14-14/15 Cereals Sorghum 8,016 9,391 5,452 6,544 68.0 69.7 Millet 3,447 3,449 2,199 2,405 63.8 69.7 Wheat 252 181 241 171 95.6 94.5 Maize 32 30 29 26 90.6 86.7 Sub-total 11,747 13,051 7,921 9,146 67.4 70.1 Oil seeds Sesame 1,808 2,229 1,361 1,731 75.3 77.7 Groundnuts 1,489 2,359 920 1,718 61.8 72.8 Sunflower 131 91 114 64 87.0 70.3 Sub-total 3,428 4,679 2,395 3,513 69.9 75.1 Cotton 133 77 122 70 91.7 90.9 Total 15,308 17,807 10,438 12,729 68.2 71.5 Source: Department of Statistics, Directorate of Agricultural Economics and Planning.

Table 5.5: Average Area Cultivated and Harvested, Production and Yield for Selected Export Crops, 2012/13-2014/15 Crop Area ('000 ha) Production Yield Cultivated Harvested ('000 mt) (kg/ha) Lubia pulses 258 193 66 255 Watermelon seeds & fruit 811 579 57 70 Roselle 313 227 37 118 Guar 7 6 3 423 Source: Department of Statistics, Directorate of Agricultural Economics and Planning.

and the associated loss of government revenues from followed by millet (16 percent) and wheat (6 percent) oil, the emergency programme that was launched by the respectively. Their production was reported to average government with the support of the IMF calls for the re- 4.3 million mt a year during 2005/06-2012/13, com- moval of fuel subsidies and increases in the VAT that will pared to 5.4 million mt during 2013/14 and 2014/15 have an impact on costs for some agricultural products. (Table 5.3) – an increase of 25 percent between these There is some concern that these macroeconomic ad- two periods. justments may have an adverse impact in the agriculture sector (AfDB, 2012). 5.2.2 The domestic supply deficit in cereals that cur- rently amounts to more than two million mt a year is 5.2 Performance of Individual covered by imports of wheat and wheat flour through Sub-Sectors three well-known private sector wheat and wheat flour companies. As Table 5.3 indicates, imports of wheat Performance by Crop Type increased from 1.41 million mt in 2005/06 to an average 5.2.1 Cereals constitute the main staple food in of 2.25 million mt in the past two years. In 2013/14, Sudan. Sorghum has been the most important staple imports accounted for more than 90 percent of total food crop in Sudan, comprising about 78 percent of to- supply of wheat and about 44 percent of the total sup- tal cereal production during 2012/13 through 2014/15, ply of cereals.

80 | AFRICAN DEVELOPMENT BANK GROUP 5.2.3 The performance of most crop farming in Su- to 144,000 tons in 1993/94, then picked up to 300,000 dan is characterised by low yields. These poor yields tons by 1995/96, only to drop again to an average of 153 stem from many factors, including unfavourable climat- thousand tons a year in the 2013/14-2014/15 seasons. ic conditions (highly variable rainfall, for example), poor According to Sudan trade data, some 234,000 bales soils, low-input use and low levels of technology adop- of cotton were exported in 2001, but by 2014, exports tion. Recent yield data is available for sorghum, millet, had declined to 99,000 bales. There has been a ma- wheat and maize and for various oil seeds, including jor shift away from cotton production with an average cotton, sesame, sunflowers and groundnuts. For the of only 77,000 hectares cultivated in the years 2013/14- purposes of this Report, average crop yields have been 2014/15. This decline stems, in part at least, from the calculated for the period 2005/06 through 2012/13. decline in farm-gate competitiveness of cotton, relative to other crops.72 In addition to the reduced area under 5.2.4 The average area of cereals, oil seeds and cot- cultivation, several external factors have contributed ton that was cropped annually from 2013/14 to 2014/15 to the decline in Sudan’s cotton exports, including the was 17.8 million ha compared with an annual average decrease in the demand of extra-long and long staple of 15.3 million ha during the 2005/06-2012/13 period. cotton in world markets. This represented an increase of about 16 percent. About 10 million ha of this area was rain-fed. Food crops and 5.2.7 However, production of oil seeds increased oil seeds were cultivated annually from an estimated to- to an annual average of 1.93 million tons during the tal arable area of 19 million ha (53 percent). The area of 2013/14-2014/15 years, about 50 percent higher than cereals harvested in 2012/13 accounted for 9.1 million average annual production in the 2005/06-2012/13 pe- ha compared to an average of 7.9 million ha during the riod (Table 5.3). The large variability in agricultural pro- 2005/06-2012/13 period. Almost one-third of the area duction creates a frequent threat for the agro-industrial planted by sorghum and millet is usually not harvested sector, which requires a stable supply of product and (Table 5.4). The latter is typically limited by rainfall varia- reliable prices. In the case of oil seeds, as much as one- tion, inadequate supply of inputs and price competition third of the area planted is not harvested. As the subse- among crops. In irrigated areas, about 90 percent of quent discussion indicates, yields are much lower than the cropped area was harvested in the years 2013/14 international outputs and those in similar countries. to 2014/15. Production and management are usually more satisfactory under irrigated farming compared to 5.2.8 Other important export cash crops in Sudan that for rain-fed growing of cereals. include Lubia pulses, water melons (seed and fruit), Roselle (hibiscus Karkadey) and Guar. Table 5.5 shows 5.2.5 Cotton was once the king of the crops, almost all average area and production for the period 2012/13- produced under irrigation.71 Cotton is produced mainly 2014/15. For most of these crops, there has been con- for fibre and not for cottonseeds, which are considered siderable variability in terms of areas grown and harvest- a by-product. Cottonseeds are processed domestical- ed, along with low yields. At about 800,000 ha, water ly to produce cooking oil. Cottonseed oil is used as a melons for both seeds and fruits account for the largest substitute of imported fats for domestic production of area cultivated, compared to lubia pulses and Roselle soap in Sudan. Cotton-cake, the by-product of cotton- with cultivated areas of about 260,000 and 310,000 ha seed oil production is an important feed, especially for respectively. However, total production of guar, which fattening animals for export. is a promising gummy product, was only 3,000 mt in 2012/13-2014/15, compared to an average of 9,000 5.2.6 About 85 percent of the cotton lint that is pro- mt in the recent past. Vegetables and fruits are import- duced is exported. However, there has been a substan- ant in domestic trade, but there are acute information tial decline in the production of cotton in Sudan over the gaps for these cropping activities. past few decades, hence a large decline in exports. Cot- ton production dropped from 400,000 tons in 1989/90

71 Whilst long staple cotton prevails in irrigated agriculture, American short staple cotton is reported in rain-fed areas and accounted for almost 5 percent of total cotton pro- 72 For a somewhat dated assessment of the factors that contributed to the decline of the duction in the country. More precisely, irrigated cotton shared (95 percent) with acala cotton industry, see Babiker, Elfadil Abdelrahman (undated), Sudan Cotton Research replacing long staple varieties of Shambat and extra staple long varieties of Barakat in and Production Scenarios: Challenges, Achievements and Prospects. Office of Na- the Gezira scheme. tional Coordinator for Cotton Research Programme, Khartoum, Sudan.

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Table 5.6: Area Irrigated, Production and Yields for 5.2.10 In addition, there are small irrigated holdings Selected Crops During 2013/14-2014/15 that practice old irrigation methods of farming known Crop Area ('000 ha) Production Yield as Shadoof and flood irrigation, along the Nile Rivers Planted Harvested ('000 mt) (kg/ha and its tributaries. However, these types of irrigation are Cereals minor and information about them is limited. Sorghum 423 376 810 2,157 Millet 7 5 5 900 5.2.11 Farming practices in the irrigated sub-sector Wheat 175 166 328 1,969 have always been more intensive than in the rain-fed Maize 17 15 20 1,333 sector. In spite of this, the sub-sector has invariably Total 623 561 1,162 failed to meet targets for irrigated areas, a result of Oil seeds problems with water supply and delivery, and mana- Ground nuts 122 118 280 2,381 Sunflower 17 16 23 1,389 gerial shortcomings (FAO SIFSIA N 2012). During the Total 139 134 303 1990s, irrigated agriculture accounted for almost all of Cotton 64 59 153 2,602 the cotton produced in Sudan, 25 percent of the sor- Source: Ministry of Agriculture and Irrigation. ghum, almost 100 percent of the wheat, all of the sugar cane, and 53 percent the groundnuts. At that time, cot- ton was the most important crop in irrigated farming,

Table 5.7: Area, Production and Yields for Main Crops Under but this is no longer the case. Mechanized Farming During 2013/14-2014/15 Crop Area ('000 ha) Production Yield 5.2.12 During the years 2013/14-2014/15, the irrigat- Planted Harvested ('000 mt) (kg/ha ed sector produced an annual average of 1.18 million Cereals mt of cereals, equivalent to about 22 percent of total Sorghum 5,711 4,017 2,258 562 annual production (Table 5.6). The contribution of the Millet 258 181 75 415 irrigated sector to other food crops such as groundnuts Total 5,968 4,197 2,333 and sesame were quite different. Groundnuts produced Oil seeds under irrigation accounted for 280,000 tons, equal Sesame 1,032 835 237 283 to 20 percent of total country production. However, Other crops¹ sesame is produced entirely by the mechanised and Source: Ministry of Agriculture and Irrigation. Note 1: Other crops include sunflowers and guar are produced in small amounts traditional rain-fed agriculture. Sunflower, a promising new enterprise, produced an annual average of 23,000 mt during the 2013/14-2014-15 period. Informal esti- Performance of the Irrigation Sub- mates suggest that almost 80 percent of fruit and veg- Sector etable production is produced under irrigation. Various vegetables and fruits are also produced by small farm 5.2.9 Irrigated farming is the most well established holdings along the Nile Rivers and its tributaries, but type of farming in Sudan. The FAO-SIFSIA N Crop and reliable data is scarce. The ARP reported production of Food Assessment Report of 2012 outlines the key fea- an average of 5.9 mt of vegetables and 7.3 mt of fruits tures of the two types of irrigated farming in Sudan: (Annex 5). Sudan also has five sugar refining factories • Small to medium-scale mechanised, commercial with a total area of about 87.6 thousand hectares. The farms on gravity-fed schemes previously owned total sugar produced in 2009-10 averaged to 690,000 and managed by the State, which are now mostly mt of refined sugar compared to 730 thousand in the released from tenancy restrictions and obligations year before. 73 to grow cotton, but are increasingly involved in growing cotton and other crops under contract for 5.2.13 In summary, food production by the irrigated emerging agricultural companies. sub-sector accounts for some 830,000 ha of cultivated • Privately-owned pump-schemes growing mixtures areas and 20-25 percent of domestic cereal production of cereals, vegetables, legumes, fruits and oilseeds at variable production capacities. 73 The factories are: (i) the Guneid (7.9 thousand ha); (ii) New Halfa (15.1 thousand ha); (iii) Sennar (13 thousand ha); (iv) Assalaya (15.5 thousand ha); and (iv) Kenana (36 thousand ha). The area of White Nile Sugar Company which is a private company approaches 42 thousand ha.

82 | AFRICAN DEVELOPMENT BANK GROUP depending on the season. As the discussion below in- Table 5.8: Area, Production and Yields for Main Crops Under dicates, rain-fed agriculture accounts for the remaining Traditional Rain-fed Farming During 2013/14-2014/15 75-80 percent of cereals grown in Sudan. The irrigated Crop Area ('000 ha) Production Yield sector produces about 20 percent of sorghum, where- Planted Harvested ('000 mt) (kg/ha as mechanised and traditional sub-sectors account for Cereals 54 percent and 26 percent of sorghum respectively. Sorghum 3,257 2,153 1,142 530 Millet 3,184 2,219 723 326 Performance of Rain-fed Farming Wheat 6 5 6 1,304 Maize 12 12 14 1,165 Total 6,458 4,388 1,884 5.2.14 Rain-fed farming has accounted for about 95 Oil seeds percent of the total areas cultivated in the 2013/14- Sesame 1,196 895 227 253 2014/15 period, of which about 38 percent is classified Ground nuts 2,237 1,600 1,137 711 as mechanised farming. The area farmed under rain- Sunflower 74 48 31 653 fed conditions averaged 18.3 million ha during these Total past two years. About 13.1 million ha was harvested. Cotton 13 12 16 1,379 Other 5.2.15 Mechanised farming in these rain-fed areas Lubia pulses 290 256 83 322 accounted for about 30 percent of the areas cultivat- Water melon 694 586 60 102 ed and harvested, and about 34 percent of produc- Karkadey 344 241 41 168 tion during 2013/14-2014/15. This form of farming ac- Guar 9 7 4 522 counted for about 54 percent of sorghum production, Total 1,337 1,090 187 9 percent of millet, and 51 percent of the sesame, but Total 11,314 8,032 3,481 no wheat and groundnuts. As Tables 5.7 and 5.8 indi- Source: Ministry of Agriculture and Irrigation. cate, the average yields for mechanised farming were essentially the same as those in traditional rain-fed Table 5.9: Livestock Population farming. (Number '000 head) Livestock 2010 2012 2013 Cows 41,761 29,840 30,010 5.2.16 Large-scale semi-mechanised farming has Sheep 52,079 39,483 39,868 been the main factor contributing to in Goats 43,441 30,837 30,984 Sudan, and related land degradation and soil erosion. Camels 4,623 4,751 4,773 Modern zero tillage cultivation with chemical weed con- Total 141,904 104,911 105,335 trol has been only previously adopted in the Blue Nile Source: MoLFR (2014). State’s Agedi Scheme of the Arab Authority for Agricul- tural Investment and Development. Arabic (FAO-SIFSIA 2012). In contrast to the SIFSIA 5.2.17 Traditional rain-fed farming. Most small- assessment, Table 5.8 shows that the sub-sector pro- scale farming in Sudan depends on traditional rain- duced almost 55 percent of sesame, and 89 percent of fed agriculture and accounted for 89 percent of mil- millet over the 2005/06-2012/13 period. let production and 30 percent of sorghum during the 2005/06-2012/13 period (Table 5.8). The sub-sector 5.2.18 Crop yields in traditional agriculture are low accounted for about 37 percent of maize production compared to other countries that farm these crops. and a negligible portion of wheat production. A slight As shown in previous tables, most of cash crops like shift from millet to sorghum has been reported by the karkadey, water melon seeds and lubia pulses are en- smaller farms prior to this period, where they regularly tirely produced through the traditional rain-fed farming, produce about 95 percent of the pearl millet, 38 per- either in clay or sandy soils. cent of the sorghum, 67 percent of the groundnut and 38 percent of the sesame grown. Additionally, tradition- Livestock and Fisheries Sub-sectors al farming accounts for 67 percent of groundnut pro- duction, 38 percent of sesame, and 100 percent gum 5.2.19 The livestock sub-sector plays a key role in

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84 | AFRICAN DEVELOPMENT BANK GROUP Table 5.10: Main Livestock and Fisheries in 2010 was estimated to be in South Sudan. After the Products ('000 tons) secession in 2011, the Sudan animal population has Product 2010 2012 2013 been estimated to be about 105,000. The great bulk of Meat 1,860 1,456 1,466 livestock production – possibly as much as 90 percent Milk 7,471 4,318 4,359 – comes from smallholders and migratory producers. Fish n.a. n.a. 55 Because of uncertainties about the size of the livestock Poultry meat 30 45 55 herd, there are no reliable estimates for the annual off take of animals for the domestic and export markets. Eggs 35 40 45 Estimates for the off take of sheep range from 15 per- Hides and skins 78 n.a. n.a. cent to 50 percent (World Bank, 2009). However, it is Source: MoLFR (2014). generally believed that off take rates in Sudan are low by African standards, in part because pastoralists at- the Sudan economy and in food security for the coun- tach importance to the size of their livestock herds. The try. In terms of value added, the livestock industry is major concern here is that excessive stocking rates in now the largest component of the agriculture, forest- Sudan, destruction of tree cover, expansion of crop- ry and fisheries sector, accounting for about 60 per- ping areas and soil erosion are all contributing to a seri- cent of total value added by the sector. Its impressive ous deterioration in the carrying capacity of rangelands growth in the past decade has been closely linked to in Sudan. the development of a large export industry, primarily in the form of live animals (mainly sheep and lambs) 5.2.22 The livestock population and supply of livestock along with some exports of meat products. In 2001, for products (including meat, eggs, poultry, and milk) have example, total exports of livestock products stood at increased over the past decades (Annex 5). Milk pro- about US$20 million. By 2013, they had increased to duction increased from 1.885 million tons to about about US$680 million, with exports of sheep account- 4.160 million tons between 1985/86 and 1994/95. Pri- ing for about US$480 million. There are no records for or to the secession of South Sudan, milk production unofficial trade in livestock across Sudan’s borders, so for greater Sudan was 7.5 million metric tons in 2010 the total value of exports is larger than reported, but by (Table 5.10). Recent estimates by the MoLFR indicate how much is not known. that about 78 percent of the meat production and 58 percent of the milk production came from Sudan. Much 5.2.20 Various livestock farming systems exist, the of the milk production comes from the traditional sec- most common of which is the traditional rangeland tor.75 Modern dairy farming exists around urban centres, based system in western parts of the country. Livestock and new investments made it competitive with traditional are reared by nomads who follow traditional breeding milk producers and distributors. These urban-oriented systems, and in other areas by pastoralists, who also processing industries face challenges in the area of feed engage in crop production. Intensive production sys- supply, milk collection, preservation, transport and distri- tems are found in the vicinity of urban centres, such bution. Production of milk from range cattle averages as crop-livestock integration by settled cultivators and about 15lbs/cow/day, which is low compared to inter- organic livestock production through grazing of range- national standards. FAO (2005) estimated that cattle lands. (See Map 5.1 for patterns of livestock migration milk yield in Sudan averaged about 480 litres/year/cow in Sudan and South Sudan) (about 3lbs/cow/day). Goats, on the other hand, are im- portant for the poor families as they are a source of milk 5.2.21 As Table 5.9 indicates, the Ministry of Live- as well as an important source of regular cash income stock, Fisheries and Rangelands (MoLFR) estimated for pastoral households. They are also a source of meat the livestock population of Sudan to be about 142 mil- for home-consumption. lion in 2010, of which sheep accounted for 37 percent, goats 31 percent, cattle 29 percent and camels about 3 percent.74 About 26 percent of the animal population the prior official estimates of herd size were underestimated by about 50 percent. See Intergovernmental Authority on Development (2013), The Contribution of Livestock to the Sudan Economy. IGAD Centre for Pastoral Areas and Livestock Development, 74 This estimate includes the livestock herds of South Sudan. Moreover, the data are not Policy Brief No. 6/CLE/8/2013. based on an actual census of the livestock population of the country. When actual 75 The Kenana and Butana cattle breeds rank as best milk producers under tropical censuses of livestock herds in these two countries were carried out, it was found that conditions with under-tapped potential.

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5.2.23 Poultry farming in Sudan relies mainly on tra- Table 5.11: Available Animal Feed in Sudan, 2014 ditional methods of production, though modern poultry Type of feed Dry matter Energy Digestible farms are also common in densely populated areas. protein (mill tons) (mill megajoule ('000 tons) Poultry meat production increased from 20,000 tons to Herbaceous 48.2 432,720 1,900.0 29,000 tons in 1985/86-1994/95, and reached 30,000 plants tons by 2010 (Table 5.10). Production of eggs increased Browsing 5.2 39,150 30.0 (, from 23,000 to 35,000 in the 1985/86-1994/95 period, schrubs, tress) but it remained at same rate in 2010. Irrigated forages 3.4 44,386 680.0 Crop residues 8.3 53,086 0.3 5.2.24 Status of the Fisheries Industry. Sudan is Agro-industrial 1.4 14,485 314.0 by-products also endowed with inland and marine fisheries resourc- Cereals 0.1 1,823 7.0 es, including fin-fish, oysters, mussels, and clams, crus- Total 66.6 585,650 2,913.3 taceans (shrimps, prawns, lobster) corals and other an- Source: Range and Pasture General Directorate (2015) imal and plant organisms (FAO-ERCU 2013). In recent years, fish production has become increasingly mar- Forestry and Woodlands ket-driven, with the demand for freshwater fish going up in the domestic and export markets. However, Sudan 5.2.26 Prior to the secession of South Sudan in 2011, lags behind other African countries in terms of the quan- forests and woodlands of Sudan covered about 64 mil- tities produced and utilisation. 76 lion ha (World Bank, 2011).77 Thirty-five percent of the land in former Sudan was classified as forest, of which 5.2.25 The Ministry of Livestock, Fisheries and Range- one-quarter represented timber resources and 3 percent lands has estimated the total potentially harvestable in- were forest reserves. There was also some plantation land fish catch at about 110 thousand tons, including forests and community woodlots. The most recent sta- the Red Sea fish that account for only 10 thousand tons tistics put the forest area at 20.6 million ha, the same as per annum. Current statistics report fin-fish production cultivable agricultural land (World Bank, 2011). However, to be about 55 thousand tons/year (Table 5.10), with potential forests and woodlands (which are typically tall per capita consumption approaching 1.6 kilograms/ shrubs) remain in areas of low rainfall in the north. year. This catch is about 65 percent of the estimated po- tential. Lake Rosaries ranks fourth as a source of inland 5.2.27 No up-to-date statistics are currently available fish production, after the Gabal Awlia, Marew Dams and for timber and forest products of Sudan. Informal esti- Lake Nasir. Fresh water pond-based fish production has mates suggest that these areas have now been reduced recently been introduced by the private sector, but it is to about 30 million ha for forests and woodlands (An- on a limited scale at this stage. Sudan has no exports of nex 5). The current status of forest resources in Sudan fisheries products; but by way of contrast, export earn- needs to be assessed in order to quantify and qualify ings of Nile perch by Uganda account for 90 percent of these areas and location sites. The Forest Law of 2002 the total formal fish exports. The Nile perch has been a requires that trees should be left standing on 5 percent close substitute for traditional white fillet fish like cod, but of lands that are farmed mechanically and on 10 percent the recent emergence of farm cod and Pangasius from of rain-fed lands. The objective of these tree belts is to Vietnam and other Asian countries has threatened these reduce evaporation losses and decrease water and wind natural African catches (ACP-EU 2010). erosion. According to the World Bank (2009), there has been extensive mismanagement of these resources with destruction of watersheds and , especially in central and northern Sudan. The contributing factors 76 For instance, FAO reports the estimated global inland waters fishing at about 10 million include the expansion of on for- tons annually, which comprise 10 percent of total global fishing (FAO 2008). Regionally, Kenya, Uganda and Tanzania are main competitors for fresh water Nile Perch in Lake estlands, uncontrolled tree felling, overgrazing, erratic Victoria. The maximum sustainable yield for Lake Victoria is approximately 300,000 tonnes. The lake is a shared resource between Kenya, Uganda and Tanzania. How- rainfall and droughts. ever, Uganda now lies second in aquaculture production in sub-Saharan Africa, next to Nigeria. Its global contribution is less than 0.5 percent. Despite the lack of data for Africa, Uganda’s trade in fisheries and aquaculture (90 percent Nile perch) contributed about 2.8 percent of the national GDP, which is significantly important for poverty 77 Forests are defined as an ecosystem with a minimum of 10 percent crown cover reduction for about four percent of the population (Ssebisubi 2011, MTTI 2006.a; Ful- of trees and/or bamboos, generally associated with wild flora, fauna and natural soil gencio 2009). conditions, and not subject to agricultural practices (Elamin and Ce’sar 1994).

86 | AFRICAN DEVELOPMENT BANK GROUP 5.2.28 The contribution of the forestry sub-sector to Rainfall Savannah, and the northern fringes the overall growth performance of the agriculture sector of the High Rainfall Woodland Savannah areas. In the has been erratic. The poor performance is not unrelated Semi-Desert, the plant cover is a mixture of grasses to the above-mentioned unsatisfactory management of and herbaceous plants intermingled with Acacia spp, the forest resources of the country. Value added from for- and shrubs representing the main grazing areas for estry activities showed a negligible growth of 0.7 percent camels and sheep. Two particular grassland areas form during the 1981/82-1990/91 period, followed by a neg- a distinct feature of this rangeland type, namely the Bu- ative growth rate of 21.5 percent in the years 1991/92- tana plains (grassland on clay) and Baja area (grassland 1999 (FAO 2004). However, the forestry sub-sector be- on sand). The Rainfall Woodland Savannah on clay and gan to recover during 2000-08 with average growth in sand have a plant cover of a mixture of Acacia spp, and value added estimated at 2.5 percent a year. other trees, such as Balanites aegyptiaca and Ziziphus spina-christi in addition to shrubs and a number of her- 5.2.29 The most important product from forested ar- baceous plants. eas is gum arabic, which is produced for export.78 Gum arabic constitutes an essential forestry product. Gum ha- 5.2.32 Grasslands (grazing) are most important feed shab in Sudan is derived from both natural stands and source in term of area and production. They provide plantations and collected by tapping of the trees. Gum feed during wet season (August to December). In the talha, on the other hand, comes mostly from natural short wet season, grasses grow and mature rapid- stands and through natural exudation. Management ly, and produce abundant biomass. Rangelands are of the resources for gum production falls into one of affected by the amount of rainfall and its distribution. two systems: hashab owner or hashab renter. Artificial The nutritional inadequacy of dry season grazing im- regeneration of hashab is carried out by direct sowing poses a major constraint on sustainable livestock of seeds and transplanting of seedlings. More than 50 production under traditional systems, where grazing percent of gum Arabic produced in Sudan is obtained constitutes the only source of feed for livestock (Idris, from plantations or naturally regenerated stands. Plan- 2013).80 Browse species (fodder trees and shrubs) are tations and naturally regenerated stands are owned by important components of the natural rangelands as individuals, government or cooperative bodies. herds at different ecological zones under traditional pastoral production system depend mainly on grazing 5.2.30 Many thousands of Sudanese are dependent and browsing. In the drier areas where Acacias are pre- on gum Arabic for their livelihoods, but production levels dominant, fruits (seedpods), twigs, flowers and leaves have varied. From the 1950s to the early 1990s, Sudan are the main browse materials. In the wetter areas to accounted for roughly 80 percent of gum arabic pro- the south where broad-leafed plants are dominant, live- duction in the world, but according to the World Bank stock depend heavily on tree foliage. The most import- (2007), by the mid-2000s, production had declined to ant feature of the browse species is availability during about 50,000 metric tons a year.79 However, it is still the the dry season when all types of grasses are already world’s largest single producer. In 2013/14, the produc- exhausted, or are of low nutritive value. They are par- tion of gum Arabic is estimated at 70-80 thousand tons ticularly valuable in the Semi-Desert and Low Rainfall compared to 30,000 tons in the previous year. Increased Woodland Savannah Zones. Utilisation of forage de- domestic processing of gum Arabic has stimulated pro- pends on a range of factors, including availability, se- duction and a higher volume of and value for exports. curity of countryside, access to water sources, among others. Rangelands 5.2.33 As Table 5.11 indicates, rangelands accounted 5.2.31 The rangelands of importance to the traditional for about 53.4 million tons of the 66.6 million tons of livestock industry are confined to the Semi–Desert, Low dry matter content of available animal feed balance in

78 The secretary general (SG) of the Gum Arabic Council in Sudan announced in Decem- 2014 – equivalent to about 80 percent of the available ber 2013 that France imports more than half of total production of 50 thousand tons in 2012. The current production is estimated as 70-80 thousand tons. The value of French purchases was about US$70-80 million (El Youm Et Tali newspaper, No. 291, 80 Idris, M.F (2013). Working Paper: on Role of Natural Forage Plants Diversity in Pastoral dated 11 December 2013). and Agro-pastoral Communities Livelihood - Prepared for Development of Strategy for 79 World Bank (2007), Policy Note, Export Marketing of Acacia Gum from Sudan. World Building the Resilience of Pastoral Communities to Climate Change in Two Ecosys- Bank, Washington DC, March, 2007. tems of Sudan Project (PSAP) – RPGD, Khartoum.

AFRICAN DEVELOPMENT BANK GROUP | 87 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN supply in 2014. Most of the remainder was accounted Agribusiness and Agro-Industries Development Initia- for by crop residues. tive objective (3ADI), whose major goal is to increase private sector investment flows into the agriculture sec- 5.3 Policy and Institutional tor in Africa by mobilising resources for agribusiness Arrangements for the Sector and agro-industrial development from domestic and international financial systems (FAO-UNIDO, 2010).83 The Policy Framework Through the 3ADI, Sudan was assumed to have an ag- riculture sector that by the year 2020, would be built 5.3.1 Agricultural policy is currently aligned with vari- around highly productive and profitable agriculture val- ous plans and development objectives, including those ue chains. These chains were expected to link small set out in the MDGs, ARP II, 25-Year Plans (TYP), and and medium size agricultural producers to markets, the MTPF. The policy framework is also aligned with supply higher-valued food, fibre, feed and fuel prod- the FAO and IFAD strategic frameworks for Sudan (cur- ucts, contribute to increasing farmers’ incomes, utilise rent FAO-SPFS) and proposed National Food Securi- natural resources in a sustainable manner and gener- ty Action Plan (NFSAP).81 As discussed in Chapter 3, ate increased and high quality employment. The 3ADI following the secession of South Sudan in 2011, the is linked with the ARP that is the government’s main government launched the three-year economic stabil- ongoing programme for agricultural development. ity programme (2011-14) that was part of a five-year (2011-16) plan designed to smoothen the transition 5.3.4 The National Medium-Term Priority Framework from oil-led growth to agriculture and manufactur- (NMTPF) for 2008-12 (FAO-NMTPF, 2007) showed that ing-led growth. However, to date, it appears that less the policy for the various agricultural sub-sectors might attention and resources have been directed to agricul- vary, but generally, the focus was on the optimal util- ture, agribusiness and agro-industry (AfDB 2012.b). isation of resources and more sustainability, solving production gaps resulting in sub-optimal utilisation of 5.3.2 Since independence, policy makers have em- resources and exploration of better investment oppor- phasised the importance of agriculture as a corner- tunities. The means to realise these policy objectives stone of development and means of growth. However, included: little has been put in place to make this a reality. Sup- • Mobilisation of domestic and foreign resources to port for the agricultural sector has been limited, and as increase agricultural production; a result, it has not performed to its full potential. The • Removal of economic, administrative and legal re- reasons are many and varied, but progress was mainly strictions through policy and investment reform; hindered by political instability and domestic conflicts. • Abolishing state monopolies in agriculture, industry As a result, most agricultural plans were not execut- and transport through privatisation; ed, or were discontinued midway, or extended at the • Allowing market prices to dominate; and end of the planning period, or simply neglected and • Alleviation of restrictions on exports and imports. replaced by rolling investment programmes in the con- text of economic reform policies (AfDB, 2013). Lack of Institutional Arrangements for the a systematic private sector development studies and Sector analysis linked to the implementation programmes also contributed to the poor performance.82 5.3.5 Various ministries and institutions are respon- sible for agricultural policy in Sudan. The main federal 5.3.3 Sudan has not made full use of the African 83 The 3ADI was launched with a vision to spur the development of competitive, sus- 81 The overall average rating of Sudan for the Country Policy and Institutional Assess- tainable and inclusive agro-industries and agribusinesses in Africa as a pathway to in- ment (CPIA) stood at 2.7 in 2011, which is below the cut-off score of 3.2 for fragile creased economic growth and food security in the continent. The African Union Com- states. This rating reflects the high degree of fragility of Sudan (AfDB 2012.a). mission (AUC) and its New Partnership for Africa’s Development (NEPAD), through 82 Sudan has made notable efforts to diversify its economy and support private sector the Comprehensive Africa Agriculture Development Programme (CAADP), partnered growth. The first systematic attempt was made in the context of the two Ten-Year with the African Development Bank (AfDB), the Food and Agriculture Organisation of Plans (TYP) of the early 1960s and early 1970s. The TYP was in response to the the United Nations (FAO), the International Fund for Agricultural Development (IFAD), realisation that the development programmes for the 1946 – 1961 period, though the United Nations Economic Commission for Africa (UNECA) and the United Nations they greatly stimulated Sudan’s economy, did not enhance private sector growth. The Industrial Development Organisation (UNIDO), to launch the African Agribusiness and case then for economic diversification and private sector growth was based on the Agro-industries Development Initiative (3ADI) during the High-Level Conference on country’s crucial dependence on one crop (cotton), which had fluctuating international the Development of Agribusiness and Agro-Industries in Africa (HLCD-3A), hosted by prices, in addition to facing stiff competition from synthetic fibres (AfDB assignment the Government of the Federal Republic of Nigeria in Abuja, Nigeria, in March 2010 document 2013). (FAO-UNIDO 2010).

88 | AFRICAN DEVELOPMENT BANK GROUP ministries with responsibilities for aspects of agricultur- tors (such as trade and services) in the economy. The al policy and development are as follows: the Ministry last amendments of the 1980 Investment Promotion of Agriculture and Irrigation; the Ministry of Livestock, Act were in 2003. The Act encourages investment in Fisheries and Rangelands; the Ministry of Environment, backward economic areas, but conflict and instability Forestry and Tourism and its affiliated Higher Council for discouraged potential investors. The rate of implemen- Environment and Natural Resources (HCEANR); and tation of approved investment projects was about 28 the Ministry of Industry. These ministries are responsi- percent in the case of national investment applications, ble for the policy formulation, planning and monitor- 17 percent in foreign investor applications, about 10 ing of developments, research and extension services, percent in joint venture company applications, and one pest control activities in agriculture, livestock, forestry, percent in the case of bilateral investment agreement in fisheries, pastures and irrigation, natural resources pro- single or joint projects (NEPAD CAADP: Vol. V, 2005). tection, conservation, development, management of The implementation of approved/licensed agricultural environmental concerns and manufacturing of agricul- investments was also low. For instance, only 16 per- tural commodities (FAO-CPF, 2011). cent of agriculture-related investments approved with- in the Investment Act programme were implemented 5.3.6 The Ministry of Agriculture and Irrigation has prior to 2005. Anecdotal evidence suggests that the prime responsibility for the sector, together with the situation has not changed much in more recent years. Ministry of Livestock, Fisheries and Rangelands.84 While reliable statistics is considered a major facet 5.3.9 The objective of the Multi-Donor Trust Fund for measuring progress and appropriate policy analy- (MDTF) private sector development programme for sis, Sudan’s agricultural statistics are wanting and the Sudan that was launched in 2007 was to enable the quality of the data for policy design is questionable. For private sector to maximise its contribution to sustained instance, data for studies that provide alternative pol- peace and poverty reduction in the country (UNIDO icy options in agriculture (World Food Programme, for 2010). But as the discussion below indicates, progress example) are deficient and decisions may be made on towards these goals has been disappointing. an ad hoc basis. 5.3.10 With the adoption of the Sudan National Agri- Role of the Private Sector in Agriculture cultural Investment Plan (NAIP) in 2013 (see discussion below), the government has put increased emphasis 5.3.7 Private sector involvement in agriculture and on creating an investment climate for the private sec- agribusiness in Sudan dates back to the colonial period tor to be actively involved in agriculture and agribusi- of the British and Turkish regimes in the 18th and 19th ness. The objective of such an enabling environment is centuries (Ismail 2010). Since independence in 1956, to pave the way, not only for private business owners, the government has played a critical role in establish- small farmers, and agro-industry owners, but also to ing new systems of laws, regulation and governance, expand their business enterprises. set rules for fair and competitive markets and trade, and ensured that the rules are followed. As the discus- 5.3.11 Key components of a successful programme sion in Chapter 4 indicates, however, there have been for promoting private sector investment in agriculture abrupt changes in policy towards the private sector at include the following: various times since independence. • Improving access to finance through extending lines of credit and providing technical assistance 5.3.8 There have been various initiatives to promote to banks and microfinance institutions active in ag- private sector investment in , but riculture as well as supporting small and medium the sector has not been particularly attractive to pri- enterprises linkages; vate investors (or for local financial institutions), in part • Investment in private equity funds focused on ag- because of the substantial risks and uncertainties as- riculture and in periods of liquidity crisis, and sup- sociated with such investment compared to other sec- porting trade finance to facilitate trade in agricultur- al commodities; 84 In spite of this responsibility and accountability, there is no annual or periodic bulletin or document that embodies these federal agricultural policies, and interested readers • Encouraging public private partnerships in agricul- often collect such information from different departments.

AFRICAN DEVELOPMENT BANK GROUP | 89 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 5.12: Average Yields for Major Crops in Sudan and those for Comparator Countries (Yields expressed as kg per hectare) Crop Reported by Sudan Reported by FAOSTAT (average for 2009-2013) Average for 2013/14-2014/15 Argentina China India Nigeria Sudan USA Irrigated Rainfed Mechanised Traditional Cereals Sorghum 2,157 562 530 4,370 3,776 916 1,287 565 3,831 Millet 900 415 326 1,676 2,028 1,096 1,112 288 1,528 Wheat 1,969 - 1,304 2,964 4,872 3,013 1,422 1,743 3,067 Maize 1,333 - 1,165 Oil seeds Sesame - 283 253 1,323 375 458 2,381 - 711 Groundnuts Sunflower 1,389 - 653 Cotton 2,602 1,379 Other Lubia 600 - 322 pulses Water - - 102 melon Karkadey - - 168 Guar - - 522 Source: For yields reported by Sudan, Tables 5.6, 5.7 and 5.8. For comparator countries and Sudan, FAOSTAT.

ture by leveraging public resources to entice pri- a range of actions will be needed to enforce impartial vate sector operators to invest in agriculture; and rules and regulations, protect public goods such as re- • Encouraging new investors to venture into the ag- search and extension services, and market information. ricultural sector and develop partnerships with key The government strategy may need to provide initial international agribusiness groups.85 Where gov- support for farmer investment in a range of agricultur- ernment needs to strengthen its outreach for con- al products that include the seed industry, provision of structive partnerships with the private sector, inter- input supplies, and post-harvest technologies that add national partnerships could be through facilitation value to production and expand market chains. How- of market access, joint business ventures, invest- ever, an essential component of the public sector sup- ment and trade agreements, technology transfers, port strategy must include clear arrangements for the leadership enhancement and capacity building for government to exit from activities that can be undertak- an improved business climate (OECD-UN 2011). en by the private sector.

5.3.12 The government will, in all likelihood, require 5.4 Lessons from the Agricultural support in articulating its role in the agriculture sector Revival Programme (ARP) based on the new strategy that is emerging from the NAIP. The key objective is to ensure there is a level play- Insights from Experience with ARP ing field for private investment. To ensure this outcome, Implementation

85 According to FAO estimates (FAO/UNIDO 2010), over the 44-year period from 2006 to 2050, the cumulative global investments required in Sub-Saharan Africa in agriculture 5.4.1 The disappointing performance of the agricul- and downstream support services amount to US$940 billion [in 2009 US$]. Of this amount, about 66 percent will be required for agribusiness and agro-industries capital ture sector from the early stages of the oil boom, along outlays, covering items such as cold and dry storage (US$78 billion), rural and whole- sale market facilities (US$159 billion), first stage processing (US$207 billion), mechani- with the lack of progress in improving living standards for sation (US$59 billion) and other power sources and equipment (US$115 billion). These the majority of the population that depended on agricul- investments will have to be made primarily by the private sector. The public sector will thus be confronted with the need to create and maintain conditions that favour invest- ture for their livelihood, led to action by the government ment in agribusiness and agro-industries by the private sector [including farmers]. It is to the end of assisting African countries to meet this challenge that this programme in the latter part of the 2000’s to reverse this decline framework and its financial facility that together shape the 3ADI were designed.

90 | AFRICAN DEVELOPMENT BANK GROUP and promote a broad-based programme for agricultur- Table 5.13: Comparison of Agricultural R&D Spending in Sudan al recovery. The revival of agriculture was expected to and Brazil increase overall economic growth and expand exports, Expenditure on Sudan Brazil Sudan as % research reduce poverty and sustain food security, particularly in of Brazil rural areas. In addition, increased agricultural production As percent of 0.17 1.73 9.8 was also seen as the key foundation for expansion of the GDP agro-industrial sector. Per scientist (in 10 110 9.1 2000 US$) Source: World Bank (2009), Table 4.6. 5.4.2 Annex 5 includes a detailed evaluation of the experience with the ARP I programme. This experience suggests there was a wide gap between stated objec- 5.4.5 Despite the fact that the ARP is comprehensive tives and those achieved. In the absence of detailed sta- in terms of projects to be undertaken, it did not show tistics on the performance of the ARP I during 2008-11 clear links with respect to complementarities among and information on actual disbursements under the the various economic regions, comparative advantage programme, informal analysis and consultations with of crops and specialisation in production in areas such concerned stakeholders revealed lack of progress in as agro-industry through in-depth studies that could achieving the stated objectives of the programme. then be translated into private sector investments. Although the ARP has provided a comprehensive and 5.4.3 A recent review of the performance and seemingly consistent set of policies and strategies for the achievements of the ARP showed weak implementa- entire agricultural sector, the institutional capacity to im- tion of the programme, with limited tangible progress plement these policies was found to be technically and in the stated objectives, including programme expendi- financially limited. The ARP fell short in addressing the tures. Even before the secession of South Sudan in July relevance and the interdependence of governance sys- 2011, the programme appears to have encountered a tems and processes in agriculture, both vertically and number of difficulties during implementation. It appears horizontally. In other words, the ARP was unable to link that a low priority had been assigned to agriculture in the local and national issues effectively. allocation of government financial and human resources. 5.5 Key Challenges for the Sector 5.4.4 The less than satisfactory implementation stemmed from the following factors: 5.5.1 For an improved performance by the agricul- • There was a substantial shortfall in the funding of tural sector, a high priority must be attached to im- the programme, due in part to financial imbalances provement of on-farm productivity, including, in partic- at the macroeconomic level as outlined in Chapter ular, substantially better crop yields. Closely related to 3, and limited support for the programme by the concerns about on-farm productivity is the need for a domestic financial sector, and difficulties with the wide range of off-farm actions, including more bridg- large budget allocations to sub-national levels of es and roads, swifter trade procedures, higher levels government for the ARP. of cross-border trade and investment, as well as bet- • The national government role was highly cen- ter institutions and bureaucrats skilled in public policy tralised. The ARP structure was found to lack ef- co-ordination to compete successfully in the global fective delegation of powers to states and to have economy (AfDB 2013). an unclear distribution of responsibilities between the national and state governments to ensure fair Low Crop Yields and Productivity and equitable share in budgets. • The states were found to have weak administrative 5.5.2 One of the biggest challenges for a successful and implementation capacities for achieving the programme of agricultural development in Sudan is that ARP goals. the yields of all major crops in the country are very low • There was a lack of up-to-date information about in comparison with many comparator countries. For the programme implementation. past two decades, increases in production have come from an expansion of traditional rain-fed farming areas,

AFRICAN DEVELOPMENT BANK GROUP | 91 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN rather than from increases in yields. Table 5.12 provides seed to production of commercial certified seed within a summary of recent experience with yields in Sudan and Sudan. Financial constraints mean that public/private the following five comparator countries: Argentina, Chi- sector seed production can only meet a small fraction na, India, Nigeria and the United States of America. of demand, but private suppliers seem unable or un- willing to fill the gap. There is also a need to harmo- 5.5.3 In the case of cereals, yields under rain-fed nise seed policy and certification systems to facilitate farming are lower than the averages for all the com- intra-regional seed trade. parator countries. Only under irrigated farming are the yields for sorghum higher than the averages for India 5.5.6 Until recently, domestic production of seeds and Nigeria. And in the case of wheat, yields under irri- had been monopolised by the Seed Multiplication Cor- gation exceed the average yields for Nigeria. Reasons poration, a state-owned entity. Private companies have for the persistent low yields are many. They include un- only recently entered the seed market (FAO 2012.a). reliable rainfall, poor quality of seeds, low use of other However, the seed industry lacks an enabling environ- production inputs such as fertilizer, lack of finance for ment and supporting infrastructure that can improve purchase of inputs and equipment, poor farm manage- the profitability of marketing these seed inputs by the ment and lack of knowhow about recent developments private sector. In addition, private companies in Sudan in production technologies. have faced competition from foreign suppliers selling seeds in the local market, and have also had to con- 5.5.4 Research findings show the low level of agri- tend with the lack of organised agro-dealer networks cultural productivity as the key problem for the agri- for the sale of improved seeds in the local market (FAO culture sector. The weak yield performance stems from 2012.a). There have also been problems with some of the poor adoption of available technologies (seeds, the imported material.87 The volume of improved seed good agricultural practices, fertilizers, and pest control being sold through private companies, compared to technologies).86 The solution is to find ways and means the vast areas annually cultivated, is relatively modest. to increase productivity, which in itself is a technical/ The very limited supply of improved seeds impedes technological problem. Since the technologies and large-scale adoption of improved varieties. international knowhow required for enhancing pro- ductivity are available, the main challenge is to put in Limited Institutional Capacities place mechanisms for diffusion of these technologies and knowledge. This requires provision of improved 5.5.7 Improvement of crop yields is also limited by seeds and farm access to other inputs such as fertiliz- a number of institutional factors, including: (i) Limited er, expanded access to credit programmes that include government budget allocations that led to poor agricul- working capital to facilitate crop production each year, tural services, including irrigation, research, extension as well as term loans for purchase or lease of equip- and crop protection; (ii) inadequate supply of foreign ment and effective agricultural extension services that exchange led to reduced supply of imported farm in- provide farmers with access to good agricultural prac- puts and maintenance; and (iii) inefficient linkages tices. These programmes for on-farm support need to among research, extension and the farmers, especially be supplemented with improved off-farm services, in- with almost complete absence of farming systems re- cluding transport, storage and processing services and search, leading to a large yield gap between research facilities, as well as a substantially larger programme of and the farm level (MoAF, 1997). agricultural research. 5.5.8 State ministries have limited technical and or- 5.5.5 The lack of improved and or certified seeds is ganisational capacity as reflected in inadequate or poor one of the major causes of low yields. Private sector par- skills for planning, policy formulation and analysis. In ticipation in seed propagation and certification within addition, budgets for agriculture are sufficient only for Sudan is negligible, and is mainly limited to importation salaries and operational expenses, but not for expan- of hybrid varieties. There has been little attempt to de- sion of key services, such as research and extension, velop all stages of the seed supply chain from breeder 87 In recent years, farmers’ complaints from poor quality assurance and inspection of im- 86 Fertilizer use in Sudan is very low. The CBoS (2010) reported total use of fertilizers at ported varieties, including sunflower and genetically modified cotton, has been loudly only 153 thousand tons in 2006, increasing to 302 thousands in 2010. voiced.

92 | AFRICAN DEVELOPMENT BANK GROUP or infrastructure. Anecdotal evidence suggests that no and livestock extension services, insufficient research quick strides are being taken at the state level in train- and limited access to financing that can facilitate the ing and capacity building. Institutional and technical ca- uptake of new technologies. pacities of relevant line ministries and local NGOs are lagging behind, particularly capacity for integrated food 5.5.11 For several decades now, the capacity for security, nutrition and livelihoods programming. sustained research in Sudan has been eroded by sub- stantial reductions in funding. Agriculture and livestock 5.5.9 As the foregoing review of the experience with research institutions are weak and under-funded. The the ARP I indicates, limited institutional capacities at have weak capacities to address the wide range of is- the national and state level, and lack of coordination at sues that currently face the sector (DJAM 2012). As each level and among national agencies and individual the World Bank (2009) has reported, expenditures on states, contributed to the weak implementation of ARP agricultural research in Sudan are very low, compared I. The ARP Council needs to introduce new modalities to similar spending in Brazil, which is now a world lead- and mechanisms for effective implementation of pro- er in a number of agricultural products. Research ex- grammes and projects. It appears that the current or- penditures as a percent of GDP and per scientist sug- ganisational structure and institutional setup of the ARP gest that Sudan’s R&D expenditures on agriculture are and also the related institutions (vertical and horizontal a fraction of those undertaken by Brazil (Table 5.13). links) will have difficulty in achieving the declared ob- Capacities in Sudan have been eroded by lack of well- jectives of ARP II. A structural change in the organisa- trained research scientists and resources to carry out tional and institutional set-up of the agriculture-related the research protocols in animal and crop husbandry, line ministries may be necessary. There may be need varietal trials and seed selection, soil improvement, live- for a support agency to bridge an obvious disconnect stock breeding, rangeland and pasture. among stakeholders (government institutions, financial institutions, private investors and farmers/producers). 5.5.12 Moreover, as international experience demon- Such an agency would need to ensure appropriate strates, making good progress on productivity im- coordination between the ARP supervisory body and provements as shown by research trials requires a large national government line ministries on the one hand, expansion in agricultural extension services and access and between these national bodies and entities at the to relevant inputs, not the least of which is improved state level with responsibilities for the ARP programme seeds. Formation of effective research-extension-farm- on the other hand. Such assistance would include er linkages is one of the established systems to bring translation of the ARP policy documents into action all those actors to work together. Unfortunately, there is programmes and generation of more awareness about no such mechanism of linkage with the stakeholders in the programme, among private sector entrepreneurs, Sudan (DJAM 2012). Agricultural extension services in investors, and trade unions. Sudan have been weakened by a lack of well-trained technicians and resources to carry out the task prop- Limited Capacities for Research and erly. Experts at the Ministry of Agriculture and Irrigation Extension Services have little to offer farmers about improved agricultur- al practices, and do not have adequate skills to cope 5.5.10 Agricultural research and mechanisms for sup- with today’s farmers seeking a livelihood from a range porting the adoption of positive results at the farm level of natural resources since they have multiple-range of are essential components of the mechanisms required skills and knowledge gaps. Similarly, farmers and live- for improvement in productivity at the farm level. Sudan stock keepers have scarce participation in farm plan- has had a good tradition in both applied and adaptive ning and in decision-making processes with the stake- agricultural and water management research focused holders (Ismail 2010, DJAM 2012). on food and cash crops (AfDB 2010, Ismail 2010, and MoAF 1997 and 2010). However, in recent decades, 5.5.13 Private sector entrepreneurs may be interest- these capacities have eroded. Under existing condi- ed in partnerships with the government for investment tions in Sudan, farmers face considerable difficulties in research and extension services that enable produc- with technological options, given the weak agricultural ers and agribusinesses to access new productive tech-

AFRICAN DEVELOPMENT BANK GROUP | 93 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN nologies, and expand research and extension services. liberalised, particularly sugar, cotton, gum Arabic, and Such investment by the private sector in education cereals. Currently, states and local authorities impose and training for those engaged in agriculture may well taxes on economic activities within their jurisdictions. result in increasing agricultural professionals capable The full range of taxes is cumbersome to assess, as it of providing needed services, knowhow to increase varies by product and location, and includes both offi- yields, and entrepreneurial leadership to the community cial and unofficial taxes. The private sector faces tax- (DJAM 2012). These possibilities need to be explored es for using land as collateral, building tax, business in a systematic fashion by national and state govern- registration and establishment fees to start a business, ments. license fees, and various taxes on imports, value added and profits. In the case of livestock taxes, at least five Uncertain Operating Environment for types are imposed in western Sudan (livestock, sale, Investment in Agriculture Zakat, stamp, and slaughter tax). These taxes appear to have a number of unintended consequences, in- 5.5.14 To attract the substantial additional financial cluding avoidance to pay (DJAM 2012). Anecdotal ev- investment by the domestic and international business idence also suggests that some of the taxes at state community, and a combination of additional in-kind in- and local levels are not consistent with those specified vestment of labour by small-scale farmers together with at the national level, but are collected by local officials. financing for equipment and other improvements, there is need for a sustained improvement in the operating en- 5.5.16 The recent rapid expansion of the ICT network vironment for such private investment. As the discussion of the country, and a substantial push by the nation- in Chapters 2 and 4 indicates, the current operating en- al government to introduce various e-applications as vironment for private investment suffers from inadequate Chapter 8 indicates, suggests that filing and collection investment procedures and land acquisition rights, and of these taxes on private activity can be built into mod- in recent years, an unstable macroeconomic environ- ern electronic systems. Such an initiative may improve ment. In addition, there are a number of concerns that compliance with existing tax codes and improve trans- are specific to the agricultural sector. They include: parency in the processes. For similar reasons, support • The burden associated with taxes imposed by and reform of customs and trade procedures is also sub-national administrative units and local authori- needed. International experience suggests that the in- ties (IFAD 2009), including agricultural export taxes cidence of corruption in tax collection can be reduced and Zakat on primary agricultural commodity ex- through the use of digital systems that can be upgrad- ports; ed to the high standards with minimal investments in • Poorly linked agricultural markets along the com- databases and infrastructure.88 modity value chains; • Inadequate physical infrastructure; and 5.5.17 Market and Physical Infrastructure Con- • Limited access to debt financing to meet annual straints. A concerted effort is also required to address working capital and investment requirements for im- the inadequate market and physical infrastructure of the proved on-farm capacities and productivity. country. Lack of feeder roads, transport services, cold and dry storage facilities, slaughterhouses and tanner- 5.5.15 Taxes on Agriculture and Livestock. His- ies and so on, are a serious impediment to expansion torically, agriculture was burdened by a wide variety of of marketable farm surpluses. The limited availability of taxes imposed by local, state and federal authorities. transport and storage facilities is aggravated by weak This was until late 1999. In early 2000, agriculture and technical, managerial and financial capacities of the its inputs were exempted from taxes (except for few producers and weak linkages between stakeholders. fees based on service provision). In reality, however, Lack of marketing awareness about packaging, pack- taxes are still being collected by local authorities since it ing and promotion is also prevalent and is coupled with is the only real source of revenue for local and state au- inefficient management of whole value chains. As the thorities, and because federal transfers have been quite discussion in Chapter 6 shows, problems in the food limited. Except for wheat flour, which has been partly 88 Another option for reducing the burden of taxes on private activity may be to harmo- subsidised, the pricing of most agricultural products is nise the tax policy and modality of tax payment at few collection points (either federal or state) so as to reduce costs and barriers to crop and animal production.

94 | AFRICAN DEVELOPMENT BANK GROUP Table 5.14: Domestic Resource Costs of Selected Crops and ervoirs, water points ‘hafirs’, agricultural resource cen- Commodities tres, and facilities for quarantine, rural markets, grain Product description Average storage and higher agricultural vocational training. Ex- 1990-00 2001-03 2004-06 pansion of water access through construction of small- Crops scale water storage, shallow tube wells and repair of Lac, gums, resins, vegetable 34.6 46.1 saps and extracts water management infrastructure, are also lacking Oil seed, oleagic fruits, grain, 16.6 12.2 (DJAM-FAO 2012). Many of these shortcomings have fruit, etc direct consequences on the agriculture sector. For ex- Sesame 135.5 ample, the poor road infrastructure harms the profit- Sesame seed cake 61.6 ability of agricultural surpluses. Groundnuts 1.6 Cotton seed cake 2.9 5.5.19 The key physical infrastructure priorities for the Cotton 5.7 4.2 agriculture sector include improved access to transport Cotton lint 10.4 services at reasonable cost, water catchment facilities Sugar and sugar 3.2 1.9 confectionary and irrigation systems; establishment of vocational and Sugar 4.6 training centres, locality-based extension resources Vegetable plaiting materials, 0.4 0.3 centres, research laboratories, cold storage facilities, vegetable products nes food grain warehouses, agricultural research sub-sta- Cereals 0.2 0.1 tions, standard food and processing markets, and Sorghum 13.7 seed germ plasm banks. In the livestock sector, prior- Edible fruit, nuts, peel of 0.2 0.1 citrus fruit, melons ities include slaughterhouses, tanneries, and standard Livestock markets that create forward and backward linkages to Live animals 24.7 21.2 agriculture and livelihoods (DJAM-FAO 2012). Raw hides & skins (other 3.6 2.1 than furskins) and leather Issues Related to Land Tenure Hides and skins 0.7 Meat and edible meat offal 1.4 0.6 5.5.20 As the discussion in Chapter 2 indicates, Chilled meat 4.6 there is a long history of conflict over land (and wa- Products of animal origin 0.3 0.1 nes ter resources) in Sudan, and as a result, many parts Other of the country suffer from severe land problems. Ac- Commodities not elsewhere 2.5 0.0 cording to the 1972 Land Act, all land in Sudan, except specified for a small area of freehold land in the Nile River valley, Animals, vegetable oilfats & 0.7 0.0 is public land that is owned by the government. Farm- oils, cleavage products Residues, wastes of food 0.4 0.3 ers and cattle herders have usufruct rights to this land industry, animal fodder through traditional communal land policy. Land use pol- Source: Annex 5. icy has, in effect, been delegated to community leaders, who are then responsible for the allocation of land use and agro-industrial sectors (such as very limited pro- rights. These land ownership and use rights are a major cessing capacities) also impose constraints on the obstacle for successful implementation of the proposed ability of the agricultural sector to expand marketable programme of agriculture-led diversification of the econ- surpluses in a sustained manner over extended periods omy. The reason is that because all land is deemed to be of time. owned by the government, it cannot be used as collat- eral by those that farm the land. The fact that land has 5.5.18 Chapter 8 provides a detailed account of the no value as security for additional investment is a funda- existing shortcomings in the infrastructure network of mental obstacle to sustained strong investment in ag- the country and related services. The current situation ricultural production activities. Customary law provides shows slow progress in construction and or recon- farmers with long-term user rights if they continue to cul- struction and expansion of physical infrastructure such tivate the land, but this arrangement has led to situations as feeder roads, dams and irrigation catchments/res- where land is cultivated continuously to justify these user

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Table 5.15: Projected Supply and Consumption of Cereals Indicator Actual Projection 2014 2015 2020 2025 2030 Area ('000 ha) Cultivated 13,051 13,289 13,462 13,750 14,375 Harvested 9,146 10,100 10,500 11,000 11,500 Supply ('000 mt) Production 5,379 5,959 7,350 9,900 12,650 Imports 2,180¹ 900 280 45 77 Total 7,559 6,859 7,630 9,945 12,727 Post harvest losses 1,882 2,086 1,470 990 1,265 Consumption ('000 mt) Domestic 5,658 4,754 5,785 6,955 8,262 consumption Exports 19 20 375 2,000 3,200 Total 5,677 4,774 6,160 8,955 11,462 Memo items: Area harvested as % 70 76 78 80 80 cultivated Yield (kg per ha) 588 590 700 900 1,100 Post harvest losses (% 35 35 20 10 10 of production) Per capita domestic 149 120 130 140 150 use (kg) Population ('000) 37,964 39,613 44,499 49,676 55,078 Source: Tables 5.3 and 5.4, Annex Table 1.2 and estimates by authors. Note 1: see Table 2.11 for details about imports.

rights. As a result, there has been serious degradation of 5.5.22 With the aim of encouraging investment in ag- the land. Farmers and herders have no vested interest in riculture and maintaining sustainable land use, the ARP sustaining the value of the land they use. The resulting of 2008 proposed that land issues be addressed in the low level of investment in arable land and rangelands has following ways: contributed substantially to the low levels of agricultural • Registering agricultural land, and as part of the productivity evident in Sudan today. process, defining the rights of citizens, villages and groups; 5.5.21 According to the FAO (2004), the absence of • Registering the rest of the land under government appropriate land tenure policies and environmental con- ownership and making parcels available to inves- siderations are among the main constrains facing this tors; and sub-sector. The DJAM emphasised that inadequate • Setting equitable rules for land lease and rent, and land use and tenure policies have created insecurity reviewing existing relevant laws. and disputes between agro-pastoralists and nomads (DJAM-FAO 2012). These conflicts will continue if core 5.5.23 As indicated in Chapter 2, the position tak- issues are not resolved. Institutional and legislative sys- en in this report is that reform of land policy and im- tems are weak. Following the Comprehensive Peace provement of regulatory legislation are needed if there Agreement (CPA) of 2005, land commissions were is to be a successful programme of private sector led established at the national and state level to address diversification that is built on development of the vast the long-standing range of issues associated with land agricultural potential of the country. That said, it is also tenure, but it appears that little has been accomplished clear that comprehensive land reform and develop- subsequent to the 2005 CPA. ment of related institutional capacities will necessarily take considerable time. In the absence of a sustained

96 | AFRICAN DEVELOPMENT BANK GROUP Table 5.16: Projected Supply and Consumption of Oil Seeds Indicator Actual Projection 2014 2015 2020 2025 2030 Area ('000 ha) Cultivated 4,718 5,614 6,471 7,412 8,588 Harvested 3,513 4,660 5,500 6,300 7,300 Supply ('000 mt) Production 1,934 2,586 3,163 3,780 4,745 Imports - 0 0 (0) (0) Total 1,934 2,587 3,163 3,780 4,745 Consumption ('000 mt) Domestic 1,628 2,187 2,670 3,080 3,525 disappearance Exports 306 400 493 700 1,220 Total 1,934 2,587 3,163 3,780 4,745 Memo items: Area harvested as % 74 83 85 85 85 cultivated Yield (kg per ha) 550 555 575 600 650 Per capita domestic 43 55 60 62 64 use (kg) Population ('000) 37,964 39,613 44,499 49,676 55,078 Source: Tables 5.3 and 5.4, Annex Table 1.2 and estimates by authors. and transparent programme of reform, lack of access to 0.6 percent of non-oil GDP – half the level of public to land with clear arrangements for ownership and or spending that had been proposed under ARP I. leasing will continue to be a major constraint for large- scale private investment in the sector, including crop 5.5.25 As the discussion in Chapter 9 about the and livestock development, as well as substantial in- domestic financial system indicates, one of the ma- vestment in forestry and fisheries activities. It will also jor obstacles confronting the proposed diversification continue to limit access to bank financing by a majority programme is the availability of debt financing in the of the smallholder farmers in Sudan that account for domestic market. In the case of domestic commercial the bulk of agricultural activities in the country. bank lending, the outstanding agriculture sector share of total bank loans declined from about 18 percent in Agriculture Has Limited Access to Public 2001 to about 9 percent by 2005. It then increased to and Private Funding about 17 percent by 2014 (see Table 9.4). This recent level of lending for agriculture was equivalent to about 5.5.24 For some years now, the agriculture sector has 1.4 percent of non-oil GDP. The Central Bank of Sudan had only very limited access to funding by the govern- reports the loan balance of domestic commercial bank ment and the domestic banking system. Poor manage- lending to agriculture to have been SDG 5.2 billion in ment of ARP budgets and limited participation in the ARP 2013 – equivalent to US$1.10 billion at the 2013 av- by domestic banks left many farmers and agro-industry erage exchange rate. It is not clear how much of the entrepreneurs without access to adequate funding. In lending is in the form of short-term loans for working the case of public finance, the Maputo Declaration of capital to purchase inputs for annual production, and 2003 had committed African countries to a minimum of how much may be medium- and longer-term loans for 10 percent of their national budget expenditures to ag- the purchase of equipment and other improvements. riculture (AfDB, 2010). In the case of Sudan, only four But, given the above-mentioned constraint that exist- percent of national budget expenditures were allocated ing land laws place on access to bank loans, it is very to agriculture in 2012.89 This allocation was equivalent likely that the bulk of these outstanding loans are used to meet short-term working capital requirements relat- 89 El Youm Et Tali newspaper, No. 291, dated 11 December 2013.

AFRICAN DEVELOPMENT BANK GROUP | 97 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN ed to production activities rather than new investment. policies (as in the ARP strategy), would enable the country to produce substantial surpluses of food and 5.5.26 Access to agricultural credit is further compli- cash crops for domestic consumption and export. A cated by the use of the Islamic mode of financing in Su- much stronger growth performance by the agriculture dan. The discussion in Chapter 9 outlines the current sector would have a significant impact on the overall status of this lending by Islamic mode. These instru- economic performance of the Sudan, including im- ments are equity-based in the sense that the borrowers proved livelihoods for large numbers of people. Ac- hold part of the investment they finance. Because land cording to the OECD-UN (2011), the main determinants cannot be used as equity for these borrowings, small- of successful agricultural diversification include good holder farmers face considerable difficulty in meeting governance, abundant natural resources to increase the these equity requirements. It is not surprising that the range of exports, active participation and private sector Salam mode of financing in Sudan, which is the typical role in agriculture and agribusiness, regional integration mode for agriculture, accounted for less than one per- for facilitating trade and commerce, and broader inter- cent of total commercial bank financial flows to private national context that offers the prospect of an operative sector activities in 2010, although there was a modest environment that can spur national economic diversifica- recovery to almost 4 percent of total flows in 2014 (see tion. Table 9.5). Because of a significant shortage of term financing, many farmers/agro-industry entrepreneurs 5.6.2 A successful strategy for sustained strong do not have appropriate equipment and implements for growth in production in the agriculture, forestry and fish- cultivation and/or processing. These gaps need to be eries sector requires a combination of interventions that addressed with access to credit for purchase or lease/ result in increased uptake of technologies, an expansion rental of the necessary equipment. and improvement in support services for the sector, im- proved access to credit to meet seasonal working cap- 5.5.27 As the analysis in Chapter 9 indicates, much ital requirements as well as investment requirements for effort will be required in the decade ahead to substan- new technologies and equipment, and improved infra- tially improve the mobilisation of domestic savings by the structure and related services (especially transport and financial system, as well as to significantly raise the ca- storage services) that support agricultural activities and pacity of the financial system to channel these savings reduce the cost of accessing domestic and international into productive uses throughout the economy, including, markets. Moreover, the strategy must address the need in particular, the agriculture sector. Moreover, funding for better markets for land and for sale of products in modalities and mechanisms need to be improved. The domestic and export markets. In reviewing the status of conditions attached to the financial products of com- agriculture in Sudan, the FAO-UNIDO (2010) indicated mercial banks are not favourable for small-scale farm- that there was an urgent need to go beyond the tradi- ing. tional agricultural growth promotion efforts. The report highlighted the need to prioritise not only agribusiness 5.6 Action Programme for and agro-industrial development strategies, but also Agriculture adopt more innovative and selective approaches that consider the modernisation of agribusiness, strengthen Overview of the Action Plan competitiveness, enhance sustainability and inclusive- ness of the country’s food and agricultural systems. 5.6.1 As the discussion above indicates, Sudan is The proposed strategy for further development of food endowed with range farming systems, including large and non-food agro-business activities is taken up in irrigated schemes, large-scale commercial rain-fed Chapter 6. 90 semi-mechanised schemes, agro-industries, small- scale rain-fed traditional and rural farming system as 5.6.3 In response to the decline in importance of the well as tremendous livestock production systems, oil industry and the need for economic diversification, mostly in western Sudan. There is broad agreement 90 Best and Placide (2006) showed that the food industry played a vital role in transform- that the available potential resources of Sudan, togeth- ing agricultural raw material to usable industrial products over longer periods, reduced loss, fetched for new markets for manufactured agricultural products by value addition er with the adoption of appropriate economic reform and quality improvement, sought for new investment opportunities to make use of secondary industrial products, and created new jobs.

98 | AFRICAN DEVELOPMENT BANK GROUP the government has recently taken a number of import- natural resources and wildlife issues. The pro- ant initiatives related to the agriculture sector. In 2013, posed strategy recognises that the main constraint Sudan became the 12th member state in the Common for traditional farming is the current land policy. A Market for Eastern and Southern Africa (COMESA) to high priority is therefore attached to improving the sign the Comprehensive Africa Agriculture Develop- incentives for traditional farmers to invest in im- ment Programme (CAADP) Compact. In doing so, the proved technology and increase production. The government signalled that it had adopted agriculture as land rental and tenancy system should be carefully the key driver for economic growth within the frame- reviewed to allow for the issue of long-term leases work of the CAADP. The Compact compliments the for smallholder farming. Such leases would also Agricultural Revival Programme (ARP) and the enact- help promote long-term investment in soil fertility ment of the Investment Encouragement Act of 2012- and management. 14, which aims to promote public-private partnerships. • Provision of better support services, informa- Subsequent to signing the Compact in July 2013, a tion and knowledge management systems. The series of actions were taken to formulate the Sudanese emerging strategy for the sector calls for increased Agricultural Investment Plan (NAIP). Various commit- attention to improved management and marketing tees, including a National Steering Committee (NSC), of livestock and gum Arabic, for improved crop were set up to govern the NAIP process. A roadmap varieties, sustainable soil and water management, for the NAIP process was endorsed by the MoAI in water harvesting and other low risk technologies. December 2014. The FAO has committed to provide Improved infrastructure is seen as an essential part technical support for the NAIP process. By January of efforts to open up access to markets in tradition- 2015, the following seven Investment Programme Ar- al rain-fed farming areas. eas had been identified by the NSC. • Enhanced production and productivity and mod- • Creation of an enabling environment for agricultur- ernisation of the agricultural systems of Sudan. The al production and development. One of the objec- strategy for the agriculture sector emphasises the tives of an improved policy framework would be role of small farmers in cultivation under both irriga- to improve the climate for private investment in tion and rain-fed farming. agriculture. Follow-up work will need to focus on • , value chain development and ex- improvements in the rules and regulations related ploitation of agricultural capacities. to land policies, land leasing arrangements, tax • Enhancing food security and nutrition, quality and treatment of investments and export facilities. The safety measures. government has already announced policies and legislation for abolition of fees on agricultural inputs 5.6.4 In elaborating on the proposed strategy for ag- and means of production. Follow-up action will be ricultural diversification, this Report has drawn on the required to ensure that local governments do not findings of a study by Maxwell Stamp Plc (2009) that impose local taxes or fees on agricultural inputs made an assessment of the competitiveness of a range and outputs. of agricultural crops and products based on estimates • Institutional reform that enhances farm manage- of the Revealed Comparative Advantage (RCA) and ment and capacity building for producers and the Domestic Resource Cost (DRC) of these products. workers in the agricultural sector. The government These assessments were also supported by value chain will need to strengthen the role of farmer and pro- analysis from the farm gate to final market for a num- ducer associations in the sector. Increased empha- ber of products.91 Table 5.14 gives a summary of some sis on the role of the private sector in spearheading of the estimates of RCA values for particular products further development of agricultural commodities and product groups. It indicates that Sudan has a com- suitable for the domestic and export markets are parative advantage (an RCA greater than unity) in all the also seen as key elements of the new strategy for commodities that it exports in large amounts. This is es- agriculture. The experience of Brazil and India with pecially the case for gum Arabic, live animals (and espe- commodity exchanges is also seen as relevant for 91 See Annex 5 for a more detailed description of these measures of competitiveness further development of agriculture in Sudan. and the results of the study. Maxwell Stamp Plc. (2009), “Assessing Sudan’s Diversifi- cation Potential in Agricultural Production.” Unpublished Report prepared by Dr Panos • Actions required that address agricultural land, Konandreas on behalf of Maxwell Stamp Plc., for the Ministry of Foreign Trade, Gov- ernment of Sudan and the European Union.

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Table 5.17: Projected Growth in Agriculture Value Added by Sub-Sector (In SDG million at 2012 constant prices) Sub-sector indicators Actual/estimate Projection 2012 2013 2014 2015 2020 2030 Value added (SDG million) Crops 38,885 40,052 41,454 42,905 53,924 92,111 Livestock 39,773 41,799 43,875 45,957 54,856 73,251 Forestry 807 819 837 857 988 1,328 Fisheries 1,210 1,232 1,260 1,292 1,493 2,007 Total 80,675 83,902 87,426 91,010 111,261 168,696 Share of total sector value added (%) Crops 48.2 47.7 47.4 47.1 48.5 54.6 Livestock 49.3 49.8 50.2 50.5 49.3 43.4 Forestry 1.0 1.0 1.0 0.9 0.9 0.8 Fisheries 1.5 1.5 1.4 1.4 1.3 1.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 Growth in value added (% p.a.) Crops - 3.0 3.5 3.5 5.5 5.5 Livestock - 5.1 5.0 4.7 2.8 2.9 Forestry - 1.5 2.2 2.4 3.0 3.0 Fisheries - 1.8 2.3 2.5 3.0 3.0 Total 5.7 4.0 4.2 4.1 4.1 4.3 Memo items: Agriculture value added as % non-oil 33.8 33.9 34.0 34.0 33.1 28.9 GDP Rural population ('000) 24,779 25,238 25,716 26,220 28,924 33,685 Value added per person (US$) 911 930 951 971 1,077 1,402 Source : Annex Table 3.3. cially sheep), oil seeds and especially sesame, cotton, phasis on the production and distribution of improved hides and skins, sugar and perhaps meat. The analysis seeds for use by large scale commercial farming and also found that there has been a substantial decline in smallholders. The analysis suggests that increased pri- the international competitiveness of groundnuts over the vate investment in processing and packaging of sor- past two decades. ghum and millet grain in key production regions (Ge- daref, Damazin, Sinnar and Kosti) would also be attrac- Strategy for Cereal Production tive.

5.6.5 The findings of these prior assessments of the 5.6.6 The proposed strategy for cereal production potential for further development of the cereals sub-sec- is to promote private investments that expand the area tor, and additional value chain analysis undertaken for under cultivation and contribute to improved yields in all this Report, suggest that there is considerable scope the four cereals produced in Sudan. Table 5.15 provides for private investments in a range of activities that will an indicative scenario for the expansion of domestic increase production and reduce post-harvest losses for production of these cereals. It is based on a 15 percent the four main cereals in Sudan for the domestic market: increase in the harvested area during 2014-30, an al- sorghum, millet, wheat and maize. Given its international most doubling of the current average yield for cereals, competitiveness, there also appears to be good pros- and substantial reduction in post-harvest losses as a pects for export of sorghum to various international mar- result of improved transport services and storage facil- kets. As noted earlier, the key challenge is to improve ities. Successful implementation of a strategy for cereals the yields for these crops. A range of interventions are production would achieve several objectives: (i) It would required to realise this objective, including increased em- gradually expand wheat production to the point where

100 | AFRICAN DEVELOPMENT BANK GROUP the current large volume of imports is eliminated; (ii) it 5.6.9 For many years, Sudan has been an exporter would also establish the basis for substantial exports of of vegetable oils, primarily to the EU market. Given the sorghum by the latter part of the 2020s. competitiveness of these products, exporters could di- versify into new markets, but this will require close at- Programme for Oil seeds and Other tention to compliance with quality standards of these Crops markets. Major markets for sesame, such as the United States, Japan, and , have not been penetrated. 5.6.7 Oil Seeds. Oils seeds are potential crops Oil seeds are the major expense item in the production for domestic and export markets if crop yields are in- of these vegetable oils. Producers have reported that a creased, along with a range of other actions that can shortage of oil seeds is one of the most important con- improve international competitiveness. The earlier straints for the industry. The conflict in Darfur, for ex- mentioned analyses of international competitiveness ample, has disrupted the supply of these seeds. At the suggest that with increased production of sesame and same time, farmers using irrigation have shifted from oil perhaps other oil seeds, Sudan can establish itself as a seeds to wheat, encouraged by government subsidies significant exporter of oil seed products. for wheat production. Also, imports of vegetable oils have increased appreciably in the past decade. As the 5.6.8 Table 5.16 sets out a scenario for the produc- World Bank (2009) has observed, given the seasonality tion of sesame, groundnuts and sunflower seeds in the of oilseed production, it will be difficult for oil processors period 2014-2030. The indicative programme proposes to compete internationally unless they import oilseeds a 60 percent increase in the area cultivated, and with during the off-season in order to utilise fully their process- steady progress in increasing yields, a close to doubling ing plant capacity. of production by 2030. After allowing for a small increase in domestic use per capita, exports of oil seeds – primar- 5.6.10 Cotton Seed and Lint. Detailed programmes ily sesame – would increase from about 306,000 mt in for further development of the cotton industry were not 2014 to 1.22 million mt by 2030. available when this Report was prepared. Given the dif-

Table 5.18: Projected Growth in Agriculture Value Added and Investment (Values at 2012 constant prices and exchange rate) Indicator Actual/estimate Projection 2012 2013 2014 2015 2020 2030 Agriculture value added SDG million 80,675 83,902 87,426 91,010 111,261 168,696 US$ million 22,579 23,482 24,468 25,472 31,139 47,214 Growth rate (% p.a.) 5.7 4.0 4.2 4.1 4.1 4.3 Investment in agriculture (US$ million) Public 345 432 517 575 902 1,570 Private 1,075 1,284 1,652 1,933 3,759 5,827 Total 1,420 1,716 2,170 2,508 4,660 7,397 Agriculture value added as % GDP 33.1 33.3 33.4 33.4 32.6 28.5 Agriculture investment as % non-oil GDP Public 0.5 0.7 0.8 0.8 1.0 1.0 Private 1.7 1.9 2.2 2.2 4.2 3.7 Total 2.3 2.6 2.9 3.0 5.2 4.7 Memo items: ICOR 1.9 1.9 2.2 2.5 3.8 3.8 Non-oil GDP (SDG mill at 2012 prices) 230,595 237,259 246,513 256,620 322,246 560,954 Non-oil GDP (US$ mill at 2012 prices) 64,538 66,403 68,993 71,822 90,189 156,998 Non-oil GDP growth rate (% p.a.) 5.7 4.0 4.2 4.1 4.1 4.3 Exchange rate 3.573 3.573 3.573 3.573 3.573 3.573 Source: Annex Table 3.4.

AFRICAN DEVELOPMENT BANK GROUP | 101 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN ficulties faced by the industry in the past decade, it is not yet ventured into the business of exporting flowers. assumed that the cultivated areas and cotton production 92 Another area of potential interest is the production and will continue at recent levels, with contributions to ex- processing of honey and bees-wax. In conjunction with port earnings staying in the range of US$50-100 million expansion in the production of these perishables, there a year. The average for 2013-2014 was about US$70 will be need for increased private investments in cold million. storage facilities for these products. There may also be opportunities for private investments in equipment and 5.6.11 Sugar. The analysis also suggests that sugar machinery for greenhouses. has the potential to be competitive in international mar- kets. The production costs of sugar in Sudan compare Expansion of Livestock Activities favourably with those of other exporting countries. Ex- ports of sugar and molasses peaked at about US$36 5.6.14 As noted earlier, the livestock industry in Su- million in 2008, but since then, only insignificant amounts dan has gone through a tremendous change in the have been exported. This weak performance notwith- past decade. In the face of the large increase in the standing, Sudan has the potential to expand sugar pro- country’s livestock population, there is a clear need for duction and exports substantially. The available water improvement in pastoral conditions and flock manage- resources of the White Nile could allow a substantial ment through regulation of grazing intensity of common expansion in production by bringing in additional com- rangelands in regions such as and North mercial ventures. The industry has been regulated by Kordofan. Such actions may need to be supplement- controls on both imports and domestic sales. The net ed with changes in land policy that place increased re- result has been high domestic prices for sugar. As the sponsibility for sustainable land use with farmers and World Bank (2009) has observed, Sudan can establish pastoralists via the use of covenants related to land a more export-oriented industry, given the opportuni- and forest management (World Bank, 2009). Improved ties offered by EU preferences and the regional market management of pastoral resources and flocks will re- through COMESA. Demand within the COMESA region quire that government agencies establish sustainable is growing rapidly, while production of traditional suppli- management practices and monitor and regulate natu- ers for this market (Malawi and Zambia) has been divert- ral resource use. At this point in time, these capacities ed to the protected EU market. remain to be developed within government.

5.6.12 According to the World Bank (2009), the follow- 5.6.15 The value chain analysis undertaken for this ing three-pronged programme of reform could result in Report suggests that there are a number of promising increased production of sugar in Sudan: (i) Liberalilation areas for joint commercial and small-scale farming op- of sugar imports subject only to the VAT, and elimina- erations. These include the following: tion of the excise duty on sugar, thereby benefiting con- • Investment in dairy production and processing can sumers and industrial users; (ii) reducing government be a profitable investment due to increased de- involvement in the four sugar companies owned and mand and purchase prices of fresh and powdered operated by the government by privatising them or al- milk. lowing them greater autonomy in managing and invest- • Livestock products, including mutton, beef, poultry ing their resources; and (iii) encouraging the continuation products, skins and hides, and leather, all appear of services provided to local communities by the sugar to have promising market opportunities. companies with introduction of a tax credit for the cost of • Investment in programmes to improve livestock these services. breeds (e.g. Kenana and Butana cattle, goats and sheep) through artificial and/or natural insemination 5.6.13 Other Agricultural Crops. The main products to improve the genetic makeup of meat and dairy of interest here are fruits, vegetables, herbs, spices and livestock (cattle, and ) can make an im- pulses, primarily for the domestic market. However, the portant contribution to improvements in livestock analysis of competitiveness suggests that there are also productivity. prospects for export of some particular products. Un- • A range of supporting services also needs to be like Kenya and some other African countries, Sudan has 92 Further study is required to explore and exploit niche markets for non-traditional prod- ucts such as flowers, herbs and medicinal plants.

102 | AFRICAN DEVELOPMENT BANK GROUP Table 5.19: Summary of Proposed Investment Program dica (neam), mahogeny and jogan; (v) development and for Agriculture (US$ mill at 2012 prices & exchange rate) processing of forest products (fruits such as aradeb, Indicator 2014-20 2021-30 Total gonglius, gudaeim); and (vi) further development of the Total investment (US$ million) gum arabic industry. Public investment Government budget 3,078 7,392 10,469 5.6.18 Balanced Feeds for the Livestock Indus- ODA 2,052 4,928 6,980 try. In the case of balanced feed supplies for the dairy Total 5,129 12,320 17,449 and livestock industries, there has been progress in re- Private investment cent years in developing new technologies. The man- Equity 4,539 12,191 16,730 ufacture of straw-based Densified Total Mixed Ration Debt 13,618 36,573 50,191 Blocks (DTMRBs), also called Densified Complete Total 18,157 48,764 66,921 Total 23,287 61,083 84,370 Feed Blocks (DCFBs), is an innovative technology to Composition of investment (%) supply balanced feeds to the dairy and other livestock Public investment farmers. It involves mechanical mixing of forages with Government budget 13.2 12.1 12.4 feed concentrates without densification. This technol- ODA 8.8 8.1 8.3 ogy offers a means to increase milk and meat produc- Total 22.0 20.2 20.7 tion. Private investment Equity 19.5 20.0 19.8 5.6.19 Apart from an optimum supply of energy and Debt 58.5 59.9 59.5 protein through complete feed block, the animals get Total 78.0 79.8 79.3 their required amounts of minerals and vitamins that, Total 100.0 100.0 100.0 in turn, enhance reproductive efficiency.93 A densified Source: Annex Table 3.4 and estimates by authors. straw based feed pellet technology has recently been developed. Using this technology, densified total mixed developed in the decade ahead, including private ration is delivered as pellets and not as blocks. This veterinary services (through mobile and stationary technology is particularly useful for those materials services), and processing industries for the provi- that are hard and biomass is available in abundance. sion of animal feed. Straws that are highly lignified with hard fibre can be easily crushed and converted into Total Mixed Ration 5.6.16 In addition to these conventional livestock pro- pellets. Straws of wheat, groundnut haulms, and cot- grammes, there may also be important opportunities ton can be used for production of straw-based pelleted for private investment in wildlife production (game farm- feed. The optimum supply of nutrients and micro-nutri- ing of deer, crocodiles, lizards, jungle fowls, birds, etc.). ents through DTMRB also has a positive impact on the Such investments can be linked to tourism, particularly maintenance of good animal health. agro-tourism, through private national parks (Dinder and Mardoom, for example). 5.6.20 The feeding of Total Mixed Ration blocks pro- vides immuno-protection against infectious diseases Forestry, Rangelands and Fisheries and also decreases the occurrence of metabolic and Programmes reproductive disorders. Consequently, this may also reduce the farmer’s expenditure on treatments and on 5.6.17 Analysis of value chains undertaken for this maintaining proper health of the animals. Other advan- Report suggests a number of areas of potential inter- tages of this technology include its sustainability. It pro- est to private investment and development in forestry, vides easy handling, transportation and storage of the rangelands and fisheries. These include the following: straw based feed blocks. It is low cost and results in (i) Development of balanced feed supplies for the dairy high quality milk that in turn has a positive impact on and livestock industries; (ii) increased production of 93 The technology also allows for feed additives that control certain protozoa and bacte- pasture seeds; (iii) forestry nurseries and fencing; (iv) ria in the rumen, and generate less waste (methane). In addition, it decreases ruminal protein breakdown that results in decreased ammonia production. The shift in ruminal development of timber plantations for furniture making bacteria population and metabolism allows beneficial bacteria to be more efficient through an increase in the amount of propionic acid and a decrease in production of with, for example, eucalyptus microceca, azachrata in- acetic and lactic acid. Therefore, cattle experience an increase in the overall energy status and use feed resources more efficiently (Guan et al. 2006).

AFRICAN DEVELOPMENT BANK GROUP | 103 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN milk prices. It can be used irrespective of seasons. government. The inability of farmers to use land as col- Improved performance of the animals obtained from lateral for on-farm investment has resulted in low levels feeding the DTMRB can bring better returns to farmers. of investment that has in turn contributed substantially to persistent low agricultural productivity and extensive 5.6.21 Pasture Seed Production. There is increas- degradation of farmland and rangeland in Sudan. ing demand for herbage seed in Sudan that has not, however, been matched by increased domestic col- 5.6.25 There is a compelling case for early action to lection or production of herbage seed. Most of the in- address this problem. The position taken in this Report is creased demand for herbage seed comes from natural that consideration should be given to the introduction of resources development projects. Such demands are long-term tradable leasing arrangements for agricultural usually met by imports and are thus not conducive to lands that give farmers legal security for land use. Such the development of a domestic herbage seed industry. action would, in turn, provide a basis for substantial ad- In 2010, the government passed legislation designed ditional lending for investment activities in agriculture. to regulate the domestic seed industry. The challenge There is some experience in Sudan with these types of now is to promote private investment in the production arrangements. The land policy in the Gezira Irrigation of pasture seed. Scheme under the Gezira Act of July 2005 provides for the tradability of leases. This has allowed land to be used 5.6.22 Fisheries. In the case of fisheries, the analysis as collateral for working capital and term loans for invest- suggested opportunities for private investment in ma- ment. rine fishing, development of a farm raised fish industry that includes both production and processing, devel- 5.6.26 Research and Extension services. As not- opment of aquaculture, including sea and ed earlier, agricultural research and extension services shrimp production and processing, and investment in in Sudan have deteriorated, in part, because of very inland fisheries facilities to produce Nile tilapia. These low levels of budget allocation for these services by the programmes would need to be complemented with national and state governments (see Table 5.13). An increased emphasis on fish safety, quality assurance, expanded programme of research, especially as relates value addition and marketing. to the problems faced by small-scale farmers operating under rain-fed conditions, will be an essential require- Improvements in Land Tenure and Other ment for successful implementation of the proposed Institutional Support programme for agricultural diversification. Larger bud- get allocations for research, and increased affiliations 5.6.23 As the foregoing discussion indicates, success- with major research programmes in other regions of the ful implementation of the proposed programme for agri- world, will be essential. Moreover, an expanded pro- cultural diversification that can, in turn, result in sustained gramme of research trials will require a large expansion strong growth in the industry and reductions in rural pov- in extension services (along with access to relevant in- erty will require an improved operating environment for puts, such as seeds and fertilizer) both individual family farmers and for medium and large- scale commercial enterprises involved in the supply of 5.6.27 Other Supporting Services. Work under- inputs, production of agricultural produce and its subse- taken for this Report identified a range of services and quent transport and distribution. Key issues here are im- related activities that would need to be developed in proved policies related to land use and land tenure, the conjunction with the various production programmes availability of agricultural credit, and adequate support outlined in the foregoing discussion. These include the for research and dissemination via extension services of following: research findings. • Development of a seed industry in conjunction with stepped up research programmes for development 5.6.24 Policies Related to Land Tenure and Use. of new crop varieties suited to conditions in Sudan: As noted earlier, according to the 1972 Land Act, all For many years, the Agricultural Research Corpora- land in Sudan, except for a small area of freehold land in tion (ARC) has been developing new higher yielding the Nile River valley, is public land that is owned by the varieties of cotton, sorghum and sesame, for exam-

104 | AFRICAN DEVELOPMENT BANK GROUP ple, but has not had the means by which seeds of farmers. Such an agency may also be responsible for these varieties can be produced commercially for the formulation of a seed policy and appropriate laws sale to the farming community. 94 and regulations related to the seed industry. • Development of a private based seed production and supply industry: This will require a supportive 5.6.30 Credit Policies for Agriculture. As dis- regulatory environment for private seed producers, cussed elsewhere in this Chapter and in Chapter 9, the working in close coordination with ARC. availability of agricultural credit for farming operations • Development of livestock breeding programmes for and investment tends to favour large-scale farming op- meat and milk production through artificial and natu- erations, typically those with mechanised farming. As ral insemination and use of biotechnology. such, they discriminate against small farmers who are • Increased private investment in bulk grain transport not able to use their land as collateral for loans. The and storage in various key regions of the country, discussion below provides a more detailed outline of including Gedaref, Damazin, Sinnar and Kosti. what will be required to meet the future credit needs of • Development of a range of private sector services the agriculture sector. that include product grading and inspection, and transport and storage. 5.6.31 Monitoring and Evaluation. The quality and timeliness of Sudan’s agricultural statistics has been 5.6.28 Seed multiplication and distribution of im- less than satisfactory. These shortcomings can result in proved genetics are critical for improved yields, par- the use of questionable data for policy design and pro- ticularly sorghum grains.95 As the earlier discussion gramme implementation. Lack of reliable information indicates, local demand for improved seed is currently about the ARP I programme on a state-by-state basis not being met. Most farmers continue to plant unim- was found to be a major shortcoming for the ARP pro- proved seed obtained from local sources, including gramme of 2008-11. In the ARP document, there were seed saved from the farmers’ own crops, from neigh- a few lines on monitoring and evaluation to ensure effi- bours or relatives, or purchased in local markets (ECA- ciency and effectiveness of the system, but there were SA 2010). Much of the seed that is in the market does major shortcomings in assessing the extent to which not meet required standards. A high priority should be key objectives were being met at the field level and the attached to addressing current shortcomings in seed reasons for the shortfalls in performance. In Sudan, production and certification, including efficient multi- as in most African countries, increased attention needs plication of both breeder seed and foundation seed, to be given to the development of reliable and timely i.e., the propagation of good seeds and certified seed information systems to enable effective strategic and that increase yields (crop and livestock), along with en- development planning (AfDB 2010). A comprehensive hanced support services, including research, extension monitoring and evaluation (M&E) programme needs to and technology transfer. be put in place to provide information at the national and sub-national levels of government regarding prog- 5.6.29 Private sector suppliers must produce seeds ress with programme implementation. This programme that meet certification requirements. Distribution mech- also needs to audit financial contributions by the vari- anisms must have the capacity to make these seeds ous partners in the programme. available to corporate and individual farmers through- out the country. To make the seed industry effective Implications for Growth of the and efficient, the analysis suggests the creation of an Agricultural Sector independent agency to oversee improved seed pro- duction and or importation, and ensure that distribution 5.6.32 Successful implementation of the proposed mechanisms are able to supply high quality seed to all programme would result in an improved growth perfor- mance for the agriculture sector in the medium-term. 94 Worldwide, the development and spread of modern plant varieties was the technolog- ical force behind the green revolutions that occurred in China, India, Southwest Asia, The growth in value added for the sector is projected and many parts of Latin America (ECA-SA 2010). to be about 4.1 percent a year during the 2013-20 pe- 95 Initiating extensive breeding and propagation programmes of high yield varieties of sorghum for food (rich in protein and other essentials), feed (high energy level cultivars) riod. This compares favourably with an average of 3.7 and also more suitable for other industrial uses as starch, medical alcohol, etc: In this respect, the breeding of dual-purpose sorghum varieties for food, fodder and feed percent a year that was achieved in the 2000-13 peri- grain is an important element in broadening the sorghum utilization base.

AFRICAN DEVELOPMENT BANK GROUP | 105 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN od. In the 2020-30 period, the steady increase in pri- of investment expenditures to about 5 percent of non-oil vate investment in agriculture would result in sustained GDP by 2020, and then average 4-5 percent during the growth of about 4.3 percent a year for the sector (Table 2021-2030 period. On this basis, the total investment 5.17). cost of the programme for agriculture, forestry and fish- eries amounts to US$23 billion for the 2014-2020 period 5.6.33 The agriculture sector share of non-oil GDP and US$61 billion for the years 2021-2030 (Table 5.19). would decline from the current level of about 34 per- Average levels of investment called for during the 2014- cent to 29 percent by 2030. Value added per person in 2020 period are therefore about US$3.3 billion a year rural areas would increase from an average of US$911 and US$6.1 billion a year for the 2021-2030 period (at in 2012 to about US$1,400 by 2030 (at 2012 con- 2012 constant prices and exchange rate). stant prices). As Chapter 2 indicates, the broad-based programme of development for the rural communities Public and Private Sources of Financing throughout Sudan and sustained strong economic of the Programme growth would also make an important contribution to the reduction of rural poverty in Sudan. 5.7.3 Financing the Public Investment Pro- gramme. The position taken in this Report is that the 5.7 Programme Investment Government should consider mobilising a substantial Requirements and Financing amount of donor support for the public investment pro- gramme, with the balance of the required funding to Investment Requirements for the come from the national budget and via Federal Govern- Programme ment transfers to the state governments.

5.7.1 An important reference point related to esti- 5.7.4 Potential sources of donor support include the mates of development expenditures required for the aid agencies of the Arab Peninsula states, China and proposed agriculture programme during the 2014-2030 other trade partners in Asia, and the bilateral and mul- period was the earlier-mentioned approximations for the tilateral donors that are members of the Paris Club. For ARP I programme. As noted, the programme called for the purposes of this Report, it is assumed that ODA development expenditures in agriculture that totalled would account for 40 percent of the proposed public in- SDG 10.1 billion during the 2008-11 period (at 2008 vestment plan for agriculture – equal to about 8 percent constant prices). On an annualised basis, this level of of the planned farming programme. As Table 5.19 indi- spending was equivalent to 2.1 percent of non-oil GDP cates, this would require mobilisation of about US$7 bil- in 2008, with the public sector component being equal lion of ODA from these various sources during the 2014- to 1.0 percent of non-oil GDP and the private sector 2030 period. A programme of this magnitude translates equal to 1.1 percent. to about US$6 of ODA per capita in 2015, rising to about US$12 per capita by 2030 (all at 2012 constant prices 5.7.2 The proposed programme for the agriculture and exchange rate). The primary focus of the donor pro- sector set out in this Report adopts a comparable ap- grammes would be support for the following activities: (i) proach for the near-term regarding the pace at which Loans for smallholder farms to finance on-farm capital both public and private development expenditures build improvements; (ii) development of domestic input indus- up over time. Public and private investment expenditures tries, including improved seeds; (iii) development of gov- in the agriculture sector are estimated at about 2.3 per- ernment services, including research and extension; and cent of non-oil GDP in 2012, increasing to 2.6 percent in (iv) a range of initiatives that support the development of 2013 (Table 5.18). For the purposes of this Report, it is domestic and international markets, including, for exam- assumed that implementation capacities and investment ple, market information systems and application of tech- opportunities will build up steadily in the medium-term. nical standards for agricultural products used as inputs In the indicative scenario proposed in this Report, in- in the domestic food and non-food agro-industries, and vestment expenditures rise to 3 percent of non-oil GDP for those products sold in international markets. (the level assumed in the ARP) only by 2015. The pro- posed programme calls for a continued rise in the level 5.7.5 The balance of the public funding in the amount

106 | AFRICAN DEVELOPMENT BANK GROUP of US$10.4 billion would come from the National and equal to the total amount of debt financing that will be state budgets. This funding by governments would ac- required for the private sector investment programme count for about 12 percent of the total investment pro- in agriculture. However, a substantial portion of the fi- gramme for agriculture. These estimates of investment nancing by commercial banks will continue to be used do not include recurrent costs of service provision by the to meet the working capital requirements of the farming government, including, for example, operating costs of community. The implication is that a large shortfall in extension, research and other public services that pro- domestic bank financing of private investment in ag- vide direct support to the agriculture sector. riculture may persist unless the government and pri- vate sector introduce innovative new programmes to 5.7.6 Sources of Funding for Private Investment. address the problem. An in-depth assessment of these It is assumed that 25 percent of the private investment funding requirements for the agriculture sector is need- to be undertaken in the agriculture sector in the 2014- ed in the near-term to provide policy makers with op- 2030 period will be in the form of equity, with the bal- tions for the diversification programme in agriculture. ance being financed by loans from various sources. As Table 5.19 indicates, the total equity contribution is put 5.7.9 The extent to which the agriculture sector can at about US$17 billion. Two types of funding would be access commercial debt financing from offshore sourc- used: (i) In-kind equity in the form of on-farm improve- es also carries a number of uncertainties. Access to ments provided by the labour of small-scale farmers; key parts of the international banking network will very and (ii) in the case of medium and large-scale com- likely continue to be severely restricted if the US and mercial farms, equity contributions would be in the European sanctions remain in place for an extended form of activities funded with financial resources, either period. The issue then is the extent to which the do- from the domestic market or via increased FDI invest- mestic agriculture sector may access loan financing ment in the sector. Given the continued dominance of from financial institutions of countries that have not im- smallholder farms in Sudan in the decade ahead, it is posed sanctions on Sudan. One of the concerns here likely that a significant portion of the on-farm capital is the issue of foreign exchange risks associated with improvements that are made during the 2014-2030 will offshore borrowing to finance activities that generate be in-kind improvements, along with increased access income only in the local market. As the discussion in to improved seeds and other inputs, and greater use Chapter 3 indicates, exchange rate instability poses a of machinery (either farmer owned or services provided serious risk for producers who do not export goods by contractors). to overseas markets and thereby generate foreign ex- change earnings. Large commercial operations that 5.7.7 The debt financing requirements for private are joint ventures with offshore investors, or are 100 sector investment in agriculture are put at about US$50 percent foreign owned and are active in export mar- billion for the 2014-2030 period at 2012 constant pric- kets, are much less likely to face these types of financ- es. The two obvious sources are the domestic com- ing constraints. mercial bank network and offshore sources of debt fi- nancing. There are substantive issues associated with 5.7.10 Role of Foreign Direct Investment in the the availability of funding from these two sources. In the Agriculture Sector. Research studies have found case of the domestic banking system, the key issue is that key objectives of international investment in Africa the capacity of commercial banks to mobilise the fund- include food and bio-fuel production, areas in which ing required and to allocate it to the agriculture sector. Sudan has immense potential. A recent FAO study (2011) concluded that the nature of FDI in Sudan’s ag- 5.7.8 In 2009 and 2010, the level of the outstand- riculture has been mostly resource-seeking in contrast ing agricultural debt was quite stable at an average of to a more market-led focus in Egypt and Morocco.96 33 percent of value added by agriculture. If the ratio of Resource-seeking foreign direct investments are typi- the outstanding agriculture sector debt to value added 96 Since independence in 1956, Sudan has undertaken a number of large investments were to increase to 40 percent in 2014-2030, the total in agricultural production, particularly in large plantation schemes and other related activities. Examples are the Sugar Schemes (Kenana, Assalaya, Guneid, Sinnar and commercial bank lending to agriculture would increase New Halfa), Blue and White Nile Irrigated Schemes, and many others in Northern and River Nile states. Most of these projects were designed on a capital-intensive basis by about US$50 billion in this 17 year period – roughly and characterised by long gestation periods. Financing these investments required access to term financing from capital markets and international donors.

AFRICAN DEVELOPMENT BANK GROUP | 107 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN cally oriented towards export of most or all of the out- 5.7.12 In designing the strategy and programme for put to the home country of the investor. This orientation the promotion of investment opportunities in Sudan, eventually increases export volume and revenues of the the presentations to potential offshore investors will host country, particularly when these products are sold need to emphasise the importance of FDI investment in high-value markets (FAO 2010). However, it appears for medium and large-scale commercial farming that that in the past decade at least, the amount of FDI that also contracts small-scale farmers for the supply of ag- has gone into the agriculture sector has been quite ricultural raw materials and products for processing. As modest. a next step, additional work is now required to trans- late relevant components of the private investment 5.7.11 Given the current limitations on the capacity programme for agriculture into specific investment of the domestic financial market to provide substantial projects and programmes that can then be put for- amounts of capital for long-term investments in agricul- ward to potential offshore investors. Briefs for a series tural production, there will be a need to attract larger of projects for potential investment in irrigation, 97 on- amounts of FDI financing (both equity and related debt farm and off-farm storage and processing of products, financing) for the proposed diversification programme. and other programmes need to be developed as a first The indicative equity investment estimate in Table 5.19 step in mobilising international investment for the sec- suggests that about US$17 billion of private equity will tor. The government may need to retain a specialised be required for the proposed programme. Annex Table international team that can assist with the preparation 3.2 submits that total FDI inflows to Sudan during the of these project proposals and then have the team pro- 2014-30 period will need to be in the range of US$60- vide support in negotiations with potential international 70 billion (at 2012 constant prices and exchange rate). investors and associated institutions. Experience with In this case, the agriculture sector requirements would these types of arrangements in other parts of the world be about one-quarter of the projected total FDI inflow. suggests that the cost of these types of advisory ser- vices can typically be in the range of at least one per- cent of the capital value of the projects concerned.

97 For example, the foregoing discussion in this Chapter suggests that the area cultivated for cereals be expanded by about 1.2 million ha, a significant portion of which might be for irrigated production of cereals. Assuming an average capital cost of US$3,500 per hectare for new irrigation by, say, medium-scale commercial farming, mobilisation of US$1 billion for such activities would fund development of about 330,000 hectares of newly irrigated farm land.

108 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 109 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

110 | AFRICAN DEVELOPMENT BANK GROUP 6. ACCELERATING INDUSTRIAL DEVELOPMENT

6.1 Current Status of the Industrial factories were established. The country then witnessed Sector the establishment of a variety of industries. The sector has become diversified with agro-processing indus- Structure of the Industrial Sector in tries, including textiles, sugar, oil seeds, vegetable and Sudan fruits, soft drinks, starch and glucose, leather products. Other important activities include the manufacture of 6.1.1 For the purposes of this Report, the industrial cement, chemicals and pharmaceuticals. Food prod- sector of Sudan is defined to include petroleum and ucts account for about 50 percent of total production, other mining activities, manufacturing, construction, with beverages accounting for about 15 percent. Tex- and provision of electricity, water and gas services. As tiles and clothing account for about four percent. Table 6.1 indicates, for much of the 2000s, the oil in- dustry accounted for a substantial share of industrial 6.1.4 However, many industries in the sector suf- value added, reaching a peak of 49 percent in 2008. fered from deterioration in the past three decades. The The share of GDP (at factor cost) attributed to the discovery and export of oil in the last decade, together non-oil industrial sector increased from 11.4 percent with federal/local taxation policies, led to investment in 2000 to about 15 percent by the mid-2000s. As a disincentives, creating an unattractive environment result of strong growth in the non-oil mining sector and for agro-based manufacturing. As a result, the sector manufacturing, its share increased to about 17 percent has been described as inefficient and capital intensive, in 2012 and 2013. highly dependent on imported inputs and dominated by consumer goods. Capacity utilisation in a number of Structure of the Manufacturing Sector these industries fell from levels of 80 percent in 1970s to less than 10 percent, with much of this decline oc- 6.1.2 The manufacturing sector of Sudan is among curring in manufacturing units that processed primary the oldest in Africa and the Middle East. As with other agricultural products. African countries, Sudan has had traditional handicraft industries for centuries. However, a modern industrial 6.1.5 In the early 2000s, manufacturing activities ac- sector began in 1918 when a cement factory was built counted for more than 40 percent of industrial value in Atbara. The 1940s witnessed the establishment of added, but with the onset of the oil boom, the share food processing and a few consumer industries, mainly declined rapidly to 26 percent by 2007. However, as a vegetable oil extraction, matches and soaps. Also, a result of a strong growth performance in the past five ginning factory started in Gezira. It experienced periods years, the share of manufacturing in industrial value of intermittent expansion during the 1960s through the added increased to about 47 percent by 2013. By then, 1990s. the share of manufacturing in GDP at factor cost had increased to almost 10 percent, compared with only 6.1.3 1960s, spinning and weaving mills and sugar 7 percent in 2000. Still, the contribution of the manu-

AFRICAN DEVELOPMENT BANK GROUP | 111 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Table 6.1: Structure of the Industrial Sector Sector 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Value added (in million SDG at current prices) Petroleum 2,303 6,461 9,478 10,122 16,655 9,621 15,654 9,248 8,095 8,962 Other mining 102 157 192 212 272 310 365 2,180 4,752 5,808 Manufacturing 2,276 7,322 8,042 8,782 9,726 11,508 13,673 16,285 21,677 26,101 Utilities 234 1,071 1,820 1,981 2,242 2,513 2,894 1,606 2,181 2,644 Construction 1,159 3,824 4,243 4,651 5,239 6,171 7,458 8,718 11,525 13,866 Total 6,073 18,835 23,774 25,748 34,135 30,123 40,044 38,037 48,230 57,381 Annual growth rate at constant prices (% p.a.) Petroleum 264.7 11.7 9.1 50.0 (4.2) - (4.3) (16.3) (67.4) 33.3 Non-petroleum Other mining 6.5 16.0 (33.8) (13.5) (12.1) (20.3) 95.5 58.7 215.7 36.0 Manufacturing 24.2 3.1 2.0 19.0 7.7 7.3 7.0 8.6 18.1 1.5 Utilities (17.8) 13.0 9.8 6.0 8.2 25.4 6.0 (5.4) 3.2 3.0 Construction (24.8) 19.9 5.5 8.4 16.7 4.5 13.9 (11.9) 5.8 2.0 Sub-total 7.7 7.4 3.3 14.8 9.3 9.0 8.5 2.8 15.9 2.6 Total 31.6 8.7 5.1 26.1 4.2 5.9 4.2 (3.0) (6.1) 5.4 Share of GDP at factor cost (%) Petroleum 7.0 7.9 10.0 9.7 13.6 7.2 9.8 5.0 3.4 3.1 Non-petroleum Other mining 0.3 0.2 0.2 0.2 0.2 0.2 0.2 1.2 2.0 2.0 Manufacturing 6.9 9.0 8.5 8.4 7.9 8.7 8.6 8.9 9.1 9.0 Utilities 0.7 1.3 1.9 1.9 1.8 1.9 1.8 0.9 0.9 0.9 Construction 3.5 4.7 4.5 4.4 4.3 4.6 4.7 4.8 4.8 4.8 Sub-total 11.4 15.1 15.1 14.9 14.3 15.4 15.3 15.7 16.8 16.8 Total 18.4 23.0 25.1 24.6 27.9 22.6 25.1 20.8 20.2 19.9 Source: Annex Table 2.1 and Annex Table 2.2. facturing sector to employment has been modest. In refers to the set of activities that make produce from 2009, manufacturing activities employed about two agriculture, livestock, aquaculture and forests usable percent of the labour force (with an estimated 238,400 as food, feed, fibre, fuel or industrial raw materials workers) mostly in Khartoum region.98 The bulk of the (Kachru 2006). The industry depends mainly on raw industry is agro-based and involves processing of food material from food and non-food crops, vegetable and and raw materials. The sector is dominated by small- fruits, fisheries, forest trees and fodder crops. The sug- and medium-sized firms. Recent surveys indicate that ar industry is the most well-known component in the the private sector accounted for 84 percent of man- agro-food industry in Sudan, along with the wheat flour ufacturing establishments, more than 89 percent of milling, processing of bakery products, beverages, con- gross output, and 50 percent of capital formation. fectionaries, canned foods, processed seeds, fruits and vegetables, including jams, spices, and edible oils (Is- 6.2 Status of the Food and mail 2010). The industry has been operating well below Non-Food Agro-Industries its existing production capacity because of shortages of agricultural inputs, the high cost of spare parts and en- The Setting ergy, and the absence of efficient marketing chains/links between agriculture and manufacturing. 6.2.1 Agro-industry is composed of both food and non-food processing enterprises.99 Agro-processing

98 These figures are estimates by authors based on information about the labour force of crops, fruits, vegetables, meat, and other meat products, including manufacturing 11.92 million as indicated in the CIA Country Facts Book. This estimate of the labour of starches and starch products, and production of bakery products (Ismail 2010). force is larger than the estimate of 10.18 million used in this Report. UNIDO had esti- Processing of dairy products and preservation of poultry, fish and fish products and mated the workforce at 162,000 in 2001. (UNIDO, 2001). animal feed are part and parcel of the list, besides beverages and cold drinks as co- 99 The list includes enterprises in the production, processing and preservation of food coa, chocolates, and sugar confectionery.

112 | AFRICAN DEVELOPMENT BANK GROUP Table 6.2: Production of Manufactured Food in the bakery industry is large, although they are mostly Product 2009 2010 2011 2012 2013 micro or small enterprises. According to the Commodity Production (in Inspection Service (CIS) company based in Khartoum, '000 tons) as early as 2003, there were 4,200 such establishments. Sugar 739 642 687 680 843 Flour 1,470 1,264 1,410 1,450 1,694 6.2.3 As the foregoing discussion indicates, the Sweets, biscuits 90 61 136 161 175 growth performance of the food industry in the past de- Juices 30 7 15 16 16 cade has been poor. As a result, imports of food prod- Jams 10 42 n.a. 55 n.a. ucts and beverages have increased from about US$830 paste 5 5 21 12 n.a. million in 2005 to a peak of US$2.4 billion in 2013, largely Dairy products 8 118 123 n.a n.a because of very rapid growth in imports of wheat, sugar, Vegetable oils 155 163 110 159 210 Other products and animal and vegetable oils (Table 6.6). These three Soft drinks 73 528 698 720 882 product groups accounted for 50 percent of food and (million cases) beverage imports in 2005. By 2013, they accounted Fresh water 940 n.a n.a n.a n.a for 76 percent of these imports. At the same time, the (million liters) growth in exports of processed food products and bev- Source: Central Bank of Sudan, various annual reports. erages has been very modest. As Table 6.9 indicates, exports of these products were less than US$50 million in 2013. As a result, the trade deficit in food and bever- Table 6.3: Production of Cotton Industry ages increased from about US$790 million in 2005 to

Activity 2000 2001 2002 2003 2004 Recent US$2.36 billion by 2013. Ginning ('000 8.0 5.5 5.5 3.3 3.8 3.0 tons) 6.2.4 At the national level, the development of the Spinning (million 35 22 15 15 20 59 food industry has been hampered by weak inter-linkag- yards) es between agriculture and agro-industry, as well as lack Clothing (million - 2.0 1.5 1.0 1.0 21 pieces) of coordination in policy-making and programme imple- Source: MoFEP (2004), Economic Review, and Ministry of Industry. mentation, poor infrastructure, and inadequate supply of raw inputs due to the seasonality of supply of food raw Status of the Food Sector materials. The food industry is becoming the most dy- namic and innovative sector in the global economy with 6.2.2 The food manufacturing sector is the largest the emergence of new food technology packages (Ismail in the country, with 70 percent of all manufacturing es- 2010). The position taken in this Report is that there are tablishments and accounts for almost 35 percent of substantial opportunities for expansion of domestic sup- large enterprises (Ismail 2010 and UNU-MERIT 2011: plies that can replace imports, and in so doing lay the see also Annex 6). Until 2005, the sector accounted foundations for a subsequent large increase in exports of for about 72 percent of the manufacturing industry in food products to the Gulf countries and Western Europe. Sudan, about 55 percent of value added by manu- facturing, and almost 57 percent of the labour force 6.2.5 The output of biscuit industry increased to 52 employed in manufacturing (MoI, 2005: see Annex 6). thousand tons in 2009 and continued to expand to 100 The wheat flour industry is the largest in the sector. 69,000 metric tons by 2013. Dairy products showed Production more than doubled from 0.62 million tons an unprecedented increase over same period, from 7.5 in 2000 to 1.3 million tons in 2004 (MoFNE, 2004 and thousand tons to almost 145 thousand tons. However, CBoS 2010). It is currently about 2.1 million tons and is declines were experienced in the sweets and halva in- expected to reach 2.5 million metric tons by 2015 (Ismail dustry from 38 thousand tons in 2009 to 26 thousand 2010). There is a potentially large market for by-products tons in 2010 (Table 6.2). of wheat, to be used as fodder by the poultry industry that is also rapidly growing. The number of enterprises 6.2.6 The edible oil milling industry has 250 process- ing plants all over the country dealing mainly with cotton 100 The food industry plays a vital role in transforming agricultural raw materials to usable industrial products. For a more detailed review of the contribution of the food industry seeds, sunflowers, sesame, groundnuts, and . sector, see Best and Placide (2006).

AFRICAN DEVELOPMENT BANK GROUP | 113 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

It has an installed capacity for crushing 2.3 million tons same period. of oil seed. Most of the plants have closed and even the few ones producing are operating below 15 percent of 6.2.9 In the case of dairy products, the estimated av- capacity due to the steep decline in oil seeds produc- erage consumption of milk was 120 litres per year per tion. Sudan is now a net importer of edible oil. In 2010, capita in 2000, compared with 26 litres for Africa as a mills used 1.5 million tons and operated at about 50-55 whole and 28 for East Africa in 1999 (FAOSTAT, 2000). percent of design capacity. The quantity of oils produced Total milk production grew at 5 percent a year in 2001- from vegetable oils (sesame, sunflower, and groundnuts) 2006 to meet the increasing demand (Annex 6). Recent has improved substantially from an average production statistics show that the total milk production in Sudan of 110 thousand tons during the 2000-2004 period. By is estimated to 7.4 million tons/year (MoI, 2005: CBoS 2013, total production had increased to 210,000 metric 2010) produced under both traditional and modern tons. More than 90 percent of the vegetable oil plants are dairy farms. The modern dairy systems of the coun- of micro- or small size, with medium and large enterpris- try that use advanced preservation and pasteurisation es accounting for only 1 percent of production. About 89 technologies are considered to be large establishments percent of the oil industry establishments have less than since their labour force exceeds 100 employees per 10 workers per establishment (Ismail 2010). plant. However, the domestic milk industry, which has almost doubled its capacity since 2005, meets only 2 6.2.7 The sugar industry is next to the oil seed in- percent of potential demand for milk and milk products. dustry in terms of production capacity, with output of Imports of dairy products increased rapidly in the past about 843,000 metric tons in 2013. Over half of this is decade, rising from US$48 million in 2005 to a peak produced by the private sector, namely Kenana Sugar of $136 million in 2009, and then declining to about Company. In the marmalades industry, production has US$82 million in 2013. The high dependency of dairy fluctuated a lot, depending on the availability of raw ma- products on imports reflects the lack of domestic man- terials, prices and competitiveness with imports. Output ufacturing capacity. There were substantial increases in almost doubled in 2002 (15 thousand tons) compared imported milk powder that resulted in negative terms of to 8 thousand tons in 2000, but it dropped back again trade. This is because milk production is scattered and to 5.5 thousand tons in 2004 (MoFNE, 2004), before ris- difficult to transport to processing plants. ing again to almost 10 thousand tons in 2008 (CBoS 2010). The sweeteners (Tahnia) industry has experi- Opportunities in the Non-Food enced a dramatic deterioration since 2000 because of Agro-Industry strong competition of imports. In the case of vegetable oils, production declined from 65 thousand tons in 2000 6.2.10 There is a range of options for accelerating to about 22 thousand tons, but then recovered to about growth in the non-food agro-industry sector in Sudan. 170 thousand tons in 2010. The soft drinks sub-sector The sector includes clothing, textiles, footwear and is also growing very fast. Production reached 71 million leather, forestry products including paper, pulp and cases in 2008, compared to 20 million in 2002 and then furniture. The structure and performance of non-food jumped to 544 million cases in 2010. industry is variable, but in broad terms, its role and per- formance has been very weak. Many establishments 6.2.8 The meat industry is still at an infant stage. have shut down because of high operating costs and It has two frozen meat units with a capacity of 1,805 lack of competitiveness in regional and world markets. tons/year. The production of meat depends largely on The textile industry contributed about 2.8 percent of meat prices, the types and quality of meat produced, gross output, 2.6 percent of gross value added, and together with other factors that determine consumer accounted for 5.3 percent of total labour in the manu- demand. During the 2001-2006 period, the price of red facturing sector (Ismail 2010). Table 6.3 shows perfor- meat increased by an average of almost 10 percent a mance of the sub-sector in both ginning and spinning year. This was mainly for mutton and lamb meat for the of cotton in the 2000-2004 period. The ginning of cot- export market. Despite the relative increase in demand ton dropped from 8 thousand tons in 2000 to about 3.8 for meat, poultry (meat and eggs) showed an annual de- thousand tons in 2004 – a reduction of more than 53 cline of 2 percent and 4 percent respectively over the percent. However, as a result of the large decline in the

114 | AFRICAN DEVELOPMENT BANK GROUP Table 6.4: Production of Other Agro-Industrial Products rent statistics are not available to verify these fodder Product 2009 2010 2011 2012 2013 trends, but the growing demand for poultry and animal Ethanol (million liters) 50 37 39 33 67 feed is a potential opportunity for private investment in Tobacco and 6 n.a. n.a n.a. n.a fodder production and baling. In contrast with many cigarettes ('000 tons) other African countries (Kenya, Uganda and Tanzania, Fodder ('000 tons) 250 340 n.a. n.a n.a. for example), no flower export enterprises are in oper- Hides and skins n.a. 10 18 n.a. n.a (million pieces) ation. Moreover, there appear to be good opportuni- Shoes (pairs) 5 n.a. n.a n.a. n.a ties for production and export of aromatic and natural Source: Central Bank of Sudan, various annual reports. herbs and plants. area cultivated for cotton production, the prospect for 6.2.14 Very little attention has been given to the man- replenishing the ginning clusters back to full capacity ufacture of gum arabic, a favourite commodity of the is uncertain. Farmers have abandoned production of western world. Sudan used to enjoy an effective mo- the crop in almost every administrative block. Another nopoly in the 1970s, producing 85 percent of world consequence of the decline in this industry concerns production of the Hashab/Acacia variety. In 2013, an- exports. Sudan exported 1.2 million bales of cotton in nual production of gum arabic had increased to about 1984, but its cotton exports did not exceed 100,000 40,000 metric tons. bales in 2013 or in 2014. 6.2.15 Over 95 percent of Sudan’s exports are either 6.2.11 The ginning industry has had a weak perfor- raw or semi-processed (pickled or mechanical pow- mance, and is a matter of concern to the public sec- der). There are only two small factories producing tor that almost entirely owns and operates the existing spray-dried powder gum that enjoys a substantial price mills. The few private ginning enterprises that were in premium when compared to raw or semi-processed operation earlier in the 2000s are out of service. Cur- material. The major obstacles to the development of rent information at the Ministry of Industry shows a to- spray-dried powder gum include, among others, US tal spinning capacity of 59 million yards, 300,000 tons and European economic sanctions, a monopoly by Eu- of textile and 21 million pieces of ready-made clothes ropean manufacturers and unavailability of medium and annually. As a result, imports of textiles and yarns long-term finance for the development of the industry. have increased steadily in the past decade from about Local commercial short-term bank finance is available US$230 million in 2005 to US$300 million in 2013. The for the gum arabic trade, but very little, if any, has been current situation calls for a move away from depen- made available for the development and promotion of dence on publically-owned plants that are not compet- the gum arabic production and related manufacturing. itive in today’s market, to one in which the role of SMEs Moreover, producers are burdened by federal, state in ginning operations is promoted with cost-effective, and local taxes that have encouraged smuggling and good quality and timely operations. re-export through neighbouring countries. It would ap- pear that the growing international market demand for 6.2.12 The leather industry is composed of about 20 these products would justify increased efforts to devel- large, intermediate and small tanneries with a total de- op this niche market. sign capacity of about 15 million pieces of sheep and goat hide, and about 3 million pieces of cattle hide per 6.2.16 With the rapid increase in export of live ani- year. The leather industry is also distinguished by high mals to Middle East countries in recent years, the feed production of leather products, in particular leather industry is also increasing in importance. However, shoes, which average 17 million pairs. available information shows poor performance in the feed industry. Of the 27 forage manufacturing plants, 6.2.13 Production in the ethanol industry declined only 19 are currently working with annual production of from 50 million litres in 2009 to 37.5 million litres in 177 thousand tons, which comprises only 60 percent 2010. The reasons for the drop are not clear (Table 6.4). of the design capacity of these plants (MoAF, 2010). In Fodder production addition, half of the 16 available milling plants are out increased by almost one-third from 2009 to 2010. Cur- of work and for various reasons. The remaining eight

AFRICAN DEVELOPMENT BANK GROUP | 115 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN milling plants produce 124 thousand tons, which is integration, especially during the rainy season. only 20 percent of their milling capacity. In 2009, the • Seasonality of supply and market periodicity, i.e., Syga, Wheata, and Seen milling plants produced 217 markets that are held daily, weekly or seasonally thousand tons, but they have had difficulty in obtaining after harvest. Seasonality and inter-annual varia- supplies of wheat (Ibid, 2010). tions in production output, low productivity, lack of finance and other marketing bottlenecks also char- 6.2.17 Before the GIAD industrial complex, Sudan acterise the agricultural sector of the Sudan. had no experience in manufacturing agricultural inputs, • Variability in quality of agricultural produce at mar- such as fertilizers, agricultural tools, machinery and kets, together with low quality that restricts sales in equipment.101 In Sudan, the use of fertilizers is uncom- domestic markets and export of produce to inter- mon, except in irrigated agriculture. In rain-fed farming, national and regional markets. chemical fertilizers are rarely used. However, imports • High level of perishability of products, since fruit of fertilizers have increased from a low of about US$40 and vegetable markets lack proper handling tools, million in 2006 to almost US$140 million in 2013. The grading systems and cold storage to extend the discussion in Chapter 5 placed particular importance shelf life of these products. on the need to develop these agricultural input indus- • Most crop markets have no standardisation mea- tries with improvements in productivity and profitability. sures (no scaling by weights and units), except for At this juncture, available information is not sufficient to few cash crops. help identify potential investment and business oppor- tunities, and related risks and challenges associated 6.2.19 The supply and value chains of most agricultur- with these opportunities. However, in 2012-13, GIAD al products can be judged as modest, where provision started partnerships and other initiatives to develop pri- of inputs, particularly improved seeds, is lagging be- vate business in agricultural inputs sector. These are hind. The food production systems suffer from power to be promoted under Public-Private Partnership (PPP) supply problems and low quality produce due to lack of arrangements.102 sorting, grading, packing and packaging material and equipment. Storage of perishable crops is confined to Domestic Agricultural Markets Are Not few markets, and does not cover all areas. Features Well Developed of markets show spatial dispersions and transport, whether by trucking or railway, is often inefficient. Most 6.2.18 Sudan does not have well developed agricul- crops are seasonal and rural markets are periodic with tural marketing systems to facilitate efficient distribution variable openings. These experiences suggest that Su- and marketing of products and related input services (in dan needs to have a value chain programme starting resource or factor markets). The salient features of crop from agricultural inputs (seeds, fertilizers), crop selec- and livestock marketing in Sudan are similar to those of tion, production techniques to increase yield, address- many other African countries. These include poor infra- ing issues related to insects, post-harvest handling, structure, technological, institutional, and macroeco- applied agricultural programmes that link farmers to nomic policy impediments, along with sector-specific government research, crop marketing, distribution, and constraints (Ismail 2004.b). The general features of the interjection of produce into domestic and international agricultural markets in Sudan are as follows: markets. • Wide geographical dispersion and spatially sep- arated within areas that impede supply of inputs, 6.2.20 There are various types of markets and mar- product output and distribution of processed prod- keting systems for different crops, including food- ucts, i.e. market access for inputs and products grains (sorghum, millet and wheat), oil seeds (sesame, is largely affected by the poor road infrastructure, ground-nuts, and sunflowers) and other cash crops leading to isolation of regions and limits on market (such as karkadey, watermelon seeds, guar, and gum arabic). Most crop markets adopt a direct sell system, 101 GIAD is a motor vehicle assembly group located in Sudan. except sesame and gum Arabic, which are sold on 102 The proposal is to develop these arrangements as joint ventures with River Nile State in order to establish processing plants in collaboration with FRC and UNIDO. The auction market basis (Ismail 2012.b). Livestock mar- ventures would address the factors that impede agricultural input use in that area and other similar areas and document best practices, lessons and challenges in fostering kets, on the other hand, have their own periodicity and the agricultural input business development in the country.

116 | AFRICAN DEVELOPMENT BANK GROUP selling pattern, but auction of live animals is unusual relatively poor information systems, lack of adequate (Ismail, 2012.a). Market frequency, periodicity, market- records, and have poor experience in data collection ing costs, prices, and margins are important parame- and analysis (Ismail 2004.b, 2012.a, and 2012.b). The ters that affect the improvement of market efficiency livestock, vegetables and fruits markets have similar (Ismail 2004.b, 2010.b). Most fruit and vegetable mar- characteristics. Despite the lack of information and oth- ket sales and purchases are by volume (heaps, sacks, er drawbacks, the agricultural markets can be said to dozen and tins) rather than per unit weight basis that be fairly competitive. The number of buyers, sellers and is considered a disadvantage for information gathering traders is relatively large with an informal organisational and dissemination about market conditions and trends. set up (Ismail 2003). Strong market competition exists All cereals are sold by the sack (90 kg sack), except where large number of producers and limited number sesame and gum arabic, which are sold on a kantar of buyers exist. Oligopoly, on the other hand, exists basis (one kantar=45kg=100 lb). Quality standardisa- for oil seeds, gum arabic and some other cash crops tion measures are only used for exports, as there are (Ismail 2004.b, 2012.a, and 2012.b). neither efficient entities at locality/municipality level to plan nor financial capabilities to trace slaughter (Ismail 6.2.22 Domestic trade patterns vary by type of pro- 2004.b, 2010). duce and destination, and are largely affected by the trade services sector that is generally weak. The spa- 6.2.21 The main crop markets fall in the dry farming tially differentiated regions with inadequate transport areas; Gedaref (Gedaref state), Damazin (Blue Nile and storage facilities brought an inefficient domes- state), Nyala (South Darfur) and El Obeid crop mar- tic distribution system that is also critical for getting kets (North Kordofan). These markets are the most re- products to international markets and for developing nowned in the country, but they are characterised by backward linkages with agriculture, since improved lo-

Table 6.5: Summary of Sudan's Imports by Product Group, 2001-2014 (In US$ million at current prices) Product group 2001 2005 2010 2011 2012 2013 2014 Foodstuffs 416 811 2,366 1,888 2,049 2,372 2,248 Beverages and tobacco 14 43 77 68 60 76 96 Petroleum products 130 322 428 735 1,052 1,460 1,524 Raw materials Agriculture ------15 Other - 104 161 187 237 230 218 Sub-total 61 104 161 187 237 230 233 Chemicals Agro-industrial ------154 Other 160 494 968 1,063 797 912 769 Sub-total 160 494 968 1,063 797 912 923 Manufactures Agro-industrial ------507 Other 547 1,862 2,419 2,066 2,222 2,144 1,414 Sub-total 547 1,862 2,419 2,066 2,222 2,144 1,921 Capital goods Machinery and equipment 551 1,972 2,349 2,323 1,771 1,713 1,543 Transport equipment 221 1,150 1,225 889 992 936 707 Sub-total 771 3,122 3,574 3,213 2,763 2,649 2,250 Other 202 - 52 16 37 65 17 Total 2,301 6,757 10,045 9,236 9,216 9,908 9,212 Memo items: Non-oil imports 2,171 6,435 9,617 8,501 8,164 8,448 7,688 Agriculture products as % non-oil imports 19.8 13.3 25.4 23.0 25.8 29.0 39.3 Source: Central Bank of Sudan, Annual Reports & Foreign Trade Statistical Digests, various issues.

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Table 6.6: Imports of Foodstuffs, Beverages and Tobacco (US$ million at current prices cif) Product 2004 2005 2010 2011 2012 2013 2014 Foodstuffs Wheat 256 374 945 690 811 1,027 1,046 Wheat flour 2 10 32 21 25 15 36 Sugar 3 8 502 506 529 646 460 Tea 34 37 76 61 50 59 70 32 26 38 36 36 38 34 Dairy products 28 48 103 90 90 82 58 Fish and canned fish 0 0 5 8 6 3 2 Meat and meat products 0 0 8 9 6 8 .. Vegetables 10 13 62 39 61 63 68 Fruits 10 16 36 42 39 44 37 Confectionary, sweets and biscuits 10 17 30 18 16 17 21 Lentils 13 20 29 40 49 41 52 Animal & vegetable oils 21 33 152 148 154 149 213 Spices 4 6 7 6 7 8 11 Rice 9 12 30 26 24 24 30 Other 87 190 311 149 145 147 110 Sub-total 519 811 2,366 1,888 2,049 2,372 2,248 Beverages & tobacco Softdrinks 24 22 41 25 25 27 33 Cigarettes & tobacco 16 21 36 44 35 49 63 Sub-total 40 43 77 68 60 76 96 Total food, drinks and tobacco 558 853 2,443 1,956 2,109 2,448 2,344 Source: Central Bank of Sudan, Annual Reports and Foreign Trade Statistical Digests, various issues.

gistics and trade facilitation are essential to the devel- are poorly structured and serviced. For the most part, opment of backward linkages. International experience retail markets are working at low quality standards, with demonstrates that modern wholesale and retail sectors poor packaging and packing. (restaurants, hotels, supermarkets, etc) and the tradi- tional wet markets are important channels for moving 6.2.24 A major effort is required to promote the devel- goods efficiently from the farm to the urban consumer opment of domestic markets. Appropriate modalities (ADB 2008). In the case of Sudan, large supermarkets for facilitating commercial linkages between farmers and leading hotels use imported fresh produce rath- and supermarkets with products of good quality and af- er than depend on local markets because of concerns fordable price will enhance local trade. A multi-pronged about product quality. approach along the following lines will be required: • There is a clear need for increased emphasis on 6.2.23 There are examples of well-defined quality transport and storage of agricultural crops, includ- management systems, including good manufacturing ing perishable fruits and vegetables. Previous gov- practices, that have been introduced by private sector ernment initiatives to support viable private sec- enterprises involved in livestock, dairy and meat pro- tor companies in the domain of agribusiness and cessing (Lolie, Gusie, Beledie, and Kaboo). While their agro-processing, including storage of agricultural products are processed for local consumption, they crops that can promote exports and domestic ag- can meet regional and international market require- ricultural markets (input and output markets), have ments, only that price-wise, they may remain uncom- not been successful. Consideration should be giv- petitive in offshore markets. These examples are limited en to encourage the entry of offshore private inves- though. Most local markets are still in their infancy, and tors with experience in the provision of these types

118 | AFRICAN DEVELOPMENT BANK GROUP Table 6.7: Imports and Exports of Petroleum Products 2000 2001 2005 2010 2011 2012 2013 2014 Quantity ('000 mt) Exports 523 639 468 473 292 263 108 172 Imports 495 350 623 522 750 865 1,294 n.a. Value (US$ mill) Exports 100 107 239 286 301 257 102 163 Imports 137 130 322 428 735 1,052 1,460 1,524 Net imports (37) (23) (83) (141) (434) (795) (1,358) (1,361) Source: Annex Table 2.8 and Annex Table 7.1.

of services, to enter the Sudan market under joint domestic distribution as a key channel for supporting ventures or other types of arrangements. trade facilitation and exports, as well as develop more • In addition, a revitalised initiative to develop the do- reliable backward linkages to agriculture. A Market In- mestic markets should aim to encourage the pri- formation System (MIS) was developed by SIFSIA N in vate sector to invest in market facilitating services, the 2007-2012 period. However, at this early stage, the including marketing information and research, MIS has limited crop and geographical coverage and advisory and extension services, and training for scope. It provides limited information on prices of cere- management and personnel. This would be further als, livestock and a few cash crops in selected markets, to the above-mentioned conventional investment but other information, such as present and prospective in market facilities, such as storage and transport supplies and stocks, remain outside the system’s cov- infrastructure. More training, coverage and intensi- erage. Information is usually collected through separate ty is required on total quality management (TQM) studies that require frequent updating (Ismail 2004.b). and quality management systems (QMS) and their This includes marketing costs and margins, institution- creation/adaptation. al arrangements (legal system, grades, weights, and measures); infrastructure (roads, warehouses, pro- 6.2.25 Private investment in domestic distribution ser- cessing plants and vehicles); organisations and insti- vices is essential. It can be started by modern agribusi- tutions (government parastatal entities, privates firms, ness models to improve distribution of perishable prod- trade unions, municipals and councils); and entrepre- ucts. The poor packaging and packing of food industry neurial activities (financial resources, stockholding and products is a major impediment to successful entry into risk bearing). regional and international markets. To overcome these limitations in the domestic packaging industry, efforts 6.2.27 Farmers’ and Traders’ Organisations. The should be made to encourage the private sector to in- various unions and associations of farmers, shepherds vest in the industry, particularly for food products. The and traders play an important role in agriculture by alternative would be to create linkages with packaging strengthening and supporting the development of pro- firms outside the country. Such initiatives need to be ducer, commodity, location, and industry associations complemented by increased emphasis on establishing to mitigate production and market risks, and maximise and strengthening consultancy services that focus is business opportunities as well (Giovannucci 2001). on business processes. Such associations have valuable roles in supporting joint action, networking among members, facilitating Status of the Market Infrastructure linkages with other enterprises and organisations, and enhancing participation in policy and planning. Other 6.2.26 In general, domestic trade in Sudan lacks ade- roles often performed by trade unions, particularly pro- quate laws and regulations on licensing and inspection ducer organisations, include strengthening farmers’ ca- functions. The existing framework does not encourage pacities to understand and meet market requirements, the private sector to invest in trade services relating to and also assist small producers to achieve economies agriculture. Private sector investments in transport and of scale by buying inputs and marketing their prod- storage are needed in order to improve efficiency of

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Table 6.8: Imports of Selected Products 6.2.29 Farmers’ organisations and their trade unions in 2013 and 2014 (US$ million) need to be strengthened to ensure that they have cur- Product 2013 2014 rent information about market requirements and op- Consumer goods portunities, and that they can respond to new techno- Medicines 412 411 logical advancements in the food and agro-process- Electrical appliances 242 265 ing industries. One of the challenges facing the trade Ready made clothes 172 179 unions of Sudanese farmers/producers is how to inte- TVs, radios, recorders 98 78 grate the smallholders and large-scale producers into Perfumes and cosmetics 97 91 effective agriculture/agribusiness associations. The Footwear 90 79 problem is that there is a lack of information on mem- Refrigerators 37 29 bers, improper networking among and across associ- Toys and sports goods 8 6 Sub-total 1,157 1,138 ations, and delicate solidarity with members of unions Manufactures from other sub-sectors due to conflict of interest (Ismail Manufactured plastics 226 172 2004.b). Farmers typically make individual decisions on Iron and steel 711 640 products to be supplied rather than look to collective Jute and sacks 89 95 decisions through their unions. This approach is not fa- Paper products 141 117 voured by international procurers, who need stable and Ceramics 53 46 sufficient production to supply to the food industry and Sub-total 1,219 1,070 other agro-processors. The inability of these unions to Equipment organise farmers/producers into efficient associations Cars, trucks and buses 524 373 or groupings and oblige them to produce consistently Tractors 172 128 good quality products for both local and export mar- Tires and tubes 142 138 kets impedes their capacity to integrate and enrol into Auto spares parts 149 125 larger operations that meet international demand sus- Sub-total 987 764 tainably.104 Total 3,363 2,972 % of non-oil imports 39.8 38.7 6.3 Prospects for the Source: Central Bank of Sudan. Manufacturing Sector ucts.103 Commodity and industry associations are par- ticularly important for improving sector coordination 6.3.1 As the foregoing discussion indicates, Sudan is and for representing private sector interests in policy endowed with a wide variety of crops, fruits and vege- dialogue. tables, some of which have been used by the agro-pro- cessing sector to produce high quality products. Howev- 6.2.28 In practice, the overall performance can be con- er, much of this produce is sold in the domestic market sidered to be modest, as these organisations are unable at quality levels that are not internationally competitive. to perform their role effectively. Some trade unions are The importance of the manufacturing sector lies in its not fully democratic. They are self-centred and oppor- potential contribution to future growth based on much tunistic. Even though, they tend to provide support to greater exploitation of the opportunities presented by producer, commodity and industry associations to im- the proposed increases in agricultural production as prove their effectiveness and competitiveness in provid- outlined in Chapter 5. Food processing, and textile and ing services to their members and enhance their viability leather goods are all seen as having the potential to and sustainability. Ismail (2004.b) showed that private make a major contribution in both the domestic and institutions such as trade unions and chambers of com- export markets. However, there are also increasingly merce are often organised in small commodity groups important opportunities in manufacturing that are un- that serve its members at a limited geographical loca- related to agro-industrial production. As the discus- tion. Their scope and function are somewhat limited. sion below indicates, a strong growth performance is expected for the construction industry in the decade 103 An important element of the rationale for agribusiness development is to enhance market opportunities and increase services for farmers. However, as agribusiness and agro-industries develop, there are impacts on traditional farming and marketing 104 To improve the performance of the sector, the suggestion of Giovannucci (2001) was systems. Rapid agro-industrial development can pose risks to small-scale farmers, to organise farmers’ associations into multi-purpose unions that would be more suit- traders, processors, wholesale markets and retailers. able than the prevailing sectoral “status quo”.

120 | AFRICAN DEVELOPMENT BANK GROUP Table 6.9: Exports of Agricultural, Animal and Agro-Industrial Manufactured Products (US$ million at current prices fob) Product 2004 2005 2010 2011 2012 2013 2014 Agricultural products Sesame 179 119 167 231 224 472 466 Gum arabic 61 108 24 81 67 135 97 Cotton 94 107 34 27 12 103 34 Sorghum 3 0 0 26 14 78 6 Hibiscus flowers 30 15 7 18 14 17 18 Fruits and vegetables 37 Other 18 15 4 14 16 52 81 Sub-total 384 364 237 397 346 857 739 Animal products Sheep and lambs 119 95 116 250 286 477 550 Camels 16 16 13 41 62 98 208 Other live animals 3 3 8 14 24 18 35 Meat 18 18 44 18 38 16 20 Hides and skins 26 22 14 40 37 73 44 Other 2 1 - - - - - Sub-total 184 155 193 363 447 681 857 Manufactures Groundnut & sesame oils 1 2 - - - 14 3 Sugar and molasses 20 25 - 15 3 7 6 Other 2 0 2 4 4 65 78 Sub-total 23 27 2 19 7 86 87 Total 592 546 432 779 800 1,625 1,683 Memo items: Total non-oil exports 607 637 1,712 2,384 3,112 3,073 3,096 Sub-total as % of non-oil exports 97.5 85.8 25.3 32.7 25.7 52.9 54.4 Source: Central Bank of Sudan, Annual Reports & Foreign Trade Statistical Digests, various issues. ahead, driven by increased levels of public and private these imports increased fourfold to about US$2,450 mil- investment that, in turn, will result is sustained strong lion in 2013 (Table 6.6). Wheat and wheat flour account- growth in demand for a wide range of construction ma- ed for about 40 percent of the increase, along with sugar terials.105 and animal/vegetable oils that also accounted for about 40 percent (Table 2.11). There has also been substan- Substantial Opportunities for Import tial growth in a wide range of agricultural commodities, Substitution including dairy products, fruits and vegetables, which accounted for about 8 percent of the increase. Imports 6.3.2 The most recent trade data for Sudan suggest of goods for the agricultural and agro-industrial sector that there were substantial opportunities for expansion stood at about US$570 million in 2001. By 2013, im- of domestic capacities for supply of agricultural prod- ports of these products had increased to about US$3.2 ucts that could replace imports. Imports of foodstuffs billion – equivalent to 38 percent of total non-oil imports, and beverages have increased substantially in the past compared to the 26 percent that prevailed in 2001. decade, and now account for almost 30 percent of to- tal non-oil imports. From about US$430 million in 2001, 6.3.3 The position taken in this Report is that consid- eration be given to a broad-based programme of sup- 105 Ricardo Hausmann and Bailey Klinger argue that both the oil industry and tropical and port aimed at promoting private investment in the food other raw materials require specific endowments and do not easily prepare the country to enter into production of other goods. By contrast, light manufactures, electronics and beverage industry supply chains with the objective of and capital goods tend to involve skills and assets that are much closer to those required by other industries, and hence facilitate the transition from one product to providing domestic supplies of products that can com- another.

AFRICAN DEVELOPMENT BANK GROUP | 121 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN pete effectively with these imports. Success for farmers other international suppliers of these products. As part and manufacturers in the domestic food and non-food of this promotional initiative, international investment agricultural market can then provide a platform for suc- promotion conferences could then be organised by the cess in the international market. government in various countries, including those in the Middle East, China, and other states that do not im- 6.3.4 In the case of products unrelated to food and pose economic sanctions on Sudan. non-food agro-industrial production, there appear to be a growing number of opportunities for expansion Programmes for Export Promotion of domestic manufacturing activities. In addition, there appears to be a strong case for expansion of domes- 6.3.6 The contribution of agriculture-related exports tic manufacture of petroleum products. Net imports of to the Sudanese economy is modest, and their growth these products have expanded rapidly, especially since performance in the past decade has been mixed. As the secession of South Sudan. By 2013 and 2014, the Table 6.9 indicates, in 2005 exports of agricultural, value of net imports stood at US$1.36 animal and related manufactures accounted for 86 billion (Table 6.7). As the discussion in Chapter 7 indi- percent of total non-oil exports. However, the value of cates, with continued strong growth in domestic de- these exports declined from a peak of almost US$600 mand, exports of these products are likely to come to million in 2004 to US$380 million by 2007. By 2008, an end in the next five years. According to Table 7.6, the share of these products in total non-oil exports had domestic consumption of these products is projected declined to about 73 percent. Since 2010, there has to increase from about 4.3 million mt in 2013 to about been an impressive recovery of agriculture-related ex- 11 million mt by 2030. The domestic industry current- ports to US$1.6 billion in 2013 and US$1.7 billion in ly supplies about 3.5 million mt a year. To meet this 2014. However, with the rapid increase in gold exports growth in demand, a substantial increase in the capac- in recent years, the above-mentioned agriculture and ity of the domestic refining industry will be required. related products still accounted for only a little more than half of total non-oil exports of US$3.1 billion in 6.3.5 Other opportunities for domestic manufac- 2013 and about 54 percent in 2014. tures of non-agriculture products include construction materials of various kinds, a range of consumer goods 6.3.7 The recent large increase in exports of these unrelated to agriculture, and local assembly and or pro- agriculture-related products has been driven primarily duction of specific types of capital goods linked to the by sesame, gum arabic, cotton and sorghum, and by domestic consumer market. Table 6.8 provides a list livestock products (exports of live animals, especially of illustrative group of products that were imported in sheep, lambs and camels). Exports of agro-industrial 2013 and 2014. It includes about US$1.1 billion worth manufactures have played a minimal role in the past of consumer goods and another US$1.1 billion worth decade. In the mid-2000s, they accounted for about of various manufactures. In addition, there was about 5 percent of the total exports of agriculture-related US$1 billion worth of imports of transport equipment, products, but have now declined to less than 2 percent tractors and related parts and supplies in 2013. More of the total. A large share of Sudan’s agricultural ex- analysis needs to be undertaken to assess the eco- ports goes to the countries of the Arabian Peninsula, in nomic and financial attractiveness of these various op- particular the and Saudi Arabia, portunities for additional private sector investment. In a whereas exports of these products to the other mem- number of cases, there may be scope for establishing ber countries of COMESA are quite limited. In 2013, joint ventures with offshore business groups to under- only about 6 percent of the agricultural product exports take local manufacture of products and assembly of went to the other member countries. Reform of cus- transport equipment with some degree of local content toms and duties procedures and loosening of admin- used (for example, paint, tires and tubes, etc.). Such istrative burdens would very likely make it easier for an assessment also needs to look at the opportuni- agro-industry manufacturers to export their products ties for export of these products to landlocked neigh- and import goods from neighbouring COMESA coun- bouring countries (South Sudan, Uganda and Chad), tries. as well as the prospects for strong competition from

122 | AFRICAN DEVELOPMENT BANK GROUP Table 6.10: Production of Mining An Action Programme for Agricultural and Related Products (in tons) Related Business Commodity 2012 2013 Gold 45 70 6.3.9 Challenges for diversification in agri-busi- Silver 16 n.a. ness and agro-industry. As the foregoing analysis in- Chromite 18,300 30,870 dicates, despite its potential significance to the national Copper 25 n.a. economy, the agro-industrial sector is underdeveloped Manganese n.a. 3,250 and has largely remained without significant institutional, technical and financial support. The development of the Kaolin 11,579 26,000 agro-industry sector in the Sudan should be an integral Gypsum 117,073 132,000 part of the overall development of the agriculture and Salt 26,315 20,800 manufacturing sectors. With well-designed policies and Mica 324 500 programmes, agri-business and agro-industry, including Marble (m³) 115 1,000 large enterprises and SMEs, can play a pivotal role in the Clinker ('000) 2,885 3,200 expansion and diversification of the agricultural sector. Iron 96,400 339,390 Lambert identified the role of agro-processing in reduc- Fluorspar 26,283 31,700 ing the seasonality of supply and also consumption of a Talc 60 n.a. range of processed foods, and in increasing the viabili- Fluorite 950 n.a. ty, profitability and sustainability of production systems Source: Ministry of Minerals, and through their positive impact on farm incomes, rural em- Central Bank of Sudan. ployment and foreign exchange earnings. Additionally, they reduce marketing risks (Lambert 2001). 6.3.8 Despite the potential market avenues Sudan has in the arena of international and regional trade with 6.3.10 Agro-industrial processing that transforms pri- neighbouring countries (particularly the above-men- mary agricultural products to usable food and non-food tioned three landlocked countries), the growth and products, adds value to them by vertically integrating diversification of exports is constrained by a number primary production and food processing systems and of shortcomings. The volume of trade of agricultural minimises post-harvest losses, faces tremendous chal- commodities is extremely variable and frequently af- lenges, as is the case with the agriculture sector itself. fected by government policy, the exchange rate, and As mentioned earlier, good management and business other factors. The latter include poor product quality, organisation, adequate finance and market avenues are seasonal and unreliable supply of agricultural produce, key determinants of success in agro-industry. Promotion inefficient transport and logistics, technical barriers to and advertising are, of course, essential for international trade, and burdensome export procedures. Moreover, competition. This calls for increased capacities within the the Sudanese business community has limited access business community for regular assessments of con- to market information about the regional and interna- sumer preferences through market research to speed up tional supply and demand situation. Because of poor the pace of development of the industry. packaging and packing capacities within the domes- tic industry, Sudan’s agro-industry is unable to meet 6.3.11 The problem of seasonality of supply. One regional and international product standards. There of the most serious problems in the industry has been is a lack of awareness within the domestic business the seasonality of the supply of agricultural raw materials. community about these quality standards. As a re- This has had an adverse impact on the prospects for pri- sult, Sudanese products cannot compete effectively in vate investment in product development and processing world markets. The Sudanese Standards and Metrol- facilities. For some agro-processing industries such as ogy Organisation (SSMO) is making efforts to address and tomato, the availability of suitable and ade- these shortcomings with regular training workshops on quate indigenous raw material determines the prospects grades and standards applicable to local, regional and for large-scale processing. Most of the commonly known international markets, but these programmes need to fruits, such as pumpkins, aradeeb (tamarindus indicus) be expanded. and gungulais have been used in jams and production

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Table 6.11: Quantity and Value of Gold Exports Indicator 2010 2011 2012 2013 2014 6.3.14 Research and technical support for Amount (in mt) 30.0 34.0 44.5 70.0 30.4 agro-industrial development. Problem solving ap- Value (US$ million) 1,018 1,450 2,158 1,048 1,271 plied research, technology adoption/development and Average price per 34 43 48 15 42 technical support as incubation by research institutes/ ton (US$ mill) universities are key drivers for agro-industrial develop- Source: Central Bank of Sudan, Annual Reports, various issues. ment. The process of making jams, biscuits, dry vege- tables and fruit nectars, including other beverages, has of fruits nectars and drinks respectively. However, their been well established by the Food Research Centre availability in large quantities for large processing is un- (FRC) of Sudan since the early Seventies. 106 However, certain. Other commonly known materials include herbs, the technology used in the small-scale processing sector spices and vegetables (okra and Jews mellow), but has remained relatively static and traditional. The slow quantities for a viable agro-processing industry through- pace of technology adoption by the agro-industry sec- out the year cannot be sustained. Typical examples are tor stems from a combination of factors. They include mango fruits and vegetables produced in Jabel Marra low utilisation of research innovations/technology, lack Mountains (), Abu Gebeiha (South Kordofan) of finance, lack of well-trained cadres, and inadequate and Giessan of the Blue Nile, where harvest could not be technical and managerial and marketing support. transported to processing sites during the rainy season because of poor road infrastructure. 6.3.15 With some policy reforms and improved sup- port services, the agro-processing sector can absorb 6.3.12 A comprehensive approach to solving the and utilise fully, the technological packages and services problem is required. It should include, for example, fur- provided by Food Research Centre and other research ther development of infrastructure, increasing access to and development institutions. These institutions can ap- improved seed varieties, and having processing plants ply science-based approaches to the industry and also near the supply regions. Attention should be given to the help set standards in the processing of food products promotion and organisation of domestic production to that will open up opportunities for national, regional and supply raw material for the development of the agro-in- international trade. Such examples are “instant nasha”, dustry sector through a clear policy framework that focus developed by Sit El Nafar and Lila Munaoor of the FRC on the production and utilisation of these commodities. in the 1970’s, and “composite flour” in 1979. The question of seasonality of supply of raw materials for processing throughout the year can be solved through 6.3.16 Inappropriate or obsolete processing and applied research aimed at developing know-how for bet- ancillary equipment, the use of which is often ter processes for the utilisation of indigenous products, sub-optimal. The non-food agro-industry processing and through improved storage facilities for crops that are plants, both private and public, have experienced de- seasonal. clining growth that has stemmed from underinvestment, high operating costs and management inefficiencies. In 6.3.13 Product standards and packaging technol- the case of the textile and ginning industries, and the ogies. Little attention has been given to the importance production of leather and hides, the adoption of the of such factors as standards, quality control, packaging most appropriate and current technology is lagging be- and product presentation. Low levels of packaging tech- cause of lack of capital and appropriate management. nology associated with inappropriate packaging mate- These problems are exacerbated in the case of SME rials and high packaging costs have hampered devel- agri-business, as owners typically do not have access to opment of the industry. Action on these issues requires sufficient financial resources or reliable credit facilities to that agro-processors be aware of market requirements 106 The Food Research Centre (FRC) is the cornerstone in any agro-industrial/food pro- in order for their products to be competitive with imports. cessing development programme in the country. It conducts research on food and provides research services on food to the industry. FRC assists in training food indus- In order to compete in price and quality, they have to de- try personnel from both the public and private sector. The centre involves more than velop strict parameters that include sourcing out for rel- 60 researchers from junior to senior scientists, and has disseminated hundreds of in- novations, techniques and uses of indigenous food products. With this huge potential, evant technologies and upgrading packaging standards both public and private sector entrepreneurs in food processing can liaise with FRC to develop the food industry in areas of basic principles of food/nutrition and applied and equipment. food research in processing, hygiene and sanitation, quality assurance and standards, product development as well as food microbiology, labelling and packaging.

124 | AFRICAN DEVELOPMENT BANK GROUP Table 6.12: Increase in Supply of Cement and Other Construction Materials, 2001-2013 (In '000 metric tons) Indicator 2001 2005 2006 2007 2008 2009 2010 2011 2012 2013 Cement Production 190 331 202 326 247 622 2,113 2,905 2,922 Imports 1,144 915 837 1,127 1,115 1,103 173 28 44 Total supply 1,475 1,118 1,163 1,373 1,737 3,216 2,933 2,966 Import of other materials Iron and steel 2,658 804 752 668 830 990 760 788 727 Ceramics 67 99 101 99 100 101 105 111 127 Total imports 3,869 1,818 1,691 1,893 2,045 2,194 1,038 927 898 Source: Central Bank of Sudan, Annual Report, various issues. enable them to invest in new processes, skilled human strong growth in the decade ahead. The key value chains resource, better management and technological innova- are as follows: tions. • Bakeries and wheat-based products manufactur- ing (wheat flour, macaroni, spaghetti, and biscuit 6.3.17 Other factors that have contributed to un- manufacturing); derdevelopment of the industry. In addition to the • Dairy products (yoghurt, cheese, and butter, etc.); above-mentioned problems of standards and packaging • Edible oil production and processing; and seasonality of supply, a number of other obstacles • Fresh fruit and vegetable processing (marmalade, have hampered the development of agro-industry in Su- tomato paste, and tomato juice); dan. • Dried fruits and vegetables production and pro- • Agricultural input and product markets are gener- cessing; ally not well developed. As a result, they do not • Meat processing and exporting (frozen, chilled and enhance the leverage of the agribusiness and the perhaps canned products); and agro-industrial sectors. • Processing of forest products (fruits as aradeb, • The poor quality of raw material supplied. They may gonglius, gudaeim, including gum arabic. either be genetically poor or gathered from various sources/areas with inconsistent quality. There is 6.3.19 Further development of the non-food also a general lack of proper hygiene and sanita- agro-industrial sector. A comparable review of options tion practices that meet international standards. for the non-food industry suggests that further develop- • The poor road condition and lack of cold storage ment of a number of value chains based on increased facilities lead to high losses during transport from private investment would contribute substantially to sus- farm to processing plants/factories. tained strong growth in the decade ahead. The key value • Manpower of the agro-industry sector is poor- chains are as follows: ly trained. Qualified food technologists are either • Textiles; lacking or are high cost. • Ginning and spinning industry as well as yarn dye- • Lack of technical support for the agro-industrial ing, weaving and knitting; sector (incubation, capacity building, and incentive • Clothing, including a wide range of garments, trou- support) as well as absence of good management sers and shirts; of the processing facilities.107 • Leather and skin tanning (tannery industry) pro- cessing and leather goods; and 6.3.18 Accelerating development of the food in- • Shoes and other footwear. dustry. A review of options for the food industry under- New market opportunities were identified in the areas taken for this Report suggests that further development of packaging facilities that produced packing material of a number of value chains based on increased private for agricultural and other exportable products, compa- investment would contribute substantially to sustained rable to international specifications and standards.

107 Incubation is meant for start-up agribusiness companies and also facilitation of net- working among business entrepreneurs. More important, however, is the elimination 6.3.20 There will be a need for selectivity in the de- of bureaucratic obstacles to start-up businesses.

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Table 6.13: Projected Growth in Industrial Sectors Under Moderate Growth Scenario Sector Actual/estimate Projection 2012 2013 2014 2015 2020 2025 2030 Value added (SDG millions at 2012 constant prices Mining (excl. oil) 4,752 6,226 6,849 7,396 10,471 14,686 20,598 Manufactures 21,677 21,288 22,991 24,830 36,484 56,135 86,371 Construction 11,525 11,547 11,893 12,488 18,687 29,687 45,677 Utilities 2,181 2,204 2,303 2,430 3,424 5,031 7,392 Total 40,135 41,265 44,036 47,145 69,066 105,539 160,037 Annual growth rate (% p.a.) Mining (excl. oil) 215.7 36.0 10.0 8.0 7.0 7.0 7.0 Manufactures 18.1 1.5 8.0 8.0 8.0 9.0 9.0 Construction 5.8 2.0 3.0 5.0 10.0 9.0 9.0 Utilities 3.2 3.0 4.5 5.5 8.0 8.0 8.0 Total 15.9 2.6 6.7 7.1 8.4 8.7 8.7 Composition (% of total industry value added) Mining (excl. oil) 11.8 15.1 15.6 15.7 15.2 13.9 12.9 Manufactures 54.0 51.6 52.2 52.7 52.8 53.2 54.0 Construction 28.7 28.0 27.0 26.5 27.1 28.1 28.5 Utilities 5.4 5.3 5.2 5.2 5.0 4.8 4.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total fixed investment ICOR 3.0 3.1 3.2 3.5 3.8 3.8 Investment (SDG mill) 7,250 3,390 8,591 9,947 18,690 31,995 48,633 Investment (US$ mill) 2,029 949 2,404 2,784 5,231 8,955 13,611 Investment as % GDP 3.0 1.3 3.3 3.7 5.5 7.2 8.2 GDP (SDG million) 243,413 252,326 261,898 272,441 341,444 445,523 591,036 Exchange rate 3.573 3.573 3.573 3.573 3.573 3.573 3.573 Source: Annex Table 3.5 velopment of these various opportunities. The position for the manufacture of products for both the domestic taken in this Report is that the best opportunities for market and export. Mining activity in Sudan was start- the medium-term are in value chains linked to the sup- ed by the ancient Kushite Kingdom along the Nile valley ply of foods, and in selected areas of production in the in the 18th century, when the common perception was non-food agricultural industries. To ensure success of that the kingdom was rich in mineral wealth. The Nu- private sector agro-industry development, incubation bian Sudanese were famous as great miners. In fact, services need to be part and parcel of the investment the word “Nubia” was used to mean Gold land. One of costs until value chains get mature for both domestic the main objectives of the Egyptian/Turkish invasion of and international distribution. For example, the availabil- Sudan at the time was the search for gold. The Geo- ity of livestock products for processing, such as leather logical Research Authority of the Sudan (GRAS) was hide and skin, is adequate, but the quality of finishing is established in 1905 as the main technical arm of the lagging. ruling Government. In 2010, the Ministry of Minerals was established and GRAS continued to be the techni- 6.4 Prospects for Other Industrial cal arm of the Ministry. In 2011, the Sudan Government Sectors reactivated the Joint Exploitation Agreement with the Saudi Ministry of Minerals, signed in 1980. Gold and Other Mining Activities 6.4.2 Table 6.10 includes recent production data for 6.4.1 As noted in Chapter 2, Sudan has an extensive 2012 and 2013 as reported by the Ministry of Miner- mineral base that can provide a range of raw materials als and the Central Bank of Sudan. Over the past five

126 | AFRICAN DEVELOPMENT BANK GROUP years, the contribution of the mining sector (mainly gold) velopment Act of 2007 and Precious Metal Act to Sudan exports and GDP has increased substantial- of 2008, to accommodate new developments in ly. The areas covered in Sudan, include North Eastern, investment, organise arsenal/ traditional mining, North/Central, South/Central, West/South Darfur. Ar- and take into consideration environmental/health senal mining covers (81) plots scattered in at least 14 issues. States with 501 companies and a labour force of more • Establish modern laboratory facilities in the various than half a million people. Miners use primitive mining states under supervision of Standard and Metal- techniques, starting with surface metal detectors, and lurgy Department. In addition, the Standards and use mercury with all its negative environmental impact Metallurgy Department should set standards for and health hazards to the miners-themselves.108 A re- all commodities, machinery, equipment, chemi- cent study has shown that sand/rock leftovers of arse- cals and other materials used in mining or refin- nal/traditional mining contain sizeable amounts of gold. ing processes, with the ultimate objective of pro- Extraction of gold from these leftovers would reduce tecting the environment, reducing health hazards the environmental impact of the use of mercury. and maximising returns. This should be carried in close association with the Ministry of Environment, 6.4.3 In an effort to boost gold export revenues, Higher Council for Environment, United Nations In- the government opened the first gold refinery in 2012- dustrial Development Organisation (UNIDO) Arab 13 (using Italian technology) with an annual capacity Industrial Mining Organisation and East/Southern of 150 tons of refined gold and 30 tons of silver. This Africa Mining Centre. represents a forward step in the value-added chain for • Capacity building through intensive training of manufacturing. The main destination for gold exports is Sudanese personnel in areas of remote sensing United Arab Emirates (UAE). However, realising the full and the Geographical Information System. Given value added benefits of gold refining must await recog- the vast scattered mining areas, this is very much nition of the refinery by the London Bullion Market As- needed to minimise costs, maximise returns and sociation, the international official body that certifies the save time and effort. The focus should be on purity of refined gold. Given the US and European eco- achieving safe and environmentally responsible nomic sanctions, this will take some time to achieve. mining processes. In the interim, Sudan gold sells at discount from inter- • Another initiative that has been put forward, per- national gold prices. In 2012, the Central Bank of Su- haps controversial, proposes an amendment to dan became the official sole local buyer and exporter of the 2005 National Constitution captions on land gold. allocation and taxes that in effect transfers owner- ship of the mineral resources from state and local 6.4.4 However, because of the vast borders of Su- authorities to the Federal Government. The stated dan, some traditional miners and traders smuggle gold objective of this proposal is to avoid conflicts with out of the country. Table 6.11 reports proceeds from state authorities and among local authorities, pop- official gold exports for the 2010-2013 period. Modern ulations and private investors. technology is very much needed in the gold industry at this stage. Efforts should therefore be made to encour- 6.4.6 As Table 6.1 indicates, the non-oil minerals age the Sudan private sector to cooperate with/attract sub-sector has made a substantial contribution to the the major international mining groups from Europe, growth of the economy in recent years, with its share of Australia and South Africa. GDP increasing from an average of 0.2 percent through- out the past decade, to 2.4 percent in 2013. The rapid 6.4.5 In addition, a range of other initiatives should growth in recent years has been driven by large increas- be considered for further development of the industry. es in gold production, raw materials for cement produc- These include the following: tion that increased from 0.25 million mt in 2008 to 2.92 million tons in 2013, and a range of other minerals. For • Review and amend the Mineral Resources De- the purposes of this report, it is assumed that the non-oil mining and quarrying will increase by an average of 7-8 108 Because of the negative health and environmental impact of mercury, the International Mercury Usage Declaration of 2013 calls for a reduction in the use of mercury in mining percent a year during 2015-30 (Table 6.13). to 50 percent by 2013 and to zero by 2017.

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Construction Industry achieved. When the National Transport Plan (2010) was prepared, the expectations were for a very rapid 6.4.7 The construction industry has not been a lead increase in cement exports to about 10 million tons a sector in promoting economic expansion in Sudan in year by 2020. the past decade. As Table 6.1 indicates, construction currently accounts for about 4.8 percent of the GDP 6.4.10 The projected growth of the construction indus- of Sudan. This compares with an average of about 4 try is linked to the projected levels of fixed investment percent during the 2000-2010 period. The growth in in the economy. It is assumed that the weak growth of construction value added this period averaged about 8 the sector will continue through 2015 because of the percent a year in real terms, but the pace of expansion ongoing macroeconomic stabilisation programme that was volatile, reflecting significant changes in the level has constrained public investment and increased un- of investment spending in the economy. Since the se- certainties for private investment. With a successful re- cession of Sudan in 2011, the growth in construction turn to macroeconomic stability in 2016, it is assumed declined from 10 percent in 2011 to 2 percent in 2013. that public and private investment will increase steadily to about 21 percent of GDP by 2020 from about 18 6.4.8 The growth in the supply of construction-re- percent in 2013. In the 2020s, fixed investment is pro- lated products such as cement, asphalt, lumber, roof- jected to grow in line with GDP at about 6 percent a ing materials, metallic structures, ceramics and various year. The implication is that the construction industry other products have also grown at about the same rate would grow at a similar rate. as construction activities. With the exception of cement and some building materials, a substantial part of the Utilities products required for the construction industry have been imported. 6.4.11 The Sudan utilities industry that supplies elec- tricity, water and gas is quite small. As Table 6.1 indi- 6.4.9 As Table 6.12 indicates, overall demand for cates, the utility industry accounts for about 1 percent cement has increased appreciably in the past decade. of GDP. There has been a substantial increase in sup- Total consumption increased from an average of about ply of these services, largely as a result of increased 1.1 million tons a year in the mid-2000s to an average investment in the power sector since the mid-2000s. of 2.95 million tons a year in the 2012-2013 period. In Chapter 8 provides a more detailed discussion of the the mid-2000s, imports of cement accounted for about developments in this sector in the past decade, and 80 percent of total supply, but as a result of substantial the prospects for expansion in the decade ahead. As additional investment in the domestic industry, Sudan Table 8.13 indicates, the consumption of electric power has all but eliminated imports of cement since 2010. is projected to grow at about 12 percent a year during There are now seven cement plants in operation in Su- the 2013-2030 period, while the number of household dan with a total installed capacity of seven million tons. connections to improved water and sanitation is pro- Five of the seven plants are new and started produc- jected to grow at about 7 percent a year in the same tion in 2009/2010. Private investors hold a majority of period. If these proposed expansion plans for power the equity in all seven of these plants, with more than and water are realised, the growth in value added by 60 percent of this equity coming from offshore private the utilities sector would increase to about 8 percent a investment. Two of the plants are owned completely year in the medium-term and remain at that level during by Arab private investors. Most of the recent investors the 2020s. in this industry were targeting the markets of neigh- bouring landlocked countries in addition to meeting the demand in Sudan. In 2014, for the first time, Sudan 6.5 Growth Prospects for the exported 125 thousand tons of cement that generated Industrial Sector US$12 million in foreign exchange earnings. Informal reports indicate that had it not been for the security 6.5.1 With a broad-based programme of reforms situation in Western/Southern Sudan, higher levels over the next 3 to 5 years to improve the operating of capacity utilisation and exports could have been environment for private sector investment in mining

128 | AFRICAN DEVELOPMENT BANK GROUP and manufacturing along the lines outlined in Chapter discussed earlier, the projected increase in private in- 4, and an aggressive programme to address the wide vestment in the non-oil economy, and public and pri- range of supply constraints associated with production vate investment in infrastructure, is expected to result of agricultural raw materials as discussed in Chapter 5, in an extended period of strong growth in construction the foundations would be laid for the emergence of a activities. The construction sector is projected to grow period of sustained strong industrial growth in Sudan in by about 10 percent a year for several years, and then the next decade. slow down to about 9 percent a year during the next decade. In the case of the utilities sub-sector, growth 6.5.2 Table 6.13 provides a summary of the pro- is projected to increase to about 8 percent a year as jected growth performance of the industrial sector for the enlarged programme for development of the pow- the 2014-2030 period. As discussed above, the non- er sector and domestic water and sanitation services oil mining sector is projected to grow at about 7 per- gains momentum. cent a year in the decade ahead, driven by growing exports of gold, processed minerals and raw materials. 6.5.3 In this Moderate Growth scenario, the aggre- The growth performance of the manufacturing sector gate investment in the industrial sector increases from is projected to remain in the range of 9 percent a year a projected US$2.4 billion in 2014 to US$14 billion a for much of the period as the proposed programme year by 2030 (at 2012 constant prices), at which time for development of private sector, agricultural reform the investment level would be equivalent to almost 9 and infrastructure development are implemented. As percent of GDP.

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130 | AFRICAN DEVELOPMENT BANK GROUP 7. CHANGING ROLE OF THE OIL SECTOR

7.1 Development of the Industry 7.1.3 When South Sudan gained its independence Since the 1970s in 2011, it had control over most of the areas that were producing oil. But given that it is a landlocked coun- The Setting try, it remains dependent on Sudan as it must use its northern neighbours pipelines to Port Sudan and its 7.1.1 Considerable exploration for oil in Sudan led processing facilities for the export of oil and petroleum to important discoveries in the 1970s and 1980s. Be- products. Following South Sudan’s secession, Sudan cause of the internal conflict that persisted for much of requested transit fees of US$32-36 per barrel in an ef- the period since independence, oil exploration prior to fort to make up for the lost oil revenues. In response, the secession of South Sudan was confined largely to South Sudan offered a transit fee of less than US$1 the central and south-central regions of the former Su- per barrel. Tensions escalated in the latter part of 2011 dan. Most of the proven reserves of crude oil and natural when Sudan began to confiscate a portion of South gas of Sudan and South Sudan are located in the Mug- Sudan’s oil as payment for unpaid transit fees. South lad and Melut basins, which extend into both countries. Sudan responded by shutting down all its oil produc- According to the BP (2013) Statistical Review of World tion in January 2012. After lengthy negotiations, South Energy, South Sudan has approximately 3.5 billion bar- Sudan restarted oil production in April 2013. There are, rels of proven reserves, while those of Sudan are put at however, unresolved differences between the two gov- 1.5 billion barrels. The proven reserves of natural gas are ernments. As a result, there is a risk that production in estimated at about 3 trillion cubic feet. South Sudan could be curtailed or shut down again in the future. Map 7.1 provides an overview of the con- 7.1.2 The development of these fields was hampered cession blocks that are controlled by Sudan, those by civil unrest in these areas. The production of crude oil that are controlled by South Sudan, and those that are began in 1996. It grew rapidly, and by 1998, imports of shared. crude oil were discontinued. Exports began in 1999. The major oil refineries, ports, and pipelines that service the Oil Sector Regulation and Role of industry are located in (north) Sudan. Oil is transported International Oil Companies through two main pipelines that extend from South Su- dan to Port Sudan in the North. By 2007, production of 7.1.4 The Ministry of Finance and National Economy crude oil had peaked at 23.8 million tons a year, at which (MoFNE) regulates domestic refining and imports. The time Sudan was the third largest oil producer in Sub-Sa- Sudanese Petroleum Corporation (SPC) is responsible haran Africa. As a result of the CPA signed in 2005, oil for exploration, production and distribution of crude oil revenues were shared 50:50 between the National Gov- and petroleum fuels in accordance with regulations set ernment of Sudan and the Government of South Sudan by the MoFNE. (GoSS). Neither country currently produces natural gas. It is either flared or re-injected. 7.1.5 There are three major consortia that operate in

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132 | AFRICAN DEVELOPMENT BANK GROUP Table 7.1: Main Oil Companies Operating in Sudan and South Sudan Consortium/Subsidiary Share of Subsidiary Held by International and Domestic Companies (%) China Malaysia India Sudan South Egypt Yemen Other Sudan (Egypt (Ansan partners (CNPC) (Sinopec) (Petronas) (ONGC) (Sudapet) (Nilepet) Holding) Wikfs) Greater Nile Petroleum Operating 40.0 30.0 25.0 5.0 Co Dar Petroleum Operating Co. 41.0 6.0 40.0 8.0 3.6 1.4 Sudd Petroleum Operating Co 33.9 24.1 41.9 Petro Energy 95.0 5.0 Star Oil 34.0 66.0 Source: U.S. Energy Information Administration (2013), Sudan and South Sudan. Country report, September, 2013. the oil sectors of both countries. These are the Greater 7.1.7 The quality of Sudan’s oil varies substantially Nile Petroleum Operating Company, the Dar Petroleum among fields, with a significant portion of production Operating Company, and the Sudd Petroleum Oper- of relatively low quality. The exported crude oil is of ating Company. International oil companies from Asia two standard qualities: Nile Blend and Dar Blend. Nile dominate the oil sector of Sudan (and South Sudan). Blend is a good quality crude oil that is readily saleable Table 7.1 provides a summary of the main oil compa- on international markets, but the Dar Blend has char- nies operating in Sudan and South Sudan. acteristics that include a high acid content that make it difficult to sell to most refineries. Most of the Dar Blend Production and Consumption of comes from fields that are located in the South. A third Petroleum Products crude blend, Fula, is produced in fields located in Su- dan. The quality of this oil is lower than the Dar Blend 7.1.6 Production of crude and petroleum prod- and is therefore sold only in the domestic market. ucts. As noted earlier in this Report, oil has played an important role in the economy of Sudan since the start 7.1.8 Sudan has two oil refineries with a total capac- of the oil boom in 1999. Table 7.2 provides a summary ity of 121,700 bbl/d, and three topping plants, which of trends in the production and import of crude and pe- are small-scale, less complex refineries with a total ca- troleum products for the 1990-2014 period. Prior to the pacity of 22,000 bbl/d. The largest refinery, the Khar- secession of South Sudan, crude oil production peak- toum (or al-Jaili) refinery, is located just north of Khar- ed at 23.8 million metric tons in 2007, while domestic toum and has a distillation capacity of 100,000 bbl/d. It production of petroleum products peaked at 4.6 million became operational in 2000 with a capacity of 50,000 metric tons in 2009. As noted earlier, there was a sharp bbl/d to process the Nile Blend. The refinery’s capac- decline in the production of crude oil in 2012, along with ity was expanded in 2006 to also process Sudan’s a decline in domestic production of petroleum products highly acidic Fula Blend. According to one of its oper- in 2011 and 2012 that was partly offset by increased ators, China’s CNPC, the Khartoum Refinery was the imports of these products. Sudan set an ambitious tar- world’s first modern refinery with a delayed coking unit get for recovery in the production of crude oil to more for high-acid and high-calcium crude oil. The country’s than 180,000 bbl/d in 2012. As Table 7.2 indicates, the other full conversion refinery is the Port Sudan refinery actual outcome was about 102,000 bbl/d.109 At the end (21,700 bbl/d). The three small topping plants are El of 2012, Sudan brought two new fields into production. Obeid (10,000 bbl/d), Shajirah (10,000 bbl/d), and Abu These fields were expected to reach their combined pro- Gabra (2,000 bbl/d). The Malaysian company, Petro- duction capacity level of 30,000-35,000 bbl/d in 2013. nas, had planned to construct a 100,000 bbl/d refin- However, Sudan’s total production increased to about ery in Port Sudan, but no progress has been reported. 124,000 bbl/d in 2013 and was estimated at about There are no oil refineries in South Sudan. 127,000 bbl/d in 2014 – equivalent to about 27 percent of the pre-secession production level. 7.1.9 Export of crude and petroleum products and domestic consumption. Exports of crude oil be- 109 In the case of Sudan, one metric ton of oil is equivalent to 7.452 barrels of oil.

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Table 7.2: Supply and Utilization of Crude Oil and Petroleum Products in Sudan (In '000 metric tons) Indicator 1990 1995 2000 2005 2010 2011 2012 2013 2014 Crude oil Supply Production - - 8,857 15,250 23,104 14,238 5,019 6,065 6,200 Imports 837 761 ------Sub-total 837 761 8,857 15,250 23,104 14,238 5,019 6,065 6,200 Utilization Refinery use 818 712 1,943 3,464 5,546 2,496 2,523 3,945 4,711 Exports - - 6,622 11,786 17,558 11,742 2,496 2,120 1,489 Discrepancy 19 49 292 ------Sub-total 837 761 8,857 15,250 23,104 14,238 5,019 6,065 6,200 Petroleum products Supply Production 805 706 1,840 3,190 4,442 2,221 2,245 3,511 4,193 Imports 945 713 495 623 522 750 865 1,294 1,468 Stock changes (27) 7 90 ------Sub-total 1,723 1,426 2,425 3,813 4,964 2,972 3,110 4,806 5,661 Utilization Domestic consumption 1,686 1,382 1,725 2,923 4,055 2,274 2,530 4,334 5,176 Energy industry own use - - 37 101 152 78 79 124 125 Exports - - 523 468 473 292 263 108 110 Bunker use 37 41 113 321 285 328 238 240 250 Discrepancy - 3 27 ------Sub-total 1,723 1,426 2,425 3,813 4,964 2,972 3,110 4,806 5,661 Source: Annex Table 7.1.

Table 7.3: Domestic Consumption of Petroleum 7.1.10 During the 1990s, domestic consumption of Products, 2012 petroleum products was relatively stable, with domes- Indicator Amount Share ('000 MT) (%) tic production accounting for about 45 percent of total Transport consumption in this period. With substantial addition- Domestic transport 2,750 63.8 al investment in refinery capacity from 1999, domestic Aviation & marine bunker 238 5.5 production grew rapidly, peaking at about 4.6 million Electric power generation 611 14.2 tons in 2009. At the same time, imports of these prod- Industry & commercial 316 7.3 ucts declined from the higher levels that prevailed in Residental 214 5.0 the 1990s. Driven by increased industrialisation, car Agriculture 66 1.5 Refinery own use 33 0.8 ownership and access to electricity, there has been Other 81 1.9 substantial growth in domestic consumption of petro- Total 4,309 100.0 leum products in the past decade. There was a tem- Memo item porary decline in domestic consumption in 2011-2012, Exports 259 but demand recovered strongly in 2013-2014. With a Source: International Energy Agency database. continued sharp reduction in domestic refining of crude oil, imports of petroleum products have doubled since gan in 1999 and grew rapidly to a peak of 18.5 million 2011. In 2014, imports stood at an estimated 1.5 mil- metric tons during the 2007-2009 period. Exports of lion metric tons. petroleum products also rose rapidly to a peak of about 730,000 metric tons in 2007, after which these exports 7.1.11 As Table 7.3 indicates, the transport sector is have declined steadily, largely because of a sharp de- the largest consumer of petroleum products, account- cline in domestic production of these products. ing for about 70 percent of total domestic consumption

134 | AFRICAN DEVELOPMENT BANK GROUP Table 7.4: Economic Contribution of the Oil Sector (At current prices and exchange rate) Indicator 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Oil exports Crude (US$ million) 1,308 3,948 4,704 8,053 10,846 7,008 9,406 8,378 1,755 1,617 1,091 Petroleum products (US$ 100 239 383 366 249 228 286 301 257 102 163 million) Total (US$ million) 1,408 4,187 5,087 8,419 11,094 7,237 9,692 8,679 2,012 1,719 1,254 Exports as % total 75.5 85.8 87.5 94.6 87.9 89.5 76.3 78.4 39.3 35.9 28.8 exports of goods Exports as % of GDP 10.8 12.2 11.4 15.9 18.6 12.3 13.8 12.4 3.0 2.7 1.9 Oil revenues Oil revenues (US$ million) 548 3,699 4,049 5,403 8,867 4,575 7,518 7,020 1,187 1,352 716 Oil revenues as % total 43.2 61.2 57.0 58.0 68.4 52.5 61.3 58.9 20.0 19.7 9.4 revenue Oil revenue as % GDP 4.2 10.8 9.1 10.2 14.9 7.8 10.7 10.0 1.7 2.2 1.1 Oil sector value added Value added (US$ million) 896 2,652 4,364 5,021 7,969 4,179 6,788 3,474 2,266 1,903 - Value added as % GDP 6.8 7.8 9.8 9.5 13.4 7.1 9.7 5.0 3.3 3.0 - Source: Annex Tables 2.1 and 2.4. in 2012. The next most important consumer, account- percent in 2008. The contribution of oil to government ing for 14 percent of consumption, is the electric power revenues had declined to 9 percent of total revenues sector that generates a substantial portion of electricity in 2014, compared to the peak of 68 percent in 2008. from thermal plants that use fuel oil and diesel. Indus- Moreover, in 2014 the value of oil imports exceeded oil trial, commercial and agricultural activities account for export earnings for the first time since the onset of the about 9 percent of consumption, with residential users oil boom. As Table 7.8 indicates, the oil trade account accounting for about 5 percent. During 2000-2010, to- had a negative balance of US$270 million in 2014. tal domestic consumption grew at an average of 9.3 The industry now faces a range of challenges that will percent a year, while GDP grew in real terms at 6.3 per- shape the manner in which the production of petroleum cent a year. The growth in demand for these products products evolved in the coming years. relative to GDP growth was therefore 1.5 – a multiplier effect that is broadly in line with the experience of other 7.2 Key Challenges Facing the countries. Industry in Sudan

Economic Contribution of the Oil Sector 7.2.1 As the discussion in Chapter 3 indicates, the economy has been dependent on petroleum since the 7.1.12 As the discussion in Chapter 1 indicates, the start of the oil boom in 1999. Fiscal and exchange rate oil boom had a significant economic impact on the Su- policies were heavily influenced by the oil sector. The oil dan economy. The peak of the oil boom was in 2008. sector provided large budget revenues that allowed the At that time, export income peaked at about US$11.1 government to maintain a low tax burden on the non-oil billion, and accounted for about 90 percent of total economy. It also provided the bulk of the country’s for- merchandise exports. Oil revenues for the government eign exchange earnings and allowed the maintenance increased to about 14.5 percent of GDP, and value of an overvalued exchange rate. Sudan faces some key added by the oil industry accounted for 13.4 percent of challenges with the development of the petroleum sec- GDP (Table 7.4). tor during the 2015-2030 period. These uncertainties are related to the following: (i) The international supply 7.1.13 From the 2008 peak period, the importance of and demand for oil and related price prospects in the oil has declined, accelerated by the secession of South near and longer-term; (ii) the prospects for oil and gas Sudan in 2011. By 2014, oil exports were equivalent exploration and production in the decade ahead; (iii) to only 2 percent of GDP, compared with close to 19 the likely growth in domestic demand for oil and gas

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Table 7.5: Projected Average International Price for Sudan Crude (In US$ per barrel) Indicator Actual/estimate Projection 2012 2013 2014 2015 2020 2025 2030 Sudan average crude price In US$ per barrel at current prices 94.6 94.6 87.5 48.4 67.4 94.1 103.9 In US$ per barrel at 2012 constant prices 94.6 93.6 86.9 48.1 61.7 79.2 91.8 World Bank projection for Brent Crude Price per barrel at 2012 constant prices 105.0 103.0 95.4 52.8 67.8 87.0 100.9 Sudan price as % of World Bank price 90.1 90.9 91.0 91.0 91.0 91.0 91.0 Source: Annex Table 7.3. products; and institutional arrangements for the sector. ment in new production. The prospect of low prices in the decade ahead may deter investors from further Oil Prices and Production Costs exploration and drilling in Sudan.

7.2.2 A major concern related to the outlook for the Exploration and Production industry centres on the international price for crude oil. The recent large decline in international oil prices has 7.2.4 As noted earlier, the most recent estimate puts raised serious issues related to the possible implica- the recoverable reserves of crude at about 1.5 billion tions for production in Sudan in the near term and the barrels of oil. There is considerable uncertainty about prospects for the industry in the longer term. These the prospect for new oil discoveries around the existing price uncertainties also have important implications for producing areas and in new areas in Sudan. There is a forecasts of export earnings and government revenues. clear case for expansion of exploration efforts for oil and For the purposes of this Report, the most recent price gas in Sudan. The power sector is an important con- projections (that were released in January 2015) of the sumer of energy, mainly in the form of diesel and fuel World Bank have been used for 2015-25. The average oil. In the absence of substantial increases in genera- export price for Sudan crude oil is discounted in the tion capacities that make use of hydropower and other international market, in part as a result of sanctions. As renewable energy sources (see discussion in Chapter 8 Table 7.5 indicates, the average price of Sudan crude about these options), thermal power generation based oil is projected to be about US$48 a barrel in 2015.110 on natural gas would be a preferable lower cost op- The Ministry of Petroleum has indicated that the av- tion for Sudan. However, at this stage, the natural gas erage cost of crude oil production in Sudan is in the deposits of the country are not being harnessed. The range of US$26 per barrel while the cost of transport gas is either flared or re-injected. And domestic capac- to refineries and ports is in the range of US$6-7 per ities for production of fuel oil are quite limited. If the gas barrel. It would therefore appear that production would reserves of the country could be developed, it would continue in Sudan even at the current low international provide a low cost and relatively low-carbon fuel for prices for crude oil. power generation, industry and households. To facili- tate these exploration activities, the Government may 7.2.3 Based on the World Bank projections, the av- need to review existing contract arrangements related erage price of Sudan crude oil is projected to increase to the discovery and development of the gas resources slowly in the decade ahead, but in real terms, the price and related marketing arrangements. of crude oil would only get back to the 2012-13 levels by about 2030 (at 2012 constant prices). A related is- 7.2.5 If there are no new discoveries of crude oil sue then is the prospects for additional foreign invest- in the near future, there will be a rapid decline in oil production in the decade ahead. In a number of ma- 110 The World Bank released its revised commodity price projections in January 2015. The results can be found on the web site http://econ.worldbank.org under Prospects ture fields, production is already on the decline. Areas for Commodity Markets. The benchmark price used by the World Bank is the average adjacent to existing fields need to be explored more spot price for Brent Crude. The World Bank projections were used for this Report as they were more up-to-date than those of the IMF. The 2014 IMF Country Report for intensely, along with increased attention to exploration Sudan (Report No.14/364 of December 2014) had the average price of US$95.2 per barrel for Sudan crude oil in 2015, declining to US$85.4 per barrel by 2019 (both at in new areas. According to the US Energy Information current prices).

136 | AFRICAN DEVELOPMENT BANK GROUP Administration (EIA), Sudan recently launched bidding gramme, which substantially increased prices for gaso- for blocks that are clearly located within it, along with line, diesel and LPG. The weighted average increase in some offshore acreage.111 these prices was about 68 percent. However, the price increases were followed by mass protests and unrest 7.2.6 Another uncertainty related to the future pro- in Khartoum and nearby cities, resulting in dozens of duction of oil in Sudan concerns the recovery factor civilian deaths. As noted in Chapter 2, the Staff-Moni- for oil from existing and new fields.112 The World Bank tored Programme (SMP) for 2014 concluded with the (2009) reported that the government expected that the IMF. The Government has undertaken to phase out fuel recovery factor for existing fields would be 26 percent. It subsidies by 2017. went on to note that the global average was around 35 percent, and based on government data, an increase Institutional and Other Issues of 5 percent in recovery factors would increase Sudan’s remaining proven reserves by 30 percent. There is a 7.2.9 Comprehensive data about the oil industry is compelling case for maintaining production in existing not readily available to the public or the business com- fields and increasing the recovery factor. According to munity. Given the importance of the sector, there is a the EIA (2013), the Middle East Economic Survey has clear case for regular publication of basic information recently reported that Sudan signed a protocol with about the industry, including reserves, production, con- Norway in 2012 to increase oil recovery rates in ex- sumption and trade. The government will undertake a isting fields from 23 percent to 47 percent. This pro- comprehensive restructuring of the Sudan Petroleum gramme is reported to be a strategy for the longer-term Corporation (SPC) and improve corporate governance that suggests it will be several years before increases in in their operations. This will include production of quar- production are evident. terly reports showing detailed operating accounts and financial statements on the sources of revenues, the Domestic Consumption of Petroleum main expenditure components and the extent and de- Products tails of the financing gap.

7.2.7 A key concern for some time has been the ex- 7.3 Prospects for Oil Production tent of subsidies for fuel purchases in Sudan. The SPC and Exports purchases crude oil at a subsidised price from MoFNE and the China National Petroleum Corporation (CNPC). Alternative Growth Scenarios for the Oil After purchasing the crude, SPC contracts local refin- Sector eries to carry out the processing. It then sells the do- mestically refined and imported fuels to distribution and 7.3.1 The foregoing uncertainties about the pros- marketing companies at subsidised prices set by the pects for the oil sector in the decade ahead means that MoFNE. According to the IMF (2014.a), the fuel sub- there can be a wide range of possible outcomes for oil sidies accounted for about 13 percent of total govern- production, export volumes and earnings and govern- ment expenditures in 2012, and more than 14 percent ment revenues. of expenditures in 2013. Because fuel prices are lower than in neighbouring countries, there is reportedly sub- 7.3.2 Scenarios for production of oil and gas: stantial smuggling of petroleum products from Sudan. For the purposes of this Report, the following scenarios have been considered for the supply of crude oil and 7.2.8 Sudan’s loss of substantial amounts of oil rev- natural gas.113 enue, following South Sudan’s secession, has led the • Base Case: Production in the older fields and country to rethink its fuel subsidies. Sudan initiated a expansion in the activities of the Petrodar Devel- subsidy reform programme in 2011, and in Septem- opment and Operating Company (PDOC) remain ber 2013, it implemented the third phase of the pro- 113 Based on data provided by the Ministry of Energy and Mining (MoEM), the World Bank (2009) set out three scenarios for future oil production in Sudan (This exercise 111 See US Energy Information Administration (2013), Sudan and South Sudan. www.eia. preceded the secession of South Sudan in 2011). These various scenarios did not gov/countries. address the above-mentioned issue of the manner in which steady growth in domestic 112 A recovery factor is the proportion of the total oil contained in a reservoir (field) that is demand for petroleum products would be met, nor did it anticipate the recent large expected to be produced commercially using current technology. decline in the international price of crude oil.

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Table 7.6: Projected Supply of Crude Oil and Petroleum Products and their Utilization, 2012-30 (In '000 metric tons) Indicator Actual/estimate Projection Increase % p.a. 2012 2013 2014 2015 2020 2025 2030 2014-30 Crude oil production and consumption Production 5,019 6,065 6,200 6,401 8,098 10,583 13,832 5.2 Utilization Refinery use 2,523 3,945 4,711 4,868 6,320 8,572 11,612 5.7 Exports 2,496 2,120 1,489 1,533 1,777 2,011 2,220 3.1 Total 5,019 6,065 6,200 6,401 8,098 10,583 13,832 5.2 Production and consumption of petroleum products Supply Production 2,245 3,511 4,193 4,332 5,625 7,629 10,334 5.7 Imports 865 1,294 1,468 1,720 2,674 3,959 5,853 10.1 Total 3,110 4,806 5,661 6,052 8,299 11,589 16,187 7.1 Utilization Domestic 2,530 4,334 5,176 5,538 7,767 10,894 15,280 7.3 consumption Energy 79 124 125 152 197 267 362 6.8 industry own use Exports 263 108 110 100 - - - - Bunker use 238 240 250 263 335 428 546 4.7 Total 3,110 4,806 5,661 6,052 8,299 11,589 16,187 7.1 Composition of supply and utilization (%) Share of crude production Exports of 49.7 35.0 24.0 24.0 21.9 19.0 16.1 crude Refinery use 50.3 65.0 76.0 76.0 78.1 81.0 83.9 Shares of petroleum product supply Imports of 27.8 26.9 25.9 28.4 32.2 34.2 36.2 product Domestic 81.3 90.2 91.4 91.5 93.6 94.0 94.4 consumption Exports of 8.5 2.2 1.9 1.7 - - - crude Other 10.2 7.6 6.6 6.8 6.4 6.0 5.6 Source: Annex Table 7.2.

Table 7.7: Investment Requirements and Growth in Oil Sector Value Added, 2012-30 (SDG millions at 2012 constant prices) Indicator Actual/estimate Projection 2012 2013 2014 2015 2020 2025 2030 Oil investment 2,850 2,550 2,500 2,550 2,700 3,500 4,500 Oil sector value added 8,095 10,306 10,534 10,876 13,759 17,982 23,502 Memo items: Growth in value added (% p.a.) (67.4) 27.3 2.2 3.2 5.5 5.5 5.5 Oil sector investment as % GDP 1.2 1.0 1.0 0.9 0.8 0.8 0.8 Source:Annex Table 3.1, Annex Table 3.2 and estimates by authors.

138 | AFRICAN DEVELOPMENT BANK GROUP Table 7.8: Value of Petroleum Exports and Imports, 2012-30 (In US$ million at current prices) Indicator Actual/estimate Projection 2012 2013 2014 2015 2020 2025 2030 Value of exports Crude 1,755 1,617 1,091 553 893 1,410 1,719 Petroleum products 257 102 163 48 - - - Total 2,012 1,719 1,254 602 893 1,410 1,719 Value of imports Petroleum products 1,052 1,460 1,524 957 2,074 4,284 6,995 Net exports 960 259 (270) (356) (1,181) (2,874) (5,275) Product prices Exports at current prices Crude (US$ per barrel) 95 95 88 48 67 94 104 Petroleum products (US$ per 977 948 1,484 484 - - - mt) Exports at 2012 constant prices Crude (US$ per barrel) 95 94 87 48 62 79 92 Petroleum products (US$ per 977 958 1,496 488 - - - mt) Imports at current prices Petroleum products (US$ per 1,217 1,128 1,038 557 775 1,082 1,195 mt) Source: Annex Table 7.4.

stable. Recovery factors are assumed to increase tic demand for petroleum products will continue to rise modestly in all fields. rapidly. A key issue for the design of the strategy for the • Low Case: A conservative outlook with production oil sector in the decade ahead centres on the manner in mature areas continues to decline in the decade in which the expected continued strong growth in do- ahead. In the absence of major new discoveries mestic demand for petroleum products will, in fact, be of oil, continued growth in domestic demand for met. In the event that there is no significant increase in petroleum products means that oil exports decline the size of the country’s recoverable reserves of crude steadily over the medium and longer-term. With (the above-mentioned Low Case), policy makers and declining production, imports of petroleum prod- potential investors will need to consider several possi- ucts increase more rapidly. ble scenarios for further development of the industry in • High Case: Adds to the Base Case, an increase Sudan: in recovery factors and exploration that brings • Perhaps the most plausible scenario for meet- large new fields on stream in the decade ahead. ing the growing domestic demand for petroleum In this scenario, the additional production flows products is to promote a steady increase in do- into increased exports of crude oil and petroleum mestic refining capacity that makes use of domes- products. Given the prospect of continued low in- tically produced crude. In this case, the volume of ternational prices for crude oil for some years to crude oil exports would decline steadily. Given the come, it would appear that this scenario has a low expected strong growth in domestic demand for probability of being realised. petroleum products, the most plausible scenario is that Sudan would be a net importer of petroleum 7.3.3 Future growth in domestic demand for oil throughout the 2015-30 period. In the event that and gas products: In the event that Sudan is success- domestic production of crude does not increase ful in its efforts to promote private sector-led growth (the above-mentioned Low Case) and there is only and diversification that results in an extended period of very limited development of natural gas supplies to broad-based and strong economic growth, the domes- meet domestic demand for energy, it is likely that

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Sudan would become a substantial net importer of non-oil GDP growth rate is in the range of 5-6 percent petroleum products in the decade ahead. a year as suggested by the Moderate Growth Scenario • Another option is that Sudan continues to export set out in Chapter 2. The share of crude production most of its crude oil to China and other countries that is exported declines steadily from an estimated 54 that have a continuing demand for the product. percent in 2014 to about 39 percent by 2030, with the With somewhat slower growth now expected for domestic market accounting for an increasingly large China at least, it is very likely that the growth in share of the production. crude oil exports would be more modest than in the past decade. In this scenario, there is only lim- 7.3.6 Domestic consumption of petroleum prod- ited further development of the domestic capacity ucts, own use of fuels by the energy sector and bun- for processing locally produced crude oil to meet ker use for the aviation and marine industries increas- domestic demand, in which case imports of pe- es from an estimated 4.0 million mt in 2014 to 11.8 troleum products would meet most of the future million mt by 2030 – equivalent to an average annual growth in this demand. The foreign exchange increase of 6.5 percent a year (Table 7.6). Domestic earned from export of crude oil would be used to consumption accounts for the bulk of the use of petro- meet a portion of the cost of these petroleum im- leum products, with substantial demand coming from ports. the transport sector, and also from energy for power • The third possible scenario is that through some generation. It is further assumed that it will take several combination of improved recovery from existing oil years to increase the existing capacity of oil refineries in fields and new findings of oil and gas, Sudan can Sudan. As a result, the exports of petroleum products continue to export substantial amounts of crude are projected to come to an end in 2017 as output of and or petroleum products, while meeting the the existing refinery capacity is fully absorbed by the growth in domestic demand from domestic sourc- local market. Of course, more rapid growth in domestic es oil and gas. demand, driven by sustained high growth rates in the non-oil economy, cannot be rule out. Such increased The Base Case Scenario demand could be accommodated by further reduc- tions in exports of crude oil, or by increased imports of 7.3.4 For the purposes of this Report, the Base petroleum products. Case scenario for the production of oil has been incor- porated in the analysis. It is assumed that over the next 7.3.7 Implications for growth and investment. 15 years, Sudan will have modest success in bring- Table 7.7 sets out some indicative projections for the ing some new fields into production and that the Nor- growth in value added by the oil sector during the 2012- way-led effort to improve recovery from existing fields 2030 period. Consistent with the above-mentioned as- will be successful. As Table 7.6 indicates, crude pro- sumption about continued growth in oil production in duction is projected to increase from 6.2 million metric the 2014-30 period, modest amounts of investment in tons in 2014 to 8.1 million tons by 2019 and 13.8 mil- exploration and development of recoverable reserves lion metric tons by 2030 – an average annual increase is expected to resume in the decade ahead, along with of about 5.2 percent. This scenario is broadly in line increased investment in recovery from existing oil fields. with the projection for crude production during the Because of the lack of information about the prospects 2014-2019 period contained in the most recent IMF for development of Sudan’s gas reserves, no provision Report for Sudan (Country Report No. 14/364 issued in is made for investment in the development of these re- December 2014). The IMF projected a steady increase sources in the decade ahead. in crude production from 6.2 million metric tons (46.2 million barrels) in 2013 to 7.7 million metric tons (57.2 7.3.8 Implications for the external trade balance million barrels) by 2019. of the oil sector. The foregoing Base Case Scenario developed for this Report has important implications 7.3.5 For the Base Case, it is assumed that domes- for the external accounts of Sudan. Table 7.8 provides tic demand for petroleum products will increase by a summary of Sudan’s external accounts associated about 7 percent a year during the 2014-30 period if the with trade in crude oil and petroleum products. As

140 | AFRICAN DEVELOPMENT BANK GROUP noted earlier, the underlying assumption in the Base US$1.5 billion in 2014 to US$8 billion by 2030. As a re- Case Scenario is that Sudan would continue to export sult, the net value of oil imports increases from US$270 crude oil, while at the same time importing increasing million in 2014 to US$6.2 billion by 2030. amounts of petroleum products to meet the growth in domestic demand. Based on the above-mentioned 7.3.9 A much more detailed analysis of the trade-off January 2015 World Bank projections for the interna- between exporting the crude oil versus channelling it to tional price of crude oil, the nominal value of oil-related an increasingly large domestic oil processing industry exports is projected to increase from about US$1.3 bil- is beyond the scope of this Report, but such analy- lion in 2014 to about US$1.7 billion by 2030. Given the sis would facilitate consideration of the policy options projected growth in domestic demand for oil-related available to the Government. products, the nominal value of imports increases from

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142 | AFRICAN DEVELOPMENT BANK GROUP 8. INFRASTRUCTURE SERVICES: AN AGENDA FOR ACTION

8.1 Current Status of Sudan’s US$4.2 billion per year for a decade. For the decade Infrastructure ahead, this would represent a tripling of the annual av- erage of infrastructure spending to about 7 percent of Overview of the Infrastructure GDP. For the near and medium-term at least, the main challenges for further development of infrastructure to 8.1.1 Sudan has invested heavily in infrastructure in improve broad-based access to quality services are in recent years. Power generation capacity has more than the water and transport sectors, and in mobilising the tripled in the past decade, increasing from about 1,000 large amount of funding required for expansion and up- MW in 2005 to almost 4,000 MW by 2012. In the lon- grade. ger-term, Sudan has the potential to be an exporter of hydropower if additional capacities are developed 8.2 Transport Infrastructure and transmission links to other Nile Basin countries are strengthened. Sudan has made large strides in liber- The Setting alising the ICT sector, and as a result, has attracted significant amounts of private capital. Mobile penetra- 8.2.1 Road transport is said to be the most predom- tion increased from less than 1 percent in 2000 to 74 inant mode of transport in Sudan, accounting for 95 percent by 2012. Recent connectivity to an undersea percent of import/export traffic and 98 percent of pas- fibre-optic cable has led to an expansion in access, im- senger traffic. The predominance of road transport is a provements in quality, and reduction in prices. result of the virtual collapse of the rail and river trans- port modes. Despite having the largest market share, 8.1.2 As Ranganathan and Briceño-Garmendia road transport operations are said to be hampered by (2011) indicate, Sudan’s infrastructure development poor infrastructure in several parts of the country, as has had a predominantly national focus. Thus, a lot well as cumbersome administrative procedures on- more work is necessary to achieve greater regional in- route, especially at border crossing points. Taxes are tegration.114 While internal road corridors in Sudan are levied by the different levels of government, namely, the developed, connectivity with neighbours is largely ab- Federal (Central) Government, the State Governments sent. Sudan has a natural gateway to the sea through and Locality Governments. This inevitability leads to Port Sudan, but the port’s performance is severely high transport costs and high costs of doing business, hampered by long dwell times, high costs, and capac- which curtail production and trade competitiveness. ity constraints. Ranganathan and Briceño-Garmendia Sudanese authorities attribute the decline of rail trans- (2011) indicate that addressing Sudan’s infrastructure port mainly to the sanctions imposed on Sudan, ow- challenges will require sustained expenditures of almost ing to the fact that rail equipment was sourced from western countries enforcing the sanctions.115 It has 114 Ranganathan, Rupa, and Cecilia M. Briceño-Garmendia (2011), Sudan’s Infrastruc- ture: A Continental Perspective. World Bank, Washington DC, Policy Research Work- ing Paper 5815, September 2011. See also, World Bank (2009), Sudan: The Road 115 In the case of Sudan Railways Corporation, American made locomotives (General Toward Sustainable and Broad-Based Growth. World Bank, Washington DC, Decem- Electric) constitute 54 percent of the total fleet of 130 mainline locomotives. German ber 2009. locomotives (Henchel) constitute 30 percent of the fleet, and Indian and Chinese lo-

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144 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 145 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN become difficult to maintain the rail track and rolling atively on Sudan’s regional trade and global trade com- stock due to lack of spare parts. However, competition petitiveness, as it is usually more cost effective and en- from road transport itself could be a major factor in the vironmentally friendlier than road transport. Rail trans- reduction in rail market share. In addition, the worsen- port was previously the preferred mode between Port ing economic situation has resulted in loss of qualified Sudan and Khartoum, and was also the most cost-ef- personnel to other countries, resulting in severe human fective way of moving livestock from remote areas, capacity gaps. River transport operations have been such as Darfur, to the central market in the Khartoum dealt a severe blow by the prevailing security situation area and for export. Therefore, continued deficiencies in both the Republic of Sudan and South Sudan. 116 in transport infrastructure in Sudan will likely curtail pri- vate sector development and job creation. 8.2.2 The road and rail infrastructure connect Khar- toum with Port Sudan on the Red Sea through Atbara, 8.2.5 The transport sector as a whole is still under- with links to the Egyptian border, the eastern side of the going reforms. The Ministry of Transport, Roads and country and the south-western side of the country. A Bridges (MTRB) has the overall responsibility for the large portion of the west and north-west of the country sector, which had hitherto been managed through is almost devoid of transportation infrastructure, prob- semi-autonomous agencies having regulatory roles at- ably on account of the level of economic activities. Rel- tached to MTRB. In the National Transport Master Plan ative to its size, Sudan is said to have a low density (NTMP) of 2010, it was suggested that MTRB be reor- of transport infrastructure, when compared with other ganised either along modal lines (roads, railways, mari- Sub-Saharan African countries. With regard to civil avi- time transport, inland waterways, civil aviation) or func- ation, the key issue is the need to build infrastructure tional lines (including planning, technical and economic that meets ICAO standards, which requires that invest- regulation, implementation, and international agree- ments be focused on air safety related infrastructure ments), each covering several modes of transport. In and essential airports capacity improvements, espe- either case, decision support systems would rely on a cially on the airside (runways, taxiways, and aprons). much expanded transport database. Moreover, such reorganisation may also require that institutions like the 8.2.3 Deficiencies in transport infrastructure often National Highways Authority, Sea Ports Corporation, have a negative impact on the economy by constrain- Civil Aviation Authority, and Sudan Railways Corpora- ing productivity and international competiveness. High tion become fully autonomous. transport costs, as a result of poor infrastructure, can raise production costs and lead to reduced levels of Road Infrastructure and Services production. The performance of the country’s main for- eign trade route that links Khartoum with Port Sudan is 8.2.6 Road transport provides more than 90 percent said to be well below par, in comparison with other port of inland transport services in Sudan. The total road corridors in Eastern and Southern Africa. As with other network is estimated to be about 32,000 km, includ- African countries, Sudan has failed to grow its export ing both paved and unpaved national, state and urban trade even where preferential market access is offered roads. This translates into a road density of about 1.8 by the EU and the USA, largely due to poor infrastruc- km per 100 sq. km of land area – one of the lowest ture and backbone services, transport and logistics in- road densities in all of Africa. About 24 percent of the efficiencies that raise production and trade costs. network is paved. The main internal corridors in Sudan are well developed and generally in good condition, 8.2.4 The inadequate road network, particularly at but they do not extend to many adjacent communities. the state level, is constraining agricultural production, Map 8.1 provides an overview of the existing region- by limiting access to local and regional markets. The al road network that includes road transport links to virtual collapse of may be impacting neg- Egypt, Ethiopia, Eritrea, and South Sudan. Moreover, there are proposals for links to Chad, Central Africa and comotives make up the remaining 16 percent of the total fleet. In 2014, 83 mainline Libya. locomotives were out of service. 116 The countries had formed the Nile River Navigation Company, partly owned by the private sector (70 percent) and partly owned by the two governments (30 percent) and which controlled 80 percent of market share. Due to insecurity, operations were 8.2.7 As noted in Chapter 5, agricultural land is very suspended two years ago.

146 | AFRICAN DEVELOPMENT BANK GROUP lightly used in Sudan, in part because of an inadequate Table 8.1: Existing Road Network of Sudan road network. Sizable parts of the economically pro- (In km) ductive areas are isolated from the markets. Develop- Road National Urban Rural Total category ment of the road network is a necessary precondition Paved 7,165 500 7,665 to exploiting the agricultural potential of the country. Gravel 735 500 3,065 4,300 Sudan has roughly 650,000 sq. km. of land with high Earth & 20,000 20,000 agricultural potential, but 75 percent of it is farmed at tracks only 10 to 50 percent capacity. Total 7,900 1,000 23,065 31,965 Memo items: 8.2.8 Institutional arrangements for the roads Road 0.4 0.1 1.3 1.8 sector. The management of road infrastructure in Su- density per dan is shared between the National Highways Authority 100 km² Source: Ministry of Transport, Roads and Bridges and estimates (NHA) and the state governments. The NHA is respon- by authors for the composition of the urban network. sible for the national highway network that connects major cities and state capitals, while the states are re- sponsible for networks that connect towns and rural been notionally divided between the five sector-offices communities and their links to the national network. mentioned above.

8.2.9 NHA’s functions include: Management of all 8.2.11 The states are responsible for a sizeable national roads and bridges in accordance with the gov- length of the road network connecting state capitals ernment policy; setting technical standards for all road with locality capitals. However, the states are said to construction in the country; giving technical direction have very limited road network management capacity. and advice to the States on roads and bridges adminis- Generally, they do not have the capability to design, tration; and constructing and administering toll stations build, or manage and operate any roads that require on national roads and ensuring appropriate collection detailed engineering design, or that require a pro- of tolls from road users. Besides the headquarters in grammed maintenance management system to ensure Khartoum, NHA has regional offices in Atbara, Nyala, El their design life is optimised. In this regard, the National Obeid, Sinnar and Khashm al Qirbah. Transport Master Plan Study (2010) had proposed that the roles of the states for road network management in 8.2.10 The lack of a recognisable road maintenance the future be limited to the maintenance of local earth and management system was pointed out in the Na- feeder roads and tracks serving remote villages, or col- tional Transport Master Plan study (2010). The study lections of villages, following the urgently required road indicated that although NHA had a department for re-classification exercise that was to be carried out to planning and maintenance programming, it was largely distribute assets and design appropriate management concerned with receiving and collating estimates from systems. The justification for restricting the states to the sector offices and forwarding them individually or minor localised networks requiring only minor mainte- collectively for budget allocation purposes. The study nance works that utilised labour-intensive methodol- further indicated that there was no recognised system- ogies, was that state authorities had limited ability to atic approach to routine or periodic maintenance, and fund major road maintenance works. no obvious evidence of cyclic routine maintenance be- ing carried out. The impetus for maintenance (or more 8.2.12 The National Transport Master Plan (NTMP) correctly, repairs and rehabilitation whenever failures indicated that the main issue for the roads sector was occurred) came from local engineers originally posted how to improve its management, performance and in regional localities as project engineers assigned on sustenance. The NTMP recommended early action on specific road projects. They had remained at the sites a revised system of road classification to distribute as- of original assignments and were utilising the original sets and to design an appropriate road management project offices, now called sector offices, even though system. The introduction a Road Asset Management with reduced facilities. The responsibility for the man- System (RAMS) is essential for sustainability of the agement of the national highway network has therefore network. The findings of this Report support early ac-

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Table 8.2: Projected Growth in Annual Movement of Freight by Road and Rail (In million tons) Indicator Actual Projection Growth rate (% p.a.) 2011 2012 2013 2014 2015 2020 2025 2030 2011-13 2013-2030 Total road and rail freight Road 25.3 26.3 20.1 20.8 21.8 30.5 42.5 59.3 (10.9) 6.5 Rail 1.0 1.1 1.1 1.2 1.3 1.9 2.9 4.4 3.0 8.5 Total 26.3 27.4 21.2 22.0 23.1 32.4 45.4 63.7 (10.2) 7.1 Memo items: Growth in total 2.5 3.0 3.8 5.3 7.0 7.0 7.0 freight (% p.a.) Road as % of 96.2 96.0 94.8 94.5 94.4 94.1 93.6 93.1 total Source: Central Bank of Sudan for 2011-2013 data & estimates by authors for 2014-30 projections tion on this matter. The road re-classification exercise markets. In addition, the poor-quality of roads under- should also facilitate the adoption of a system for trans- mines private sector business opportunities. ferring roads under state jurisdiction to national roads, and vice-versa. Meanwhile the NHA itself is practically a 8.2.14 Road Transport Industry. With regard to department of the Ministry of Roads and Bridges, with cargo flows, 26.3 million tons of cargo moved on Su- limited powers. NHA should be strengthened through danese roads 2012, with freight volumes dropping to appropriate legislation, making it an autonomous insti- 20.1 million tons in 2013 (Table 8.2). Major commod- tution. Furthermore, the lack of capacity of States to ities transported include flour, petroleum products, manage the networks under their jurisdiction should be sugar, cotton, mineral products (salt, chromate, gyp- addressed. sum), cereals (wheat, sorghum, millet), gum arabic, oil seeds (sesame, groundnuts, sunflower), livestock and 8.2.13 Existing road network. Although the road livestock products, fertilizer and construction materials network increased substantially following the oil boom, (including cement). Major road transport corridors in- almost doubling in length, large parts of the country clude: Khartoum-Port Sudan; Khartoum-Kosti; Khar- lacks roads. The total road network was reported in toum-El Obeid-Nyala; Port Sudan--Gedarif. 2012 to cover approximately 32,000 km, of which ap- proximately 7,700 km were paved and 4,300 km were 8.2.15 The cost of moving freight by road in Sudan gravelled. The remaining 20,000 km were earth roads is comparable with the average for Africa. The aver- and tracks. Urban roads totalled about 1,000 km. Be- age tariff between Khartoum and Port Sudan is about ing such a large country, Sudan’s road density is rath- US$0.05 per ton km. er low (1.8 km of road per 100 km2). Whereas nearly 90 percent of the national highways network is paved, 8.2.16 A provisional set of estimates and projections most roads managed by the States are either gravel for freight movements during the 2013-2030 peri- or earth roads, and are largely in poor condition. 117 In od have been prepared for this Report. As Table 8.2 some parts of the country, notably the Darfur region indicates, total land freight carried by road and rail is where only two percent of the network is paved, move- projected to increase to about 64 million tons by 2030 ment becomes almost impossible during the rainy sea- – equivalent to an average annual increase of 7 per- son. Poor-quality roads not only drastically undermine cent a year. As the discussion below indicates, with a the efficiency of transport services, but also curtail pro- successful rehabilitation of the rail network and transi- duction and delivery of social services. Use of agricul- tion to standard gauge lines in the decade ahead, the tural land in Sudan, for example, is said to be quite competitiveness of the railways in hauling bulk freight low, partly on account of inadequate roads that are also is expected to improve. However, the road network is responsible for isolation of rich agricultural areas from expected to continue to account for 93 percent of road

117 The national highway network connects state capitals with the national capital and freight by 2030, compared with 95 percent in 2013. national ports and includes connections with neighbouring countries.

148 | AFRICAN DEVELOPMENT BANK GROUP Table 8.3: Development Program for of this Report, the average cost of road construction National Roads 2015-19 is assumed to be US$600,000. The indicative capital Road program Expansion & or upgrade cost of this programme is US$6 billion. Funding for Total length (km) 4,317 these road projects is being sought. Total cost (US$ million) 3,345.6 Cost per km (US$ '000) 775.0 Railways Source: Annex Table 8.1

8.2.19 Current Status of the Railways Network. Table 8.4: Proposed Roads Program for 2020-30 The Sudan railway is a single line network of 1,067 mm Road program Expansion & New Total gauge and totals 4,180 km. The core network extends or upgrade construction from Port Sudan via Atbara to Khartoum up to Nyala, Length (km) 2,836 7,028 9,864 via Kosti, El Obeid and Babanusa, a distance of roughly Capital cost (US$ million) 2,105 km. Another major line runs from Port Sudan to Feasibility & 19.9 46.4 66.3 Sennar via Kassala, with an extension to Ed Damazine. design Northern branch lines run from Atbara to Construction 1,701.6 4,216.8 5,918.4 (594 km) and Karima to Abu Hamed (225 km). Much Total 1,721.5 4,263.2 5,984.7 of the network was built between 1897 and the 1920s, Cost per km 607.7 606.6 606.7 using 75 and 50 pound rails, which are rather light. The (US$'000) most recent rail extensions built between 1995 and Source: Annex Table 8.2 and estimates by authors. 2012 include the following: (i) A 10 km line linking El Obeid to the oil refinery at Abu Khiraize for transpor- 8.2.17 Ongoing and Proposed Roads Pro- tation of petroleum; (ii) a 14 km line in River Nile State gramme. In a submission to Sudan Office of AfDB from El Ban station to link with cement factories and dated 15th March 2014, the National Highways Author- the ; and (iii) an 18 km line to link Elgaili ity indicated that construction of 7,200 km of asphalt Oil Refinery and the Free Zone at Garey with Khartoum. and 765 km of gravel roads have been completed. Also Map 8.2 provides an overview of the regional rail net- concluded is the rehabilitation of 2,000 km of roads. work in Sudan and South Sudan. Some 4,195 km of asphalt roads are under construc- tion. Roads for which detailed engineering design stud- 8.2.20 There is also a rail connection of some 198 ies have been undertaken total 4,811 km, and those km from Babanusa to the border with South Sudan. still under rehabilitation total 778 km. During the next It continues for another 248 km to the town of Wau. five years (2015-19), NHA’s list of high priority road proj- This line had been rehabilitated after heavy damage ects, including links with neighbouring countries, are as during the past civil conflict. It was reopened in 2010. shown in Table 8.3. Prior to the recent conflict in South Sudan, there had been discussions about the possibility of extending this 8.2.18 For the longer-term, the government plans to Wau branch to and then to connect it with the expand and upgrade 2,836 km of the existing national Ugandan rail network. This would then provide Sudan road network and construct 7,028 km of new roads, with access to the interconnected Eastern Africa rail including 6,533 km of paved roads and 495 km of system, which includes Kenya (African Development gravel roads and construction of 19 new bridges. Ta- Bank, 2013).118 ble 8.4 provides a summary of road projects for which feasibility and engineering design studies are required. 8.2.21 Historically, rail was the dominant mode of The NHA estimates that road construction costs in Su- transport in Sudan. However, degradation occurred dan range from US$350,000 to US$850,000 per km. over most of the old sections of the rail network, lead- Successful implementation of this programme would ing to a reduction in travel speeds and a decline in the ensure access to the highest value agricultural land, volume of passenger traffic and freight carried by rail deepen the reach to other rural areas with high pro- (Table 8.5). Whereas the design speeds of 50-60 kph ductive potential, and bring the primary and second- were already quite low, the deterioration of rail infra- ary road network to good condition. For the purposes 118 See African Development Bank (2013), South Sudan: An Infrastructure Action Plan – A Programme for Sustained Strong Economic Development. AfDB, Tunis, Tunisia, 2013.

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Table 8.5: Key Indicators for Railway Operations, 2000-2013 Indicator 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Railway network 4,599 5,478 5,478 5,478 4,578 4,508 4,508 4,706 4,313 n.a. (km) Passengers (million 205 40 40 40 34 n.a. n.a. 25 18 n.a. passenger-km) Freight (million 1,164 756 766 765 766 n.a. n.a. 925 770 n.a. ton-km) Source: World Bank World Development Indicators database. structure over the past several years resulted in speed countries that have made it difficult in recent years restrictions of 15 to 20 kph.119 The low travel speeds, to import spare parts for locomotives and work- coupled with load restrictions, has resulted in a poor shop equipment. quality of rail service relative to that of road transport. Major maintenance works, such as re-ballasting and 8.2.23 Institutional arrangements for the railways replacement of sleepers, are required. The signalling sub-sector. Sudan Railways Corporation (SRC) is both and telecommunications system for the rail network is the rail infrastructure manager and a provider of rail ser- very old and in need of modernisation. Similarly, the five vices. SRC continues to operate trains. It has also been regional workshops (Atbara, Port Sudan, Khartoum, able to attract seven private rail operators that utilise Kosti, and Babanusa) are said to be poorly equipped, their own rolling stock through payment of track access with old or obsolete machinery. fees. A key policy issue here is to consider making SRC an asset management company and regulator, leaving 8.2.22 In summary, a number of factors have contrib- rail services to be provided entirely by private compa- uted to the decline of this mode of transport. nies on concession basis. Such a policy would have to • Deterioration of the network due to lack of funding be accompanied by appropriate legal and institutional for maintenance and renewal of infrastructure and reforms. rolling stock led to a drop in the level of service. • Expansion of the road network, especially in the 8.2.24 Ongoing programme for rehabilitation and central and eastern parts of the country, led to in- tense competition from road transport industry and Table 8.6: Proposed Investment Program for Railways a decline in the market share of the rail network. (In US$ million at 2012 constant prices) Any competitive edge that the railways might have Program Medium-term Long-term Total had between Port Sudan and Khartoum over road 2014-20 2021-30 2015-30 transport due to a shorter distance, was lost follow- Rehabilitation of 546.1 733.7 1,279.8 ing construction of the road from Atbara to Haya, existing lines Reconstruction - 720.1 720.1 that reduced the road distance between Port Su- of lines to 100 dan and Khartoum by approximately 400 km. kph • Liberalisation of the road freight industry that led to Construction of 1,245.9 138.0 1,383.9 standard gauge acquisition of large fleets of trucks by the private network sector, including large tractor-trailer combinations, Re-equipment 30.0 30.0 capable of carrying two 40ft containers, resulting of workshops Locomotives in most containers imported in Sudan being trans- & other rolling ported by road. stock • Recent civil strife in several parts of the country Signaling 115.0 105.0 220.0 systems that not only damaged the rail infrastructure, but Studies of 6.0 6.0 also affected the production of agricultural com- cross-border modities on which the railways depended. network links Economic sanctions by the US and European Capacity 2.0 1.5 3.5 • building

119 The maximum axle load for heavy locomotives is 16.5 tons. For light locomotives, it is Total 1,945.0 1,698.3 3,643.3 13.5 tons. The maximum curve for main lines is 4°30´ (388 m), while for the sub-lines Source: Annex Table 8.4. is 12° 48´ (137 m).

150 | AFRICAN DEVELOPMENT BANK GROUP upgrade of the rail network. In view of the present Khartoum to Port Sudan, via Atbara, was supposed state of rail infrastructure and the low traffic volumes, to have commenced in 2007, but funding was not the Government will have to consider a number of ini- secured. Nevertheless, the government has an am- tiatives to facilitate a recovery in rail transport, including, bitious plan for the development of a standard gauge for example, revision of investment policy to provide in- rail network in order to revamp rail services. There are centives that may attract private sector investment in a number of arguments in favour of standard gauge, the subsector. The government is determined to see including: (i) The wider availability of locomotives and the revival of this mode of transport, which is better wagons costing 15-20 percent less than the narrow suited for long distance bulky freight, besides being gauge equipment; (ii) the higher -power loco- friendlier to the environment. In order to revitalise rail motives provided by manufacturers that permit opera- services, rehabilitation of important sections of the net- tion of longer and heavier trains, thereby reducing unit work has been undertaken in recent years, beginning costs; and (iii) higher operating speeds that are possi- with the Port Sudan to Khartoum single track mainline, ble, thereby improving the level of service and providing which was rehabilitated as a joint venture between SRC effective competition to road transport. In this regard, and GIAD at a cost of US$350 million. The Babanusa to a number of parallel standard gauge projects had been 63 km mark southbound was also reconstructed under planned, but funding has become problematic, partly a joint venture with GIAD. Rehabilitation of the section as a result of loss of oil revenues. They include: of the mainline network linking Khartoum to Kosti and • Port Sudan to Khartoum New Standard Gauge Babanusa was undertaken following the completion of Parallel Line. A loan agreement was signed by GoS the section from Port Sudan to Khartoum. This partic- and China in 2007 for US$1.2 billion for the con- ular line segment is of great strategic importance as struction of this line. A contract was then signed it provides the only rail access to the branch line at El with a consortium of Chinese firms (TRANSTECH Obeid, where an oil refinery is located. It also provides Engineering Corporation and China Railway In- the link with the western line to Nyala in the Darfur re- ternational) for the construction of the parallel gion. standard gauge line, but the required 10 percent down-payment (US120 million) by the Sudan 8.2.25 Besides rehabilitation of important sections of Government was not met, thereby delaying com- the network, the government has also been investing in mencement of the project. SRC has listed the proj- the procurement of locomotives and other rolling stock, ect as still awaiting funding. mainly from China. These acquisitions include the sup- • Khartoum to Wad Medani New Line. Prior to the se- ply of rails, five new locomotives, 400 bogies and five cession of South Sudan in 2011, the Government rail motor trolleys. The programme also includes reha- of National Unity (GNU) of Sudan and the Govern- bilitation of existing SRC locomotives. (See Annex Ta- ment of India entered into discussions about the ble 8.3 for details.) scope, timing and loan amount needed to realise the project. The required funding was not mobil- 8.2.26 The construction of a standard gauge line from ised as this depended upon the Port Sudan-Khar-

Table 8.7: Freight Traffic Through Port Sudan, 2009-2013 (In metric tons) Category 2009 2010 2011 2012 2013 Export tonnage Containers 631,246 668,991 688,143 668,453 866,662 Cargo 662,365 513,925 443,426 384,345 547,882 Sub-total 1,293,611 1,182,916 1,131,569 1,052,798 1,414,544 Import tonnage Containers 2,082,131 2,649,320 2,560,149 2,670,425 2,751,747 Cargo 5,786,412 5,335,948 4,806,322 4,993,871 5,825,749 Sub-total 7,868,543 7,985,268 7,366,471 7,664,296 8,577,496 Total tonnage 9,162,154 9,168,184 8,498,040 8,717,094 9,992,040 Source: Sea Ports Corporation. Note: These data exclude exports of crude oil.

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toum standard gauge project going forward. 8.2.29 In the medium-term (2014-20), the govern- • Babanusa to Abu Jabra to Nyala Parallel Line. The ment would like to attract funding for the rehabilitation construction of a parallel line linking Babanusa to of the existing lines and for the construction of new Nyala was initiated. A standard gauge line was parallel rails, including the standard gauge. In the lon- considered initially, but was dropped in favour of ger-term (2021-30), the objective of the government the 1,067 mm line. Funding for the first 130 km is to extend the rail network to link with those of the from Babanusa to Abu Jabra was allocated by neighbouring countries in order to promote regional the government, leaving a further section of 205 trade and for the conveyance of transit traffic across km unfunded. The current status of this project is the borders. The required investments related to these not clear in view the financial problems facing the objectives are estimated to be about US$3.6 billion for government. The line is of great importance to the 2014-2030 as a whole (Table 8.6). eventual reintegration of the agriculturally rich Dar- fur region with the rest of the country. Ports • Babanusa to Wau in South Sudan. Prior to the se- cession of South Sudan, the World Bank had spon- 8.2.30 Current status of port infrastructure and sored a study to assess the viability of putting to- services. Sudan has several ports along its 850 km gether a Public-Private Partnership to reconstruct coastline on the Red Sea. These ports provide services the line to Wau with private sector participation for Sudan, as well as nearby landlocked countries, and financing. However, following the secession of including Chad, Central African Republic and South South Sudan, the future of this project is not clear. Sudan. Except for the Bashyer Petroleum terminal op- erated by the Ministry of Energy, the Sudan Ports Cor- 8.2.27 In addition to the above rail projects, the Gov- poration runs all ports on the Red Sea, namely Port ernment of Sudan intends to develop standard gauge Sudan, Marsa Halaib, Marsa Oseif, Muhama Goal, rail links with the neighbouring countries of Egypt, Er- Marsa Salak, Marsa Fijab, El Khair, Sawakin, Trinkitat itrea, Ethiopia, Central African Republic and Chad. The and Agig. Currently, most of the ports have adequate proposed standard gauge lines include: infrastructure and are operating below capacity. For ex- • Atbara/Abu Hamed/Wadi Halfa (Egypt border) - ample, Port Sudan, which is the main port where most 630km; maritime activities take place, has an installed through- • Nyala/Geneina/Adri (Chad border) – 350km; put capacity to handle 1.2 million twenty foot equiva- • Nyala/Um Defoug/Biro (CAR border) – 280km; and lent units (TEUs), but in 2013 it handled only 449,800 • Al Azara/Abdalrafi (Ethiopia border) – 765km TEUs, implying that the terminal operated at only 35 percent of available capacity. The old and new contain- 8.2.28 Economic viability and engineering design er terminals have a combined terminal area that can studies of these proposed lines are yet to be car- hold a total of 39,000 TEUs. The old container terminal ried out. However, preliminary estimates put the cost has a draft of 12 metres and a quay of 420 metres, of construction in the range of US$3,024 million to while the new container terminal has a draft of 16 me- US$5,033 million for design speeds of 120 kph and tres with a quay of 780 metres. Both terminals are ei- 160 kph, respectively. The position taken in this Report ther equipped with Panamax or Post-Panamax gantry is that priority should be given to rehabilitation of the cranes. The old container terminal operates four Sea to existing network to restore design speeds of 60 kph Shore Gantry (SSG) cranes and 15 Rubber Tyre Gantry and subsequently upgrade the network to standard (RTG) cranes, while the new container terminal oper- gauge. This would have to be accompanied by appro- ates four SSGs and eight RTGs. Port Sudan also has priate policy, legal and regulatory measures to attract a good terminal operating system. However, there are private investment into the rail sector. In the meantime, no interfaces with other key government institutions, studies of the economic and commercial viability of such as the Sudanese Customs department, or with the proposed standard gauge links with neighbouring systems of the business community using the port. A countries could be undertaken. As Table 8.6 indicates, single window system, incorporating port clients and an amount of US$6 million is proposed for these stud- the customs authorities would be ideal. ies.

152 | AFRICAN DEVELOPMENT BANK GROUP Table 8.8: Proposed Performance Indicators for Sudan Sea Ports, 2015-19 Indicator 2015 2016 2017 2018 2019 Value of performance indicator No. of container vessels 376 402 434 473 520 Total freight handled (mill tons) 14.4 15.4 16.6 18.1 19.9 Containers ('000 equivalent containers) 474 507 547 596 656 Livestock exports (million head) 4.2 4.5 4.9 5.3 5.8 No. of passengers ('000) 328 351 379 413 454 Annual increase (in percent) No. of container vessels 6.0 6.9 8.0 9.0 9.9 Total freight handled (mill tons) 6.0 6.9 7.8 9.0 9.9 Containers ('000 equivalent containers) 6.0 7.0 7.9 9.0 10.1 Livestock exports (million head) 6.0 7.1 8.9 8.2 9.4 No. of passengers ('000) 6.0 7.0 8.0 9.0 10.0 Source: Sea Ports Corporation.

Table 8.9: Proposed Priority Investments for Maritime Sub-Sector 8.2.31 The capacity for general and containerised (In US$ million at 2012 constant prices) cargo at Port Sudan has undergone three phases of Project Medium-term Long-term Total upgrades. Between 1980 and 1982, capacity was ex- 2014-20 2021-30 panded from 3.5 to 5 million tons. In the 1982-86 peri- New livestock and 100.0 400.0 500.0 od, capacity was expanded to 8 million tons, and since fisheries terminal near Sawakin Port 1989, it has been expanded to 11 million tons. New passenger terminal 42.0 42.0 at Sawakin Port 8.2.32 Actual traffic for the period 2009-2013 indi- Iron ore terminal at Osief 30.0 30.0 cates a marginal increase from 9.2 million tons in 2009 Port Saloom inland container 200.0 200.0 400.0 to 10.0 million tons in 2013 – an increase of only 9 port (ICD) percent over the five-year period (Table 8.7). The very Rehabilitation of Digna 30.0 30.0 modest growth in freight stems from the fact that the Port volume of general cargo has declined during this pe- Capacity building 7.5 10.5 18.0 riod. In the case of container traffic, however, there Total 409.5 610.5 1,020 was a 33 percent increase in throughput at Port Su- Source: Annex Table 8.5. dan during the 2007-2013 period. This increase has created serious port congestion problems, adding to observed in several parts of Africa. Even though port delays to the movement of freight. According to the fees are lower than in other African ports, inefficiencies World Bank (2011), Port Sudan was already operating in port operations are a major deterrent to increased at 80 percent of capacity by 2010, a level of operations usage of the port. that contributes to the problem of congestion. While improved efficiency in port operations can moderate 8.2.34 The below-par performance of Port Sudan these problems, it is clear that substantial additional stems from a number of operational challenges. First capacity will be required at Port Sudan. and foremost, economic sanctions against Sudan have made it increasingly difficult to acquire spare parts for 8.2.33 One of the immediate priorities is to improve various types of port equipment. The sanctions have the efficiency of port operations. Compared to regional also been linked with the high cargo dwell time at the benchmarks, container dwell time of 27 days at Port port, as the scarcity of foreign exchange, partly a con- Sudan is more than four times that of global best prac- sequence of economic sanctions, is a major impedi- tices and among the worst in Sub-Saharan Africa. Truck ment to traders wishing rapid clearance of cargo from cycle times for receipt and delivery of cargo at Port the port. Second, constraints on capacity utilisation Sudan are 24 times higher than global benchmarks, imply lower revenue earnings, and when coupled with and crane productivity is less than a third of what is fixed overhead costs, results in limited disposal income

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Table 8.10: Passenger and Traffic Forecasts for Major Airports Indicator Existing Actual Projected capacity 2007 2011 2016 2021 2026 2031 Passenger traffic ('000) Khartoum 1,987 1,826 2,342 3,653 6,067 9,178 12,959 Other airports 1,210 516 650 931 1,399 2,109 3,033 Total 3,197 2,341 2,992 4,583 7,466 11,287 15,992 Freight ('000 mt) Khartoum 79 79 100 143 190 256 Other airports 21 19 15 12 14 18 Total 101 98 115 156 205 274 Freight per 43 33 25 21 18 17 passenger (kg) Source: Annex Table 8.6 and Annex Table 8.7. for implementation of development plans. Third, unless under suitable PPP arrangements. Already, a part of the rail infrastructure between Port Sudan and Khar- Port Sudan (Southern Port) is under a management toum, together train services, can improve substantially contract with a Malaysian firm, International Contain- in the immediate future and Port Sudan-Kassala-Sen- er Terminal Services Inc. The Sea Ports Corporation nar railway line revived, there will be an urgent need to would also have to be restructured in accordance with upgrade the road links with the port. For example, the its new mandate. Sea Ports Corporation cited the urgent need to widen the Port Sudan-Haiya road (203 km) to become a dual 8.2.36 Furthermore, there is a need for legal and reg- carriageway with two lanes either side. The power sup- ulatory reforms. An Act of Parliament establishing the ply to the port was also said to be problematic, hence Sea Ports Corporation as an autonomous corporate affecting operations. Last but not least is the issue of body is required. Appropriate legislation is also need- human capacity and training. As discussed earlier in ed for the establishment of a Maritime Institute for the this Report, the deteriorating economic situation in development and retraining of personnel on maritime the past decade led to the departure of more qualified affairs. personnel for offshore employment opportunities, with those remaining on the job requiring training or retrain- 8.2.37 Projections of port performance indica- ing. However, according to the World Bank (2008), the tors. According to the National Transport Master Plan Sea Ports Corporation (SPC) acknowledges that its (2010) that was drawn up in the latter part of the 2000s, container port was overstaffed by some 7,300 workers projections for Port Sudan indicated that traffic growth in the mid-2000s.120 for all commodities would increase from about 25 mil- lion tons in 2009 to about 72 million tons in 2030.121 8.2.35 Institutional arrangements for the mari- The forecasts had predicted a significant increase in time transport sub-sector. The Sea Ports Corpora- exports from year 2009 to year 2015, mainly due to tion is still essentially a department within the Ministry increase in cement exports (13 times the 2009 level), of Transport, Roads and Bridges. A draft law to make and exports of refined sugar, which was projected to the Sea Ports Corporation an autonomous institution increase by 17 times over the same period. In addition, is currently under consideration and needs to be fast exports of cereals, such as sorghum and millet, and tracked. The position taken in this Report is that the exports of other agricultural products, such as ground- proposed law should make the Corporation a landlord nuts, were also projected to increase tremendously. institution that will take ownership of assets of the sea However, stagnation of the total volume of exports was ports. Actual management of these assets, as well as forecast for the 2015-2030 period due to a decrease in port operations, could be contracted to private firms crude oil exports.

120 World Bank (2008), “Revitalising Sudan’s Non-Oil Exports: A Diagnostic Trade Integra- tion Study (DTIS),” Prepared for the Integrated Framework Programme, World Bank, Washington DC. 121 National Transport Master Plan (2010).

154 | AFRICAN DEVELOPMENT BANK GROUP 8.2.38 Whereas the traffic projections seem to in- project is estimated to cost US$100 million out of dicate that Port Sudan would run out of capacity by the total estimated cost of US$500 million; 2020, this may not be the case, following the recent • A passenger facility at Sawakin Port with a holding economic downturn and the secession of South Su- capacity of 3,000 passengers,122 estimated to dan. The latter is seeking to develop other transit routes cost US$42 million; through Kenya or Ethiopia and Djibouti, which is bound • Construction of new berth at Osief Port, 260km to have a negative impact of the traffic forecasts. De- north of Port Sudan, for handling iron ore and oth- spite the potential loss of cargo business to and from er metal exports. The facility would be 320 metres South Sudan, the Sea Ports Corporation is optimistic long, 16/20 metres deep, and capable of handling that transformation of the national economy, coupled vessels of 70,000-100,000 dead weight tons, with with growth in transit traffic from other countries, no- estimated project cost of US$30 million; tably Eritrea and Ethiopia, will lead to increased traffic. • Saloom Inland Container Depot, to be located 8 km SPC has therefore elaborated a five-year medium-term south-west of Port Sudan. The total area is 12,000 plan, the objective of which is to increase growth rates square metres, capable of holding up to 75,000 from a target of 6 percent in 2015 to 10 percent by TEUs. Total project cost is estimated at US$400 2019, as summarised in Table 8.8. million, to include land preparation and handling equipment. It is aimed at easing pressure on the 8.2.39 In addition to these performance indicators, storage and capacity and custom area at the sea the SPC has earmarked on a number of priority proj- port; reducing the waiting time for goods at the ects, for which private sector participation is required. sea port and thus increasing the accommodating They include the following: capacity of the port; securing large space for the • Construction and operation of the livestock and storage of goods and for containers and providing fisheries terminal at Sawakin port. The facility all logistical services relating to the ICD; and would be 600 metres long and 12 metres deep, to • Rehabilitation of the Digna port at an estimated include water systems, a butchery unit, veterinary cost of US$60 million. The work calls for complet- unit, refrigeration and access roads. Phase I of the 122 Sawakin Port is important for handling pilgrims to Mecca during the Haj.

Table 8.11: Capital Development Program for Civil Aviation (In US$ '000 at 2012 constant prices) Category 2010-16 2017-21 2022-26 2027-30 Total Airport infrastructure Existing airports Khartoum 41,466 23,305 32,004 102,423 199,197 Other airports - Sub-total 64,678 40,845 41,769 123,771 271,063 New airports Khartoum n.a n.a. n.a. n.a. n.a. Zalingei & Ed n.a 61,966 24,760 8,760 95,486 Daein Sub-total - 61,966 24,760 8,760 95,486 Total airport 64,678 102,811 66,529 132,531 366,549 infrastructure Air navigation system 16,000 10,000 10,000 10,000 46,000 Capacity building Training programs 6,300 4,300 4,300 4,300 19,200 Civil aviation master 1,100 500 750 500 2,850 plan Institutional 6,600 3,000 3,000 3,000 15,600 development Total 14,000 7,800 8,050 7,800 37,650 Grand total 94,678 120,611 84,579 150,331 450,199 Source: Annex Table 8.9.

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ing the construction of the two berths and prepar- structure. The key issue relating to infrastructure is the ing the land and operational equipment as well need to build facilities that meet ICAO standards. This as preparing the container handling and storage requires that infrastructure investments be focused area at the back of the berth covering an area of on air safety and essential airports capacity improve- 200,000 square meters. ments, especially on the airside (runways, taxiways, aprons, etc.). The other key issue is to ensure that the 8.2.40 In addition to the above projects, there will be CAA has the necessary human and financial resources need to establish a corridor management structure for to perform its functions. Port Sudan to facilitate the movement of goods and vehicular traffic along the corridor and to simplify docu- 8.2.43 Institutional arrangements for civil avia- mentation and procedures. tion. The Sudan CAA is currently supervised by the In order to meet the projected traffic demands, the Sea Office of the President. An organisational issue here is Ports Corporation has prioritised a number of invest- whether to put CAA under the Ministry of Transport or ments as summarised in Table 8.9, as well as a ca- to create a separate Ministry of Aviation. Another is- pacity building programme. The SPC encourages pri- sue is how to increase funding for the CAA to enable vate sector participation in these investments. The total it to build infrastructure, including NAVAIDS that meets cost of the proposed investments is US$1,020 million ICAO standards. Options that CAA should explore for at 2012 constant prices, with US$410 million proposed increasing its CAA revenue include: (i) Increasing tariffs, for 2014-2020 and the balance of US$610 million to be such as aircraft landing fees; and (ii) pursuing PPPs for spent during the 2021-2030 period. the development and management of airports.

Civil Aviation 8.2.44 There is a lack of regulatory oversight in the air transport sector. A number of small, domestic carriers, 8.2.41 Being a very large country with low density registered generally as charter airlines, are operational. and dispersed population, civil aviation plays a vital role They do not report information to a booking or ticket in Sudan. As noted in the foregoing discussion, land sales agency. Such operators, especially in countries transport infrastructure is not evenly developed, leaving with poor oversight, pose air safety problems as they large parts of the country without reliable road connec- operate aircraft maintained on minimal budgets, with tions. Sudan has also developed a strong international maintenance crew and pilots whose skills may not be gateway for air transport in Khartoum. consistent with international standards.

8.2.42 Current status of the civil aviation 8.2.45 Existing and projected airport traffic. Over- sub-sector. With regard to airport infrastructure, there all traffic in Sudan has increased, largely driven by inter- are 10 main airports in Sudan, namely: Khartoum In- continental traffic. Table 8.10 provides information on ternational Airport; Nyala, El Fasher and El Geneina in actual traffic at major airports in 2007, and projections Darfur region; El Obeid in Northern Kordofan; Dongola of traffic that were prepared for the National Transport in the Northern State; Ed Damazin in Blue Nile State; Master Plan (2010).123 In the case of passenger traffic, Kassala in Kassala State; Kadugli in Southern Kordo- a number of airports, such as, Khartoum, Port Sudan, fan; and Port Sudan in Red Sea State. Existing air con- Nyala and El Fasher have high traffic forecasts, as they nectivity in Sudan is largely oriented toward the Mid- are expected to continue to handle both domestic and dle East and Egypt, with Addis Ababa being the main international passengers. On the other hand, airports connection point with the rest of Africa. Following the providing mainly domestic services, such as, Damazin, liberalisation of the air transport industry in the 1990s, El Obeid and, Kadugli, have negative traffic forecasts. the main issues of concern for the government are the The main reasons for this negative forecast are the im- provision of reliable air navigation and airport facilities, provements of road infrastructure and expected ces- and effective safety, security regulations and economic sation of UN operations in the near future, particularly regulations. The Sudan Civil Aviation Authority (CAA) is the sub-sector regulator, and is also responsible for 123 The Sudan Air Company has made available projections for growth in capacity, pas- senger traffic and freight for the period 2015-2019. See Annex 8 for details. The pro- the provision of air navigation services and airport infra- jections for passenger traffic and freight would account for about 16 percent and 14 percent of the respective totals set out in Table 8.10.

156 | AFRICAN DEVELOPMENT BANK GROUP Table 8.12: Access of Population to Electricity (In GWh) Indicator Actual and estimates Projections 2000 2010 2011 2012 2013 2015 2020 2025 2030 Population ('000) Urban 9,011 11,794 12,106 12,416 12,726 13,393 15,575 18,220 21,393 Rural 18,719 23,858 24,325 24,779 25,238 26,220 28,924 31,456 33,685 Total 27,730 35,652 36,431 37,195 37,964 39,613 44,499 49,676 55,078 Population with access to electricity Share of population (%) Urban n.a. 64.1 63.7 66.4 68.7 70.0 80.0 90.0 100.0 Rural n.a. 22.0 22.0 22.3 22.5 24.7 33.8 50.5 67.3 Total n.a. 35.9 35.9 37.0 38.0 40.0 50.0 65.0 80.0 Number of persons ('000) Urban n.a. 7,564 7,709 8,249 8,748 9,375 12,460 16,398 21,393 Rural n.a. 5,249 5,351 5,513 5,679 6,470 9,789 15,891 22,670 Total n.a. 12,813 13,061 13,762 14,426 15,845 22,250 32,289 44,062 Consumption (kwh) Per connected person n.a. 307 334 283 323 360 400 450 500 Per connected n.a. 1,903 2,039 1,699 1,907 2,052 2,080 2,295 2,500 household Source: Sudan Electricity Distribution Company, Annex Table 1.1 and estimates by authors. around El Obeid. Khartoum, Nyala and El Fasher had its taxi-lanes, and aircraft positions. The location been forecast to operate well above their installed pas- and number of exits limit runway capacity, while senger terminal capacities by 2011. Port Sudan was the apron geometry does not allow the circulation forecast to surpass the passenger terminal capacity by and operation of certain types of aircraft due to the 2021. Airports like Dongola, Damazin, El Obeid Kadug- distance of the apron from taxi-lane to the parked li and Kassala were not expected to surpass their in- aircraft. stalled passenger terminal capacities even by 2031. As • Khartoum, El Fasher and Nyala airports require ex- Table 8.10 indicates, the growth in cargo is essentially tension of the passenger terminal facilities to meet driven by passenger growth as the volume of cargo is existing and future demands as depicted in Table projected to decline from 43 kg per passenger in 2007 8.11. to 17 kg per passenger by 2013. Due to lack of data, it was not possible to establish the actual trends for 8.2.47 Besides the terminal building facilities, the 2007-13. most critical factor at airports in Sudan concern com- pliance with international standards as set by the Inter- 8.2.46 In terms of airport capacity, the main concerns national Civil Aviation Organisation (ICAO). The facilities identified in the NTMP were: that need improvement include the runway length to • The unsatisfactory runway length at Port Sudan, accommodate the most critical aircraft design, runway Dongola, Khartoum, El Fasher, El Obeid and Nyala. exits and apron manoeuver area, as well as communi- Whereas the runway length at these airports were cation and navigation systems. Table 8.11 summarises said to be sufficient for aircraft operations at the investment requirements in the civil aviation subsector time NTMP preparation, the most demanding air- for the short-term, medium-term and the long-term craft in terms of runway length requirements would as provided for in the National Transport Master Plan be forced to take-off with restricted take-off weight (2010) and the CAA. in terms of payload and fuel. • The most critical element at the Khartoum airport 8.2.48 The estimates for new investment have been was the airport geometry; comprising runway ex- adjusted to cover the period 2014-2030. Investments

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Table 8.13: Consumption of Electricity in Sudan (In GWh) Indicator Actual and estimates Projections Increase (% p.a.) 2000 2010 2011 2012 2013 2015 2020 2025 2030 2013-30 Consumption Households 3,932 4,365 3,896 4,663 5,704 8,900 14,530 22,031 9.6 Commercial/ industrial 1,815 2,015 3,327 3,529 4,185 7,711 14,208 26,177 12.4 Agriculture 302 336 387 413 464 621 831 1,112 6.0 Total 2,170 6,049 6,715 7,610 8,605 10,353 17,232 29,569 49,320 10.8 Memo items: National consumption 78 170 184 205 227 261 387 595 895 8.6 per capita (kWh) Population (million) 27.7 35.7 36.4 37.2 38.0 39.6 44.5 49.7 55.1 2.2 Source: Table 8.14 for supply data and total consumption, and estimates by authors. amounting to US$153.3 million in airport infrastruc- development of river transport. The number of buoys ture, navigation systems and capacity building will be and navigation sign boards installed along the river is required during the period 2014-20, while another insignificant. Operators rely on their knowledge of the US$201.4 million will be required for these activities river characteristics at different locations to avoid and during the 2021-2030 period. The new Khartoum Air- pitfalls along the navigation. Companies are increasing- port is not included in these estimates. ly using new technologies, such as Global Positioning System (GPS), satellite phones and high frequency ra- River Transport dios, to track barge movements. Main difficulties relate to passage through narrow points, sometimes in be- 8.2.49 For many years before the secession of South tween rocks, sharp bends and flood plains that hide Sudan in 2011, the White Nile provided a means of the main channel. The main bottleneck is the narrow transport for freight and passengers in the greater section with sharp bends between Mongala and Juba. Sudan. After the secession of South Sudan, the river There are also hazards in the form of unmarked rocks, services of Sudan were privatised. The Nile River Trans- wrecks, silt build-ups, shoals, water hyacinth growth, port Co. was established, along with the River Naviga- and siltation, especially near ports. Risks increase tion Authority. Further work is required to determine the when water level is low, sometimes dropping below 1m investment requirements for full development of these in a very low yearly discharge, notwithstanding the re- river services. lated limitation in terms of boat draught.

8.2.50 Commercial transport services are fairly regu- 8.2.52 Sudan reported that the volume of freight car- lar on the barge route known as the “Southern reach” ried by river transport amounted to about 114,000 met- of the White Nile, which stretches from Kosti to Juba ric tons in 2010. But following the secession of South (1,436 km), through El Renk, , Shambe, Diam Sudan in 2011, the river transport system declined Diam, Bor and Mongala. The water level slope between substantially. The Central Bank of Sudan (2014) reports Juba and Bor is relatively steep, resulting in river flow that only 1,000 tons of freight was transported in 2012 velocities of some 2 to 3 m/s. Between Malakal and and 2,000 tons in 2013. Passenger traffic was reported Kosti, water level slopes are very mild and the flow ve- to be only 1,500 persons in 2012. While there was no locity of the river is very low, around 0.5 to 0.7 m/s on passenger traffic reported for 2013. For the purposes average. In addition, river services are provided on a of this Report, the future scope for rebuilding the river number of the other waterways in Sudan, including the transport system has not been investigated in detail. Kosti/Khartoum/Berber line, the Wadi/Halfa/Akasha/ One of the priorities is to obtain up-to-date informa- Dongola line, and the Dongola/Kharima line. tion about the volume of river services being provided on each of the routes. This would require installation of 8.2.51 River conditions and lack or inadequacy of traffic monitoring arrangements at each of the major navigation aids are significant impediments to effective ports.

158 | AFRICAN DEVELOPMENT BANK GROUP Table 8.14: Generation Capacity and Electricity Supply in Sudan Indicator 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Installed capacity (MW) Hydropower 995 995 995 995 995 2,245 2,245 2,245 2,245 3,765 Thermal power n.a. n.a n.a 1,566 1,566 1,566 1,566 1,566 1,538 1,538 Off-grid thermal plants n.a. n.a n.a 126 130 135 140 140 140 140 Total n.a. n.a n.a 2,687 2,691 3,946 3,951 3,951 3,923 5,443 Available capacity Hydropower Thermal power Off-grid thermal plants Total 293 437 516 573 629 741 884 982 1,085 1,211 Electricity supply (GWh) Hydropower 1,183 1,261 1,370 1,451 1,463 3,228 6,199 6,466 6,619 8,317 Thermal power 1,386 2,565 3,151 3,570 4,043 3,263 1,548 2,134 2,816 1,970 Off-grid thermal plants Imports from Ethiopia 74 320 Total supply 2,569 3,826 4,521 5,021 5,506 6,491 7,747 8,600 9,509 10,607 Losses 399 784 1,045 1,177 1,207 1,423 1,698 1,885 1,899 2,002 Available supply 2,170 3,042 3,476 3,844 4,299 5,068 6,049 6,715 7,610 8,605 Memo items: Available capacity as % of total n.a. n.a n.a 21.3 23.4 18.8 22.4 24.8 27.7 22.5 Hydropower capacity as % of n.a. n.a n.a 37.0 37.0 56.9 56.8 56.8 57.2 69.2 total Losses as % supply 15.5 20.5 23.1 23.4 21.9 21.9 21.9 21.9 20.0 18.9 Source: Table 8.13, World Bank development indicators, and estimates by authors.

8.3 Electric Power and Energy from deep and shallow wells to provide drinking water and irrigation through the use of wind pumps. There Overview of the Energy Sector is also an active co-generation industry in Sudan, with installed capacity estimated at 56 MW in sugar facto- 8.3.1 Sudan’s total primary energy production in ries, mainly for their own use. There are plans to further 2009 amounted to 15,815 Ktoe,124 68 percent of which expand cogeneration in sugar production with more was biomass. Hydro made up two percent, with crude advanced plant equipment. In addition, plans are cur- oil and products accounting for the balance. The high rently being developed to use an agricultural pest, the proportion of biomass is due a large population located Mesquite shrub, for household energy production. in rural areas with little or no access to the electricity grid that relies heavily on biomass to meet heating and 8.3.3 Geothermal potential is estimated at 400 MW cooking needs. of power generation capacity. Potential geothermal fields have been identified near the Jabel Marra volca- 8.3.2 The renewable energy resources of the coun- no, the Tagbo and Meidob hills, the Bayud volcanic field try that are of particular interest for the power sector and the Red Sea coast. The potential for hydropower include solar and wind energy, biomass, hydropower is estimated to be in excess of 6,000 MW. However, and geothermal energy. Average solar radiation in the with the recent completion of the Merowe and Roseires country is roughly 6.1 kWh/ m²/day, indicating a high dams, about 60 percent of this potential has already potential for solar energy use. In the case of wind, av- been developed. There are more than 200 suitable erage wind speeds are estimated at 3-6 m/s, with high- sites for the use of in-stream turbines along the Blue er speeds recorded along the Red Sea coast. Wind Nile and the main Nile. The total potential of mini-hydro is currently used for pumping water is estimated to be 67 GWh/year for the southern region

124 A ton of oil equivalent (toe) is the amount of energy released by burning one ton of of the country. crude oil. It is equivalent to 4.2 Gigajoules.

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Table 8.15: Projected Increase in Power Generation, 2013-2030 Indicator Actual Projected Increase (% p.a.) 2012 2013 2015 2020 2025 2030 2013-2030 Installed capacity (MW) Hydro 2,245 3,765 Thermal 1,538 1,538 Other 140 140 Total 3,923 5,443 6,000 6,150 7,450 11,025 4.2 Available capacity (MW) Hydro Thermal Other Total 1,085 1,211 1,441 2,460 4,098 6,615 10.5 Electricity supply (GWh) Total supply 9,509 10,607 12,625 21,550 35,894 57,947 10.5 Losses 1,899 2,002 2,273 3,663 5,025 5,795 6.7 Available 7,610 8,605 10,353 17,886 30,869 52,153 11.2 supply Consumption Domestic 7,610 8,605 10,353 17,232 29,569 49,320 10.8 Surplus/deficit - - - 654 1,300 2,832 - Total 7,610 8,605 10,353 17,886 30,869 52,153 11.2 Memo items: Losses as % of 20.0 18.9 18.0 17.0 14.0 10.0 supply Capacity 27.7 22.5 24.0 40.0 55.0 60.0 utilization (%) National 205 227 261 387 595 895 8.4 consumption per capita (kwh) Source: Table 8.14 and estimates by authors.

Access to Electricity and Consumption 2010, with the urban population enjoying greater ac- in Sudan cess (64 percent) at that time. Most of the rural com- munities do not have access to electricity. The Sudan 8.3.4 Current Levels of Access and Consump- Electricity Distribution Company (SEDCO) estimates tion. Electricity consumption in Sudan has risen that only 22 percent of the 25 million people who live steadily over the past decade, rising from 1,771 GWh in rural and isolated communities have access to elec- in 2000 to 8,665 GWh in 2013, with household con- tricity. The remaining 20 million people largely depend sumption accounting for approximately 54 percent of on biomass to meet their energy needs. Table 8.12 electricity use in the country in 2013. Industrial and provides estimates of recent trends in household ac- commercial consumption is estimated to account for cess to electricity in Sudan. It is estimated that about 30 percent, while the remaining 5 percent is attributed 14 million people (38 percent of the population) had to agriculture. It is estimated that over 60 percent of all access to electricity in 2013. However, there are large the electric power generated is consumed within Khar- disparities in power access within Sudan. For example, toum area. apart from Khartoum, access in the Northern, Eastern and Central regions has been reported to be 25, 17 8.3.5 Survey data for 2010 indicates that about 36 and 16 percent respectively. In the case of the Darfur percent of the population had access to electricity in region, access to electricity is below 5 per cent, as the

160 | AFRICAN DEVELOPMENT BANK GROUP Table 8.16: Capital Cost of Transmission Line Expansion, 2014-31 Transmission Length Capital cost (US$ million) Cost per 8.3.7 Household consumption of electricity is esti- line km mated to account for about 65 percent of total con- (km) 2014-20 2021-31 Total (US$'000) sumption at the present time. The current low levels of KV specified access to grid-based power in Sudan retard business 500 KV lines 1,760 67.0 910.0 977.0 555 activity. Because of the erratic supply and high reliance 220 KV lines 4,194 1,206.8 1,249.2 2,456.0 586 on backup generators, industrial and commercial con- 110 KV lines 483 340.9 340.9 706 sumers account for only about 30 percent of electricity Sub-total 6,437 1.273.8 2,500.1 3,773.9 586 utility consumption. Consumption of power for agricul- KV 257.7 243.0 500.7 unspecified ture and other uses is around 5 percent. By way of con- Total program 1,531.5 2,743.1 4,274.6 trast, industrial and commercial consumers account for Source: Annex Table 8.12. 92 percent of all billings in South Africa, with residential consumers accounting for the remaining 8 percent. Ac- Table 8.17: Expansion od Distribution Network, 2012-16 cording to the World Bank (2014) Doing Business pro- (in km) file for Sudan, the country ranks 113 out of 188 coun- Indicator 2012 2013 2014 2015 2016 Total tries with respect to the ease by which entrepreneurs KV 11 1,563 1,068 1,130 926 912 5,599 get access to electricity. The average time required to network gain access is reported to be 70 days, compared with KV 33 965 681 718 516 574 3,454 network best case in SSA, which is Rwanda, at 30 days. More- Total 2,529 1,748 1,849 1,442 1,485 9,053 over, the cost of getting access is very high relative to Source: Compiled from information provided by SEDCO. per capita income levels. Given the high level of power outages each year, many firms report that power is a constraint for business. About 41 percent of firms are Table 8.18: Potential for Production of Electricity 126 from Solar Energy reported to have their own generators. Excessive re- Indicator Total liance on small, high cost diesel generators increases Average radiation per day (Kwh/m²/day 5.813 production costs and reduces competitiveness. Area ('000 km²) 1,882 Daily producable energy ('000 GWh/day) 10,940 8.3.8 Future demand for electricity. For the pur- Maximum available energy (GWh) 75,280 poses of this Report, various scenarios for the future Annual producable energy ('000 GWh) 131,285 growth in demand for electricity have been prepared, Source: Annex Table 8.13. the main determinants of which are household con- sumption and commercial and industrial demand. existing power grid systems in Sudan do not include the Darfur region. 8.3.9 In the case of household consumption, the Government of Sudan has recently set a national target 8.3.6 Table 8.13 provides rough estimates for the of 83 percent of households gaining access to electric- composition of electricity consumption in Sudan. The ity by 2031. The objective of this ambitious electrifica- Central Bank of Sudan (2014) reports that total con- tion target is to promote agriculture, industry and social sumption in Sudan was 8,665 GWh in 2013. Given the development with a view to improving living standards estimated population of 38 million in 2013, this implies in Sudan. Table 8.12 sets out the electrification targets national electricity consumption of about 228 kWh per used in this Report. It is assumed that the national elec- person, which is about 40 percent of the average for trification rate would be 80 percent by 2030, with 100 Sub-Saharan Africa (SSA) as a whole. The World Bank percent of the urban population with access to electric- reports average consumption per capita at 555 kWh ity at that time. The implication is that about two-thirds per person for Sub-Saharan Africa as a whole, but if of the rural population would have access to electric-

South Africa is excluded, the average is about 190 kWh on these electrification rates see Annex Table 8.10 and Economic Commission for Af- per person, roughly comparable to that for Sudan.125 rica (2010), Assessing Regional Integration in Africa IV: Enhancing Intra-African Trade. United Nations, Addis Ababa, Ethiopia, May 2010. 126 According to the World Bank (2011), the firms that share or own generators ranges 125 Generally, access to electricity by populations in Sub-Saharan Africa is in the region of from 36 percent in North Kordofan to 96 percent in Red Sea. The share of electricity 20 percent or less, except for Ghana, South Africa, Zimbabwe and the island countries consumption produced by generators in these states was 66 percent and 72 percent of Mauritius and Seychelles, which exceed 40 percent access rate. For more details respectively.

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ity at that time. The achievement of these ambitious Table 8.19: Proposed Program for Rural Energy Development targets would mean that the number of people with (At 2012 constant prices) access to electricity would increase from an estimated 2012-16 2017-21 2022-26 2027-31 Total Targeted households 150 250 300 400 1,100 14.4 million in 2013 to 44 million by 2030. ('000) Financing 8.3.10 With the ambitious target for electrification, Local (SDG million) household consumption of electricity is projected to in- crease by an average of 9.6 percent a year within the Installation 30 50 60 80 220 2013-2030 period, while commercial and industrial de- Operating costs 49 105 175 210 539 Foreign (US$ million) 75 125 150 200 550 mand is projected to increase by about 12 percent a Total funding (US$ 92 158 199 261 710 year as a result of the good progress with the proposed million) private sector led programme for economic diversifica- Source: Sudan Electricity Distribution Company and estimates by authors. tion in the decade ahead. In this scenario, households would account for about 45 percent of total consump- 8.3.13 Energy sector liberalisation in Eastern Africa tion by 2030 compared with 54 percent in 2013, while has a mixed history, whereby space is opened for pri- the share of commercial/industrial consumption would vate sector engagement in the generation and distribu- increase from 41 percent to 53 percent in the same pe- tion systems, while tightly regulating tariffs and keep- riod. Overall domestic consumption of electricity would ing transmission in the public domain. This operating grow by about 10.8 percent a year during the 2013- environment has resulted in numerous challenges for 2030 period. the industry. The inability to set cost-reflective tariffs, without due compensation in the form of subsidy ends Institutional Arrangements for the up limiting investment in generation capacity that ulti- Power Sector mately drives up the cost of energy. On the other hand, freeing tariffs poses a public policy dilemma in that gov- 8.3.11 Sudan’s power sector was restructured in ernments often believe that cheaper power will result 2010. The former National Electricity Corporation was in increased access and less use of wood fuel, which disbanded and five different companies were created, is more destructive to the environment. Tariff levels are namely: Sudan Hydro Electricity Generation Company; particularly a difficult preposition when it comes to rural Sudan Thermal Generation Company, Merowe Elec- electrification, where purchasing power is very low. As tricity Company; Sudan Electricity Transmission Com- a result, private sector engagement in rural electrifica- pany; and Sudan Electricity Distribution Company. tion has been poor, and is often encouraged with even larger subsidies and a degree of flexibility in tariff set- 8.3.12 The country has the potential to raise power ting. Madagascar, for example, offers 70 percent cost generation capacity from 3,951 MW in 2012 to 11,310 sharing in initial investment for rural electrification, a 23 MW by 2030. However, the required investments are percent return on capital guarantee and free feasibil- huge. Since the country is already heavily indebted, it ity study to coax the private sector into the business would be appropriate to enact laws to facilitate greater of rural electrification. These matters deserve careful private sector participation in power generation, espe- consideration in the case of Sudan, where the govern- cially through PPPs. All of the five existing power com- ment’s objective is to achieve 83 percent access by panies are owned by the government. Consideration 2031. should be given to the option of attracting strategic investors to take equity in some of the companies as 8.3.14 The other policy consideration for Sudan is a way of raising capital or selling shares to the public engagement in regional energy trade with the neigh- through the stock exchange. The other available option bouring countries. Ethiopia, in particular, is working on would be to mobilise local resources through issuance establishing a large power export capacity by 2020. of public bonds, which can also be purchased by local Sudan may therefore consider meeting some of its financial institutions. The GoS should review all avail- needs in the medium-term at least, with imports from able options. Ethiopia. In the longer-term, Sudan may also be in a position to supply power to some of its neighbouring

162 | AFRICAN DEVELOPMENT BANK GROUP states. Power supply projects to neighbouring states about 3,946 MW in 2009, with Merowe Dam alone ac- could be quite attractive to private sector investments. counting for 1,250 MW. In 2013, the expansion pro- gramme for the Roseires hydropower plant on the Blue Status of the Electric Power Nile that increased capacity from 280 MW to 1,800 MW Infrastructure was completed, thus taking total installed capacity to about 5,443 MW. At that time, there was 3,765 MW of 8.3.15 Power plants are not producing to full capac- hydroelectric capacity and the El Jaili gas turbine plant ity in Sudan. In the case of the original Roseires dam that had been commissioned in 2007, with a capac- with a capacity of 280 MW, low water levels have of- ity of 460 MW.127 The remaining installed capacity of ten caused its capacity to fall to about 100 MW. More- about 1,220 MW was made up of various diesel plants over, the facility was often attacked by rebel groups located throughout the country. in the past. Thermal generation plants are estimated to operate at about 55 percent of installed capacity. 8.3.17 The two main sources of power generation in Erratic power outages, coupled with power transmis- Sudan are hydro and fossil fuel generation. The coun- sion and distribution losses in excess of 20 percent, try’s main hydro power generating facilities are the Ro- have contributed to high private generator ownership, seires, Merowe, Shereyk and the Kajbar dams. These particularly in the commercial and industrial sectors. In dams are located on the Blue Nile, White Nile, River 2009, approximately 41 percent of the business com- Nile, and Atbara River respectively. They account for munity owned and used private generators. This heavy 3,700 MW, equivalent to 68 percent of the current to- reliance on backup generators not only increases pro- tal installed capacity of the country. The Sudanese Hy- duction costs, but also leads to higher costs of doing dro Power Generation Company operates four power business. stations. The Sudanese Thermal Generation Company also operates four main stations, with total installed ca- 8.3.16 Current Status of Power Generation. The pacity of 1,380 MW. These are: Khartoum (380 MW); installed capacity in 2000 was in the range of 1,500

MW. Completion of the Merowe hydroelectric project 127 The listed capacity for Sudan in 2007 included six hydroelectric power plants: Ro- brought the total installed capacity in (north) Sudan to seires with 280 MW of installed; Shereyk and Kajbar with capacities of 350 MW and 300 MW respectively; Jabal Awlia with a capacity of 35 MW built in 1937; and two small plants each with a capacity of 15 MW.

Table 8.20: Capital Expenditure Requirements for Proposed Power Program (In US$ million) Program Medium-term Long-term Total 2014-20 2021-30 Generation Rehabilitation of 3 thermal plants 58.5 58.5 Construction of 6 new hydro- 4,500.0 4,500.0 9,000.0 power plants Sub-total 4,558.5 4,500.0 9,058.5 Transmission network 110 KV lines 340.9 340.9 220 KV lines 1,256.7 1,700.0 2,956.7 500 KV lines 977.0 977.0 Sub-total 1,256.7 3,017.9 4,274.6 Distribution network Network expansion 199.4 n.a. 199.4 Reduction in distribution losses 150.0 150.0 300.0 Rural electrification program 214.6 375.0 589.6 Sub-total 564.0 525.0 1,089.0 Capacity building 0.3 0.3 0.6 Total 6,379.5 8,043.2 14,422.7 Source: Sudan Power Generation, Transmission and Distribution companies.

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Table 8.21: Access to Improved Water and Sanitation, 2000-12 Indicator 2000 2005 2006 2007 2008 2009 2010 2011 2012 Access to improved water Population ('000) Urban 6,875 7,367 7,454 7,549 7,638 7,711 7,784 7,990 8,194 Rural 10,317 11,110 11,240 11,385 11,526 11,668 11,789 12,193 12,449 Total 17,193 18,478 18,694 18,934 19,165 19,378 19,573 20,183 20,643 Percent of total population Urban 76.3 71.2 70.1 69.1 68.1 67.0 66.0 66.0 66.0 Rural 55.1 52.3 51.6 51.1 50.5 50.0 49.4 50.1 50.2 Total 62.0 58.5 57.7 57.0 56.3 55.6 54.9 55.4 55.5 Access to improved sanitation Population ('000) Urban 4,334 4,760 4,849 4,938 5,025 5,098 5,177 5,315 5,450 Rural 2,709 2,821 2,830 2,835 2,804 2,813 2,809 3,247 3,328 Total 7,043 7,581 7,678 7,773 7,829 7,912 7,986 8,561 8,778 Percent of total population Urban 48.1 46.0 45.6 45.2 44.8 44.3 43.9 43.9 43.9 Rural 14.5 13.3 13.0 12.7 12.3 12.1 11.8 13.3 13.4 Total 25.4 24.0 23.7 23.4 23.0 22.7 22.4 23.5 23.6 Source: Annex Table 1.2 for population and World Bank Development Indicators database for access

Garey (400 MW), Kosti I (110 MW);128 and Kosti II (500 losses are estimated at about 21 percent of total sup- MW). In addition, there are several small off-grid plants ply. that are primarily associated with the sugar industry, with total installed capacity of 140 MW. The Sudan Development Programme for the Power Thermal Generation Company indicated that most of Sector their plants were operating well below installed capac- ity due to delayed maintenance and spare parts prob- 8.3.19 Projected increases in power generation ca- lems. Rehabilitation of the three thermal plants that are pacity. The Eastern Africa Power Pool (EAPP)/East Afri- still in service requires Euro 45 million, due to delayed can Community (EAC) Regional Power System Master maintenance. Because of the low productivity of the Plan Study indicated that Sudan had the potential to other plants, the recently completed Merowe Dam cur- increase its power generation capacity to about 15,000 rently provides over 50 percent of hydro-electric power MW by 2030. (See Annex Table 8.11.) 129 At this stage, supply. a detailed strategy for full development of this poten- tial, including the possibility of exports to neighbouring 8.3.18 In terms of installed capacity and power sup- states, is not in place. For the purposes of this Report, ply, there has also been a significant shift toward hy- consideration has not been given to exploiting the po- dropower generation in the past decade. In 2007, hy- tential for exports. The increase in capacity required dropower plants accounted for about 37 percent of in- to meet the projected domestic demand of the coun- stalled capacity, but by 2013, the share had increased try during the 2015-2030 period would require about to almost 70 percent. In terms of power supply, the 5,600 MW of additional capacity. hydro plants accounted for about 46 percent of total supply in 2000. By 2010, their share had increased to 8.3.20 At this stage, the Government has plans for six 80 percent. According to the Central Bank of Sudan more hydroelectric power stations north of Khartoum, (2014), power generation increased from 9,509 GWh with total capacity of 2,412 MW. They include: Saba- in 2012 to 10,607 GWh in 2013 (Table 8.14). System 129 See EAPP/EAC (2011), Regional Power System Master Plan and Grid Code Study. Report prepared by SNC Lavelin International Inc., and Parsons Brinkerhoff. May 128 This plant is currently out of service and requires major overhaul. 2011.

164 | AFRICAN DEVELOPMENT BANK GROUP loga (260 MW), Sheriek (420 MW), Dagash (312 MW), Table 8.22: Domestic Water Consumption Mugarat (312 MW), Kajibar (360 MW) and Dal (748 per Person per Day (in liters) MW). Work on the engineering design of these power Country group Consumption projects are currently ongoing, with each one of them Sudan (2009) 53 estimated to cost approximately US$1.5 billion. The Low income countries (mid-2000s) 51 balance of about 3,200 MW would then have to come Middle income countries (mid-2000s) 196 from other renewable sources, such as solar, wind, and Resource rich countries (mid-2000s) 115 Source: Ranganathan & Briceño-Garmendia (2011) geothermal, from additional biomass production, and from gas and heavy oil fired plants. Babanusa to Adila, US$60 million; (iii) 350 km trans- 8.3.21 Power transmission network. Power trans- mission line, Nyala-Kass-Zalingei-Geneina, with four mission in Sudan is the responsibility of the Sudan sub-stations at the cost of US$205 million; and (iv) Electricity Transmission Company (SETCO). Sudan’s 60 km transmission line, Haya-Sinkat-Sawakin with transmission network consists of two interconnected three substations at the cost of US$90 million. Proj- grids: the Blue Nile Grid and the Western Grid. The ects already under construction and those for which transmission network consists of 500 KV, 220 KV and construction are about to commence, have a total fi- 110 KV lines. These lines radiate out from Khartoum, nancing requirement of US$1,006 million. In addition, with one line running through Kosti to Al Rank in White there are several power transmission projects that are Nile State with a link to Ed Damazin. This line branches proposed for implementation during the 2015-2031 off at Kosti to the west, through En Rahud, El Obeid, perios, as detailed in Annex Table 8.12, whose funding and Abu Zabad to Almuglad. The second line runs from is yet to be secured. Khartoum through Singa to Ed Damazin, branching off at Singa to Gedarif and Kassala. A third line runs from 8.3.24 The proposed programme for expansion of the Khartoum through Atbara to Port Sudan. transmission network of Sudan would add more than 6,400 km to the existing network. It includes 1,760 km 8.3.22 Following the construction of Merowe Dam, of 500 KV lines, about 4,200 km of 220 KV lines and Khartoum and Atbara are connected with 500 KV about 480 km of 110 KV lines. The total cost of the lines, with a 220 KV line running from Merowe to Wadi proposed programme is estimated to be about US$4.3 Haifa on the Egyptian border. The existing electricity billion (Table 8.16). This will require on average, annu- transmission network leaves a sizable section of the al investment of US$285 million in power transmission country uncovered. To address these shortcomings, projects for the next 15 years. The current policy does there a number of ongoing projects. They include: (i) not allow private sector participation in power trans- Construction of 318 km transmission line at a cost of mission projects. In the absence of a change in this US$115 million, to link El Obeid- Dibabat-Abu Zabad- policy, the required funding would have to be mobilised Al Fula-Babanusa together with four sub-stations; (ii) by the national government. interconnection with Eritrea, a 70 km line of 66 KV to- gether with one sub-station, at a cost of US$13.5 mil- 8.3.25 Power distribution network. Responsibility lion; (iii) the Static Variation Compensation project for for the distribution network rests with the Sudan Elec- nine sub-stations at the cost of US$23.5 million; (iv) tricity Distribution Company (SEDCO), which is current- Showak-Atbara transmission line (28 km) at the cost ly 100 percent government owned. The majority of the of US$7 million; and (v) River Nile Projects for US$218 distribution network is in central part of the country, with million. On completion, these projects will add about off-grid systems for parts of the country not connect- 420 km to the existing network. ed to the national grid. As indicated earlier, distribution networks comprise 33KV, 11KV and 415V lines. Net- 8.3.23 In addition, there are a number of projects at work infrastructure includes 9,496 km of overhead lines advanced stages of implementation. They include the (1,428 km in Khartoum and 8,068 km in other states), following: (i) 620 km transmission line with 11 sub-sta- approximately 150 sub-stations, and 18,000 consum- tions in South Kordofan at the cost of US$274 million; er transformers. Distribution networks cover all cities, (ii) 90 km transmission line with two sub-stations from including those served from off-grid power systems.

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Table 8.23: Proposed Expansion in Access to Improved Water and Sanitaion (% of population) Indicator Actual Projection 2012 2013 2014 2015 2020 2025 2030 Access to improved water (%) Urban 66.0 69.0 72.0 75.0 90.0 100.0 100.0 Rural 50.2 51.9 53.6 55.4 62.3 71.6 91.8 Total 55.5 57.6 59.8 62.0 72.0 82.0 95.0 Access to improved sanitation (%) Urban 43.9 49.2 54.6 60.0 80.0 100.0 100.0 Rural 13.4 15.4 17.3 19.2 33.8 47.9 75.5 Total 23.6 26.7 29.9 33.0 50.0 67.0 85.0 Population ('000) With access to improved water 20,643 21,879 23,178 24,560 32,039 40,734 52,324 With access to improved sanitation 8,778 10,135 11,573 13,072 22,250 33,283 46,816 Source: Table 8.21, Annex Table 1.2 and estimates by authors.

Sub-stations are financed by the central government, Table 8.24: Capital Cost of Proposed Program for Water and Sanitation (In US$ million) while the overhead lines are financed by SEDCO or the Indicator 2014-2020 2021-2030 Total customers, in case of the low voltage lines (415V). Water services Urban water 1,479.4 2,360.1 3,839.5 8.3.26 For the 2012 to 2016 period, SEDCO plans Rural water 233.1 710.0 943.1 to expand the main distribution network by over 9,000 Sub-total 1,712.5 3,070.1 4,782.6 km in order to improve power supply and meet new Sanitation demand (Table 8.17). The plan also entails supply and services installation of transformers of different capacities and Urban 1,387.3 2,322.5 3,709.9 sanitation carrying out related civil works for 24 new distribution Rural 1,976.0 5,784.6 7,760.6 stations. The total cost of this undertaking, together sanitation with related equipment, is US$199.4 million. Sub-total 3,363.3 8,107.1 11,470.4 Emergency 70.0 117.0 187.0 preparedness 8.3.27 A major challenge for the management of the Institutional 13.9 23.0 36.9 network is the substantial distribution losses that have & capacity been experienced for some years. From a peak of 34 building percent in 2001, losses have gradually declined to about Total 5,159.7 11,317.2 16,476.9 22 percent at the present time. A study undertaken by Memo items Urban WSS 2,866.7 4,682.6 7,549.3 SEDCO in 2012 indicated that out of a total of 8,613.32 total GWh of energy supplied to SEDCO, distribution losses Rural WSS total 2,209.1 6,494.6 8,703.7 amounted to 1,550.5 GWh (18 percent of total), result- National 83.9 140.0 223.9 ing in revenue loss of SDG 361.5 million (equivalent of programs US$65.7 million). In order to minimise distribution pow- Source: Estimates by authors. er losses, SEDCO plans to reduce power losses in two phases: from 18 percent in 2013 to 14 percent in the 8.3.28 Rural Electrification Programme. SEDCO first five years and to 11 percent within a further five- is also responsible for rural electrification. In order to in- year period. It is estimated that US$150 million will be crease the very low levels of electrification in rural areas, required for each phase. The main elements of the plan SEDCO has begun installation of rural solar systems include: network rehabilitation and reinforcement; pur- (100 watts and 200 watts) with the aim of covering the chase of tools and machinery; provision and installation whole country by grid and solar systems by 2031 (80 of energy metres; provision and installation of power percent coverage by the grid and 20 percent coverage losses compensators; and administration costs. by solar). The company will exploit the abundant solar

166 | AFRICAN DEVELOPMENT BANK GROUP energy potential. Sudan’s geographic location enables the distribution of the SHS Units is among all states of it to receive large amounts of solar energy, which is es- Sudan is set out in Annex Table 8.14. timated at 640 watt/hour per square metre and is avail- able for more than 10 hours per day throughout the 8.3.30 The proposed development programme for year. This provides the country with a good opportunity the power sector during the 2014-30 period is estimat- for use of solar energy to generate electricity, particu- ed to cost about US$14.4 billion (Table 8.20). Invest- larly for rural electrification. Sudan’s potential in solar ment requirements for power generation are estimat- energy by each State is shown in Table 8.18. According ed at US$9.1 billion, during in the next 15 years, while to the SEDC, the potential annual production of elec- power distribution projects will need US$1.1 billion tricity for such a solar programme is put at 131,285 during the same period. The proposed power trans- terawatt hours (TWh). This level of potential for electric- mission programme will need US$4.3 billion, out of ity production is substantially larger than the estimated which US$1,006 million has been procured to finance total demand of 52.2 TWh a year by 2030 (Table 8.15). the following projects: A project recently funded by the Global Environmental • Construction of 318 km transmission line at a cost Facility (GEF) and UNDP utilised PV to electrify 13 rural of US$115 million, to link El Obeid – Dibabat –Abu and peri-urban communities, with some 45,000 house- Zabad – Al Fula – Babanusa together with four holds in the country now using PV systems. sub-stations; • Interconnection with Eritrea, a 70 km line of 66 KV 8.3.29 With the above potential, SEDCO has a long- together with one sub-station, at a cost of US$13.5 term plan to install solar home systems (SHS) for 1.1 million; million rural households, covering the period 2012- • Static Variation Compensation project for nine 31. As Annex Table 1.1 indicates, the total number of sub-stations at the cost of US$23.5 million; households in Sudan in 2030 is projected to be about • Showak-Atbara transmission line (28 km) at the 9.3 million, 5.7 million of which would be in rural ar- cost of US$7 million; eas. The proposed programme, if successfully imple- • River Nile Projects for US$218 million; mented, would therefore provide electricity to about 17 • The 620 km transmission line with 11 sub-stations percent of these rural households – a little less than in South Kordofan at the cost of US$274 million; the above-mentioned target of 20 percent. Accord- • The 90 km transmission line with two sub-stations ing to SEDCO estimates, the programme would cost from Babanusa to Adila, US$60 million; about SDG 759 million and US$550 million (equivalent • The 350 km transmission line, Nyala-Kass-Zalin- to about US$710 million at 2013 constant prices and gei-Geneina, with four sub-stations at the cost of exchange rate). The scheme has already been pilot- US$205 million; and ed with the importation of 100 SHS units, 80 of which • The 60 km transmission line, Haya-Sinkat-Sawakin, have been installed in six select States. The Plan for with three substations at the cost of US$90 million.

Table 8.26: Growth of the Sudan Telecommunications Industry Indicator 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fixed line subscribers 387 570 499 345 366 370 545 484 425 416 ('000) Fixed lines per 100 n.a. n.a. n.a. 0.85 0.88 0.87 1.25 1.33 1.14 1.09 persons Mobile phone 23 1,828 4,683 8,218 11,991 15,340 18,093 25,056 27,659 27,658 subscriptions ('000) Mobile cell phone per 100 0.1 5.0 n.a. 20.4 29.0 36.1 41.5 68.8 74.4 72.9 persons Internet users (per 100 0.1 1.3 n.a. 8.7 n.a. n.a. 16.7 17.3 21.0 22.7 persons) Fixed wire broadband n.a. n.a. n.a. 45.2 44.6 n.a. 13.5 17.4 24.8 44.7 ('000) Fixed wire broadband (% n.a. n.a. n.a. 0.11 0.11 n.a. 0.03 0.05 0.07 0.12 population) Source: International Telecommunications Union and World Bank Development Indicators database.

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8.4 Water Supply and Sanitation access in Sudan was substantially lower than the aver- age of 23 percent for SSA as a whole. Water and Sanitation Services 8.4.4 The regions that are considered to have spe- 8.4.1 Water Supply and Sanitation. There has cial water needs include Darfur, the Red Sea State and been a steady deterioration in the levels of access to North Kordofan State. In the case of the Red Sea State, improved water and sanitation in the past two decades. Port Sudan city alone requires 120,000 m3 per day, but Sudan now faces a major challenge in improving ac- only 35,000 m3 is available per day. This forces the cess to these services in the decade ahead. As Table State Water Corporation to ration supply to consum- 8.21 indicates, the share of population with access to ers. There are four desalination plants for Port Sudan improved water declined from 62 percent in 2000 to 55 city with a total installed capacity of 12,500 m3 per day, percent by 2010, with sharp declines in access levels but total output is only 10,000 m3 per day due to lack of in both urban and rural areas. In the case of sanitation, spare parts for the American sourced plant equipment. the share of population with access to improved ser- The balance of 35,000 m3 per day is obtained from two vices declined from about 25 percent in 2000 to 24 other water sources, one 23 km away and the other 40 percent in 2012. Most of the decline occurred in urban km away. A project to supply Port Sudan with 100,000 areas as access in rural areas remained at about 13 m3 per day from a site 464 km away is stalled because percent for most of the past decade. In 2012, about 17 of lack of funds. The Director General of the Red Sea million people did not have access to improved water State Water Corporation indicated that approximately and 28 million had no access to improved sanitation, 20 water harvesting plants are required to cover the about 75 percent of them living in rural areas. 130 whole State.

8.4.2 Only about 15 percent of the population has 8.4.5 In the case of the Darfur region, an assessment access to utility water, which is well below all other Afri- made by the World Bank in 2010 indicated that only can benchmarks. Census data for all parts of Sudan in- 25 percent of the population had access to improved dicate that in 1993, about 60 percent of the population water, with per capita availability limited to 5 litres per had access to utility water. The very steep decline in day. According to this assessment, only 15 percent of access to utility water stemmed from the lack of main- demand is being met. The Darfur International Con- tenance of water supply by the public utility. It appears ference on Water for Sustainable Peace held in June that the public utilities in Sudan have a poor record of 2011, which sought to establish a more effective way collection of revenues for service provision. In addition, to manage the region’s natural resources in the longer system losses of the Khartoum Water Corporation and term, identified 65 projects requiring over US$1.0 bil- the South Darfur Water Corporation in 2005 are report- lion, to be implemented as part and parcel of the Darfur ed to have been 40 percent and 49 percent respective- Recovery and Reconstruction Strategy (2013-2019). ly (Ranganathan and Briceño-Garmendia, 2011). 8.4.6 Institutional Arrangements for Water and 8.4.3 The level of urban access to improved water Sanitation Services. A number of institutional and in Sudan is substantially lower than the average for legislative measures for water supply and environmen- Sub-Saharan African (SSA) countries. The latter stood tal sanitation sector are underway. The national water at 83 percent in 2010, whereas the level of access to supply and environmental sanitation policy has provid- improved sanitation was comparable to the average for ed for the establishment of a National Commission for SSA. In rural areas of Sudan, 50 percent of the SSA the water and environmental sanitation, with represen- population had access to improved water and 13 per- tatives from the Ministry of Water Resources and Elec- cent had access to improved sanitation. Access to im- tricity, Ministry of Health, Ministry of Education, Ministry proved water was better than for SSA, which stood at of International Cooperation, Ministry of Environment, 42 percent in 2010. In the case of sanitation, however, Ministry of Finance. The Public Water and Environmen- tal Sanitation Corporation (PWSC) and other key sector 130 There is a range of estimates for the number of people in Sudan, with access to safe water and improved sanitation services. According to the Fellowship for African Relief partners to coordinate, supervise, harmonise, monitor (FAR), a Canadian international NGO with headquarters in Khartoum, 30 percent of the population does not have access to clean water. Among the rural populations, only 24 and evaluate sector performance and decisions. At the percent have access to improved water facilities.

168 | AFRICAN DEVELOPMENT BANK GROUP state level, the policy provided for the establishment of portance of water for life; water as a human right; social state councils for the water supply and environmental conditions necessary for the delivery of water; protec- sanitation sector, with representatives from the State tion and conservation of water; access to environmen- Ministry of Physical Planning and Public Utilities, State tal sanitation as human dignity and focus on hygiene Ministry of Health, State Ministry of Finance, State Min- promotion as a major vehicle for preventive health; istry of Education and State Water and Environmental accountability to prevent water pollution and protect Sanitation Corporation to ensure sector coordination water sources; giving priority to vulnerable communi- and the successful achievement of policy objectives. It ty sections in the development programmes of water would appear that these institutional reforms are yet to supply and environmental sanitation; and meeting Mil- be implemented. lennium Development (MDG) goals. The important role of the private sector has also been recognised as one 8.4.7 In addition, state water resource legislation of the key guiding principles. Following the adoption that allows states to control all the water resources of the domestic Water Supply and Environmental San- within their state boundaries was to be reformed or itation Policy, the government elaborated a five-year created. However, consideration would be given to Strategic Plan to make it operational. The Plan includes water-scarce states, which would allow the transfer of construction of new infrastructure, the maintenance of water from nearby water-rich states. The Federal Gov- existing ones, as well as strengthening of institutional, ernment, with the agreement of the related states and organisational and human capacities in the sector, in through the Ministry of Water Resources and Electricity order to ensure sustained water, sanitation and hygiene (MoWRE), would have a legal mandate to decide on services. state-to-state water rights and transfer issues. 8.4.9 One of the key objectives for the programme 8.4.8 Proposed programme for water and sani- was to increase domestic water consumption. As Table tation. In September 2010, Sudan adopted a domes- 8.22 indicates, average daily consumption of water in tic Water Supply and Environmental Sanitation Policy Sudan is relatively low. It was estimated to be about 53 whose overall objective was to contribute to the im- litres per person per day in 2009, comparable to that provement of the health status and living conditions of for all low income countries in the mid-2000s, but sub- the population and the economic growth of the nation stantially lower than that for middle income countries by providing the entire population with adequate and at that time. The policy objective was to increase the sustainable access to WASH basic services and hy- rates of access to safe water supply in rural areas by 20 gienic practices. Key guiding principles of Sudan’s do- litres per person per day and by 90 litres per person per mestic water and sanitation policy emphasise the im- day in urban areas. The policy aimed at achieving the

Table 8.27: Development Expenditures for Proposed Infrastructure Program, 2014-2030 (In US$ million at 2012 prices) Program Medium-term Long-term Total 2014-20 2021-30 Transport Roads 3,345.6 5,984.7 9,330.3 Railways 1,945.0 1,698.3 3,643.3 Ports 409.5 610.5 1,020.0 Civil aviation 153.3 296.9 450.2 Sub-total 5,853.4 8,590.4 14,443.8 Power 6,379.5 8,043.2 14,422.7 Water resource supply 600.0 1,400.0 2,000.0 Domestic water and sanitation 5,159.7 11,317.2 16,476.9 Irrigation 800.0 2,200.0 3,000.0 ICT 324.0 300.0 624.0 Total 19,116.6 31,850.8 50,967.4 Source: Table 8.3, Table 8.4, Table 8.6, Table 8.9, Table 8.11, Table 8.20, and Table 8.24.

AFRICAN DEVELOPMENT BANK GROUP | 169 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Government’s Quarter Century Strategic Plan for 2007- period as a whole, a total of 30 million people would 2031 that called for the level of access to safe water to gain access to improved water, and almost 40 million reach 50 litres per capita per day in rural areas and 150 would gain access to improved sanitation. By 2025, all litres per capita per day in urban areas, in addition to full urban residents would have access to improved wa- coverage of all schools, public health facilities and reli- ter and sanitation services. And by 2030, more than gious premises by the end of Quarter Century Strategic 90 percent of rural residents would have access to im- Plan in 2031. Achieving this longer-term goal would put proved water and 75 percent would have access to the national average consumption of water at about 90 improved sanitation. litres per person per day. (See Annex Table 8.15 for state level details for the water targets for 2016). 8.4.13 Table 8.24 sets out provisional estimates of the capital cost of the proposed programme for expanding 8.4.10 To achieve the MDG targets for 2015 that called access to improved water and sanitation services and for 82 percent of the population having access to im- improving the quality of services, along with funding for proved water and 67 percent of the population with ac- emergency preparedness responses, institutional de- cess to improved sanitation (see Table 1.7 in Chapter velopment and capacity building that includes training 1), the government’s action plan called for a very rap- programmes for personnel involved in the programme. id build-up in these services and related facilities. The Full implementation of the programme for 2014-2030 road map required access to improved water to reach would require capital outlays of US$16.5 billion (at 60 percent in 2010, 82 percent in 2015, 90 percent in 2012 constant prices). Given the current low level of 2020 and 100 percent in 2031. The Plan also set tar- access to improved sanitation in urban and rural areas, gets for access and improved sanitation for each state the proposed sanitation programme accounts for 70 for 2016, the details of which are given in Annex Table percent of the total capital outlays. 8.16. Water for Irrigation and Livestock 8.4.11 Currently, the most recent actual data for the levels of water and sanitation access are for 2012, and 8.4.14 According Sudan’s National Water Policy, the as Table 8.23 indicates, these stood at 56 percent and national government is responsible for the supply of 24 percent respectively. Given the limited progress water to large-scale agricultural schemes, whether towards the MDG targets prior to 2013, the position government owned or private. Major water projects in taken in this Report is that it is highly unlikely that the the states, such as the construction of water reservoirs MDG targets for 2015 will be met. Perhaps the greatest (small dams and hafirs) are usually handled by federal challenge to water and sanitation services is the short- government, which then hands them over to the States age of finance, and yet most of the water systems are for their management. The responsibility to supplying in need of rehabilitation, especially the domestic water water to private small and medium-scale schemes is and sanitation system in Khartoum and similar units in assigned to the states, together with provision of do- the States. The current scarcity of foreign exchange mestic water and sanitation. and the fluctuating exchange rates have further wors- ened the situation. As indicated earlier, lack of funds 8.4.15 Water for Irrigation and Livestock. Large- among other factors is hindering the executions of wa- scale water projects (dams) are part and parcel of pow- ter projects. er generation projects. Some of the six new dams for hydroelectric power stations, whose construction costs 8.4.12 For the purposes of this Report, it is assumed are included in Table 8.20, will be multipurpose dams that the MDG targets would be met by 2025, rather that also supply water for irrigation. Water harvesting than 2015. Table 8.23 sets out the indicative set of tar- for livestock farming is particularly important in Darfur, gets used in this Report. The basic assumption is that Kordofan, Blue Nile and Kassala regions. Estimates are financial constraints will continue to hinder progress for not available for required investments in water for live- several more years, but that progress in providing im- stock farming. proved access to these services will begin to acceler- ate during the 2015-2020 period. For the 2013-2030 Management of Water Resources

170 | AFRICAN DEVELOPMENT BANK GROUP restrial links to Egypt and Ethiopia and a 10,000 km do- 8.4.16 Effective management of water resources, mestic fibre backbone (Sudatel 2009). The emergence especially at the state level, is vital for sustainability of of competition in gateways as a result of connectivity to water supply, yet this is where there is lack of capaci- the undersea cable network has facilitated very attrac- ty. Strengthening capacities for management of water tive prices for ICT services in Sudan. Sudan has made resources will require the formulation of coherent water impressive progress in liberalising its ICT market, and is resources development and management strategies now one of the most liberalised economies in Africa. and action plans. Funding has been provided for ca- pacity building, training and technical support at the 8.5.4 The national ground optical fibre backbone state level (Table 8.24). network extends for about 20,000 km to the borders of Egypt, Ethiopia, Chad and Eritrea. It is linked with in- 8.5 Information and ternational networks through two marine audio cables. Communication Technology The Ministry of Energy possesses optical fibre networks of 3,130 km along the oil pipelines, from production ar- ICT Infrastructure and Services eas to Port Sudan. There is also a cable that belongs to the National Electricity Corporation extending from 8.5.1 There has been impressive progress in the ICT Rosaries to Khartoum at the length of 1,153 km. sector in the past decade. The ICT sector in Sudan is said to be one of the most liberalised in Africa. As 8.5.5 The geographic area coverage of the telecom- a consequence, the country has been able to attract munications network is estimated at 40 percent, while significant private capital and investment in the sector, the population area coverage is estimated at 80 per- which is said to be making substantial contribution to cent. Mobile penetration soared from less than 1 per- Sudan’s GDP and per capita growth. cent in 2000 to 33 percent in 2009, and was in 2014 estimated at 57 percent. Whereas mobile cellular sub- 8.5.2 Private Provision of Communications Ser- scribers have risen from 8.2 million in 2007 to 27.65 vices. In the early 2000s, about 60 percent of the pop- million in 2013, fixed line subscribers have declined ulation was covered by a GSM signal, but by 2010, from over 1 million in the year 2000 to 415,571 sub- more than 80 percent of the population was covered. scribers in 2013 (Table 8.25). Data use is still limited, The growth in mobile telephony has been impressive. but is reported to have picked up during the past two As a result, with a mobile penetration rate of 73 per- years, mainly due to increased use of social networks, cent, Sudan now has the highest level in the Eastern such as Tango, Whatsapp, and others. Revenue arising Africa region. Kenya is at 71 percent, Rwanda at 57 from mobile telephony is estimated at SDG 5.9 billion percent, Tanzania at 56 percent and Uganda at 44 per- per annum, while that from data services is estimated cent. As with many other African countries, there has at SDG 25.4 million per annum. The slight decrease been little or no growth in the landline segment of the in cellular phone subscriptions in 2013 in comparison market. The share of population with landline subscrip- with 2012, has been attributed to the switching off of tions has remained at about one percent since the early unregistered numbers. 2000s. 8.5.6 As can be seen from Table 8.25, mobile cellu- 8.5.3 The Sudan telecommunications network is lar telephone penetration in Sudan has increased from also considered to be quite modern as most of it com- 20 persons per 100 inhabitants in 2007 to 73 persons prise fibre-optic cables and microwave systems. The per 100 inhabitants in 2013. In this respect, Sudan is recent connectivity to an undersea fibre-optic cable well ahead of most of the Eastern Africa countries and led to expansions in access, improvements in quality, compares favourably with countries like Kenya, Nigeria and reduction in prices. Access to undersea fibre-optic and Zambia (see Annex Table 8.18). Only Zimbabwe, cables has enabled Sudan to develop a strong ICT in- Ivory Coast and Ghana surpass Sudan in this respect. frastructure backbone. Three undersea cable systems, In the case of fixed (wired) broad-band subscriptions, including the East Africa Submarine Cable System while the figures are rather miserable for all compara- (EASSy), land in Port Sudan. In addition, there are ter- tor countries, Sudan still compares favourably with its

AFRICAN DEVELOPMENT BANK GROUP | 171 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN peers, as shown in Annex Table 8.19. 1994 as a public company and subsequently floated on the regional stock market. There are four main tele- 8.5.7 Development of E-Government Applica- communications service providers in Sudan, namely: tions. During the past three years, the Government of SUDATEL131 (fixed line/mobile plus ISP); CANARTEL Sudan has developed its own Internet Switch Centre, (fixed line plus ISP); ZAIN and MTN, both being mo- dubbed the National Information Centre at a cost of bile telephone service providers. The sector is already US$21 million. The backbone is provided by SUDATEL largely in the hands of the private sector, either local and CANARTEL. The technology connects all the gov- or foreign. Except for SUDATEL, which is 25 percent ernment units at the central level as well as the state government owned, the other companies are wholly level, for purpose of running E-Government applica- owned by the private sector. tions. The key features of the programme are as fol- lows: 8.5.10 Policy, institutional and legal issues in the ICT • Deployment a Metropolitan Area Network (MAN) sector at this juncture are limited to two key concerns. for Khartoum that connects all federal ministries to The first relates to the impact of sanctions. As with oth- the national network, using fibre optics backbone, er sectors in the economy, the concern is about the and deployment of MAN for 18 states; impact on the availability of equipment for the sector • Deployment of WAN (Wide Area Network) that and for spare parts and replacements. The second connects the MAN networks to the government concern relates to taxation of the industry. The issue Data Centre; here is the extent to which the industry should contrib- • Deployment of a local area network (LAN) in all fed- ute to the realisation of universal coverage in Sudan. eral ministries and some government units; Until recently, there was a value added tax (VAT) of 30 • Deployment of a voice over IP (VoIP) application in percent on all telecommunications services and a tax all federal ministries and HQ of states, cover area of 30 percent on profits. Service providers complained all capital cities of states; and that this level of taxation was excessive and that the • Deployment of video conference system between taxes eroded their earnings. Subsequently, the prof- the Ministry of the Cabinet and all Headquarters it tax was replaced by a tax of 2.3 percent of gross of States and some national government units and revenue as telecommunications service providers were federal ministries. said to be evading the profit tax by declaring low prof- its. Revenues from the 2.3 percent tax are then divid- 8.5.8 In conjunction with these initiatives to develop ed among the industry regulator, the NTC, and the ICT various e-government applications in Sudan, there has Fund that has been established for the purpose of de- been considerable progress in the developing comple- veloping government ICT infrastructure and extension mentary applications. These include the following: (i) A of services to areas that are not economically viable. national data centre, in service now for the government The regulator receives 56.5 percent of the revenue with units; (ii) the Sudan Internet Exchange Point that is now the balance of 43.5 percent going into the ICT Fund. in service; (iii) a fibre network and data centre for the Network coverage in the rural areas is still a challenge, Ministry of Water Resources and Electricity; (iv) a fibre forcing some of the operators to use VSAT technology, network for the Ministry of Petroleum; (v) a data centre which is considered to be rather expensive. Neverthe- for the Africa City for Technology; and (vi) an Army Wi- less, the President of the Republic has established a Max Network. The technical details for these various committee that is tasked with ensuring that services applications are set out in Annex Table 8.20. are extended to the rural areas.

Policy and Institutional Arrangements Expanding Access to Communications for the Sector 8.5.11 The broad goals of the National Communica- 8.5.9 The National Telecommunication Corporation tions Corporation (NCC) include: (i) Modernisation of (NTC), the industry regulator, was established in 2001. the ICT sector and boosting its use in all spheres of The provision of ICT services was licensed to private economic activity and e-governance; (ii) extending ICT operators. One operator, Sudatel, was established in 131 SUDANI Mobile is the subsidiary company of SUDATEL that provides mobile telepho- ny services.

172 | AFRICAN DEVELOPMENT BANK GROUP services in all parts of the country, thereby providing tions where staff are based; (iii) the need to establish universal access to GSM signals and public broadcast an automatic and direct data collection system from facilities; (iii) adopting policies and regulations to attract the service providers; and (iv) the need to adopt a new more private sector investment into the sector; and (iv) Communications Act for better regulation of the ICT legislative and institutional reforms, as well as human sector. capacity building. 8.6 Infrastructure Expenditures 8.5.12 The NCC is expecting that mobile phone sub- and Financing scribers will rise to 47 million within five years from 2015 to 2019. The number of subscribers is therefore Proposed Development Expenditures expected to be higher than the population when the single subscriber has more than one mobile phone line. 8.6.1 The proposed programme of development During the same period, NCC expects the fixed phone expenditures for the infrastructure sectors for 2014- subscribers to increase marginally from the present fig- 2030 amount to US$51 billion. As Table 8.26 indicates, ure of just over 400,000 to 500,000. Continued rapid the transport and power sectors would each require growth in the number of mobile telephony subscribers, about US$14 billion, while the requirements for the as well as the expected growth in the number of people provision of water and sanitation services to commu- using internet services, will require the companies to nities throughout the country total about US$16 billion. upgrade their ICT infrastructure facilities. Among other Detailed assessment of requirements for development things, this will require substantial additional base sta- of water resource supplies and irrigation development tions in urban areas. were not available at the time this Report was prepared. A notional amount of US$5 billion is therefore included 8.5.13 According to the NCC, telecommunications in Table 8.26 for capital works in these areas during the companies also need to make additional investments 2014-2030 period. The average annual expenditure on in order to increase their network coverage, particular- development of the infrastructure assets and services ly in rural areas. Achievement of the goal of universal of Sudan amounts to about US$2.7 billion a year for access will require a substantial number of additional the 2014-2020 period, and about US$3.2 billion a year base stations in rural parts of the country. NCC esti- for 2021-2030. Under this programme, total public and mates that for network upgrade and extension, each of private investment in infrastructure in the Moderate the current four operators needs to spend a minimum Growth Case increases from an estimated 2.3 percent of US$15 million per annum over the next 10 years. of non-oil GDP in 2012, to a peak of about 3.7 percent Meanwhile, and on account of the growing number of in 2018. It then declines steadily to only 2 percent of subscribers, there may still be scope for new service non-oil GDP by 2030. providers to come into the market. New entrants are required to pay US$130 million for a 15 year license. In 8.6.2 A major concern with this proposed pro- addition to private sector investments, the government gramme is that the level of investment in infrastructure plans to upgrade its INTRANET to facilitate the connec- will not be sufficient to meet the needs of a Sudan tion of all government units by 2016, at an estimated economy growing at close to 6 percent a year in real cost of US$42 million. terms by the mid-2020s. Experience with infrastructure programmes elsewhere in Sub-Saharan Africa sug- 8.5.14 The public and private parts of the communi- gests that levels of investment of up to 8 percent of cations industry face a number of important challeng- GDP may be required to close the infrastructure gap in es at this stage of its development. These include the countries such as Sudan. The foregoing estimates for following: (i) Shortage of qualified technical cadres at infrastructure investment are substantially lower than middle and top levels; (ii) the need to improve terms those of Ranganathan and Briceño-Garmendia (2011). and conditions of service for the public sector em- They put the annual capital expenditure requirement ployees and elimination of discrepancies in the levels for infrastructure at US$3,303 a year for the 2006- of pay, taking into account professional qualifications 2015 period. After adjusting their estimate from 2006 of staff and hardships imposed by geographical loca- to 2012 constant prices, their estimate is equivalent to

AFRICAN DEVELOPMENT BANK GROUP | 173 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN an average investment of US$3.7 billion a year at 2012 8.6.4 Much of the infrastructure funding for Sudan in constant prices. On an annual basis, the proposed ex- the recent past has been skewed towards the power penditures for transport and ICT set forth in Table 8.26 sector and road construction. The Merowe power proj- are substantially lower than the adjusted estimates of ect, which was jointly funded by a number of agencies Ranganathan and Briceño-Garmendia (2011). The an- at the cost of €1.2 billion, provides a good example. The nualised expenditure for power, on the other hand, is China Export Import Bank provided 20 percent of the higher than that of Ranganathan and Briceño-Garmen- funding. Five development funds from the region provid- dia. Further work on investment requirements for the ed 47 percent of the funding, while the Government of transport sector will likely find that a much larger invest- Sudan provided the remaining 33 percent. (see Annex ment in the secondary and tertiary road network will be Table 8.21 for details.) A number of power projects cur- required for a successful programme of broad-based rently under construction or about to commence con- economic diversification. struction have committed funding of US$1,006 million, while more than 700 kilometres of roads are currently Sources of Financing for the Programme under construction. In contrast, ongoing rail projects cost only US$13 million. The private sector has funded 8.6.3 In the recent past, infrastructure financing for most of the ICT infrastructure and is engaged in limited Sudan has mainly come from Arab Funds, China and the rehabilitation of rail lines. Government of Sudan. Funding from traditional multilat- eral institutions, such as the African Development Bank 8.6.5 Early action will be required to translate the fore- and the World Bank, are currently on hold due to debt going broad programme for infrastructure development arrears, while official development assistance (ODA) is in Sudan into a series of specific infrastructure projects negligible and access to commercial debt financing in suitable for public and or private financing. In the case the US and European markets is severely constrained of the latter, close attention will need to be given to the because of the economic sanctions applied by these identification and further design of projects that could be countries. proposed for development under public private partner- ship arrangements.

174 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 175 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

176 | AFRICAN DEVELOPMENT BANK GROUP 9. ROLE OF OTHER KEY SERVICES IN PROMOTING GROWTH

9.1 Key Challenges for the decade. However, the savings rate plummeted to about Decade Ahead 10 percent of GDP in 2012-13. As further discussed in Chapter 2, a substantial share of the high levels of do- 9.1.1 The discussion throughout this Report has mestic investment required for successful implemen- highlighted the importance of key service sectors in tation of the proposed diversification programme will promoting broad-based economic growth in the non- have to be financed from increased domestic savings, oil economy of Sudan, which includes a strong recov- a substantial portion of which will have to be mobilised ery in the agriculture sector and promotion of small by financial sector so that these resources can then be and medium-scale business activities in the rest of the applied to productive investments throughout the non- economy. Infrastructure and financial services, and fur- oil economy. The basic problem at the present time is ther development of labour market skills, have been that the amount of domestic savings that is monetised identified as critical components of the strategy for ac- and held within the financial sector of Sudan is very celerated economic growth. The proposed programme small. The present level of financial savings is far short for infrastructure development is discussed at length in of what will be required in the decade ahead to finance Chapter 8. This Chapter addresses the issues related the investment and working capital requirements of an to further development of the financial sector, and the increasingly diversified non-oil economy. need for an increasingly broad range of skills in the la- bour force. 9.1.3 The labour market in Sudan has grown rapid- ly in the past few decades, driven by high population 9.1.2 As the discussion in Chapter 2 indicates, the growth rates. As noted in Chapter 1, the key charac- development of the financial sector in Sudan needs to teristics of this market include low levels of participation be accelerated and given high priority. Sustained strong by the adult population, especially among women, low growth in the non-oil economy during the 2015-2030 levels of skills and productivity and high unemployment period will require increased levels of investment. Con- rates. At the same time, there has been substantial tinued economic sanctions against Sudan, and slow out-migration of Sudanese labour, especially to oil-rich progress in resolving the ongoing problems of arrears Arab states. And since the start of the oil boom in the clearance with offshore creditors and start-up of the latter part of the 1990s, a substantial influx of skilled proposed HIPC initiative means that Sudan will contin- workers into Sudan due to the severe skill shortages ue to have limited access to offshore funding for invest- within the country has been witnessed. The major chal- ment. The required high levels of domestic investment lenge for the decade ahead is that the labour force is will therefore have to be financed primarily from within expected to increase to about 22.1 million by about Sudan for some years to come. As the discussion in 2030 – essentially a doubling of the labour force. Cre- Chapter 1 indicates, prior to the secession of South ating productive employment opportunities for an an- Sudan in 2011, the oil boom had resulted in a national nual average of 610,000 new entrants into the labour savings rate of 21 percent of GDP for much of the past force during the 2014-2030 period, compared to the

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Table 9.1: Financial Sector Assets Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Assets (SDG mill) Commercial banks Foreign assets 1,612 1,303 1,523 2,076 1,169 2,242 1,713 3,100 2,700 Domestic assets 5,580 9,910 11,850 14,092 20,682 23,555 26,625 37,453 42,717 Total 7,192 11,213 13,373 16,168 21,851 25,797 28,338 40,553 45,417 Total Foreign assets (579) (1,844) (2,574) (2,378) (4,587) (4,187) (5,876) (7,271) (12,729) Domestic assets 6,977 12,385 14,812 17,476 24,338 39,799 47,790 66,064 79,174 Total 6,398 10,541 12,238 15,098 19,751 35,612 41,914 58,793 66,445 Assets (% of GDP) Commercial banks Foreign assets 1.9 1.3 1.4 1.7 0.9 1.4 0.9 1.3 0.9 Domestic assets 6.7 10.3 11.1 11.3 15.2 14.5 14.3 15.4 14.5 Total 8.6 11.6 12.6 13.0 16.1 15.9 15.2 16.7 15.4 Total Foreign assets (0.7) (1.9) (2.4) (1.9) (3.4) (2.6) (3.1) (3.0) (4.3) Domestic assets 8.4 12.8 13.9 14.0 17.9 24.5 25.6 27.1 26.9 Total 7.7 10.9 11.5 12.1 14.6 22.0 22.5 24.2 22.6 Source: Annex Table 2.1 and IMF, various Sudan country reports. average of about 330,000 in the 2000-2013 period, is tem. While experiencing substantial growth in recent one of the biggest challenges that Sudan faces in the years, Sudan’s financial system remains small relative decade ahead. These trends in the labour force under- to its regional peers. Intermediation is low, the equity score the political and economic importance of the pro- and foreign exchange markets are shallow. Non-bank posed diversification programme. They also highlight financial markets and institutions are small and under- the challenges associated with the task of providing developed. Sudan continues to be under-banked, giv- productive employment for these new entrants, while en the low ratios of deposits and credit to GDP. Most at the same time raising the existing low levels of pro- banking and financial institutions are concentrated in ductivity of a substantial portion of those already in the Khartoum, the capital, and nearby areas. Only a small labour force. They additionally point to the challenge of share of the population has access to bank services. providing opportunities for the 15 percent of the labour Enterprises often face difficulties in obtaining fund- force that has been unemployed each year for the past ing from banks or capital markets. Sudanese banks decade. are small, even compared with Islamic banks in other countries. 9.2 Expanding the Role of the Financial Sector 9.2.2 As noted in Chapter 3, with a fully-fledged Islamic banking system, the monetary policy frame- Current Status of the Financial Sector work has lacked adequate instruments for monetary operations, liquidity management and non-inflationary 9.2.1 Like many developing countries, the Sudanese financing of government deficits. As the IMF has ob- financial sector is still young and underdeveloped, fol- served, these constraints have limited the development lowing years of repression, political and economic in- of efficient instruments for interbank market and central stability upheld by a long period of civil war. Historically, bank credit facilities.132 As a result, the lack of adequate Sudan’s financial system has been characterised by monetary instruments has led to high intermediation heavy government interventions and regulations, cen- costs and persistent inflationary pressures that, in turn, tralised lending by the central bank to public enterpris- have adversely affected the opportunities for develop- es, absence of indirect monetary policy instruments, lax ment of the private sector in the non-oil economy. bank supervision and an inadequate accounting sys- 132 IMF (2013), Sudan: Selected Issues. IMF Country Report No. 13/320, IMF, Washing- ton DC, September 5, 2013.

178 | AFRICAN DEVELOPMENT BANK GROUP 9.2.3 As part of its economic and structural adjust- that of the total for the industry. Without further action, ment programme, the government adopted a com- the low level of assets relative to GDP for the industry prehensive package of financial policy reforms in the as a whole and the commercial banks in particular, un- 1990s. The objective was to create a better business derscores the inability of the financial sector to play a environment by relaxing some of the financial sector larger and more important role in providing funding for restrictions, to modernise the financial sector to cope the diversification programme in the decade ahead. with the new achievements in the banking industry, and to build more efficient financial market to promote 9.2.6 The financial system of Sudan consists of the economic growth through a more efficient allocation Central Bank of Sudan, which regulates and supervises of credit. The reform agenda of 1997 improved the the system that includes 37 commercial banks and a financial sector of Sudan in terms of supervision and number of non-bank financial institutions (NBFIs). The regulation, with a shift from direct instruments of mon- sector is dominated by the banking industry that is etary control to one with more weight on indirect in- concentrated in the big cities. Most of the remaining struments.133 The direct instruments included directed assets are held by insurance companies. Micro-finance credit to priority sectors, centralised lending to public organisations and the stock exchange account for min- enterprises, fixed rates of return that were negative in imal shares of the financial assets of the country. Only real terms and restrictions on interbank transactions. a small share of the population has access to bank ser- The use of market-based instruments was initiated in vices, and enterprises often face difficulties in obtaining 1998 under the open market operations that are Islam- funding from banks or capital markets. ic by principle (they are Shariah based). 9.2.7 Authorities have recently embarked on a se- 9.2.4 Continued financial sector reform and devel- ries of reforms in attempts to strengthen the financial opment is an essential pillar for Sudan’s medium and system and improve the performance of the banking long-term prospects. While progress has been made sector. Supervisory and legal and regulatory frame- in deepening financial intermediation, Sudan’s financial works have been improved, particularly in the areas of system remains relatively underdeveloped. Sudan’s fi- corporate governance, risk management, and provi- nancial system is relatively small compared with coun- sioning. Restructuring processes are also underway for tries in similar stage of development. There is no inter- two banks, including the Omdurman National Bank, to bank market. The equity and foreign exchange mar- improve their financial position. kets are shallow, and nonbank financial institutions are small. Recent Developments in the Banking Industry 9.2.5 Table 9.1 indicates that the ratio of domestic financial assets to GDP was only 8 percent as recently 9.2.8 Like many developing countries, the Suda- as 2005. It increased to 27 percent by 2012 and 2013. nese financial sector is dominated by commercial Moreover, the share of these assets held by the com- banks rather than by bond and equity markets that mercial banking network is only a little more than half of require mature systems of accounting and financial information. The banking sector forms the backbone 133 Kireyev, Alexi (2001), Financial Reforms in Sudan: Streamlining Bank Intermediation. of Sudan’s financial system and is the primary source IMF Working Paper, IMF Geneva Office, May 2001.

Table 9.2: Commercial Bank Branches per 100,000 Adults in Sudan and Comparator Countries Country 2005 2006 2007 2008 2009 2010 2011 2012 2013 Egypt 3.8 3.9 4.2 4.5 4.6 4.6 4.6 4.7 4.9 Kenya 2.6 2.7 3.5 4.1 4.4 4.7 5.0 5.5 5.6 South Africa 7.2 7.4 6.1 7.9 9.4 10.1 10.5 10.4 10.3 Sudan 2.4 2.3 2.3 2.4 2.8 2.2 2.9 2.9 3.1 Tunisia 12.2 13.0 13.7 14.5 15.0 16.5 17 17.7 18.3 Uganda 1.2 1.2 1.3 2.0 2.3 2.4 2.3 2.6 2.9 Source: World Bank, World Development Indicators database.

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Table 9.3: Bank Credit to the Private Sector of Sudan and Comparator Countries (Percent of GDP) Country 2000 2005 2010 2011 2012 2013 2014 Egypt 52.0 51.2 33.1 31.2 29.1 27.8 27.3 Kenya 25.6 26.1 27.1 30.4 29.5 31.7 34.4 South Africa 69.1 68.8 70.4 67.6 68.4 67.4 67.2 Sudan 2.3 10.4 11.9 10.8 12.0 10.4 8.5 Tunisia 53.4 55.5 65.1 72.5 72.1 71.9 n.a. Uganda 5.7 8.5 13.3 15.3 13.6 13.4 14.3 Source: World Bank Development Indicators database.

Table 9.4: Commercial Bank Lending by Economic Sector in Sudan (Share of loans outstanding at end year in %) Sector 2001 2005 2010 2011 2012 2013 2014 Agriculture 17.6 8.8 12.5 11.7 14.8 16.0 16.7 Industry 14.8 10.9 10.3 10.8 12.6 15.9 14.6 Trade Exports 19.6 3.9 2.5 3.0 3.4 3.6 3.7 Imports 3.7 26.2 11.3 10.4 3.2 3.0 2.0 Domestic trade 18.8 22.8 14.3 14.4 13.2 9.7 9.1 Construction n.a. n.a 9.2 9.9 11.0 10.9 16.7 Other sectors 25.5 27.4 39.9 39.8 41.8 40.9 37.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Memo item: Loan balance (SDG mill) 1,464 6,954 17,205 20,202 24,815 32,667 40,006 Source: Central Bank of Sudan, Annual Reports, various issues. of financing for the domestic economy. At the present funding from banks (and capital markets). And large time, there are 21 public-private (jointly-owned) banks segments of the population have very limited access in the country, as well as six foreign banks and two to these services, especially in rural areas. The Cen- banks that are branches of foreign banks, and four tral Bank of Sudan has no regulation on the number of state-owned banks (including one commercial bank bank branches for commercial banks, suggesting that and three specialised banks). Publically-owned banks decisions on the number of branches are specific to dominate the sector and account for around 50 per- individual bank enterprises. Despite a recent increase cent of total banking sector assets. in the number of bank branches in Sudan, the num- ber of branches per 100,000 adults in the country is 9.2.9 As Safiat (2013) has noted, Sudan’s banking low compared to countries like Kenya and Egypt. Table system remains largely cut off from the international fi- 9.2 shows commercial banks branches per 100,000 nancial system.134 The offshore activities of Sudanese adults in Sudan and five comparator countries in Afri- banks are confined largely to export finance and re- ca.135 Commercial bank branches per 100,000 adults mittance transfers. Although some Sudanese banks increased from 2.4 in 2005 to about three by 2013. have foreign shareholders, and there are a number of Sudan is comparable to Uganda, but is low compared jointly-owned banks, the transfer of international expe- to Kenya, Egypt, Tunisia and South Africa. rience has been slow, given the low levels of offshore investment in Sudan. 9.2.11 Allocation of Bank Credit to the Private Sector. Bank financing of the private sector is essen- 9.2.10 Access to banking services in Sudan is uneven. Enterprises often face difficulties in obtaining 135 For purpose of comparison in this Chapter, Egypt, Kenya, South Africa, Tunisia and Uganda are used as comparator countries. All these countries have relatively strong manufacturing sectors, a characteristic that Sudan will have to acquire if its diversifi- 134 Safiat, Ali Saber Ali (2013), Financial Intermediation and Economic Growth in Sudan: cation programme is to be successful. The share of manufacturing in Sudan’s GDP An Empirical Investigation, 1970-2011. British Journal of Economics, Management is about 6 percent, whereas it ranges from 9 percent for Uganda to 17 percent for and Trade, 3 (4), pp. 332-358, July 2013. Tunisia.

180 | AFRICAN DEVELOPMENT BANK GROUP Table 9.5: Mode of Financing for the Private Sector (As percent of total) Islamic instrument 2001 2005 2010 2011 2012 2013 2014 Murabaha 39.5 43.3 55.5 61.4 49.9 53.2 52.2 Musharaka 31.0 30.8 9.4 6.6 10.9 11.1 9.4 Mudaraba 6.2 4.2 7.1 6.1 5.4 5.2 5.4 Salam 5.0 2.1 1.2 0.7 1.9 2.0 3.8 Mugawla - - 10.4 8.4 9.0 11.6 13.4 Others 18.3 19.6 16.4 16.8 22.9 16.9 15.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Memo item: Total flow (SDG million) 1,464 6,954 22,107 23,329 24,103 33,822 38,679 Source: Central Bank of Sudan, Annual Reports, various issues. tial for the growth of the economy. However, access to Table 9.4 shows the distribution of bank credit to the credit by the business community in Sudan is a major various sectors of the Sudanese economy. In the early concern. According to the 2014 Sudan economy pro- 1990s, banks were instructed to allocate 50 percent file reported by the World Bank (2014), Sudan ranked of their lending to agriculture. As a result, the share 170 out of 189 countries in ease of obtaining credit. In of agriculture in total bank lending rose to 32 percent the 1996-2000 period, commercial bank claims on the by 1993. However, following the financial liberalisation private sector were the equivalent of only about two and reform programme, coupled with the high risk and percent of GDP. In response, the central bank intro- relatively low or even negative real rate of return on duced a series of reforms in 2000 aimed at strengthen- agricultural finance, the share of agricultural loans de- ing the (mainly state-owned) banks and increasing their clined steadily to only 9 percent by 2005. The increase commercial independence, while tightening supervi- in lending to agriculture during the 1990s was accom- sion. As Table 9.3 indicates, bank credit to the private panied by a sharp fall in lending to the industrial and sector increased substantially in the past decade, rising export sectors. to about 12 percent of GDP by 2010. It declined to only 8.5 percent in 2014. 9.2.14 In spite of agriculture being the largest sec- tor of the economy, it attracted only about 12 percent 9.2.12 This level of access to bank financing by the of total bank credit as recently as 2010-2011. Since private sector is still quite low in comparison with 2011, the share of agriculture has increased steadily to Egypt, Kenya, South Africa and Tunisia. As Table 6.13 almost 17 percent at the end of 2014. This pattern of in Chapter 6 indicates, the share of manufacturing in lending by the commercial banks may stem from the Sudan’s GDP is projected to increase to about 15 per- notion that lending to agriculture and industry carries cent of GDP by 2030, roughly comparable to the cur- more risk than these service sectors. Another factor rent average for these four comparator countries. The relates to the use of Islamic modes of finance in Su- implication is that the share of bank credit to the private dan. In the past decade, most of the bank credit went sector in Sudan may have to increase to at least 30-40 to trade and other service sectors. The other striking percent of GDP by 2030 to meet the domestic private change in recent years is the large increase in the share sector demand for bank financing. This would repre- of credit allocated to the construction industry. At the sent a very substantial increase over the level of credit same time, there has been a substantial decline in the provided in 2013. These illustrative projections under- share of credit allocated to domestic trade activities. score the importance attached to further development of the banking system in Sudan in the decade ahead. 9.2.15 Bank Lending by Type of Instrument. As Extending bank credit to the private sector is one of the noted earlier, banking and other financial practices in major components of the ongoing reform programme Sudan are based on Islamic modes of financing. Box for 2014 agreed upon with the IMF. 9.1 provides a summary of the modes in use in Sudan. Some of these modes of finance are not considered ef- 9.2.13 Allocation of Bank Credit Among Sectors. ficient in financing agriculture. For example, because of

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Table 9.6: Non-Performing Loans in Sudan and Comparator Countries (As % of total loans outstanding) Country 2000 2005 2010 2011 2012 2013 2014 Egypt 13.6 26.5 13.6 10.9 9.8 9.3 8.9 Kenya 33.3 25.6 6.3 4.4 4.6 5.0 5.5 South Africa n.a. 1.5 5.8 4.7 4.0 3.6 3.3 Sudan 15.4 n.a 14.0 n.a. 11.9 8.4 n.a. Tunisia 21.6 20.9 13 13.3 14.9 16.5 16.2 Uganda 9.8 2.3 2.1 2.2 4.2 5.6 4.1 Source: Central Bank of Sudan, Annual Reports and World Bank, World Development Indicators database. the participation required by banks in the management SMEs and small-scale farming, with term financing for of projects they finance, the banks are not usually will- investment in activities that can boost production and ing to have a Musharaka (profit sharing) contract with productivity. operators in the agricultural sector (Kireyev, 2001). 9.2.18 Quality of Bank Loan Portfolios. Systemic 9.2.16 Sudanese banks have a clear preference for risk is estimated to be low, largely due to low levels Murabaha over other Islamic modes of finance (Table of intermediation, the small size of the financial sector 9.5), perhaps because it is the mode of Islamic finance and its relative isolation from global financial markets. closest to conventional banking in the sense that the However, capital adequacy ratios are below required loan is collateralised and hence offers greater securi- levels for most institutions in the sector. A high share ty. 136 In the past decade, there has been a steady in- of the loan portfolio in Sudan is classified as non-per- crease in the share of this instrument in total financing forming. Nearly half of all non-performing loans (NPLs) extended to the private sector. Banks are usually not was held by one bank, the Omdurman National Bank, willing to enter into a Murabaha contract with projects which represented almost 25 percent of total bank related to the agricultural sector, in spite of the fact that lending, but had almost 40 percent of its loan portfolio agriculture is the biggest contributor to GDP. This is not non-performing. The high proportion of non-performing unconnected to the notion that the investor has no ob- loan in the banking system adversely affects the asset ligation to guarantee no loss from investment, though quality of banks that then has negative consequence the investor is expected to do the best to ensure the for bank profitability as well as the expansion of loans. success of the project. The high level of NPLs has hindered the capacity of the banks to act as effective financial intermediaries. 9.2.17 The very low and generally falling share of This is inimical to private sector development. Table Salam, the main mode of financing agriculture, is a clear 9.6 reports the non-performing loans as a percentage indication of the declining role of commercial banks of total loans in Sudan and for the earlier mentioned in the agricultural credit market in Sudan. Moreover, comparator countries. Non-performing loans in Sudan the profit sharing modes of financing, Mudaraba and declined from 15.4 percent in 2000 to 8.4 percent in Musharaka, which are more suitable for entrepreneurs 2004, but increased thereafter to 14 percent in 2010. with limited capital of their own, have declined from 37 The non-performing loan ratio in Sudan was lower than percent in 2001 to 16 percent in 2010. These trends in Kenya, Egypt and Tunisia from 2002-2004, but with in Salam, Musharaka and Mudaraba suggest that me- the subsequent deterioration, Sudan’s asset quality in dium and long-term financing by Sudanese banks is 2012 was lower than four of the five comparator coun- low and generally falling. They also suggest that the tries. By 2013, the share of non-performing loans in current structure of the Sudanese financial sector is not Sudan had declined to 8.4 percent again. However, the conducive to providing the private sector, especially objective for Sudan should be to get the ratio down to the 4-5 percent range of South Africa and Kenya. 136 According to the Central Bank of Sudan directives, banks may use all Shariah-com- patible instruments, other than Mudaraba Mutlaga, to finance various activities and sectors. Mudaraba Mutlaga is an unrestricted form of Mudaraba and has the lowest share of bank financing in Sudan.

182 | AFRICAN DEVELOPMENT BANK GROUP Table 9.7: Selected Indicators for Levels of Financial Intermediation in Sudan and Comparator Countries Indicator Sudan Comparator data for 2012 (in local currency mill) 2000 2005 2010 2011 2012 2013 Egypt Kenya Sth Africa Tunisia Uganda Amount (SDG million) Demand 841 4,369 11,593 13,719 18,365 21,035 133,903 706,679 496,413 13,062 5,102 deposits Quasi 1,067 5,340 13,801 15,248 23,504 26,218 828,237 886,752 1,473,752 26,785 4,775 money Currency 1,558 3,761 10,068 12,850 16,751 19,178 205,020 147,753 81,057 6,550 2,246 Total M2 3,467 13,470 35,462 41,817 58,620 66,431 1,167,160 1,741,184 2,051,222 46,397 12,123 Composition of M2 (%) Demand 24.3 32.4 32.7 32.8 31.3 31.7 11.5 40.6 24.2 28.2 42.1 deposits Quasi 30.8 39.6 38.9 36.5 40.1 39.5 71.0 50.9 71.8 57.7 39.4 money Currency 44.9 27.9 28.4 30.7 28.6 28.9 17.6 8.5 4.0 14.1 18.5 Total M2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Memo items: M2 as % of 10.3 16.2 21.9 22.4 24.1 22.5 75.7 50.6 65.0 65.1 24.3 GDP Commercial 815 1,940 4,619 5,555 9,745 11,723 52,021 111,137 61,934 1,427 1,293 bank reserves (SDG mill) Reserves as 42.7 20.0 18.2 19.2 23.3 24.8 5.4 7.0 3.1 3.6 13.1 % of total deposits Source: Annex Table 2.1, World Bank World Development Indicator database and IMF country report, various issues.

Financial Intermediation and Financial since the intermediation process involves lending to the Sector Efficiency private sector for investment purposes.

9.2.19 Conventional banking allows banks to manage 9.2.20 Financial Intermediation is at an Early their liquidity through borrowing on an inter-bank mon- Stage of Development in Sudan. Progress in the ey market. Such markets facilitate borrowing in order past decade or more notwithstanding, the current level to manage bank’s assets and liabilities and ensure that of financial intermediation in Sudan is low in compari- there is no risk of a mismatch between durations of son to other lower middle income countries in Africa. assets and liabilities. Islamic banking requires all trans- One commonly used measure of the level of financial actions to be based on underlying tangible assets, intermediation is the level of broad money (M2) as a such as commodities, physical assets and services. percentage of GDP.137 As Table 9.7 indicates, the most As such, inter-bank money markets in the conventional recent data indicate that the level of M2 peaked at 24 sense are not permissible in accordance with Islamic percent of GDP in 2012 and then declined to 19 per- banking principles. While this ensures that banks will cent of GDP in 2013, somewhat lower than Uganda, not invest in high risk financial products and any se- but well below that of Egypt, Kenya, South Africa and curitisation will have an underlying physical asset, mis- Tunisia, both of which were at 65 percent in 2012. A matches between the duration of banks’ liabilities and number of other characteristics stand out in compar- assets can present a management challenge because ison with these five countries, including a high prefer- of reliance on short-term deposit funding. This then ence for cash and near cash in Sudan: limits the extent to which deposits can be used for lon- • Currency in circulation is close to 30 percent of the ger term financing. The financial sector of an economy money supply in Sudan, compared with about 18 with high financial intermediation contributes more to the growth of the private sector and the real sector of 137 The M2 measure of money supply, which is also referred to as broad money, or money and quasi-money, includes the sum of currency outside the banks, demand deposits the economy than one with low financial intermediation other than those of the central government, and the time, saving and foreign currency deposits of resident sectors other than the central government.

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percent for Egypt and Uganda, ranging down to infrastructure development through investment in these less than 10 percent for Kenya and South Africa. government certificates. Banks are allowed to invest up • With the exception of Uganda, the other compar- to 30 percent of their overall investment portfolios in ator countries all have high proportions of broad liquid assets. However, while providing an important money supply in the form of quasi-money.138 source of funding for infrastructure investments, the government certificates have crowded out bank financ- 9.2.21 Other measures of financial intermediation all ing to the private sector and opportunities for invest- reinforce the point that the Sudanese financial system ment in other productive activities. The high yields on is underdeveloped. In 2012, the total deposits of the these certificates raised budgetary expenditures and banking system were equivalent to about 20 percent of contributed to increases in the budget deficit. GDP. This compares with 46 percent for Kenya, and 62 percent for Egypt and for South Africa, and 56 percent 9.2.24 The cost of borrowing in Sudan is high. for Tunisia. The weak private deposit base stems from High credit risks and the lack of competition among institutional and historical factors. Under the limitations banks contribute to the high cost of borrowing in Su- of the Islamic financial system, most banks cannot ex- dan. The minimum Murabaha rate is set by the Bank of pand their deposit base quickly because most types Sudan at 6 percent, but it is not binding, and lending for of deposits are not remunerated. In recent years, de- Musharaka takes place at about 30 percent. Because posits have been growing in real terms, but the share of lack of competition in the market, the spreads on of investment-type instruments – the only type of de- Murabaha lending can range from 10 to 14 percent, posits that can be remunerated under – has re- while returns on investment deposits, and especially mained unchanged. Some observers have suggested foreign currency deposits, range from 8 to 20 percent. that since the government imposed limits on deposit There are several reasons for these high rates. A sig- withdrawals in 1991, people have not trusted banks nificant part of the banking system is still state owned, and have preferred to keep cash at home. The poor with privatisation moving slowly. Many banks continue quality of many banking services has compounded the to depend on the direct credit and refinancing facili- problem of limited use of banking services by the gen- ties of the Central Bank of Sudan. Market information eral populace in Sudan. is also scarce, and the interbank market is used only sporadically to recycle surplus funds. The latter then 9.2.22 The other concern related to the further in- precludes development of efficient open market oper- crease in financial intermediation concerns the high ations for monetary management. Inefficient banking level of currency deposits in the banking system. In technologies, uneconomic settlement systems, and 2012, demand deposits accounted for 44 percent of deficiencies in the training of bank employees contrib- total bank deposits in Sudan, compared to 14 percent ute to the high cost of credit. Lending in Sudan remains for Egypt, 26 percent for South Africa and 32 percent genuinely risky, and high bank fees can be expected. for Tunisia. However, in both Kenya and Uganda the share of demand deposits in 2012 was roughly compa- 9.2.25 Institutional issues related to financial in- rable to that of Sudan. The strong preference for cash termediation.139 Ongoing weaknesses in the lending in Sudan has negative implications for financial inter- environment and supporting institutions such as col- mediation. lateral legislation and the judicial system, creditor rights and lack of reliable information and a credit information 9.2.23 To offset the heavy dependence on short-term infrastructure have also contributed to lack of progress deposit funding, the government has been issuing in expanding financial intermediation in Sudan. These government certificates that are highly liquid and that weaknesses affect small and medium enterprises more have high returns. These are issued against underlying than large ones, since micro, small and medium enter- infrastructure assets and projects. The domestic pri- prises often rely on secured and cash flow lending for vate sector has been contributing to the financing of access to finance and depend on a lending environ-

138 Quasi money typically includes such instruments that can easily be converted to cash 139 This Section draws heavily on the discussion about financial intermediation contained as time and savings deposits, government treasuries, bonds that are near their re- in Ranganathan, Rupa, and Cecilia M. Briceño-Garmendia (2011), Sudan’s Infrastruc- demption dates and widely traded foreign currencies such as the US dollar, euro and ture: A Continental Perspective. World Bank, Washington DC, Policy Research Work- yen. ing Paper 5815, September 2011.

184 | AFRICAN DEVELOPMENT BANK GROUP ment that supports these modes of financing. in commercial contracts and facilitating the manage- ment and resolution of default risk. In the absence of a 9.2.26 The lack of credit analysis, due diligence and credit bureau in Sudan, banks often assess risk using a risk management skills has also contributed to weak- transaction-based rather than a client-based perspec- nesses in the banking sector, insufficient internal con- tive. trols and risk. Efficient financial intermediation to the private sector requires bank staff to be trained in mod- 9.2.29 Potential for more intermediation. There ern credit management techniques and risk assess- is a high preference for cash relative to deposits and ment tools to enable them to assess, price and man- for demand deposits relative to investment and savings age risks in order to lend prudently. This also requires deposit in Sudan. The key challenge for the decade representative and standardised statements of borrow- ahead is to put in place policies and programmes that ers to reflect their financial standing that can then be will substantially improve the role of financial interme- verified and certified by qualified auditors. The banks’ diation in the country’s economy. The proposed strat- capacities to evaluate risk, particularly that associated egy for diversification and accelerated development of with small firms, is also weak. In Sudan, a significant the non-oil sectors of the economy will require a major proportion of approved loans have been based on rela- ramp-up in programmes that promote the scale and tionship lending and the securities provided rather than effectiveness of intermediation by the financial sector in the soundness of the project proposals and associated the decade ahead. These initiatives will be an important due diligence. The asymmetric information in the mar- step in expanding private sector access to the domes- ket for bank loans can be minimised by making it man- tic financial resources of the country for a broad-based datory for the credit profile of every loan applicant to be development of the economy. diagnosed from the credit reference bureau. 9.2.30 It is clear from international experience that 9.2.27 The development of a reliable and compre- an economy with a low preference for cash compared hensive credit information system is essential for the to preference for deposits is in a better position to in- proper functioning of the credit market and for diver- crease financial intermediation to the extent that banks sifying the scope of lending to SMEs. A fully functional lend from deposits. In addition, in an economy where credit information system will allow banks to evaluate there is less preference for demand deposits compared risks on clients rather than on individual transactions. to investment and savings deposits, the ability of banks This will allow banks to price risks or manage credit to lend to the private sector is low because banks use limits per client. Difficulty in obtaining information about investment and savings deposits at their discretion to financial standing, credit history and creditworthiness satisfy the demand for loans (unlike demand deposits). and identity of prospective clients discourages finan- With a low preference for cash relative to deposits and cial institutions from expanding their lending business low preference for demand deposits relative to invest- to new segments of the market. In 2011, the CBoS ment and savings deposits, the potential for intermedi- established the Credit Information and Scoring Agency ation increases. Increased intermediation, in turn, can (CIASA) – the first credit bureau in Sudan. The Agen- have a positive impact on growth of the private sector cy has made considerable progress in the past three and overall economic growth. years in building a reliable and comprehensive report- ing capability, but further substantial improvements are Non-Bank Financial Services required.140 9.2.31 The financial system of Sudan includes a num- 9.2.28 Inefficient land and property registries limit the ber of non-bank financial institutions (NBFIs), although ability of banks to offer secured lending products and their role in providing financial services is very limited longer-term finance. Protection of creditor rights and in- at the present time. The NBFIs include 15 insurance solvency systems are necessary for greater confidence companies that offer risk covers; development finance companies that fund projects; social funds that deal 140 For a recent review of the challenges associated with the development of credit report- with issues of pension and social insurance; a depos- ing systems in Sudan, see Hussein, Elwaleed Kamal Eldin (undated), “Challenges with Data Acquisition.” A Case Study of the Credit Information and Scoring Agency. CIASA, it insurance guarantee fund that serves to strengthen Khartoum, Sudan.

AFRICAN DEVELOPMENT BANK GROUP | 185 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN confidence in the banking system for financial system rates of return (not ) on these certificates stability and safety purposes; the Khartoum Stock Ex- are currently higher than at banks, but lower than the change; the Sudan Financial Services Company that domestic inflation rate. It is supervised by the Shari- is responsible for production and marketing of instru- ah Supervisory Board. The Commission markets and ments of Islamic Securities, including Shahama, Sarah, trades all government securities, but these transactions Igarah and others; and 28 foreign exchange bureaus, are not based on a minimum competitive bidding pro- including seven that handle foreign exchange transfers. cess. Instead, restrictions are imposed on purchasing amounts when demand exceeds available supply. The 9.2.32 The position taken in this Report is that a con- SFSC operation has been used to fund a number of certed effort is required to build the human and insti- infrastructure projects, as well as the import of medical tutional capacities of this part of the financial market equipment. However, the economic embargo that also in ways that will accelerate the growth of the capital extends to the health sector and the agricultural sector market in Sudan and ensure that the private sector will is a constraint to the expansion of the projects financed have increased access to a growing range of non-bank by the SFSC. financial instruments and services, including for exam- ple, both public offerings and private placements to 9.2.35 There is also a very small corporate bond mar- raise new capital. More work is also needed to develop ket at an early stage of development. As of mid-2010, the existing very small primary market for securities and only three corporate entities had been issuing debt in- to promote the development of the secondary market struments. One of the key challenges for Sudan in the for such securities. Both the money market and capital decade ahead will be the further development of pri- market have important roles to play in this regard. With mary markets for these products, as well as supporting the prospect of further growth and development of the emergence of a secondary market for both public these markets, an important next step is to strengthen and private issues of debt instruments. the capacities for independent regulation of core non- bank financial institutions. As noted below, oversight is 9.2.36 Another challenge is the low level of aware- currently carried out by institutions that do not have full ness of investment certificates in Sudan. The directive authority or are not completely independent. of the CoBS that puts a 20 percent ceiling on bank par- ticipation is an inhibiting factor in the further develop- 9.2.33 The market for fixed income financial in- ment of this market, since individuals hold only about struments is small. In conventional financial systems, 25 percent of total value of certificates. The objective government borrowing through the issue of treasury of the ceiling is to promote individual holdings of cer- bills and bonds is typically used to finance fiscal defi- tificates, but given the very limited holdings of individu- cits of the government. Sudan’s fixed income market is als, it restraints banks holding of certificates in spite of quite small and is based on Islamic Sharia fundamen- the weak interbank activities and the strong desire of tals. The issue of government financial paper in accor- banks to hold these certificates. dance with Shariah rules is the mechanism that is used for financing budget deficits. The main activity in the 9.2.37 Micro-Finance Services. Since the mid- primary market is the issue of Government Musharaka 1990s, in an effort to reduce the incidence of poverty, Certificates and Government Investment Certificates, the government has encouraged the growth of micro-fi- similar to conventional treasury bills and government nance institutions and encouraged commercial banks bonds, as well as Central Bank Igarah Certificates (ad- to lend to small enterprises. Several micro-finance in- ditional Islamic certificates). stitutions were set up to provide micro-finance. How- ever, decades of civil war and political instability have 9.2.34 The SFSC is the vehicle for managing mone- prevented Sudanese microfinance efforts from having tary policy and financing government deficit by issuing any noticeable impact. According to the World Bank Government Musharaka certificates (GMC) and Devel- (2007), by the mid-2000s microfinance efforts only cov- opment Certificates (Government Investment Certifi- ered 1 to 3 percent of the potential market.141 Since the cates) respectively. The SFSC issues GMC four times signing of the CPA in 2005, a number of global organ- in a year and the maturity of certificates is one year. The 141 World Bank (2007), Project Information Document: Sudan Microfinance Development Facility Project. World Bank, Washington DC, 2007.

186 | AFRICAN DEVELOPMENT BANK GROUP isations have joined in to support the development of urban community initiatives. These have included the microfinance services. In 2006, the CBoS signed an Port Sudan Association for Small Enterprise Develop- agreement with the World Bank to launch a US$50 mil- ment. Elkifaya Bank, the Sudanese Development As- lion microfinance fund. The purpose of the fund was to sociation, Sudanese Red Crescent and the Women’s support then current microfinance efforts and establish Fund of the Women’s Union of Khartoum State all sup- a microfinance department within the CBoS. With the port CBOs focused on the urban poor and especially formation of the Sudan Microfinance Development Fa- on women. cility (SMDF) in 2007, both sides agreed to “take an institutional approach to supporting microfinance” and 9.2.40 The Central Bank of Sudan has provided ca- act like investors in retail providers rather than finan- pacity building support and advisory services to these ciers of a project. Investments were tied to defined and institutions. Given the limitations of the formal financial agreed upon performance targets, and the SMDF was markets of Sudan, and the need to ensure that small- expected to invest in a diverse pool of retail providers. and medium-scale business activities and individual Diversity was both in terms of services provided to var- farmers and entrepreneurs have increased access to ious industries and market segments served (includ- financing, there is a compelling case for the further de- ing gender, geographic location, and socioeconomic velopment of the microfinance industry in Sudan. One status). In addition to financial investments, the SMDF issue is whether the Central Bank of Sudan, in its usu- was expected to invest in support organisations to give al supervisory role, should impose penalties on banks retail providers the greatest chance of success. that do not meet the minimum 12 percent requirement for total loan portfolio given to SMEs as microfinance. 9.2.38 To further increase access to finance, the Cen- tral Bank of Sudan established a Microfinance Unit in 9.2.41 An alternative to this penalty approach is to 2007. And in response to the fact that commercial build and strengthen non-bank microfinance institu- bank lending to micro-finance entities did not exceed tions for boosting SMEs with strong growth potential, four percent of total bank lending, in 2009 the Central through increased access to microfinance loans. Much Bank required all commercial banks operating in the remains to be done to build these services and improve country to establish microfinance offices and allocate access to them. Recent estimates suggest that cur- 12 percent of total loans to microfinance lending oper- rent access to microfinance services covers less than 5 ations. A circular describing the SMDF and detailing the percent of potential demand in Sudan. The experience role that Sudanese banks were to play in the provision of many other African countries in the past decade or of microfinance was issued at that time. The Central so suggests that an effective remedy for the current Bank also introduced the Private Sector Development limited reach of microfinance in Sudan may lie with the Project in 2009 that offers grants to prospective entre- mobile phone industry. One of the newer microfinance preneurs via a business plan competition. institutions, North Kordofan Microfinance Bank (Gu- daim), has already begun to invest in the Management 9.2.39 Prior to the 2009 Directive, some commercial Information System (MIS) and Mobile Payment Platform banks had been providing microfinance services for needed to make this a reality. As indicated in Chapter 8, over 15 years. These include the Agricultural Bank of Sudan’s mobile phone network now covers more than Sudan and the Savings and Social Development Bank 70 percent of the population. The CBoS Microfinance (which serves as an intermediary for INGOs and UN Unit is aware of the potential of mobile banking and agencies), and to a lesser extent, the Sudanese Islam- recently placed a request for a feasibility study towards ic Bank, the Faisal Islamic Bank, Albaraka Bank, and the development of this potential. When completed, the Islamic Cooperative Development Bank. However, this study may then provide a basis for development of various non-government organisations (NGOs) have policies and programmes that can accelerate the use been the main providers of microfinance to low income of mobile banking services in Sudan. people in urban and rural areas in the past decade or more.142 Community‐based organisations (CBOs) lo- 9.2.42 Insurance Industry. Insurance business in cated mainly in or around Khartoum have focused on Sudan is based on Islamic principles. The first insurance

142 For more details about these various programmes, see Meloni (World Bank), Bott companies were established by existing Islamic banks (UNDP), Hansohm (UNDP). Microfinance in Sudan. 2007.

AFRICAN DEVELOPMENT BANK GROUP | 187 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN in Sudan, the latter requiring that their insurance com- and is largely dominated by government securities. Ac- panies operate on Islamic principles. The conventional cess to securities markets is open to local and foreign insurance companies in existence in 1992 were trans- investors, including banks, corporate entities, financial formed to Islamic insurance following a Ministerial De- institutions, and individuals, with the exception of Igar- cree in 1992. Currently, there are 15 insurance compa- ah Certificates, which are restricted to banks. nies in Sudan, two of which offer reinsurance services. Sheikan Insurance Co., which is state-owned, controls 9.2.45 As with most of the Sudan financial institutions, more than 50 percent of the market. All of these com- the KSE operates on the basis of Islamic Sharia and is panies are domestically-owned as no foreign insurance supervised and regulated by the Central Bank of Sudan companies are licensed to operate in Sudan. The size rather than a specialised institution, as is the case for of the sector is small, with the public sector accounting most developed stock exchanges elsewhere.143 Com- for about 40 percent of the total market premiums paid pany shares and financial certificates (Sukuk), specif- each year. The gross value of premiums in the industry ically Government Musharaka Certificates (Shahama) is SDG 1.3 billion, (about US$360 million), compared to are traded at the KSE with the latter taking about 95 US$6.6 billion in South Africa, US$1.9 billion in Nigeria, percent of the traded value. There were 58 and 47 US$1.0 billion in Algeria and US$1.1 billion in Kenya. listed companies and Sukuk and investment funds re- The penetration rate is less than one percent, com- spectively in 2012, and 60 and 47 listed companies pared to 15 percent in South Africa. The growth of the and Sukuk and investment funds respectively in 2013. insurance industry appears to be constrained by lack of Market capitalisation was SDG 9.6 billion and SDG awareness among the populace and by the low levels 11.6 billion in 2012 and 2013 respectively. of income of SMEs that are potential customers for the industry. 9.2.46 The major drawbacks for Sudan’s stock mar- ket are the limited public awareness of the role of the 9.2.43 The Insurance Supervisory Authority (ISA), KSE in development of the domestic capital market, which is a unit in the Ministry of Finance and Nation- the slow pace of the privatisation exercise and the slow al Economy, is responsible for regulation of insurance pace of establishing an independent security commis- companies in Sudan. The powers of the ISA are rela- sion for the supervision of the exchange. In addition, tively weak, and even though the authorities have made no settlement bank has been chosen, hence financial efforts to improve the regulatory framework, most of the clearance for the daily trading is on manual basis. An insurance market still does not comply with principles action plan for further development of the securities set by the International Association of Insurance Super- market should therefore be built around the following: visors (IAIS). The regulatory body of insurance compa- • The ongoing privatisation programme for public nies in most developed insurance industries elsewhere enterprises should be strengthened and acceler- in the continent and beyond falls under an independent ated. body or the purview of the central bank. In these cases, • The authorities should fast track the establishment the regulators have full authority for oversight of the in- of the Security Commission for the supervision of dustry. The core challenges of the industry in Sudan are the Khartoum Stock Exchange. the lack of well trained staff and the fact that the regu- • The ongoing efforts to encourage more listing of latory body is a unit under the Ministry of Finance and companies on the KSE must continue. National Economy without complete independence. 9.2.47 In connection with the third point above, there 9.2.44 Khartoum Stock Exchange. The KSE start- is no specific programme in place to target SMEs for ed dealing in shares of the first listed companies in listing on the exchange, especially among those busi- 1995. Electronic trading was launched in 2012, follow- ness entities with high growth potential that may need ing a trial run in 2011. As a result, there has been a access to additional funding to realise their potential. substantial increase in the volume of trading. By 2013 The supervisory body of the Khartoum Stock Ex- the volume of trading stood at SDG 134 million. About change should therefore consider a marketing initiative 40 brokerage firms operate on the market. Secondary that targets new and existing SMEs with high potential. market activity is limited to over-the-counter trades, 143 The board of directors for the KSE is responsible for day-to-day oversight.

188 | AFRICAN DEVELOPMENT BANK GROUP Consideration could also be given to introduction of a cation of the economy. Improved access to financial funding facility that potential new listing entities could services and improved efficiency are essential compo- access to pay for the cost of advisory services associ- nents of proposed programme for diversification in Su- ated with preparations for listings. dan.

9.2.48 Sudan financial service company. The 9.2.51 Action programme for the near-term. Au- Sudan Financial Service Company (SFSC) was estab- thorities have recently embarked on a series of reforms lished in 1998 by the Central Bank of Sudan to provide in attempts to strengthen the financial system and im- financial services by managing financial papers issued prove the performance of the banking sector. Supervi- by the government according to Shariah rules. It gets sory and legal and regulatory frameworks have been funds from surplus units who do not want to save at improved, particularly in the areas of corporate gover- banks and pass them to the Ministry of Finance and nance, risk management, and provisioning. Restruc- National Economy (MFNE) for investment in develop- turing processes are also underway for two banks, in- ment projects. The Central Bank of Sudan owns 99 cluding the Omdurman National Bank, to improve their percent of the assets of the SFSC, with the remaining financial position. 1 percent held by the Ministry of Finance and National Economy. In terms of operation, the SFSC issues initial 9.2.52 The IMF has called for further reforms to im- public offerings (IPOs) that are then given out to the prove the competitiveness, efficiency and resilience of KSE for trading. At maturity (after one year), owners the banking sector. In the annual consultations with the of the certificates refer to the SFSC. The capital of the IMF, it was agreed that a comprehensive evaluation of SFSC is about SDG 100 million (US$17.5 million) while the banking sector would be undertaken by the gov- it is dealing with about SDG 16 billion (US$2.8 billion) of ernment to build on the earlier evaluation in 2013 (IMF, government certificates. 2013.d).144 Under the proposed programme of reforms, priority would be given to the following key concerns: 9.2.49 One of the key challenges of the SFSC, how- • Make further progress on adoption of best prac- ever, is that it does not have the technology required to tices in bank supervision, inspection and enforce- link all the institutions involved in its operation, especial- ment; ly with regards to settlement data and information shar- • Update risk-based manuals for offsite and onsite ing. These institutions are the CBS, KSE and MFNE. supervision; Settlement is currently done on a manual basis in spite • Terminate direct ownership of banks by the Central of the fact that there are up to 44 brokers in operation. Bank of Sudan; and In addition, there is a training gap for new skills, which • Upgrade the legal, regulatory, and institutional are required to manage financial paper. The required framework of the financial sector to enhance fi- training equally extends to brokers. A priority should nancing deepening. be given to early action on upgrading of the technology required for effective operations by these entities. The 9.2.53 Another action for the near-term concerns the relevant infrastructure would enable the Sudan Finan- interbank market for overnight and short-term trades cial Services Commission to link electronically the in- within the financial sector. As noted in Chapter 3, the stitutions under its operation, which are the Khartoum interbank market of Sudan is currently very weak. The Stock Exchange, the Central Bank of Sudan and the Authorities should develop the interbank market in an Ministry of Finance and National Economy. effort to absorb excess liquidity in the banking system and pave the way for more effective monetary policy Reform and Modernisation in the in Sudan. The 20 percent ceiling on bank participation Financial Sector in the market for Government Musharaka Certificates and Government Investment Certificates should be 9.2.50 Given its important role in financial intermedia- abolished as holding of these certificates by banks is tion and savings mobilization, the further development an opportunity to reduce excess liquidity in the banking of the financial sector is critical for sustained strong system. growth by the private sector and successful diversifi- 144 See IMF (2014.a). Sudan. IMF Country Report No. 14/203. IMF, Washington DC, July 2014.

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Table 9.8 Projected Growth in the Labor Force Indicator Estimate Projected 2013 2015 2020 2025 2030 Population 15-64 years ('000) 21,124 22,263 25,738 29,424 33,252 Labor force ('000) 11,443 12,133 14,051 16,274 18,847 Participtation rate (%) 54 55 55 55 57 Labor force growth rate (% p.a.) 3.0 3.0 3.0 3.0 3.0 Source: Annex Table 1.3

Table 9.9: Economically Active Population According to Economic Sectors (As % of the economically active work force in Sudan) Sector Female Male Total 1993 2004 2008 1993 2004 2008 1993 2004 2008 Agriculture, 21.9 18.5 16.0 38.8 32.6 32.6 60.7 51.1 48.6 forestry & fisheries Industry Manufacturing 0.5 0.5 0.4 4.8 4.0 3.1 5.4 4.5 3.5 Mining, 0.1 0.5 0.3 4.3 3.6 3.8 4.4 4.1 4.1 construction, utilities Sub-total 0.7 1.0 0.7 9.1 7.6 6.9 9.7 8.6 7.7 Services 4.5 6.5 7.3 23.5 24.0 24.3 28.0 30.5 31.6 Unclassified 0.4 2.5 8.3 1.1 7.3 3.9 1.5 9.8 12.2 Total 27.5 28.5 32.3 72.5 71.6 67.7 100.0 100.0 100.0 Source: World Bank (2010).

ting only asset-backed transactions (hence no interest 9.2.54 Financial Market Reforms in the Medium payments allowed) as well as avoiding contracts and and Longer-Term. A developed financial system will transactions involving certain risks and uncertainties.145 have certain architectural and organisational structures • Money market development. An active money that are well-functioning. Indeed, it is these structures market benefits monetary policy, the government, and their functioning that make a financial system de- as well as portfolio managers, banks, and securi- veloped. While it is important to have a wide array of ties markets. To facilitate the evolution of well-func- financial assets in the interest of financial sector de- tioning and active markets in financial products, velopment in Sudan, it is not an easy task to design the authorities need to take resolute steps to en- securities, such as the futures and options market, or sure certain desirable qualities of the environment. other types that are desired by investors within and out These relate to the legal framework, the clear- of Sudan, and at the same time maintain the Islamic ing and settlement systems, the efficiency of the principles of financing. banking system, and macroeconomic stability. Well-functioning and efficient credit rating organ- 9.2.55 For the medium and longer-term, a well-de- isations would also be desirable, as would fairly signed programme that can support expansion of the good internal credit rating systems of the banks. domestic financial market will need to address a range The Central Bank should also investigate ways to of issues related to further development of the mon- further improve its data base to help provide some ey market, the payment system, and capital markets. of the information that the banks need in their cred- This Report proposes that a separate study on financial it assessment tasks. The role of the Central Bank sector reform should be undertaken. It will need to ad- in the existing money market may need to be re- dress a broad range of issues, while taking full account viewed as well. As part of its role in the market, of the fact that an important part of the financial sys- the Central Bank could, for example, help ensure tem operates within the Islamic constraints of permit- 145 See, Ayub (2007) and the papers in Hassan and Lewis (2007).

190 | AFRICAN DEVELOPMENT BANK GROUP Table 9.10: Economically Active Population According to Skill Level (As % of the economically active work force in Sudan) Female Male Total 2004 2008 2004 2008 2004 2008 White collar High skilled 14.8 2.9 14.1 8.6 14.3 11.6 Low skilled 9.1 5.8 19.0 7.1 16.2 12.9 Blue collar Medium skilled 69.6 15.3 46.9 28.6 53.3 43.9 Low skilled 6.5 4.5 20.0 21.1 16.3 25.6 Not stated - 3.9 - 2.3 - 6.2 Total High skilled 14.8 2.9 14.1 8.6 14.3 11.6 Medium skilled 69.6 15.3 46.9 28.6 53.3 43.9 Low skilled 15.6 10.2 39.0 28.2 32.5 38.4 Not stated - 3.9 - 2.3 - 6.2 Total 100.0 32.3 100.0 67.7 100.0 100.0 Memo item: Medium and low 85.2 25.5 85.9 56.8 85.7 82.3 skilled Source: World Bank (2010).

high standards that banks need to meet to be al- pricing of intraday liquidity, overnight credit, avail- lowed to participate. It could also insist on specify- ability of information to participants, and time of ing or approving the maturities and the limits (e.g. settlement finality); and risk control measures such in relation to deposits or capital) to prevent exces- as use of collateral and backup and contingency sive borrowing or short-term borrowing becoming plans (see Johnson et al, 1998). Support from the long-term.146 NPC can indeed greatly enhance cooperation, at • Payment system development. At least one large the implementation stage of major initiatives, there- value payment system that satisfies the 10 core by lowering implementation cost. A well-developed principles for systemically important payment sys- depository system for securities should comple- tems is desirable for efficient and well-functioning ment the development of the clearing and settle- financial markets (see CPSS, 2001). In terms of or- ment system. Having dematerialised securities and ganisation, countries typically find it useful to set up making sure that the speed of settlement of stock a National Payments Council (NPC), comprising at transactions meets international standards would least the Central Bank and a number of commercial also help the development of the capital market banks, and probably also other financial organisa- (discussed below). tions that actively participate in the payment sys- • Regulatory Strategy. There are at least three major tem. Within such a coordination body, ideas can be consequences of a high-quality regulatory system openly discussed, information on demand for pay- for financial sector development. First, a high quali- ment services obtained, and a consensus reached ty regulatory environment will have a positive effect on important public policy issues related to institu- on cooperation among the firms in the financial tions (including the legal framework), competition sector since all the firms will trust each other more policy, and the role of the central bank. Consensus than if the regulatory standards were suspect. can further be reached on technological and oth- Second, financial firms outside the country will er choices for major (especially large-value) sys- look favourably on building relationships with the tems (namely, policies such as types of payment financial firms and markets in the country. Third, instruments, queuing mechanisms, availability and authorities in other countries will be less prone to imposing tight regulatory standards on dealings of 146 This is an area where Islamic banking seems to be challenged. But even here, chang- es are occurring. For instance, an Islamic Inter-bank money market was established in their local financial firms and markets with those in Malaysia in 1994. On this topic, see, e.g., Hassan and Lewis (2007).

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Table 9.11: Selected Indicators for Status of cies must set standards, sometimes in great detail, and Indicator 2000 2005 2010 2011 2012 must also oversee internal processes of firms to make Adult literacy sure that they are appropriate and sound. An optimal rate (%) regulatory regime and strategy will balance regulatory Female 52 n.a. 62 n.a. 65 rules, supervisory review, and market discipline. Llewel- Male 72 n.a. 80 n.a. 82 lyn (2002), for instance, argues that several problems Total 61 n.a. 71 n.a. 73 emerge with a highly prescriptive approach to regula- Gross enrolment tion. For example, the risks under consideration may rates (%) be too complex for simple rules. Prescriptive rules may Female prove inflexible and not sufficiently responsive to mar- Primary 44 59 67 64 66 ket conditions. The rules may have perverse effects in n.a. 37 39 35 39 the sense that they are regarded as actual rather than Secondary Tertiary 6 13 16 15 16 minimum standards. A central issue is the extent to Male which regulation differentiates among banks according Primary 52 67 75 73 74 to their risk characteristics and their risk analysis, man- n.a. 39 45 39 43 agement, and control systems. An important theme in Secondary this framework is that regulation can never be an alter- Tertiary 6 11 14 14 14 native to market discipline. On the contrary, regulation Total needs to reinforce, not replace, market discipline within Primary 48 63 71 69 70 the regime. 25 38 42 37 41 Secondary Tertiary 6 12 15 15 15 9.2.57 The balance between regulation on the one Primary hand and market discipline on the other, is bound to completion remain of major concern among policy makers. Some rate (%) of the determining factors for a country like Sudan Female 35 n.a. 54 n.a. 53 would be the availability of expertise within financial Male 39 n.a. 67 n.a. 61 Total 37 n.a. 61 n.a. 57 firms and within regulatory agencies, the nature of the Source: World Bank Development Indicators database. risks faced by the financial firms and the relative so- phistication and efficiency of the pool of others who could monitor the management of financial firms. Pub- Sudan (see Johnson, 2009). The regulatory strat- lic policy for crisis prevention and resolution has includ- egy in a high-quality regulatory environment must ed concerted efforts to improve early warning signals achieve two overriding objectives. First, it must en- and the promptness of response to crises. Policy in the sure clear understanding by regulators and finan- area of early warning signals has at least two interrelat- cial firms of risks faced by the financial firms and ed aspects. One is developing the ability to recognise how those risks could be managed. Second, the and comprehend signals from financial firms that they regulatory strategy must be clear about the role of are experiencing serious problems, especially liquidity regulation versus the market in ensuring that the and credit challenges. The second involves putting in financial risks are efficiently managed and con- place a forward-looking risk-based supervision frame- trolled. work that could alert the authorities to problems aris- ing with respect to both individual firms and a financial 9.2.56 The regulatory agency or agencies of the subsector or market. A risk-focused bank supervision country must ensure that the human and non-human framework that is forward-looking can be an import- capacity is available – within the regulatory community ant component of an early warning system (Baldwin, and the financial firms – to understand and manage 2002). Risk-focused supervision requires the super- the financial risks in the markets in which the financial firms in the country operate.147 The regulatory agen- the fact that they get involved in trade, leasing and investments (via partnerships) more directly than conventional banks. But, unlike conventional banks and other financial firms, they do not get involved in certain risky activities such as derivatives [see Khan 147 Many different types of risks are identified in literature. The most important ones are li- and Ahmed (2001) and Ayub (2007)]. The regulatory authorities will therefore need to quidity, credit, interest rate, market, foreign exchange, operational, technological, sov- devise rules according to the particular system, which could make for a challenging ereign, legal, and fraud. Note that the risks faced by Islamic banks will be affected by environment when the country has a dual system.

192 | AFRICAN DEVELOPMENT BANK GROUP visor to make qualitative assessments and develop a thorough understanding of a bank’s risk profile and risk 9.3.3 Agriculture, forestry and fisheries ac- management capabilities. Forward-looking and pro- count for a large share of employment. As Table active, risk-focused supervision also requires flexibility 9.9 indicates, about half of the labour force was em- in supervisory programme design. The approach, in ployed in the agriculture, forestry and fisheries sector brief, involves identifying different categories of banks by 2008, down from about 60 percent in the early and then developing supervisory programmes tailored 1990s. Employment in the industrial sector has shown to the specific needs of each category. Statutory su- very little growth over the past two decades and con- pervisory requirements must be sufficiently flexible to tinues to account for less than 10 percent of total em- accommodate such an approach. ployment. The weak employment performance of the sector stems from the fact that its economic growth performance in the past two decades has been poor 9.3 Programmes for Skills (after excluding the oil sector). At the same time, there Development in the Labour has been a steady increase in the share of employment Force accounted for by services, driven in part by a rapid increase in jobs created in the government services. Key Characteristics of the Labour However, interpretation of these trends in employment Market needs to be qualified because of the increase in the share of those employed for whom a sectoral classifi- 9.3.1 The labour force will grow rapidly in the cation was not reported. According to the 2008 survey decade ahead. As Annex Table 1.3 indicates, the la- data, about 12.2 percent of those employed at the time bour force has grown at a little more than 3 percent a were in this category – equivalent to about one million year in the past two decades, driven largely by high of the people who were reported as being employed population growth rates in the 1960s, 1970s and in 2008. It is very likely that many of these people are 1980s. The labour force participation rate of those in employed in the informal economy of Sudan. the 15-65 year age group is relatively low and has only increased rather slowly in the past decade (from 52 9.3.4 There are significant differences in employment percent in 2000 to an estimated 55 percent by 2013). patterns of men and women in Sudan. According to As a result, the labour force increased by four million the 2008 population census data, the labour force par- from 7.7 million in 2000 to an estimated 11.7 million in ticipation rate for women was 31.1 percent, compared 2013. The net number of new entrants into the labour with 72.2 percent for males. The census data suggests force averaged about 307,000 a year in this 13-year that participation rates for both men and women are period. Driven by these past high population growth higher in rural areas than in urban areas, perhaps re- rates and a modest, but steady increase in participation flecting greater difficulties of finding employment in- ur rates during the 2015-2030 period, the labour force is ban areas that then lead people (especially women) to projected to increase by an average of 3.4 percent a report that they are not seeking employment. year, rising to about 22.1 million by 2030 (Table 9.8). 9.3.5 Labour force skill levels and a brain drain 9.3.2 Creating productive employment opportunities are also a problem in Sudan. The Sudanese labour for a labour force that will essentially double in size by force has a relatively low level of skills. This situation 2030 is one of the biggest challenges that Sudan fac- stems from the fact that in past decades, Sudan has es in the decade ahead. The proposed programme of had low school attendance that, in turn, has resulted in private sector led diversification faces the task of pro- low levels of education attainment and literacy among viding productive employment for these new entrants, those now in the labour force. The problem of weak while at the same time raising the productivity of a sub- skill levels in the labour force has been compounded stantial portion of those already in the labour force, and by a large outward migration of semi-skilled and skilled contributing to a reduction in the persistent high levels Sudanese labour, especially to oil rich countries in the of unemployment that continue to be in the range of 15 Arab Gulf. percent of the labour force.

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9.3.6 As Table 9.10 indicates, in the past decade, a programmes of the country. Drop-outs have remained majority of Sudanese workers were employed in medi- high in basic education. About 90 percent of children um and low skilled jobs. In 2004, 86 percent of males enrol in the first grade of basic school, but only about and 85 percent of females were employed in medium 57 percent of them remain in school by grade 8, in- and low skilled work. And by 2008, only 12 percent of dicating a drop-out rate that averages 7 percent per the workforce was employed in high skilled jobs, largely grade. As a result, the primary completion rate – a key as a result of a sharp decline in share of females in the indicator of progress towards universal primary com- work force that were employed in skilled jobs. In 2004 pletion – was only 57 percent in 2012. Retention at the and 2008, about 70 percent of those in the work force secondary level, at 74 percent, is lower than in prima- were employed in “blue” collar occupations. ry education when adjusted for length of the cycles. A retention rate of 74 percent corresponds to a dropout 9.3.7 For a long time, Sudan has been a labour rate of 13 percent per year in the first two years of the exporting country. The migration of highly skilled indi- cycle. Student dropout is therefore a serious concern. viduals has resulted in a “brain drain”. Annual reports A high rate of dropout could indicate that students are of the Ministry of Labour and Public Service indicate not learning enough, i.e. that the quality of schooling is that during the 2005-2008 period, about 53,000 peo- simply too low to justify students’ time and the direct ple went abroad with legal employment contracts. Ac- cost in terms of parental contributions. More research cording to the World Bank (2010), the main reasons is needed to understand the causes and risk factors for the large outflow were the lack of adequate reward for dropout in Sudan so that appropriate measures to in Sudan for high levels of skills, and the low standard improve retention can be put in place. of living, added to the highly limited employment op- portunities in Sudan and economic instability. There are 9.3.11 With relatively low gross enrolment rates, the considerable costs to the Sudan economy as a result number of children who have never attended school of this brain drain as the loss of skills contributes to the is high. Out of the population of six million 10-17 year- persistent underdevelopment of the Sudan economy. olds in Sudan, it is estimated that one in six, or close to one million, never attended school in 2010. Of these 9.3.8 Moreover, the skills shortages in the country out of school children, 62 percent are girls, and 84 have resulted in an inflow of skilled foreign workers in percent are from rural areas. The longer distances to the past decade. This inflow appears to stem from the schools in rural areas may pose more of a constraint to large increase in FDI in the past decade and the asso- school attendance for girls than for boys in addition to ciated dependence on skilled foreign workers. early marriage for girls and the lower value assigned to Status of Formal and Vocational Education in Sudan148 girls education by parents in rural areas.

9.3.9 Educational Attainment in Sudan has been 9.3.12 The low levels of public expenditures in educa- Low. The literacy rate in Sudan for adult females and tion have resulted in physical deterioration of schools males was 65 percent and 82 percent respectively in and facilities and limited geographical spread. Since 2012, with a resulting national average of 73 percent 2000, the share of education in total public spending (Table 9.11). This represented a substantial improve- has increased by about four percentage points to 12 ment over the national average of only 61 percent as percent. As a share of GDP, it has more than doubled recently as 2000. With improved access to education, to 2.7 percent. However, these are still low levels. With the literacy rates for young adults in the 15-24 year age the decentralisation since the 2005 CPA, education group are higher than the national averages. Accord- spending has increased at the state level and, in 2009, ing to the NBHS (2009), the average was 77 percent 83 percent of public education spending took place in 2008 (84 percent for males and 71 percent for fe- at state level. However, teacher training has fallen be- males). hind. The result has been the deterioration in the quality of teachers, with an estimated 50 percent of primary 9.3.10 However, problems persist in the education school teachers unqualified. While pre-schools and ba- sic schools have student-teacher ratios of about 33, 148 This Section of Chapter 9 draws heavily on IMF (2013.c), Sudan: Interim Poverty Re- duction Strategy Paper. IMF, Washington DC, Country Report No. 13/318, October there is a very wide variation among states. The Darfur 2013.

194 | AFRICAN DEVELOPMENT BANK GROUP states have high student-teacher ratios, with West Dar- help to develop concrete actions and targets. The fur at 65.7, nearly double the national average. Over- proposed strategy should give particular attention crowded classrooms and untrained teachers make for to programmes that will support increased partic- poor education. The dearth of trained teachers was ipation by women in the labour force, especially in aggravated by significant waves of brain drain to Gulf medium and high skilled jobs. countries. The strategy for the medium-term should also set out policies and programmes for improving access to ed- 9.3.13 Household out-of-pocket payments cover a ucation at all the three levels for vulnerable groups, no- large share of school running costs, in particular for mads and internally displaced people. basic education, implying that basic education is not always free in practice. Moreover, education accounts 9.3.16 The above priorities will be implemented with for a larger share of consumption for poor rural house- the concentration of the expansion of primary educa- holds than in non-poor rural households, with implica- tion in disadvantaged states. This programme would tions for equity in access to education. entail the building an estimated 2,519 classrooms, training of 14,000 teachers and improving the school 9.3.14 Education opportunities for vulnerable groups, environment by providing every child and teacher with nomads and internally displaced persons (IDPs) remain educational aids books as well as school furniture. In a significant challenge due to their non-sedentary life- recognition of the large size of the country and the ef- style. 149 Northern Sudan is host to 4.3 million IDPs lo- fect this has on attendance, the programme calls for cated in the three Darfur states and Khartoum state, the establishment of boarding schools for pupils from equivalent to nearly 14 percent of the total population. distant areas within each state. In this respect at least Nomads account for about 9.1 percent of the total four boarding schools are planned for each state in Su- population in Northern Sudan. In 2008/09, 8.7 percent dan. Along the same lines and also in recognition of of basic schools in (north) Sudan were nomadic and local conditions, the programmes call for the provision 1.6 percent were IDP schools (these schools are typi- of one nutritious meal each day for some three-quarter cally much larger than nomadic schools). million primary school students.

9.3.15 Strategy and Priorities for Basic Educa- 9.3.17 Improved access to and quality of education tion. The main education priorities are the following, will require increased numbers of high quality teachers. with special focus on areas that were particularly affect- This, in turn, will require an increase in the number and ed by civil strife, drought and/or desertification (lagging quality of teachers’ training institutes and other asso- regions): ciated facilities. An urgent priority is introduction of in- • Bridging the gap between States in enrolment and centives to halt and reverse the brain drain and retain thereby raising the average enrolment and increas- the good teachers in the system. Moreover, incentives ing the completion rate in primary school from 57 are needed to make it attractive for teachers to work percent in 2009 to 70 percent in 2011, with further in rural areas. These incentives could include addition- improvements in subsequent years; al financial compensation and assistance for housing • Bridging the enrolment gap that persist between and transport. Without these incentives, emphasis on boys and girls in some states so as to eliminate spreading primary education and reducing the distance gender disparities in access to education at the to school in neglected rural communities would not basic level and achieve gender equality; materialise. • Improving the literacy rate of those between ages 15-24 through programmes targeting school drop- 9.3.18 Priorities and programmes for technical and outs, especially those between 9 and 14 years of vocational education. The various initiatives to improve age; and access to basic education need to be supplemented • The preparation of an education sector strategy with increased support for vocational education and for the medium-term to bring focus to these pri- training. The proposed diversification programme will orities as well as on the quality of education, and require a large expansion in the number of entrants

149 United Nations and World Bank (2005), Framework for Sustained Peace, Develop- into the labour force with skills developed in vocational ment and Poverty Reduction. Joint Assessment Mission, Volume I, March 18, 2005.

AFRICAN DEVELOPMENT BANK GROUP | 195 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN education and training programmes (TVET). The posi- cy towards over-optimistic perceptions of many tion taken in this Report is that Sudan needs to review trainees about the returns to vocational training. its TVET policy, including the associated institution- This so-called over-optimism in expectations may al and organisational environment, to ensure that the be overstated, particularly once the informal sec- programme is coherent enough to foster rapid private tor is taken into account. For example, in African sector development, while ascertaining the technical countries, persons well-trained in skills like electri- and financial effectiveness of any policy interventions. cal engineering, plumbing, carpentry, masonry, and An assessment of the policy framework would need to motor mechanics often become self-employed or address the following three broad issues: work part-time in the informal sector. Hence, data • Improve participation of potential candidates in on their true earnings can be difficult to obtain by the national TVET programme. The stagnant en- official agencies and researchers. rolment in technical secondary schools may indi- cate a strong preference for academic secondary 9.3.19 As regards the institutional and organisational schools. It raises questions about whether the environment, in response to the proposed private sec- skills acquired from this subsector are preparing tor led diversification programme, there is a clear need students adequately for higher technical education for TVET governance arrangements that foster cooper- or providing them the skills that match the labour ation of government, business, and other non-govern- market requirements. A reform of this subsector is ment trainers, including national coordinating bodies necessary to provide it with the appropriate focus and national training authorities. International experi- and structure to meet its goals, and in particular ence with these types of programmes increasingly in- to determine whether these schools are secondary dicates that in developing sound institutional and or- schools with provision to acquire technical skills, or ganisational arrangements, consideration needs to be vocational training centres that impart professional given to the following: technical skills to meet the demand of the industrial • Getting the policies right to spur competitive train- sector for skilled labour. ing markets within a level playing field; • Increase formal employment of participants. Tech- • Encouraging self-governance and self-regulation nical and vocational education and training should where sensible; be responsive to the market. Thus, to begin with, • Decentralisation of decision making in public sector the Sudan authorities should make sure that they training in areas such as fees, staffing, programme understand important elements of the labour mar- content, and methods of instruction; and ket. These important aspects will include the sup- • In government financing, a gradual shift toward cri- ply of and the demand for certain specific skills (or teria related to performance/output (e.g., courses set of skills); size, age, gender, and geographical completed) and outcomes (e.g., job placements) distribution of the labour force; employment, un- as opposed to simply inputs (number of trainees employment and under-employment; wage flexibil- enrolled). ity; the competitiveness of the labour market; the efficiency of the market; the informal sector and 9.3.20 Consideration needs to be given to ensuring its relationship with the formal sector; and social that domestic training programmes for technicians impediments to labour force activities and partici- such as electricians are aligned with standards estab- pation (e.g. employment and constraints on role of lished by the International Organisation for Standards women). Policymakers also need facilities (schools, (ISO). Domestic training institutions and programmes teachers, equipment), especially those in the pri- that are certified by the ISO would contribute substan- vate sector—for profit as well non-profit organisa- tially to the hire of locally trained technicians by domes- tions. tic and offshore investors that contract to provide ser- • Increase substantially the earnings of participants vices in Sudan, enter into joint ventures with domestic after completion of training. The expectations of partners, or make investments in Sudan without enter- trainees will be affected by the information they ing into local partnerships. have about returns to vocational training. Indeed, some observers seem to have identified a tenden- 9.3.21 In addition to these concerns about the insti-

196 | AFRICAN DEVELOPMENT BANK GROUP tutional and organisational environment, there are im- of the relevant population compared with only 6 per- portant questions in five specific policy areas that have cent as recently as 2000. Over half the students are become the focus of discussions of TVET in the African females. However, the expansion has not been accom- context.150 These are as follows: (i) The issue of adding panied by matching financial resources and the quality vocational training to the academic curriculum; (ii) the of tertiary education has been deteriorating. role of government in TVET; (iii) the role of the formal non-government sector; (iv) the skills development for 9.3.23 The main challenge facing the tertiary educa- the informal economy; and (v) the resource mobilisation tion sector is to improve the quality of education. The and allocation requirements for TVET. Annex 9 includes National Council of Higher Education in the Ministry of a more detailed discussion of these five issues. In some Higher Education and Research that is responsible for African countries, the trend is towards establishing na- setting policies and regulating the system of tertiary ed- tional coordinating or consultative bodies to address all ucation, has set up a commission for quality assurance. the major challenges. In other African countries, min- This will monitor and evaluate quality of education and istry-based governance systems remain in place, but set standards. they are being supplemented by new bodies to enrich ministry-based governance systems. Such bodies tend 9.2.24 The Council has promoted the establishment to focus on particularly difficult areas, such as the man- of internal quality monitoring and evaluation units in agement of training funds and creation and manage- some universities, as well as a pilot programme to ap- ment of labour observatories. ply the standards it developed before they are gener- alised. Another challenge to the tertiary education is 9.3.22 Strategy and Priorities for Tertiary Edu- to have a definitive policy towards technical education cation. Although tertiary education targets are not in- that recognises the importance of technical knowledge cluded in the MDGs, high quality and relevant tertiary and skills to growth and diversification, and makes education is crucial for shared growth and sustained technical education an attractive option for students. poverty reduction strategy. From the 1990s, tertiary ed- Furthermore, as public universities are poorly funded by ucation has expanded rapidly in Sudan with the num- the federal and state governments, the universities are ber of universities going from 4 in 1990 to 30 public and increasingly relying on cost-sharing with students for 6 private universities at the present time, and 48 spe- additional resources. While the cost-sharing schemes cialised degree granting colleges. In 1990, the student take family income into account, there is a risk that the intake was 6,000 per annum. This rose to an annual costs could be excluding poor people from access to intake of 160,000 with a student population exceeding tertiary education. 500,000, equivalent to an enrolment rate of 10 percent

150 For a good introduction to the subject matter and the issues, as well as the experience in Sub-Saharan Africa, see Johanson and Adams (2004).

AFRICAN DEVELOPMENT BANK GROUP | 197 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

ANNEXES

Annex 1: Demographic Data growth rates reported by each agency. The CBS proj- ects population growth during 2008-2014 to be 3.2 There are significant differences between the popula- percent a year, whereas the UN and World Bank proj- tion estimates reported by the Central Bureau of Statis- ect the population growth rate to be 2.2 percent a year tics (CBS) and by various international agencies for the for the same period. The AfDB population estimates 2008-2014 period. Annex Table 1.1 provides a sum- imply a population growth rate of 1.9 percent a year. mary of the population estimates reported by the CBS, Because of these differences in population growth the United Nations, World Bank and African Develop- rates, there is only a modest difference among these ment Bank. The 2008 population census as reported estimates for Sudan’s population in 2014. by the CBS indicated that the population of (north) Su- dan was 30, 894 thousand. However, the UN, World Because the population projections prepared by the Bank and AfDB, all report a larger population for the UN include a substantial amount of important detail re- census year, suggesting that these agencies may have quired for the analysis undertaken for this Report, the concluded that the 2008 census underestimated the most recent UN projections reported in World Popula- total population at that time. tion Prospects: The 2012 Revision, have been used in this Report. There are substantial differences in the population

Annex Table 1.1: Comparison of Population Estimates for Sudan 2008 2009 2010 2011 2012 2013 2014 CBS, Sudan 30,894 31,899 32,923 33,976 35,056 36,164 37,289 United Nations (2012 revision) 34,040 34,853 35,652 36,431 37,195 37,964 38,764 World Bank 34,040 34,853 35,652 36,431 37,195 37,964 38,764 African Development Bank 35,725 36,383 37,863 37,763 38,482 39,208 39,929 Source: data bases of respective agencies.

198 | AFRICAN DEVELOPMENT BANK GROUP 8,537 2.1 84.5 5.0 9,308 46,541 55,078 2,225 33,252 19,601 38.8 55,078 33,685 21,393 55,078 27,491 27,587 2030 2025-30 2.1 28.4 7.5 (0.0) 64.7 7,948 2.2 84.0 5.1 8,182 41,728 49,676 1,857 29,424 18,395 36.7 49,676 31,456 18,220 49,676 24,780 24,896 2025 7,342 2.2 83.5 5.2 7,146 37,157 44,499 1,558 25,738 17,203 35.0 44,499 28,924 15,575 44,499 22,186 22,313 2020 2020-25 2.2 30.0 7.7 (0.0) 63.8 6,734 2.2 83.0 5.7 5,768 32,879 39,613 1,308 22,263 16,042 33.8 39,613 26,220 13,393 39,613 19,742 19,871 2015 2015-20 2.3 31.7 8.0 (0.0) 62.9 6,629 2.1 82.9 5.8 5,541 32,135 38,764 1,268 21,678 15,819 33.7 38,764 25,716 13,048 38,764 19,318 19,446 2014 6,530 2.1 82.8 5.9 5,328 31,434 37,964 1,230 21,124 15,610 33.5 37,964 25,238 12,726 37,964 18,918 19,046 2013 2010-15 2.1 33.7 8.4 (0.4) 61.9 6,435 2.1 82.7 6.0 5,127 30,760 37,195 1,193 20,592 15,410 33.4 37,195 24,779 12,416 37,195 18,534 18,661 2012 2005-10 2.4 36.1 8.9 (0.3) 60.9 6,339 2.2 82.6 6.1 4,933 30,092 36,431 1,157 20,068 15,206 33.2 36,431 24,325 12,106 36,431 18,153 18,278 2011 6,239 2.3 82.5 6.2 4,744 29,413 35,652 1,121 19,539 14,992 33.1 35,652 23,858 11,794 35,652 17,764 17,888 2010 2000-05 2.6 38.9 10.0 (0.3) 58.9 6,146 2.4 82.4 6.2 4,650 28,707 34,853 1,088 19,028 14,737 33.0 34,853 23,345 11,508 34,853 17,366 17,487 2009 1995-00 2.5 40.3 11.0 (0.5) 57.2 2.5 34,040 1,056 18,513 14,471 33.0 34,040 22,824 11,216 34,040 16,961 17,079 2008 2.5 33,218 1,023 17,996 14,199 32.9 33,218 22,293 10,925 33,218 16,552 16,666 2007 1990-95 4.2 41.6 11.7 1.2 56.0 2.6 32,398 991 17,484 13,923 32.8 32,398 21,765 10,633 32,398 16,143 16,255 2006 2.6 31,586 959 16,980 13,647 32.76 31,586 21,238 10,348 31,586 15,738 15,848 2005 1985-90 3.2 42.1 12.3 0.2 55.1 2.5 27,730 828 14,777 12,125 32.5 27,730 18,719 9,011 27,730 13,812 13,918 2000 1980-85 3.5 44.2 12.9 0.3 54.5 4.2 24,529 724 12,897 10,908 32.2 24,529 16,623 7,906 24,529 12,213 12,316 1995 3.2 20,009 589 10,324 9,096 28.6 20,009 14,284 5,725 20,009 9,962 10,047 1990 1975-80 3.6 46.1 13.4 0.3 54.0 3.5 17,098 501 8,646 7,951 22.9 17,098 13,176 3,922 17,098 8,514 8,584 1985 1970-75 3.4 46.9 14.2 0.1 53.1 3.6 14,418 425 7,222 6,771 20.0 14,418 11,540 2,878 14,418 7,181 7,237 1980 3.4 12,076 360 6,076 5,640 18.9 12,076 9,788 2,288 12,076 6,016 6,060 1975 1965-70 3.2 46.9 15.4 0.0 51.2 3.2 10,233 308 5,208 4,717 16.5 10,233 8,542 1,691 10,233 5,099 5,134 1970 1960-65 3.0 46.6 16.8 - - 49.2 3.1 8,738 270 4,496 3,972 13.4 8,738 7,569 1,169 8,738 4,355 4,383 1965 3.0 7,528 244 3,906 3,378 10.7 7,528 6,719 809 7,528 3,751 3,777 1960 Sources: UN (2013), World Population Prospects: The 2012 Revision. Department of Economic and Social Affairs, New York, 2013, and UN (2014), World Urbanization Prospects: 2014 Revision. 2014 Revision. Urbanization Prospects: World and UN (2014), 2013, York, New Affairs, Department of Economic and Social The 2012 Revision. Population Prospects: World UN (2013), Sources: Sudan National Baseline Household Survey, The 2009 data for households in Northern Sudan are reported Central Bureau of Statistics (2009), 2014. York, New Affairs, Department of Economic and Social The household data for 2010-2030 are estimates by authors. 2010. Khartoum, Report. Tabulation North Sudan 2009: Nomadic population ('000) Memo items: (% p.a.) rate Population growth Household population as % total Average size of households Average No of households ('000) Household population ('000) Total 65 years and over 65 years 15-64 years Population by age group ('000) Population by 0-14 years Urbanization (%) Total Rural Population distribution ('000) Urban Total Female Population ('000) Male Annex Table 1.2: Actual and Projected Population for North Sudan 1.2: Table Annex Indicator Annex Table 1.3: Demographic Indicators for North Sudan, 1960-2030 Indicators for North Sudan, Demographic 1.3: Table Annex Indicator Population growth rate (% p.a.) Population growth rate Crude birth rate (births per 1,000 population) Crude birth rate Crude death rate (births per 1,000 population) Crude death rate Net in-migration rate Life expectancy at birth (years) Life expectancy Source: UN (2013). Source:

AFRICAN DEVELOPMENT BANK GROUP | 199 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2030 33,252 18,847 1,885 16,962 56.7 3.0 3.4 10.0 1999 9,930 417 98 1,610 168 1,655 3,948 4,613 3,886 2,222 567 (138) 1,034 478 12,662 26,540 519 2025 29,424 16,274 1,953 14,321 55.3 3.0 3.3 12.0 1998

8,699 59 1,325 125 2,016 3,525 3,702 2,586 1,774 451 (236) 673 353 9,302 21,526 410 2020 25,738 14,051 1,967 12,084 54.6 3.0 3.2 14.0 1997 7,363 43 1,036 97 598 1,774 2,634 1,549 1,301 346 (122) 507 306 6,520 15,658 480 2015 22,263 12,133 1,820 10,313 54.5 3.0 3.2 15.0 1996 In SDD hundreds of millions 4,218 46 821 74 448 1,389 1,882 1,174 913 242 (60) 288 193 4,632 10,240 238 2014 21,678 11,782 1,791 9,991 54.4 3.0 3.0 15.2 1994/95 17,992 104 2,774 310 1,697 4,884 7,293 4,667 2,262 895 (270) 913 826 16,586 39,462 1,035 2013 21,124 11,443 1,739 9,704 54.2 3.0 2.5 15.2 1993/94 7,741 55 934 194 1,130 2,313 4,347 1,290 1,518 473 (130) 504 431 8,432 18,487 326 2012 20,592 11,110 1,644 9,465 54.0 3.0 3.0 14.8 1992/93 3,630 26 494 111 449 1,080 2,656 537 706 182 (84) 334 172 4,502 9,212 272 2011 20,068 10,790 1,597 9,193 53.8 3.0 3.0 14.8 1991/92 1,685 4 262 44 194 504 971 291 431 91 (94) 167 79 1,935 4,124 94 19,539 10,479 1,551 8,928 53.6 14.8 2010 3.0 3.0 16,980 8,999 1,332 7,667 53.0 14.8 2005 1990/91 795 1 100 20 101 222 408 148 166 41 (10) 77 38 867 1,884 42 14,777 7,728 1,175 6,554 52.3 15.2 2000 1989/90 390 1 74 16 55 145 270 87 78 23 (9) 68 21 539 1,075 26 12,897 6,766 968 5,798 52.5 14.3 1995 1988/89 333 1 57 8 25 91 192 79 53 10 (7) 41 9 377 801 25 10,324 5,750 817 4,934 55.7 14.2 1990 1987/88 179 0 34 6 20 61 84 56 39 4 (4) 27 4 210 450 18 8,646 4,962 57.4 1985 19886/87 138 0 21 5 16 42 78 42 34 4 (3) 16 3 176 355 9 7,222 4,280 59.3 1980 1985/86 63 0 16 3 10 30 44 14 24 3 (2) 14 3 100 193 10 6,076 3,785 62.3 1975 1984/85 42 0 14 3 8 25 33 12 19 2 (1) 11 2 79 146 8 5,208 3,345 64.2 1970 1983/84 36 0 10 2 7 18 21 11 13 2 (1) 10 2 57 112 6 4,496 3,018 67.1 1965 1982/83 31 0 8 1 6 15 15 9 11 1 (1) 8 1 45 90 5 3,906 2,720 69.6 1960 1981/82 In Ls hundreds of millions 26 0 6 1 4 10 9 7 8 1 (1) 6 1 31 67 4 Macroeconomic Accounts and Data Macroeconomic Total population 15-64 years ('000) population 15-64 years Total ('000) Labor force ('000) Unemployment labor force Employed Memo items: (%) Participation rate (% p.a.) growth rate Labor force (% p.a) in employment Growth (% of labor force) rate Unemployment For 2014-2030 participation rates are estimates by Bank development indicator database. World Participation rates for 2000-2013 are from the 1.2 for the 15-64 year old population. Table Annex Source: authors. Annex Table 1.4: Labor Force Growth in (north) Sudan Growth Labor Force 1.4: Table Annex Indicator Annex Table 2.1: National Income Accounts by Industrial Origin Accounts by National Income 2.1: Table Annex prices) market at current (In local currency Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & real insurance, Finance, business services Community, social & personal Community, services Financial intermediation services Government services Private non-profit services Private to households Sub-total GDP at factor cost Import duties Annex 2:

200 | AFRICAN DEVELOPMENT BANK GROUP 98.1 1.9 27,059 100.0 ------36.7 1.5 0.4 5.9 0.6 6.1 14.6 17.0 14.4 8.2 2.1 (0.5) 3.8 1.8 46.8 98.1 1.9 21,936 100.0 ------39.7 0.3 - - 6.0 0.6 9.2 16.1 16.9 11.8 8.1 2.1 (1.1) 3.1 1.6 42.4 97.0 3.0 16,137 100.0 ------45.6 0.3 - - 6.4 0.6 3.7 11.0 16.3 9.6 8.1 2.1 (0.8) 3.1 1.9 40.4 97.7 2.3 10,478 100.0 ------40.3 0.4 - - 7.8 0.7 4.3 13.3 18.0 11.2 8.7 2.3 (0.6) 2.7 1.8 44.2 97.4 2.6 40,497 100.0 ------44.4 - - 0.3 6.8 0.8 4.2 12.1 18.0 11.5 5.6 2.2 (0.7) 2.3 2.0 41.0 1.7 18,813 100.0 ------41.1 - - 0.3 5.0 1.0 6.0 12.3 23.1 6.9 8.1 2.5 (0.7) 2.7 2.3 44.8 98.3 2.9 9,484 100.0 ------38.3 - - 0.3 5.2 1.2 4.7 11.4 28.0 5.7 7.4 1.9 (0.9) 3.5 1.8 47.5 97.1 2.2 4,218 100.0 ------39.9 - - 0.1 6.2 1.0 4.6 11.9 23.0 6.9 10.2 2.1 (2.2) 4.0 1.9 45.9 97.8 2.2 1,927 100.0 ------41.3 - - 0.1 5.2 1.1 5.2 11.5 21.2 7.7 8.6 2.1 (0.5) 4.0 2.0 45.0 97.8 2.4 1,101 100.0 ------35.4 - - 0.1 6.7 1.4 5.0 13.2 24.6 7.9 7.1 2.0 (0.8) 6.2 1.9 49.0 97.6 3.0 825.6 100.0 ------40.3 - - 0.1 6.9 1.0 3.1 11.1 23.3 9.6 6.4 1.2 (0.8) 4.9 1.1 45.7 97.0 3.9 467.9 100.0 ------38.2 - - 0.1 7.3 1.4 4.4 13.1 17.9 12.0 8.4 0.9 (0.9) 5.7 0.8 44.9 96.1 2.6 364.8 100.0 ------37.7 - - 0.0 5.8 1.4 4.3 11.6 21.5 11.4 9.4 1.2 (0.7) 4.5 0.9 48.1 97.4 4.7 202.2 100.0 ------31.1 - - 0.0 8.0 1.7 5.0 14.7 21.6 7.0 12.0 1.6 (0.9) 7.0 1.3 49.5 95.3 5.0 153.6 100.0 ------27.5 - - 0.0 9.1 1.8 5.4 16.4 21.5 8.1 12.4 1.6 (0.9) 7.2 1.4 51.2 95.0 5.5 118.1 100.0 ------30.3 - - 0.0 8.5 1.5 5.5 15.6 17.7 9.4 11.3 1.5 (1.2) 8.6 1.3 48.6 94.5 5.7 95.9 100.0 ------32.5 - - 0.1 7.9 1.0 6.3 15.3 15.5 9.8 12.0 1.5 (1.4) 8.1 1.1 46.5 94.3 5.5 70.4 100.0 Composition of GDP (% at market prices) ------36.6 - - 0.1 8.0 1.1 5.4 14.5 13.0 10.0 11.1 1.4 (1.5) 8.3 1.1 43.5 94.5 Import duties GDP at market prices GDP at market GDP at market prices GDP at market Agriculture, forestry & fisheries Agriculture, Crops Source: Central Bureau of Statistics, National Accounts Administration. Accounts National Central Bureau of Statistics, Source: Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & real insurance, Finance, business services Community, social & personal Community, services Financial intermediation services Government services Private non-profit services Private to households Sub-total GDP at factor cost

AFRICAN DEVELOPMENT BANK GROUP | 201 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2014 - - - - 403,791 2013 47,817 49,422 967 1,475 99,681 8,962 5,808 26,101 2,644 13,866 57,381 48,664 39,178 22,712 3,065 (2,549) 18,466 2,352 131,887 288,950 5,681 294,631 16.2 16.8 0.3 0.5 33.8 2012 38,885 39,773 807 1,210 80,675 8,095 4,752 21,677 2,181 11,525 48,230 40,720 32,511 18,911 2,564 (2,123) 15,248 1,954 109,785 238,690 4,723 243,413 16.0 16.3 0.3 0.5 33.1 2011 63,609 9,248 2,180 16,285 1,606 8,718 38,037 30,709 24,426 14,531 1,968 (1,625) 9,998 1,502 81,509 183,155 3,535 186,690 ------34.1 2010 52,691 15,654 365 13,673 2,894 7,458 40,044 24,827 19,835 11,861 1,735 (1,418) 8,362 1,309 66,512 159,247 2,957 162,204 ------32.5 2009 44,970 9,621 310 11,508 2,513 6,171 30,123 21,108 17,076 10,399 1,523 (873) 7,482 1,207 57,921 133,014 2,645 135,659 ------33.1 2008 37,481 16,655 272 9,726 2,242 5,239 34,135 18,376 15,046 8,961 1,394 (789) 6,681 1,109 50,777 122,392 2,217 124,609 ------30.1 2007 32,986 10,122 212 8,782 1,981 4,651 25,748 16,728 13,781 7,809 1,258 (720) 5,944 996 45,797 104,530 1,997 106,527 ------31.0 2006 31,191 9,478 192 8,042 1,820 4,243 23,774 14,328 11,672 7,613 1,119 (1,026) 5,297 861 39,864 94,828 1,783 96,612 ------32.3 2005 28,455 6,461 157 7,322 1,071 3,824 18,835 12,663 10,093 6,598 995 (884) 4,269 744 34,477 81,767 1,531 83,298 ------34.2 2004 23,369 4,761 120 6,393 829 2,615 14,717 10,773 8,411 5,340 917 (547) 3,846 708 29,447 67,533 1,188 68,721 ------34.0 2003 21,411 3,812 120 4,862 129 2,136 11,058 8,644 5,581 4,387 855 (380) 2,662 669 22,417 54,887 847 55,734 ------38.4 2002 17,986 3,193 105 4,427 304 1,893 9,922 7,017 4,069 4,117 812 (293) 2,433 639 18,794 46,702 1,054 47,756 ------37.7 2001 14,548 2,778 99 3,354 227 1,486 7,944 6,466 4,308 3,195 753 (180) 2,228 594 17,364 39,856 803 40,659 ------35.8 2000 12,067 In SDG millions 2,303 102 2,276 234 1,159 6,073 5,688 3,897 2,787 675 (191) 1,394 542 14,792 32,931 732 33,663 Composition of GDP (% at market prices) ------35.8 Annex Table 2.1: National Income Accounts by Industrial Origin National Income 2.1: Table Annex (In local currency at current market prices) Livestock Forestry Fisheries Sub-total Agriculture, forestry & fisheries Agriculture, Crops Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & business services insurance, Finance, Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total

202 | AFRICAN DEVELOPMENT BANK GROUP 3.0 2.0 8.9 0.9 4.7 19.5 16.5 13.3 7.7 1.0 (0.9) 6.3 0.8 44.8 98.1 1.9 100.0 3.3 2.0 8.9 0.9 4.7 19.8 16.7 13.4 7.8 1.1 (0.9) 6.3 0.8 45.1 98.1 1.9 100.0 5.0 1.2 8.7 0.9 4.7 20.4 16.4 13.1 7.8 1.1 (0.9) 5.4 0.8 43.7 98.1 1.9 100.0 9.7 0.2 8.4 1.8 4.6 24.7 15.3 12.2 7.3 1.1 (0.9) 5.2 0.8 41.0 98.2 1.8 100.0 7.1 0.2 8.5 1.9 4.5 22.2 15.6 12.6 7.7 1.1 (0.6) 5.5 0.9 42.7 98.1 1.9 100.0 13.4 0.2 7.8 1.8 4.2 27.4 14.7 12.1 7.2 1.1 (0.6) 5.4 0.9 40.7 98.2 1.8 100.0 9.5 0.2 8.2 1.9 4.4 24.2 15.7 12.9 7.3 1.2 (0.7) 5.6 0.9 43.0 98.1 1.9 100.0 9.8 0.2 8.3 1.9 4.4 24.6 14.8 12.1 7.9 1.2 (1.1) 5.5 0.9 41.3 98.2 1.8 100.0 7.8 0.2 8.8 1.3 4.6 22.6 15.2 12.1 7.9 1.2 (1.1) 5.1 0.9 41.4 98.2 1.8 100.0 6.9 0.2 9.3 1.2 3.8 21.4 15.7 12.2 7.8 1.3 (0.8) 5.6 1.0 42.9 98.3 1.7 100.0 6.8 0.2 8.7 0.2 3.8 19.8 15.5 10.0 7.9 1.5 (0.7) 4.8 1.2 40.2 98.5 1.5 100.0 6.7 0.2 9.3 0.6 4.0 20.8 14.7 8.5 8.6 1.7 (0.6) 5.1 1.3 39.4 97.8 2.2 100.0 6.8 0.2 8.2 0.6 3.7 19.5 15.9 10.6 7.9 1.9 (0.4) 5.5 1.5 42.7 98.0 2.0 100.0 6.8 0.3 6.8 0.7 3.4 18.0 16.9 11.6 8.3 2.0 (0.6) 4.1 1.6 43.9 97.8 2.2 100.0 Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & business services insurance, Finance, Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Source: Central Bureau of Statistics, National Accounts Administration. Accounts National Central Bureau of Statistics, Source:

AFRICAN DEVELOPMENT BANK GROUP | 203 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 1999 51.7 2.0 0.5 12.3 3.1 3.8 21.6 14.3 11.6 18.9 1.9 (2.2) 14.2 1.3 60.0 133.4 2.0 135.4 3.1 1998 50.2 - - 0.5 11.8 3.0 6.0 21.3 14.1 11.7 18.5 1.8 (4.0) 12.6 1.3 56.0 127.4 2.5 129.9 6.8 1997 47.0 - - 0.4 11.0 2.9 2.3 16.6 14.2 11.7 16.2 1.8 (3.1) 12.4 1.2 54.4 118.0 2.0 120.0 9.7 1996 In SDD hundreds of millions 42.8 - - 0.3 10.9 2.7 2.1 16.1 13.7 11.9 15.8 1.7 (2.1) 10.0 1.2 52.3 111.2 1.9 113.1 44.6 1994/95 29.6 - - 0.2 8.0 1.8 5.1 15.0 18.1 13.0 13.8 1.7 (2.0) 8.7 1.2 54.6 99.3 2.1 101.4 6.0 1993/94 27.9 - - 0.2 7.5 1.7 4.8 14.2 17.1 12.3 13.1 1.6 (1.8) 8.2 1.1 51.5 93.7 2.0 95.7 (3.7) 1992/93 29.0 - - 0.2 8.5 1.8 4.5 14.9 16.4 12.1 11.4 1.5 (2.4) 7.8 1.1 47.9 91.9 2.8 94.7 1.6 1991/92 28.5 - - 0.2 8.7 1.6 3.4 13.8 16.2 11.5 9.8 1.4 (1.8) 7.5 1.1 45.6 88.0 2.6 90.6 24.5 1990/91 22.9 - - 0.1 6.7 1.3 5.9 14.0 11.0 10.6 10.7 1.5 (1.1) 12.6 1.0 46.3 83.2 1.8 85.0 (1.3) 1989/90 23.2 - - 0.1 6.5 1.2 4.1 11.8 10.5 7.6 12.9 1.4 (0.9) 10.4 1.0 42.9 78.0 1.0 79.0 (20.2) 1988/89 29.1 - - 0.0 7.3 1.2 3.3 11.8 12.2 7.7 13.2 1.3 (1.1) 6.7 1.0 41.0 82.0 1.6 83.6 32.8 1987/88 21.9 - - 0.0 7.3 1.2 3.5 12.0 12.3 8.8 10.2 1.3 (1.0) 6.5 0.9 39.0 72.9 3.8 76.8 (12.5) 19886/87 25.1 - - 0.0 7.1 1.1 3.7 11.9 13.3 8.1 9.7 1.3 (0.9) 6.2 0.9 38.6 75.5 1.5 77.0 9.5 1985/86 22.9 - - 0.0 5.9 1.1 3.1 10.1 8.3 8.5 8.0 1.2 (0.9) 6.6 0.9 32.6 65.6 1.8 67.4 16.5 1984/85 19.6 - - 0.0 6.2 1.1 3.5 10.9 8.7 6.4 8.1 1.2 (0.9) 7.0 0.9 31.3 61.8 2.1 64.0 (12.2) 1983/84 22.4 - - 0.0 6.0 1.0 3.8 10.9 8.2 7.1 8.2 1.2 (1.0) 7.9 0.9 32.4 65.6 2.6 68.3 (4.6) 1982/83 23.5 - - 0.1 6.1 0.9 4.5 11.5 9.7 7.2 8.1 1.1 (0.9) 6.7 0.8 32.7 67.7 4.2 71.9 (8.9) 1981/82 25.7 In Ls hundreds of millions - - 0.0 5.6 0.8 3.8 10.2 9.1 7.1 7.8 1.0 (1.1) 5.8 0.8 30.6 66.6 3.8 70.4 GDP annual growth rate (% p.a.) Annex Table 2.2: National Income Accounts by Industrial Origin National Income 2.2: Table Annex (In local currency at 1981/82 constant prices) Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & insurance, Finance, business services Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total

204 | AFRICAN DEVELOPMENT BANK GROUP (3.0) 3.4 4.7 (37.4) 1.4 0.9 (0.1) 2.4 4.4 (43.7) 13.0 5.5 7.3 4.7 (18.7) 4.2 29.5 7.3 2.2 161.4 28.3 (0.3) (0.7) 14.5 2.8 30.0 1.3 2.8 2.8 8.0 22.6 8.2 6.4 1.5 6.2 7.1 3.2 3.4 (1.3) 2.0 3.0 45.0 23.6 2.8 4.1 6.1 3.3 6.1 77.3 36.6 49.5 (57.6) 7.0 (24.5) (8.7) 14.4 3.3 7.8 15.1 (1.1) (4.3) 12.0 (8.0) 11.6 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.9 6.0 6.0 6.0 6.0 6.0 6.0 15.8 (12.0) (3.3) 7.2 (4.9) 4.4 1.4 14.1 7.6 (23.1) 5.3 2.3 7.5 2.0 (29.7) 1.0 5.3 (2.2) 14.4 32.1 8.1 1.3 5.8 17.3 2.2 33.8 3.8 2.3 5.0 4.4 9.9 4.6 89.9 29.9 22.3 (42.8) (1.1) 47.4 7.9 (8.6) (1.7) 70.3 (40.3) 3.3 (1.5) 5.7 47.0 6.6 11.3 3.7 6.4 44.4 18.1 4.2 40.5 (17.6) 4.7 20.9 21.6 3.6 7.9 6.7 69.0 7.5 47.9 (11.3) (2.8) 25.0 (0.2) (13.5) (1.4) (2.3) 4.4 (18.5) 54.1 3.6 4.6 (4.9) (35.1) (5.5) 41.2 0.1 4.4 (6.6) (1.3) (1.1) (12.7) 29.6 4.4 6.5 4.0 3.7 5.3 12.5 (58.4) 8.9 30.8 3.0 8.9 (4.9) 1.2 (7.7) 8.1 5.8 (1.8) 10.0 4.6 4.1 1.0 (3.4) 155.5 (0.3) (36.6) 20.5 (3.8) 20.4 17.5 61.2 (4.3) 20.8 4.3 2.7 (6.7) 4.0 18.3 15.1 (18.4) 14.2 - - (5.7) 0.3 (12.9) (7.4) (5.3) 33.1 (1.3) 5.3 (4.0) (4.6) (0.7) 4.2 6.1 (13.1) 5.4 (4.7) 3.6 11.6 (7.4) 0.5 6.2 (10.4) (0.6) 2.7 (8.9) (11.9) (1.6) (3.4) (5.8) (19.2) (6.3) (14.0) (1.2) 12.5 (16.0) (6.0) (15.0) (0.8) 0.4 2.3 9.1 17.9 6.1 (0.9) (3.0) (36.9) (5.0) 35.1 8.7 16.9 18.0 12.9 6.2 1.3 3.6 10.9 (13.5) 14.7 6.1 6.8 1.7 8.3 2.1 6.0 Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & insurance, Finance, business services Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Source: Central Bureau of Statistics, National Accounts Administration. Accounts National Central Bureau of Statistics, Source:

AFRICAN DEVELOPMENT BANK GROUP | 205 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2014 2013 86.3 8.0 2.1 42.3 7.4 9.5 69.3 24.7 30.3 34.4 3.5 (5.4) 31.3 2.2 121.0 276.5 4.5 281.0 4.0 2012 83.0 6.0 1.5 41.7 7.2 9.3 65.7 24.1 29.5 33.5 3.4 (5.4) 30.5 2.2 117.8 266.5 4.4 270.9 5.7 2011 78.5 18.4 0.5 35.3 7.0 8.8 70.0 23.6 27.9 32.9 3.3 (5.3) 32.8 2.1 117.3 265.8 4.3 270.1 (14.7) 2010 92.0 22.0 0.3 32.5 7.4 10.0 72.2 23.4 28.5 33.5 3.6 (4.0) 38.6 2.0 125.7 289.8 4.2 294.0 7.0 2009 86.0 23.0 0.2 30.4 7.0 8.8 69.2 22.3 27.1 33.0 3.1 (4.0) 36.7 2.0 120.1 275.4 4.1 279.5 6.2 2008 81.0 23.0 0.2 28.3 5.6 8.4 65.4 20.5 25.1 31.0 3.0 (4.6) 36.2 1.9 113.0 259.4 4.4 263.8 8.0 2007 75.0 24.0 0.2 26.3 5.1 7.2 62.8 19.2 22.8 29.4 3.0 (4.1) 33.6 1.9 105.9 243.6 4.3 247.9 6.3 2006 70.6 16.0 0.3 22.1 4.8 6.6 49.8 18.0 20.6 27.1 2.9 (4.3) 32.9 1.9 99.1 219.4 4.2 223.5 9.0 2005 64.7 14.7 0.4 21.6 4.4 6.3 47.4 17.0 19.6 24.7 2.8 (3.8) 25.9 1.8 87.9 200.0 3.5 203.4 4.8 2004 61.8 13.1 0.3 21.0 3.9 5.2 43.6 16.1 18.2 23.1 2.5 (3.7) 25.4 1.7 83.4 188.7 3.9 192.6 (2.0) 2003 63.0 11.9 0.4 20.5 2.5 4.4 39.8 16.6 16.6 23.1 2.4 (3.8) 20.6 1.7 77.3 180.1 3.1 183.2 4.0 2002 60.6 9.7 0.4 23.3 2.7 3.9 40.1 15.3 15.3 21.4 2.3 (2.8) 16.1 1.5 69.1 169.8 2.5 172.3 2.2 2001 59.3 8.6 0.4 18.5 2.5 3.7 33.7 14.9 12.2 20.4 2.2 (2.0) 18.6 1.4 67.7 160.6 1.9 162.6 6.6 2000 In SDG millions 55.7 7.3 0.5 15.2 2.6 2.8 28.4 14.5 12.3 18.8 2.1 (2.2) 13.7 1.4 60.5 144.6 2.1 146.7 GDP annual growth rate (% p.a.) 7.6 Annex Table 2.2: National Income Accounts by Industrial Origin National Income 2.2: Table Annex (In local currency at 1981/82 constant prices) Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & business services insurance, Finance, Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total

206 | AFRICAN DEVELOPMENT BANK GROUP 33.3 36.0 1.5 3.0 2.0 5.4 2.6 2.7 2.5 1.5 0.7 2.8 0.2 2.7 3.7 0.8 3.7 (67.4) 215.7 18.1 3.2 5.8 (6.1) 2.1 5.9 2.1 2.0 2.2 (7.0) 2.1 0.4 0.3 3.0 0.3 (16.3) 58.7 8.6 (5.4) (11.9) (3.0) 0.8 (2.3) (2.0) (6.1) 32.5 (15.1) 4.6 (6.6) (8.1) 2.1 (8.1) (4.3) 95.5 7.0 6.0 13.9 4.2 5.2 5.3 1.7 14.5 0.8 5.2 2.4 4.6 5.2 1.6 5.2 - - (20.3) 7.3 25.4 4.5 5.9 8.8 8.1 6.4 4.4 (13.2) 1.3 2.4 6.3 5.9 (5.6) 5.9 (4.2) (12.1) 7.7 8.2 16.7 4.2 6.7 9.8 5.2 0.7 11.5 7.6 2.3 6.8 6.4 2.8 6.4 50.0 (13.5) 19.0 6.0 8.4 26.1 6.3 11.0 8.5 3.0 (5.5) 2.2 2.3 6.9 10.9 2.9 10.9 9.1 (33.8) 2.0 9.8 5.5 5.1 6.1 5.1 10.0 3.4 13.0 27.2 2.5 12.7 9.9 19.9 9.9 11.7 16.0 3.1 13.0 19.9 8.7 5.6 7.3 6.8 10.1 2.4 1.9 4.1 5.4 5.6 (10.8) 5.6 10.2 (22.0) 2.3 57.5 18.1 9.6 (3.3) 9.8 (0.1) 4.3 (2.5) 23.3 (0.7) 7.8 5.1 26.3 5.1 22.6 3.6 (12.1) (9.7) 13.7 (0.8) 9.1 8.4 8.2 3.9 37.5 28.0 15.9 11.9 7.9 21.4 6.3 13.3 4.2 26.3 8.3 5.5 19.1 2.7 25.5 4.9 5.3 36.8 (13.5) 4.2 2.1 5.7 32.1 6.0 17.1 (18.4) 21.3 (0.8) 30.9 18.5 2.8 (1.1) 8.2 6.5 (7.9) 36.3 3.4 11.8 11.1 (9.2) 10.8 264.7 6.5 24.2 (17.8) (24.8) 31.6 1.4 6.0 (0.6) 9.3 (1.0) (4.0) 5.5 0.8 8.4 5.4 8.4 Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & business services insurance, Finance, Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Source: Central Bureau of Statistics, National Accounts Administration. Accounts National Central Bureau of Statistics, Source:

AFRICAN DEVELOPMENT BANK GROUP | 207 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2014 2013 115,504 112,029 277,752 61,718 35,651 146,097 82,815 196,870 129,165 66,027 88,496 46,800 58,903 108,020 109,006 102,829 127,300 104,851 2012 97,220 134,918 308,966 52,004 30,301 123,901 73,386 168,941 110,101 56,373 75,155 39,257 50,010 89,940 93,161 88,102 106,655 89,845 2011 81,052 50,215 447,414 46,148 23,029 99,130 54,368 130,078 87,588 44,206 58,829 30,715 30,507 70,612 69,474 67,807 82,213 69,116 2010 57,273 71,155 118,827 42,076 39,245 74,748 55,497 106,005 69,517 35,375 48,722 35,501 21,672 64,393 52,926 54,165 70,211 55,171 2009 52,290 41,831 197,325 37,908 36,106 70,464 43,510 94,823 63,028 31,557 48,958 22,032 20,403 60,760 48,223 47,590 63,814 48,536 2008 46,272 72,411 138,071 34,393 40,404 62,536 52,190 89,815 60,033 28,933 46,762 17,305 18,460 57,210 44,919 46,391 50,503 47,231 2007 43,981 42,174 94,688 33,455 38,624 64,761 41,009 87,260 60,357 26,520 42,507 17,598 17,669 52,580 43,264 42,170 46,778 42,976 2006 44,192 59,238 73,977 36,470 37,595 64,021 47,761 79,468 56,751 28,047 38,921 23,703 16,092 46,490 40,243 42,423 42,973 43,221 2005 43,962 44,047 40,153 33,884 24,298 60,863 39,770 74,496 51,563 26,741 35,777 23,081 16,496 41,190 39,232 40,191 44,249 40,944 2004 37,833 36,258 35,638 30,497 21,254 49,886 33,778 66,910 46,103 23,115 36,305 14,618 15,146 40,801 35,327 35,069 30,619 35,686 2003 33,986 31,990 27,685 23,728 5,198 48,126 27,818 51,923 33,585 18,968 35,299 9,896 12,921 38,294 28,991 29,967 27,572 30,429 2002 29,683 32,850 25,180 18,992 11,076 48,499 24,748 45,984 26,549 19,256 34,831 10,516 15,123 42,382 27,196 27,505 41,668 27,713 2001 24,533 32,372 24,850 18,174 8,988 40,149 23,597 43,524 35,284 15,674 34,020 8,804 11,969 41,072 25,657 24,810 41,911 25,012 2000 GDP deflators in SDG at 1981/82 constant prices 21,683 31,414 20,722 14,962 9,183 40,999 21,378 39,343 31,561 14,801 32,476 8,620 10,209 38,758 24,430 22,773 34,676 22,944 Annex Table 2.3: National Income Accounts Deflators National Income 2.3: Table Annex (In local currency Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & real insurance, Finance, business services Community, social & personal services Community, Financial intermediation services Government services Private non-profit services Private to households Sub-total GDP at factor cost Import duties GDP at market prices GDP at market GDP deflators in SDG at 2012 prices forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries

208 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 209 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 1999 50,299 2,712 1,421 6,371 940 4,659 15,839 24,078 12,819 10,680 1,429 (879) 7,108 1,193 55,937 117,495 2,134 121,618 1998 48,768 6,160 898 7,445 15,626 23,861 12,830 10,430 1,369 (1,560) 6,289 1,131 52,131 112,253 2,625 116,685 1997 45,651 5,739 878 2,848 12,181 23,934 12,924 9,111 1,332 (1,200) 6,206 1,100 50,693 103,933 2,141 107,793 1996 41,621 5,654 827 2,660 11,809 23,136 13,098 8,935 1,293 (828) 5,019 1,070 48,704 97,953 2,071 101,636 1994/95 28,787 599 4,139 553 6,272 11,038 30,629 14,342 7,807 1,252 (768) 4,362 1,082 50,903 87,477 2,251 91,105 1993/94 27,157 565 3,905 522 5,918 10,414 28,896 13,530 7,365 1,181 (725) 4,115 1,021 48,021 82,526 2,125 85,949 1992/93 28,203 488 4,440 540 5,519 10,957 27,683 13,347 6,452 1,098 (943) 3,908 997 44,660 80,946 3,020 85,092 1991/92 27,746 463 4,538 472 4,177 10,131 27,335 12,618 5,499 1,075 (705) 3,766 975 42,523 77,520 2,750 81,370 1990/91 22,285 244 3,493 386 7,305 10,248 18,545 11,692 6,016 1,094 (414) 6,313 943 43,172 73,325 1,871 76,352 1989/90 22,588 219 3,368 362 5,060 8,679 17,791 8,320 7,297 1,045 (342) 5,192 911 40,008 68,725 1,107 71,017 1988/89 28,312 148 3,799 373 4,047 8,696 20,557 8,436 7,465 1,000 (420) 3,369 880 38,242 72,261 1,705 75,128 1987/88 21,314 105 3,796 357 4,334 8,814 20,787 9,658 5,760 958 (395) 3,239 848 36,318 64,241 4,102 68,968 19886/87 24,357 80 3,684 328 4,556 8,710 22,532 8,931 5,446 976 (359) 3,096 815 35,953 66,529 1,605 69,198 1985/86 22,236 127 3,057 341 3,783 7,411 13,982 9,331 4,510 936 (349) 3,319 783 30,384 57,782 1,967 60,582 1984/85 19,090 127 3,242 340 4,345 8,003 14,771 7,010 4,569 889 (364) 3,478 789 29,161 54,485 2,264 57,470 1983/84 21,747 133 3,131 305 4,693 7,967 13,904 7,822 4,595 866 (400) 3,946 801 30,185 57,818 2,802 61,322 1982/83 22,803 154 3,168 271 5,585 8,471 16,364 7,881 4,576 846 (366) 3,348 755 30,453 59,634 4,442 64,555 1981/82 GDP by industrial origin (at 2012 constant prices) 25,023 114 2,913 232 4,732 7,502 15,414 7,782 4,417 763 (423) 2,919 712 28,502 58,636 4,101 63,251 Annex Table 2.4: National Income Accounts by Industrial Origin National Income 2.4: Table Annex (In SDG millions at 2012 constant prices prices) Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & business insurance, Finance, services Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Source: Annex Tables 2.2 and 2.3 with adjustments to 2013 by authors. Tables Annex Source:

210 | AFRICAN DEVELOPMENT BANK GROUP 2014 10,534 2013 40,052 41,799 819 1,232 83,902 10,306 6,226 21,288 2,204 11,547 50,848 41,786 33,409 19,396 2,603 (2,139) 15,681 1,958 112,716 247,565 4,760 252,464 2012 38,885 39,773 807 1,210 80,675 8,095 4,752 21,677 2,181 11,525 48,230 40,720 32,511 18,911 2,564 (2,123) 15,248 1,954 109,785 238,690 4,723 243,413 2011 76,298 24,849 1,505 18,352 2,113 10,896 51,343 39,883 30,704 18,531 2,514 (2,077) 16,391 1,912 109,298 237,974 4,586 242,682 2010 89,443 29,682 949 16,899 2,235 12,362 52,952 39,568 31,415 18,901 2,676 (1,568) 19,298 1,828 117,075 259,021 4,491 264,146 2009 83,609 31,031 485 15,787 2,109 10,851 50,808 37,606 29,830 18,577 2,337 (1,555) 18,339 1,786 111,897 246,245 4,421 251,117 2008 78,748 31,031 609 14,707 1,682 10,380 47,998 34,565 27,593 17,460 2,240 (1,790) 18,099 1,744 105,311 232,438 4,682 237,037 2007 72,915 32,380 692 13,651 1,554 8,897 46,076 32,386 25,139 16,599 2,225 (1,605) 16,824 1,704 98,615 218,383 4,554 222,704 2006 68,618 21,587 800 11,467 1,467 8,211 36,529 30,460 22,644 15,302 2,160 (1,699) 16,463 1,666 92,283 196,933 4,426 200,830 2005 62,927 19,791 1,208 11,238 1,335 7,785 34,756 28,717 21,550 13,908 2,089 (1,504) 12,943 1,625 81,870 179,238 3,690 182,784 2004 60,053 17,715 1,041 10,901 1,182 6,494 31,974 27,201 20,086 13,023 1,898 (1,468) 12,698 1,560 77,655 169,660 4,138 173,016 2003 61,249 16,076 1,335 10,656 750 5,500 29,173 28,124 18,295 13,039 1,820 (1,506) 10,302 1,571 72,037 161,367 3,276 164,560 2002 58,911 13,114 1,288 12,121 831 4,837 29,421 25,779 16,876 12,054 1,752 (1,095) 8,047 1,355 64,381 149,590 2,698 154,823 2001 57,652 11,576 1,236 9,597 767 4,584 24,705 25,100 13,443 11,489 1,664 (801) 9,307 1,301 63,050 141,530 2,042 146,050 2000 GDP by industrial origin (at 2012 constant prices) 54,103 9,890 1,514 7,910 773 3,501 20,847 24,426 13,594 10,616 1,562 (870) 6,826 1,258 56,406 127,399 2,250 131,815 Annex Table 2.4: National Income Accounts by Industrial Origin National Income 2.4: Table Annex (In SDG millions at 2012 constant prices prices) Agriculture, forestry & fisheries Agriculture, Crops Livestock Forestry Fisheries Sub-total Industry Petroleum Other mining/quarrying Manufactures Electricity & water Construction Sub-total Services hotels restaurants, Commerce, Transport and communication Transport Finance, insurance, real estate & business services insurance, Finance, Community, social & personal services Community, Financial intermediation services Government services Private non-profit services to households Sub-total GDP at factor cost Import duties GDP at market prices Source: Annex Tables 2.2 and 2.3 with adjustments to 2013 by authors. Tables Annex Source:

AFRICAN DEVELOPMENT BANK GROUP | 211 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 100.0 1999 - - 23,792.7 1,128.0 24,920.8 - - 4,424.5 2,023 (4,309) (2,286.4) 27,058.8 - - 87.9 4.2 92.1 ------16.4 7.5 (15.9) (8.4) 100.0 1998 - - 18,647.0 1,041.3 19,688.2 - - 5,751.4 1,030 (4,533) (3,503.7) 21,935.9 - - 85.0 4.7 89.8 ------26.2 4.7 (20.7) (16.0) 100.0 1997 - - 14,404.1 912.6 15,316.6 - - 2,842.9 813 (2,835) (2,022.2) 16,137.4 - - 89.3 5.7 94.9 ------17.6 5.0 (17.6) (12.5) 100.0 1996 In SDD (hundreds of millions) - - 9,119.8 770.5 9,890.3 - - 1,409.1 577 (1,399) (821.3) 10,478.1 - - 87.0 7.4 94.4 ------13.4 5.5 (13.3) (7.8) 100.0 1994/95 - - 31,709.3 2,557.6 34,266.9 - - 8,940.5 2,540 (5,250) (2,710.0) 40,497.4 - - 78.3 6.3 84.6 ------22.1 6.3 (13.0) (6.7) 100.0 1993/94 - - 15,578.3 1,025.4 16,603.7 - - 4,264.4 902 (2,957) (2,055.2) 18,812.9 - - 82.8 5.5 88.3 ------22.7 4.8 (15.7) (10.9) 1992/93 - - 7,810.1 557.4 8,367.4 - - 1,879.6 423 (1,186) (762.6) 9,484.5 - - 82.3 5.9 88.2 ------19.8 4.5 (12.5) (8.0) 100.0 1991/92 - - 3,188.8 438.8 3,627.6 - - 730.5 158 (298) (140.0) 4,218.2 - - 75.6 10.4 86.0 ------17.3 3.8 (7.1) (3.3) 100.0 1990/91 - - 1,647.0 94.7 1,741.7 - - 258.9 25 (99) (74.0) 1,926.6 - - 85.5 4.9 90.4 ------13.4 1.3 (5.2) (3.8) 100.0 1989/90 - - 934.5 77.8 1,012.3 - - 102.7 47 (60) (13.9) 1,101.1 - - 84.9 7.1 91.9 ------9.3 4.2 (5.5) (1.3) 100.0 Share of GDP (in %) 1984/85 - - 144.7 14.5 159.2 - - 6.9 10 (23) (12.8) 153.3 - - 94.4 9.4 103.8 ------4.5 6.5 (14.9) (8.4) 100.0 1979/80 - - 34.8 5.0 39.8 - - 3.8 3.9 (7.8) (3.9) 39.7 - - 87.6 12.6 100.2 ------9.5 9.9 (19.7) (9.8) 100.0 1974/75 - - 11.7 2.1 13.8 - - 2.7 1.8 (3.2) (1.3) 15.1 - - 77.5 13.8 91.2 ------17.5 12.1 (20.9) (8.8) 100.0 1969/70 - - 3.5 1.5 5.0 - - 1.0 1.2 (1.0) 0.1 6.0 - - 57.9 24.5 82.4 ------15.9 19.2 (17.4) 1.8 100.0 1965 - - 3.6 0.7 4.3 - - 0.7 0.8 (0.9) (0.1) 4.9 - - 73.6 14.2 87.8 ------14.1 17.1 (19.0) (1.9) 100.0 1960 - - In Ls hundreds of millions 3.1 0.4 3.5 - - 0.5 0.6 (0.7) (0.1) 3.8 - - 80.8 9.7 90.6 ------12.0 16.0 (18.5) (2.5) 100.0 Annex Table 2.5: National Income Accounts by Expenditure National Income 2.5: Table Annex (In national currency at current prices) Indicator Net factor income Consumption Private Source: Central bureau of Statistics, National Accounts Administration Accounts National Central bureau of Statistics, Source: Government Sub-total Gross investment Change in inventories Fixed investment Public Private Sub-total Total gross investment Total Exports of goods & services Imports of goods & services Net exports of goods & services Gross domestic product Net factor income Gross national income Consumption Private Government Sub-total Gross investment Change in inventories Fixed investment Public Private Sub-total Total gross investment Total Exports of goods & services Imports of goods & services Net exports of goods & services Gross domestic product

212 | AFRICAN DEVELOPMENT BANK GROUP 342,803.4 (7,255.3) (38,576.4) 31,321.1 67,552.8 61,039.8 54,366.8 6,673.0 6,513.0 282,505.9 25,211.6 257,294.3 2013 243,412.9 (9,863.8) (27,824.2) 17,960.4 51,493.2 46,138.2 44,301.9 1,836.3 5,355.0 201,783.5 16,903.4 184,880.1 2012 186,556.3 (2,521.8) (29,719.4) 27,197.6 46,483.5 41,615.9 39,915.9 1,700.0 4,867.6 142,594.6 12,741.9 129,852.7 2011 160,646.4 1,110.4 (26,411.4) 27,521.8 34,803.9 31,704.5 30,704.5 1,000.0 3,099.4 124,732.1 12,000.7 112,731.4 2010 139,386.5 (6,739.9) (25,859.4) 19,119.5 28,584.7 25,376.5 23,866.3 1,510.2 3,208.2 117,541.7 11,758.4 105,783.3 2009 127,746.7 366.5 (25,034.6) 25,401.1 27,900.1 24,164.9 22,420.1 1,744.8 3,735.2 99,480.1 10,810.8 88,669.3 2008 114,017.6 (4,941.8) (23,606.6) 18,664.8 27,235.4 22,838.6 22,368.3 470.3 4,396.8 91,724.0 9,635.2 82,088.8 2007 98,718.9 (10,861.5) (23,579.9) 12,718.4 25,275.9 19,616.5 18,473.2 1,143.3 5,659.4 84,304.5 8,154.5 76,150.0 2006 85,707.0 (8,961.5) (20,989.9) 12,028.4 21,185.6 17,694.7 14,092.0 3,602.7 3,490.9 73,482.9 7,916.9 65,566.0 2005 68,721.5 (3,400.7) (13,269.7) 9,869.0 13,069.7 11,224.7 9,007.7 2,217.0 1,845.0 59,052.5 5,862.3 53,190.2 2004 55,733.7 (2,946.8) (9,650.0) 6,703.2 9,880.1 7,414.4 5,626.6 1,787.8 2,465.7 48,800.4 3,334.0 45,466.4 2003 47,756.1 (3,052.6) (8,422.6) 5,370.0 10,426.4 9,258.4 5,918.6 3,339.8 1,168.0 40,382.3 2,915.6 37,466.7 2002 40,658.5 (1,369.5) (5,786.6) 4,417.1 6,787.4 4,764.3 4,403.1 361.2 2,023.1 35,240.6 2,615.1 32,625.5 2001 33,662.7 (1,124.3) (6,027.1) 4,902.7 3,887.6 3,267.7 3,047.9 219.8 619.9 30,899.4 1,845.1 SDG millions 29,054.3 2000 Net factor income Gross national income Gross domestic product Net exports of goods & services Imports of goods & services Exports of goods & services Total gross investment Total Sub-total Private Fixed investment Public Gross investment Change in inventories Sub-total Government Consumption Private Annex Table 2.5: National Income Accounts by Expenditure National Income 2.5: Table Annex (In national currency at current prices) Indicator

AFRICAN DEVELOPMENT BANK GROUP | 213 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN - - - - 100.0 (2.1) (11.3) 9.1 19.7 17.8 15.9 1.9 1.9 82.4 7.4 75.1 - - - - 100.0 (4.1) (11.4) 7.4 21.2 19.0 18.2 0.8 2.2 82.9 6.9 76.0 - - - - 100.0 (1.4) (15.9) 14.6 24.9 22.3 21.4 0.9 2.6 76.4 6.8 69.6 - - - - 100.0 0.7 (16.4) 17.1 21.7 19.7 19.1 0.6 1.9 77.6 7.5 70.2 - - - - 100.0 (4.8) (18.6) 13.7 20.5 18.2 17.1 1.1 2.3 84.3 8.4 75.9 - - - - 100.0 0.3 (19.6) 19.9 21.8 18.9 17.6 1.4 2.9 77.9 8.5 69.4 - - - - 100.0 (4.3) (20.7) 16.4 23.9 20.0 19.6 0.4 3.9 80.4 8.5 72.0 - - - - 100.0 (11.0) (23.9) 12.9 25.6 19.9 18.7 1.2 5.7 85.4 8.3 77.1 - - - - 100.0 (10.5) (24.5) 14.0 24.7 20.6 16.4 4.2 4.1 85.7 9.2 76.5 Share of GDP (in %) - - - - 100.0 (4.9) (19.3) 14.4 19.0 16.3 13.1 3.2 2.7 85.9 8.5 77.4 - - - - 100.0 (5.3) (17.3) 12.0 17.7 13.3 10.1 3.2 4.4 87.6 6.0 81.6 - - - - 100.0 (6.4) (17.6) 11.2 21.8 19.4 12.4 7.0 2.4 84.6 6.1 78.5 - - - - 100.0 (3.4) (14.2) 10.9 16.7 11.7 10.8 0.9 5.0 86.7 6.4 80.2 - - - - 100.0 (3.3) (17.9) 14.6 11.5 9.7 9.1 0.7 1.8 91.8 5.5 86.3 Source: Central bureau of Statistics, National Central bureau of Statistics, Source: Accounts Administration Gross national income Net factor income Gross domestic product Net exports of goods & services Imports of goods & services Exports of goods & services Total gross investment Total Sub-total Private Fixed investment Public Gross investment Change in inventories Sub-total Government Consumption Private

214 | AFRICAN DEVELOPMENT BANK GROUP 1999 ------4,424.5 2,138.1 564.8 1,721.6 2,286.4 1998 ------5,751.4 2,247.7 1,345.4 2,158.4 3,503.7 1997 ------2,842.9 820.7 283.7 1,738.5 2,022.2 1996 In SDD hundreds of millions ------1,409.1 587.8 87.6 733.7 821.3 1994/95 ------8,940.5 6,230.5 7.0 2,703.0 2,710.0 1993/94 ------4,264.4 2,209.2 28.8 2,055.2 1992/93 ------1,879.6 1,117.1 762.6 1991/92 ------730.5 590.5 140.0 1990/91 ------258.9 184.9 74.0 1989/90 ------102.7 88.8 13.9 1984/85 ------6.9 (5.9) 12.8 1979/80 ------3.8 (0.1) 3.9 1974/75 ------2.7 1.3 - - 1.3 1969/70 ------1.0 1.1 - - (0.1) 1965 ------0.7 0.6 - - 0.1 1960 In Ls hundreds of millions ------0.5 0.4 - - 0.1 Annex Table 2.6: National Income Accounts by Expenditure National Income 2.6: Table Annex (In national currency at current prices) Indicator Gross investment Change in inventories Fixed investment Public Oil sector Non-oil sector Sub-total Private Oil sector Non-oil sector Sub-total Total fixed investment Total Total investment Total Domestic savings Public Private Total Foreign savings FDI net inflow Other Total foreign savings Total

AFRICAN DEVELOPMENT BANK GROUP | 215 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN ------16.4 7.9 2.1 8.4 ------26.2 10.2 6.1 16.0 ------17.6 5.1 1.8 12.5 ------13.4 5.6 0.8 7.8 ------22.1 15.4 0.0 6.7 ------22.7 11.7 0.2 10.9 ------19.8 11.8 (0.0) 8.0 ------17.3 14.0 0.0 3.3 ------13.4 9.6 (0.0) 3.8 ------9.3 8.1 (0.0) 1.3 ------4.5 (3.8) (0.0) 8.4 ------9.5 (0.2) 0.0 9.8 Gross investment and domestic savings as % GDP ------17.5 8.8 - - 8.8 ------15.9 17.6 - - (1.8) ------14.1 12.2 - - 1.9 ------12.0 9.4 - - 2.5 Gross investment Change in inventories Fixed investment Public Oil sector Non-oil sector Sub-total Private Oil sector Non-oil sector Sub-total Total fixed investment Total Total investment Total Domestic savings Public Private Total Foreign savings FDI net inflow Other foreign savings Total

216 | AFRICAN DEVELOPMENT BANK GROUP 2013 6,513.3 6,673.0 54,366.8 61,039.8 67,552.8 67,553.1 60,297.5 14,558.6 (7,303.3) 7,255.3 2012 5,355.1 1,836.3 44,301.9 46,138.2 51,493.2 51,493.3 41,629.4 8,811.0 1,052.8 9,863.8 2011 4,867.6 1,700.0 39,915.9 41,615.9 46,483.5 46,483.5 43,961.7 7,096.9 (4,575.1) 2,521.8 2010 3,099.4 1,000.0 30,704.5 31,704.5 34,803.9 34,803.9 35,914.3 6,687.4 (7,797.8) (1,110.4) 2009 3,208.2 1,510.2 23,866.3 25,376.5 28,584.7 28,584.7 21,844.8 6,174.0 565.9 6,739.9 2008 3,735.2 1,744.8 22,420.1 24,164.9 27,900.1 27,900.1 28,266.6 5,365.0 (5,731.5) (366.5) 2007 4,396.8 470.3 22,368.3 22,838.6 27,235.4 27,235.4 22,293.6 6,120.6 (1,178.8) 4,941.8 2006 5,659.4 1,143.3 18,473.2 19,616.5 25,275.9 25,275.9 14,414.4 7,673.7 3,187.8 10,861.5 2005 3,490.9 3,602.7 14,092.0 17,694.7 21,185.6 21,185.6 12,224.1 5,736.8 3,224.7 8,961.5 2004 1,845.0 2,217.0 9,007.7 11,224.7 13,069.7 13,069.7 9,669.0 3,819.5 (418.8) 3,400.7 2003 2,465.7 1,787.8 5,626.6 7,414.4 9,880.1 9,880.1 6,933.3 2,899.3 47.5 2,946.8 2002 1,168.0 3,339.8 5,918.6 9,258.4 10,426.4 10,426.4 7,373.8 1,666.7 1,385.9 3,052.6 2001 2,023.1 361.2 4,403.1 4,764.3 6,787.4 6,787.4 5,417.9 1,484.9 (115.4) 1,369.5 2000 In SDG millions 619.9 219.8 3,047.9 3,267.7 3,887.6 3,887.6 2,763.3 329.1 795.3 1,124.3 Annex Table 2.6: National Income Accounts by Expenditure National Income 2.6: Table Annex (In national currency at current prices) Indicator Gross investment Change in inventories Fixed investment Public Oil sector Non-oil sector Sub-total Private Oil sector Non-oil sector Sub-total Total fixed investment Total Total investment Total Domestic savings Public Private Total Foreign savings FDI net inflow Other Total foreign savings Total

AFRICAN DEVELOPMENT BANK GROUP | 217 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 1.9 1.9 15.9 17.8 19.7 17.6 4.2 2.1 2.2 0.8 18.2 19.0 21.2 17.1 3.6 4.1 2.6 0.9 21.4 22.3 24.9 23.6 3.8 1.4 1.9 0.6 19.1 19.7 21.7 22.4 4.2 (0.7) 2.3 1.1 17.1 18.2 20.5 15.7 4.4 4.8 2.9 1.4 17.6 18.9 21.8 22.1 4.2 (0.3) 3.9 0.4 19.6 20.0 23.9 19.6 5.4 4.3 5.7 1.2 18.7 19.9 25.6 14.6 7.8 11.0 4.1 4.2 16.4 20.6 24.7 14.3 6.7 10.5 2.7 3.2 13.1 16.3 19.0 14.1 5.6 4.9 4.4 3.2 10.1 13.3 17.7 12.4 5.2 5.3 Gross investment and domestic savings as % GDP 2.4 7.0 12.4 19.4 21.8 15.4 3.5 6.4 5.0 0.9 10.8 11.7 16.7 13.3 3.7 3.4 1.8 0.7 9.1 9.7 11.5 8.2 1.0 3.3 Gross investment Change in inventories Fixed investment Public Oil sector Non-oil sector Sub-total Private Oil sector Non-oil sector Sub-total Total fixed investment Total Total investment Total Domestic savings Public Private Total Foreign savings FDI net inflow Other foreign savings Total

218 | AFRICAN DEVELOPMENT BANK GROUP (15.2) 42.9 699.0 135.2 563.8 193.8 51.4 73.0 54.5 191.1 741.9 741.9 - 49.4 422.5 329.4 93.1 270.0 2003 9.6 (32.7) 503.4 118.6 384.8 85.2 32.9 51.1 50.5 165.1 470.7 470.7 - 46.6 210.7 111.6 99.1 213.4 2002 5.0 (31.0) 401.0 79.0 322.0 90.0 25.0 26.0 49.0 132.0 370.0 370.0 31.0 150.0 64.0 86.0 189.0 2001 11.7 (23.6) 349.9 74.5 275.4 54.8 18.0 8.8 34.6 53.3 105.9 326.3 326.3 28.0 140.9 103.8 37.1 157.4 2000 8.5 (21.8) 227.3 32.2 12.8 195.1 36.3 12.8 7.5 20.2 37.9 80.4 205.5 205.5 36.5 15.7 15.7 153.3 1999 3.4 (14.0) 170.9 15.6 155.3 44.0 8.9 13.9 31.2 57.3 156.9 156.9 30.5 - - - - 126.4 1998 2.6 (11.8) 119.1 9.3 109.8 11.7 4.7 10.1 45.8 37.5 107.3 107.3 16.4 - - - - 90.9 1997 2.2 (34.5) 97.5 5.6 91.9 29.9 5.6 10.0 24.4 22.0 63.0 63.0 9.7 - - - - 53.3 1996 4.2 (13.5) 50.1 6.7 43.4 14.0 3.8 4.0 15.6 6.0 36.6 36.6 7.7 - - - - 28.9 In Sudanese dinars (billions) 1995 Financing Foreign financing (net) Overall balance Total expenditures Total Capital expenditures Net acquisition of NFA to states Transfers Sub-total Sub-total Other expenditures Transfers (excl capital transfers) Transfers Subsidies Interest Goods and services Expenditures Current expenditures Wages Grants revenues and grants Total Total revenues Total Other non-tax revenues Sub-total Oil export revenues Oil revenues Domestic sales Revenues and Grants Revenues revenue Tax Annex Table 2.7: Budget Receipts and Expenditures of the Central Government Sudan 2.7: Table Annex (At current prices) Item

AFRICAN DEVELOPMENT BANK GROUP | 219 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 0.6 0.1 2.4 10.1 5.7 7.6 13.3 51,922 55,734 1,591 (9.4) (33.5) (18.3) 28.7 (30.0) 2.1 12.8 (31.9) 0.6 (0.1) 2.5 8.1 5.4 4.4 9.9 44,563 47,756 800 156.5 (123.8) (133.4) 19.1 (8.4) 11.1 (133.2) (22.0) 0.6 (0.1) 1.9 7.9 5.4 3.7 9.1 37,881 40,659 580 (14.0) 45.0 40.0 13.0 (7.0) 3.0 2.0 29.0 0.6 (0.1) 2.2 8.2 5.5 4.2 9.7 31,360 33,663 548 3.6 20.0 8.3 1.0 1.2 6.1 0.7 (0.1) 1.2 7.2 7.0 0.6 7.6 26,642 27,059 62 (13.4) 35.2 26.7 1.5 (3.0) 28.2 0.7 (0.1) 0.7 7.1 7.2 - - 7.2 21,876 21,936 - - - - 14.0 10.6 10.6 0.7 (0.1) 0.6 6.8 6.6 - - 6.6 16,094 16,137 - - (0.0) 11.8 9.2 9.2 0.6 (0.3) 0.5 8.8 6.0 - - 6.0 10,432 10,478 - - - - 34.5 32.3 32.3 0.5 (0.2) 0.8 5.4 4.6 - - 4.6 8,034 8,034 - - 0.4 13.1 8.9 8.9 Source: Central Bank of Sudan for 2012 and 2013 outcomes, IMF country reports for various years, estimates by authors for 2014, and Annex Table 1.2 for GDP estimates. Table Annex and estimates by authors for 2014, IMF country reports for various years, Central Bank of Sudan for 2012 and 2013 outcomes, Source: Non-oil revenues as % non-oil GDP Overall balance as % GDP Capital expenditures as % GDP Recurrent expenditures as % GDP Non-oil revenues Oil revenues Revenues as % GDP Non-oil GDP at market prices (SDG mill) GDP at market prices (SDG million) Memo items: Oil revenue (US$ million) Discrepancy Total Accounts payable Privatization Sub-total Nonbank financing Commercial banks Domestic financing (net) Central Bank

220 | AFRICAN DEVELOPMENT BANK GROUP 2014 26,676 4,093 355 4,448 16,148 47,272 2,149 49,421 16,012 4,919 4,061 8,027 7,996 3,000 44,015 5,850 3,914 9,764 53,779 (4,358) 491 2013 24,134 4,610 195 6,369 1,776 32,279 2,033 34,312 13,671 2,828 1,511 9,768 5,511 963 34,252 4,590 1,926 6,516 40,768 (6,456) 1,073 2012 15,567 5,955 19 4,242 1,444 21,253 915 22,168 10,731 2,027 2,525 4,287 4,199 1,037 24,805 3,550 1,468 5,017 29,822 (7,654) 268 2,000 2011 11,426 7,668 11,018 18,686 1,627 31,739 618 32,357 9,763 2,603 2,210 2,712 9,128 621 27,037 3,032 1,909 4,941 31,978 379 1,038 4,053 2010 10,008 5,025 12,311 17,336 925 28,269 976 29,245 7,516 2,417 1,669 845 9,743 813 23,003 3,900 1,912 5,812 28,815 430 599 3,536 2009 8,619 4,417 6,115 10,532 923 20,074 47 20,121 6,836 2,375 1,254 265 7,997 1,097 19,824 3,572 1,802 5,374 25,198 (5,077) 1,120 2,975 2008 7,680 4,155 14,376 18,531 864 27,075 36 27,111 5,951 2,919 1,088 1,555 9,348 279 21,140 3,838 2,227 6,065 27,205 (94) 214 (302) 2007 6,529 3,283 7,610 10,893 1,363 18,785 522 19,307 6,368 1,924 897 1,287 8,674 684 19,834 4,525 4,525 24,359 (5,052) 932 720 2006 5,099 8,794 1,538 15,431 361 15,792 3,945 930 930 1,777 5,758 2,772 16,112 3,118 3,118 19,230 (3,438) 223 1,310 841 2005 4,721 2,933 6,077 9,010 997 14,728 - - 14,728 3,011 724 862 2,375 4,307 2,384 13,663 2,276 2,276 15,939 (1,211) 115 470 274 In Sudanese pounds (millions) 2004 4,205 1,018 4,775 5,793 1,047 11,045 - - 11,045 2,738 710 811 842 2,322 7,423 2,772 2,772 10,195 850 52 (860) 91 Annex Table 2.7: Budget Receipts and Expenditures of the Central Government Sudan 2.7: Table Annex (At current prices) Item Revenues and Grants Revenues revenue Tax Oil revenues Domestic sales Oil export revenues Sub-total Other non-tax revenues Total revenues Total Grants Total revenues and grants Total Expenditures Current expenditures Wages Goods and services Interest Subsidies Transfers (excl capital transfers) Transfers Other expenditures Sub-total Capital expenditures Net acquisition of NFA Transfers to states Transfers Sub-total Total expenditures Total Overall balance Financing Foreign financing (net) Domestic financing (net) Central Bank Commercial banks

AFRICAN DEVELOPMENT BANK GROUP | 221 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 3,867 4,358 - - 716 435,140 403,791 10.9 1.0 9.8 10.1 2.2 (1.0) 10.6 5,383.2 6,456 0.0 1,352 294,631 285,669 11.0 2.2 8.8 11.6 2.2 (2.2) 9.1 7,385.2 7,654 - - 1,187 243,413 235,318 8.7 1.7 7.0 10.2 2.1 (3.1) 7.2 (4,505) (965) (1,417.0) (379) - - 7,020 186,690 177,442 17.0 10.0 7.0 14.5 2.6 0.2 7.4 (3,085) (1,480) (1,029.0) (430) - - 7,518 162,204 146,550 17.4 10.7 6.7 14.2 3.6 0.3 7.5 808 (71) 3,712.0 4,832 245.0 4,575 135,659 126,038 14.8 7.8 7.0 14.6 4.0 (3.7) 7.6 971 (839) (170.0) 44 50.0 8,867 124,609 107,955 21.7 14.9 6.9 17.0 4.9 (0.1) 7.9 1,206 2,194 4,120.0 5,052 - - 5,403 106,527 96,405 17.6 10.2 7.4 18.6 4.2 (4.7) 8.2 961 3,215.0 103 3,438 - - 4,049 96,612 87,134 16.0 9.1 6.9 16.7 3.2 (3.6) 7.6 349 1,096.0 3 1,211 - - 3,699 83,298 76,837 17.7 10.8 6.9 16.4 2.7 (1.5) 7.4 (133) (902.0) (850) - - 2,246 68,721 63,961 16.1 8.4 7.6 10.8 4.0 1.2 8.2 Nonbank financing Accounts payable Sub-total Privatization Total Discrepancy Memo items: Oil revenue (US$ million) GDP at market prices (SDG million) Non-oil GDP at market prices (SDG mill) Revenues as % GDP Oil revenues Non-oil revenues Recurrent expenditures as % GDP Capital expenditures as % GDP Overall balance as % GDP Non-oil revenues as % non-oil GDP Source: Central Bank of Sudan for 2012 and 2013 outcomes, IMF country reports for various years, estimates by authors for 2014, and Annex Table 1.2 for GDP estimates. Table Annex and estimates by authors for 2014, IMF country reports for various years, Central Bank of Sudan for 2012 and 2013 outcomes, Source:

222 | AFRICAN DEVELOPMENT BANK GROUP 2004 3,101 677 3,778 89 3,497 3,586 192 44 1,064 (1,020) 22 678 1,038 (1,694) 1,095 28 1,123 (1,399) - - 80 (280) (26) (58) 2003 2,083 494 2,577 84 2,452 2,536 41 52 846 (794) 10 603 740 (1,333) 708 10 718 (1,368) - - 85 (239) (5) 138 2002 1,511 438 1,949 131 2,022 2,153 (204) 47 771 (724) 19 614 631 (1,226) 634 32 666 (1,488) 2 30 (166) (163) 189 2001 1,377 322 1,699 130 1,901 2,031 (332) 15 729 (714) 18 892 568 (1,442) 366 6 372 (2,116) 2 22 (157) (37) 120 2000 1,408 456 1,864 137 1,416 1,553 311 28 368 (341) 5 1,269 623 (1,887) 315 29 344 (1,573) 21 41 (265) (18) 117 1999 276 504 780 184 1,228 1,412 (632) 51 139 (88) 19 1,223 114 (1,318) 446 41 487 (1,551) - - 44 (207) (5) 108 1998 596 596 256 1,669 1,925 (1,329) 16 43 (27) 14 1,160 (1,146) 490 17 507 (1,996) - - 13 (219) (19) 84 1997 594 594 293 1,287 1,580 (986) 30 40 (11) 18 1,112 (1,095) 429 23 452 (1,639) 4 19 (233) (58) 12 1996 620 620 306 1,241 1,547 (927) 52 81 (29) 5 958 (953) 321 41 361 (1,548) 8 29 (280) (7) 121 1995 556 556 194 1,025 1,219 (663) 132 137 (5) 2 916 (914) 60 44 104 (1,479) 11 86 (288) 54 331 Annex Table 2.8: Balance of Payments for Sudan 2.8: Table Annex (In US$ millions at current prices) Item Merchandise exports Oil exports Crude oil Petroleum products Sub-total Gold Other products Sub-total Merchandise imports Oil and products Other products Sub-total Trade balance Trade Services Exports Imports Sub-total Income Receipts Non-oil payments Oil-related expenses Net income Transfers Private Official Sub-total Current account balance Capital and financial account Capital account Financial account Disbursements Amortization Net foreign assets of banks Other short-term capital flows

AFRICAN DEVELOPMENT BANK GROUP | 223 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 1,481 1,197 1,197 383 181 (855) 30 (33) 677 (181) - - 1,338 3.5 1,092 (26) 1,045 1,045 23 (300) (204) (125) 14 (27) 620 22 300 - - 529 1.9 633 (24) 499 501 589 (398) (197) (90) 16 (24) 652 41 398 - - 249 1.0 574 522 524 711 (881) - - 24 31 (55) 881 881 - - 50 0.2 128 3 24 436 (1,113) (108) (82) 35 (63) 1,331 1,113 - - 138 0.9 224 164 164 82.2 (1,305) (36) 30 (40) 1,351 1,305 - - 189 1.5 670 528 528 170.8 (1,297) (5) 40 (60) 1,322 1,297 - - 91 0.6 180 (80) (76) 439.9 (1,275) 1 34 (58) 1,298 1,275 - - 82 0.6 70 (67) (59) 430.3 (1,176) (7) 30 (36) 1,189 1,176 - - 107 0.8 12 195 206 177.9 (1,096) (20) 17 37 (40) 1,101 1,096 - - 163 1.4 Foreign direct investment Private Sub-total Other capital flows Public Total Errors and omissions Overall balance Financing Change in international reserves Short-term foreign liabilities IMF Disbursements Payments Exceptional financing Change in arrears Total Other Financing gap Memo items: International reserves Reserves as months of imports Source: International Monetary Fund database Source:

224 | AFRICAN DEVELOPMENT BANK GROUP 2014 1,884 201 2,085 1,172 1,899 5,156 1,612 6,943 8,556 (3,400) 1,861 1,730 131 - - 2,352 333 (2,685) 992 445 1,437 (4,517) 232 261 (405) 234 2013 1,617 102 1,719 1,048 2,025 4,793 1,313 7,612 8,925 (4,132) 1,578 1,805 (227) 9 2,533 249 (2,773) 945 436 1,381 (5,751) 309 344 (381) 227 2012 1,755 257 2,012 2,158 952 5,122 947 7,581 8,528 (3,406) 1,159 2,033 (874) 14 2,220 216 (2,422) 445 418 863 (5,839) 320 376 (402) (61) 2011 8,378 301 8,679 1,442 942 11,063 662 7,650 8,312 2,751 764 2,153 (1,389) 108 1,886 985 (2,763) 439 673 1,112 (289) 162 606 (445) 313 2010 10,991 1,018 691 12,700 385 8,604 8,989 3,711 259 2,321 (2,062) 138 1,932 3,333 (5,127) 940 1,191 2,131 (1,347) 174 569 (485) (429) 2009 7,067 403 617 8,087 293 8,429 8,722 (635) 400 1,907 (1,507) 37 1,765 2,406 (4,134) 355 657 1,012 (5,264) 160 978 (492) 421 2008 12,052 112 464 12,628 640 7,776 8,416 4,212 510 2,265 (1,755) 42 1,798 2,151 (3,907) (286) 671 385 (1,065) 156 485 (382) (198) 2007 8,443 460 8,902 256 7,466 7,722 1,180 385 3,319 (2,934) 184 857 3,967 (4,640) 209 373 582 (5,812) - - 593 (270) (95) 2006 5,244 569 5,813 364 6,741 7,105 (1,292) 201 2,890 (2,689) 89 749 2,292 (2,952) 1,034 356 1,390 (5,543) - - 431 (336) 52 2005 4,240 638 4,878 283 5,663 5,946 (1,068) 114 1,755 (1,641) 44 762 1,271 (1,989) 1,487 234 1,721 (2,977) - - 309 (290) (204) Annex Table 2.8: Balance of Payments for Sudan 2.8: Table Annex (In US$ millions at current prices) Item Merchandise exports Oil exports Crude oil Petroleum products Sub-total Gold Other products Sub-total Merchandise imports Oil and products Other products Sub-total Trade balance Trade Services Exports Imports Sub-total Income Receipts Non-oil payments Oil-related expenses Net income Transfers Private Official Sub-total Current account balance Capital and financial account Capital account Financial account Disbursements Amortization Net foreign assets of banks

AFRICAN DEVELOPMENT BANK GROUP | 225 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN (765) 2,322 624 326 2,597 2,829 - - (1,688) (98) - - (10) 1,796 1,688 - - 1,716 2.0 (515) 3,091 580 (133) 3,213 3,522 67 (2,162) 75 230 (6) 1,863 2,162 - - 1,619 1.8 (731) 2,466 556 1,536 3,740 4,060 550 (1,229) (376) (164) (7) 1,776 1,229 - - 1,693 1.9 (1,362) 2,666 (1,388) (1,550) (1,160) (998) (710) (1,997) 249 (51) (5) 1,804 1,997 - - 1,317 1.5 (1,641) 2,900 (1,289) (1,250) (1,625) (1,451) (1,720) (4,518) (195) (83) (11) 4,807 4,518 - - 1,566 1.7 (1,338) 2,682 (473) 857 2,635 2,795 51 (2,418) 446 (84) (11) 2,067 2,418 - - 1,370 1.5 (2,486) 2,567 (1,422) (592) (2,028) (1,872) 2,147 (790) (126) (246) (50) 1,212 790 - - 1,816 2.0 829 3,036 4,093 4,093 336 (1,383) 437 122 (63) 887 1,383 - - 1,378 1.5 622 3,533 4,302 4,302 21.2 (1,220) 500 (30) (30) 780 1,220 - - 1,660 2.0 666 2,355 2,836 2,836 221 80 (745) (23) (31) 719 (80) - - 1,869 2.9 Other short-term capital flows Foreign direct investment Other capital flows Public Private Sub-total Total Errors and omissions Overall balance Financing Change in international reserves Short-term foreign liabilities IMF Disbursements Payments Exceptional financing Change in arrears Other Total Financing gap Memo items: International reserves Reserves as months of imports Source: International Monetary Fund database Source:

226 | AFRICAN DEVELOPMENT BANK GROUP 2004 24 532 50 3,171 607 1,820 96 3,778 558 101 1,499 4,075 (297) 44 1,064 (1,020) 3,822 5,139 (1,317) 14.3 19.3 (4.9) 2003 26 410 59 2,048 494 1,127 79 2,542 442 149 1,085 2,882 (340) 36 831 (795) 2,578 3,713 (1,135) 12.3 17.7 (5.4) 2002 49 337 53 1,511 438 877 69 1,949 467 132 902 2,446 (497) 47 771 (724) 1,996 3,217 (1,221) 11.0 17.7 (6.7) 2001 54 225 44 1,377 322 771 263 1,699 430 130 707 2,301 (602) 15 729 (714) 1,714 3,030 (1,316) 10.9 19.3 (8.4) 2000 50 359 47 1,408 456 1,864 340 137 1,076 1,553 311 28 555 (527) 1,892 2,108 (216) 14.5 16.1 (1.6) 1999 ------1998 ------1997 ------1996 ------1995 - - 556 556 1,219 215 194 810 (663) 132 137 (5) 688 1,356 (668) 9.9 19.5 (9.6) Annex Table 2.9: Exports and Imports of Merchandise 2.9: Table Annex Services (US$ million at current prices) Indicator Merchandise exports (fob) Petroleum and products Sub-total Other Agriculture & agro-industrial products Non-oil Gold Total Other Total Merchandise imports (cif) Foodstuff and beverages Petroleum & products Manufactures Machinery & transport equipment Merchandise trade balance Services Exports Payments Net services Total goods and services Total Exports Imports Trade balance Trade Memo items: exports as % of GDP Total Total imports as % of GDP Total Trade deficit as % of GDP Trade Source: Central Bank of Sudan and IMF, various country reports Central Bank of Sudan and IMF, Source: for Sudan.

AFRICAN DEVELOPMENT BANK GROUP | 227 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2014 1,201 1,271 1,551 328 3,149 4,350 2,344 1,524 2,844 2,250 250 9,211 (4,861) 1861 2685 (824) 6,211 11,896 (5,685) 9.6 18.3 (8.8) 2013 1,725 1,048 1,606 420 3,075 4,800 2,448 1,460 3,055 2,649 305 9,918 (5,118) 1,578 2,772 (1,194) 6,378 12,690 (6,312) 10.2 20.3 (10.1) 2012 2,018 2,158 834 149 3,141 5,159 2,109 1,052 3,018 2,763 533 9,475 (4,316) 1,167 2,010 (844) 6,326 11,485 (5,160) 9.3 16.9 (7.6) 2011 7,304 1,455 814 115 2,384 9,689 1,956 736 3,129 3,213 202 9,236 453 839 2,153 (1,315) 10,527 11,389 (862) 15.0 16.2 (1.2) 2010 9,692 1,018 437 257 1,712 11,404 2,443 428 3,387 3,574 213 10,045 1,360 254 2,321 (2,067) 11,658 12,366 (708) 16.6 17.6 (1.0) 2009 7,237 404 446 170 1,020 8,257 1,702 326 3,693 3,805 166 9,691 (1,434) 392 1,907 (1,515) 8,649 11,598 (2,949) 14.7 19.7 (5.0) 2008 11,094 112 417 47 576 11,671 1,391 711 2,921 4,175 154 9,351 2,319 510 2,265 (1,755) 12,181 11,617 564 20.4 19.5 0.9 2007 8,419 63 382 16 461 8,879 878 291 2,832 4,659 115 8,775 104 385 3,319 (2,934) 9,264 12,094 (2,830) 17.5 22.9 (5.4) 2006 5,087 64 488 17 569 5,657 793 414 2,427 4,301 138 8,073 (2,417) 201 2,890 (2,689) 5,858 10,963 (5,106) 13.2 24.6 (11.5) 2005 4,187 63 548 25 637 4,824 853 322 2,355 3,122 104 6,757 (1,933) 114 1,755 (1,641) 4,938 8,512 (3,574) 14.4 24.9 (10.5) Annex Table 2.9: Exports and Imports of Merchandise 2.9: Table Annex Services (US$ million at current prices) Indicator Merchandise exports (fob) Petroleum and products Non-oil Gold Agriculture & agro-industrial products Other Sub-total Total Merchandise imports (cif) Foodstuff and beverages Petroleum & products Manufactures Machinery & transport equipment Other Total Merchandise trade balance Services Exports Payments Net services Total goods and services Total Exports Imports Trade balance Trade Memo items: exports as % of GDP Total Total imports as % of GDP Total Trade deficit as % of GDP Trade Source: Central Bank of Sudan and IMF, various country reports Central Bank of Sudan and IMF, Source: for Sudan.

228 | AFRICAN DEVELOPMENT BANK GROUP 2004 94 2 179 61 3 11 30 2 2 1 0 2 384 119 2 16 0 18 26 2 184 1 0 13 8 - 2003 108 0 74 35 2 14 17 1 1 2 253 81 4 12 22 19 137 0 7 9 2002 62 6 75 32 5 179 117 17 3 138 11 8 2001 44 9 105 24 0 182 2 14 4 20 12 8 2000 - - - - 1999 - - - - 1998 - - - - 1997 - - - - 1996 - - - - 1995 - - - - Annex Table 2.10: Exports of Agricultural and Agro-Industrial Products Agricultural and Exports of 2.10: Table Annex (US$ million at current prices) Indicator Agricultural exports Cotton Groundnuts Sesame Gum Arabic Sorghum (dura) Melon seeds Hibiscus flower Senna pods Henna Lubban Sun flower seeds Trefoil Onion Vegetables Fruits Sub-total Animal products Sheep and lambs Goats Cattle Camels Gazal & other Meat Hides and skins Fresh and frozen fish Sub-total Manufactures Unrefined groundnut oil Sesame oil Sugar & raw cane Molasses Yarn

AFRICAN DEVELOPMENT BANK GROUP | 229 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2014 34 6 466 97 6 17 18 3 1 3 - 66 21 10 0 6 2 755 550 23 22 10 208 592 3 681 20 86.9 2013 103 43 472 135 78 3 17 3 3 - - 33 2 6 2 857 477 18 11 1 98 408 6 494 16 92.9 2012 12 3 224 67 14 8 14 2 2 - - 5 2 346 286 20 9 62 337 15 439 38 76.7 2011 27 1 231 81 26 9 18 3 1 - - 1 3 397 250 23 9 41 225 5 323 18 69.7 2010 34 0 167 24 0 3 7 1 - - 0 2 237 116 - - 5 13 - - 3 44 2009 42 - - 143 33 - - 7 9 2 - - 2 2 238 146 - - 5 24 - - 3 9 2008 62 1 142 61 46 3 13 1 0 0 0 0 0 329 44 - - 1 0 1 - - 1 0 2007 68 1 93 52 28 4 17 1 0 0 0 1 265 63 - - 2 2 14 - - 0 3 2006 82 0 167 50 1 5 19 1 0 0 0 1 327 99 - - 3 20 - - 0 5 2005 107 2 119 108 0 10 15 1 1 0 0 1 364 95 - - 3 0 16 - - 0 18 Cake and meal Ethanol Shells Agro-Industrial Products Agricultural and Exports of 2.10: Table Annex (US$ million at current prices) Indicator Sub-total Agricultural exports Cotton Groundnuts Total Total Sesame Gum Arabic Total non-oil exports Total Sorghum (dura) Agriculture as % total non-oil Melon seeds Source: CBoS, Foreign Trade Statistical Digest, various issues. Statistical Digest, Trade Foreign CBoS, Source: Hibiscus flower Senna pods Henna Lubban Sun flower seeds Trefoil Onion Vegetables Fruits Sub-total Animal products Sheep and lambs Goats Cattle Camels Gazal & other Meat

230 | AFRICAN DEVELOPMENT BANK GROUP 44 0 857 2 0 97 6 0 20 12 137 1,749 3,096 56.5 73 681 14 0 - - 7 29 36 86 1,625 3,073 52.9 37 447 - - - - 3 4 7 800 3,141 25.5 40 363 - - 6 10 4 19 779 2,385 32.7 14 193 ------2 2 432 1,721 25.1 17 205 19 - - 19 462 1,027 45.0 3 0 51 0 0 15 21 - - 0 1 38 418 654 64.0 3 0 87 0 19 10 - - 0 1 30 381 486 78.4 5 0 132 0 0 10 18 - - 0 - 28 487 583 83.6 22 1 155 2 0 13 11 - - 0 - 27 546 637 85.8 Hides and skins Fresh and frozen fish Sub-total Manufactures Unrefined groundnut oil Sesame oil Sugar & raw cane Molasses Yarn Ethanol Shells Cake and meal Sub-total Total Total Total non-oil exports Total Agriculture as % total non-oil Source: CBoS, Foreign Trade Statistical Digest, various issues. Statistical Digest, Trade Foreign CBoS, Source:

AFRICAN DEVELOPMENT BANK GROUP | 231 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2014 ------2013 6,646 4,785 11,431 4,793 354 5,147 11,439 5,139 16,578 16,395 5,382 21,777 2012 6,337 4,331 10,668 4,742 348 5,090 11,079 4,679 15,758 15,697 5,452 21,149 2011 6,002 3,743 9,745 4,531 360 4,891 10,533 4,103 14,636 15,093 5,402 20,495 2010 5,892 2,728 8,620 4,446 2,325 6,771 10,338 5,053 15,391 14,441 7,126 21,567 2009 5,923 2,449 8,372 4,389 2,134 6,523 10,312 4,583 14,895 13,707 6,740 20,447 2008 5,856 2,390 8,246 4,218 1,979 6,197 10,074 4,369 14,443 13,120 6,673 19,793 2007 6,044 2,333 8,377 4,225 1,832 6,057 10,269 4,165 14,434 12,738 6,331 19,069 2006 5,916 2,200 8,116 4,018 1,690 5,708 9,934 3,890 13,824 11,922 6,044 17,966 2005 5,666 2,087 7,753 3,807 1,570 5,377 9,473 3,657 13,130 11,232 5,788 17,020 2004 5,859 2,281 8,140 4,008 1,639 5,647 9,867 3,920 13,787 11,665 6,049 17,714 2003 5,680 2,137 7,817 3,818 1,500 5,318 9,498 3,637 13,135 11,196 5,451 16,647 2002 5,374 1,969 7,343 3,373 1,339 4,712 8,747 3,308 12,055 10,661 4,849 15,510 2001 5,130 1,729 6,859 3,144 1,108 4,252 8,274 2,837 11,111 10,349 4,394 14,743 2000 5,114 2,176 7,290 3,076 1,398 4,474 8,190 3,574 11,764 10,647 4,745 15,392 1995 5,282 2,355 7,637 4,748 989 5,737 10,030 3,344 13,374 10,275 6,368 16,643 1990 3,892 1,810 5,702 3,244 461 3,705 7,136 2,271 9,407 9,651 4,155 13,806 1980 107 443 550 33 30 63 140 473 613 4,147 599 4,746 Annex Table 2.11: Long-Term and Short-Term Debt Outstnading at Year End Reported by World Bank and Arrears on Debt Service Payments Due Bank and World End Reported by Year Debt Outstnading at and Short-Term Long-Term 2.11: Table Annex Arrears on long-term debt Principal due Official debt Private debt Sub-total Interest due Official debt Private debt Sub-total Total arrears Total Official debt Private debt Total Total debt outstanding Total Long-term public & private Short-term public & private Total Source: World Bank development indicators database. Bank development indicators database. World Source:

232 | AFRICAN DEVELOPMENT BANK GROUP 156,998 2030 165,417 168,696 3.573 23,502 20,598 86,371 7,392 45,677 160,037 232,221 584,456 6,580 591,036 560,954

2029 156,153 161,741 3.573 22,277 19,250 79,239 6,844 41,905 147,239 220,222 551,479 6,456 557,934 529,202 148,111 2028 147,542 155,073 3.573 21,115 17,991 72,696 6,337 38,445 135,470 209,176 520,834 6,334 527,168 499,718 139,860 2027 139,409 148,680 3.573 20,015 16,814 66,694 5,868 35,271 124,647 198,551 491,892 6,214 498,107 471,878 132,068 2026 131,844 142,550 3.573 18,971 15,714 61,187 5,433 32,359 114,693 188,766 464,980 6,097 471,078 446,009 124,828 2025 124,692 136,673 3.573 17,982 14,686 56,135 5,031 29,687 105,539 179,347 439,541 5,982 445,523 421,559 117,984 2024 118,035 131,164 3.573 17,045 13,725 51,500 4,658 27,236 97,119 170,543 415,870 5,869 421,740 398,826 111,622 2023 111,736 125,877 3.573 16,156 12,827 47,248 4,313 24,873 89,261 162,180 393,475 5,759 399,233 377,318 105,603 2022 105,870 120,803 3.573 15,314 11,988 43,347 3,993 22,612 81,940 154,566 372,623 5,650 378,273 357,309 100,003 2021 100,493 115,934 3.573 14,516 11,204 39,767 3,698 20,556 75,225 147,844 353,519 5,543 359,062 339,003 94,879 2020 95,562 111,261 3.573 13,759 10,471 36,484 3,424 18,687 69,066 141,919 336,005 5,439 341,444 322,246 90,189 2019 91,038 106,879 3.573 13,042 9,786 33,781 3,170 16,988 63,726 136,296 319,943 5,336 325,279 306,901 85,895 2018 86,891 102,670 3.573 12,380 9,146 31,279 2,963 15,586 58,973 131,202 305,225 5,236 310,461 292,845 81,960 National income accounts (SDG millions at 2012 constant prices) 2017 83,018 98,626 3.573 11,788 8,547 28,962 2,769 14,431 54,710 126,363 291,486 5,137 296,623 279,699 78,281 2016 79,480 94,742 3.573 11,286 7,988 26,817 2,588 13,362 50,755 122,158 278,941 5,040 283,981 267,654 74,910 Projection 2015 76,250 91,010 3.573 10,876 7,396 24,830 2,430 12,488 47,145 118,465 267,496 4,945 272,441 256,620 71,822 2014 73,299 87,426 3.573 10,534 6,849 22,991 2,303 11,893 44,036 115,051 257,047 4,852 261,898 246,513 68,993 2013 70,620 83,902 3.573 10,306 6,226 21,288 2,204 11,547 40,542 33,409 19,396 15,681 44,230 112,716 247,565 4,760 252,326 237,259 66,403 Actual/estimate 2012 68,126 80,675 3.573 8,095 4,752 21,677 2,181 11,525 40,135 32,511 18,911 15,248 43,115 109,785 238,690 4,723 243,413 230,595 64,538 Macroeconomic Projections Macroeconomic Annex Table 3.1: Moderate Growth Scenario for Sudan Economy 3.1: Table Annex Indicator GDP at 2012 constant prices (US$ mill) Agriculture, forestry, fisheries forestry, Agriculture, Exchange rate Oil production Growth rates for national income accounts (% p.a.) Industry (excl. oil production) Industry (excl. Mining Manufactures Utilities Construction Sub-total Services & communications Transport Finance Government services Other Sub-total GDP at factor cost Subsidies & taxes GDP at market prices Memo items: Nonoil GDP at factor cost (SDG million) Nonoil GDP at factor cost (US$ million) Annex 3:

AFRICAN DEVELOPMENT BANK GROUP | 233 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 4.3 5.5 7.0 9.0 8.0 9.0 8.7 5.4 6.0 5.9 6.0 28.9 4.0 27.4 39.7 100.0 4.3 5.5 7.0 9.0 8.0 9.0 8.7 5.3 5.9 5.8 5.9 29.3 4.0 26.7 39.9 100.0 4.3 5.5 7.0 9.0 8.0 9.0 8.7 5.4 5.9 5.8 5.9 29.8 4.1 26.0 40.1 100.0 4.3 5.5 7.0 9.0 8.0 9.0 8.7 5.2 5.8 5.7 5.8 30.2 4.1 25.3 40.3 100.0 4.3 5.5 7.0 9.0 8.0 9.0 8.7 5.3 5.8 5.7 5.8 30.7 4.1 24.7 40.6 100.0 4.2 5.5 7.0 9.0 8.0 9.0 8.7 5.2 5.7 5.6 5.7 31.1 4.1 24.0 40.8 100.0 4.2 5.5 7.0 9.0 8.0 9.5 8.8 5.2 5.7 5.6 5.7 31.5 4.1 23.4 41.0 100.0 4.2 5.5 7.0 9.0 8.0 10.0 8.9 4.9 5.6 5.5 5.6 32.0 4.1 22.7 41.2 100.0 4.2 5.5 7.0 9.0 8.0 10.0 8.9 4.5 5.4 5.4 5.4 32.4 4.1 22.0 41.4 100.0 4.2 5.5 7.0 9.0 8.0 10.0 8.9 4.2 5.2 5.2 5.2 32.8 4.1 21.3 41.8 100.0 4.1 5.5 7.0 8.0 8.0 10.0 8.4 4.1 5.0 5.0 5.0 33.1 4.1 20.6 42.2 100.0 4.1 5.3 7.0 8.0 7.0 9.0 8.1 3.9 4.8 4.8 4.8 33.4 4.1 19.9 42.6 100.0 4.1 5.0 7.0 8.0 7.0 8.0 7.8 3.8 4.7 4.7 4.7 33.6 4.1 19.3 42.9 100.0 4.1 4.4 7.0 8.0 7.0 8.0 7.8 3.4 4.5 4.5 4.5 33.8 4.0 18.8 43.3 100.0 4.1 3.8 8.0 8.0 6.5 7.0 7.7 3.1 4.3 4.2 4.3 34.0 4.0 18.2 43.8 100.0 4.1 3.2 8.0 8.0 5.5 5.0 7.1 3.0 4.1 4.0 4.1 34.0 4.1 17.6 44.2 100.0 4.2 2.2 10.0 8.0 4.5 3.0 8.6 2.1 3.8 3.8 3.9 34.0 4.1 17.1 44.7 100.0 4.0 27.3 31.0 (1.8) 1.0 0.2 - - 2.7 3.7 3.7 3.7 33.9 4.2 16.4 45.5 100.0 5.7 (67.4) 215.7 18.1 3.2 5.8 - - 3.2 0.3 0.3 0.3 33.8 3.4 16.8 46.0 100.0 Agriculture, forestry, fisheries forestry, Agriculture, Oil production Industry (excl. oil production) Industry (excl. Mining Manufactures Utilities Construction Sub-total Services & communications Transport Finance Government services Other Sub-total GDP at factor cost GDP at market prices Memo items: Non-oil GDP growth (% p.a.) Sector share of GDP at factor cost fisheries forestry, Agriculture, Oil production Industry (excl. oil production) Industry (excl. Services GDP at factor cost Source: Data for 2012, 2013, and 2014 from Annex Table 2.2 through 2.8. Data for 2015-2030 and some data 2014 are estimates by authors. 2.2 through 2.8. Table Annex and 2014 from 2013, Data for 2012, Source:

234 | AFRICAN DEVELOPMENT BANK GROUP 4.0 2030 7,397 147,759 4,500 14,776 13,611 117,616 3,000 15,367 8,711 132,983 37,219 124,118 23,641 20,686 2,955 25.0 1.5 19.9 3.6 23.5 21.0 4.0 3.5 0.5 4.1 2029 7,092 139,484 4,300 13,948 12,517 111,029 3,000 14,506 8,226 125,535 35,134 117,166 22,317 19,528 2,790 25.0 1.5 19.9 3.6 23.5 21.0 4.0 3.5 0.5 4.1 2028 6,799 131,792 4,100 13,179 11,511 104,906 3,100 13,706 7,687 118,613 33,197 110,705 21,087 18,451 2,636 25.0 1.5 19.9 3.6 23.5 21.0 4.0 3.5 0.5 4.1 2027 6,519 124,527 3,900 12,453 10,586 98,625 3,250 13,449 7,112 112,074 31,367 104,602 19,924 17,434 2,491 25.0 1.6 19.8 3.6 23.4 21.0 4.0 3.5 0.5 4.1 2026 6,250 117,769 3,700 11,777 9,736 93,273 3,250 12,719 6,728 105,992 29,665 98,926 18,843 16,488 2,355 25.0 1.6 19.8 3.6 23.4 21.0 4.0 3.5 0.5 4.1 2025 5,859 109,153 3,500 10,915 8,955 85,986 3,250 12,252 5,931 98,238 27,494 91,332 17,821 15,593 2,228 24.5 1.6 19.3 3.6 22.9 20.5 4.0 3.5 0.5 4.0 2024 5,623 101,218 3,300 10,122 8,357 79,287 3,250 11,809 4,965 91,096 25,496 84,348 16,870 14,761 2,109 24.0 1.6 18.8 3.6 22.4 20.0 4.0 3.5 0.5 4.0 2023 5,396 93,820 3,100 9,382 7,786 72,660 3,250 11,777 4,100 84,438 23,632 77,850 15,969 13,973 1,996 23.5 1.7 18.2 3.6 21.8 19.5 4.0 3.5 0.5 2022 5,179 87,003 2,950 8,700 7,141 67,333 3,250 10,970 3,395 78,303 21,915 71,872 15,131 13,240 1,891 23.0 1.7 17.8 3.5 21.3 19.0 4.0 3.5 0.5 4.1 2021 4,970 78,994 2,800 7,899 6,550 60,322 3,250 10,772 2,327 71,094 19,898 64,631 14,362 12,567 1,795 22.0 1.7 16.8 3.5 20.3 18.0 4.0 3.5 0.5 4.0 2020 4,660 71,703 2,700 7,170 5,231 54,290 3,250 10,243 2,220 64,533 18,061 58,045 13,658 11,951 1,707 21.0 1.7 15.9 3.4 19.3 17.0 4.0 3.5 0.5 4.0 Gross investment 2019 4,241 67,333 2,675 6,733 4,656 50,744 3,150 9,856 2,239 60,599 16,960 54,322 13,011 11,385 1,626 20.7 1.8 15.6 3.3 18.9 16.7 4.0 3.5 0.5 4.1 2018 3,735 63,023 2,650 5,588 4,176 48,432 3,050 9,003 2,464 57,435 16,075 50,605 12,418 10,866 1,552 20.3 1.8 15.6 2.9 18.5 16.3 4.0 3.5 0.5 4.2 Sectoral shares of fixed investment (US$ million) 2017 3,153 58,435 2,625 5,339 3,874 45,977 2,800 7,119 2,409 53,096 14,860 46,570 11,865 10,382 1,483 19.7 1.8 15.5 2.4 17.9 15.7 4.0 3.5 0.5 4.2 2016 2,820 55,660 2,600 5,112 3,334 44,017 2,630 6,532 2,763 50,549 14,147 45,721 9,939 9,939 - - 19.6 1.8 15.5 2.3 17.8 16.1 3.5 3.5 - - 4.4 Projection 2015 2,508 53,398 2,550 4,904 2,784 42,228 2,237 6,266 3,493 48,494 13,572 45,225 8,173 10,080 (1,907) 19.6 1.8 15.5 2.3 17.8 16.6 3.0 3.7 (0.7) 4.6 2014 2,170 50,808 2,500 4,976 2,404 40,070 2,000 5,762 3,753 45,832 12,827 44,261 6,547 10,214 (3,667) 19.4 1.9 15.3 2.2 17.5 16.9 2.5 3.9 (1.4) 4.8 2013 1,716 49,708 2,550 4,794 949 45,948 1,800 4,794 7,187 50,742 14,202 42,941 5,299 9,463 (4,164) 19.7 1.9 15.9 1.9 17.8 17.6 2.1 3.7 (1.6) 5.7 Actual/estimates 2012 1,420 51,493 2,850 5,355 2,029 40,650 1,500 5,488 5,114 46,138 12,913 41,513 9,980 8,811 1,169 21.2 2.2 16.7 2.3 19.0 17.1 4.1 3.6 0.5 Annex Table 3.2: Investment Requirements for Moderate Growth Scenario 3.2: Table Annex (In SDG million at 2012 constant prices) Indicator Agriculture, forestry, fisheries forestry, Agriculture, Investment (SGD millions) Gross investment Oil production Inventories Industry (excl. oil) Industry (excl. Fixed investment Private Infrastructure Public Services Total Total fixed investment Total Gross national savings Source: Data for 2012, 2013, and 2014 from Annex Table 2.2 through 2.8. Data for 2015-2030 and some data 2014 are estimates by authors. 2.2 through 2.8. Table Annex and 2014 from 2013, Data for 2012, Source: Foreign savings FDI Other Investment as % GDP Gross investment Change in inventories Fixed investment Private Public Total Gross national savings Foreign savings FDI Other ICOR

AFRICAN DEVELOPMENT BANK GROUP | 235 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2030 92,111 73,251 1,328 2,007 168,696 54.6 43.4 0.8 1.2 100.0 5.5 2.9 3.0 3.0 4.3 28.9 33,685 1,402 2029 87,309 71,195 1,289 1,948 161,741 54.0 44.0 0.8 1.2 100.0 5.5 2.9 3.0 3.0 4.3 29.3 33,229 1,362 2028 82,757 69,173 1,251 1,892 155,073 53.4 44.6 0.8 1.2 100.0 5.5 3.0 3.0 3.0 4.3 29.8 32,776 1,324 2027 78,443 67,186 1,215 1,836 148,680 52.8 45.2 0.8 1.2 100.0 5.5 3.0 3.0 3.0 4.3 30.2 32,330 1,287 2026 74,353 65,234 1,180 1,783 142,550 52.2 45.8 0.8 1.3 100.0 5.5 3.0 3.0 3.0 4.3 30.7 31,890 1,251 2025 70,477 63,320 1,145 1,731 136,673 51.6 46.3 0.8 1.3 100.0 5.5 2.8 3.0 3.0 4.2 31.1 31,456 1,216 2024 66,803 61,569 1,112 1,681 131,164 50.9 46.9 0.8 1.3 100.0 5.5 2.9 3.0 3.0 4.2 31.5 30,929 1,187 2023 63,320 59,846 1,079 1,632 125,877 50.3 47.5 0.9 1.3 100.0 5.5 2.9 3.0 3.0 4.2 32.0 30,415 1,158 2022 60,019 58,152 1,048 1,584 120,803 49.7 48.1 0.9 1.3 100.0 5.5 2.9 3.0 3.0 4.2 32.4 29,910 1,130 2021 56,890 56,489 1,017 1,538 115,934 49.1 48.7 0.9 1.3 100.0 5.5 3.0 3.0 3.0 4.2 32.8 29,413 1,103 2020 53,924 54,856 988 1,493 111,261 48.5 49.3 0.9 1.3 100.0 5.5 2.8 3.0 3.0 4.1 33.1 28,924 1,077 2019 51,113 53,357 959 1,450 106,879 47.8 49.9 0.9 1.4 100.0 5.2 3.1 3.0 3.0 4.1 33.4 28,359 1,055 2018 48,587 51,744 931 1,408 102,670 47.3 50.4 0.9 1.4 100.0 4.7 3.6 3.0 3.0 4.1 33.6 27,808 1,033 2017 46,406 49,950 904 1,367 98,626 47.1 50.6 0.9 1.4 100.0 4.2 4.1 2.8 3.0 4.1 33.8 27,268 1,012 2016 44,535 48,000 879 1,327 94,742 47.0 50.7 0.9 1.4 100.0 3.8 4.4 2.6 2.7 4.1 34.0 26,739 992 Projection 2015 42,905 45,957 857 1,292 91,010 47.1 50.5 0.9 1.4 100.0 3.5 4.7 2.4 2.5 4.1 34.0 26,220 971 2014 41,454 43,875 837 1,260 87,426 47.4 50.2 1.0 1.4 100.0 3.5 5.0 2.2 2.3 4.2 34.0 25,716 951 2013 40,052 41,799 819 1,232 83,902 47.7 49.8 1.0 1.5 100.0 3.0 5.1 1.5 1.8 4.0 33.9 25,238 930 Actual/estimate 2012 38,885 39,773 807 1,210 80,675 48.2 49.3 1.0 1.5 100.0 5.7 33.8 24,779 911 Annex Table 3.3: Projected Growth in Agriculture Value Added by Sub-Sector Value Agriculture Projected Growth in 3.3: Table Annex (In SDG million at 2012 constant prices) Sub-sector indicators Value added (SDG million) Value Crops Livestock Forestry Fisheries Total Share of total sector value added (%) Crops Livestock Forestry Fisheries Total Growth in value added (% p.a.) Crops Livestock Forestry Fisheries Total Memo items: Agriculture value added as % non-oil GDP Rural population ('000) Value added per person (US$) Value Source: Annex Tables 1.1 amd 2.2 and estimates by authors. Tables Annex Source:

236 | AFRICAN DEVELOPMENT BANK GROUP 2030 168,696 47,214 4.3 1,570 5,827 7,397 1.0 3.7 4.7 3.8 560,954 156,998 4.3 3.573 2029 161,741 45,268 4.3 1,481 5,611 7,092 1.0 3.8 4.8 3.8 529,202 148,111 4.3 3.573 2028 155,073 43,401 4.3 1,399 5,401 6,799 1.0 3.9 4.9 3.8 499,718 139,860 4.3 3.573 2027 148,680 41,612 4.3 1,321 5,198 6,519 1.0 3.9 4.9 3.8 471,878 132,068 4.3 3.573 2026 142,550 39,896 4.3 1,248 5,002 6,250 1.0 4.0 5.0 3.8 446,009 124,828 4.3 3.573 2025 136,673 38,252 4.2 1,180 4,679 5,859 1.0 4.0 5.0 3.8 421,559 117,984 4.2 3.573 2024 131,164 36,710 4.2 1,116 4,507 5,623 1.0 4.0 5.0 3.8 398,826 111,622 4.2 3.573 2023 125,877 35,230 4.2 1,056 4,340 5,396 1.0 4.1 5.1 3.8 377,318 105,603 4.2 3.573 2022 120,803 33,810 4.2 1,000 4,179 5,179 1.0 4.2 5.2 3.8 357,309 100,003 4.2 3.573 2021 115,934 32,447 4.2 949 4,021 4,970 1.0 4.2 5.2 3.8 339,003 94,879 4.2 3.573 2020 111,261 31,139 4.1 902 3,759 4,660 1.0 4.2 5.2 3.8 322,246 90,189 4.1 3.573 2019 106,879 29,913 4.1 859 3,382 4,241 1.0 3.9 4.9 3.6 306,901 85,895 4.1 3.573 2018 102,670 28,735 4.1 820 2,915 3,735 1.0 2.2 3.2 3.3 292,845 81,960 4.1 3.573 2017 98,626 27,603 4.1 783 2,370 3,153 1.0 3.0 4.0 2.9 279,699 78,281 4.1 3.573 2016 94,742 26,516 4.1 674 2,146 2,820 0.9 2.2 3.1 2.7 267,654 74,910 4.1 3.573 Projection 2015 91,010 25,472 4.1 575 1,933 2,508 0.8 2.2 3.0 2.5 256,620 71,822 4.1 3.573 2014 87,426 24,468 4.2 517 1,652 2,170 0.8 2.2 2.9 2.2 246,513 68,993 4.2 3.573 2013 83,902 23,482 4.0 432 1,284 1,716 0.7 1.9 2.6 1.9 237,259 66,403 4.0 3.573 Actual/estimate 2012 80,675 22,579 5.7 345 1,075 1,420 0.5 1.7 2.3 1.9 230,595 64,538 5.7 3.573 Annex Table 3.4: Projected Growth in Agriculture Value Added and Investment Value Agriculture Projected Growth in 3.4: Table Annex at 2012 constant prices and exchange rate) (Values Indicator Agriculture value added SDG million US$ million Growth rate (% p.a.) Investment in agriculture (US$ million) Public Private Total Agriculture investment as % non-oil GDP Public Private Total Memo items: ICOR Non-oil GDP (SDG mill at 2012 prices) Non-oil GDP (US$ mill at 2012 prices) Non-oil GDP growth rate (% p.a.) Exchange rate Source: Annex Tables 2.3, 3.1, 3.2, 3.5 and estimates by authors. 3.2, 3.1, 2.3, Tables Annex Source:

AFRICAN DEVELOPMENT BANK GROUP | 237 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 8.2 2030 165,417 20,598 3.573 86,371 45,677 7,392 160,037 7.0 9.0 9.0 8.0 8.7 12.9 54.0 28.5 4.6 100.0 3.8 48,633 13,611 8.0 2029 156,153 19,250 3.573 79,239 41,905 6,844 147,239 7.0 9.0 9.0 8.0 8.7 13.1 53.8 28.5 4.6 100.0 3.8 44,723 12,517 7.8 2028 147,542 17,991 3.573 72,696 38,445 6,337 135,470 7.0 9.0 9.0 8.0 8.7 13.3 53.7 28.4 4.7 100.0 3.8 41,128 11,511 7.6 2027 139,409 16,814 3.573 66,694 35,271 5,868 124,647 7.0 9.0 9.0 8.0 8.7 13.5 53.5 28.3 4.7 100.0 3.8 37,824 10,586 7.4 2026 131,844 15,714 3.573 61,187 32,359 5,433 114,693 7.0 9.0 9.0 8.0 8.7 13.7 53.3 28.2 4.7 100.0 3.8 34,787 9,736 7.2 2025 124,692 14,686 3.573 56,135 29,687 5,031 105,539 7.0 9.0 9.0 8.0 8.7 13.9 53.2 28.1 4.8 100.0 3.8 31,995 8,955 2024 118,035 13,725 3.573 51,500 27,236 4,658 97,119 7.0 9.0 9.5 8.0 8.8 14.1 53.0 28.0 4.8 100.0 3.8 29,861 8,357 7.1 2023 111,736 12,827 3.573 47,248 24,873 4,313 89,261 7.0 9.0 10.0 8.0 8.9 14.4 52.9 27.9 4.8 100.0 3.8 27,820 7,786 7.0 2022 105,870 11,988 3.573 43,347 22,612 3,993 81,940 7.0 9.0 10.0 8.0 8.9 14.6 52.9 27.6 4.9 100.0 3.8 25,516 7,141 6.7 2021 100,493 11,204 3.573 39,767 20,556 3,698 75,225 7.0 9.0 10.0 8.0 8.9 14.9 52.9 27.3 4.9 100.0 3.8 23,405 6,550 6.5 2020 95,562 10,471 3.573 36,484 18,687 3,424 69,066 7.0 8.0 10.0 8.0 8.4 15.2 52.8 27.1 5.0 100.0 3.5 18,690 5,231 5.5 Composition (%) 2019 91,038 9,786 3.573 33,781 16,988 3,170 63,726 7.0 8.0 9.0 7.0 8.1 15.4 53.0 26.7 5.0 100.0 3.5 16,634 4,656 5.1 Total fixed investment Total Annual growth rate (% p.a.) Annual growth rate 2018 86,891 9,146 3.573 31,279 15,586 2,963 58,973 7.0 8.0 8.0 7.0 7.8 15.5 53.0 26.4 5.0 100.0 3.5 14,923 4,176 4.8 Value added (SDG millions at 2012 constant prices) Value 2017 83,018 8,547 3.573 28,962 14,431 2,769 54,710 7.0 8.0 8.0 7.0 7.8 15.6 52.9 26.4 5.1 100.0 3.5 13,841 3,874 4.7 2016 79,480 7,988 3.573 26,817 13,362 2,588 50,755 8.0 8.0 7.0 6.5 7.7 15.7 52.8 26.3 5.1 100.0 3.3 11,914 3,334 4.2 Projection 2015 76,250 7,396 3.573 24,830 12,488 2,430 47,145 8.0 8.0 5.0 5.5 7.1 15.7 52.7 26.5 5.2 100.0 3.2 9,947 2,784 3.7 2014 73,299 6,849 3.573 22,991 11,893 2,303 44,036 10.0 8.0 3.0 4.5 6.7 15.6 52.2 27.0 5.2 100.0 3.1 8,591 2,404 3.3 2013 70,620 6,226 3.573 21,288 11,547 2,204 41,265 36.0 1.5 2.0 3.0 2.8 15.1 51.6 28.0 5.3 100.0 3.0 3,390 949 1.3 Actual/estimate 2012 68,126 4,752 3.573 21,677 11,525 2,181 40,135 215.7 18.1 5.8 3.2 15.9 11.8 54.0 28.7 5.4 100.0 7,250 2,029 3.0 Annex Table 3.5: Projected Growth in Industrial Sectors Under Base Case Scenario Projected Growth 3.5: Table Annex Sector GDP (US$ mill at 2012 prices) Mining (excl. oil) Mining (excl. Exchange rate Exchange Manufactures Source:Annex Table 3.1 for 2012, 2013 and 2014 data, and projections by authors. and projections by 2013 and 2014 data, 3.1 for 2012, Table Source:Annex Construction Utilities Total Mining (excl. oil) Mining (excl. Manufactures Construction Utilities Total Mining (excl. oil) Mining (excl. Manufactures Construction Utilities Total ICOR Investment (SDG mill) Investment (US$ mill) Investment as % GDP

238 | AFRICAN DEVELOPMENT BANK GROUP AFRICAN DEVELOPMENT BANK GROUP | 239 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex 4: Programmes for Private Sector Development

As Chapter 4 indicates, Sudan faces major challeng- es in promoting the role of the private sector in the economic diversification of the country. For a deeper understanding of these challenges, the authors of this Sudan Report found that the Global Competitiveness Reports of the World Economic Forum, and the Do- ing Business Surveys for individual African countries published regularly by the World Bank, both provided valuable insights into the successful initiatives taken by some African countries to successfully promote the role of the private sector.

240 | AFRICAN DEVELOPMENT BANK GROUP Annex 5: Development Programmes for Agriculture

Annex Table 5.1: Proposed ARP Development 2008-11 5.1 Overview of the Agricultural (In SDG millions) Revival Programme Proposed program Funding Amount Share (%) The Strategy for Agricultural revival Infrastructure Water harvesting 486.0 10.1 The very disappointing performance of the agriculture Irrigation projects 1,484.6 30.7 sector from the early stages of the oil boom, along with Feeder roads, ferries, livestock routes 241.5 5.0 Sub-total 2,212.1 45.8 lack of progress in improving the living standards for the Capacity building majority of the population that depended on agriculture Capacity building, general 14.0 0.3 for their livelihood, led to action by the government in the Information institutions & informatics 49.0 1.0 latter part of the 2000s to reverse this decline and pro- Sub-total 63.0 1.3 mote a broad-based programme for agricultural recovery. Food security, poverty, rural development 1,417.2 29.3 The revival of agriculture was expected to increase overall Supporting services 411.3 8.5 economic growth and expand exports, reduce poverty Marketing and export promotion 330.2 6.8 and sustain food security, particularly in rural areas. In ad- Development & modernization of agricultural 30.5 0.6 dition, increased agricultural production was seen as the systems key foundation for expansion of the agro-industrial sector. Development & protection of natural resources 348.8 7.2 Commodity development councils 16.0 0.3 The Strategic Framework. In July 2006, the President Total 4,829.1 100.0 of the Sudan decreed a sector-wide policy document Source: ARP, 2008. entitled the “Agricultural Revival Programme” (ARP), which set out development strategies for agriculture, nating from over-dependence on oil revenues. livestock, fisheries, food security and rural development • Realise food security and reduce the incidence in Sudan.151 The ARP was a policy and investment pro- of poverty to 50 percent by 2015 (the MDG goal) gramme that provides a strategic framework for plan- as well as generate new job opportunities and in- ning and prioritisation of development and investments crease per capita income. in agriculture.152 The ARP set out a four-year road map • Achieve balanced growth in all regions of the coun- for agricultural development during the 2008-2011 pe- try with the view to encouraging settlement in the riod. It identified priority areas for investment and pro- rural areas. vided estimates of the financing needs to be provided • Develop and protect natural resources to ensure by Sudan’s government and its development partners, their renewal and sustainability. and the private sector. The overall strategic objectives of the ARP were as follows: Key indicators were proposed for the ARP (2008) to ensure its success in promoting a broad-based recov- • Increase agricultural production and productivity ery in agriculture and related agro-industrial activities. and improve the efficiency at the production and These indicators aim at creating an appropriate envi- processing stages. ronment for a sustainable development of agricultural • Promote crops and livestock exports with a view production through: (i) an integral process of capaci- to safeguarding against the risks of collapse of the ty building of both producers and institutions; and (ii) whole economy as a result of the distortions ema- addressing the genuine issues of agricultural land and tenure structures. In addition, the ARP proposed to 151 See a detailed outline of the proposed programme, see Republic of Sudan (2008), Ex- ecutive Programme for Agricultural Revival. Report by General Secretariat of Council of expand and modernise agricultural systems in Sudan Ministers, Khartoum, April 2008. 152 The ARP is consistent with the 1996 World Food Summit Plan of Action and the through: (i) developing adequate support services to African Heads of State NEPAD Initiative on Financing Agriculture (FAO-NMTPF, 2007).

AFRICAN DEVELOPMENT BANK GROUP | 241 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Figure 5.1: Organisation for Supervision and Monitoring of the ARP Programme

agriculture; (ii) protecting and developing natural re- agro-ecological zones; (iv) improved rural-urban link- sources; (iii) promoting agricultural industrialisation and ages; and (v) special efforts to support pastoral devel- the firm implementation of quality control and safety opment. These objectives were to be underpinned by measures (GHPs, HAACP and ISO); and (iv) establish- investments to improve rural infrastructure, enhance ment of international partnerships in all domains of ag- access to financial services, promote irrigation devel- riculture. opment, ensure land tenure security and improve the performance of agricultural markets. The development of a skilled and well trained human re- source base was seen by the ARP as central to the suc- Institutional Arrangements for the ARP. The ARP was cess of the programme. The ARP advocated a labour in- to work in an institutional system comprised of federal, tensive strategy and projects in order to mobilise the un- state, and locality levels of activity in the sector (Figure derutilised and unproductive rural labour as a key driver 5.1). However, experience with the ARP showed that of growth, rather than capital-intensive approaches. The there was weak administrative and implementation ca- programme envisaged high levels of training and tech- pacity at various levels. In the case of the federal govern- nology adoption in order to boost agricultural productivity ment, planning was centralised, especially with respect to without drawing heavily on the country’s scarce capital the large budgets of the ARP. It has been observed that resources. Good farm prices were seen as incentives for the ARP structure and the related institutions hindered farmers to promote production. Other drivers of the ARP the realisation of its full objectives. The experience that included the following: (i) Improve agricultural extension came out of the first ARP (2008-11) led to proposals services; (ii) promote better use of land and water re- for structural change in the organisational and institu- sources; (iii) enhance access to financial services; (iv) tional set-up of the agriculture-related line ministries improve access to domestic and export markets; and and for increased attention to capacities within these (v) provide rural infrastructure. Additional thrusts in agencies.153 line with the above included: (i) Market-based agricul- 153 Some of the major shortcomings in the state civil service in Sudan are loss of em- tural development; (ii) increased private sector invest- ployees to the private sector; lack of training at all levels; poor performance appraisal; promotion on basis of seniority rather than competence; low salaries and poor em- ment; (iii) specialised support services for differentiated ployment conditions (especially in rural areas); lack of control over an informal pay system used to supplement official salary rates; too much centralisation in recruitment;

242 | AFRICAN DEVELOPMENT BANK GROUP The proposed ARP I for 2008-2011 Figure 5.2: Proposed ARP I Budget Flows for 2008-11 (SDGs ‘000) The ARP I proposed that the National Government fi- nance agriculture-related infrastructure, along with sup- port for research, extension and technology transfer, early warning and pests control, diseases and epidem- ics at national level. It also proposed that private sector players participate in service provision and financing of agricultural operations. The ARP also called for a sub- stantial scaling up of credit by the banking system for agriculture, with guarantees to be provided by the Na- tional Bank of Sudan (NBS). Savings banks were urged to scale up micro-credit programmes to finance agri- cultural production, earmark an increasing share of at least 20 percent from Agricultural Bank of Sudan (ABS) sources to finance livestock and fisheries development projects and provide medium-term finance for poultry production and long-term finance for dairy, meat and inputs for production and processing. The ARP policy framework adopted the village centre as an instrument to promote the “mobile credit” and direct internal soft loans to the specialised banks and give priority in fi- livestock routes, while food security, poverty reduction nance to producers organised in production and mar- and rural development accounted for 29 percent. The keting organisations. The programme also proposed programme included about SDG 4.4 billion from the short-term finance to vegetable growers, medium-term domestic banking industry with the balance of fund- loans to fruit growers and livestock owners, and long- ing coming in the form of self-financing by programme term finance for storage and refrigerated transport for participants and agricultural subsidies. The proposed horticultural, dairy and meat producers. annual disbursements by source of funding are set out in Figure 5.2. The total cost of the ARP programme was put at SDG 10.1 billion for 2008-11 (equivalent to about US$4.8 5.2 Crop Competitiveness billion at the 2008 exchange rate) with expenditures in the range of SDG 2.5 billion each year. On an an- This annex reviews findings about the competitiveness nualised basis, this level of spending was equivalent of crops and industries in Sudan on the basis of com- to about 3.1 percent of non-oil GDP in 2008, with the putations about the Revealed Comparative Advantag- public sector component equal to 1.5 percent of non- es Index, first introduced by Bella Balassa (1965), the oil GDP and the private sector investment equal to Domestic Resources Cost, Value Chain Analysis and about 1.6 percent. These proposed levels of spending comparative value added analysis. The following sec- on agricultural development were substantially higher tions discuss some other macro pillars for competitive- than the levels prior to the ARP proposal. A summary ness, and reports the results based on the domestic of the key components of ARP I is set out in Annex resources costs, revealed comparative advantages, Table 5.1 that shows the key areas of proposed invest- value chain analysis and labour and total factors pro- ments that total SDG 4.83 billion (about US$2.3 billion), ductivity analysis. representing the government’s counterpart of about 48 percent of the proposed total expenditures for the pro- A study by Maxwell Stamp Plc. prepared for Sudan gramme. About 46 percent of the government’s expen- Ministry of Foreign Trade and the European Commis- ditures were allocated for infrastructure as water har- sion on “the Assessment of Sudan’s Export Diversifica- vesting, irrigation projects and feeder roads, ferries and tion Potential in Agricultural Products” (2009) reported measurements of the competitiveness of agricultural and lack of merit as a basis for recruitment, promotion and salary level (DJAM 2012).

AFRICAN DEVELOPMENT BANK GROUP | 243 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

crops on the basis of the Revealed Comparative Ad- Annex Table 5.1: Revealed Comparative Advantage of vantage and the Domestic Resource Cost. It also used Sudanese Crops the supply chain concept to identify the conditions un- der which Sudanese agricultural exports can increase Commodity Description of products Average Average their competitiveness. Code 2001-03 2004-06

13 Lac, gums, resins, vegetables 34.6 46.1 The Revealed Comparative Advantage (RCA) is an in- saps and extracts dex used to calculate the relative advantage or disad- 01 Live animals 24.7 21.2 12 Oil seed, oleagic fruits, grain, 16.6 12.2 vantage of a country in a certain product on the basis fruit, etc of the current trade flows. The concept is based on the 52 Cotton 5.7 4.2 Heckscher-Ohlin theory, which explains comparative 41 Raw hides and skins (other 3.6 2.1 than fur skins) and leather advantages by cost differences arising from variations 17 and sugar 3.2 1.9 in factor prices across countries. RCA Index is defined confectionary 99 Commodities not elsewhere 2.5 0.0 as “the ratio of a commodity’s value share in the coun- specified try’s total exports in relation to that commodity’s share 02 Meat and edible meat offal 1.4 0.6 in total world trade”154. When the share of a commodity 15 Animals, vegetables fats and 0.7 0.0 oils, cleavage products etc to Sudan’s total exports relative to other commodities 14 Vegetables plaiting materials, 0.4 0.3 and that share is larger than the global share of the vegetable products nes same commodity in total world trade, the RCA ratio 23 Residues, wastes of food 0.4 0.0 industry, animal fodder would be greater than unity. In that case, Sudan would 05 Products of animal origin nes 0.3 0.1 have a comparative advantage in that commodity and 10 Cereals 0.2 0.1 is competitive in world markets in that commodity. 08 Edible fruit, nuts, peel of 0.2 0.1 citrus fruit, melons Sources: Maxwell Stamp Plc. (2009). Assessment of Sudan’s Export Annex Table 5.1, which gives the results of Maxwell Diversification Potential in Agricultural Products. Stamp Plc. Study (p.59-60) shows that Sudan has a comparative advantage (RCA greater than unity) in all Annex Table 5.2: Estimated RCA Indices for Individual the commodities that it exports in large volumes. This is Products the case for gum Arabic, live animals (essentially sheep), oil seeds, especially sesame, cotton, hides and skins, Crop 1971-1977 1978-1984 1985-1989 1990-2000 Sorghum 2.5 14 21 13.7 sugar and possibly meat. On the other hand, there are Cotton lint 11 13.5 15.9 10.4 some others for which the calculated RCA indices are Sesame 99.0 93.3 104.3 135.5 well below unity. RCA ratios calculated at a disaggre- Groundnuts 39 25,7 8.5 1.6 gated level and over a longer period also reflect the Sugar 0 0.1 0.3 4.6 Chilled meat 0.3 0.0 0.0 4.6 same picture. Results show the presence of high RCA Hides and 1.1 1.0 0.3 0.7 indices for all exports except for sugar and chilled meat skins during the 1970-1989 period, although the latter also Cotton seed 14 5.3 6.2 2.9 cake improved over the years 1990-2000. The competitive- Sesame seed 103.5 18.4 72.1 61.6 ness of sesame and sesame cake is evident from the cake high RCA index for all periods. In contrast, the drastic Sources: Maxwell Stamp Plc. (2009). Assessment of Sudan’s Export drop in RCA for groundnuts confirms the substantial Diversification Potential in Agricultural Products. decline in the competitiveness of the commodity in The Domestic Resource Cost: (DRC) is a “measure that world markets. compares the opportunity costs of domestic resources (primary non-traded factors of production such as land, labour) committed to production of final goods with prices at which these goods can be imported”. The measure can help in projects selection and in export activities. It is explained by the study as, “the value of domestic resources per unit of foreign exchange saved

154 = /, where X represents the commodity j exported by Sudan, s, to the trading partners, for not importing competing goods, or the value of do- n.

244 | AFRICAN DEVELOPMENT BANK GROUP mestic resources per unit of foreign exchange earned end market. This transformation involves all economic by exporting the commodity produced. It can be com- activities, including production, assembling, process- pared to the accounting price of foreign exchange”. ing, handling, marketing, transporting and delivering a product that meets demands at destination. The trans- When the DRC is below one, it means that it is worth formation is carried out by several economic agents. undertaking productive activity as it yields more than the cost of domestic factors used. If DRC is found to Value chain focuses on the domestic costs at various be more than one then it does not pay to produce that level of activity. The Study defines the cumulative value commodity. of a product at any given stage in the value chain as “equal to the sum of all costs involved in producing, Annex Table 5.3: The Domestic Resource Costs of Some assembling, processing and transporting one unit of Agricultural Commodities in Sudan output up to that stage, including also legitimate lo- cal business expenses and mark-ups, official customs

Crops 1991/92- 1995/96 – 2000/01 – duties and taxes, as well as unofficial payments that 1994/95 1999/00 2005/06 sometimes have to be made to facilitate a particular Groundnuts Gezira 0.75 0.23 0.95 operation”. Groundnuts New Halfa 0.09 0.12 0.37 Groundnuts El Obeid 0.04 0.65 1.04 Sorghum Gezira 1.19 1.16 1.17 Using the value chain analysis, the Study calculated the Sorghum Gadarif 1.33 0.21 1.63 Export Competitiveness Ratio (ECR) by “dividing the Sorghum El Obeid 0.5 14.79 5.7 SV (the shipment value) – which is cumulative value—at Sesame Gadarif 0.49 0.45 0.9 Sesame Damazine 0.69 0.51 1.05 the border by the export parity price at the border, while Sesame El Obeid 0.3 0.92 2.46 the ICR is calculated by dividing SV (shipment value) at Cotton Gezira Barakat 0.43 0.42 0.21 the main domestic consumption point by the import Cotton Gezira Acala 0.5 0.33 0.28 parity price of the same domestic consumption point”. Cotton Halfa Acala 0.2 0.4 0.36 Cotton Rahad 0.5 0.18 0.3 Onions 0.31 The interpretation of the ECR is similar to that of the 0.15 DRC. When it is less than unity, it means the country is Lime 0.195 competitive in producing the commodity, and when it is Sources: Maxwell Place Plc. (2009). Assessment of Sudan’s Export above unity, it indicates that the commodity is not com- Diversification Potential in Agricultural Products. (P 61) petitive. In addition to showing the competitiveness of the country in commodities, the value chain analysis 5.3: Value Chain Analysis helps to identify where the cost can be reduced in the value chain. Value chain refers to the physical transformation and value addition of a product from the farm gate to the In consistency with other sectors, the section provides

Annex Table 5.4: Value Chain Analysis for Selected Agricultural Commodities

Farm gate Assembly Logistics at Shipment Export parity Logistics to World Export Value at farm Assembly Value at Port port World Prices Reference Competitiveness Port exit price Ratio Sesame El Obeid 840.3 95.8 108.7 1044.8 1763.2 264.1 2027.3 0.7 Gadarid 1303.6 41.6 109.3 1454.5 1763.2 209.6 1972.8 0.94 Groundnuts El Obeid 686.2 139.1 210.6 1035.9 1441.3 321.9 1763.2 0.93 Geziira 1514.7 163.8 101.4 1779.8 1441.3 328.8 1770.0 1.6 Gum Arabic El Obeid 3851.7 220.2 282.4 4354.3 9775.0 174.0 9949.0 1.45 Gadarid Sheep El Obeid 170.0 3.1 3.6 177.0 213.0 13.0 226.0 0.89 Gadarid 160.0 5.3 0.0 165.2 164.2 0.0 164.2 1.01 Meat Khartoum 10200 840.8 26.7 11076.4 12320.6 17.8 12338.4 0.90

Sources: Maxwell Stamp Plc. (2009). “Assessment of Sudan’s Export Diversification Potential in Agricultural Products”

AFRICAN DEVELOPMENT BANK GROUP | 245 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN efficient, workable and bankable agribusiness and OP1: Private sector Investment in green housing equip- agro-industries, which are seemingly profitable and ment and machinery for flowers, herbs and spices pro- competitive, and also that ensure value-addition to ag- duction and distribution companies. riculture with an ultimate aim to increase private sector investment flows going into the agriculture and agro-in- OP2: PSI in cut flowers, vegetables, nuts, herbs and dustry sectors. The local abbreviation (PSI=Private sec- spices. tor investment) and numbering (OP=option: No) do not bear any priority at this stage unless consolidated by a Private Sector Investments (PSIs) along the livestock consultation workshop. value chains:

Private Sector Investments (PSIs) along the cereals OP1: PSI in Private Veterinary Service (through mobile (sorghum and millet) value chains: or stationed centres).

OP1: PSI in breeder seeds to facilitate access to breed- OP2: PSI in animal feed processing. er’s seed requires: a) establishment of a specialised agency; b) development of a supportive regulatory en- OP3: PSI in meat processing. vironment for private seed producers vis-a-vis ARC. See Fig. 4.1: Fig.4.3). OP4: PSI in poultry production.

OP2: PSI in bulk grain transport and storage by estab- OP5: PSI in diary production. lishing private sector companies in production regions (Gedaref, Damazin, Sinnar and Kosti). OP6: PSI in wildlife production (game farming as deer, crocodiles, lizards, birds, etc.). This type of investment OP3: PSI in sorghum/millet grain processing and pack- is linked to tourism, particularly agro-tourism through aging by establishing private sector companies in pro- private national parks (Dinder, Mardoom, etc. duction regions (Gedaref, Damazin, Sinnar and Kosti). Private Sector Investments (PSIs) along the forestry These last two options (PSIs) are assumed to encour- and their products value chains: age cross-border trade in cereals (with Ethiopia, Eritrea and South Sudan). OP1: PSI in forestry nursing and fencing.

Private Sector Investments (PSIs) along the horticultur- OP2: PSI in forest timber development (eucalyptus mi- al vegetables and fruits value chains: croceca, azachrata indica (neam), Mahogeny, Jogan, etc.) for furniture making. OP1: Private sector auxiliary service providers (graders, inspectors, transport and packaging companies). OP3: PSI in development and processing of forest products (fruits as aradeb, gonglius, gudaeim, includ- OP2: PSI in vegetables/fruits varietal releases/private ing gum arabic. seed production. Private Sector Investments (PSIs) along the fisheries OP3: PSI in cold storage of vegetables/fruits for sus- value chains: tained production. OP1: PSI in Development of marine capture fisheries at OP4: PSI in landscaping and gardening design and im- the Red Sea (Port Sudan and Agieg harbours). plementation. OP2: PSI in Development of inland capture fisheries Private Sector Investments (PSIs) along the flowers, (production and processing). herbs and medicinal plants value chains: OP3: PSI in Development of aquaculture (Zurmbak sea

246 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 5.5 Opportunities to Guide Investors in Crop Production in the Different Regions of Sudan Sector/Area Main Suitable Crops Secondary Crops Others Central and Eastern Sorghum, sesame Sunflower, cotton, gum Arabic Guar, safflower Sudan under rainfall Western Sudan under Millet, sesame, groundnut, Sorghum, rosette, melon seeds Maize, guar rainfall gum arabic Northern Sudan under Wheat, pulses, vegetables, spices Citruses and mango Forage crops, maize, sugar beet irrigation Central Sudan under Cotton, groundnut Sorghum, wheat, sugar cane, Sunflower, maize irrigation forage crops Source: MoAF cited by NEPAD CAADP (2005) Vol.V, p.6.

, mushroom, production and processing). Characteristics and salient feature of agricultural markets in Sudan OP4: PSI in Promotion of fish safety, quality assurance, value addition and marketing. The salient feature of agricultural marketing (crop and livestock) in Sudan is almost similar to those of devel- Private Sector Investments (PSIs) along the useful in- oping African countries. It is largely affected by the situ- sects and birds value chains: ation of agriculture and agricultural markets. The gen- eral common features range from poor infrastructure, OP1: PSI in Development of honey bees and bee-wax technological, institutional, and macroeconomic poli- production and processing. cy impediments, to sector-specific constraints (Ismail 2004-b). The general feature of agricultural markets in OP2: PSI in Development of rare birds and jungle fowls Sudan is characterised by: production and marketing. • Wide geographical dispersion and spatially sep- 5.4: Agricultural Marketing and Promotion of Value arated within areas that impede supply of inputs, Chains product output and distribution of processed prod- ucts i.e. market access for inputs and products is Overview of Agricultural Markets and largely affected by the poor road infrastructure, Marketing in Sudan leading to isolation of markets and hindering mar- ket integration, especially during the rainy season. The role of agricultural markets in Sudan is to help ef- • Seasonality of supply, and market periodicity i.e. ficient marketing of produce by sending price signals market held on daily, weekly or seasonally after to producers, indicating the direction of allocating re- harvest. Seasonality and inter-annual variations in sources, and to consumers showing possibilities of al- production output, low productivity, lack of finance locating household budgets. On the producers’ side, and other marketing bottlenecks also characterise this implies specialisation and/or diversification as per- the agricultural sector in Sudan. mitted by comparative advantage or economies of size • Variability in quality of agricultural produce at mar- and scale (FAO 2004-b). Although an efficient agricul- kets together with low quality measures that re- tural marketing system is the one that develops effi- strict exportation of produce for international, re- cient distribution and marketing systems of agricultural gional and also domestic markets. products (in product markets) and also in input services • A high level of perishability of produce/products (in resource or factor markets), in Sudan these systems since vegetable markets lack proper handling are not well developed and can be judged as modest. tools, grading systems and cold stores to extend the shelf life of fruits and vegetables. • Generally, crop markets have no standardisation measures (no scaling by weights and units, except for few cash crops).

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In brief, the current situation of agricultural markets crops markets (as karkadey, watermelon seeds, guar, and marketing systems means that much is required and gum Arabic). Most crop markets adopt direct sell to sensitise the private sector to invest in marketing system, except for sesame and gum arabic, which are facilitating services, such as marketing information sold on auction (Ismail 2012-b). Livestock markets, on and research, advisory and extension, and training for the other hand, have their own peculiar periodicity and management and personnel, besides the convention- selling patterns, of which auction system is unusual (Is- al investment opportunities in marketing facilities, e.g., mail, 2012-a). The elements of market structure, con- storage, transport infrastructure and many others. duct and performance (SCP) are variable, and are usu- ally governed by many factors (i.e. spatial dispersion, Previous government experiences have failed to sup- seasonality, etc.). port viable private sector companies in the domain of agribusiness and agro-processing, including storage of The main and well-known agricultural crop markets agricultural crops that can promote exports and do- fall in the dry farming areas; Gedaref (Gedaref state), mestic agricultural markets (input and output markets). Damazin (Blue Nile state), Nyala (South Darfur) and El However, the development of new infrastructure and Obeid crop markets (North Kordofan). These markets, feeder roads and construction of market centres by the though the most renowned markets in the country, are private sector is often not achievable under the given characterised by relatively poor information systems, limited resources in the local private sector. Such re- lack of adequate records, and poor data collection and sources are essential for agricultural markets, and the analysis (Ismail 2004-b, 2012-a, and 2012-b). Almost only possible way to find financing to them is through same thing can be said of the livestock. Despite the foreign direct investments (FDIs) with international pri- lack of information and other drawbacks, the agricultur- vate sector companies. al markets can be said to be fairly competitive via spon- taneous momentum (buyers and sellers, and traders Another important feature of agricultural markets in Su- are relatively large with an informal organisational set dan is the Market Information System (MIS). SIFSIA N up (Ismail 2003). Competition conducts range between has recently developed (2007-2012) MIS, even though oligopoly and perfect market competition, where large still of limited coverage (in terms of both range of crops number of producers and limited number of buyers ex- and geographical area) and scope. The system pro- ist. Further analysis of markets types and patterns shall vides limited information on prices of cereals, livestock be uncovered when dealing with the value chains and and few cash crops in selected markets, but other in- market channels in the up-coming sections. formation like present and prospective supplies and stocks remain outside the system coverage. Some in- Oligopoly, on the other hand, exists for some cash formation, such as marketing costs and margins; insti- crops like oil seeds and gum arabic (Ibid 2004-b, tutional arrangements (legal system, grades, weights, 2012-a, and 2012-b). Markets frequency, periodicity, and measures); the infrastructures (roads, warehous- marketing costs, prices, and margins are important pa- es, processing plants, vehicles etc); organisations and rameters that affect improvement of markets efficiency institutions (government parastatal entities, privates (Ismail 2004-b, 2010). Interesting to note is that most firms, trade unions, municipals, councils etc); and en- fruit and vegetables markets sales and purchases are trepreneurial activities (financial resources, stockholding by volume (heaps, sacks, dozen and tins) rather than and risk bearing, etc.) are collected through separate per unit weight. This disadvantages information gather- studies that require frequent updating (Ibid 2004-b). ing and dissemination. Along with this is that all cereal markest sell in sacks (90 kg sack), except for sesame Types and patterns of agricultural and gum Arabic, which are sold in kantars (one kan- marketing institutions tar=45kg=100 lb). The quality standardisation mea- sures are only used for exports, as there are neither Various types of markets and marketing systems exist efficient entities at locality/municipality level to plan nor in Sudan for different crops, such as food-grain mar- financial capabilities to trace executions (Ibid 2004-b, kets (sorghum, millet and wheat), oil seed markets 2010). (sesame, ground-nuts, and sunflowers) and other cash

248 | AFRICAN DEVELOPMENT BANK GROUP Farmers’ and Traders’ Organisations: flict of interests (Ismail 2004-b). The inability of these Role, Structure and Performance unions to organise farmers/producers into efficient as- sociations or groupings and oblige them to produce The Farmers’, shepherds’ and Traders’ Unions and consistently good quality products for local markets as Associations play an important role in agriculture by well as export markets abroad impedes their capacity strengthening and supporting the development of pro- to integrate and enrol into larger operations that meet ducer, commodity, location, and industry associations international demand sustainably156. Important to note to mitigate production and market risks and maximise is that, farmers’ decisions on enterprises to be grown business opportunities as well (Giovannucci 2001). are usually self-decided and not based on collec- Such associations have valuable roles in supporting tive decisions through their unions or otherwise. This joint action, networking among members, facilitating self-centred production decision/behaviour is not fa- linkages with other enterprises and organisations, and voured by international procurers, who need stable and enhancing participation in policy and planning. Other sufficient production to supply to the ever-demanding roles often performed by Trade Unions, particularly pro- food industry and other agro-processors. In all, there ducer organisations, include strengthening farmers’ ca- is a need to strengthen the farmers’ organisations and pacities to understand and meet market requirements, trade unions to tackle new technological advancement and also assist small producers to achieve economies and dissemination of information technology. of scale by buying inputs and marketing their prod- ucts155. Commodity and industry associations, on the Value Chain Analysis of Key Agricultural other hand, are particularly important for improving Commodities sector coordination and for representing private sector interests in policy dialogue. In this part of the study, the concept of value chain shall be introduced to entrepreneurs/investors to fa- In practice, these organisations are mostly unable to cilitate understanding the various players involved in perform their role effectively for many reasons that will agricultural business and also help in designing an be mentioned elsewhere. Their overall performance appropriate frame for prioritising agricultural commod- can be considered modest. Of the reasons, some trade ities/enterprises for investment. For a layman, a value unions are not fully democratic, and are self-centred, chain is simply ‘the full range of activities that are re- and opportunistic. Even though, they tend to provide quired to bring a product or service from conception support to producer, commodity and industry asso- through the different phases of production (involving a ciations to improve their effectiveness and competi- combination of physical transformation and the input of tiveness in providing services to their members and various producer services), delivery to final customers, enhance their viability and sustainability. Ismail (2004- and final disposal after use (Jon and Madelon 2006 & b) showed that private institutions as trade unions, GTZ 2008). The chain actors who actually transact a chambers of commerce are often organised in small particular product as it moves through the value chain commodity groups that serve its members at a limited include input (e.g. seed) suppliers, farmers, traders, geographical location. The scope and function of such processors, transporters, wholesalers, retailers and fi- organisation is by far very limited. nal consumers (Ibid 2006 & 2008).

One of the challenges facing Sudanese farmers/pro- As the study focuses on enhancing economic growth, ducers’ trade unions is how to integrate the smallhold- poverty reduction, and food security (Fig.1.4-a&b) in- ers/ large-scale producers into an effective agriculture/ creasing market access would eventually add to mar- agribusiness associations, mainly because of lack of ket success for all along the value chain actors. For information on members, improper networking among this purpose, much focus will be on product markets and across associations and delicate solidarity with that rely on Value Chain157 Promotion development per- members of unions from other sub-sectors due to con- 156 For an overall improvement of the sector’s performance; Giovannucci’s suggestion to organize farmers’ associations into multi-purpose unions (2001) is found more suitable 155 As agribusiness and agro-industries develop, there inevitably are impacts on traditional to our farmers than the sectoral “status quo” currently prevailing. farming and marketing systems. Indeed, an important element of the rationale for 157 GTZ views a value chain as an economic system that can be described as agribusiness development is to enhance market opportunities and increase services for farmers. Nevertheless, rapid agro-industries development can pose risks to smaller scale farmers, traders, processors, wholesale markets and retailers. i) a sequence of related business activities (functions) from the provision of specific

AFRICAN DEVELOPMENT BANK GROUP | 249 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN spective, rather than (with less emphasis) on service study, the value chain approach is thought as a helpful markets and resource markets, which focus on BDS158 framework to analyse the private sector opportunities development, microfinance and land management and constraints for Banks’ interventions, particularly, (GTZ 2008). In this endeavour, it is worth to note that and most likely those that have an economic impact analysing the value chain often brings out relevant fac- and are simultaneously be bankable, operational and tors of location that need to be addressed to enhance financially feasible and sustainable. For instance, inves- its competitiveness through sustainable economic util- tors can focus either on one or more sub-sector(s) or isation of factor resources (Ibid 2008). The analysis will value chains or alternatively focus on a broader model also keep an eye on creating an enabling business en- that assists any growth-potential in agribusiness enter- vironment and investment climate for developing the prises, regardless of the sub-sector it belongs to. In private sector enrolment by improving the regulatory this case, the choice of the enterprise model depends and institutional framework that create better devel- largely on the “maturity” of the respective value chains opment opportunities for the private sector in a value and local market conditions as assessed against the chain promotion context. parameters outlined in the table below (Annex Table 5.6). To help investors choose among the various alterna- tives and options, criteria and selection process of the Annex Table 5.6: Assessing the potential for value addition What is the scope for high growth value given sub-sector/enterprises/products/commodities is addition in this value chain? first discussed and agreed on. Information from both Production Status Is there sufficient primary production of adequate quality to facilitate value desk reviews and field visits are collected and will be addition? verified in consultation and consolidation workshops in Entrepreneurial Capacity Do a sufficient number of growth-oriented entrepreneurs exist within the value chain order to set priorities (sectors/enterprises/ commodi- or entrepreneurs who could be “recruited” ties) of market potential. In the forthcoming sections, from other value chains? Availability of Funding What funding is available for product examples of selected supply chains, from desk review development, commercialization, and are given and new empirical data for selected supply business expansion? chains/value chain shall be spotlighted based on field Clear, Ready Stakeholders Are there strong stakeholders who are ready and able to affect change in the data, yet to come. The challenges, constraints and op- value chain? portunities along the value chains shall be discussed to Markets Can markets be identified and are they accessible, feasible, and viable? create an enabling environment for trading agricultural Seasonality Is there marked seasonality in supply products. and demand of raw materials that can impact negatively on the value-addition opportunity? Criteria and Process for Selecting Industry Leverage Are there existing initiatives that can be leveraged that support the industry and Products/Commodities that are likely to affect entry into and exit from the industry and hence have value addition potential? There is a multitude of factors and criteria for enterpris- Infrastructure & Is there sufficient infrastructure available es selection that need first to be identified and analysed Regulatory Constraints and does the regulatory environment provide incentives for entrepreneurs to so as to propose the most potentially and financially ac- take advantage of the value addition ceptable agro-based private sector investments. In this opportunity? Source: World Bank. 2012

inputs for a particular product to primary production, transformation and marketing, up to the final sale of the particular product to the consumer;

ii) The set of enterprises (operators) that perform these functions, i.e. the producers, Answers to aforementioned queries would assist any processors, traders and distributors of a particular product. Enterprises are linked by a series of business transactions in which the product is passed on from primary private sector investor on what enterprise to choose, producers to end consumers; which way to go, why and how.

iii) a business model for a particular commercial product. This business model allows defined customers to be reached using a particular technology and a particular way of coordinating production and marketing between several enterprises. The process of enterprise/commodity/product assess- 158 The objective of interventions in Business Development Services (BDS) is to create a ment starts by narrowing down the scope from the vast functioning market with a diverse array of high-quality services that meet the needs and are affordable to small and medium enterprises (SME). Business Development agricultural sector into subsets/sub-sectors that could Services are nonfinancial services critical to the market entry, survival, productivity and growth of SME. Typical generic BDS include business training and advice, marketing be analysed in some detail. The desk review from avail- assistance and information (GTZ 2008).

250 | AFRICAN DEVELOPMENT BANK GROUP able literature showed some good suggestions that These criteria, combined together with the ones out- can be discussed later and verified with vast consul- lined in Annex Table 5.6, will constitute the basis for tation and participation of private sector stakeholders, selection of the identified enterprises/commodities/ government authorities, and privates’ banks in order to sectors embedded in Annex Table 5.7. The final deci- identify and focus on the agricultural sub-sectors (and sion for selection shall be based on these preliminary also commodities) that are felt to have the most poten- findings read together with the final consultation work- tial for investment. shops.

Priority Settings (Sectors/Enterprises/ Annex Table 5.7: Sub-sectors and value chains selected for analysis Subsector/ Initial Commodity/ Initial Market Commodities) of Market Potential farming system Score / crop/enterprise Score / (export or rank rank domestic) ? ? This part of the study assignment presents the most Irrigated ? Cotton, ? Export/ important output/findings in relation to utmost sector(s) vegetables domestic and/or subsector(s), enterprise(s) or commodity(ies) Semi-mechanized ? Sorghum, ? Export/ rain-fed sesame, domestic that warrant to be listed as potentially utmost top pri- sunflowers ority for investment. The outlined items are, of course, Traditional rain- ? Sorghum, ? Export/ fed millet, sesame, domestic preliminary based on criteria already mentioned since karkadey, gum further studies on comparative advantage, feasibility, arabic, pulses, sena meca, economics, and viability of the enterprise(s) shall be Livestock ? Sheep, cattle ? Export/ conducted. GTZ (2008) identified two ways of ap- and goats (live domestic + meat), diary, proaching the selection of any value chain159: poultry, Fisheries ? Fisheries (fresh, ? Export/ and processed) domestic • A formal procedure using decision matrices or sim- Forestry ? Gum arabic, ? Export/ ilar tools, where a decision is made by assessing wood, fruits, domestic each alternative according to a fixed set of criteria Agro-industry ? Food: ? Export/ processing domestic (Annex Table 5.6 & 5.7) of fruits vegetables, • An opportunity-driven approach, where the selec- meat, crops tion of a value chain relies on the investment pro- ? Non-food: ? Export/ posals of private enterprises and own initiatives of leather and domestic hides, textiles& chain supporters, public agencies and donors. spinning, packaging material, 159 Additional indicators/criteria have also been outlined by GTZ (2008) for a priority as- sessment of the proposed actions and include: Sources: Own information based on experience cross-checked with information from AfDB, FAO and ARP II

Criteria regarding the significance of actions:

Relevance: Does the proposed action actually contribute to the vision and to the ob- Examples of selected supply and value jectives of inventors? And does it constitute a necessary improvement to the busi- ness? chains

Effectiveness: Is the investment action likely to produce results? This includes check- ing whether actions address intermediate objectives or aspire to realize the vision as a The information already discussed in preceding sec- whole? And how long into the future do investors usually look? tions shows that selection of an enterprise for invest-

Feasibility: Is the business in line with available resources and with the current capa- ment by private sector entrepreneurs is not an easy bility of enterprises and agencies? Determine the feasibility of a chain development project according to market and upgrading potential! task and should not be an ad hoc process. Rather, it is a laborious work that requires patience and knowhow. Criteria regarding the correlation of actions: In addition, we emphasise on sequence of the value Comprehensiveness and consistency: In value chain development we are often faced chain process, which is of extreme importance to un- with inter-related issues (e.g. cutting cost plus marketing or quality management along the chain). In this case, is the combination of activities sufficiently complete to reach derstand the various activities involved in it in order to the objective? Are the proposed actions complementary, do they support each other? choose a successful enterprise. Otherwise, investment

Correct sequencing: Do the actions build on each other in a process of incremental failure is certain. improvements? Does the action provide momentum in the current stage of the pro- cess? Therefore, the first step in value chain promotion is the

AFRICAN DEVELOPMENT BANK GROUP | 251 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN identification of the value chain (enterprise) to promote, • Expansion by the private sector in rain-fed mecha- followed by value chain analysis, to come up with for- nized farms producing cereals and oil seeds. mulation of a chain (enterprise) upgrading strategy. This • Import substitution industrialization led by the pri- requires particular skills and knowhow to guarantee vate sector with focus on basic consumer goods success of implementation of the value chain (enter- and agro-processing. prise) promotion, including enterprise business link- • Increase in non-tradable services, and such as in ages, services and the business environment as well construction, finance, real estates and government (Ibid 2008). To do so, some background information is services. provided with respect to cereal enterprises (sorghum, millet and wheat). Although maize value chain is part of The utilisation of sorghum in dairy production and the cereal food-grain, it has not been depicted because it poultry industry in Sudan appears to be more dynamic is grown in small amounts and is also similar to wheat, than its use in starch and other industrial applications. since both are largely irrigated enterprises. However, the demand for sorghum in poultry feed is largely dependent on the price of other alternatives, Value chain of sorghum enterprise including maize imports, which is the energy source preferred by poultry producers (Annex Fig. 5.1). For Sorghum is the most popular food grain in Sudan (4.5 sorghum grain to enter in cereals industry as feed or million Mt produced in 2012/2013 compared to 3.2 food, as for instance the composite flour developed by million tons average of last seven years), and has been Food Research centre (FRC) in mid-eighties, its price used as food and feed, as well as in the starch indus- must be competitive to the other alternatives. The crop try (Fig. 4.1). Other uses of sorghum include making is mainly produced in traditional and semi-mechanised traditional food and beverage products (Taylor, 2009), rain fed farming at variable quantities, depending main- such as ‘White Abrai’,‘Hilumur’ and Nasha (Graham et ly on the rainy season and other factors. Despite its al 1986). However, the sorghum market is expanding importance to the livelihoods and economy, levels of with new uses, including the production of ethanol as sorghum productivity are very low (circa 100Kg/ha) and bio-fuels, and starch based biodegradable products the infinite pledge of the crop to feed the nation has like packaging materials and wallboard in housing in- scarcely been tapped (Fig. 2.2-a). dustry. Industrially, sorghum enters in starch-based al- cohol and information, which relates to 2005, showed The value chain starts by supplying agricultural inputs a production figure of about 100,000 tons of starch and as fuel gasoline and seeds that are considerably poor, glucose per annum. Currently, millet and maize are not resulting in very low yields that reproduces the cycli- major competitors of sorghum in terms of quantities cal misery of poor incomes, poverty, and food inse- used or consumed, but both crops may become main curity. The marketing chain of sorghum starts at farm industrial competitors of sorghum in the future, particu- gate level where rural traders (sometimes lorry drivers larly in bio-fuels and feed (Annex Fig. 5.1). as brokers or wholesale agents) procure the crop to rural or periodic village markets (Ismail 2004). Well-off During the post-colonial pre-oil era, agricultural growth farmers make on-farm storage (underground pits or on was weak and volatile, resulting from horizontal factors farm warehouse) until price improves (Annex Fig. 5.1). accumulation through: In the early season the produce is moved to either cen- tral/urban markets or goes for storage when prices are • Further expansion in large public sector irrigated below production costs. NGOs usually buy significant schemes in central Sudan producing cotton, sug- amounts for relief to war affected areas as Darfur and ar, oil seeds and cereals. South Kordofan. Competent export companies buy • Expansion by small holders in traditional rain-fed from central markets and then clean the harvest from farms producing food for subsistence, cash crops impurities at silos at either Gedaref or Port Sudan to and animals products for local and foreign markets. meet international standards. Considerable amount of • Investment by the private sector in pump irrigated sorghum goes for starch & glucose industry in Greater schemes producing cotton and other food and ex- Khartoum Area. Livestock enterprises e.g. poultry, milk port crops. and stock fattening agribusiness regularly purchase

252 | AFRICAN DEVELOPMENT BANK GROUP Annex Figure 5.1: Sorghum surpluses and value chain, FAO 2004-b, updated 2013

Agric. Inputs as seeds, fertilizers, pesticides

Small farmers Mechanized farming Traditional farming Irrigated farming

On-farm Rural traders Lorry drivers On farm Bank storage as traders On farm Rural traders storage salaams storage

Traders Transport to market or modern Traders storage

NGO’s

Relief and subsidy Silos storage for more Rural cleaning consumers

Retailers Urban consumers

Sorghum starch & glucose Livestock enterprises (poultry, milk and fattening Companies for export agribusiness enterprises) industry

Annex Figure 5.1: Sorghum surpluses and value chain, FAO 2004-b, updated 2013 significant amounts when prices are low (Annex Fig. tor trucks. 5.1). Unlike in some African countries (Kenya and Tanzania), Sorghum markets operate on supply and demand ba- there are no marketing boards for cereal trade. The sis with minimum government interventions to safe- Higher Grain Council (HGC), which was established guard farmers against market risks through buffer stock in 1986 (by MoAF) with a mandate covering policy on reserves, even though some quantities are stored on- production, marketing, pricing, storage and consump- farm. While sorghum grown in rain-fed farming is sole- tion of food grains, has never come into effect since ly biotic (organic farming), however, few fertilizers are then (Ismail, 2004, Ismail 2010). Sorghum is exported used in irrigated sector sorghum, which accounts for only when there are surpluses, mainly to Arab counties less than 25% of total sorghum grown in the country. as animal feed (Annex Fig. 5.1). Behaviour and con- Sorghum is mostly transported and stored in sacks duct in food grain markets is governed by pure com- form, while bulk storage is only economic when bulk petition among traders, export companies, authorised transportation is available, efficient and feasible. The NGOs agents for relief stocks, and few local traders private’s sector keeps efficient bulk trucking (rail and in form of marketing rings; a kind of alliance of some road) only for wheat as WHEATA & SAYGA private sec- farmers-traders on family and/or tribal basis to control

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Annex Figure 5.2: Millet Value chain in traditional rain-fed farming, FAO 2004-b, updated 2013

Agric. Inputs as seeds,

Small farmers (BILDAT) cultivation) Traditional millet farming

Rural traders On farm storage Rural traders On farm storage

Assemblers ‘traders Assemblers’ traders

Rural & Central markets in the area

NGOs’ (Relief/ Aids Traders (wholesalers) Traders (Retailers)

Traders (retailers)

Consumers

Annex Figure 5.2: Millet value chain in traditional rain-fed farming, FAO 2004-b, updated 2013)

market prices (Ismail, 1996). millet is generally not exported as feed. Noteworthy is that millet fetches a higher price compared to sorghum Value chain of millet enterprise (Annex Fig. 5.2). A typical route of the crop goes from producers to rural markets where wholesale and retail Millet is largely produced in traditional rain-fed agricul- traders purchase from farmers in small quantities and ture, mostly in western . It is mainly lo- sell to consumers in urban markets and/or rural mar- cally consumed. Millet is part of the cropping mix that kets (Annex Fig. 5.2). However, most farmers keep their includes other essential crops that increase farmers’ household needs at the farm-village granary bins. The returns like gum arabic, Hibiscus sp. (Roselle) “Kark- behaviour of participants in millet markets is fairly com- adey” and other home garden (Bildat) crops for rural petitive, since the demand on crop meets the supply at household consumption. Average production rang- reasonable intervals. es between 0.677 million tons to 1.1 million tons in 2012/2013 at an average yield below 53 kg / ha (see Value chain of wheat enterprise Fig. 2.2.-a). Though low in yield, farmers hardly use any type of fertilizers or pesticides in their cropping. It Wheat is mainly grown in irrigated farming at an aver- is left purely organic. There is no much difference be- age production of 0.47 million metric tons and at an tween the millet and sorghum value chains except that average yield of (0.335) ton/ha, less than any of Egypt

254 | AFRICAN DEVELOPMENT BANK GROUP Annex Figure 5.3: Wheat Value chain for domestic and import trade, FAO 2004-b, updated 2013

Agric. Inputs as seeds, fertilizers, pesticides

Domestic production Private sector imports

Rural traders Household consumption Milling Merchants (imports) companies

Assembling Processing traders

Traders (wholesalers) Traders (Retailers)

Retailers

(5.4 tons/ha: ICARDA 1995) and Ethiopia (1.1 ton/ha: national chains together to reflect the inter-linkages and FAC 2006). In irrigated sector, farmers use fertilizer and interactions in this trade area. The marketing chain for chemical pesticides to increase yields, but still remain imports starts at international markets (USA, Argentina, below minimum research levels. Worth to note is that Australia, etc) for both grain and wheat flour. Private local wheat varieties have little manoeuvrability to com- Miller companies, as shall be seen, process further the pete in domestic and world markets against imported wheat grains locally. Wheat, whether from domestic types under the prevailing agronomic and economic production or privates’ sector imports, passes through conditions, unless significant improvement in the cul- a processing and milling phase that adds to it value and tivars is introduced. Production of high quality domes- form utilities (Annex Fig 5.3). Wholesalers (or even mill- tic wheat, buying from other countries or doing some ing processors) can sell to groceries, confectioneries creative blending, are alternative options for avoiding and biscuits factories for further processing. Wholesale genetically modified cereal grains. Private sector busi- traders distribute also to retailers who sell directly to nesses can invest in these enterprises provided that a consumers (Annex Fig 5.3). favourable environment exists. In early 90’s wheat gained an increasing importance as The value chain for wheat is shown in the figure below an import-substitute crop within a massive production (Annex Fig. 5.3), which gathers the domestic and inter- strategy under the slogans of food sufficiency. Cur-

AFRICAN DEVELOPMENT BANK GROUP | 255 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex Figure 5.4: Cotton Value Chain from producers to End-users, FAO 2004-5, updated 2013

rently, this strategy is fading away paving the way for sorghum and other domestic cereals (which cannot go a semi-privatised free market economy/programme unmentioned) must be taken into consideration in any in both the wheat production and the processing future private sector investment or policy design. sub-sectors leading to a full-fledged free marketing of wheat and wheat-flour imports with some sort of subsi- Cotton value chains dies and exemptions of import tariff which also current- ly demolished under the recent subsidy abolishment Sudan, which was once the leading in Africa’s cot- programme. Wheat imports are of oligopoly nature -by ton160, has now deteriorated to an average produc- few companies- and imports now exceed domestic tion of about 177,000 tons during the last seven years production by almost four folds. The increasing pref- at an average yield of 261 kg/ha. Yield gaps between erence of the newly emerging urban concentrations in 160 According to the Food and Agricultural Organisation in 2012, Africa’s main producer the National Capital -Khartoum- to wheat bread over of cotton; Mali, Burkina Faso, Egypt and Tanzania. Tanzania grew 1.4 million ha and produced circa 354,000 tons.

256 | AFRICAN DEVELOPMENT BANK GROUP Annex Figure 5.5: The Marketing Chain of Gum Arabic from Production to End-users updated 2013

research and farmers’ yields illustrate the possibilities nese Cotton Corporation (SCC) to market the produce of attaining approximately more than double the cur- on behalf of tenant producers, against a certain mar- rent yields for cotton and sorghum and of raising those keting commission rather than on an open tender sys- of groundnuts by two-thirds (WORLD BANK 2008-b). tem basis (Annex Figure 5.4). This policy excludes the Almost 10-15% of the produced cotton is usually ori- private sector (under the privatisation slogans!) from ented for the domestic spinning and textile industry competing with the SCC in export cotton markets (Fig- dominated by the private sector while the Sudanese ure 4.4). Whether the export monopoly policy is right Cotton Corporation (SCC) ships the remaining quantity or wrong remains a general policy issue, but we must for markets abroad161. The current cotton marketing is emphasize on that, cotton marketing should be justi- based on a monopolistic policy that permits the Suda- fied on a more purely competitive basis that optimises all partners’ profits. 161 The commercial cotton sector was created to supply the British textile industry. Egypt now buys the bulk of Sudan’s cotton, reprocess it and resell it in the world market (Ibid 2008).

AFRICAN DEVELOPMENT BANK GROUP | 257 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex Figure 5.6: The Value Chain in the Sugar system in Sudan, 2003 (Ismail, 2003, updated 2013)

Agric. Inputs as seeds, fertilizers, pesticides

Sudanese Sugar Corporation Private importers Kenana Sugar Company policy SSC KSC

50% 50%

For Export

Industry quotas State quotas Commercial quotas

(Province & localities) For sugar traders

wholsalers cooperative localities Free quotas for expatriates via Direct flows main ports in $

Coordination Retailers Direct consumption

Privates’ Sweets Soft drinks consumption Direct consumption For industry sold on

Commercial basis

Annex Fig. 5.6: The Value Chains in the Sugar System in Sudan, 2003(Ismail, 2003, updated 2013) Historically, cotton has been the dominant export com- naisae. Two varieties, namely Acacia senegal (Hashab modity of the country during the colonial era. During or Kordofan type) and Acacia seyal (Talih) gum arabic the 1960s, cotton was the top export commodity until are famous in the market of gum arabic. African coun- it was replaced by sesame seeds and oilseeds, which tries like Nigeria, Uganda, Tanzania, Kenya, and Niger, were the second most important export in the late Ethiopia and Chad produce minor amounts (20%) as 1990s (WORLD BANK 2008-b). The marketing chains compared to the Sudan (80%) (Karam, 1996). Yield for cotton vary with the type of cotton (short, medium of gum Arabic, estimated as 36.8 kg/ha, can be im- or long staple varieties), the farming system (irrigated/ proved by adopting an integrated ecosystem approach rain fed), and the length of the technological process- of mixed farming (WORLD BANK 2011). es involved in marketing the cotton commodity (Annex Fig. 5.4). Cotton, Sudan’s largest export, faced a duty Gum arabic trade was far in history during the Turk- of 10 percent. Worth to note is the need for Sudan to ish regime (1820) and continued thereafter. The Gum reduce trade-distorting agricultural subsidies provided Arabic Corporation (GAC) was established in 1969 to by WTO members, notably U.S. subsidies for cotton, organise the gum export trade. This corporation has which undermine income received by Sudanese cotton been recently dismantled in favour of liberalisation and growers. non-monopoly policy. No inputs are used in gum arabic production except growing the Acacia trees. Harvest Value chains of gum arabic picking is 4-6 times in a period of 6-8 weeks after.

Sudan is the lead among gum arabic producers, mainly The chain process starts by tapping, picking, drying, from Acacia spp, besides other trees of family Legumi- cleaning, grading and marketing. The crop is usually

258 | AFRICAN DEVELOPMENT BANK GROUP

Annex Figure 5.8: Illustration of fruits and vegetables value chain, FAO 2004-b, updated 2013

Agric. Inputs as seeds, fertilizer and pesticides

Cooperative farmers Small scale Farmers Specialized companies (e.g. AOAD)

Commission agents for local Fresh for local Agents for export companies Grading for Export industry markets

Local industry for wholsalers Grading & Processing for processing processing for Export Export

Commission brokers Dealers in EU, Arab countries

Tertiary markets retailing in courts Retailers & Street retailers Supermarkets & retailers supermarkets

Local consumers Consumers

Restaurants, hotels etc

Annex Fig. 5.8: Ilustration of fruits and vegetables value chain, FAO 2004-b, updated 2013

stored on trees until collection period begins in coin- and White Nile Sugar Companies are private sector en- cidence with market demand. The value chain passes terprises. Both produce about 0.7 million tons of sugar from producers through a number of intermediaries, with an average yield of 10.7 ton/ha. The including producers, assemblers to dealers and users, sugarcane value chain is relatively long, as it passes to usually in products such as confectioneries, soft drinks different users, among them is the food industry, con- and medical drugs (Annex Fig. 5.5). Throughout this fectionaries, soft drinks, sweets manufacture as well as process, cleaning and grading is made to add value to to consumers (Annex Fig. 5.6). the product. Smuggling trade is active with neighbour- ing markets, which greatly affects the domestic pro- However, sugar market is privatised since imports are duction, marketing and consumption relations. allowed, but local production of Kenana and the SCC is distributed under government supervision to avoid Value chain of sugar system smuggling to neighbouring countries as Chad, south- ern sudan and Ethiopia. Sugarcane plant uses intensive inputs (water, fertilizers, pesticides, etc) for the relatively long period it takes to Value chain of oil seeds (groundnuts and produce cane sugar. Both private and public sector sesame enterprises) companies are in business. The government authority via the Sudanese Sugar Corporation (SSC) controls the Groundnut is an oil seed crop grown both in irrigated sugar distribution and marketing within the country, be- and rain-fed agriculture, whereas sesame is confined sides responsibility for the management and adminis- mainly to both traditional and mechanised rain-fed tration of all sugar factories in the public sector. Kenana farming. The value chains for oil seeds (sesame and

AFRICAN DEVELOPMENT BANK GROUP | 259 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex Figure 5.9: General scheme of livestockvalue chains (Adapted from Ismail, 2003) updated 2013

Veterinary inputs

Private & public companies Small-scale producers Large-scale producer farmers

Middlemen & Processing industry brokers

Guarantee persons Trucking and trekking

Slaughterhouses

Intermediate markets (with medical care)

Ceremonies & festivals

Merchants and companies

Central markets (with medical care)

Consumers Exporter companies

Retailers and Quarantine and medical care supermarkets Hady

Live exports Slaughter Exports Houses

Festivals

Annex Figure 5.9: General scheme of livestock value chains, (Adapted from Ismail, 2003) updated 2013

groundnuts) do not differ greatly from each other, since chains of oil seeds start at farm or village level where both are sold in auction markets. After purchases are traders or informal moneylenders collect small amounts completed, the produce goes for more refinement and to be sold at auction markets as intermediate markets purification in silos and modern storage facilities where or large auction markets in urban cities. available (Annex Fig. 5.7). Passing this phase, the ses- ame/groundnuts is taken for processing (as cooking The chain flow channels for each crop is expected to oil), seedcake or exported to the world market. Local differ slightly due to variation in production processes processors (Asarat), conventional or modern types are and areas of production, as well as destination of sales. available for sesame crop in different regions. Value From markets, the crop either goes for local procces-

260 | AFRICAN DEVELOPMENT BANK GROUP ing, exported as raw through company agents, or sold For the different types and livestock species, the sell- to domestic traders to store until prices improve. After ing procedure and process is almost the same. There processing, the cooking oil is sold either to wholesalers are no auction markets, neither are there standardised and/or retailers, whereas the bye-products are used units of measurement. Middlemen, brokers, and ‘guar- in making animal feeds (Annex Figure 5.7). Processed antee clients’ are key persons in the transaction pro- sesame oil is used as a medicament for many stomach cess for a fixed and agreed upon commission per and back-ache troubles head. Local authorities manage the markets, and they charge fees. Livestock market records, management Value chain of fruits and vegetables and service arrangements are generally poor (Ismail, enterprises 2003). Livestock is usually transported by trucking (300-400 sheep/truck) with a (2-4%) loss on the way Fruits and vegetables are originally grown along the to Port Sudan. Trecking is the other mode of transport River Nile, Atbara, and the seasonal tributaries (Ra- and the voyage usually takes a month from Nyala to had and Dinder rivers), Abu Jebaiha as well as in Jabal Omdurman, where the animals are sold in Al Moelih Mara area. The value chains of Fruits and vegetables market – a famous market to the west of Omudrman. (Annex Fig 5.8) is more or less organised, compared to other agricultural crops, due to the high perishability However, the forward and backward linkages of the of produce and the continuity in production for most of livestock industry (tannery, slaughter-housing, forage the year round (Annex Fig. 5.8) . baling and natural dung are few examples) is a typical example of diversification of private sector investments. Much of the produce is sold locally. Some are exported Further disaggregation of the value chain to trace skin to European and Arab countries as some of the chain leather to shoes manufacuring is also possible, but it is end users. Improvements in fruits and vegetables value not shown in the Annex Fig 5.9. chain can be through the upgrading of market facili- ties, among them cold storage, grading and packaging On the other hand, Sudan’s export trade (Annex Fig. technologies. Worth to note is that fruits and vegeta- 5.9) in livestock and meat is to Egypt and the Middle bles in the South Kordofan and Jabal Mara are not ef- East markets, such as Jordan and Lebanon, and the ficiently utilised for lack of physical infrastructure. Still, Gulf market in Saudi Arabia, United Arab Emirates and these remain as potential opportunities for private sec- Oman. However, Sudan sometimes loses the Saudi tor investment. market to strong competitors like Argentina and Aus- tralia, which have more sophisticated production and Livestock value chains marketing infrastructure, especially as far as welfare, hygiene, and disease control regulations are concerned The value chains in livestock starts by supply of vetrinary (UNEP 2012). It has been observed that cross-border inputs and medicines, including against trade with Libya, Chad, and Central Africa Republic has epidemics. is obligatory and almost exclu- long been a feature of Darfur’s livestock trade. Howev- sively to all livestock keepers, usually provided regularly er, much of it is informal (Ibid 2012). Egypt is officially by the MoARF on cost basis, but performed by official Sudan’s most important market for the export of cam- staff (Annex Fig. 5.8). Both formal and informal mar- els. kets exist in the livestock trade. Informal markets exist in remote and rural areas, where exchange process is Empirical examples of selected supply only done arbitrarily, and statistics concerning trade chains and marketing activities are not available. In contrast, formal markets are relatively well defined where author- Most of the value chains shown in Annex Fig 5.1 to ities and medical care and check-ups are supposed to Annex Fig.5.8 are modestly meeting national, region- exist. A typical example of livestock marketing chains al and international demands. These value chains are is given somewhere below (Annex Figure 5.8 adapted producing a range of consumer products desired, or from Ismail, 2003). minimising market price volatility through effective stor- age and processing operations. Sudan, taking advan-

AFRICAN DEVELOPMENT BANK GROUP | 261 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex Table 5.8: Value Chain for Gum Arabic (Hashab) Marketing from Nyala to Port Sudan (Season 2009/2010) (Borrowed from WORLD BANK 2011)

Item Costs Hashab Costs SDG/Kantar Costs SDG/ton Percent of Total Marketing Costs

Market price in Nyala (SDG/kantar) 100 2,220.0 Taxes and Fees Zakat (10 % of gross) 10 22.2 17.30 Wounded soldiers (1% of gross) 0 0.0 0 Forest National Corp (5% of gross) 5 111.0 8.65 Central Govt. fee (VAT =15% of gross) 15 333.0 25.95 State duties (damga) 6 133.3 10.38 Business profit taxes 0.3 6.7 0.52 Transport Loading and unloading 2 44.4 3.46 Rail freight costs (Nyala to Port Sudan) (6) (144) (10.38) Truck freight costs (Nyala to Port Sudan) 7.5 166.65 12.98

Charges at Port Sudan SSMO Inspection 1 22 1.73 Handling charges 1 22 1.73 Customs (1% of fob) 2 44 3.45 fob charges 8 178 13.84

Total Marketing Costs to Port Sudan (rail) 44.3 3,303 Total Marketing Costs to Port Sudan (truck) 45.8 3,237 Total Marketing Costs including Port Costs (truck) 57.8 3,503 100

Producer Farm Gate Price (SDG/kantar)* 90 f.o.b Price = $1,850/ton (SDG/kantar) 208 Producer/f.o.b. Price Ratio (percent) 43

*Assumed to be 10% less than Nyala market price and exchange rate of SDG2.5=US$1.00 1 kantar of raw gum arabic = 100 lbs = 45 kg or 22.22 kantars per ton. Source: Based on information from Gum Arabic Producers’ Association in Nyala, Survey by Department of Agricultural Economics and Marketing, Ministry of Agriculture and Forests, and mission estimates tage of their geographic proximity, can export livestock be given to market participants and costs involved for and meat products to Saudi Arabia, Gulf area and Mid- each transaction in order to mitigate an improvement dle East countries. along the value chain.

The following examples illustrate the breakdown of typical gum arabic value chain to inform investors on the depth of information required to make a success- ful business decisions. The first empirical value chain to illustrate is for gum arabic (hashab) marketing from Nyala to Port Sudan in season 2009/2010 (Annex Ta- ble 5.8) while the second illustrate Sheep (Annex Table 5.9). Both tables are self-explanatory and focus is to

262 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 5.9: Summary of the Structure of Some Major Sheep Marketing Value Chains and Costs from Nyala to Omdurman and Sawakin (W B 2011)

Transport Routes and Modes Item (in broad chronological Nyala to Nyala to El Obeid to Nyala to Omdurman to Sawakin by Omdurman to sequence) Omdurman Omdurman Port Sudan Port Truck (excl. water and feeding Sawakin by by stock by truck by truck Sudan costs during Govt. inspection Truck (incl. water route by rail and vaccination) and feeding costs during Govt. inspection and vaccination)

(percent of total marketing costs) Secondary Sale Yard 24.48 16.59 2.91 13.78 12.21 8.87 Veterinary Fees 10.22 6.93 13,47 5.75 27.80 47.52 Taxes and fees a / 20.98 14.22 9.12 11.81 0 0 Transport 44.31 62.26 49.01 58.72 35.31 25.67 Port Costs b/ 0 0 25.49 9.95 24.68 17.94 Total 100 100 100 100 100 100 Terminal Price (SDG per sheep) 190 190 245 245 245 245 Mktg. Costs/ Terminal Price %) 21.8 32.3 19.6 24.3 14.9 14.9 Producer Price/ Terminal Price 64.5 64.5 57.5 50.0 Na na (%)

Source: Ahmed Abaker Mohammed Mina and Jack W. van Holst Pellekaan, draft, (August 2010) – being revised. a/ Taxes and fees are zero for the journeys from Omdurman to Sawakin because either they are already included in secondary sale yard costs or not applicable (e.g. Zakat) because they have already been paid in the primary market. b/ Port costs are at Sawakin

AFRICAN DEVELOPMENT BANK GROUP | 263 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex 6: Programmes for Industrial Development

The key elements of programmes for further industrial- isation in Sudan are included in the value chain analy- sis set out in Annex 5.

Annex Table 6.1: Comparisons of the Number and (%) of Food Establishments to Total Number of Manufacturing Establishments Categorized by Size of Labour Employment Borrowed from Ismail 2010 Size of labour employment (persons)

Totals 09-Jan 24-Oct 25-49 50-99 >100 Total number of establishments 24,114 22,460 916 332 139 267 Total number of food establishments* 16974 16453 252 119 57 93 The % number of food establishments to total number of manufacturing by size (%) 70% 73% 28% 36% 41% 35% * Focus was on production rather than food distribution services. Areas not addressed include smaller retail formats, cafes, specialty food vendors, markets, full service restaurants, street vendors, caterers, domestic wholesalers, commission agents, and providers of logistic and maritime services. Source: based on data from CIS, 2003.

Annex Table 6.2. Number of Establishments by Different Food Enterprises (Ibid 2010) Number of Employees Workers Establishments ISIC Total manufacturing 24114 162682 131506 1531 Grain mill products industry 10707 21670 11666 1532 Starches and starch products 4 268 257 1533 Animal feeds 4 172 172 1541 Bakery industry 4240 22357 17344 1544 Cookies & Snack Cakes, other wheat 27 521 455 products, macaroni, and spaghetti 1549 Other food products 23 2367 2317 Source: CIS, 2003.

Annex Table 6.3: Number of Establishments of Grain, Starch, Bakery & Grain Mill Products (Ibid 2010) Total Manufacturing (1) Total establishments Labour size as small, medium and large 09-Jan 24-Oct 25-49 50-99 >100 24,114 22,460 916 332 139 267 Grain mill products 10,707 10,674 11 11 6 5

264 | AFRICAN DEVELOPMENT BANK GROUP Annex 7: Basic Data and Projections for the Oil Sector

Annex Tables 7.1 through 7.4 provide statistical details price). The actual discount that applied during the for the petroleum sector of Sudan. 2010-2013 period has been applied to the World Bank projection for Brent crude. • Annex Table 7.1 includes a summary of the supply • Annex Table 7.4 includes a projection of the value and utilisation of crude oil and petroleum products added by the petroleum sector during the 2015- for the 1990-2014 period. The database of the In- 2030 period. The IMF projections for the annual ternational Energy Agency is the source for infor- growth in production increase from about 3.3 per- mation for 1990-2010. The data for 2011 through cent in 2015 to 5.3 percent by 2019. For the pur- 2014 is derived from various published sources, in- poses of this Report, it is assumed that production cluding the International Monetary Fund (IMF) and of crude oil will increase by about 6 percent a year various publications of the Central Bank of Sudan, during the 2020-2030 period. The projection as- and also includes estimates by the authors. sumes that value added in petroleum sector for the • Annex Table 7.2 includes historical data for 2010- period ranging 2015-2030 grows at the same rate 2014 from Annex Table 7.1 and projections pre- as the projected levels of production. pared by the authors for the 2015-2030 period. • Annex Table 7.4 also includes projections of the For the 2015-2019 period, the projections for oil current value of exports and imports of crude oil production and exports draw heavily from the re- and petroleum products for 2015-2030. These cent forecasts prepared by the IMF.162 For 2020- projections are derived from the projected current 2030, the projections are estimates by the authors. price of crude oil as reported in Annex Table 7.3, • Annex Table 7.3 sets out the price projections for along with assumptions about the relationship be- crude oil that have been used in this Report. The tween the price of crude oil and the average price most recent price projections Brent crude released of petroleum products. by the World Bank on January 22, 2015 for 2015- 2025 have been used. Projections for 2026-2030 A key point that emerges from these projections is have been prepared by the authors. Sudan oil sells that the export surplus declines steadily in the decade in international markets at a discount to the price of ahead, and that by the mid-2020s, Sudan will be a net Brent crude (about 91 percent of the Brent crude importer of petroleum products.

162 See International Monetary Fund (2014.c), “Sudan: 2014 Article IV Consultation and Second Review Under Staff-Monitored Programme.” IMF Country Report No. 14/364, December 2014.

AFRICAN DEVELOPMENT BANK GROUP | 265 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 2002 12,035 12,035 2,842 8,946 247 12,035 2,691 316 45 3,052 2,270 80 570 132 3,052 2001 10,394 10,394 2,603 7,697 94 10,394 2,465 350 (153) 2,662 1,863 33 639 127 2,662 2000 8,857 8,857 1,943 6,622 292 8,857 1,840 495 90 2,425 1,725 37 523 113 27 2,425 1999 3,450 3,450 452 1,672 1,326 3,450 428 1,163 121 1,712 1,597 22 101 (8) 1,712 1998 508 258 766 587 179 766 577 960 (9) 1,528 1,483 41 4 1,528 1997 254 630 884 972 (88) 884 891 771 9 1,671 1,625 42 4 1,671 1996 102 712 814 726 88 814 685 650 28 1,363 1,318 42 3 1,363 1995 - - 761 761 712 - - 49 761 706 713 7 1,426 1,382 - - 41 3 1,426 1994 641 641 622 19 641 608 922 (19) 1,511 1,474 40 (3) 1,511 1993 327 327 320 7 327 310 715 10 1,035 996 36 3 1,035 1992 750 750 731 19 750 720 764 (30) 1,454 1,415 38 1 1,454 1991 1,013 1,013 962 51 1,013 952 598 1 1,551 1,513 38 1,551 1990 - - 837 837 818 - - 19 837 805 945 (27) 1,723 1,686 - - 37 - - 1,723 Annex Table 7.1: Supply and Utilization of Crude Oil and Petroleum Products in Sudan, 1990-2014 Supply and Utilization of Crude Oil Petroleum Products in Sudan, 7.1: Table Annex (In '000 metric tons) Indicator Crude oil Supply Production Imports Sub-total Utilization Refinery use Exports Discrepancy Sub-total Petroleum products Supply Production Imports Stock changes Sub-total Utilization Domestic consumption Energy industry own use Exports Bunker use Discrepancy Sub-total Source: International Energy Agency database for supply and utilization data for 1990-2012 and Central Bank of Sudan Annual Reports, various issues. Exports and imports for 2014 from CBoS with estimates by authors other data. various issues. Annual Reports, Agency database for supply and utilization data 1990-2012 Central Bank of Sudan International Energy Source:

266 | AFRICAN DEVELOPMENT BANK GROUP 2014 Estimate 6,200 - - 6,200 4,711 1,489 - - 6,200 4,193 1,468 - - 5,661 5,176 125 110 250 5,661 2013 6,065 - - 6,065 3,945 2,120 - - 6,065 3,511 1,294 - - 4,806 4,334 124 108 240 - - 4,806 2012 5,019 - - 5,019 2,523 2,496 - - 5,019 2,245 865 - - 3,110 2,530 79 263 238 - - 3,110 2011 14,238 - - 14,238 2,496 11,742 - - 14,238 2,221 750 - - 2,972 2,274 78 292 328 - - 2,972 2010 23,104 - - 23,104 5,546 17,558 - - 23,104 4,442 522 - - 4,964 4,055 152 473 285 - - 4,964 2009 23,738 - - 23,738 5,111 18,535 92 23,738 4,550 450 - - 5,000 3,999 156 571 274 - - 5,000 2008 23,098 - - 23,098 4,624 18,391 83 23,098 4,116 973 - - 5,089 4,193 152 480 264 - - 5,089 2007 23,800 - - 23,800 4,990 18,702 108 23,800 4,408 482 - - 4,890 3,762 157 729 242 - - 4,890 2006 17,250 - - 17,250 4,566 12,570 114 17,250 4,118 556 - - 4,674 3,603 114 680 277 - - 4,674 2005 15,250 - - 15,250 3,464 11,786 - - 15,250 3,190 623 - - 3,813 2,923 101 468 321 - - 3,813 2004 15,050 15,050 3,307 11,743 15,050 3,132 365 (12) 3,485 2,542 100 585 258 3,485 2003 13,250 13,250 2,939 10,311 13,250 2,783 335 (10) 3,108 2,323 88 502 195 3,108 Annex Table 7.1: Supply and Utilization of Crude Oil and Petroleum Products in Sudan, 1990-2014 Supply and Utilization of Crude Oil Petroleum Products in Sudan, 7.1: Table Annex (In '000 metric tons) Indicator Crude oil Supply Production Imports Sub-total Utilization Refinery use Exports Discrepancy Sub-total Petroleum products Supply Production Imports Stock changes Sub-total Utilization Domestic consumption Energy industry own use Exports Bunker use Discrepancy Sub-total Source: International Energy Agency database for supply and utilization data for 1990-2012 and Central Bank of Sudan Annual Reports, various issues. Exports and imports for 2014 from CBoS with estimates by authors other data. various issues. Annual Reports, Agency database for supply and utilization data 1990-2012 Central Bank of Sudan International Energy Source:

AFRICAN DEVELOPMENT BANK GROUP | 267 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN 5.8 16.5 2030 2.0 13,832 - - 13,832 11,612 2,220 13,832 10,334 5,853 16,187 15,280 362 546 16,187 5.5 6.2 5.8 16.2 2029 2.0 13,111 - - 13,111 10,934 2,177 13,111 9,731 5,409 15,140 14,280 341 520 15,140 5.5 6.2 5.8 15.9 2028 2.0 12,427 - - 12,427 10,293 2,134 12,427 9,161 5,000 14,161 13,346 321 495 14,161 5.5 6.3 5.8 15.6 2027 2.0 11,779 - - 11,779 9,687 2,092 11,779 8,622 4,624 13,246 12,473 302 471 13,246 5.5 6.3 5.8 15.3 2026 2.0 11,165 - - 11,165 9,114 2,051 11,165 8,112 4,278 12,390 11,657 284 449 12,390 5.5 6.3 5.8 15.0 2025 2.5 10,583 - - 10,583 8,572 2,011 10,583 7,629 3,959 11,589 10,894 267 428 11,589 5.5 6.2 5.8 14.6 2024 2.5 10,032 - - 10,032 8,070 1,962 10,032 7,182 3,658 10,840 10,182 251 407 10,840 5.5 6.3 5.8 14.3 2023 2.5 9,509 - - 9,509 7,594 1,914 9,509 6,759 3,381 10,140 9,515 237 388 10,140 5.5 6.3 5.8 13.9 2022 2.5 9,013 - - 9,013 7,145 1,867 9,013 6,359 3,125 9,485 8,893 223 369 9,485 5.5 6.3 5.8 13.6 2021 2.5 8,543 - - 8,543 6,721 1,822 8,543 5,982 2,890 8,872 8,311 209 352 8,872 5.5 6.3 5.8 13.2 2020 3.0 8,098 - - 8,098 6,320 1,777 8,098 5,625 2,674 8,299 7,767 197 335 8,299 5.5 6.2 5.6 12.9 2019 3.0 7,675 - - 7,675 5,950 1,726 7,675 5,295 2,468 7,764 7,259 185 319 7,764 5.3 6.0 5.3 12.5 2018 3.0 7,286 - - 7,286 5,611 1,675 7,286 4,994 2,269 7,263 6,784 175 304 7,263 5.0 5.7 4.6 12.1 2017 3.0 6,937 - - 6,937 5,311 1,627 6,937 4,727 2,094 6,820 6,341 165 25 289 6,820 4.4 4.9 3.9 11.8 2016 3.0 6,642 - - 6,642 5,063 1,579 6,642 4,506 1,903 6,409 5,926 158 50 276 6,409 3.8 4.0 3.3 Projection 11.4 2015 3.0 6,401 - - 6,401 4,868 1,533 6,401 4,332 1,720 6,052 5,538 152 100 263 6,052 3.3 3.3 Estimate 11.1 2014 (29.8) 6,200 - - 6,200 4,711 1,489 - - 6,200 4,193 1,468 - - 5,661 5,176 125 110 250 - - 5,661 2.2 19.4 8.5 15.8 2013 (15.1) 6,065 - 6,065 3,945 2,120 - - 6,065 3,511 1,294 - - 4,806 4,334 124 108 240 - - 4,806 20.9 56.4 31.8 18.6 2012 (78.7) 5,019 - 5,019 2,523 2,496 - - 5,019 2,245 865 - - 3,110 2,530 79 263 238 - - 3,110 (64.8) 1.1 (55.9) 87.5 2011 (33.1) 14,238 - 14,238 2,496 11,742 - - 14,238 2,221 750 - - 2,972 2,274 78 292 328 - - 2,972 (38.4) (55.0) (40.2) Actual 130.8 2010 (5.3) 23,104 - 23,104 5,546 17,558 - - 23,104 4,442 522 - - 4,964 4,055 152 473 285 - - 4,964 (2.7) 8.5 (2.6) Annex Table 7.2: Projected Supply and Utilization of Crude Oil and Petroleum Products in Sudan, 2015-2030 Projected Supply and Utilization of Crude Oil Petroleum Products in Sudan, 7.2: Table Annex (In '000 metric tons) Indicator Exports of crude Crude (barrel mill)) Growth in exports (% p.a.) Crude oil Supply Production Imports Sub-total Utilization Refinery use Exports Discrepancy Sub-total Petroleum products Supply Production (89% of refinery use) Imports Stock changes Sub-total Utilization Domestic consumption Energy industry own use Exports Bunker use (at 5% p.a.) Discrepancy Sub-total Memo items: Growth in crude production (% p.a.) Growth in refinery use (% p.a.) Growth in total production (% p.a.)

268 | AFRICAN DEVELOPMENT BANK GROUP 91.0 91.8 103.9 100.9 113.2 118.8 96.1 114.2 2030 7.0 3.5 91.0 89.2 101.8 98.0 114.2 119.9 93.3 111.9 2029 7.0 3.5 91.0 86.6 99.8 95.1 115.3 121.1 90.6 109.7 2028 7.0 3.5 91.0 84.0 97.9 92.3 116.5 122.3 87.9 107.6 2027 7.0 3.5 91.0 81.6 96.0 89.7 117.7 123.6 85.4 105.5 2026 7.0 3.5 91.0 79.2 94.1 87.0 118.8 124.7 82.9 103.4 2025 7.0 3.5 91.0 75.4 88.0 82.8 116.7 122.6 78.9 96.7 2024 7.0 3.5 91.0 71.7 82.3 78.8 114.8 120.5 75.0 90.4 2023 7.0 3.5 91.0 68.2 77.0 75.0 112.8 118.5 71.4 84.6 2022 7.0 3.5 91.0 64.9 72.1 71.3 111.1 116.6 67.9 79.2 2021 7.0 3.5 91.0 61.7 67.4 67.8 109.2 114.7 64.6 74.1 2020 7.0 3.5 91.0 58.7 63.2 64.5 107.6 113.0 61.4 69.4 2019 7.0 3.5 91.0 55.8 59.2 61.3 106.0 111.3 58.4 65.0 2018 7.0 3.5 91.0 53.1 55.3 58.4 104.1 109.4 55.6 60.8 2017 7.0 3.5 91.0 50.5 51.8 55.5 102.4 107.6 52.9 56.9 2016 7.0 3.5 91.0 48.1 48.4 52.8 100.7 105.8 50.3 53.2 2015 Projection 7.0 3.5 91.0 86.9 87.5 95.4 100.8 105.8 90.9 96.2 2014 Estimate 19.4 3.5 90.9 93.6 94.6 103.0 101.1 106.1 98.1 104.1 2013 71.3 3.5 90.1 94.6 94.6 105.0 100.0 105.0 100.0 105.0 2012 11.2 3.5 92.1 98.2 95.8 106.6 97.6 102.5 101.5 104.0 2011 (43.9) 3.5 91.0 75.5 71.9 83.0 95.2 100.0 79.0 79.0 1.4 Actual 2010 3.4 Source: World Bank database for commodity price forecasts for 2015-2025 released January 22, 2015. Forecasts by authors for 2026-2030. Forecasts by authors for 2026-2030. 2015. Bank database for commodity price forecasts 2015-2025 released January 22, World Source: Price discount for Sudan (% of Brent crude price)) Sudan crude average price (US$ at 2012 prices) Projected average price per barrel for Sudan crude Sudan crude average price (US$ at current prices) Price of Brent crude in US$ at 2012 constant prices Price index (base year 2012=100.0) Price index (base year 2010=100.0) Price of Brent crude in US$ at 2010 constant prices World Bank forecast of 2014 for World Brent crude price per barrel Price of Brent crude in US$ at current prices Petroleum products Growth in consumption (% p.a.) Annex Table 7.3: Assumptions for the Projected Price of Oil, 2015-2030 Assumptions for the Projected Price of Oil, 7.3: Table Annex Indicator Energy own use (% of production) Source: Annex Table 7.1 for 2010-2014. Data for 2014 are estimates by authors based on Central Bank of Sudan trade data for first half of 2014. Projections are estimates by authors. Data for 2014 are estimates by authors based on Central Bank of Sudan trade data first half 2014. 7.1 for 2010-2014. Table Annex Source:

AFRICAN DEVELOPMENT BANK GROUP | 269 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN (5,275) 6,995 1,719 1,195 6,995 - - 1,039 - - 1,719 16.5 5.5 23,502 6,578 9,465 13,832 2030 (4,682) 6,334 1,652 1,171 6,334 - - 1,018 - - 1,652 16.2 5.5 22,277 6,235 8,710 13,111 2029 (4,153) 5,741 1,588 1,148 5,741 - - 998 - - 1,588 15.9 5.5 21,115 5,910 8,016 12,427 2028 (3,681) 5,207 1,527 1,126 5,207 - - 979 - - 1,527 15.6 5.5 20,015 5,602 7,377 11,779 2027 (3,256) 4,723 1,467 1,104 4,723 - - 960 - - 1,467 15.3 5.5 18,971 5,310 6,788 11,165 2026 (2,874) 4,284 1,410 1,082 4,284 - - 941 - - 1,410 15.0 5.5 17,982 5,033 6,247 10,583 2025 (2,415) 3,702 1,287 1,012 3,702 - - 880 - - 1,287 14.6 5.5 17,045 4,770 5,636 10,032 2024 (2,025) 3,198 1,173 946 3,198 - - 823 - - 1,173 14.3 5.5 16,156 4,522 5,078 9,509 2023 (1,696) 2,767 1,071 885 2,767 - - 770 - - 1,071 13.9 5.5 15,314 4,286 4,582 9,013 2022 (1,417) 2,396 978 829 2,396 - - 721 - - 978 13.6 5.5 14,516 4,063 4,130 8,543 2021 (1,181) 2,074 893 775 2,074 - - 674 - - 893 13.2 5.5 13,759 3,851 3,725 8,098 2020 (981) 1,793 812 726 1,793 - - 632 - - 812 12.9 5.3 13,042 3,650 3,356 7,675 2019 (805) 1,544 738 680 1,544 - - 592 - - 738 12.5 5.0 12,380 3,465 3,030 7,286 2018 (648) 1,332 684 636 1,332 14 553 25 671 12.1 4.4 11,788 3,299 2,746 6,937 2017 (498) 1,133 635 595 1,133 26 518 50 609 11.8 3.8 11,286 3,159 2,502 6,642 2016 (356) 957 602 557 957 48 484 100 553 11.4 3.3 10,876 3,044 2,293 6,401 2015 Projection (270) 1,524 1,254 1,038 1,524 163 1,484 110 1,091 11.1 2.2 10,534 2,948 4,013 6,200 2014 Estimate 259 1,460 1,719 1,128 1,460 102 948 108 1,617 15.8 20.9 10,306 2,884 4,231 6,065 2013 960 1,052 2,012 1,217 1,052 257 977 263 1,755 18.6 (64.8) 8,095 2,266 3,538 5,019 2012 7,944 735 8,679 980 735 301 1,032 292 8,378 87.5 (38.4) 24,849 6,955 10,416 14,238 2011 9,265 428 9,692 818 428 286 605 473 9,406 130.8 (2.7) 29,682 8,307 12,996 23,104 Actual 2010 Source: Annex Tables 7.2 and 7.3 estimates by authors. Tables Annex Source: Net export earnings Imports of petroleum products Total trade (US$ million at Total current prices) Exports of crude and products Unit value of imports (US$ per mt) Imports of petroleum products of imports (US$ mill) Value Value of petroleum product Value exports (current US$ mill) Unit value of exports (US$ per mt) Export of products ('000 mts) Export value of crude (current US$ mill) Trade in crude and petroleum Trade products Export of crude and petroleum products Exports of crude (barrels million) Growth in crude production (% p.a) Petroleum sector value added (SDG mill at 2012 prices) Petroleum sector value added (US$ mill at 2012 prices) Value of production (US$ at Value 2012 constant prices) Value of production and value Value added Production of crude ('000 metric tons) Annex Table 7.4: Projected Value of Petroleum Production and Value of International Trade in Crude and Petroleum Products, 2015-2030 in Crude and Petroleum Products, Trade of International Value of Petroleum Production and Value Projected 7.4: Table Annex Indicator

270 | AFRICAN DEVELOPMENT BANK GROUP Annex 8: Basic Data for Infrastructure

Annex Table 8.1: Priority National Road Projects for Construction During 2015-2019

No. Description Length (km) Cost Estimate US$ Million Remarks 1 Omdurman -Bara 341 289.9 Bidding documentation available 2 En Nahoud- Ed Daein-Nyala 436 370.6 Bidding documents available 3 Singa –Ed Dinder-Gedarif 169 143.7 Bidding documents complete 4 Khartoum-Medani 187 140.3 Road requires widening. Bidding documents available 5 Gaili-Shendi-Atbara 269 201.8 Road requires widening. Bidding documents available 6 Jebel Awliya- Ed Dueim-Rabak 267 200.3 Needs design and construction 7 Kosti-Tendelti 116 29.2 Road requires rehabilitation 8 El Fashir-El Oiynat-El Kufra 990 845 Road to provide link with Libya. Needs detailed engineering design study 9 Dongola-Oiynat 620 529.2 Link with Libya. Needs detailed engineering design study 10 El Damazin-Kormok 148 91.7 Road link with Ethiopia. 95km completed, remaining section to be constructed 11 Kadogli-Talodi-Tonga 291 247.4 Documentation completed 12 Ed Daein-Raga 210 147 Needs detailed engineering design study 13 Nyala-Ed Alforsan-Um Dafouk 273 109.2 First 148km under construction; remaining 128km needs detailed engineering design and construction 14 Technical Assistance and Training - 0.3 Includes assorted items TOTAL 4,317 3,197.60 Source: National Highways Authority

AFRICAN DEVELOPMENT BANK GROUP | 271 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex Table 8.2: Roads for Economic Feasibility and Engineering Design Studies No. Description Length (km) Cost Estimates (US$ Million) Feasibility & Engineering Construction Cost[1] Total Cost Estimate Design 1 Kassala-New Halfa-Khartoum North Road 416 2.912 249.6 252.512 2 El Fasher-Kabkabiya Road, North Darfur 170 1.19 102 103.19 3 El Fasher-Mellit Road, North Darfur 65 0.455 39 39.455 4 Nertiti-Geldo-Golo-Rokero Road, 99 0.693 59.4 60.093 5 El Damazin-Geisan Road 170 1.19 102 103.19 6 Khashm-El Girba Sugar Factory-Sabaat Road 46 0.322 27.6 27.922 7 Sinnar-El Suki-El Dindir Road 78 0.546 46.8 47.346 8 Garsila- Foro-Boranga 75 0.525 45 45.525 9 Karkoj_El Rosseris-Yarda 247 1.729 148.2 149.929 10 El Damazin-El Sirayo 110 0.77 66 66.77 11 Singa-Dali Mamoum-Grabeen-Wad El Nayel Road 222 1.554 133.2 134.754 12 Kutum-El Tina, North Darfur 255 1.785 153 154.785 13 Rehad El Berdi-Um Dofouk, South Darfur 123 0.861 73.8 74.661 14 Nyala-Graida-Buram-El Radom, South Darfur 258 1.806 154.8 156.606 15 Buram-Tulus-Kateela-Ed El Fursan 125 0.875 75 75.875 16 Nyala- Abu Ajura-Tulus -Dumso 135 0.945 81 81.945 17 Rahad El Berdi-Kubum 52 0.364 31.2 31.564 18 Ed El Fursan-Kubum 65 0.455 39 39.455 19 Ed Daein-Kubum 125 0.875 75 75.875 TOTAL 2,836 19.852 1,701.60 1,721.45 Source: National Roads Authority and estimates by authors.

Annex Table 8.3: Ongoing Railway Investment Projects No. Project Title Name of Contractor Target Finish Date Contract Value Current US$ million Status 1 Rehabilitation of SRC Locomotives CSR Ziyang Co. Ltd 2011 7.4 Ongoing 2 Supply of rails (100km) China Machine Building International Co. Ltd 2011 13.5 Ongoing 3 Supply of Locomotives (3 heavy, 2 light) Beijing Railway Transportation Equipment Co. Ltd 2013 6.63 Ongoing 4 Supply of 400 Bogies Jinan Railway Vehicles Equipment Co. Ltd 2013 5 Ongoing 5 Supply of 5 Rail Motor Trolleys China Railways International Co. Ltd 2013 1.7 Ongoing TOTAL 34.23 Source: Sudan Railways Corporation

272 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 8.4: Summary of Investment Needs in the Rail Sub-Sector Item Medium Term Long Term Total Cost 2015-2020 2021-2030 Estimate US$ million (US$ Million) (US$ Million) Rehabilitation of Existing Lines Port Sudan –Khartoum (787km) 350 - 350 Khartoum-Medani (174km) 91 - 91 Medani – Sennar (96km) 50.2 - 50.2 Sennar - Kosti (105) 54.9 - 54.9 Haya – Kassala (349km) - 322.5 322.5 Kassala - Sennar - 411.2 411.2 Sub-Total 546.1 733.7 1,279.80 Reconstruction of Lines to 100kph Khartoum – Kosti (375km) - 192.3 192.3 Kosti - En Rahad (250km) - 134.6 134.6 En Rahad – Babanusa (363km) - 195.5 195.5 Bananusa – Ed Daein (185km) - 104.4 104.4 Ed Daein – Nyala (150km) - 93.3 93.3 Sub-Total 0 720.1 720.1 New Rail Constructions New Standard Gauge Line, Port Sudan –Khartoum (787km) 1,200.00 - 1,200.00 Rail spurs in Port Sudan (50km) 28 - 28 Rail Spurs in Kosti port (10Km) 5.9 - 5.9 Khartoum Bypass line with jelly to Soba (120km) - 138 138 Port Sudan Station 12 - 12 Sub-Total 1,245.90 138 1,383.90 Re-equipping Workshops 30 - 30 Locomotives and other rolling stock Signaling Systems 115 105 220 Studies for extension of the network to link with neighboring States 6 - 6 Capacity Building 2 1.5 3.5 TOTAL 1,945.00 1,698.30 3,643.30 Source: Sudan Railways Corporation, NTMP and authors estimates.

Annex Table 8.5: Summary of Priority Investments in the Maritime Sector (US$ Million) No Project Title Description Medium Term Long Term TOTAL 2015-2020 2021-2030 1 Construction and Operation of Livestock and Fisheries The facility would be 600 meters long and 12 meters deep, to 100 400 500 Terminal near Sawakin port include water systems, a butchery unit, veterinary unit, refrigeration and access roads. 2 New Passenger Terminal at Sawakin Port Facility to hold up to 3,000 passengers 42 - 42 3 Iron ore terminal at Osief Port The project entails constructing a new berth to handle iron ore and 30 - 30 other metal exports. Facility is to be 320 meters long, 16/20 meters deep and capable of handling vessels of 70,000 to 100,000 DWT 4 Saloom Inland Container Depot (ICD) Deport to be located 8km from Port Sudan, covers an area of 200 200 400 12,000 square meters; capable of holding 75,000 TEUs. Project cost includes land preparation and purchase of handling equipment 5 Rehabilitation of Digna Port Works entail construction of two berths for container handling 30 - 30 6 Capacity Building Establishment of Marine Transportation Institute and staff training 3.5 3.5 7 Implementation of a single window system and other port corridor 4 4 8 transit facilitation instruments Technical Assistance to implement asset management system - 3 3 TOTAL 407.5 610.5 1,018.00 Source: Sea Ports Corporation and authors estimates

AFRICAN DEVELOPMENT BANK GROUP | 273 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

Annex Table 8.6: Passenger Traffic Forecasts at Major airports

Airport\Yr Capacity (Annual ) 2007 2011 2016 2021 2026 2031 Khartoum 1,987,143 1,825,549 2,342,137 3,652,713 6,067,227 9,177,800 12,959,030 Port Sudan 546,000 156,120 217,148 368,488 587,248 842,252 1,130,851 Nyala 122,893 110,968 145,621 233,805 403,516 685,149 1,103,439 El Fasher 18,214 95,158 119,709 173,342 266,755 407,847 573,108 El Geneina n.a 46,977 53,971 61,302 77,977 116,184 163,262 Dongola 323,714 9,645 11,724 14,963 19,096 24,372 31,106 Damazine 32,857 8,168 8,246 5,261 1,597 1,237 1,735 El Obeid 85,714 29,675 34,171 34,626 29,288 21,634 16,740 Kadugli n.a 58,143 58,950 38,103 12,254 9,049 11,549 Kassala 80,143 656 738 779 888 1,163 1,484 Total Source: Sudan National Transport Master Plan Study, 2010

Annex Table 8.7: Cargo Forecasts at Major Airports (Metric tons) Airport 2007 2011 2016 2021 2026 2031 Khartoum 79,400 79,047 100,291 143,322 190,281 256,023 Port Sudan 380 573 1,040 1,851 3,131 5,020 Nyala 5,770 5,287 4,546 3,969 4,359 5,151 El Fasher 6,079 5,401 4,256 3,198 3,365 3,761 El Geneina 1,528 1,687 1,704 1,854 2,171 2,601 Damazine 70 72 52 29 32 40 El Obeid 7,090 5,550 3,302 1,286 1,024 1,024 Kadugli 223 227 151 56 43 51 Kassala 64 73 88 109 133 156 Source: Sudan National Transport Master Plan (2010)

274 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 8.8: Expected Quantitative Measurements of the Sudan Air Company Objectives and Projections Year 2015 2016 2017 2018 2019 Items 20% 20% 20% 20% Available Seat Capacity 789.03 946.836 1.104.645 1.262.451 1.420.257 Available Cargo Capacity 31.68 38.016 44.352 50.688 57.024 Seat Factors Rate 78% 79.50% 81.10% 82.70% 84.40% Rate of Carried Cargo 45% 47% 49% 52% 54% Employee Productivity Rate 78% 79.50% 81.10% 82.70% 84.40% Rate Of daily Used Plane / Total Flights 4 4.2 4.4 4.6 4.8 Traffic Rights Available / Scheduled Flights 25% 28% 32% 35% 39% SD Market Share / Total Market 50% 51% 51% 51% 51% Departure Flight On Time 85% 87% 88% 88% 90% Available Energy/KlM 14.500.000 15.225.000 15.986.250 16.785.625 17.624.406 Total Employees Increased 10% 1.5 1.65 1.85 1.99 1.843 Total Flights Domestic 46% 1600 1920 2240 2560 2880 Intentional 54% 1900 2280 2660 3040 3420 Total 100% 3.5 4200 4900 5600 6300 Total Passengers Transport Domestic 27% 170000 204000 238000 272000 306000 Intentional 63% 448002 537602 627202 716802 806402 Total 100% 618002 741602 865202 988802 1112402 Total Cargo Transport/ Tons 13.132 15758 18384 21010 23636 Total Fleet Owned 8 10 10 12 12 Leaser 3 3 4 4 4 Total 11 13 14 16 16 Total Stations Domestic 6 8 10 10 12 Intentional 9 10 11 13 15 Total 15 18 21 23 27 Source: Sudan Air Company

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Annex Table 8.9: Investment Plan for Civil Aviation (US$) Item Immediate Term Short Term Medium Term Long Term Total 2010-2016 2017-2021 2021-2026 2026-2030 A Airport Infrastructure 1 Khartoum 41,465,525 23,304,500 32,004,000 102,422,960 199,196,985 2 Port Sudan 1,110,996 571,500 3,429,000 4,953,000 10,064,496 3 Nyala 10,288,258 2,475,000 3,960,000 7,366,735 24,089,993 4 El Fasher 3,292,859 1,782,000 1,980,000 3,762,000 10,816,859 5 El Geneina 5,485,498 643,500 396,000 2,218,496 8,743,495 6 El Obeid 0 0 0 0 0 7 Damazin 670,884 12,068,721 0 1,524,000 14,263,605 8 Dongola 2,363,558 0 0 1,524,000 3,887,558 Sub-Total 64,677,578 40,845,221 41,769,000 123,771,191 271,062,991 B Air Navigation System Country Wide 16,000,000 10,000,000 10,000,000 10,000,000 46,000,000 C Other Airport Developments New Khartoum Airport[1] New airports at Zalingei and Ed Daein[2] 61,966,000 24,760,000 8,760,000 95,486,000 D Capacity Building 1 Training Human Resources Plan 600,000 300,000 300,000 300,000 1,500,000 Training Institute 2,500,000 2,000,000 2,000,000 2,000,000 8,500,000 Overseas & Other Training 3,200,000 2,000,000 2,000,000 2,000,000 9,200,000 2 Updating Civil Aviation Master Plan 1,100,000 500,000 750,000 500,000 2,850,000 3 Institutional Strengthening Business Plan 600,000 - - - 600,000 Information Management 2,000,000 500,000 500,000 500,000 3,500,000 Technical Assistance 4,000,000 2,500,000 2,500,000 2,500,000 11,500,000 Sub-Total Capacity Bldg 14,000,000 7,800,000 8,050,000 7,800,000 37,650,000 GRAND TOTAL 94,677,578 120,641,221 84,579,000 150,331,191 450,198,991 Source: National Transport Master Plan and Sudan Civil Aviation Authority Note 1: The cost of this project was not ascertained in the NTMP. The initial estimate was US$1.2 billion, but this was under review at the time of NTMP preparation. An update is required. 2: Information obtained from CAA.

276 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 8.10: Energy Access Rates in Select Countries in Eastern & Sub-Saharan Africa Country Electrification rate (%) Population without electricity (millions) Select Eastern Africa Countries South Sudan 1 9.3 Uganda 9 28.1 DR Congo 11.1 58.7 Tanzania 13.9 37.7 Kenya 16.1 33.4 Ethiopia 17 68.7 Madagascar 19 15.9 Eritrea 32 3.4 Select Sub-Saharan Africa Countries Malawi 9 12.7 Burkina Faso 14.6 12.6 Lesotho 16 1.7 Zambia 18.8 10.5 Benin 24.8 6.7 Angola 26.2 13.7 Namibia 34 1.4 Sudan 35.9[1] 27.1 Gabon 36.7 0.9 Congo 37.1 2.3 Zimbabwe 41.5 7.3 Senegal 42 7.3 Botswana 45.4 1.1 Cote d'Ivoire 47.3 11.1 Cameroon 48.7 10 Nigeria 50.6 76.4 Ghana 60.5 9.4 Mauritius 99.4 0 Sub-Sahara Avg. 30.5 585.2 Source: WEO, 2011.

Annex Table 8.11: Present and Potential Generation Resources of EAPP/EAC Countries Country Existing Capacity Additional 2013-2030 (MW) Total Forecast Peak Demand Potential Surplus 2030 (MW) 2012 (MW) 2030 (MW) 2030 (MW) Burundi 49 422 470 385 86 Djibouti 123 187 310 198 112 East DRC 74 1,117 1,191 179 1,012 Egypt 25,879 46,570 72,449 69,909 2,540 Ethiopia 2,179 13,617 15,796 8,464 7,332 Kenya 2,051 6,288 8,339 7,795 544 Rwanda 103 411 514 484 30 Sudan[1] 3,951 11,310 15,261 11,054 4,207 Tanzania 1,205 4,881 6,086 3,770 2,316 Uganda 822 2,531 3,353 1,898 1,455 Total with Egypt 36,436 87,334 123,769 104,136 19,633 Total minus Egypt 10,557 40,764 51,320 34,227 17,093 Source: EAPP/EAC Regional Power System Master Plan Study Note 1. Disaggregated data for South Sudan and (north) Sudan are not available

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Annex Table 8.12: Power Transmission Projects Requiring Funding (2015-2031) No. Project Name Project Components Cost Estimate 2015-2020 2021-2031 (US$ Mln) (US$ Mln) (US$ Mln) 1 Khartoum ring reinforcement Projects Details to be provided by SETCO 214.7 114.7 100 2 Adila-Ed Daein-Nyala-El Fasher (480km) 220KV, 4 new substations and 1 extension sub-station 184 92 92 3 Blue Nile transmission projects Details to be provided by SETCO 286 143 143 4 Atbara-Kabashi (292km) 220KV Line, 2 new substations 170 85 85 5 West of Omdurman (300km) 220KV line, 4 new substations, 2 extension substations 145 100 45 6 Babanusa-Al Mujlad-Nama-Abyei-Heglig (215km) 220KV line, 1 extension substation and 4 new 163 83 80 substations 7 El Obeid-Barah-Sawdiri-Hamarat Al Sheikh; Barah- 220KV line, 4 substations and 1 extension 224 100 124 Umm Dam- Kamrat Al Wazz (470km) 8 Al Fula-En Nahud (110km) 220KV line, 1 substation, 1 extension 63 63 - 9 Gebaish-Um Kadada-El Fasher (110km) 220KV line, 1 new station, 1 extension 181.8 100 81.8 10 Nyala-Sheriya; Nyala-Eid Forsan-Rahad El Berdi-Um 220 KV transmission lines totaling 765km,with 8 383.6 133.6 250 Dafouk; Nyala-Graida-Buram-Hofrat El Nahas; Graida- substations Tulus-Entakayna-Um Dafouk 11 Mnagel-Marigan Transmission Line (65km) 220KV line with 1 new substation 39.4 39.4 - 12 Port Sudan-Sawakin Transmission (91km) 220KV line with 3 substations 96.84 96.84 - 13 Sawakin-Sinkat-Haya-Garora Transmission Line 220KV line with 4 substations 186.4 100 86.4 (360km) 14 Arkeyi- Port Sudan 2 Transmission Line (30km) 220KV line with 1 substation 32.2 32.2 - 15 Aroma-Durudeb-Haya Line (295km) 220KV ilne, 4 substations 120.8 120.8 - 16 Rosaries Transmission Lines: Rosaries-Kamkam- 220KV transmission lines, totaling 540km with 6 279.6 - 279.6 Kurmuk; Rosaries-Um Darfa; Kamkam-Bau; Kamkam- substations Geisan 17 El Fasher-Mellit-Kutum; Mellit-Al Malha; El Fasher- 110KV lines totaling 483km with 5 substations 340.9 - 340.9 Tawila-Kabkabiya 18 Geneina-Kolbus-Al Tina; 220KV line Geneina – Al Tina and 110KV line Zalingei- 125.4 - 125.4 Garsila + 3 substations Zalingei-Garsila 19 Mashkur-Managil Line (100km) 220 KV line with 1 new substation and 1 extension 61 61 - 20 Khartoum State (60km) 500KV line with 1 new substation and 2 extension 67 67 - 21 Arkeyi-Atbara (500km) 500KV line with 1 new substation and 1 extension 275 - 275 22 Khartoum-Rabak-Nyala (1,200km) 500KV line, with 2 new substations and 1 extension 635 - 635 TOTAL 4,274.64 1,531.54 2,743.10 Source: Sudan Electricity Transmission Company

278 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 8.13: Potential for Electricity Production from Solar Energy State Average radiation KWh/ Area Km2 Daily producible energy Maximum available energy Annual producible energy M²/day (GWh/day) GWh GWh

Northern 6.675 348,697 2,327,553 13,948 27,930,630 North Darfur 6.1 290,000 1,769,000 11,600 21,228,000 Red Sea 5.75 212,800 1,223,600 8,512 14,683,200 North Kordofan 5.8 185,302 1,074,752 7,412 12,897,019 River Nile 6.025 121,000 729,025 4,480 8,748,300 South Darfur[1] 4.79 127,300 609,767 5,092 7,317,204 West Darfur[2] 5.2 79,460 413,192 3,178 4,958,304 Gaderif 5.7 71,626 408,268 2,865 4,899,218 South Kordofan 5.04 79,470 400,529 3,179 4,806,346 Kassala 6.008 42,282 254,030 1,691 3,048,363 Sinnar 6.1 40,680 248,148 1,627 2,977,776 Blue Nile 5.5 26,708 146,894 1,068 1,762,728 Gezira 6.36 23,373 148,652 935 1,783,827 Khartoum 6.37 22,736 144,828 909 1,737,940 White Nile 5.78 16,000 92,480 640 1,109,760 Sudan 5.813 1,882,000 10,940,442 75,280 131,285,309 Source: Sudan Electricity Distribution Company. Note 1, includes East; 2. includes Central.

Annex Table 8.14: Planned Distribution of SHS Units by State STATE YEAR TOTAL 2013 2014 2015 2016 2nd FYP 3rd FYP 4th FYP Gedarif 500 1,450 5,850 7,200 7,500 9,000 12,000 43,500 Kassala 500 1,450 5,850 7,200 7,500 9,000 12,000 43,500 Red Sea 100 290 1,170 1,440 2,500 3,000 4,000 12,500 Gezira 25 73 293 360 250 300 400 1,701 Sinnar 50 145 585 720 4,500 5,400 7,200 18,600 Blue Nile 250 725 2,925 3,600 10,000 12,000 16,000 45,500 Northern 50 145 585 720 2,500 3,000 4,000 11,000 River Nile 350 1,015 4,095 5,040 10,000 12,000 16,000 48,500 Khartoum 25 72 292 360 250 300 400 1,699 White Nile 100 290 1,170 1,440 5,000 6,000 8,000 22,000 N. Kordofan 500 1,450 5,850 7,200 25,000 30,000 40,000 110,000 S. Kordofan 150 435 1,755 2,160 25,000 30,000 40,000 99,500 W. Kordofan 250 725 2,925 3,600 25,000 30,000 40,000 102,500 N. Darfur 350 1,015 4,095 5,040 25,000 30,000 40,000 105,500 S. Darfur 500 1,450 5,850 7,200 25,000 30,000 40,000 110,000 W. Darfur 500 1,450 5,850 7,200 25,000 30,000 40,000 110,000 E. Darfur 300 870 3,510 4,320 25,000 30,000 40,000 104,000 C. Darfur 500 1,450 5,850 7,200 25,000 30,000 40,000 110,000 TOTAL 5,000 14,500 58,500 72,000 250,000 300,000 400,000 1,100,000 Source: Sudan Electricity Distribution Company

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Annex Table 8.15: Planned Water Access Targets by State (2016) State Total Rural Urban Population Access Average Rural Urban Population Population (%) LCD LCD LCD Blue Nile 1,021,789 228,224 793,565 100% 43.2 35.5 70 Gaderif 1,655,734 1,155,509 500,225 100% 60.3 39 109.4 Northern 832,003 459,833 372,169 100% 67.4 50 89 Red Sea 1,714,344 912,152 802,192 100% 50.3 17.9 87.4 River Nile 1,365,149 933,978 431,170 100% 71.9 64 87 Sennar 1,558,882 1,268,625 290,257 100% 58.1 45 114 North Kordofan 3,643,133 2,987,122 656,011 100% 52.6 45.9 83.1 South Kordofan 2,925,890 2,469,061 456,829 100% 41.2 35.1 73.8 White Nile 2,125,068 1,241,155 883,913 100% 62.3 33.9 102.3 Gezira 4,255,173 3,442,320 812,853 100% 54.9 41 116 Kassala 2,197,783 1,455,950 741,834 100% 46.9 36.2 68 North Darfur 2,936,232 2,526,098 410,134 100% 38.8 30.9 87.2 South Darfur 5,026,709 3,820,051 1,206,658 100% 30.2 23.3 52 West Darfur 1,606,440 1,280,608 325,832 100% 24 20 40 TOTAL 32,864,329 24,180,686 8,683,642 100% 47.5 36.72 77.41 Source: State Water Corporation and WES Project 2010

Annex Table 8.16: Improved Sanitation Coverage Targets 2016 per State State Population Households HH with access Estimated access (%) Blue Nile 1,021,789 170,298 95,415 56% Gaderef 1,655,734 275,957 195,681 71% Northern 832,003 139,086 112,518 80.90% Red Sea 1,714,344 285,725 15,349 68% River Nile 1,365,149 227,525 186,586 82% Sennar 1,558,882 259,814 179,145 69% North Kordofan 3,643,133 607,189 280,016 46% South Kordofan 2,925,890 487,648 230,522 47% White Nile 2,125,068 346,959 198,785 57% Gezira 4,255,173 708,647 508,267 72% Kassala 2,197,783 366,299 297,291 81% North Darfur 2,936,232 489,372 213,348 44% South Darfur 5,026,709 837,786 447,333 53% West Darfur 1,606,440 267,741 147,532 55% TOTAL 32,864,329 5,470,046 3,107,788 57% Source: Ministry of Health, WES Project 2010

280 | AFRICAN DEVELOPMENT BANK GROUP Annex Table 8.17: 2012-2016 Water, Sanitation and Hygiene Sector Estimates per State (US Dollars) Table 3.24: 2012-2016 Water, Sanitation and Hygiene Sector Estimates per State (US Dollars)[1] State Rural Water Services Urban Water Services Sanitation & Hygiene Emergency Institutional TOTAL Preparedness & Development and Response Capacity Building Blue Nile 29,670,000.00 2,237,142.86 13,810,000.00 599,885.71 579,142.86 46,896,171.43 Gaderif 49,988,285.71 77,960,285.71 36,341,142.86 599,885.71 1,297,428.57 166,187,028.57 Northern 33,625,142.86 75,101,714.29 45,683,142.86 1,413,714.29 1,413,142.86 157,236,857.14 Red Sea 96,396,285.71 45,660,000.00 67,017,714.29 599,885.71 579,142.86 210,253,028.57 River Nile 136,706,857.14 71,672,285.71 161,373,714.29 1,668,920.57 992,285.71 372,414,063.43 Sennar 104,279,428.57 35,631,142.86 44,340,000.00 1,668,920.57 1,305,142.86 187,224,634.86 North Kordofan 295,622,571.43 32,992,285.71 67,422,285.71 599,885.71 579,142.86 397,216,171.43 South Kordofan 212,434,000.00 60,808,857.14 62,712,571.43 1,199,771.43 579,142.86 337,734,342.86 White Nile 117,770,285.71 77,360,857.14 47,306,857.14 599,885.71 579,142.86 243,617,028.57 Gezira 168,474,571.43 53,705,714.29 194,436,000.00 1,668,920.57 794,285.71 419,079,492.00 Kassala 53,105,142.86 24,799,142.86 63,778,000.00 599,885.71 579,142.86 142,861,314.29 North Darfur 195,924,571.43 6,408,285.71 29,858,571.43 16,415,028.57 1,297,428.57 249,903,885.71 South Darfur 203,827,685.71 48,218,000.00 97,647,857.14 26,115,771.43 2,018,571.43 377,827,885.71 West Darfur 47,920,285.71 20,295,142.86 44,822,571.43 16,252,457.14 1,297,428.57 130,587,885.71 TOTAL 1,745,745,114.29 632,850,857.14 976,550,428..27 70,002,816.00 13,890,571.43 3,439,039,787.43 Source: Computed from A3-8: Water, Sanitation and Hygiene National Strategic Plan (2012-2016) [1] Khartoum State not included in the Strategic Plan. Moreover, and Central Darfur had not been created at the time the Strategic Plan was prepared. It can, however, be assumed that South Darfur includes the new South Darfur and East Darfur States; and West Darfur includes the new West Darfur and Central Darfur States.

Annex Table 8.18: Mobile Cellular Telephone Subscriptions per 100 Inhabitants: Sudan & Comparators Country 2007 2008 2009 2010 2011 2012 2013

Ethiopia 1.5 2.37 4.78 7.87 15.8 22.37 27.25 Ghana 33.76 50.07 63.77 71.87 85.27 100.99 108.19 Kenya 30.06 42.05 48.62 61.03 66.81 71.17 70.59 Nigeria 27.45 41.66 47.96 54.66 57.96 66.8 73.29 Rwanda 6.4 12.94 23.07 32.75 39.9 49.67 56.8 Sudan 20.36 28.95 36.11 41.54 68.78 74.36 72.85 Tanzania 20.07 30.71 40.03 46.66 55.37 56.96 55.72 Uganda 13.65 26.92 28.55 37.74 47.5 45 44.09 Zambia 21.79 28.41 34.36 41.21 59.88 74.78 71.5 Zimbabwe 9..62 12.94 30.96 58.88 68.87 91.91 96.35 Ivory Coast 41.61 57.22 70.88 82.2 89.45 91.23 95.45 Source: International Telecommunications Union

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Annex Table 8.19: Fixed Broad-Band Subscriptions per 100 Inhabitants (Sudan and Comparators) Country 2007 2008 2009 2010 2011 2012 2013

Ethiopia 0 0 0 0 0.01 0.01 0.25 Ghana 0.07 0.1 0.12 0.21 0.25 0.26 0.27 Kenya 0.05 0.01 0.02 0.01 0.1 0.1 0.13 Nigeria 0.04 0.04 0.05 0.06 n.a 0.01 0.01 Rwanda 0.03 0.01 0.02 0.02 0.04 0.02 0.02 Sudan 0.11 0.11 N.A 0.03 0.05 0.07 0.12 Tanzania 0.01 0.01 0.01 0.01 0.06 0.08 0.11 Uganda 0.01 0.02 0.02 0.04 0.1 0.11 0.11 Zambia 0.03 0.05 0.08 0.08 0.12 0.11 0.07 Zimbabwe 0.12 0.14 0.23 0.25 0.25 0.52 0.73 Ivory Coast 0.06 0.05 0.05 n.a. n.a. 0.23 0.28 Source: International Telecommunications Union

Annex Table 8.20: Connections of Variance Units and Location by Telephone

Location Number Federal ministries 35 - fiber HQ of State 17 - fiber Locality 21 - fiber Schools 920 (3G modem with internet service) Hospital 50 - fiber Universities All Sudanese universities and their branches (fiber and other connectivity technology) State ministries 17 - fiber National Government units 49 – fiber Civil records (8 – fiber) ,(9 – WiMax) Judiciary 8 - fiber Source: National Information Centre

Annex Table 8.21: Funding of the Merowi Power Plant No Funding Source Amount in EURs Million 1 China Import/Export Bank €240 million 240 2 Arab Fund for Economic and Social Development €130 million 130 3 Saudi Fund for Development 130 4 Oman Fund for Development 130 5 Fund for Development 85 6 Kuwait Fund for Arab Economic Development 85 7 Government of Sudan 400 Source: Ministry of Water Resources and Electricity

282 | AFRICAN DEVELOPMENT BANK GROUP Annex 9: Basic Data for Services Sectors

9.1 Definitions of Main Islamic his best effort for investing the capital, and at the Financial Instruments same time to take all precautionary measures to protect the assets of the project under the Mud- Islamic financial instruments fall into three broad cate- haraba financing. gories: (i) Profit-and-loss-sharing instruments; (ii) debt • The investor (entrepreneur) is a trustee. He is, instruments; and (iii) quasi-debt instruments. therefore, under no obligation to guarantee any damage or loss incurred in the due process of in- I. Profit-and-Loss-Sharing Instruments vestment. In this case, the damage and loss are borne by the investor (entrepreneur). However, Musharaka (Partnership) the investor (entrepreneur) is bounded to pay any Under Musharaka the investment is necessarily be im- damages and bear losses if he transgresses the plemented between two or more parties, each of them limits as a trustee, through will-full acts, negligence contribute a share of the total capital. It works accord- and breach of contract. ing to the following conditions: • The distribution of the profit must be explicitly • The capital of Musharaka is generally paid in liquid agreed to and in such a way as to ensure its dis- money. However, payment in kind is also accept- tribution between the parties i.e. in percentage. able. In this case, the value of that property (not However, losses are borne by the owner of capital. the property of per se) is considered for determin- ing the percentage of his contribution to the capital Muzara’a and his obligations toward any liability. Muzara’a is a type of agricultural part- • A partner ought to enjoy full legal capacity to act nership. Traditionally, the landowner provides the land on his own and on behalf of others (partners) with and inputs, while the farmer provides labour. The yield respect to the different dealings of Musharaka. is distributable among the partners in accordance with • The means by which profits and losses are distrib- their predetermined contract. The increasing cost of in- uted among partners must be stated. puts and production often lead to changing the formu- • It is acceptable for a partner who contributes more la. Some new forms may be illustrated as follows: The effort than others and/or who enjoys more experi- contract of Muzara’a may be undertaken by: ence to take a percentage in profit in lieu of his ex- • The landowner, the expert farmer and the owner of tra labour and expertise, but losses are always in- irrigation scheme; curred in direct proportion to the respective shares • The landowner, who also undertakes to administer in capital. the farm and the bank that provides the inputs.

Mudharaba II. Debt Instruments Mudharaba is a special type of Musharaka. In a Mud- haraba contract, one partner contributes the capital Murabaha and the other partner provides labour and expertise. The steps to be followed for the formation of this sale Common conditions for this mode of Islamic finance contract may be summarised as follows: include: • The intending buyer asks the would-be seller • Capital of Al-Mudharaba must be identified, known creditor (Islamic bank) to buy a commodity, the in- to the parties, and delivered to the investor (entre- tending buyer promises to buy that commodity for preneur). It should, under no circumstances, be a mark-up price (margins) that is determined by the debt resting with the investor (entrepreneur). monetary authorities. • The duty of the investor (entrepreneur) is to exert • If the creditor (Islamic bank) agrees to enter into

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that transaction, he/she has to buy the demanded in the future. Therefore, the availability of the com- commodity from the original owner according to modity in the market is usually the main determin- the guidelines of the commodity under financing. ing factor for fixing a time in the contract. • Having that commodity, the creditor (Islamic bank) • To avoid uncertainty, the place of delivery has to be has to make a fresh offer, depending of course on stated in the contract. the previous negotiations and promise to the buyer. • The seller ought not to have stipulated that he • According to the preponderant Shariah point of would honour his obligation from a specific source, view and despite the previous promise, the buyer such as his farm or farms in specific area. There- has the right to accept or reject that offer, and in fore, if the seller is unable to secure the commodity case of acceptance, a valid contract of sale is con- due to its unavailability in the markets, the buyer cluded between the two parties. has two options: either to wait for its availability • If the offer is rejected, the ownership of the com- or to resign the contract and recover the paid up modity rests with creditor (Islamic bank). price.

Istisna’a Qard al-Hasan Istisna’a is a sale contract whereby the buyer asks the Qard al-Hasan is an interest-free loan contract that is seller to manufacture and sell a commodity as spec- usually collateralised. ified. Alternatively, the commodity might be specified without the seller necessarily manufacturing it, e.g. forming a contract with a factory for agricultural capital III. Quasi-Debt Instruments goods and other inputs to be delivered by specification within a definite period of time. The dominant point of Ijarah view among jurists is to the effect that the contract of Ijarah refers to a leasing contract in which some speci- Istisna’a is not obligatory on the two parties, i.e., any fied assets (e.g. tractor) are leased for use by a farmer/ one of them has the right to withdraw without a prior client according to an agreed price and for a specific notice. However, among leading Hanafi’s jurists, there period of time. The main features of this contract are as is an opinion that Istisna’a is as binding on its parties follows: (i) The owner of the asset (the bank) bears all as any other pecuniary contract. This view is the more the risks associated with ownership; (ii) the asset can acceptable one for dealings in Sudan. be sold at a negotiated market price, effectively result- ing in the sale of the Ijara contract; (iii) the contract can Salam be structured as a lease-purchase contract where each Salam is a special type of sale contract. It is valid for lease payment includes a portion of the agreed asset both agricultural and industrial products. It is exactly price; and (iv) the contract can be made for a term cov- the reverse of the deferred sale. In this contract, the ering the asset’s expected life. price has to be paid immediately, whereas, the deliv- ery of the commodity agreed on with specifications has to take place at a specific future period. The following terms must be satisfied for the validity of the contract 9.2 Key Policy Issues for the TVET of Salam: Programme • The price (known as capital of Al-Salam) must be identified and known. There are several key policy issues for the TVET Pro- • The price should be paid immediately after the gramme. First is a need to add vocational training to constitution of the contract. Nevertheless, a delay the academic curriculum. The high youth unemploy- for short period is condensable according to the ment rate has heightened interest in this question. Maliki School. On the positive side, many agree that: (1) Vocational • The sold commodity must be known by specifica- knowledge with broad application (such as comput- tions in order to provide the seller with wide room er knowledge) is useful; (2) vocationalisation may be to get the commodity from wherever it is available. considered in low-cost programmes that are not gen- • Its delivery should be postponed to a specific time der-specific, such as agriculture and business studies;

284 | AFRICAN DEVELOPMENT BANK GROUP and (3) teaching of so-called entrepreneurship may The third important policy question is the role of the be useful (i.e., knowledge and skills that will enable formal non-government sector. In this context, it is a graduate to plan, start, and run a business). But in important to note that in the formal sector, there are general, many find problems with the argument for vo- for-profit and non-profit organisations that are trainers. cationalising general education. First, studies find no In probably the majority of African countries, for-profit labour market advantage in terms of actual access to providers of training services are typically located in ur- work after students leave school or any strong effect on ban centres and focus on a narrow range of skills— for access to relevant further technical training. Second, example, IT, commerce, and sewing and tailoring. The vocationalisation is costly in facilities and equipment. non-profit training organisations serve a wider array of Third, enrolment in some of the courses is often strong- social objectives in reaching the disadvantaged, but ly gender biased. Fourth, it is hard to implement well, they tend to be less well connected with markets and requiring administratively complicated coordination of employers. Constraints on non-government trainers in- inputs. Fifth, time spent on vocational skills training can clude inadequate start-up capital and limited capacity distract from the teaching of basic academic skills. of their trainees to pay tuition. Another important ele- ment of training in the formal sector is enterprise-based The second issue is the role of government in TVET. training, which can indeed be very efficient and effec- Not surprisingly, deciding on the role of government tive and hence should be encouraged by policy mak- has become difficult and contentious in TVET policy- ers. Enterprise-based training tends to be demand-de- making. Possible roles of government, which seem termined, self-regulatory and self-financing.163 sensible for a country like Sudan, include: (1) Providing labour market information to trainers; (2) helping to re- The fourth of the five specific policy areas that have move skills bottlenecks to private sector development; become the focus of discussions of TVET in the African (3) increasing access to skills of the poor and economi- context is skills development for the informal economy. cally disadvantaged; (4) supporting association of train- For, as long as there is an informal sector, there will ers to set standards and enforcing them; (5) supporting always be some training. Traditional apprenticeship is, development of training markets, especially via efficient in a sense, the informal sector counterpart to enter- financial assistance; e.g., there may be a case for gov- prise-based training. But it is possible for substantial ernment subsidies for smaller enterprises, which may training for the informal sector to take place within the tend to underestimate the economic benefits of financ- formal sector—in formal training schools. That would ing training (perhaps because they do not directly reap remove the major disadvantage of the training within much of the benefits when they finance the training); the informal sector, namely, perpetuation of outdated (6) general oversight, especially with regards to stan- technologies and lack of standards and quality assur- dards and openness of access; and (7) ensuring an ance. appropriate legal framework (relating to licensing, right to self-regulate, and standards). Many have seen this as a strong case in favour of fi- nance initiatives to ensure that direct financing for train- On the whole, there seems to be a fair consensus that ing comes from the demand side (the trainees), even if government can be proactive in: subsidies are necessary. Trainers in the formal sector • Developing policies, setting standards, investing in could then respond and design training for the infor- training materials and instructors, improving public mal sector. Informal sector associations can also help information about the training system, and carrying in raising awareness among their members of skills re- out evaluations of training; quirements and shortages in the sector. Indeed, such • Financing training to meet equity objectives and to associations should be motivated to do so, by govern- fill strategic skill gaps; and ment and civil society, which may involve educating as- • Providing skills training in priority areas where sociation leaders in this area. non-government providers are reluctant to invest (but exercising caution to avoid crowding out of The fifth and indeed a truly major policy area in skills non-government providers). 163 The research evidence on the formal sector across the continent is (not surprisingly) that: (1) Larger enterprises train more than smaller enterprises and (2) export-oriented and foreign enterprises train more than the others.

AFRICAN DEVELOPMENT BANK GROUP | 285 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN development is its financing.164 This involves resource The weight of levies put on the labourers, the employ- mobilisation and allocation mechanisms. The typical ers, and the general taxpayer must also be understood discussion of the resource mobilisation subject stress- so that they are exactly what is desired by the govern- es six options, namely: ment and legitimated by the population. Trends identi- • Payroll levies on employers in conjunction with fied in allocation mechanisms for public funds include: grants for training (levy-grant system); • Use of autonomous training funds. Autonomous • Tuition and other fees paid by enterprises or train- training funds pool and manage resources orig- ees; inating from government budgets, training levies, • Production and sale of goods and services by self-generated incomes of the training funds, and training institutions; donors. Training funds must address major issues • Community support and donations; of governance, conflicts of interest (as provider, fi- • Government provision, that is, via direct budgetary nancier, and overseer of national training systems), assistance, and and sustainability (ability to ensure sustained and • Tax concessions via tax credits and inclusion of stable funding that is not sometimes diverted or training expenses in costs of doing business, is too dependent on unreliable sources). Employer where feasible. and worker representation in the governance ar- rangements has been found useful. Training funds Where the government is involved in implementing the in the competitive allocation of funds will some- programme of resource mobilisation and allocation, the times use training contracts, and will at other times authorities must have the general administrative capac- rely on competitive bidding. Training contracts ity to implement the programme (especially evaluation rely on contracts between the funding body and of proposals and monitoring of results); be able to en- the training institution. The contracts specify the sure compliance and to minimise diversion and misuse intended results. Competitive bidding for training of funds; and must have, solidly in place, certain basic funds can provide equal treatment for private and elements necessary for use of the system, e.g. enter- public institutions and avoid the shortcomings of prises with regular taxable income on which to base tax the contract approach. concessions. • Direct allocations based on norms and outputs. Direct allocations by governments to training in- In general, also, the financing method(s) must not be stitutions are made using four criteria. First, is in- allowed to compromise the quality of the training. This put-based financing, using norms or some formula is a particularly important consideration in the case of such as trainees enrolled or number of classes. production and sale of goods, where there is a risk of This method is considered to have serious weak- more emphasis being placed on production for income nesses. They include the lack of incentives for effi- than on instruction. In the case of payroll levies, pro- ciency or quality assurance, as well as for closing ceeds should be secure, most notably from raiding by the gap between training and employment needs. the government for other budgetary purposes. Thus, Second is output-based funding, which seeks to the proceeds should be kept in special accounts. reward performance and pay for achieved results. Output could include a number of courses com- In charging fees and in receiving benefits, political con- pleted, and/or pass rates on examinations. The straints and equity considerations also come into play. benefit of output-based funding is increased effi- For instance, issues of cross-subsidisation arise in the ciency or quality, but some experts say the method case of levy-grant arrangements. Sometimes, for equi- does not lead automatically to greater relevance ty reasons, very small companies are exempted from (the matching of training supplies with labour mar- national levy payments, since they often do not capture ket demands). The third direct allocation criterion any benefits, except perhaps when the levy proceeds is outcomes-based funding, which stresses the exclusively finance training centres run by the financing success of the training provider in meeting la- authority. bour market needs, such as job placement. Out- comes-based funding can be subject to distortions by the training provider, such as ‘creaming’ (avoid- 164 See, Johanson and Adams (2004).

286 | AFRICAN DEVELOPMENT BANK GROUP ing not very promising candidates for training and do not use it as a way to obtain cheap labour, if the thereby enhancing output). The fourth criterion of supply response is fairly elastic, and if genuine train- direct allocation is the use of a composite formula. ing and skills development for the worker occurs. Tax This is intended to alleviate the disadvantages of credits tend to benefit strong and profitable companies the above approaches. Thus, a formula could be with good training capacity. Levies (in the levy-grant used that takes into account inputs, outputs, job systems) are usually set as a percentage of payroll placements, and enrolment of special groups. (1-2 percent, for example), in the case of a uniform ap- • Indirect allocations through student vouchers. In- proach, but sometimes as a percent of sales or turn- direct allocations are often made through use of over in the case of a so-called sectoral approach. Levy- vouchers. Giving vouchers to trainees to buy the grant schemes tend to come in three main forms: cost services in an open market rather than giving cash reimbursement, which gives grants to companies for payments to the training institutions can help devel- costs of certain forms of training, typically implemented op the demand side of training markets. One major with some form of ceiling (e.g., up to a given percent- problem with a voucher scheme is that there must age of the levy paid); cost of redistribution, which is an be enough training providers to make the system attempt to address the disadvantages to training com- work competitively with real choices for users. panies of poaching by other companies and involves giving grants to companies that train far in excess of Fiscal incentives for enterprise-based training are also some norm; and levy exemption, which allows compa- sometimes used. These could include direct wage nies that adequately meet their training needs to with- subsidies, company tax credits, and levy-grant mech- draw from the levy-grant system or to reduce their levy anisms. Direct wage subsidies can work if employers assessments.

AFRICAN DEVELOPMENT BANK GROUP | 287 PRIVATE SECTOR-LED ECONOMIC DIVERSIFICATION AND DEVELOPMENT IN SUDAN

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