Country Profile 2005

Sudan

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Copyright © 2005 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 0269-705X

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. EGYPT RED SEA

LIBYA Halaib L. Nuba Wadi Halfa

Nubian Desert

Libyan Desert Abu Hamad Port Sudan . R Dongola e Suakin Nil Sinkat Karima Merowe Berber CHAD Atbara El Damer

. R A ile t N Shendi b a r a R Omdurman Khartoum North ERITREA KHARTOUM B SUDAN l Kassala u e N i le R Sodiri . Wad Medani Al Gezira El Fasher El Dueim Gedaref Geneina Sennar El Obeid Jebel Marra Kosti Singa EnEl Nahud Umm Ruwaba Gallabat

Nyala . Dilling R

l i El Damazin N

e ETHIOPIA t i

Babanusa h Kadugli W

Kurmuk

l R. aza Gh Malakal Bentiu

Aweil Gogrial Jonglei Canal Nasir W h

t CENTRAL Wau e N i le AFRICAN REPUBLIC R . Rumbek Main railway Bor Main road International boundary International airport Maridi Capital Yambio Juba Kapoeta Major town Yei

Other town DEMOCRATIC Nimule February 2005 REPUBLIC OF CONGO

0 km 100 200 300 400 UGANDA 0 miles 100 200 KENYA ' The Economist Intelligence Unit Limited 2005 Comparative economic indicators, 2004

Gross domestic product Gross domestic product per head US$ bn US$ ’000 Saudi Arabia Qatar Iran United Arab Emirates Israel Kuwait United Arab Emirates Israel Algeria Bahrain Egypt Saudi Arabia Morocco Oman Kuwait Lebanon Iraq Libya Tunisia Tunisia Libya Algeria Qatar Iran Oman Jordan Syria Morocco Sudan Iraq Lebanon Syria Yemen Egypt Jordan Yemen Bahrain Sudan 0 50 100 150 200 250 0 5 10 15 20 25 30 35 Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product Consumer prices % change, year on year % change, year on year Iraq 35.9 Iran Qatar Yemen Kuwait Egypt Sudan Iraq Iran Sudan Jordan Algeria United Arab Emirates Qatar Bahrain Tunisia Algeria United Arab Emirates Tunisia Jordan Saudi Arabia Libya Libya Bahrain Israel Syria Morocco Morocco Lebanon Lebanon Egypt Kuwait Syria Saudi Arabia Yemen Oman Oman Israel 0246810 -4 0 4 8 12 16 Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources.

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Contents

Sudan

3 Basic data

4 Politics 4 Political background 5 Recent political developments 15 Constitution, institutions and administration 16 Political forces 19 International relations and defence

25 Resources and infrastructure 25 Population 26 Education 27 Health 28 Natural resources and the environment 28 Transport, communications and the Internet 32 Energy provision

33 The economy 33 Economic structure 35 Economic policy 42 Economic performance 44 Regional trends

44 Economic sectors 44 Agriculture 48 Mining and semi-processing 52 Manufacturing 53 Construction 54 Financial services 55 Other services

55 The external sector 55 Tra d e i n go od s 57 Invisibles and the current account 58 Capital flows and foreign debt 60 Foreign reserves and the exchange rate

61 Regional overview 61 Membership of organisations

67 Appendices 67 Sources of information 68 Reference tables 68 Population (m) 68 Government finances 68 Money supply 69 Gross domestic product

69 Prices and earnings 69 Labour force 69 Area, output and yield of selected crops 70 Livestock numbers 70 Animal and dairy production 70 Cotton crops 70 Consolidated balance sheets of the deposit money banks 71 Foreign trade 71 Main exports fob 71 Main imports cif 72 Main trading partners 72 Main composition of trade 73 Balance of payments, IMF series 74 External debt, World Bank series 74 Foreign reserves 74 Exchange rates

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Sudan

Basic data

Land area 2,506,000 sq km

Population 33.61m (2003, IMF estimate)

Main towns Population in ’000, 1993 census Khartoum (capital) 925 El Obeid 228 Port Sudan 305 Wad Medani 219 Kassala 234 Gedaref 189 Omdurman 229 Juba 115

Climate Northern Sudan: hot and dry September-May, rainy season April/May to September/October depending on latitude (average annual rainfall 100 mm). Southern Sudan: long rains April-October (average annual rainfall 1,000 mm)

Weather in Khartoum Hottest month, May, 26-42°C; coldest month, January, 16-32°C; driest months, (altitude 390 metres) January-April, usually no rainfall; wettest month, August, 72 mm average rainfall (average annual rainfall 200 mm)

Languages The official language is Arabic, which is spoken by about 60% of the population; English is also widely spoken in the south. There are an estimated 115 tribal languages, of which over 27 or more are each spoken by more than 100,000 people

Measures Metric system. Some local measures are also used: 1 diraa=58 cm; 1 feddan=0.39 ha; 12 keilas=1 arde=1.98 hl; 100 rotl=1 canter (cotton, small)=44.93 kg; 315 rotl=1 canter (cotton, large)=141.5 kg

Currency The Sudanese dinar officially replaced the Sudanese pound in 1999. The value of the dinar was set at SD1=S£10. The average official exchange rate in 2004 was SD257.8:US$1

Time 2 hours ahead of GMT

Public holidays In addition to Islamic holidays, the following public holidays are observed in government-controlled areas: January 1st, Independence Day; June 30th, Revolution Day.

Politics

Lieutenant-General Omar Hassan Ahmed al-Beshir has been president of Sudan since he gained power in a coup d’état in June 1989. Although head of state, for much of this period he was the junior partner to Hassan al-Turabi, the founding father of the ruling National Congress (NC!known as the National Islamic Front until January 1999) and former speaker of the National Assembly (parliament). With the support of the military, Mr Beshir mounted a de facto palace coup in late 1999, imposing a state of emergency and sidelining Mr Turabi. Mr Beshir was re-elected to serve a second (and theoretically final) five-year term as president in December 2000. Since mid-2002 peace talks with the southern rebel group, the Sudan People"s Liberation Army (SPLA), have dominated the political agenda, and an agreement was finally concluded in January 2005. It remains overshadowed, however, by continuing unrest and violence in the western province of Darfur.

Political background

Mahdism and British control The present-day borders of Sudan have their origins in the land administered in the early 19th century by Egyptian rulers and the subsequent Mahdist state. From 1819 Egypt ruled Sudan with the help of a small number of British administrators. An uprising, led by the Mahdi (the head of the Ansar, an Islamic sect), succeeded in freeing Sudan from foreign control in 1885. However, the British regained control in 1899, ostensibly in partnership with Egypt.

Independence and the Following considerable nationalist protest in Sudan, the UK effectively relin- problem of integration quished control of the country in 1954, although formal independence was delayed until 1956, by which time the northern Arab urban elite were firmly entrenched in power. The first episode in what became an intractable civil war in southern Sudan occurred with a mutiny by southern forces in 1955, following months of unrest and dissatisfaction at growing northern dom- ination. In the late 1950s and 1960s periods of weak democracy alternated with military rule; neither addressed southern demands for political expression and economic development. Consequently, fighting in the south continued throughout the 1960s, as political and economic power remained in the hands of a small, northern-dominated elite.

The Nimeiri era The first meaningful interlude in the civil war occurred following a military coup in May 1969 that brought Colonel Jaafar al-Nimeiri to power. The colonel’s government reached a formal peace agreement with southern rebels in March 1972. The accord (known as the Addis agreement) gave the south some autonomy, while incorporating the southern political elite into national politics. An attempted coup in 1976 by Sadiq al-Mahdi, a leading northern opposition figure and leader of the Umma Party, encouraged Mr Nimeiri to attempt to politically accommodate northern opposition figures by taking a tougher approach to southern demands. Many Ansar and Muslim Brotherhood exiles returned to Khartoum. Among them was the Brotherhood’s leader in Sudan, and Mr Mahdi’s brother-in-law, Hassan al-Turabi. In 1983 the Addis agreement

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broke down when the Khartoum government split the south into three administrative provinces, apparently in a bid to reduce the south’s political influence. Southern concerns were compounded by fears that the development of southern oil resources and construction of the Jonglei Canal would lead to northern economic exploitation of the south. As a result, civil war broke out again, with the SPLA, under the leadership of Colonel John Garang, playing a major role.

Unstable democracy The civil war was only one of Mr Nimeiri’s problems. In the early 1980s the economy suffered several consecutive years of severe contraction, leading to a marked fall in already low living standards. Mr Nimeiri’s political base eroded as the economy flagged, and his rule became increasingly erratic. He eventually sought the support of Mr Turabi’s Muslim Brotherhood, and brought him into government as attorney-general. In late 1983 Islamic law (sharia) and taxation (zakat) were introduced, to the dismay of non-Muslims. The disintegration of the economy in the early 1980s was exacerbated by severe drought during the 1984/85 season, which caused a serious crop failure in the west of the country. Subsidies on vital commodities such as petrol and food were lifted in 1985, sparking off a mass uprising against the government in and around Khartoum. The military stepped in and removed Mr Nimeiri, governing the country until a general election later that year. This brought to power Mr Mahdi, who had been prime minister briefly in the 1960s.

Recent political developments

The NIF in power Coalition governments headed by Mr Mahdi were unsuccessful in addressing the country’s political and economic problems, and negotiations with the south, where the civil war continued, proceeded slowly. On June 30th 1989 army officers led by Brigadier-General (now Lieutenant-General) Beshir overthrew Mr Mahdi, in what was proclaimed to be the “National Salvation Revolution”. In July 1989 Mr Beshir formed a new cabinet, dominated by members of the National Islamic Front (NIF), who had been instrumental in planning the coup. The NIF government purged the army of possible opponents shortly afterwards, while also developing its own parallel security forces and institutions to mitigate the political threat posed by the military. While the coup itself was unexpected, the regime’s success in holding on to power has been a source of even greater surprise to most outside observers. For much of its period in power, there have been an array of regional and international actors lined up against the Islamist regime. These include the US, following Sudan’s support for Iraq in the 1990-91 Gulf war, and neighbouring Egypt, owing to alleged Sudanese involvement in the attempted assassination of its president, Hosni Mubarak. African states!notably Uganda, Eritrea and Ethiopia!also strongly opposed the Arab, Islamist government in Khartoum, and actively supported the armed opposition against it. Despite efforts by these powers to promote instability!and notwithstanding the periodic escalation of the civil war, economic dislocation and civil unrest!the regime has maintained its control with relative ease.

President consolidates position The most serious threat to NIF rule has arguably been factional rivalry between after ousting Mr Turabi its two main figures, Mr Turabi and Mr Beshir, and the party and military support they respectively commanded. For most of the past ten years the two branches of the regime managed a somewhat uncomfortable power-sharing arrangement, with Mr Beshir as president and Mr Turabi as head of the ruling party and speaker of parliament. The contradictions of the dual leadership system came to crisis point in 1999, however, as Mr Turabi sought to force through constitutional amendments that would have strengthened his authority and that of his supporters at the expense of the president and his camp. Unwilling to accept this, Mr Beshir seized the initiative, declaring a state of emergency in late 1999, claiming full executive power and suspending parliament. The move apparently took Mr Turabi by surprise, and he offered little response. Buoyed by his success, Mr Beshir stepped up his campaign, purging his rival’s most senior supporters from influential posts and, in June 2000, sacking Mr Turabi as head of the ruling party and expelling him from it. Mr Turabi was allowed to form his own party, the Popular National Congress (PNC), but the group enjoyed little influence and boycotted the December 2000 parliamentary and presidential elections. In a bid to rebuild a political base, Mr Turabi shocked observers in March 2001 by announcing that he had signed an agreement with the SPLA to campaign against Mr Beshir’s government. However, the alliance did little to increase his influence, and it led to his arrest and imprisonment on sedition charges. He was released in late 2003 and, despite continued outspoken criticism of the government, the authorities appeared initially prepared to tolerate his presence on the political scene. However, in March 2004 Mr Turabi was rearrested, along with a number of army officers, on suspicion of conspiring to stage a coup. His party, the PNC, was closed down and a number of its senior officials also detained. His incarceration could possibly turn into a long stretch for, in September, the government claimed to have unearthed another coup plot, which they alleged was instigated by the jailed cleric. Many more of his supporters were rounded up. While for some time now Mr Turabi may have been a very weak political force, it is evident that the government still considers him something of a threat and would prefer to keep him under lock and key for the time being. Despite the occasional threat to his regime, Mr Beshir has continued to consolidate his grip on power. After winning a second five-year term in the December 2000 elections, he filled parliament with his supporters and has also carried out several reshuffles to his cabinet, which have tightened his grip on key ministries and his control of the regional governments. The improvement in Sudan’s ties with its neighbours and the West!spurred in part by the fall from power of Mr Turabi, as well as Sudan’s post-September 11th 2001 co-operation with the US!has also strengthened the president’s hand. While the recent Darfur crisis!for which many foreign governments blame Mr Beshir’s regime! has not helped Sudan’s international relations, his position remains solid.

The civil war A brief hiatus in the civil war followed the 1989 coup, but later in that year the new government intensified its operations against the rebels. The overthrow in May 1991 of the Ethiopian president, Mengistu Haile Mariam, a strong supporter of the southern rebels, provided the Khartoum government with a

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distinct military advantage, and by late 1993 many of the major towns in the south had been recaptured from the rebels. However, alleged Sudanese interference in their internal affairs alienated both Eritrea and Ethiopia, which began to offer support to the rebels, at the same time that the northern Muslim Sudanese opposition also started to take up arms. In addition, Uganda resumed its support of the SPLA in the mid-1990s. In late 1996 the SPLA launched its first major offensive since 1991 and by 1997 it had gained control of much of the south, although the strategically and politically important regional capital, Juba, remained in government hands. It subsequently mounted offensives elsewhere using bases in Eritrea to attack targets in eastern Sudan, including the main Khartoum-Port Sudan highway, the oil export pipeline, and even the city of Kassala. Throughout most of 2001 and the first half of 2002, however, the focus of its campaign was central southern Sudan, notably Bahr al-Ghazal province, and Unity province (known by the opposition by its pre-coup name of Western Upper Nile), the region having become of prime strategic importance as the site of Sudan’s growing oil industry. Although the oil zones were well defended, one oil firm was forced to withdraw from an outlying concession as a result of rebel activity in early 2002, and a small SPLA raiding party successfully breached security at the main fields in late 2001. However, the government was, on the whole, able to maintain the security of the key oilfields, and production and supply were never severely disrupted. However, despite oil wealth providing the government with the means to buy new weaponry, the vast theatre of war weakened the government’s military might, ensuring that a decisive breakthrough on the battlefield always remained remote. Important recent events

August 1998 The US attacks a suspected chemical weapons factory close to Khartoum, in response to alleged Sudanese support for international terrorism; the government claims that the installation is a privately-owned pharmaceuticals factory, which was later widely acknowledged to be the case. August 1999 Completion of a 1,610-km oil pipeline linking southern oilfields to the export terminal near Port Sudan. Oil exports begin. December 1999 The president, Omar Hassan Ahmed al-Beshir, imposes a state of emergency. He suspends parliament and begins a purge of the supporters of his rival, Hassan al- Turabi. The state of emergency is extended for a further year in December 2001 and again in December 2002. June 2000 Mr Turabi is expelled from the ruling National Congress (NC). He forms his own party, the Popular National Congress, but is placed under arrest in February 2001 on sedition charges after signing a co-operation agreement with the southern rebel force, the Sudan People"s Liberation Army (SPLA).

December 2000 Mr Beshir wins 86% of the votes cast to be elected president for a further five-year term. The NC wins the overwhelming majority of seats in the National Assembly. Opposition boycotts the polls and there are widespread claims of vote rigging. January 2002 US brokers partial ceasefire agreement between the government and the rebel SPLA covering the Nuba Mountain region of Southern Kordofan. July 2002 With the support of the US and European intermediaries, the Inter-Governmental Authority on Development (IGAD)-sponsored peace talks lead the government and the SPLA to sign the Machakos Protocol, which stipulates that a referendum on southern self-determination be held in 2008. October 2002 Government and rebels agree to a ceasefire in the south, allowing the second round of peace talks to resume after being suspended following the rebel capture of the strategic town of Torit in September. A Memorandum of Understanding (MoU) is signed marking a degree of progress. October 2002 Having been the focus of an international divestment campaign for several years, a Canadian firm, Talisman, the only publicly listed Western oil company working in Sudan, announces that it has agreed to sell its stake in the consortium developing Sudan’s oil resources. October 2002 US signs the Sudan Peace Act into effect, threatening new sanctions against Sudan if the government does not pursue peace talks “in good faith”. January/February 2003 The third round of IGAD talks takes place, with promising signs of progress resulting in “complete agreement” on some issues, notably the constitutional review process. A second MoU is signed. March 2003 War in Iraq overshadows events in Sudan and a fourth round of talks fails to make any headway. August 2003 After no further progress in talks in June, the negotiations almost break down completely when the government rejects a comprehensive IGAD settlement known as the Nakuru proposal. October 2003 The government"s chief negotiator resigns and the vice-president assumes control of the talks, leading direct negotiations with the SPLA leader, John Garang. The US secretary of state, Colin Powell, visits Naivasha to encourage both parties to move towards a resolution. The Naivasha agreement on security arrangements is signed.

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January 2004 Settlement on resource-sharing reached, giving a considerable degree of financial autonomy to the south. Negotiators believe a final deal can be signed by end-March, which comes and goes without an agreement. The situation in Darfur, which was prone to sporadic outbreaks of violence, deteriorates. May 2004 Three more protocols, devoted to the administrative details of sharing resources and power, are signed in Naivasha, bringing a comprehensive peace deal within sight. Two agreements covering three disputed territories!Blue Nile, the Nuba Mountains, and Abyei!are also signed, according them special status. The crisis in Darfur deepens, with the breakdown of a ceasefire agreement, signed in April in Chad. The scale of the humanitarian crisis becomes more apparent. A report to the UN Security Council only elicits a lukewarm response, with members undertaking to “monitor the situation closely”. July 2004 The UN secretary-general, Kofi Annan, visits Darfur and issues joint communiqué with government to disarm the militias and establish security in the region. The UN Security Council passes Resolution 1556, which again calls on the government to disarm militias in Darfur and allow the free flow of humanitarian aid. The resolution also requires the secretary-general to report back to the Security Council within 30 days on the level of progress achieved. September 2004 US accuses Sudan of genocide and calls for sanctions on the country. November 2004 The UN Security Council convenes a special session on Darfur in Nairobi, Kenya. The subsequent resolution goes little further than demanding compliance to previous resolutions and stops short of sanctions. A second ceasefire agreement between the government and Darfuri rebels is agreed at talks sponsored by the African Union in Abuja, Nigeria. Talks to finalise the north-south peace deal resume in Kenya. January 2005 North-south peace deal is finally concluded. A further reconciliation agreement is signed between the government and the northern opposition alliance, the National Democratic Alliance (NDA). The Darfur crisis rumbles on with no end in sight. Peace talks and ceasefires The SPLA and the government have conducted direct negotiations since 1997 under the auspices of the Inter-Governmental Authority on Development (IGAD), a regional association of seven African states (Djibouti, Eritrea, Ethiopia, Sudan, Somalia, Uganda and Kenya) established to achieve regional co- operation and economic integration. In 1998 the talks produced an agreement in principle to resolve the conflict in the south through a referendum on self- determination. However, the process lost momentum as the two sides proved unable to agree on a range of key issues, and although talks continued, the government and rebels appeared to be doing little more than going through the motions of attending meetings in a bid to score propaganda points against each other.

While the IGAD process stalled, other avenues for talks between the government and the various rebel groups emerged, and appeared to make greater progress. Secret direct talks between the government and the Umma Party, led by Mr Mahdi, saw an agreement between the two, under which Umma left the exiled opposition umbrella organisation, the National Democratic Alliance (NDA), and Mr Mahdi and many of its most senior members returned to Khartoum in late 2000. Negotiations to draw Mr Mahdi into the ruling political structure proved unsuccessful, however, with the former prime minister joining the boycott of the end-2000 elections and rejecting ministerial posts offered to himself and the party. Some members of Mr Mahdi’s party did split away from Umma, and entered the government!in relatively minor roles! in 2002. Egypt and Libya also launched a peace initiative in 1999, winning initial support from the government and opposition for a national reconciliation conference drawing together the government and all rebel groups!in contrast to IGAD, which includes only the SPLA. However, Egypt’s insistence that the peace talks take place on the basis of a unified Sudan (Egypt has long opposed secession, fearing it could disrupt Nile River water flows) was resisted by the SPLA and the initiative lost speed.

US revives moribund peace The moribund peace process received a major boost, however, when the US process stepped up its efforts to bring the war to a close. The US president, George W Bush, appointed a special envoy, John Danforth, in 2001, who held extensive talks in Sudan and around the region over the latter part of the year. The discussions resulted in an agreement in 2002 for a partial ceasefire covering the Nuba Mountain region of Southern Kordofan, together with undertakings by the government to end aerial bombing attacks on civilian areas, and to allow an investigation into allegations that it promoted slavery. In another major step forward, the government also agreed to all aspects of the deal being monitored by international observers. When the agreement was adhered to over the first months of 2002, the US, supported by the UK, Norway and other European states, sought to build momentum, and after months of discussions and lobbying, a five-week IGAD meeting was convened in mid-June. Under pressure from European and US representatives, a Memorandum of Understanding (MoU) was signed by the two sides to hold a referendum on self-determination in the south in six years. Until the referendum takes place, it was also agreed that Islamic law would not be applied there. The deal!known as the Machakos Protocol, after the town in Kenya where it was signed!was hailed as a breakthrough by the SPLA and the government, and those regional and international parties involved in the peace process. The protocol has served as a broad, guiding set of principles upon which the subsequent, and more detailed, negotiations were based; and in providing a sound framework, the Machakos agreement injected a new spirit of optimism into the peace talks, which maintained the much-needed!albeit occasionally faltering!momentum. The main outstanding issues that were left deliberately vague at Machakos included the sharing of political power and economic resources (notably oil) between the north and the south. Machakos committed the two sides only to an “equitable” distribution of wealth and power between the north and

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south!a sleight of hand that was necessary to have an agreement signed, but which left thorny details to be thrashed out later. Other difficult issues included security arrangements, particularly the deployment of government troops in the south during the interim period!rejected by the rebels but insisted upon by the regime. The application of sharia law was left to be tackled subsequently, as was the status of the "three areas" (Abyei, Nuba Mountains and the Upper Blue Nile) that lie in the disputed border area between north and south. The government and rebels met for a second round of talks between August and November 2002, but the negotiating teams failed to build upon the level of success attained in the previous round. Nevertheless, the rebels agreed to a ceasefire in much of the south!a government precondition for talks to be resumed following the SPLA’s capture of Torit in September (which led the regime to suspend negotiations for over a month)!and its subsequent extension until the end of March 2003. A third round of negotiations took place in Kenya in January and February 2003. Like the second round, they got off to a stuttering start, interrupted by intermittent hostilities between the warring factions in southern Sudan. Without the brokerage of the US, the talks could very well have broken down, but an agreement was secured to maintain the ceasefire and the negotiations eventually reached a successful conclusion. Indeed, an MoU signed by both sides stated that “complete agreement” had been reached on some issues, including: the constitutional review process; the establishment of independent and national institutions; and the holding of a national referendum before elections are held in six years time. There had also been “significant, but not comprehensive” agreement on the structure of the legislature, executive and judiciary, the government of national unity, and on governmental institutions at subnational level.

Talk s stall Two subsequent rounds of talks, held in March and again in June, failed to make any headway, in part as a result of hostilities in Iraq. In particular, the intense diplomacy and extensive military preparations in the run-up to the outbreak of war in Iraq in late March absorbed the energies of the US and UK governments and continued to dominate their foreign policy agendas over the following months. This pushed the Sudanese peace process into the background, reducing pressure on the two sides to make further progress. The slowdown in the talks was also a reflection of the wide gulf that remained between the two sides, a gulf that Machakos had failed to bridge. In August the talks reached crisis point, with press reports stating that negotiations had been “suspended indefinitely”. The impasse centred on a proposal tabled by IGAD mediators during negotiations in Nakuru, Kenya, which was an attempt to fast-track the talks to a final agreement for fear of the process stagnating. The Nakuru proposal was, in essence, based on the IGAD’s assessment of the thrust of the talks over the preceding 12 months, and was an attempt to highlight the areas where it believed the two parties would be able to compromise. Nakuru appeared to be close to a middle ground between the two sides’ positions on issues such as political representation in the civil service and parliament. However, on the more contentious issues, such as the degree

of political and economic autonomy offered to the southerners and security arrangements, Nakuru appeared to favour the south.

Preliminary settlement agreed Whereas the SPLA said they were "happy with the draft", the government rejected it out of hand. It appeared that the talks had run into a brick wall. Both sides, however, agreed to reconvene at the negotiating table in September and, contrary to all expectations, signed an agreement on security arrangements for the post-war period. The reinvigorated talks were partly a result of the direct negotiations between the vice-president of the north, Ali Uthman Mohammed Taha, and the leader of the SPLA, John Garang. Previously, the talks had been conducted by less senior officials, who were reluctant to make any concessions without referring back to their respective leaderships. However, the talks were also given a fillip by the presence of the US secretary of state, Colin Powell, who impressed upon both parties the commitment of the US to a final resolution. Under the security agreement!known as the Naivasha Accord!the government pledged to withdraw to northern Sudan the 100,000 troops that are deployed in the south. The SPLA will also pull its forces back into southern territory, completing the first full disengagement of troops since the early 1980s. The government will be allowed two and a half years to redeploy its forces, whereas the SPLA is required to withdraw its troops from eastern Sudan within one year. This stipulation reflects the different levels of men and materiel that the respective forces have moved into the various fields of combat. Although remaining separate during the six-year interim period, the two forces!the government troops and the SPLA!will be treated equally as “Sudan’s National Armed Forces”, becoming a single national force should a referendum decide upon unity. A third unit will also be established, constituted by joint rebel and government forces, and will provide the nucleus of the future national army. This third, integrated force, initially around 40,000 strong, will be deployed in territory disputed by the two sides, as well as in parts of the south and around Khartoum. It will steadily increase in size as the government and SPLA progressively reduce their own forces. In the meantime, a new joint defence board, comprised of government and rebel chiefs of staff and other officials from the two sides, will encourage co-ordination between the two separate forces and will actively command the third, integrated force. The joint defence board will operate under the presidency, will act on consensus and will have a rotating chairmanship. An international force will monitor the separation of the forces and oversee the maintenance of the comprehensive ceasefire between them.

Final accord signed This time, the two parties managed to maintain the momentum injected into the talks at Naivasha. They met again in December, and in early January 2004 produced another agreement, this time on resource-sharing. Differences in this area looked difficult to narrow, with much of the discussions centring on the division of oil revenue. Before the round of talks, the government was insisting that it retained 90% of all oil income, arguing that the mineral was a "national resource". In the end, they agreed to a 50-50 split, after 2% of the revenue is allocated to the oil-producing regions themselves. Structures for a single

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currency were approved, and banking arrangements that allowed for Islamic banking in the north and more conventional banking methods in the south were settled. Talks resumed in mid-March and by May a comprehensive deal had been finalised with the signing of three further protocols. Under these, Sudan will be ruled by a central government, with separate legislative, executive and judicial branches. The "national unity" government will be headed by the current president, Mr Beshir, with the leader of the SPLA, Mr Garang, as vice-president. There will be a bicameral legislature; 52% of the seats in the lower house!the National Assembly!will be given to the NC party, 28% to the SPLA and the remaining 20% will be divided among Sudan"s other political factions from the north and south. Within the executive, seats in the national government, as well as senior positions in the national civil service, are to be allocated on a ratio similar to that in the National Assembly. The agreement wrests further power from the northern elite by requiring the presidency to make "collegial" decisions, with the northern president explicitly required to receive approval from the southern vice-president over issues such as the appointment of senior judges, the suspension of parliament or declarations of war. As part of the political structure, Khartoum remains the national capital for the interim period, but under a special administration that will distinguish it from the rest of the territory of the north. In particular, the accord confirms that southerners in the capital area will not be subject to Islamic law, which applies across the rest of the north!a key SPLA demand. In addition to the central government, Sudan"s provinces will each have their own legislature and executive, emulating, to a degree, federal structures that exist in countries such as the US and Germany. The representation of the various political groupings will be strictly regulated, however, with the NC holding 70% of the seats and posts in northern provincial governments and 10% of those in the south, with the remainder being divided among the other parties. The SPLA will have 10% of the posts in the north and 70% in the south. In addition, the power-sharing agreement also provides for a government of southern Sudan, of which Mr Garang will be president. It will have its own legislature in which the SPLA will have 70% of the seats (against 15% for the NC and 15% for the other southern parties). All of these posts will be appointed in the first instance, but elections are to be held after a maximum of three years (to allow for a census to be conducted). The protocols covering the disputed areas!Blue Nile, the Nuba Mountains, and Abyei!were the most difficult to thrash out and was one of the issues that held the talks up, and threatened to derail them, throughout the long negotiation process. Each of these areas are geographically part of the north, but have historical, tribal and ethnic links to the south, and are home to significant numbers of SPLA supporters. The government had repeatedly refused all demands that the areas be treated differently!partly because of the substantial oil resources believed to be in Abyei, and also because of the recognition that a dangerous precedent could be set for other areas that might wish to be exempt

from northern rule. In the end, however, the government compromised, signing a protocol that gives the disputed areas special status. The protocol covering Blue Nile and Nuba leaves the provinces within the north, but affords them additional autonomy and a political structure that divides posts on a 55:45 ratio between the government and the SPLA, rather than a 70:30 split. It also establishes a rotating governorship for the provinces, which will pass between the parties after 18 months. Different arrangements were agreed in the third protocol for Abyei, where residents will be part of both Western Kordofan (in the north) and Bahr al-Ghazal (in the south) for the interim period, and the area will be administered directly by the presidency. At the end of the period, the people of Abyei will vote to choose which province they wish to be a part of! a referendum that will be held simultaneously with, but separately from, the self-determination vote in the south.

The Darfur crisis The Darfur conflict began in early 2003, when a group calling itself the Sudan Liberation Army (SLA) began guerrilla attacks on government positions in Darfur. The SLA, which is drawn primarily from the black African Zaghawa, Masaalit and Fur tribes of the region, said that it was responding to attacks by nomadic Arab tribes, known as janjaweed, on African villages that the government had failed to protect. Traditional rivalry between Arab and black African tribes has been exacerbated in recent years by disputes over pastoral land, which has been gradually squeezed over the years by creeping desertification. More broadly, the SLA said that it had taken up arms to demand that the large and very poor Darfur region be given a fair share of the state’s resources, and to seek an end to the region"s political marginalisation. After several months of low-intensity conflict between the SLA, the Justice and Equality Movement (JEM, a second Darfur-based rebel group) and government-backed forces, fighting escalated in the latter months of 2003. As well as an increase in reported clashes between rebel and government forces, there was also a sharp rise in janjaweed attacks on civilians across Darfur!which reports by development organisations from the region suggested was the result of a government decision to arm the janjaweed and use them as a proxy to crush the Darfur uprising. The janjaweed attacks spread terror across the region and caused a large number of deaths. As a result, many have fled their villages, precipitating a massive humanitarian crisis that the UN labelled the world’s worst. Typical reports pointed to janjaweed fighters entering villages on horseback and in four-wheel-drive vehicles, stealing property, destroying crops, burning homes and killing the men. There were also widespread!and consistent!reports of the systematic rape (and sometimes abduction) of women captured in the villages that had come under attack. The janjaweed campaign!with reports that it was still ongoing in January 2005 (although on a more limited scale)!has been far- reaching, with some estimates suggesting that as many as 25% of all villages in Darfur have come under attack, and reports showing widespread destruction across the region, but particularly in central and western areas. As well as leaving an estimated 30,000-50,000 people dead, the campaign has led to large-scale displacement, with at least 1.2m people (some estimates put the figure as high as 2m) fleeing their homes and moving to camps in Darfur or neighbouring Chad to escape janjaweed attack. This has in turn triggered a

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US$600m emergency aid operation that has proved unable to prevent death rates estimated in September 2004 at 10,000 people a month in the camps for refugees and internally displaced persons.

Constitution, institutions and administration

Reform has not weakened Since the 1989 coup the regime has introduced a series of reforms ostensibly NC’s hold on power designed to broaden popular participation in political decision-making. In the immediate aftermath of the coup, the Revolutionary Command Council of National Salvation was given full legislative and executive powers, and Mr Beshir, its chairman, was named head of state. The constitution has since been changed, and the president is now elected by universal suffrage every five years. In December 2000 Mr Beshir won the presidential election by a large majority, amid widespread opposition boycotts and allegations of vote rigging.

The Machakos Protocol

The document, signed on July 20th 2002, has provided the direction for subsequent talks and will form the basis for a constitutional review process, leading to an entirely new!and nationally agreed!constitution.

Machakos itself is predicated on the principle that the unity of Sudan will remain the ultimate aim of any peace agreement and that it is to be considered the priority for both sides. However, it also stipulates that the south has a right to control and govern affairs in its own region and have the right to self-determination through a referendum, to be held six years after the signing of an accord. The protocol also adds that any accord must be so designed as to make a unified Sudan an attractive option for southerners.

Immediately after the signing of a final deal, a pre-interim period of six months will be allowed for the establishment of institutions and mechanisms provided for in the peace agreement, as well as for the drafting of a constitutional framework, which will outline the structure of government to be adopted during the six-year interim period.

Sudan will be managed by a national government, which will act as the sovereign body of all Sudan. A bicameral parliament will operate alongside a national unity government in which the south would be proportionately represented. However, its legislative powers will be constrained by limitations placed on the application of Islamic (sharia) law. Legislation that does not impinge on the people of the south will have sharia law as its source, whereas legislation that does affect the south will be based on popular consensus.

The protocol ensures freedom of belief and worship and bases the eligibility for public office on citizenship and not religion. This guarantees southerners a share of senior and middle-ranking positions within the civil service, and the government is also committed to the principle of “collegial” decision-making by the executive and to the fair division of revenue between the north and south.

Parliament In 1990 the government instituted a system of popular congresses in a pyramid structure reminiscent of the Libyan popular participation model. These groups act at the village level and are selected every two years. The system was widened in 1992 by the creation of a 300-member National Assembly (expanded in 1996 to 360 deputies). Ninety of the seats are directly appointed (to “safeguard” representation for trade unionists, graduates and women), with the remainder elected on a constituency basis. The president also appointed members for constituencies where fighting prevented a vote being held. In 2000 there was no voting in 17 constituencies. For much of the 1990s, the parliament was Mr Turabi’s key power base and as a result it was closed down when the power struggle between him and Mr Beshir emerged into the open in late 1999. It remained suspended until the election in December 2000, which replaced Mr Turabi’s supporters with Beshir loyalists who won an estimated 90% of the seats in parliament, with the remainder going to local independents.

Federalism The current regime has also moved to institute a federal system of government. In early 1994 the country was divided into 26 states, superseding the nine states set up after 1991, with the president appointing state governors. The new constitution upheld this structure. Elections to state assemblies were held in most of the northern states in 1999, but did not take place in the south, owing to the civil war. Some 45% of deputies to the state assemblies are elected, 45% are nominated by the state-level popular congresses and 10% are nominated by the president on the advice of the state governor. Following the imposition of the state of emergency at end-1999, a number of state governors regarded as allies of Mr Turabi were replaced by appointees more loyal to Mr Beshir. A further reshuffle took place in January 2001 following the presidential election. Despite the federal structure, Sudan is still a highly centralised polity, as evidenced by the widespread discontent in Sudan"s far-flung regions over economic marginalisation and a lack of effective political representation at the centre. Indeed, this is one of the main political contentions within Sudan, and one which fuelled the Darfur rebellion. A truly federal state, as provided for under the north-south peace deal, with a diluted central authority and more autonomous regions, is designed to make for a more stable peace. The real test is whether the central government is willing to cede authority in practice.

Political forces

The National Congress The NC, formerly the NIF, an offshoot of the Islamic Muslim Brotherhood, has been the ruling party since the 1989 coup. Although officially only one of the many “political associations” legally operating since the start of 1999, it is by far the dominant grouping. It has established an unprecedented degree of political and economic control over the areas of Sudan not in rebel hands, and has worked hard to bring the army under its authority. Mr Turabi, the de facto leader of the NIF, became speaker of parliament in 1996, acquiring a recognised political position in addition to the power he already exercised as the party’s general secretary. In mid-2000, however, he was ousted from the party as part of the power struggle between himself and Mr Beshir. After his expulsion Mr Turabi formed his own party, the PNC. The party was closed down in

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March 2004, when Mr Turabi and a number of his supporters were accused of conspiring to overthrow the government. Main political figures

Lieutenant-General Omar Hassan Ahmed al-Beshir President since 1989, and re-elected for what should!in theory!have been his final five-year term in December 2000, Mr Beshir has only enjoyed full executive power since the declaration of the state of emergency in 1999 allowed him to sideline his formerly powerful rival, Hassan al-Turabi. He has since built on these gains, appointing allies to all sensitive national and regional posts, establishing control of parliament and the ruling National Congress (NC). Mr Beshir’s main power base, however, remains the army and security forces. He will, however, remain as president during the interim period outlined in the peace deal, effectively giving him another six years as head of state. Ali Uthman Mohammed Taha Regarded widely as the country’s number two, and a key architect of the 1989 coup, Mr Taha was appointed first vice- president in March 1998. His relations with the president are tense, partly because of his close links with the Islamist movement. He had been viewed as a critic of the current US-sponsored peace talks, apparently fearing that a deal between the president and rebel leader, John Garang, will reduce his influence. However, he subsequently took control of the government"s side of the negotiations and was personally responsible for the renewed impetus and the final conclusion of the deal. Cynics suggest that his change of heart stemmed from a desire to secure for himself a key political role in the aftermath of any peace deal; he will become second vice-president during the six-year interim period. John Garang Leader of the Sudan People’s Liberation Movement (SPLM) and the Sudan People’s Liberation Army (SPLA), Mr Garang has a reputation for military efficiency and political ruthlessness. A former Sudanese army officer, he has led the SPLM since its inception in 1983. Under the terms of the peace deal, he will accede to the position of first vice-president. Sadiq al-Mahdi The great-grandson of the Mahdi who defeated the British in the 1880s, Mr Mahdi is hereditary leader of the Ansar sect, the traditional backbone of the Umma Party. He has twice been prime minister, and presided over the unstable period of democracy in 1985-89. He escaped house arrest in Khartoum in late 1996 and took up an active role in the exiled National Democratic Alliance (NDA), but in March 2000 left the opposition after months of secret talks with the government. He returned to Khartoum in late 2000, but regime hopes that he would endorse the existing political structure by joining the government remain unfulfilled, following his refusal to accept ministerial positions that were offered to him and the Umma Party’s boycott of the end-2000 elections. His stance proved unpopular among some of the Umma members, both with those who wished to remain in opposition and those eager to enter government. In August 2002 eight high-ranking members of Umma (led by Mr Mahdi’s cousin, Mubarak al-Fadil al-Mahdi) broke away from the party, establishing the Reform and Renewal Party and taking up positions in government. However, Mubarak al-Mahdi was sacked as presidential adviser in October 2004 over differences with senior government figures, which stemmed from Mubarak al-Mahdi’s frustration over the lack of influence his party was able to wield. Mohammed Osman al-Mirghani One of the primary figures in the opposition NDA, Mr Mirghani is the head of the Khatmiyya sect and of the Democratic Unionist Party, a traditionally pro-Egyptian party that was in a coalition government with the Umma Party before the 1989 coup. In January 2005 the NDA signed a reconciliation agreement with the government in Cairo, effectively putting an end to the parties’ differences and paving the way for Mr Mirghani’s return to Khartoum. However, Mr Mirghani subsequently poured cold water on the accord by stating that the NDA would not participate in a transitional government. Hassan al-Turabi Spiritual founder and father figure of the National Islamic Front (NIF, now the NC) and speaker of parliament from 1996 to 1999, Mr Turabi was regarded as the country’s main political player for much of the post-1989 coup period. He sought to

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005 18 Sudan strengthen his authority in mid-1999, triggering a power struggle with the president’s branch of the regime that he lost over the following year as Mr Beshir imposed emergency rule, closed parliament and expelled Mr Turabi and his supporters from government and the ruling party. Mr Turabi was placed under house arrest in February 2001 when he signed an agreement with the rebel SPLA, but was released in late 2003. Following allegations of his involvement in a coup attempt, he was rearrested in March 2004. He remains in prison. Mr Turabi is deeply distrusted by neighbouring states and the West for his Islamist views, and is held personally responsible by many for Sudan’s links with international “terrorism”. His famed underground organisational skills lead some to believe he will return to the political fore, but his popular support seems weak, and it appears that his political influence is waning. The SPLM/A The main southern opposition group is the predominantly black-African Sudan People’s Liberation Movement (SPLM), whose armed wing is the SPLA. Colonel John Garang leads both organisations, although since the cessation of hostilities the organisation prefers to call itself the SPLM to give the impression that it is a political, rather than a military, group. The movement took up arms to fight for a democratic, federal Sudanese state and, although some in the SPLM are still in favour of a fully independent southern Sudan, it accepted the principle of self- determination for the south, within a unified state, as the basis for talks with the government. At the start of 2003 the SPLA controlled much of the far south and south-west, and as part of a unified command structure within the NDA, was fighting government forces in the central and south-eastern provinces, although the implementation of a ceasefire in October 2002 led to a marked downturn in the fighting. As a force, the SPLA was strengthened by its “merger” with the Sudan People’s Defence Force (SPDF) in early 2002. The SPDF is headed by Riek Machar, who defected from the rebels in April 1997 after talks with the government that culminated in him being appointed assistant president and head of the Southern States Co-ordination Council, which “administers” southern Sudan on the government’s behalf. His real power within the regime was extremely limited, and by mid-1999 relations between Mr Machar and his supporters and the government had soured. He left Khartoum soon after, and his men began to fight against the government, eventually leading to his decision to reincorporate the SPDF within the SPLA. The agreement is important because the SPDF is drawn largely from the Nuer tribal group, while the SPLA is predominantly Dinka. The alliance thus increases the area within which the rebels may operate and boosts their fire power. The tribal divides between the two organisations, however, suggest that the “merger” may prove difficult to sustain in the long term. The rivalry which led to the SPLA splitting along tribal lines in 1991 remains in the background, and could return to the fore, undermining co-ordination between the forces. Under the terms of the peace deal, the SPLM will be subsumed into a national transitional government, not only assuming a role within the central body- politic in Khartoum, but also operating as a semi-autonomous authority running the political, economic and military affairs of southern Sudan.

The National Democratic The NDA is an umbrella body of the main rebel groups, and operates from Alliance (NDA) exile in Asmara, Eritrea. Little unites the members of the NDA other than their opposition to the government. Even here, however, opinions vary considerably between the secular, southern African groups such as the SPLM, and northern,

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Islamic groups such as the Democratic Unionist Party. The government has been able to exploit these divisions and long-standing rivalries within the NDA, opening secret talks with separate groups inside the alliance. This has been facilitated by the nature of the IGAD-sponsored peace process, which left the SPLA as the only rebel group directly negotiating with the regime. In late 1999 the government scored a significant success when it negotiated an accord directly with a leading northern NDA member, former prime minister Sadiq al- Mahdi, who subsequently left the organisation and returned from exile to Sudan. In January 20o5 the NDA signed a reconciliation agreement with the government, auguring the group’s return to Khartoum. However, its leader, Mohammed Osman al-Mirghani, who had chosen to spend his exile in Cairo, stated that the group would not participate in a national transitional government.

International relations and defence

US-Sudan ties have thawed Although there has been some thaw in US-Sudan ties in recent years, the US since September 11th continues to regard Sudan with a measure of hostility, and considerable suspicion. Relations soured immediately after the 1989 coup brought the Islamist regime to power, and deteriorated further when the Khartoum government backed Iraq in the 1990-91 Gulf war. The US subsequently accused Sudan of involvement in international terrorism, and imposed trade sanctions on it following the attempted assassination of the Egyptian president, Hosni Mubarak, in 1995. It also alleged that Sudan had links to extreme Islamist groups carrying out attacks against US interests around the region in the 1990s. This included the 1998 attack on the US embassies in Tanzania and Kenya in which 260 people were killed. The US blamed this attack on Osama bin Laden, who lived in Sudan between 1994 and 1996 and was subsequently held responsible for the September 11th 2001 attacks on New York and Washington. The US retaliated against Sudan following the embassy attacks, firing cruise missiles at an alleged chemical weapons plant near Khartoum, bringing bilateral relations to a low point. That the target of the US attack was later widely acknowledged to have been a bona fide pharmaceutical factory undermined the credibility of US allegations in the eyes of many, but did not lessen US animosity. In addition, the government’s conduct of the civil war has led to accusations in the US that the Islamist government is engaged in widespread human rights abuses, and conducting a jihad (broadly meaning a struggle against injustice) against Sudan’s minority Christian population. There have also been claims that the government is promoting slavery. These allegations have been taken up by politically powerful liberal, Christian and black pressure groups, building an unusually diverse coalition in the US Congress and press, demanding a tough US policy towards Sudan. Despite these pressures, there was evidence of a shift in US attitudes in recent years, boosted by the removal from power of the regime’s Islamist ideologue, Hassan al-Turabi, in late 1999. The most significant improvement in ties, however, came after the September 11th 2001 attacks, when Sudan’s knowledge of Islamist groups operating in the Middle East, and in particular its intelligence

on Mr bin Laden, became of signal importance to the US. Recognising its opportunity, Sudan decided to co-operate with the US, and in the months after the attacks did so on a sufficient scale to earn public acknowledgement from the US State Department. Sudan’s extensive co-operation played a role in the US decision to end its opposition to the lifting of UN sanctions on Sudan, and led to a bill seeking to tighten US sanctions being pushed into the background. In addition, the improvement in relations contributed to the US decision to in- volve itself more fully in the Sudan peace process, the success of which has also eased some of the tension in bilateral ties. Nevertheless, the powerful, largely Christian, US-based lobby groups deeply hostile to the Islamist government in Khartoum have remained active. These groups were instrumental in moving the Sudan Peace Act through Congress in 2002, and in pressuring the administration to sign it into effect in October that year. The US president’s decision to accept the law that he had rejected just a few months earlier is in line with the mistrust that many in the administration continue to view Khartoum, and which has also led the president to maintain US trade sanctions on Sudan. However, details of the Sudan Peace Act also show that the administration is continuing its efforts to pursue a more nuanced policy toward the regime. Compared with the first bill, the measures threatened against the regime in the law Mr Bush signed into effect had been substantially diluted. The Sudan Peace Act also imposes no immediate sanctions, but instead leaves the president with the authority to trigger the penalties by declaring that Sudan is not approaching the peace talks “in good faith”. As such, the law offers the US an additional lever to encourage progress at the peace talks, but also leaves the administration with the scope to hold back from introducing punitive measures if it feels that it has more to gain from pursuing co-operation with the regime. Under the Sudan Peace Act, Mr Bush reported to Congress in October 2003 that he believed the parties "were close to an agreement # were negotiating in good faith," and that "negotiations should continue". The US has also increased its diplomatic representation in Khartoum (the embassy had been closed in the mid-1990s because of security concerns and staff relocated to Kenya), although an ambassador has yet to be appointed. The regime’s behaviour in Darfur has further complicated relations. Washington holds Khartoum directly responsible for the atrocities in the region and in late 2004 tried to push a measure through the UN that labelled the government’s actions there as genocide. This was not accepted by the Security Council and a subsequent report by the UN, released in February 2005, concurred. Nevertheless, it did state that “war crimes # and serious violations of international human rights” had taken place. While the US was keen for the UN to impose sanctions on Sudan, its efforts to that end lacked real vigour because of concerns about derailing the north-south deal, which was always the more important issue. Despite its serious misgivings, the US remains engaged in Sudan, and will continue to do so in order to secure peace, but bilateral measures will remain in place for as long as Washington is wary of Khartoum’s motives.

European ties benefit from Although other Western states are suspicious of the Sudanese government’s “critical dialogue” process politics, they have generally adopted a less confrontational approach than the

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US. Since the late 1990s the EU has pursued a policy of “critical dialogue” with Sudan, focusing on concerns over the government’s human rights record, while at the same time promoting diplomatic ties, trade and investment. The approach has been periodically disrupted by criticism of Sudan from human rights groups in Europe and the European Parliament, but has nevertheless led to a substantial improvement in bilateral ties in recent years and in early 2002 the EU announced that progress in its dialogue with the government had reached a point at which it could restore financial support to Sudan, some 11 years after it was suspended. Although a peace deal has been signed with the south, it is now likely that the funds will be withheld until after a lasting resolution to the Darfur crisis has been secured. The UK has been part of the EU’s critical dialogue process with Sudan, but as the former colonial power, its relations have also had their own, distinctive dimension. Since 2000, the UK adopted a leading role in international efforts to promote peace, with the UK prime minister, Tony Blair, in 2001 singling out the Sudanese conflict as a focus for UK policy in Africa. A senior and highly experienced former British ambassador to Khartoum, Alan Goulty, was appointed as special envoy in February 2002. In January 2002 the former international development secretary, Clare Short, became the first British minister to visit Sudan since the 1989 coup. Since then, the former foreign office minister for Africa, Baroness Amos, and her successor, Hilary Benn, have visited the country. This more proactive stance has resulted in a marked improvement in bilateral ties. These had reached their nadir in 1998 when the UK was alone in supporting the US decision to fire cruise missiles at a pharmaceuticals factory in response to allegations that the regime was developing chemical weapons there. After the attacks, diplomatic relations were reduced to chargé level, although ambassadors were reinstated the following year.

Commercial links drive strong In part because the US and others shunned Sudan, the country’s links with a ties with Asia number of Asian states developed rapidly following the 1989 coup. Sudan has particularly good relations with China, which is the largest stakeholder in the foreign consortium that is developing the oil export industry. As well as oil, China has also established a leading role in the development of other sectors, building a new power plant and refinery north of Khartoum, and financing the first stage of the refurbishment of the long-neglected railway system. As a result, China has also become Sudan’s leading trade partner, absorbing a quarter of all Sudanese exports in 2003, and supplying almost 20% of its imports. A Malaysian firm, Petronas, also has a large holding in the oil industry, and the Malaysian government actively promotes investment opportunities in Sudan to local private-sector firms. India is also playing a growing role in Sudan, with a state-owned company, ONGC, having bought a stake in the oil industry. Since entering the country, the Indian government is said to have invested up to US$1bn. Investment links have also been established with several former Soviet republics, although Russian companies have attracted the most attention, with uncorroborated reports suggesting that Sudan has bought arms in return for oil concessions. Indeed, Russia sees Sudan as one of its top clients in the defence industry, a relationship that Russian weapons manufacturers claim has

burgeoned since 2002. Although details of defence sales between the countries is scant, it is known that one of the largest recent orders, delivered in August 2004, consisted of 12 MiG fighter jets. Sudan has also procured from Russia attack helicopters and a range of other weapons and munitions.

Egypt retains a close interest in As a former colonial power in Sudan, Egypt has long taken a close interest in its Sudanese affairs affairs. Egypt’s particular sensitivity to developments in Sudan, however, stems in large part from its overwhelming reliance on the flow of Nile River water from upstream Sudan. This is governed by a 1959 bilateral water-flow treaty which guarantees Egypt a minimum of 55.5bn cu metres/year, against 18.5bn cu metres/y for Sudan. The Egyptian government is concerned by any developments that could place the highly favourable treaty in jeopardy, most notably the secession of the south, which would require the agreement to be renegotiated or lead to its abrogation. Relations soured following the 1989 coup, and deteriorated sharply in the aftermath of Sudan’s decision to support Iraq’s occupation of Kuwait in 1990. A minor territorial dispute with Egypt over the Halaib Triangle on the Red Sea coast subsequently took on a confrontational tone, and brought the states close to conflict in 1994. Relations reached crisis point in 1995, however, when Egypt accused Sudan of involvement in an attempt to assassinate Mr Mubarak in Ethiopia. As a result of this alleged attempt, the UN Security Council imposed sanctions on Sudan, which Egypt supported. Over the following years, Egypt also became convinced that Sudan was providing support to violent Islamist groups operating in Egypt. Tension eased slightly in the late 1990s, but the thaw really began to accelerate after Mr Beshir’s successful emasculation of Mr Turabi following the imposition of the state of emergency in December 1999. Egypt had long viewed Mr Turabi as the real source of Sudan’s Islamist threat, perceiving Mr Beshir a lesser risk to its interests. Egypt therefore moved quickly to normalise ties following Mr Beshir’s palace coup, encouraging him to continue his campaign against his rival and consolidate his position. The enthusiasm with which Egypt acted to support him even led to widespread speculation that it might have pressured Mr Beshir into acting against Mr Turabi in the first place. Egypt also attempted to raise the level of its involvement in the Sudan peace process, launching a peace initiative in partnership with Libya in 1999 that consequently won strong government support, but was in effect rejected by the SPLA in 2001. Since that time, bilateral ties have come under growing strain, largely as a result of the US-driven IGAD peace process, and the Machakos deal agreed between the SPLA and the government in mid-2002. Egypt was angered by its exclusion from the negotiating process that led to the deal, and deeply alarmed by undertakings for a vote that could lead to the secession of southern Sudan. It has subsequently refused to endorse the peace process, and rejected US offers for it to take up observer status at the talks. A series of visits to Cairo in late 2003 and early 2004 by senior Sudanese officials, as well as leading members of the SPLA, appear to have stabilised ties to some degree.

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Ties with the Gulf monarchies Ties with the Arab monarchies of the Gulf have strengthened considerably, and have recovered have now fully recovered from the damage done by Sudan’s pro-Iraq stance during the 1990-91 Gulf war. Gulf states have emerged as key investors in Sudan’s non-oil sector, with Qatari and UAE companies, for example, investing heavily in the expansion programme of Sudan’s telecommunications company, SudaTel. The Gulf states are also the key markets for Sudan’s growing livestock export industry, while there has also been some Gulf investment in the oil sector. The Saudi-based Islamic Development Bank is also one of the few multilateral agencies to restore funding to Sudan. The giant Merowe Dam scheme, which will more than double Sudan’s power generation capacity, is to be financed predominantly by concessionary loans provided by the development funds of Kuwait, Saudi Arabia and the UAE. The level of support provided by the Gulf monarchies appears in large part to reflect their desire to support the “Arab” government in its war against the “non-Arab” south. Sudan has also benefited from improved relations between the Gulf and Iran in recent years!previously, Sudan’s close political and military links with Iran caused the Gulf states further alarm.

African hostility to Sudan has Sudan’s Sub-Saharan African neighbours have long regarded the Arab- eased but suspicions remain dominated government in Khartoum with suspicion, and have sided with the African SPLA fighting for autonomy from Arab rule. The emergence of the stridently Islamist government following the 1989 coup led to a further deterioration in ties and more forceful support for southern rebel groups. Eritrea has hosted the rebel NDA since the coup and continues to provide rebel groups with support and a logistical base. Sudan also suspects that some African states have acted as a channel for US support to the rebels. Sudan, for its part, has in the past supported opposition groups seeking the overthrow of the governments in Uganda and Eritrea. Eritrea accused Sudan of involvement in an assassination attempt on its president in 1997, and Ethiopia claimed that Sudan was behind the attempted assassination of Mr Mubarak in Addis Ababa in 1995. The eruption of the war between Eritrea and Ethiopia in 1998 proved something of a turning point, giving Sudan the chance to improve relations with the two states, which were both keen to ensure Khartoum did not side with their opponent. This opened the way for the signing of a series of bilateral treaties promising an end to support for opposition groups, and improved co-operation on a number of levels. There has been particular progress in the development of ties with Ethiopia, leading to improved economic relations and more normalised political links, culminating in the establishment of the "Sanaa Forum for Co-operation", a grouping of Sudan, Ethiopia and Yemen that is designed to enhance security and economic development in the region. The improvement of ties with Eritrea stalled, however, as the government in Asmara failed to follow through on undertakings to curb rebel activity from Eritrean territory. An upsurge in attacks from Eritrea in late 2002 led to a marked deterioration in ties, with Sudan responding by closing the border, increasing its support for Eritrean rebel groups, and even hinting at the possibility of war. Although conflict appears highly unlikely, prospects for more normalised relations appear poor while the current Eritrean regime, led by President Isaias Afewerki, remains in power. Indeed, in early 2004 the govern-

ment claimed that training camps for the Darfur rebel group, the SLA, had been set up in Eritrea, further increasing the antagonism between the two countries. Relations with Uganda have improved more markedly, in part as a result of active brokering efforts led by a former US president, Jimmy Carter. This led to the resumption of diplomatic relations in 2001, and an exchange of ambassadors in 2002. Offering definitive proof that Sudan was living up to obligations included in the agreement brokered by Mr Carter to end its support for Ugandan rebels, the government in mid-2002 allowed Ugandan troops to cross the border to attack the Lord’s Resistance Army!a guerrilla group that had previously enjoyed Sudanese protection. In return, Uganda was to cease its alleged support for the SPLA. The agreement was renewed several times throughout 2003, and has been maintained since, despite occasional accusatory exchanges between Kampala and Khartoum that the other party had reneged on the deal.

Defence forces Sudan’s army is ill-equipped, but it has more arms and vehicles than the rebel SPLA. It has also begun to add to its military hardware following the development of its oil export industry, building new arms facilities inside Sudan and, according to critics of the regime, bypassing UN restrictions to purchase arms from abroad. Upsurges in fighting compel the army to rely more heavily on conscripts, including university students. This has been deeply unpopular, and there are frequent reports of desertion. Alongside the regular army, the NC has its own military wing, the Popular Defence Force (PDF), which, despite being a “political” fighting force, serves on the front in the war against the rebels. Only about 10% of the force are on active duty at any one time. The Sudanese air force is small, and its equipment made up largely of outdated Antonov bombers, which were used, until the 2002 ceasefire, for attacking soft targets in rebel-held areas in the south and in the Nuba Mountains south of El Obeid. It has also been reported that Antonovs have supported the government’s proxy militias in attacks in Darfur. Sudan is estimated to have spent US$465m on defence in 2004, the equivalent of 3% of GDP.

Military forces, 2004 Government Army 104,800 Conscripts 20,000 Air force 3,000 Navy 1,800 Popular Defence Force Active 17,500 Reserve 85,000 Opposition SPLA 20,000-30,000 SLA 5,000-10,000a Justice & Equality Movement 1,000-2,000a Sudan Allied Forces 500a Beja Congress Forces 500a New Sudan Brigade 2,000a a Economist Intelligence Unit estimates. Sources: International Institute for Strategic Studies, The Military Balance 2004/05; Economist Intelligence Unit.

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Resources and infrastructure

Population Estimates of Sudan’s population are imprecise. The government conducted its most recent census, which put the total population at 24.9m, in 1993, but as it could not be carried out in the south even that survey!now 12 years out of date!is far from conclusive. The UN suggests that the population stood at 31.1m at the end of 2000, close to the estimates put forward by the IMF, which put the population at the end of 2003 (the latest year for which figures are available) at 33.61m.

Population profile: most recent data Total population (m; 2003) 33.6 Annual growth rate (%; 1975-2002) 2.5 Annual growth rate (%; 2002-2015) 1.8 Urban population (%; 2002) 38.0 Population under 15 years (%; 2002) 39.7 Labour force (m; 2001) 12.7 Economic participation rate (%; 2002) 66.9 Life expectancy at birth (male years; 2002) 54.1 Probability of surviving to 40 (2002) 27.6 Infant mortality per '000 live births (2002) 64.0

Sources: World Bank; US Bureau of Census, International Database; IMF, Sudan: Recent Economic Developments; UN, State of the World's Children.

However, some revised!but unsubstantiated!estimates of Sudan"s population put the total at 40m, one-third higher than the World Bank"s 2001 figure. The IMF estimates that average population density is just 10.6 persons per sq km, but this is misleading, as one-half of the population lives on just 15% of the land. Urbanisation is on a par with regional averages, with some 38% of the population living in the main towns and cities in 2002 according to the UN, compared with 32% across Sub-Saharan states. However, it is below the Middle Eastern average of 54%.

Estimated demographic structure of population by age and sex, 2002 (% of total) Age Total Male Female 0-9 32.1 16.4 15.6 9-14 12.8 6.5 6.3 15-29 27.5 14.1 13.4 30-49 18.7 9.1 9.6 50-64 6.7 3.2 3.5 65+ 2.0 1.1 0.9 Total population 100.0 50.6 49.4

Source: US Bureau of Census, International Database.

Sudan has a young population. US census bureau estimates suggest that over 30% of the population is under the age of ten and 45% under the age of 15, although the UN believes the latter figure is slightly lower at 40%. Population growth rates have eased, standing at 2.5% for 1975-2002 according to the World

Bank, and around 2.2% since 2000. However, the reliability of these figures is open to question given the difficulty of collecting data, and set against averages of 2.9% and 3% in Sub-Saharan Africa and the Middle East. The US Census Bureau suggests that the annual demographic growth rate for Sudan is 2.8%. The exceptional characteristic of Sudan’s population is its ethnic, religious and linguistic diversity. The 1956 census!the first conducted after independence and the last to give detailed information on the ethnic background of the population! indicated that there were 19 major ethnic groups and 597 subgroups. Arabs constituted the largest proportion of the population, but were not an overall majority, even in the north, where they accounted for around 40% of the total. They were followed by Dinka (12%), Beja (7%) and Fallata (6%). The southern region contained about 25% of the total population. Subsequent population dis- placements caused by the war, inter-tribal fighting and the refugee exodus to neighbouring countries have been considerable. Although Islam is the official state religion, only an estimated 60% of the population are Muslims. In the north there are significant non-Muslim groups in the Nuba Mountains, the Red Sea Hills and parts of Darfur in the west. Animists make up about 60% of the total population in the south, and Christians about 10%.

Education

Although data vary according to source, the UN estimated illiteracy in 2002 at 29% for men and 51% for women. This rate is comparable with Sudan’s African neighbours, although significantly worse than the average for the Arab world. According to the World Bank, however, the figures mask a modest improvement over recent years, with illiteracy among males over 15 falling from 39% to 30% between 1990 and 2001; for women in the same age range and over the same period the figure declined from 68% to 52%. The impression that the basic education system has strengthened is also supported by data from the UN Human Development Report 2003, which estimates illiteracy among the 15-24 age range in 2001 at 21%, compared with 35% in 1990. Low enrolment rates, however, hamper educational development. The World Bank estimates that in 2002 primary school enrolment was just 46% of the relevant age group, and secondary school enrolment only 21%. In contrast, the World Bank estimates Egypt has 100% enrolment for primary education, and 75% for secondary education; in Kenya the figures are 85% and 24%, respectively. Low educational standards are in part a reflection of Sudan’s widely dispersed, predominantly rural population as well as the impact of the war, which has disrupted education in much of the country and continues to absorb public funds. According to the UN, public spending on education amounted to slightly less than 1.4% of gross national income between 1995 and 1997, while 3% of GDP was spent on the military. In contrast, educational spending in neighbouring Eritrea stood at 1.8% of GDP in the same period, and 4% in Ethiopia. There has been some effort to reorientate the education system ideologically, by increasing the role of Islam and the dominance of Arabic in schools. However, aside from this, little else has been attempted and even this appears only to

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have reduced the number of competent English speakers. Secondary and higher education have been especially disrupted, as most male students are required to serve in the army or Popular Defence Force before they can enter university, leading to a sharp fall in enrolment. Assuming that the peace agreement signed in early 2005 between the northern government and southern rebels is implemented, it is likely that the two regions will run parallel systems of education over the six-year interim period and beyond. The paucity of educational facilities in the south will also require a significant increase in public spending, a good portion of which may be funded by foreign donors.

Health

Poor provision Health provision has been badly affected by the civil war, which drained resources, and led many healthcare professionals to leave the country. The UN Development Programme estimates that there are fewer than 40 doctors in the whole of southern Sudan!a figure which would seem to exclude the far larger number of foreign health professionals that worked in the south throughout much of the civil war under the auspices of the many non-governmental organisations (NGOs) active in the region. Nevertheless, despite their efforts many basic drugs have not been widely available, with only 15% of the population estimated to have access to essential medicines in 1997 according to the World Bank, compared with more than 80% in Egypt and 72% in Ethiopia. Around 40% of the population in Sudan was estimated by the UN not to have access to adequate sanitary facilities in 2001, and 25% were without access to safe water. Frequent famines have occurred recently in the south and centre of the country, although other regions have also been affected. The famines have stemmed from desertification, poor weather, droughts and the displacement and destruction caused by conflict, and have led to widespread malnutrition. The most recently affected areas have been the western Darfur provinces, where conflict between the government and rebel forces in early 2003 triggered a humanitarian crisis that has forced over 1m people from their homes. The crisis is not included in the most recent statistical work, which suggests that on average 25% of the population was undernourished in 1999-2001. Some 17% of children under the age of five were reported to be underweight for their age over 1995-2002. There are frequent epidemics, which the government health service is unable to combat because of management deficiencies and drug shortages. However, child immunisation programmes have improved, with vaccinations rising from negligible levels in 1980 to around 60% by 2001 for most major childhood diseases. In addition, there are few reported cases of infection with human immunodeficiency virus (HIV), with the infection rate among 15-49 year olds put at 2.3% in 2003, compared with some 7% in Kenya and 25% in Zimbabwe. Most government spending on health services is for hospital facilities in urban centres, and in many areas little primary healthcare exists, other than that provided by NGOs operating within Operation Lifeline Sudan, the UN umbrella operation that co-ordinates relief efforts in the south. Total expenditure on healthcare barely changed between 1990 and 2000 according to

the UN, when spending reached 0.7% and 1% of GDP respectively. In 1990-98 there were on average 1.1 hospital beds and 0.1 physicians per 1,000 of the population, which was almost unchanged on 1980 levels. The UN estimates that life expectancy at birth in 2002 was 55.5 years compared with 44 years in 1970-75. This places Sudan ahead of neighbouring countries such as Ethiopia (life expectancy of 45.5 years in 2002) and Chad (44.7), although it lags behind a life expectancy of 68.6 years in Egypt. As with the education system, the implementation of the 2005 peace treaty between the northern government and southern rebels will require a substantial increase in public spending to establish the foundation of a healthcare system in the south.

Natural resources and the environment

Sudan is the largest country on the African continent, and has a diverse topography. Much of the country is a plain, with Mt Kinyeti (close to the border with Uganda) the highest point at 3,187 metres. Rainfall levels vary throughout the country. The further north, the shorter the rainy season, and at about 19û latitude there are no regular rains. In Khartoum the average rainfall is 200 mm/year. The low-rainfall (440-800 mm/year) savannah belt between 10û and 14û latitude necessitates a pattern of shifting cultivation. Of Sudan’s total land area of 251m ha, around 50% is regarded as agricultural land, although only 16.9m ha is of sufficient quality to be used for arable land or permanent cropping. The White Nile and the Blue Nile both flow into Sudan, and meet in Khartoum. As well as being a major source of water, the Nile is an increasingly important source of power, and is used for transport. To the south, the vast Sudd swamp provides a vital climatic and ecological zone for Sudan and the surrounding region. Sudan has significant hydrocarbon reserves, which it began to export in late 2001. Fields are currently in production or under development in southern, central and south-eastern Sudan (see Economic sectors: Mining and semi- processing). Commercial deposits of oil are thought to exist further south, as well as in Red Sea and northern provinces. There are also believed to be reserves offshore. In addition, Sudan has modest deposits of gold that have been mined periodically since the 1920s. The belts currently under development are located in the Red Sea Hills, west of Port Sudan.

Transport, communications and the Internet

Roads Sudan’s road infrastructure is inadequate. The total road system is around 20,000-25,000 km long, but only about 3,000-3,500 km are asphalt all-weather roads (excluding paved roads in urban areas). Of this, almost 1,200 km is made up of the country’s key highway lining Port Sudan and Khartoum, which was completed in 1980. In addition to the asphalt system, there are around 3,000- 4,000 km of gravel roads, but the remaining routes are fair-weather earth and sand tracks. New asphalt roads are under construction, and are being funded largely by grants and concessionary loans from the Islamic Development Bank, the Arab Monetary Fund and other Arab development organisations. They

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include improved connections to the north and south of Khartoum, as well new roads in the oil regions. After several months of refurbishment work, the highway linking Ethiopia and Sudan was reopened in 2002 following the improvement in diplomatic ties, and to permit the planned expansion of bilateral trade. There are also plans in place to build a new highway linking Port Sudan to Atbara, a route which would also take several hours off the journey time between the port and the capital. The new route would also be safer than the existing highway through Kassala, which has been vulnerable to rebel attack in the past. The Kuwait Fund for Arab Economic Development agreed in principle to provide US$110m to finance construction of the route in 2002, but no start date for construction has been announced. At least one new highway linking the north and south is also likely to be constructed to cement the recent peace deal between the government and rebels in the south. New roads across the south are also urgently required if the area is to be consolidated as a functioning political and economic entity.

Railways Sudan’s ageing rail system consists of 4,725 km of narrow-gauge single track, the main line of which runs from Wadi Halfa, via Khartoum, to El Obeid. Tracks also run from Khartoum to Port Sudan, and from El Obeid to Nyala in Southern Darfur and to Wau in the Bahr al-Ghazal region. There is also a light railway route serving the al-Gezira irrigated area. The network!much of which was built during the colonial period!is in poor condition, requiring substantial refurbishment and investment in new signalling systems, along with the addition of double tracks to boost capacity and increase speed. The rolling stock has also deteriorated, reflecting poor maintenance and investment, as well as age. As much as half of the rolling stock is out of service. In 2003 the rail network carried 1.26m tonnes of freight and 109,000 passengers!a fall of 1% and 24%, respectively, on the performance the previous year.. The government has begun a modest railway rehabilitation programme, however, and has listed the Sudan Railway Corporation as one of the assets it wishes to privatise in the coming years. China has announced that it is ready to finance the purchase of new Chinese locomotives and support repairs to the network, while the government claims to have received a number of enquiries from foreign private companies interested in taking over the management and development of the network. The most ambitious rail project is a US$1.5bn, 2,200-km railway linking Port Sudan to Addis Ababa in Ethiopia, which was proposed by the two governments in late 2000. As well as improving communication between the two states, the rail link would also connect with existing lines running south of Ethiopia, creating a single route across much of Africa. No funding body has come forward to finance the project, however, although interest in it has been revived with the signing of the peace deal between the government and the rebel Sudan People’s Liberation Movement (SPLM), particularly as the link would give the southern government a viable outlet for trade that would not be controlled by the government in Khartoum.

Ports and river navigation Port Sudan is the country’s major commercial port. About 20% of Port Sudan’s traffic is being diverted to Suakin, 65 km to the south, which was reopened in

1991 and can handle some 1.5m tonnes/year of cargo. A new port has been constructed close to Port Sudan to act as the country’s oil-export point. The tanker terminal at Bashair has five storage tanks, with capacity of around 2m barrels, and handled average exports of 230,000 barrels/day in 2004. Additional capacity is being constructed nearby to cope with the increases in Sudanese production anticipated in 2006. Although the Nile River provides an important inland transportation route, traffic levels are generally low. The most important route used to be the 1,500-km stretch of the White Nile between Kusti and Juba, but scheduled traffic stopped in the mid-1980s as security conditions deteriorated. In early 2003 a tributary of the White Nile, known as the Sobat River corridor, was reopened to traffic, greatly enhancing, in particular, the distribution of food aid. Further gains in capacity are likely once peace is properly established, although natural obstacles, such as unnavigable rapids or waterfalls (known as cataracts), will continue to limit traffic, along with the growing number of dams along the river. Seasonal variations in water levels also limit load carrying. Some pas- senger and cargo boats travel between Dongola and Karima, which lie 187 km apart between the third and fourth cataracts. A joint Sudanese-Egyptian river transport company linking Wadi Halfa and Aswan across Lake Nuba (the Egyptians call it Lake Nasser) tends to be disrupted when political tension between Egypt and Sudan increases.

Modes of transport, 2003 ‘000 tonnes freight ‘000 passengers Sudan Shipping line 192.9 20.2 Sudan Airways 12.5 495.6 Sudan railways 1,266 109 River transport 43.6 4.6 Land transport 14,991 25,791

Source: Bank of Sudan.

Air Air services in Sudan are limited. The national carrier, Sudan Airways, has a fleet consisting of three Airbus 300-600Rs, two Boeing 737-200s, two Iliushin 18s and a number of freighter aircraft. It has a monopoly on domestic flights, covering 15 local airports of which Khartoum, Port Sudan, El Obeid and El Fasher are the most important, and the only ones to have night facilities. There are also airstrips at the oilfields north of Bentiu. Sudan Airways was one of the state-owned firms identified by the government in 1999 for privatisation, and two Western companies were commissioned to advise on the sale. So far, however, there has been no sign of further progress, even though the firm is one of the few state-owned enterprises to report an operating profit. The government is committed to building a new international airport north of Khartoum, but hopes to develop it as a regional hub for East Africa are unlikely to be fulfilled. A growing number of foreign airlines, however, have begun to serve Khartoum in the past few years as demand from business travellers has increased with growth in the oil sector. These airlines include British Airways, Emirates, the Dutch carrier KLM and Lufthansa of Germany.

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Telecommunications and the Telecommunications provision has improved rapidly in the past eight years. In Internet 1995 there were less than 75,000 main telephone lines in the country, according to the International Telecommunication Union (ITU)!a teledensity ratio of 0.28 per 100 people. By 2003, however, the number of mainlines had increased twelvefold to 900,000, lifting the teledensity ratio to 2.7. This places Sudan ahead of some of its immediate neighbours (Kenya has a teledensity ratio of 1.0, Ethiopia of 0.6), although it still lags far behind some of its more developed neighbours such as Egypt and Libya, which had ratios of 12 and 14 in 2003 respectively. The expansion of provision has been driven by the Sudan Telecommunications Company (SudaTel), which was formed out of the Ministry of Post and Telecommunication in 1994. Originally 100% government owned, shares in the firm were subsequently listed on the Khartoum Stock Exchange, and later sold abroad, most notably in the Gulf, where the UAE and Qatari telecoms companies bought substantial stakes, boosting paid-up capital. The firm has financed a programme of capacity expansion and upgrades, including the installation of a fibre-optic network. There has also been a deliberate drive to boost provision in more remote rural areas as well as the main urban centres. As part of the government"s ongoing economic reform programme, SudaTel’s monopoly position was ended in 2004 with a second licence awarded to KarnaTel!a majority privately owned consortium in which the well-regarded UAE firm, Etisalat, will have a 40% stake. The firm paid US$80m for the licence, which was awarded in November 2004, and requires it to invest US$200m during its first two years of operation. Given the extent of still unmet demand, it is unlikely that the establishment of KarnaTel will have an impact on prices over the near term at least. The new firm is due to begin operations during 2005. SudaTel was a co-founder (with a 40% stake) in MobiTel, Sudan’s global system for mobile communications (GSM) network, whose subscriber base has also increased rapidly as coverage and capacity have improved. Founded in 1997, the company had only 8,000 subscribers in 1999, according to the ITU; this figure increased to 23,000 in 2000 and then to over 190,000 by the end of 2002. According to the most recent data, subscription numbers reached 650,000 by the end of 2003. There remains scope for further rapid growth, as the user rate in 2003 of only 1.95 per 100 of the population is considerably below the average of 6.2 for Africa as a whole. In a bid to support further growth in capacity and to introduce competition, the mobile network has also been liberalised, with the government issuing a tender for a second licence as soon as Mobitel’s guaranteed period of exclusivity ended in 2003. The licence was won by a consortium led by the Yemeni Saba Group, which paid US$130m for the contract. SudaTel has also been at the centre of efforts to develop Internet usage, and is the majority owner of the country’s first Internet service provider, SudaNet, which began full operation in 1998. As with other areas of telecoms, data show rapid growth in recent years, albeit from a low base. In 1999 the ITU estimate that there were just 5,000 Internet users in Sudan, with this figure rising to 30,000 in 2000 and 84,000 in 2002. The absolute increase, however, lifted the number of users per 10,000 of the population to just 26, compared with 41 and

125 in neighbouring Uganda and Kenya respectively. Growth is constrained by the low number of personal computers in the country (just 200,000 in 2002 according to the ITU) as well as concerns over the quality of service provision, with users complaining that the narrow available bandwidth leads to slow and unstable connections. The high cost (relative to average earnings and comparable Internet services internationally) of Internet access also discourages growth in usage.

The media The government runs the national television service, whose news output is closely monitored. The many privately owned local and national newspapers are also subject to control, but are far freer than in many Arab states. Newspapers report widely on domestic and international developments, often adopting stances that differ from the official government line. The press is also able to criticise the government, although those journals which are too outspoken on sensitive issues (such as the Darfur crisis during 2003 and 2004) risk temporary closure and fines. Local and foreign journalists often complain of official harass- ment or detention. The rebel SPLM runs its own newspapers and magazines, which are likely to emerge as the basis for the press in the south once the 2005 peace deal is implemented.

Energy provision

Sudan’s power system is inadequate and has long been a major impediment to economic growth. Although estimates vary, most suggest that the state-owned National Electricity Corporation (NEC) has achieved average output of around 500 mw for much of the past decade!someway below theoretical installed capacity of about 800 mw and, more importantly, far below potential demand. In large part the paucity of supply reflects chronic underinvestment both in the maintenance of existing power facilities and in the development of new capacity. Moreover, as a result of Sudan"s heavy reliance on hydroelectric plants, power generation also fluctuates according to the volumes of water flowing through the Nile. Seasonal variations are also compounded by the heavy levels of sediment that flow through the Nile at particular times of the year. During the rainy season, for example silt-laden water is allowed to pass through the floodgates of the Roseires dam (Sudan"s largest power facility) to avoid damaging the turbine blades. NEC and the Ministry of Energy operate two interconnected electrical grids!the Blue Nile grid and the Western grid! although they cover only a small portion of the country, and even in those areas supply is inadequate and unreliable, leaving power production dependent on small, diesel-fired power stations which are expensive and unreliable. Elsewhere, consumers rely on production from their own, oil-driven generators.

Sudan has ambitious plans to Power generation has begun to rise, however, and is set to grow dramatically boost power capacity in the medium term as well-progressed plans to boost production come on stream. In late 2004 the government officially inaugurated a new 275-mw power plant just outside Khartoum!the first new facility to be constructed in a generation. Significantly, the plant was constructed by a private, foreign consortium led by a Malaysian company, DIT Power, which will operate the plant as an independent power project (IPP). The IPP is estimated to have cost

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around US$200m, finance which the government could not have generated from its own recurrent resources, and for which NEC would have been unable to raise funds given doubts over its!and the sovereign"s!credit worthiness. Without a shift in policy to allow private firms to enter the power sector, it is therefore unlikely that the project would have ever got off the ground. Other projects are also under way, including the construction by a Chinese firm, Harbin Power Engineering Company, of a 220-mw gas-fired power station being built close to the new al-Jeili refinery, north of Khartoum. The most ambitious project, however, is the construction of a giant, 1,250-mw hydroelectric plant at Merowe, 450 km north of Khartoum. Estimates of the likely cost and timing of the scheme vary, but the most conservative suggest it will take six to seven years to complete and will require spending of at least US$1bn. Several Gulf Arab development funds have already signed agreements to provide US$600m in concessional funding, the latest of which was signed in January 2004 with the Abu Dhabi Investment Fund and was worth US$150m. The main contractor for the construction of the dam!appointed in mid-2003 for a civil engineering project worth US$650m!is the China International Water & Electric Corporation, while in December 2003 the Harbin Power Engineering Company was awarded a US$450m contract to build an electricity generating station at the site. Work started on the scheme in mid-December 2003, with the first unit due to come on stream in July 2007 and all ten turbines scheduled to be fully operational by the end of July 2008. The dam will more than double present output, even after the smaller diesel and gas projects are completed, revolutionising power generation in the country. To be effective, however, it will also require extensive investment in the country’s two interlocking “national” grids and transmission systems, which are inadequate to cope with such a large increase in load and cover only a small part of the country. As well as revolutionising the power generation situation in Sudan, the project is expected to create a vast new area of cultivable land, although it will also require the forced evacuation of many thousands of residents from the reservoir area. Critics also point out that full generating capacity will not be possible during much of the year owing to variable water flows through the Nile, while evaporation rates from the reservoir will also be high during the hot summer months.

The economy

Economic structure

Despite its substantial natural resources, Sudan is an extremely poor country, both by regional and international standards. Poor economic management, coupled with the severe economic disruption and imbalances caused by the civil war, have blocked development. This will ease if the peace deal between the government and southern rebels signed in early 2005 is brought into effect, but it will take many years to finally overcome. In terms of both employment and contribution to GDP, agriculture is the most important sector. The sector is dominated by several key crops, produced by a combination of rain-fed and

irrigated agriculture, including the vast al-Gezira irrigation project south of Khartoum. Even on the irrigated projects, underinvestment in channel maintenance has left output vulnerable to climatic conditions, leading to fluctuating output levels. Furthermore, war has periodically hampered agricultural production, forcing farmers away from their land, and disrupting cultivation and the flow of inputs. Although this disruption has eased since the ceasefire between government and rebel forces was brought into effect, the gains have been partly offset by the upsurge in fighting in the western Darfur region (which has badly damaged output in the area). Output is also undermined by the inadequacy of the transport network. With poor transport facilities, food supplies frequently fail to move from areas of the country that have surpluses of food crops, to others suffering shortages. Cotton was traditionally Sudan’s leading cash crop, but values have fallen in recent years, reflecting weaker commodity prices and a reduction in planting areas. Cotton was displaced by sesame in 1996 as the primary export revenue earner, although production levels of sesame have since waned, with earnings reaching only US$75m in 2003!the lowest level since 1995!although interim data show a more robust performance over 2004. The fastest growing sector, however, is livestock, which has gained a foothold in markets in the Gulf (particularly Saudi Arabia) and attracted some foreign investment.

Main economic indicators, 2004a Real GDP growth (%) 6.4 Consumer price inflation (av; %) 9.0 Current-account balance (US$ m) -582 Exchange rate SD:US$ (av) 257.8b Population (m) 34.35 Foreign debt (year-end; US$ bn) 17.2 a Economist Intelligence Unit estimates. b Actual. Sources: Economist Intelligence Unit; IMF, International Financial Statistics.

Although Sudan remains a predominantly agricultural economy, the development of the oil export industry is altering the country’s economic structure. Following the opening of the 1,600-km oil export pipeline in August 1999, output reached 185,000 barrels/day (b/d) in 2000, rising to an average of 250,000 b/d in 2002 and 280,000 b/d in 2003. An expansion in pipeline capacity allowed output to rise to an estimated average of around 325,000 b/d in 2004!a gain of some 15% for the second year in succession. If foreign oil firms working in the industry succeed in meeting their development targets, however, recent gains are set to be dwarfed by increases projected for 2005 and 2006, with output expected to rise by 40% a year to close to 750,000 b/d by the start of 2007. Development of the sector has led to a sharp increase in foreign investment flows, and has boosted development of the industrial sector. The most dramatic change, however, has been on Sudan’s trade profile, with oil now the dominant export commodity, earning an estimated 83% of overall export revenue in 2004. There has also been a striking increase in total export earnings, which in 2004 are estimated to have reached six and a half times their level the year before oil exports began. The sector’s development has also ended Sudan’s reliance on imported petroleum products, while associated

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industrial facilities have also begun to develop, notably the new refinery and power station at al-Jeili, north of Khartoum.

Comparative economic indicators, 2004 Sudana Egypta Libyaa Yemena Kenyaa GDP (US$ bn) 19.2 71.9 25.3 13.9 14.1 GDP per head (US$) 560 980 4,458 673 433 GDP per head (US$ at PPP) 740 3,806 10,412 1,126 1,248 Consumer price inflation (av; %) 9.0 10.7 2.9 11.3 11.6 Current-account balance (US$ bn) -0.6 3.6 10.9 0.8 -0.7 Current-account balance (% of GDP) -3.0 4.6 43.0 5.5 -5.0 Exports of goods fob (US$ bn) 3.9 12.1 20.6 4.9 2.6 Imports of goods fob (US$ bn) -3.2 -20.9 -7.9 -3.7 -4.5 External debt (US$ bn) 17.2 33.8 4.1 6.6 6.8 Debt-service ratio, paid (%) 4.0 7.4 3.9 3.5 10.3 a Economist Intelligence Unit estimates. Source: Economist Intelligence Unit, CountryData.

Economic policy

IMF reform package drives There has been a sea change in the government’s approach to economic policy- policymaking making over the past few years. After decades of neglect, a crisis that brought Sudan to the brink of expulsion from the IMF in 1997 led to the establishment of a comprehensive economic reform and structural adjustment programme drawn up in association with the Fund. The package includes measures designed to stabilise the macroeconomic environment (particularly to curtail runaway inflation), strengthen Sudan’s external accounts and to boost growth through privatisation and deregulation. The programme also seeks to reform the banking sector, liberalise trade and overhaul investment and foreign- exchange controls. When the programme was announced, it was met with considerable scepticism among foreign observers, who believed!almost without exception!that Sudan would lack the discipline and the ability to implement the reform measures demanded of it. The reality, however, has been quite different. Although some structural aspects of the programme have been disappointing (notably privatisation), in its annual Article IV consultations the IMF has praised the government for its adherence to the reform agenda, notwithstanding calls to speed up the pace of change and warnings that the programme still has a long way to run. The exception to this occurred in 2001, when the government appeared to lose control of fiscal management, and found itself unable to meet its payment obligations (see box) to the Fund. In return for the IMF temporarily suspending payments, the government introduced a series of emergency fiscal measures, which over the full year succeeded in producing a budget outturn close to target. Overall, the reform programme has led to significant improvements. Inflation has fallen sharply from triple digits to under 10%, the currency has stabilised, the fiscal account has moved close to balance and the economy has generated several years of impressive real growth. Foreign investment has also risen, and bank intermediation has improved considerably following the relaxation of tight Bank of Sudan (the central bank) credit allocation rules.

Sudan and the IMF

Sudan’s external debt arrears are a critical problem for the government. Previous administrations borrowed heavily for an over-ambitious development programme in the early 1970s (see The external sector: Capital flows and foreign debt), and the country was badly hit by the rise in international interest rates and the increase in oil prices at the end of that decade. The IMF’s “declaration of non-co-operation” with Sudan in September 1990 cited continuing problems with arrears since 1984. In 1993 the IMF withdrew Sudan’s voting rights and in 1997 threatened to expel the country from the Fund. From this low point, relations have steadily improved. In 1997 Sudan began working with the IMF on a structural reform programme, and, much to the surprise of many local and international observers, has adhered to it closely, gaining plaudits from the Fund. The government also agreed to make small payments on its debt arrears to the Fund!a schedule it met every month until mid-2001 when it was forced to negotiate a rescheduling. Payments have since resumed, at a slightly reduced rate.

The repayments and adherence to reform initiatives led the IMF to lift the non-co-operation order on Sudan in 1999, and in 2000 Sudan’s voting rights were restored. The moves are largely symbolic, and for the foreseeable future Sudan will continue to be denied access to financial support from the organisation. However, the steady normalisation of ties with the Fund marks Sudan’s further reintegration into the international financial community, and will do much to convince the country’s other creditors that the government is serious in its efforts to order its economic affairs. The IMF has also been involved with efforts to establish an economic framework for peace between the north and south, and committed to offering economic support for the implementation phase, including rescheduling Sudan"s remaining arrears to the Fund, and backing government efforts to gain access to the heavily indebted poor countries (HIPC) initiative.

There remain, however, a wide range of problems that have yet to be overcome, and which continue to disrupt and distort policymaking. Key among these has been the civil war, which, despite a ceasefire, has placed a heavy burden on government finances, undermined local and foreign confidence and led to massive dislocations within the domestic economy. It has also drawn spending away from more productive uses, with most estimates suggesting that the military absorbed over US$1m a day in public spending. Although many of these distortions will ease as the 2005 peace agreement is implemented, the Ministry of Finance and National Economy has warned that defence spending in the short term will not fall, as funding the implementation of the security agreement will prove to be expensive. It will also only be with the passage of time that confidence!both local and foreign!will build, and consumption and investment patterns adjust fully for the new era. Moreover, decades of civil conflict, social and political upheaval, and international isolation have also left a legacy of neglected physical, social and financial infrastructure that will take many years to overcome. Corruption also remains widespread, and Sudan’s massive external debt arrears have yet to be

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addressed, hindering access to new foreign funding. Sudan’s dependence on two volatile economic sectors!oil and agriculture!also leaves it vulnerable to exogenous shocks in the international commodity markets or, in the case of agriculture, to climatic conditions. Sudan looks to the peace dividend

Although implementation has yet to begin, the conclusion of a final peace accord between the government and the main rebel groups in the south and north has focused attention on the impact of peace on economic policy. According to IMF estimates, a peace settlement will lift Sudan’s potential rate of sustainable real growth to around 7% over the medium term, compared with the estimated ceiling of about 5% should the conflict persist. Although the Fund’s figures appear somewhat arbitrary, it is clear that a peace agreement would substantially alter the way in which the Sudanese economy functions, and would enhance its growth prospects. Key developments would include the following. • Substantial increases in domestic production in war-affected areas as fighting no longer disrupts production processes. Increase in domestic trade, exchange and financing between the north and south will boost growth and ease prices. • A general increase in domestic confidence would boost consumption and investment levels. Foreign sentiment towards Sudan would also improve, as political and security risks eased, leading to higher foreign investment, particularly in the oil sector. The US has also signalled that a peace agreement would be likely to lead to the removal of US sanctions on Sudan!further enhancing its trade and investment prospects. • A substantial inflow of foreign aid to finance reconstruction work in war-affected areas and the rehabilitation of neglected infrastructure linking northern and southern Sudan. Western governments and regional and international multilateral agencies have already begun to draw up aid and development plans for the post-war period. • The acceleration of negotiations to restructure Sudan’s large foreign debt stock. The IMF has already signalled its openness to discussions over the rescheduling of Sudan’s arrears to the Fund!a development that could lead quickly to Sudan gaining access to Paris Club settlements and the IMF/World Bank heavily indebted poor countries (HIPC) initiative. Resolution of arrears would improve Sudan’s access to new lending from official and even private sources. • Some easing of the army’s heavy and unproductive draw on public finances, although military spending would remain comparatively high given the maintenance of two armies. Military spending would fall further as peace was consolidated. There will necessarily be some risks associated with the initial post-war period, however, presenting fresh challenges to the Bank of Sudan (the central bank) in its efforts to maintain stability. These include the following. • Operating a dual monetary system!one sharia-compliant, the other not. • High expectations of an immediate improvement in living standards, together with the inflow of foreign aid, may make it difficult for the government to maintain its fiscal discipline, and a surge in domestic demand could also threaten price stability. • The likelihood of massive relocation and return of hundreds of thousands of internally displaced persons and refugees outside the country to previous areas of conflict. • Import demand could rise rapidly as reconstruction begins, with the central bank’s still modest holdings of foreign reserves leaving it with only a limited capacity to manage surges and dips in liquidity. • Sudan"s institutions may prove inadequate with the restructuring of the government and civil service following a peace agreement bringing in personnel who lack experience of the reform agenda. Establishing effective communication and policy co-ordination between the central economic policy bodies and those that will enjoy considerable autonomy in the south will also prove difficult. • The ongoing Darfur conflict may delay the peace dividend. Despite pledges made to push the parties toward signing the final accord, disbursing aid and other rewards to the government while the violence in Darfur!for wh ich many Western governments and influential domestic political groupings hold the regime responsible!persists will prove politically difficult. This could potentially leave policymaking in limbo until the conflict in the west is resolved!a dangerous position given the frailties of the peace accord in the south.

Reform agenda strengthens Sudan ran substantial budget deficits over much of the past 20 years. In large government finances part this reflected uncontrolled expenditure on defence, which official figures suggest runs at one-quarter of total expenditure but which unofficial estimates put at 50% of total spending. Not only has military spending been a high constant draw on public finances, but upsurges in the conflict have also led to sharp, periodic increases in demands for funds, undermining the finance and national economy ministry’s spending plans. Subsidy spending has been high over the post-coup period, while support to ailing state-owned enterprises (SOEs) has also added to public expenditure, although much has remained off- budget. Disruption associated with the war has also undermined the tax-collection system, as have years of neglect and corruption, keeping tax yields low. As part of the broader economic reform programme, the government has implemented a number of measures that have strengthened both its fiscal stance and its policymaking abilities. On the expenditure side, these include a series of technical accounting measures that have strengthened the finance and national economy ministry’s control of spending by regional authorities, and allowed it to manage spending by the main central government ministries more rigorously. Using the improved controls at its disposal, the government has also sought to slow the pace at which spending has risen, restricting recurrent spending by holding down real public-sector wage increases, introducing some subsidy cuts and raising additional fees on education and other services.

Budget revenue and expenditure, 2004 outturn (SD bn) Total revenue 846.8 Tax 286.3 Non-tax (incl others) 560.4 Oil 513.7 Non-oil 46.7 Total expenditure 769.0 Capital 195.8 Current 573.2 Balance 77.7 % of GDP 1.6

Source: Economist Intelligence Unit.

This discipline has slipped in recent years, in large part because higher oil prices and sustained gains in oil production have supported significant gains in overall revenue, making it difficult!and perhaps less necessary!for the re gi me to hold expenditure growth so firmly in check. Higher economic growth has also boosted the government"s tax take, further strengthening its fiscal position. Although data are incomplete, the Economist Intelligence Unit estimates that spending rose by an average of more than 20% over 2001-04!a significant rate of real growth even allowing for inflation, which averaged around 8% over the same period. Revenue, however, grew even more strongly, rising by an average rate of close to 30% over the same period. Indeed, according to our estimates, revenue in 2004 was two and a half times higher than in 2000!a remarkable shift. As a result of these trends, the reported central government deficit has been small, remaining under 1% of GDP despite the growth in spending. We

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believe the government may even have recorded a small surplus in 2004 for the first time in more than 25 years. The transition to peace will be expensive, and the finance and national economy ministry has warned the IMF that the deficit will grow in the short term. Under the wealth-sharing agreement, the numbers within the civil service will increase, pushing up the wage bill. This will come on top of a 50% rise in civil service salaries, approved by parliament for 2004, in order to iron out pay differentials between ministries. With no reduction in military spending foreseen, and with the determination of the government not to increase taxes (the authorities do not want to make peace economically unpalatable by raising direct taxation), fiscal discipline will be challenging to maintain, testing the government"s commitment to the reform programme.

Monetary policy is set within Following the 1989 coup, the new Islamist leadership passed legislation Islamic guidelines requiring Sudan’s whole financial system to comply with Islamic financing principles. The most important of these was the prohibition of conventional interest charges, which were judged by Sudan’s ruling elite to amount to ribh! usury. The measures generated chaos, requiring the Bank of Sudan to overhaul its monetary management system, as well as to devise and supervise a regulatory framework for the commercial and specialised credit banks. Rather than undermining the financial system, however, the switch to Islamic principles simply added to a host of shortcomings that were already in place. Chief among these was heavy political interference in monetary policy decisions, with the central bank required to provide direct and indirect funding to the government to bridge mounting fiscal deficits, as well as providing low- cost support to loss-making SOEs. The monetary instruments at the central bank’s disposal were weak before the introduction of Islamic principles, and remained so after the event, undermined by the poorly developed commercial banking system and interest rates that were set at sub-inflationary levels. As a result, inflation averaged over 100% between 1990 and 1996, peaking at more than 130% in 1996, as monetary growth soared and the value of the Sudanese pound (renamed the dinar in 1999) plummeted. Controlling monetary growth was one of the key variables identified by the IMF when its adjustment programme was drawn up in 1997. As a result, the modest reform measures that the central bank had begun to draw up in the mid-1990s were extended and implementation accelerated. Among the measures introduced as part of the package has been a system of Islamic open-market operations, with central bank Musharaka (“profit sharing”) Certificates introduced as short-term instruments sold at weekly auctions to mop up liquidity. Longer-term Government Musharaka Certificates were also established for the same purpose. In addition, the central bank strengthened its monitoring of the commercial banks, requiring them to comply more closely with minimum reserve requirements, and established a discount window for short-term bank credit, a move that increased the impact of central bank interest rate policy. Under pressure from the Fund, the government also accepted the abolition of facilities at the central bank that had previously allowed for the extension of low-cost

credit to the central government and state-owned institutions. Combined with a reduction in central government deficits, this has strengthened liquidity management, and supported a marked reduction in consumer price inflation to under 10% in 2001, a level that has been sustained since. Having embedded the banking sector in Islamic principles and brought the money supply under control, the Bank of Sudan is now faced with the task of decoupling the system once more. Under the wealth-sharing agreement, which forms part of the peace accord with the southern rebels, the country will operate under one currency with one central bank, but the south will use conventional banking instruments while the north will continue its Islamic system. This will entail the establishment of a dual banking system, with secular laws in place in the south and sharia in the north. The central bank, which will operate a subsidiary in the largely autonomous south, will find it difficult to ensure a level playing field, with the need to maintain equal rates of financing and return. Sudan has had some experience of this before. Prior to the implementation of sharia law in 1983, the bank operated a parallel Islamic system, which in effect amounted to a de facto dual banking system. Yet the bank can also draw on knowledge from other working models (Bahrain and Malaysia operate dual banking systems of sorts), and while the return to running two separate banking operations will be fraught with difficulty and will undoubtedly impact upon key monetary fundamentals, the process may well be manageable.

Private sector boosted by The IMF reform programme has also focused on the banking sector, and in increased credit lines particular the banks’ failure to provide credit to support private-sector growth. Between 1996 and 1998 commercial bank claims on the private sector fell markedly in real terms, and even dropped in nominal terms between 1998 and 1999. To combat this, the central bank introduced a series of reforms in 2000 aimed at strengthening the (mainly state-owned) banks and increasing their commercial independence, while also tightening supervision. The most significant change, however, was the relaxation of rigid government credit allocation rules. Boosted further by the inflow of oil revenue, commercial bank claims on the private sector have accelerated rapidly, rising year on year by 64% at the end of 2000, by 41% at the end of 2001, and by an additional 67% in 2002, only slowing slightly in 2003 to 57%. The pace of growth remained rapid in 2004, standing at 53% over the first eight months of the year according to the most recent IMF data. Although the increase in intermediation suggests that the reforms have had some success, such a rapid acceleration inevitably raises concerns over its possible impact on inflation. Questions also remain over the quality of the new assets the banks have so quickly built up.

Privatisation and foreign To support growth, reduce the drain on public finances and fund infrastructure investment development projects that remain beyond the reach of its own resources, the government has sought to draw local and foreign capital into areas of the economy that were previously reserved for the state, and has committed itself to privatising SOEs. The divestment programme actually began in the early 1990s, with the passage of the Privatisation of State Corporations Act in 1992, which earmarked 190 public corporations for sale. However, although 17 public

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corporations were sold during Phase 1 (1993-95), the privatisation programme failed to build momentum, and the planned high-profile sale of several key assets, including the National Electricity Company and Sudan Airways, has failed to materialise. Other, smaller sales have taken place in recent years, such as the divestment of the Atbara cement factory, the Sudan Duty-Free Zone Company and the Bridges and Road Corporation. Overall, however, the pace has been slow, reflecting a range of factors, not least of which has been the skills shortage among senior officials charged with overseeing what has often been a highly complex process of defining and valuing SOE assets. The valuation process has also been undermined by the large losses run by most state companies for many years. These have led to the accumulation of substantial debts, many of which are owed to public-sector financing agencies or commercial banks that were required to extend credit to them. The poor state of the SOEs has discouraged potential private operators, who are not only unwilling to take on the companies’ debts, but are also aware of the substantial investment many of the firms require after years of neglect. There has been substantial opposition to the privatisation programme among Sudan’s influential labour unions, which have recognised that divestment would necessarily lead to large numbers of job losses if new operators sought to run the SOEs on a commercial basis. Officials have also been aware that prices would rise post-privatisation, with companies needing to generate profits and losing access to concessional funding. In addition, accusations of corruption have dogged the privatisation programme, with government officials alleged to have demanded payments, while those linked to the senior ranks of the regime are reported to have bought state assets at prices well below their true value.

Government efforts to boost There have been some successes, however, notably the formation of the Sudan FDI have been successful Telecommunications Company (SudaTel), which began operations as a joint public-private company in 1994. Since its establishment, the company has overseen the steady growth of the country’s fixed-line and mobile telephone network, successfully attracting investment funds from the domestic market and abroad (see Resources and infrastructure: Transport, communications and the Internet). Both sectors of the telecom industry have also been opened to competition, with foreign firms bidding to gain a stake in what is seen as a very attractive market. Foreigners have also played a leading role in the development of Sudan’s oil industry, funding the building of upstream resources, the construction of industry infrastructure including the export pipeline, and downstream facilities such as the new al-Jeili refinery (see Mining and semi- processing). The government has also successfully attracted foreign investment into the power sector, with the country’s first ever independent power project (IPP) coming on stream in late 2004, with other projects planned for the coming years (see Resources and infrastructure: Energy provision). According to the Bank of Sudan, foreign direct investment (FDI) inflows stood at US$713m in 2002 and US$1.3bn in 2003. Over the first half of 2004 new official figures put FDI inflows at just over US$700m, equivalent on an annualised basis to 7% of GDP!one of the highest ratios in the region. Despite having an economy some

three and a half times larger than Sudan, Egypt generated FDI inflows averaging just over US$460m in 2001-03, compared with US$880m in Sudan.

Foreign direct investment inflows in Sudan and Egypt (US$ m) 2004 2001 2002 2003 Jan-Jun Sudan 574 713 1,349 707 Egypt 510 647 237 n/a

Sources: Bank of Sudan; Central Bank of Egypt.

No breakdown of the FDI trends is available, but it is likely that while a growing proportion of the funds is being attracted into infrastructure and associated projects, the bulk of the finance is linked to the development of the oil sector. As such, China, Malaysia and India are likely to be the main sources of foreign capital, particularly as firms from the first two countries have also expanded their presence outside Sudan’s oil industry.

Economic performance

The real economy has shown sustained strong growth in recent years, averaging around 6% a year since the start of the IMF-monitored reform programme in 1997. In nominal US dollar terms, this means that the value of economic output in 2004 was 125% higher than in 1996, resulting in a 90% rise in dollar GDP per head over the same period. Although the overall trend is clear, a detailed analysis is difficult given the long time lag in the release of national accounts data. While the IMF!in co-operation with the central bank! has released an estimate for overall real GDP growth in 2003 of 5.9%, no breakdown has been published. Historically, economic growth in Sudan was primarily a function of performance in the agricultural sector, which accounted for up to 40% of GDP over the 1990s according to Bank of Sudan data. Although a number of factors have affected the output of this sector in recent years, the most significant!the weather!is beyond the government’s control. However, government policy also had an impact, with factors such as incentives provided to farmers through procurement prices, access to seed and fertilisers, and supply of fuel for sowing, ploughing, harvesting and transport of produce affecting performance. As a result of GDP dependence on agriculture, growth figures fluctuated wildly, and there were a series of recessions in the 1980s and 1990s.

Gross domestic producta 2004 Annual average 2000-04 (% real change) 6.4 6.0 a Economist Intelligence Unit estimates. Source: Economist Intelligence Unit, CountryData.

While agriculture remains the dominant sector, both as a proportion of GDP and as a source of employment, the emergence of the oil sector has begun to shift the balance. This is apparent most immediately in the tradable sector, with high oil earnings pushing export values (in both nominal and real terms)

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sharply upward. The oil sector has also driven a dramatic increase in investment expenditure, which in turn has funded a significant strengthening of import spending. High oil earnings have fed into the domestic economy through increases in government consumption and government capital spending. Overall, we estimate that gross fixed investment accounted for around 16% of GDP in 2004 in nominal terms compared with about 12% in 2000, while the value of net exports rose to 6.3% compared with 2.2% in 2000, despite rapid growth in import spending. As a result, while private consumption remained the largest component of GDP, its share fell from 74% in 2000 to 68% in 2004. GDP growth figures must be treated with caution. The IMF figures are reliant on government data that are not only skewed for political purposes, but are also inefficiently collected, with all areas of the country directly affected by the civil war excluded from official statistics. The recent rapid growth has also taken place from a very low base, and has been highly uneven. As a result, Sudan remains a poor country overall, and the majority of its citizens, particularly (although not exclusively) away from the main urban areas, remain extremely poor even by regional standards.

Inflation The monetisation of the government’s budget deficit created severe inflationary pressures for much of the 1990s, with price growth averaging 56% a year in 1995-99 and reaching a peak of 133% in 1996. Since the government began to implement its IMF-approved reform programme the following year, however, price growth has slowed substantially, falling to less than 50% in 1997 and below 20% in 1998 and 1999. The downward trend continued, with average consumer price growth falling into single digits in 2001 and remaining there over the following years. As well as reflecting the stabilisation of public finances, the easing of inflationary pressures over recent years also marks the success of a series of monetary reforms implemented by the central bank within the framework of the IMF programme. This includes the development of basic open market operations, which have proved successful in giving the central bank some control over liquidity growth. The stability of the dinar, which has effectively been pegged against the US dollar at around SD256:US$1 since 1999, has also curbed price growth, particularly as the nominal peg has equated to an appreciation in real terms. The government has also continued to subsidise a range of basic goods and services, although the scope and depth of the subsidy programme has eased in line with the economic reform drive. As with much of the macroeconomic data for Sudan, the inflation figure must be treated with a degree of caution as price data are only collected in the main cities in the north, for a basket of goods that reflects living standards prevailing there. A broader study would likely show a more volatile performance, particularly as food prices have risen and fallen sharply over recent years in central, southern and western Sudan according to the strength of supply.

Inflationa 2004 Annual average 2000-04 % change; av 9.0 7.3 a Economist Intelligence Unit estimates. Source: Economist Intelligence Unit, CountryData.

Living standards Inflation eroded real wages and living standards throughout the 1990s. Salary scales and a minimum monthly wage were formerly set under the job evalua- tion and classification scheme dating from 1978, and although levels have been increased, prices have risen more rapidly. There have been periodic attempts to rectify this, with large public-sector pay increases announced in the 1999 and 2003 budgets. Overall, however, average real pay levels remain low, adding to the importance of other sources of income, such as private transfers from family members abroad, or earnings from work in the parallel economy.

Regional trends

The development of Sudan’s federal system of 26 states has contributed to changes in the country’s economic structure, increasing the relative wealth differentials between eastern and western Sudan on the one hand and the richer central area of the country on the other. Since 1996 the role of state governments has been gradually expanded to include some responsibility for raising taxes and for providing community and social services. Revenue generated from rental income tax and some agricultural taxes and tariffs are the direct responsibility of state governments, while VAT earnings are shared between the central and regional bodies. Despite devolution, the central government maintains control over national development projects within states. Some states have required extra financial assistance to help establish their administrative and service-delivery capacity. In addition, some states, such as Northern state, are so resource-poor that they continue to rely on government transfers. The role of the provincial governments will be strengthened further as the peace agreement between the government and rebels is brought into effect, with the new government of the south to be afforded considerable autonomy over economic as well as political affairs.

Economic sectors

Agriculture

Agriculture is Sudan’s largest economic sector in terms of its contribution to both GDP and employment. Although official data continue to lag, the Economist Intelligence Unit estimates that agriculture (including livestock and forestry) directly accounted for just under 40% of GDP in 2004, compared with 18% for industry (including oil). The sector provided about 80% of the country’s export earnings until the oil industry came on stream, and, according to IMF estimates, provides jobs for about two-thirds of the working population. Nomadic pastoralism and small-scale, rain-fed farming exist across much of the country, particularly in the south where they remain the main form of production. Mechanised projects and the huge irrigation schemes watered by the Blue Nile, White Nile and Atbara rivers are more important in the north.

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The mechanised rain-fed subsector is concentrated in the Blue Nile area, in towns such as El Damazin, Kosti and Gedaref. In southern Sudan higher rainfall allows for two planting seasons, the first in April with a harvest in July, and the second in July with a harvest from November. In the north, rain arrives between July and August, and the harvest is from November onwards. It is estimated that a total of 11.2m feddans (4.4m ha) were being farmed under mechanised rain-fed schemes in the early 1990s. The irrigated subsector consists of about 3.5m feddans of cultivated land. Supply of water to the irrigated sector was agreed in the 1959 Nile Waters Treaty with Egypt, which grants 18.5bn cu metres of water to Sudan annually. Sudan currently uses about 14bn cu metres of this, although the figure is rising. The main crops grown are sesame, cotton, sorghum, sugar, wheat, groundnuts and oilseed. The largest (and most famous) irrigation project in Sudan is al-Gezira, but other major programmes are also in operation, including the 300,000- feddan (117,000-ha) Rahad scheme, which receives water from the Roseires dam. There are long-standing plans to heighten the dam, which would increase the amount of water available for irrigation, as well as boosting power generation. The 330,000-feddan New Halfa scheme receives water from the Khashm al-Girba reservoir on the Atbara River, near Kassala. Al-Gezira

The al-Gezira scheme is the country’s largest irrigation project and the most important historically and economically. It covers 880,000 ha between the White and Blue Nile rivers and is the world’s largest irrigated agricultural scheme under single management. More than 100,000 tenant farmers and their families operate the scheme in partnership with the government and the Sudan Gezira Board, which provides the administration, credit and marketing services. However, the relationship between the tenant farmers and the board has frequently been difficult, with farmers attempting to circumvent regulations in order to increase their individual returns. The breakdown in the relationship accounts for many of the problems afflicting the scheme, including low productivity. The government has neglected the

upkeep of the Al-Gezira scheme in the past, leading to water losses and a build-up of silt in irrigation canals. The scheme is also heavily indebted.

Farmed land is owned by the government under the Unregistered Land Act of 1970, which was subsequently confirmed by the 1984 Civil Transactions Act. Customary rights of usage and access have evolved, and are dependent upon community membership by kinship or marriage. When land needs to be left fallow, cultivation rights revert to the community. Despite its continuing importance, the sector as a whole has suffered from underinvestment, leading to a deterioration in its basic infrastructure. This has been evidenced by a marked decline in the irrigated area under cultivation, although there has been some pick up since 2001. The privatisation of some services to the collective irrigation projects has exacerbated many of the problems faced by the sector, with the debt-ridden farms unable to meet contractor payments, even for basic services such as channel clearance. Declining credit provision to the agricultural sector has also undermined growth, as the large number of non-performing loans to private agricultural enterprises have discouraged the commercial banks from providing new credit, and former specialised credit institutions such as the Agricultural Bank have begun to operate on a more commercial basis. Following the food shortages of 2001, however, there was a concerted attempt to boost land area used for food production. According to the figures available from the UN Food and Agriculture Organisation (FAO), this led to a 30% year- on-year increase in land area under cultivation in government-held areas in 2001-02, and further gains in 2002-03, although in large part this was a result of rainfall patterns as much as policy trends. The increase in food production for domestic consumption has been at the expense of export-orientated cash crops, although output appears to have grown in 2004. Food output is also constrained by volatile prices, which rise sharply during years of shortage and fall dramatically in years of surplus, distorting both farmers" incomes and their planting intentions for the following year. Civil conflict!both in the south and, more recently, in the west!also has a devastating impact on farming in areas where the conflict is most intense, forcing farmers away from the land they cultivate and damaging access to supplies.

Key crops Cotton: Cotton was traditionally the single most important export crop for Sudan, but its contribution to export revenue has decreased in recent years. In the 1970s it accounted for an average of 53% of export revenue, but by 1995 this had dropped to 22%, and it was replaced by sesame as the most important agricultural export commodity the following year. The US Department of Agriculture estimated output in 2003/04 at around 76,000 metric tonnes, compared with some 60,000 tonnes in 2001/02 and around 80,000 tonnes in 2002/03. Despite the reported drop in output, a pick-up in average prices boosted export earnings to around US$110m compared with a five-year average of around US$60m. Interim data suggest revenue remained at just over US$100m in calendar year 2004. Nevertheless, cotton earnings were just 4% of the reported total for export earnings during 2003.

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Sesame: Sesame seed production increased in importance over the 1990s, with production rising rapidly from less than 100,000 tonnes in 1991, to a peak of 416,000 tonnes in 1996. Planting areas rose in the same period from 530,000 ha to 1.86m ha. In 1996 sesame displaced cotton as Sudan’s single most important export commodity, earning a total of US$141m, which represented 23% of total export revenue. According to the FAO, production eased to around 275,000 tonnes/year (t/y) over the following two years, before bouncing back to some 329,000 t/y in 1999 and 2000. Over subsequent years, however, planting areas and production have dropped, with the most recent Bank of Sudan (central bank) data putting output at 122,000 tonnes in the 2002/03 season compared with 274,000 tonnes the year before. Export earnings have also trended downward over this period, although interim data for 2004 show a pick-up, apparently confirming anecdotal reports that the area planted for sesame increased. Gum arabic: Historically, Sudan’s other famous agricultural export has been gum arabic, widely used in the production of soft drinks and other goods. Gum arabic is collected from wild acacia trees in Darfur and Kordofan in the west and centre of the country. Output reached a peak of 84,000 tonnes in 1994/95 but fell over the following years to around 16,000 tonnes by 2000!a level of production that has been maintained since. Markets for the product are relatively price-sensitive, as synthetic substitutes for the gum exist. High prices set by the Sudanese government in the mid-1990s encouraged the marketing of synthetics, as well as entry into the market by other producers. Formerly a monopoly supplier on the world market, Sudan now faces competition from Chad, Mauritania, Senegal, Mali and Nigeria. Sorghum and wheat: Production of the Sudanese staple, sorghum, varies according to climatic conditions and the amount of irrigated land used for the crop. According to FAO data, production of sorghum averaged around 3m t/y over the 1990s, but annual output varied from as little as 1.2m tonnes in 1990 to a peak of 4.3m tonnes in 1998. Output has historically been cyclical, with shortages in one year resulting in high prices that encourage increased planting the following year. This boosts output and pushes prices down, curbing planting the next year. Following the food shortages of 2000 there was a sharp pick-up in output in 2001 (from 2.5m tonnes to 4.4m tonnes), but production fell once again in 2002 to under 3m tonnes. Production rose strongly again in 2003/04, aided by good climatic conditions and the implementation of the ceasefire between government and southern rebel forces, which allowed broader and more effective cultivation across much of the south. The government has sought to promote sorghum exports, but poor marketing, coupled with protectionism in neighbouring countries, has limited the progress that has been made. Sudan does have a grain reserve scheme but it is ineffective, mainly owing to funding constraints and infrastructural hindrances. Although sorghum is the key cereal, wheat is also produced. Output has followed a similar pattern to that for sorghum, varying according to government policy and climatic conditions, as well as being driven by domestic price cycles. Production reached a ten-year peak of 640,000 tonnes in 1997 as around 330,000 ha were harvested, but slumped to under 175,000 tonnes in 1999. The push for higher food production in 2001 lifted output back up to 300,000

tonnes, and up to an estimated 330,000 tonnes in 2003, although production remains insufficient to meet rising domestic demand, leaving Sudan reliant on imports.

Forestry and fisheries Apart from forestry products such as gum arabic, Sudan’s forests provide charcoal, a vital energy source for the rural population. Forest stocks are, however, being depleted, especially in eastern and central Kordofan. Forest cover declined by an annual average of 1.1% during 1981-90, and anecdotal evidence suggests that the trend has continued to date. According to the FAO, total forest cover in Sudan fell by 0.8% per year in the 1990s, which was well above the world average, as forestry production and trade increased. The bulk of Sudan’s fish catch comes from freshwater sources. The Sudd swamps in the south and the Nile rivers provide an abundant source of fish, particularly Nile perch. The fish catch rose steadily in the 1990s, increasing from 33,300 tonnes in 1991 to 56,000 tonnes in 1999, with the Ministry of Agriculture and Forests estimating a yield of 68,000 tonnes in 2003.

Livestock Livestock forms an increasingly important part of the agricultural economy, and has displaced cash crops as the fastest growing non-oil export sector. As a result of government encouragement, there has been a surge in commercial livestock production, notably of camels, goats, sheep and cattle. Much of the production has been for sale abroad, with the Arab states of the Gulf (especially Saudi Arabia) showing strong demand for Sudanese output. Export growth was badly affected by an outbreak of Rift Valley Fever in 2000 in Saudi Arabia, which was linked to meat exports from East Africa and led to a blanket ban on imports from the region (including Sudan) across the Gulf. As a result, export earnings fell from US$139m in 1999 to US$75m in 2000 (the ban was imposed late in the year) and just US$15m in 2001. Most Gulf countries had lifted their ban on Sudanese meat imports by late 2001, and the sector rebounded strongly over 2002. Data from the Bank of Sudan for 2002 show total livestock sales of US$117m for the year as a whole, establishing it as the leading non-oil export sector. Exports remained at close to US$100m in 2003, while interim data point to revenue of almost US$150m during 2004.

Mining and semi-processing

Oil In the early 1980s a US firm, Chevron, discovered large deposits of oil in fields near Bentiu in Unity state and Melut in Blue Nile. Development was brought to a halt when a series of rebel attacks on the Chevron plant forced the company to withdraw, but in the mid-1990s a Canadian firm, Arakis, bought the Chevron concession in the Muglad basin, in Wehda (Unity!also known as Western Upper Nile) province north of Bentiu. In March 1997 Arakis signed a consortium agreement with the China National Petroleum Corporation (CNPC), the Malaysian state oil company, Petronas, and the Sudanese state-owned firm, SudaPet, forming the Greater Nile Petroleum Operating Company (GNPOC). In 1998 Arakis was bought out by another Canadian firm, Talisman, which continued to develop the sector in collaboration with the other members of the GNPOC. Under pressure from international campaign groups, Talisman agreed

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the sale of its share to a state-owned Indian oil company, ONGC, in late 2002. ONGC took ownership of Talisman’s 25% stake in GNPOC towards the middle of 2003. The GNPOC concession covers blocks 1 and 2, and includes an oil export pipeline and marine storage terminal. By agreement with the government, foreign oil companies received 60% of the concession’s gross revenue to recover costs, with the government taking the remaining 40%. Following the completion of the initial cost-recovery stage, however, the division has moved in Sudan’s favour.

Prior to 2005, GNPOC was the only concession to be in production. However, there are a large number of other fields at an advanced stage of development, the most significant of which is the Petrodar concession, covering blocks 3 and 7 and being developed by a consortium led by CNPC (41%) and Petronas (40%), but also including Sudapet (8%), Gulf Oil (6%) and the al-Thani Corporation (5%). During 2003 and 2004 the consortium began capital works valued at close to US$2bn, including the construction of a new export pipeline and export terminal, as well as in-field production and transportation facilities. Production is expected to come on stream in 2005. Over the four years since the concession was first awarded, drilling and surveying work has identified three major fields

within the blocks, Adar-Yale, Agordeed and Palogue, with the latter generating the greatest degree of interest among consortium members. Data vary, but some estimates suggest that overall recoverable reserves from the three fields could be as high as 1.4bn-2bn barrels. CNPC also operates Block 6, which has begun production but is expected to see output rise strongly over 2005 and 2006. As a legacy of Total’s investment in the 1980s, Total holds the concession for Block 5, but made clear that it will not seek to reactivate its investment until the civil war has been brought to a close. It is not clear how the French firm will respond now that a peace deal between the government and southern rebels has been signed. Development of Block 5a, which is located on the southern border of the main GNPOC concession, is more advanced but has experienced problems. A Swedish company, Lundin Oil, was operating the sector, but pulled out in late 2003. The firm had plans to begin production in 2002, after commercially viable deposits were discovered in 2001, but development was stalled by deteriorating security conditions in the area, which forced Lundin to withdraw its staff in early 2002. Lundin was in partnership with Petronas, which bought its share. An Austrian firm, OMV, was also involved in the block, but in late 2003 it sold its holding to ONGC, leaving its sole holding on Block 5b. The pipeline, the civil war and human rights

Moves towards peace have shifted the focus away from the impact of oil on Sudan"s civil war. However, up until recent months, the production and transportation of oil had evolved into a highly sensitive issue, since it was alleged by human rights groups that the government was ignoring basic human rights in order to access oil wealth. The construction of the pipeline between the oilfields and the export terminals at Port Sudan was the key factor in the equation. The completion of the oil export pipeline (at 1,610 km, the longest in Africa) was arguably the most impressive economic achievement of the post-1989 National Islamic Front (NIF) era. The project not only provides the government with an additional revenue stream, but also began a restructuring of the domestic economy and external accounts, as well as generating interest in a number of other oil and non-oil development projects. The government also expected the pipeline to reward it with a substantial military, political and economic advantage in the 15-year civil war.

During the fighting, the rebels, well aware of the strategic importance of the oil project, carried out successful attacks on the pipeline, disrupting oil flow for several days on each occasion. They also threatened the oil installations themselves, although defences around the main Greater Nile Petroleum Operating Company (GNPOC) facilities prevented any serious attacks from taking place. Nevertheless, in 2001 a small rebel raiding group successfully carried out a hit and run attack close to the consortium’s base, while convoys carrying materials were also attacked. Rebel gains also forced Lundin, a Swedish company, to suspend development in its concession area, just to the south of the GNPOC area.

In addition, the development of the oil industry has prompted countries and non- governmental organisations (NGOs) opposed to the Islamist regime in Khartoum to step up their campaign against the government, targeting foreign firms working in

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the country in a bid to force them to divest. As the only publicly listed Western company working in Sudan, Talisman of Canada bore the brunt of the NGOs’ campaign and saw its general meetings and offices picketed by campaigners, who also sought to pressure institutional investors to sell their holdings in the firm. Canadian capital market analysts suggest that unease over the company’s links with Sudan and the effect of the divestment campaigns left Talisman stock trading at a discount of as much as 12%. Given the profitability of the concession!which enjoyed the lowest operating costs of all Talisman’s assets, and the fastest growing rate of production!the company initially resisted selling its stake in GNPOC. As pressure increased, however, Talisman’s executives were forced to reconsider their position, and in October 2002 Talisman announced it had agreed to sell its GNPOC stake (at a sizeable profit on its initial capital outlay) to a state-owned Indian oil firm, ONGC.

Talisman’s experience led other Western-owned multinationals to hold back from investing in Sudan. Although it is widely expected that peace will allow international firms to return, it will take time for them to be convinced that the war is indeed over. They will also need to be reassured that human rights concerns have been resolved, with the high-profile Darfur crisis only adding to their fears. Reserves and production GNPOC’s intensive exploration programme has led to a rapid increase in known reserves. In late 1997 these stood at just 417m barrels, but by the end of 2004 Ministry of Energy and Mining officials claimed that proven reserves were 800m barrels while probable reserves were as high as 2.5bn. The oil produced to date has shown low sulphur and metal content, and has commanded a price on the international markets close to the Indonesian blend, Minas, the medium-sweet benchmark in Asia, where a large part of Sudan’s exports have so far been sold. Sudanese crude, which has an API of 34°, is marketed as “Nile Blend”.

Oil concessions Reserves Production Block (m barrels) (barrels/day) Operator Stakeholders 1,2 & 4 1,000 320,000 GNPOC CNPC (40%), Petronas (30%) ONGC (25%), Sudapet (5%) 3 & 7 350 Due to commence in CNPC (41%), Petronas (40%), Sinopec (6%), third quarter of 2005 Petrodar Al Thani (5%), Sudapet (5%) 5A 150 Under exploration Lundin Petronas (69%), ONGC (26%), (now bought out) Sudapet (5%) 5B 150 Under exploration Petronas Petronas (41%), Lundin (24.5%), ONGC (24.5%), Sudapet (10%) 6 120 10,000 rising to 40,000 CNPC CNPC (92%), Sudapet (8%) 8 - Under exploration Petronas Petronas (77%), Sudapet (15%), Hitech (8%) 9 - Under exploration Zafer Zafer (84%), Sudapet (16%) 10,11,12,13,14 & 15 - - Free

Source: Middle East Economic Survey.

In August 1999 the government inaugurated the GNPOC-built, oil export pipeline which connects the Unity and Heglig fields to the export terminal close to Port Sudan, via the al-Jeili refinery north of Khartoum. The pipeline has a design capacity of around 450,000 barrels/day (b/d), but first-phase capacity of some 250,000 b/d. This was sufficient to absorb initial production, which

rose from a start-up level of around 130,000 b/d in 1999 to 185,000 b/d in 2000, and 230,000 b/d in 2001. As new fields came on stream in 2002, however, production reached pipeline capacity, restricting average output to an estimated 245,000 b/d for the year. Following the completion of first-phase expansion work to the pipeline, output rose to an average of 280,000 b/d in 2003 and an estimated 325,000 b/d in 2004. Provided the development of blocks six, three and seven proceed on time, production is expected to average over 450,000 b/d in 2005 and some 650,000 b/d in 2006, firmly establishing Sudan as the second largest producer in Sub-Saharan Africa. On average, domestic consumption stands at around 70,000 b/d, leaving an estimated average of about 250,000 b/d for export in 2004. The bulk of this departs the country as crude, although Sudan also has a small surplus of refined products which are sold abroad.

Refineries Sudan"s main refinery is al-Jeili, located north of Khartoum. The new facility was built as a joint venture with CNPC and came on stream in mid-2000 at a cost of around US$600m. The facility had an initial capacity of around 60,000 b/d! enough to leave Sudan self sufficient (on a net basis) in petroleum products. The refinery is fed directly from the export pipeline that passes close by. Work has already begun on plans to expand capacity at al-Jeili, with capacity expected to rise to around 100,000 b/d, possibly as early as 2006. The refinery is expected to use oil flowing from Block 6, which is operated by CNPC (who will also carry out the expansion of al-Jeili). A new products-only pipeline is also to be built linking al-Jeili to an export point near Port Sudan. The government has also announced plans for a complete overhaul of the 40-year-old refinery at Port Sudan. Production at the facility currently stands at around 20,000 b/d, but this could be raised to as much as 80,000 b/d under government proposals. In addition to these facilities, there is also a 15,000-b/d plant at El Obeid, a small refinery at Abu Gabra, with a capacity of about 2,000 b/d, and a 5,000-b/d topping plant built by Concorp.

Gold and minerals Gold is mined in Sudan, largely in joint ventures with Chinese or French companies. Reserves are estimated at 37 tonnes and are concentrated around the Red Sea Hills. The government says that extraction is now at a rate of 5 t/y. Sudan also has untapped deposits of minerals, including chromite, silver, iron ore, copper, lead, mica, asbestos, talc, tungsten, zinc, diamonds and uranium. The state-owned Sudanese Mining Company (SMC) produces chromite from underground mines in the Ingessana Hills south-west of El Damazin. Reserves are put at 1m tonnes, but chromite exports fell from 10,000-15,000 t/y in the 1980s to 3,000 t/y in 1994. SMC also runs a small gypsum quarry in the Red Sea Hills producing 20,000 t/y. Gypsum reserves are estimated at over 500m tonnes.

Manufacturing

The manufacturing sector showed poor growth over much of the past decade, constrained by shortages in investment, trained personnel, raw materials, and foreign exchange for the import of essential intermediate inputs. These

problems led to chronically low capacity utilisation rates. In 1997, for example, the Ministry of Industry estimated that average capacity utilisation for textiles companies was just 10%, despite the ready local supply of high-quality cotton. Although many problems remain, the situation has begun to improve. Accor- ding to the central bank, the manufacturing sector grew by an average of 7% a year between 1999 and 2003, and accounted for 8.2% of GDP. Although growth is occurring from a low base, the improvement is significant, and is likely in part to be a product of the government’s economic reform programme, which by stabilising Sudan’s macroeconomic environment and easing foreign- exchange and trade regulations has encouraged and facilitated investment. The manufacturing sector has also benefited from the reform of the banking sector and rapid growth in credit to the private sector. The development of the oil export industry has also supported growth, making foreign exchange available for crucial imports that were previously beyond domestic producers’ reach. The most successful industries are in food processing, notably sugar refining. Production rose rapidly throughout the 1990s, from 430,000 t/y in 1994 to 730,000 t/y in 2003, according to the Sudanese Sugar Company and Kenana! the key local producers. Refined sugar production now exceeds domestic demand, making Sudan the Arab world’s only net sugar exporter. In addition, Sudan has developed a small vehicle industry located in the Giad City industrial zone. Other small-scale manufacturing sectors include pharmaceuticals, electrical goods, cement, soft drinks and flour. Despite repeated government claims that it is on the verge of revival, the textile sector has continued to languish. The sector could add significant value to local cotton and yarn production, and according to most estimates could not only meet domestic demand (thus ending Sudan’s reliance on expensive imported goods) but also support a small export base as well. Textile manufacturing is also relatively labour intensive, in contrast to other, more capital good-based sectors. However, while the government puts total capacity at the 80 or so textile factories at around 300m yards a year, actual output in 2003 was just 15m!a capacity utilisation rate of just 5%.

Construction

In rural areas most houses are built of traditional materials such as clay, mud bricks, straw and timber; demand for cement and other building materials is largely limited to urban areas. Given the rapid rural to urban migration during the past decade, estimates of the country’s housing stock are highly speculative. Most housing is privately owned. As with so much of the economy, growth in the construction sector was erratic throughout the 1990s, with short-lived booms in the mid-1990s (growth averaged close to 20% a year in 1994 and 1995 according to official data) giving way to stagnation and decline. The sector has benefited from the sustained pick-up in overall economic growth rates since 2000, with activity reportedly rising by around 12% in real terms in 2003. Although no breakdown of activity is available, growth is likely to have been driven by the ongoing industrialisation programme, and continuing urbanisation. In 2003 the sector accounted for 5% of GDP.

Financial services

The Bank of Sudan was established in 1959. It is officially charged with managing monetary and credit policy, and has responsibility for setting capital and reserve requirements, and minimum profit rates (interest rates). There are 26 commercial banks in Sudan, of which 17 are wholly or majority privately owned. Several foreign banks have operations in Sudan, including a Lebanese bank, Bank Byblos, which established itself in the country in mid-2004. There are also a number of non-bank financial institutions, most of which are insurance firms. Following the 1989 coup, the banking sector became one of the few in the world to be run entirely on Islamic finance principles, including a bar on the charging (and payment) of interest. The shift to the Islamic system, the upheaval of the post-coup period and extensive political interference in the banks’ operations compounded the pre-existing frailties of the banking sector, generated by years of neglect and the demands of the war. Bad debts grew as a proportion of total loans, profitability fell, and the banks’ capital bases were eroded. Intermediation also fell, with bank credit to the private sector falling in real (and even nominal) terms throughout most of the early and mid-1990s. Consequently, the system was a focus of the IMF reform programme, which came into effect in 1997. A number of measures have been introduced to strengthen the system, notably the tightening of capital adequacy ratios and the establishment of a new paid-in capital minimum. Previously, there had been no minimum capital requirements, and their introduction was designed both to make the sector more robust and to force Sudan’s smaller banks to merge. Classification and provisioning regulations against bad and suspect loans were also tightened, internal liquidity ratios revised upward and central bank monitoring and supervision requirements strengthened. In addition, the central bank reformed its liquidity management tools to encourage the development of a more active interbank local and foreign-currency market. The sector has also been liberalised, most notably through the relaxation of strict credit allocation rules that had previously required the commercial banks to focus new lending on areas designated for “priority development” by the government. There have also been moves towards privatising or part-privatising the state-owned commercial banks and restructuring the state-run Agricultural Bank, the Real Estate Bank, the Savings and Social Development Bank, and the Workers Bank. As the economic reform programme has progressed, and oil-driven economic growth has picked up, the sector has also attracted growing interest from foreign banks, particularly other Middle Eastern institutions seeking outlets for sharia-compliant funds. The comprehensive reform programme has enjoyed some success, most visibly in the marked growth in credit to the private sector since mid-2000 (see The Economy: Economic policy). Other aspects of the programme are taking longer to implement, however, reflecting the scale of the problems the sector built up before reform began. Dealing with non-performing loans has been a particular issue, which has impeded efforts to clean up the banks’ balance sheets. The central bank has also yet to fully enforce the minimum paid-in capital requirements, a factor that explains the failure to implement any mergers within the sector. To accelerate the process, the IMF has undertaken to carry out a

Financial Services Assessment Programme (FSAP), which will strengthen the Fund’s influence over the reform programme, and offer a more substantive framework for medium-term restructuring. This has yet to take place, and may form part of a more comprehensive support and technical assistance programme likely to be necessary when the implementation of the peace agreement between the government and rebels leads to the establishment of parallel Islamic and non-Islamic banking systems operating under a single central bank.

Other services

Without a significant improvement in the country’s infrastructure and increased political stability Sudan has little potential for tourism. However, with the prospect of peace in the south an overland tourist route through Africa may become a possibility. The lack of suitable accommodation outside the capital and poor domestic rail and air services ensure that the few tourists who arrive travel via Khartoum to a small number of principally archaeological destin- ations in the north and east of the country. There is considerable potential in the country’s Red Sea diving resources, but onshore facilities are inadequate, and those who dive in Sudanese waters often do so from cruise ships that travel south from Egypt. There are four “first-class” hotels in Khartoum, totalling about 1,200 beds, and a further five standard-class hotels. Most cater for business and aid agency workers. Three hotels and tourist facilities in the Dindar National Park have been offered for privatisation.

The external sector

Trade in goods

The structure of Sudan’s trade account has changed dramatically since the country began to export oil in 1999. Before that time, agricultural products (cotton, sesame and gum arabic) had been the state’s main source of revenue, with export earnings averaging around US$500m a year. Now, however, Sudan’s export profile is dominated by oil and related products, which have accounted for some 80% of all export revenue generated since 2000. The establishment of the oil sector has also led to a massive rise in the value of Sudan’s export earnings, which the Economist Intelligence Unit estimates reached US$3.9bn in 2004!equivalent to the state’s entire export revenue in the eight years before oil came on stream. There are still some vulnerabilities associated with Sudan’s export profile, which remains exposed to price trends on the volatile commodity markets. However, with oil production and export volumes rising rapidly, export earnings are likely to remain strong in the event of all but the most catastrophic drop in prices.

Foreign trade, 2004 (US$ m) Exports fob 3,889 Imports fob -3,222 Trade balance 667

Source: Economist Intelligence Unit.

In addition to boosting export earnings, the development of the oil sector has altered Sudan’s import profile. With the increase in oil production and expansion of the local refinery network Sudan has become largely self sufficient in petroleum products, which had previously accounted for as much as a quarter of overall spending. The demands of the oil sector have also required a sharp increase in the import of capital goods needed for ongoing development and expansion plans. The increase in export earnings has also boosted the availability of foreign exchange, making currency and credit available to finance a range of imports for which funds were previously unavailable. Altogether, this has resulted in a marked increase in import spending, which has more than doubled from around US$1.4bn in 2000 to an estimated US$3.2bn in 2004. Overall, the surge in import earnings has been offset by higher export receipts. Official data show that the trade account was close to balance in 2003, after recording modest surpluses of around US$300m-400m in 2000 and 2001 and a deficit of about US$350m in 2002. Based on interim data, we estimate that Sudan generated a trade surplus of around US$670m in 2004!the largest it has ever recorded.

Trade links with Asia take Historically, Saudi Arabia has been Sudan’s most important export market, ab- precedence sorbing close to 20% of total Sudanese exports over the second half of the 1990s, despite political difficulties associated with Sudan’s support for Iraq in the 1990-91 Gulf war. Saudi Arabia remains an important destination for non- oil exports (particularly livestock), but the development of the oil export industry has reformulated the overall pattern of trade, with China (the leading consumer of Nile Blend) established as the country’s largest export market.

Main trading partners, 2003 Exports fob to: % of total Imports cif from: % of total China 24.0 China 19.2 Saudi Arabia 20.4 Saudi Arabia 7.6 Japan 9.7 France 6.2 UAE 4.8 UK 5.5 Germany 4.3 India 5.3

Source: IMF, Direction of Trade Statistics.

Sudan’s new-found self sufficiency in oil products has also impacted on import patterns. According to IMF figures, Libya, Sudan’s leading goods supplier since 1990, saw the value of its exports to Sudan fall from some 15% of total imports in 1999 to less than 1% in 2000 and 2001 as demand for imported refined goods ended. Instead, China has established itself as the country’s main supplier, underlining the leading role it has established for itself in Sudan’s oil and non-

oil economy. The high rankings for the UK and France reflect Sudan’s need to import a range of finished products that are not manufactured locally.

US sanctions

In November 1997 the US president, Bill Clinton, signed an executive order prohibiting trade and financial transactions between US companies and Sudan. The sanctions were imposed to punish Sudan for human rights abuses, the supposed persecution of Christians and alleged sponsorship of international terrorism. Sudan was also included on a list of states to be sanctioned under the US Freedom from Religious Persecution Bill and International Religious Freedom Bill, although with the executive order in place, no new additional economic restrictions have been imposed. The impact of sanctions has generally been limited. The volume of trade between the two countries before sanctions was small, and the freezing of Sudanese government assets required by the executive order affected only US$4m-4.5m, according to the Bank of Sudan (the central bank).

In early 1999 the US Congress passed the Sanctions Reform Act, which excluded foodstuffs from sanctions on a number of named countries, including Sudan. This led to the resumption of US agricultural exports to Sudan, although trade remains small scale. Despite the improvement in US- Sudanese ties, the president, George W Bush, renewed the executive order every year. In late 2002 the US also passed the Sudan Peace Act, which required Mr Bush to impose new sanctions on Sudan (including measures that targeted the oil industry) if he judged that the regime was not negotiating with the rebels "in good faith". The measure was never used but was one of the levers that helped push the regime toward a peace agreement. It is certain that sanctions will be lifted once this agreement is brought into effect, although this may be delayed by the unresolved conflict in Darfur!for wh ich the US holds the government responsible. Restrictions on arms purchases, however, may remain.

Invisibles and the current account

Like its trade profile, Sudan’s current-account structure has changed dramatically as a result of the development of the oil industry. The value of non- merchandise outflows has surged since oil exports began, largely reflecting the repatriation of profits generated by the foreign firms that have led the development of the sector. In 2003, for example, income debits reached US$880m as oil revenue soared, compared with just US$11m in 1998!the year before oil exports began. We estimate that they rose to more than US$1.4bn in 2004. Service debits have also leapt, reaching more than US$800m in 2003 compared with just US$200m in 1998. In large part this rise is as a result of costs associated with the rising volume of Sudanese imports, although the costs of transporting the government’s share of oil to market has also increased. The main source of non-merchandise credits has remained current transfers, composed largely of remittances from the country’s substantial overseas work-

force. The value of these transfers rose from around US$500m in the second half of the 1990s to over US$1.2bn in 2003 according to official data, with interim figures pointing to further growth in 2004. The upward trend in part reflects strong economic growth in the oil-rich Gulf, where many expatriates work, as well as the strength of the euro against the US dollar. However, it also marks growing confidence in the domestic banking system and the stability of the Sudanese dinar, which has encouraged expatriates to transfer and convert funds through official channels, rather than by informal means. As a result, part of the apparent gain in the value of transfers over recent years is likely to be a consequence of statistics capturing flows that were previously unrecorded. Overall, these trends in the non-merchandise account have boosted net outflows to an annual average of around US$900m since 2000 compared with less than US$100m in the second half of the 1990s. This has largely offset the improvement in the trade position, and ensured that the current account has continued to generate deficits of around US$500m-750m over the past five years, close to the reported levels of the 1990s. With the economy growing rapidly over the period, however, the value of the shortfalls as a percentage of GDP has eased to an average of around 5%, compared with more than 8% in the five years before oil exports began.

Current account, 2004a (US$ m) Goods: exports fob 3,889 Goods: imports fob -3,222 Trade balance 667 Services: credits 141 Services: debits -893 Services balance -752 Income: credits 21 Income: debits -1,448 Income balance -1,427 Current transfers: credits 1,432 Current transfers: debits -501 Current transfers balance 930 Current-account balance -582 a Economist Intelligence Unit estimates. Source: Economist Intelligence Unit.

Capital flows and foreign debt

Debt The current regime has been saddled with the high external debt run up by previous administrations. During the 1970s, encouraged by the international banking and diplomatic community, Sudan borrowed heavily to finance a development programme that failed to deliver the growth hoped for. When oil import prices and interest rates rose steeply, Sudan found that its debt burden was unsustainable. In 1987 the government decided to limit debt-service payments to 25% of expected export earnings, but was unable to meet even this repayment schedule. The country accumulated substantial arrears, and relations with creditors, including the IMF, deteriorated. Sudan was declared

non-co-operative by the IMF in 1990 and was faced with the threat of expulsion from the Fund (see The economy: Economic policy). Relations with the IMF improved in the late 1990s, with the non-co-operation declaration lifted in 1999 and voting rights restored in 2000 as Sudan began to make payments on its arrears. The repurchases, which have averaged around US$8.4m a quarter since 1997, represent only a small fraction of its debt to the organisation, however, which stood at an estimated US$1.5bn at the end of 2003. The World Bank estimated Sudan’s total external debt at US$16.4bn at the end of 2002, which is likely to have risen to at least US$17.2bn by the end of 2004. IMF data, however, suggest that the World Bank figures may be too low, with the Fund putting the total foreign debt stock (including arrears) at US$24.2bn at the end of 2003. Almost all medium- and long-term debt is owed by the government, with Paris Club bilateral and multilateral debt to organisations such as the IMF, the International Bank for Reconstruction and Development (IBRD) and the Arab Monetary Fund (AMF) making up around one-half of the total. Some 90% of Sudan’s total debt is in arrears, as is 100% of its debt to commercial creditors. Sudan will require a rescheduling and forgiveness package if it is to deal with these arrears. Such a programme!including the possibility of access to the heavily indebted poor countries (HIPC) initiative!was one of the incentives held out by Western governments involved in the peace talks between the government and southern rebels over 2002-04. Now that these talks have successfully been concluded, it is likely that debt deals will form part of a broader economic programme to consolidate the new post-conflict order. A first step toward HIPC access will be the rescheduling of Sudan’s remaining arrears to the Fund, together with the drawing up and endorsement of an economic programme sufficient to support an IMF poverty reduction and growth facility (PRGF). As well as facilitating an HIPC agreement, a deal with the IMF should also open the door for successful negotiations with the Paris Club and other Western creditors. On top of all this, a peace deal will require new finance to implement peace measures and to kick-start development programmes. This money must come from multilateral lenders as Sudan cannot afford (or indeed gain access to) commercial debt. The government of the south will also be able to contract debt once the peace deal with the government begins to be implemented, although if this is to receive a sovereign guarantee, it must be assumed that the national government in Khartoum will have some say over the value and terms of disbursements that are made. According to the central bank, Sudan received loans worth a total of just US$85m in 2003, almost double the US$45m received the previous year, but still the equivalent of just 0.6% of GDP. All of the debt was disbursed by Arab bilateral or multilateral concessional financing Funds. More substantial inflows are expected in the coming years, including funds from the economic development agencies of Saudi Arabia, Abu Dhabi and Kuwait, which have agreed to finance much of the US$1.2bn cost of the giant hydroelectric power plant being built at Merowe in northern Sudan (see Resources and infrastructure: Energy provision).

Aid Sudan continues to receive substantial aid, despite international frustration at the continuation of conflict!which donors recognise as the cause of much of the suffering in Sudan. Over the past decade, most of the aid has been channelled through the UN’s Operation Lifeline Sudan!an umbrella organisation co- ordinating relief work in southern Sudan. As the humanitarian crisis in Darfur deepened over 2003 and 2004, that region also attracted significant sums, although again the finance was released to non-governmental organisations (NGOs) and UN agencies active in the area, not to the government.

Foreign reserves and the exchange rate

Although the current account has remained in deficit despite the development of the oil industry, increased net capital flows (principally foreign direct investment in the oil sector) has improved Sudan’s overall external account position substantially, allowing the central bank to build reserves. In 1991 reserves (not including gold) were virtually exhausted, standing at just US$7.6m!equivalent to only two days of import cover. They remained at close to these levels until 1995, when foreign-currency holdings rose to around US$180m before falling away again over the following years. Reserves have shown more sustained growth, however, since oil earnings came on stream in 1999, with holdings rising to US$250m at the end of 2000, US$440m at the end of 2002 and US$1.4bn at the end of the third quarter of 2004!the most recent point for which data are available. Even allowing for the marked increase in import spending apparent over the past few years, reserves of this level equate to around 4.1 months of import spending!still modest by international norms, but the highest year-end total the country has ever recorded.

Exchange-rate regime The Sudanese government experimented with various exchange-rate systems in the 1990s, none of which generated the stability the government sought. Shortly after introducing a single rate, the government was forced to return to a multi-tier system in 1993 as the market value of the pound plummeted. The Sudanese pound was allowed to float once again in September 1995, but rapid devaluation forced the government to reimpose restrictions in July 1996, although the black market continued to flourish. Under tutelage from the IMF, the exchange rate was unified once again in late 1998, and allowed to operate as a “managed float”. In reality, the new regime has become a fixed peg against the dollar, with the dinar standing at SD257:US$1 between 1999 and mid-2001. The rate weakened marginally to SD263:US$1 in 2002 and 2003, but over the course of 2004 resumed trading at around SD257:US$1. Although the rate has shown little change, at the end of 2001 the Bank of Sudan (the central bank) introduced a new system for managing the dinar, under which an “indicative rate” for the dinar against the US dollar was established, based on a weighted average of transactions between the central bank, the commercial banks and other foreign-exchange account holders. The bank holds biweekly auctions at which it buys and sells foreign exchange according to bids received, allowing for a 1.5% spread around the indicative rate. Outside of these auctions, the Bank of Sudan officially plays no role, with the trade instead occurring on the interbank market!although this

has shown no volatility, with rates of exchange instead tracking those established by the Bank of Sudan’s auctions. Stability in nominal terms constitutes a marked appreciation in real terms given prevailing exchanges in Sudan. In talks with the government, the IMF has warned that this could lead to the country’s non-oil exports losing their com- petitiveness. The government has been reluctant to allow the dinar to move toward a freer float, however, partly because it fears the possible impact on inflation, but also because the stability of the dinar has become an important symbol of the new-found stability of the domestic economy itself. The government has also been able to point to the continued growth of non-oil export earnings as evidence that the exchange rate is not overvalued. The weakness of the US dollar itself over 2004 and 2005 has also eased pressure on the government to allow the dinar to weaken in nominal terms. Regional overview

Membership of organisations

Intergovernmental Authority The Intergovernmental Authority on Drought and Development (IGADD), the on Development (IGADD) brainchild of the then president of Djibouti, Hassan Gouled Aptidon, was established in January 1986 with six East African members: Djibouti (where the secretariat is based), Ethiopia, Kenya, Somalia, Sudan and Uganda. Its aim was to co-ordinate and channel funding into agricultural development and the alleviation of drought and desertification. Progress on development and environmental projects was slow, but the organisation made headway as a forum for regional politics and facilitated the successful reconciliation of Somalia and Ethiopia in 1988. However, regional events in 1991 undermined IGADD: the presidents of Ethiopia and Somalia were overthrown, Eritrea gained independence, and the self-proclaimed Somaliland Republic emerged. Although IGADD gained a seventh member, Eritrea, in September 1993, it achieved little success in its attempts to help resolve internal conflicts in Sudan and Somalia. Thus, in March 1996, at a summit in Nairobi, IGADD renamed itself the Intergovernmental Authority on Development (IGAD) and adopted a new charter proclaiming conflict resolution to be its priority. IGAD also pledged to pay more attention to economic integration. However, with the outbreak of war between Ethiopia and Eritrea in May 1998, Sudan’s increasingly tense relations with both Eritrea and Uganda, and with Ethiopia and Eritrea supporting different factions in the civil conflict in Somalia, the organisation was severely handicapped in the late 1990s. IGAD’s fortunes have improved since the turn of the decade. The uneasy UN- monitored peace between Ethiopia and Eritrea has held, and progress has been made in the quest for peace in Sudan. The latter culminated in the agreement, signed in Machakos, Kenya, in July 2002, that a referendum on self- determination for the south would be held after a six-year interim period. After the resumption of fighting a few months later, IGAD quickly brokered a ceasefire, which was swiftly followed by the resumption of talks. However, it is US pressure on both sides, as well as US influence over the debate within

IGAD, rather than IGAD itself, that has been moving the rapprochement ahead. IGAD’s ongoing Somali reconciliation talks finally bore fruit in September 2004, with the creation of a new, 275-member, Federal Transitional Parliament and the selection of a house speaker and interim president. Long-term prospects for the Somali peace process will remain poor for the moment, but the recent progress has offered greater hope than at any point in the last decade. Additionally, IGAD holds regular discussions on economic integration and infrastructural co- operation, but given the tensions between its members they are unlikely to result in concrete action.

League of Arab States More commonly known as the Arab League, the organisation was formed in 1945 to strengthen relations between Arab states and co-ordinate policies for the good of the whole Arab nation. Its membership has stood at 22 since Comoros was admitted in 1993. Palestine is treated as a full member of the organisation. The League, which has observer status at the UN General Assembly, is based in Cairo. The Arab League has attempted to mediate in a number of regional conflicts, and was the overseer of the Arab boycott of Israel. It has been criticised as an ineffective talking-shop; one of its handicaps is a system whereby unanimous decisions of the Arab League Council are deemed binding on all members, but majority decisions are binding only on those states that voted for them. The Arab world has become increasingly divided in recent years, further negating the effectiveness of the League. US and UK policy toward Iraq was a major cause of tension within the Arab world from the second half of the 1990s, with even some countries strategically allied with the West taking a signally different position from Kuwait’s staunch support for Iraq’s comprehensive containment. However, when, from 2002, the prospect of a US/UK ground invasion to overthrow the regime of the Iraqi president, Saddam Hussein, became increasingly likely, a common Arab stance opposing any military action against the Iraqi regime and in support of the lifting of UN sanctions was agreed at the April 2002 Arab League summit in Beirut. This was strongly criticised by Kuwait, given the implied criticism that was made of it in the resolution. However, the early success of the US-led military campaign to overthrow the Iraqi regime helped to minimise the tensions that had been expected within the Arab League and led to League recognition of the new Iraq Governing Council set up under US auspices. The sovereign interim Iraqi government has since maintained relatively co-operative relations with its Arab neighbours, although concerns over security threats emanating from Syria and Saudi Arabia remain. An escalation in Israel-Palestinian violence in September 2000 prompted greater unity between Arab League members, with the body promoting a number of initiatives in the context of a perceived lack of US engagement on the issue. However, an ebbing of Palestinian-Israeli violence has seen those Arab states that have diplomatic relations with Israel!Jordan and, in particular, Egypt!adopt a more central role in peacemaking efforts. Nonetheless, differences within the League are likely to persist over the terms on which peace talks should be resurrected. In contrast, the US"s commitment to

democratisation in the Middle East is showing signs of having prompted a more concerted Arab League position, balancing criticism with attempts to publicise efforts within the region to conduct internal change.

African Union (AU) The African Union (AU) is the successor to the Organisation of African Unity (OAU) and is based in the Ethiopian capital, Addis Ababa. The AU was formally launched in July 2002 at a meeting of African heads of state in the South African city of Durban. This came two years after the AU’s formation was first agreed in Togo in July 2000 and followed a one-year transitional period that began after the ratification of the constitutive act of the AU by two-thirds of the member states in May 2001. The AU is modelled on the EU and has ambitious plans for a parliament, a central bank, a single currency, a court of justice and an investment bank. The most advanced of these is for a Pan-African Parliament, which held its first session in South Africa in October, although it will not play a legislative role for five years. The president is currently Gertrude Mongella from Tanzania. The AU also aims to have common defence, foreign and communications policies, based loosely on those of the EU. Even if these goals are not fulfilled, the organisation fills the need for a forum for discussing the continent’s problems and the idea of pan-African unity exerts a strong hold over member countries. In practical terms, the most high-profile AU event is the annual conference of heads of state, which is hosted by the member state that is due to hold the chairmanship of the organisation for the following year. The day-to-day affairs of the AU are managed by the AU commission, which is modelled on the EU commission and was endorsed by the AU heads of state summit in July 2003. The commission is headed by the former Malian president, Alpha Konaré, aided by a deputy, Patrick Mazimhaka of Rwanda, both of whom were elected at the summit. There are also seven appointed AU commissioners. One of the main problems facing the AU is that many of the proposed new institutions and policy co-ordination mechanisms are costly and cannot be funded within the AU’s current resource allocations. To help to counter this, at the July 2004 Annual Summit Mr Konaré presented a 2004-07 Strategic Framework aimed at launching Africa into the 21st century. Under this, member states are supposed to pledge 0.5% of GDP to fund the AU, which will allow it to double the staff at its headquarters and to push ahead with the implementation of the New Partnership for Africa’s Development (Nepad). This is a potential bone of contention with the South African government, which is keen for Nepad to remain in its South African headquarters. However, to date, many members still fail to pay their membership dues so further commitments, other than from external donors, are unlikely. In December 2003 donors and external lenders expressed their full support for the AU’s initiatives and the creation of new institutions. The main criticism levelled at the OAU in the last decade was that little real action resulted from its policy announcements. There are concerns that the AU, like its predecessor, will be undermined by a lack of real commitment to its initiatives amongst the 53 member states, many of which suffer from very weak governance. This problem is further compounded by the fact that many member states are unlikely to give up the sovereignty required to make several

of the proposed initiatives!such as a single currency or a court of justice! operate effectively. The AU will also battle to overcome opposition to the principle of non- interference, which has been a major hindrance to the resolution of conflicts on the continent and is a contentious issue among member governments. Although non-interference was enshrined in the old OAU, this is not the case with the AU, which has set up a Peace and Security Council (PSC; to replace the OAU’s Mechanism for Conflict Prevention, Management and Resolution) modelled on the UN Security Council. It is envisaged that the PSC will sanction military intervention in member states in cases of genocide, unconstitutional changes of government and gross human rights abuse. The proposed military intervention by the AU is to be through a standing armed force, which is projected to comprise five battalions by 2010 and has already received some funding from both the EU and the US. Even without the establishment of the PSC, since May 2003 the AU has had an observer mission in Burundi, led by South Africa and including troops from Mozambique and Ethiopia, to help enforce a peace agreement in Burundi"s civil war. An AU observer mission was also sent to the Darfur region of Sudan in July 2004, and a protection force is being deployed. If this is increased, to become a real peacekeeping force, it could prove to be the first real test of the AU’s commitment to intervening in member countries’ domestic affairs.

Common Market for Eastern Based in Lusaka, Zambia, the Common Market for Eastern and Southern Africa and Southern Africa (Comesa) (Comesa), is the successor organisation to the regional Preferential Trading Area (PTA), and came into force on December 8th 1994 with 12 members. Comesa now has 19 members: Angola, Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The Comesa region has a total population of around 385m and an estimated GDP of US$170bn. Lesotho, Mozambique and Tanzania have all withdrawn from Comesa since 1997 to concentrate on their membership of the Southern African Development Community (SADC), while Namibia withdrew in July 2003, stating that its industries were too weak to compete with Comesa’s Free Trade Area (FTA). South Africa’s decision not to join Comesa makes SADC membership more attractive to its main trading partners. The original PTA, launched in 1981, aimed to liberalise trade and encourage co- operation in industry, agriculture, transport and communications. Comesa’s principal aims build on these ideals; its main goals are to eliminate the structural and institutional weaknesses of member states and to promote the political security and stability necessary for sustained development, both individually and collectively as a regional bloc. These aims are to be achieved through monetary union with a single currency and a common central bank. The creation of an FTA on October 31st 2000 was to be a major step towards achieving them. By mid-2004 11 of the 19 members had agreed to participate (Burundi, Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Zambia and Zimbabwe), with Swaziland being granted a derogation to participate on a non-reciprocal basis (in order to reciprocate, Swaziland would

require the permission of other member states of the Southern African Customs Union, to which it also belongs). The eleven FTA members have removed all barriers to intra-regional trade, although they retain tariffs on imports from outside Comesa, and the Rwandan government has stated that it will only offer zero tariffs on goods produced by Comesa countries participating in the FTA. To encourage other members to join the FTA, a fund was created in 2002 to compensate those countries facing revenue loss, although the source and extent of this funding is not clear. Indeed, this fund does not appear to have been used when Burundi and Rwanda joined in early 2004, with both countries estimating large drops in customs revenue as a result of participating. The reluctance of most of the remaining eight member countries outside of the FTA to join, coupled with intense disagreements over a Common External Tariff (CET), is jeopardising any chance of the organisation meeting its objective of a customs union by December 2004. Senior members at the Comesa secretariat have reportedly acknowledged that the customs union will have to be delayed into 2005 at least. The target of full monetary union by 2025 remains, but seems similarly improbable. Between 2001 and 2003 trade among Comesa FTA countries grew by 48%, compared with growth of 22% among Comesa countries as a whole. Intra- regional trade was valued at US$5.3bn in 2003. In 2002 intra-Comesa trade as a proportion of total trade ranged from 4.3% for the Seychelles to 18% for Kenya. Over the past 30 years the share of Comesa exports as a percentage of intra- regional exports has grown only slightly, from 9% in 1970 to 10.7% in 2002 (although these figures do not capture the high level of illegal crossborder trade). Reasons for the low level of intra-Comesa trade include a lack of political commitment and political stability in member countries, and weak balance-of-payments and foreign-reserves positions. In some cases there are hardly any official trade links between member states. Egypt, Kenya, Uganda and Zimbabwe accounted for 58.8% of the trade between members of Comesa in 2002. As industry and manufacturing are generally poorly developed, many members are unprepared to reduce tariffs further for fear of undermining local industries (Tanzania’s main reason for leaving) and fiscal revenue collection. A further constraint has been the strict and cumbersome rules of origin, which are open to conflicting interpretations, and there have been some instances of member countries refusing to honour the relevant certificate of origin presented with Comesa imports. In addition to these impediments, progress towards free trade is hampered by political tensions between member states. Regional free-trade areas like Comesa"s FTA aim to increase intra-regional commerce, leading to higher economic growth rates, but they attract criticism from many who feel that this cannot be achieved while supply-side constraints!such as poor infrastructure, inefficient transport links, low education and skills levels, and cumbersome bureaucracy!remain. Comesa has concentrated on trade integration, but the lack of uniformity in investment codes and regulatory arrangements has been an impediment to crossborder

trade and investment. The commitment to Comesa of many of its members is weak and meetings are frequently cancelled. Moreover, attempts at promoting crossborder investment and monetary harmonisation have been superseded by initiatives introduced by the East African Community and SADC. Under the old PTA system, a multilateral clearing facility was established and a PTA unit of account (UAPTA), equivalent to the IMF’s SDR, was used to settle debts between members, the balance being payable in US dollars. In 1997 the UAPTA was replaced by the Comesa dollar, which is pegged to the US dollar. A Comesa court was officially opened in March 2001, although it had been established three years earlier. In theory, the court, which aims to be an independent arbitrator in trade-related disputes, has jurisdiction over national courts, but in practice it does not have the powers to enforce its rulings and has been hamstrung by a lack of finance. Comesa also set up the African Trade Insurance Agency (ATI) in 2001. Financed by a US$5m start-up loan from the World Bank, the ATI aims to provide political risk cover for investors in all member countries. In November 2002 Comesa, along with other Eastern and Southern African regional integration organisations, established the Inter- regional Co-ordinating Committee (IRCC) to promote regional economic integration and the integrated management of natural resources, transport and communications.

Appendices

Sources of information

The Sudanese government publishes some statistics on the economy, but these are extremely difficult to access outside the country. With closer monitoring of the Sudanese economy by the IMF, timely data are now more readily available. However, some of this information, which is reliant on government data, is of questionable quality (see The economy: Economic performance).

National statistical sources Bank of Sudan, Annual Report Bank of Sudan, Foreign Trade Statistical Digest Ministry of Finance, Economic Survey Ministry of National Planning, Foreign Trade Statistics

International statistical sources Bank for International Settlements, Banking and Financial Market Developments (quarterly), Basle, Switzerland Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner HA5 5PJ IMF, Direction of Trade Statistics (quarterly and annual), Washington DC IMF, International Financial Statistics (monthly), Washington DC IMF, Staff Reports on the 2000 Article IV Consultations, June 2000, Washington DC IMF, Sudan: Statistical Annex, July 2000, Washington DC International Institute for Strategic Studies, The Military Balance (annual), London UN Food and Agriculture Organisation (FAO), Production Yearbook (annual), Rome, and FAOSTAT at www.fao.org United Nations Development Programme (UNDP), Human Development Repor 2002 World Bank, Global Development Finance (annual), Washington DC World Bank, World Development Indicators (annual), Washington DC World Bank, World Tables (annual), Washington DC

Select bibliography Africa Rights, Food and Power in Sudan, London, 1997 International Crisis Group, God, Oil and Country, 2002 J Millard Burr & Robert O Collins, Requiem for the Sudan, Westview, Colorado, 1995 G M Craig (ed), The Agriculture of the Sudan, Oxford University Press, 1991 Minority Rights Group, Sudan: Conflict and Minorities, London, 1995 Peter Woodward, Sudan, 1898-1989, Rienner, London, 1990 Peter Woodward (ed), Sudan since Nimeiri, Croom Helm, London, 1991

Useful websites http://www.sudan.net (daily news updates on Sudan in English and Arabic) http://www.bankofsudan.org (central bank annual, quarterly economic reports) http://www.fao.org (includes details of Sudanese agricultural production) http://www.wfp.org (includes details of emergency food relief work in Sudan) http://www.crisisweb.org/projects/project.cfm?subtypeid=21 (periodic reports on Sudan civil war and peace process)

Reference tables

Population (m) 1999 2000 2001 2002 2003 Total 30.74 31.44 32.15 32.88 33.61 % change, year on year 2.1 2.3 2.3 2.3 2.2

Source: IMF, International Financial Statistics.

Government finances (SD bn) 1999 2000 2001 2002 2003 Total revenue 205.2 326.3 370.0 472.2 703.6 Tax 154.0 200.1 188.7 213.7 266.8 Non-tax (incl oil) 51.2 126.2 181.3 258.5 436.8 Total expenditure 227.0 349.8 401.2 517.8 735.9 Current 197.5 275.3 322.5 377.0 563.0 Capital 29.5 74.5 78.7 140.8 172.9 Budget balance -21.8 -23.5 -31.2 -45.6 -32.3

Sources: 1996-1999: IMF, Sudan: Recent Economic Developments; Sudan: Statistical Annex; 2000: Bank of Sudan, Annual Report.

Money supply (SD bn unless otherwise indicated; end-period) 2000 2001 2002 2003 Sept '04 Money (M1) incl others 235.0 271.0 352.0 458.0 530.0 % change, year on year 42.4 15.3 29.9 30.1 31.8 Quasi-money 113.0 161.0 211.0 276.0 350 Money (M2) 348.0 432.0 563.0 734.0 880 % change, year on year 37.0 24.1 30.3 30.4 31.9

Source: IMF, IFS.

Gross domestic product (market prices) 1999 2000 2001 2002 2003 Total (US$ m) At current prices 10,639.8 11,248.8 12,079.6 13,552.5 15,818.5 Total (SD m) At current prices 2,687,093 2,892,296 3,124,990 3,568,510 4,128,322 At constant (1982) prices 1,294.2 1,360.8 1,444.4 1,533.0 1,624.2 % change, year on year 6.5 5.1 6.1 6.1 5.9 Per head (SD) At current prices 87,414 91,994 97,200 108,531 122,830 At constant (1982) prices 42 43 45 47 48 % change, year on year 4.1 2.8 3.8 3.8 3.6

Source: World Bank.

Prices and earnings (% change, year on year) 1999 2000 2001 2002 2003 Consumer prices (av) 16.0 5.7 5.8 8.4 7.8 Source: IMF.

Labour force 1997 1998 1999 2000 2001 Total (m) 11.5 11.8 12.1 12.4 12.7 Women as % of total labour force 28.8 29.0 29.3 29.5 29.8

Source: IMF.

Area, output and yield of selected crops 1999 2000 2001 2002 2003 Sorghum Area ('000 ha) 4,529 4,195 5,742 5,003 7,081 Yield (kg/ha) 5,181 5,931 7,652 5,647 7,327 Production ('000 tonnes) 2346 2488 4394 2825 5188 Millet Area ('000 ha) 2,393 2,087 2,586 2,437 2,570 Yield (kg/ha) 2,085 2,377 2,235 2,384 3,051 Production ('000 tonnes) 499 496 578 581 784 Groundnuts (in shell) Area ('000 ha) 1,514 1,462 1,531 1,350 1,900 Yield (kg/ha) 6,911 6474 6,465 9,384 6,316 Production ('000 tonnes) 1,047 947 990 1,267 1,200 Sesame Area ('000 ha) 2,174 2,006 1,587 1,174 850 Yield (kg/ha) 1,513 1,406 1,864 1,039 3,824 Production ('000 tonnes) 329 282 296 122 325 Wheat Area ('000 ha) 142 91 120 115 150 Yield (kg/ha) 12,113 23,266 25,225 21,385 22,133 Production ('000 tonnes) 172 212 303 246 332 Gum arabic Production ('000 tonnes) 18 28 n/a n/a n/a

Source: FAO.

Livestock numbersa ('000 head) 1999 2000 2001 2002 2003 Camels 3,031 3,108 3,203 3,342 3,300 Cattle 35,825 37,093 38,325 38,183 38,325 Chickens 36586 36,465 36,820 37,000 37,000 Sheep 44,802 46,095 47,043 48,136 47,000 Goats 37,346 38,548 39,952 41,485 42,000 a Livestock numbers are total stocks of live animals. Sources: FAO; IMF, Statistical Annex.

Animal and dairy production ('000 tonnes) 1999 2000 2001 2002 2003 Meat 639 664 739 740 698 Milk 4,800 4,851 4,887 4,911 5,056 Poultry meat 30 30 31 31 31 Eggs 44 45 46 46 47 Fish 53 n/a n/a n/a n/a Cattle hides 53 55 56 56 56

Source: FAO.

Cotton crops ('000 bales unless otherwise indicated)a 2000/01 2001/02 2002/03 2003/04 2004/05 Area ('000 ha) 240 150 180 180 200 Yield (kg/acre) 324 399 527 423 435 Production 340 275 375 350 400 Local sales 90 45 45 20 20 Exports 250 225 300 375 325 a 1 bale=480 lb. Source: US Department of Agriculture, Foreign Agricultural Service.

Consolidated balance sheets of the deposit money banks (SD bn) 2000 2001 2002 2003 Aug 2004 Reserves 57.15 57.41 67.68 91.01 111.08 Foreign assets 73.66 89.73 127.92 130.27 155.89 Claims on central government 4.20 7.33 20.88 35.04 38.33 Claims on private sector 71.48 101.14 178.43 279.63 348.64 Total assets incl others 215.37 266.46 410.45 553.74 666.56 Demand deposits 84.13 109.14 147.46 194.63 238.97 Time & savings deposits 106.74 157.98 210.26 271.88 332.31 Foreign liabilities 3.81 9.11 13.72 14.79 16.91 Capital accounts 32.20 47.64 73.69 110.31 103.5 Total liabilities incl others 215.37 266.46 410.45 553.74 666.56

Source: IMF, International Financial Statistics.

Foreign trade (US$ m) 2004 2000 2001 2002 2003 Jan-Jun Exports fob 1,806.7 1,698.7 1,949.1 2,542.2 1,670.5 Imports cif 1,552.7 1,585.5 2,446.4 2,736.2 1,829.2 Trade balance fob: cif 254.0 113.2 -497.3 -194.0 -158.7

Source: Bank of Sudan.

Main exports fob (US$ m) 2004 2000 2001 2002 2003 Jan-Jun Petroleum & products 1,408 1,377 1,511 1,994 1,292 Sesame 147 105 75 75 109 Livestock & meat 66 2 117 98 81 Gold 46 44 53 59 14 Cotton 53 44 62 108 57 Gum arabic 23 24 32 40 19 Sugar 13 12 10 7 11 Ground nuts 6 9 6 1 2

Source: Bank of Sudan.

Main imports cif (US$ m) 2004 2000 2001 2002 2003 Jan-Jun Machinery & equipment 323.5 442.5 620.8 662.0 500.2 Petroleum & other crude materials 219.2 108.0 186.9 141.0 92.1 Manufactured goods 293.7 296.5 555.0 728.8 442.3 Transport equipment 158.7 202.9 255.8 372.0 311.9 Chemicals 221.1 123.6 206.5 226.5 89.1 Wheat & wheat flour 207.9 138.1 221.3 200.7 135.9 Textiles 60.5 85.7 140.3 121.2 80.8 Tea 28.7 31.0 30.7 32.4 16.8 Drinks & tobacco 18.7 23.7 26.5 17.3 16.8 Total incl others 1,552.7 1,585.5 2,446.4 2,736.2 1,829.2

Sources: IMF, Sudan: Recent Economic Developments; Bank of Sudan.

Main trading partners (% of total) 1999 2000 2001 2002 2003 Exports fob to: China 6.9 32.6 46.2 53.3 24.0 Saudi Arabia 17.6 5.8 4.9 4.7 20.4 Japan 10.4 18.1 14.5 13.4 9.7 UAE 1.2 – – – 4.8 Imports cif from: China 16.0 11.9 13.4 20.1 19.2 Saudi Arabia 7.2 9.6 8.2 7.5 7.6 France 6.4 4.9 6.0 3.8 6.2 UK 10.2 6.5 6.8 5.5 5.5

Source: IMF, DOTS.

Main composition of trade (US$ m; fob-cif) 1999 2000 2001 2002 2003 Exports fob Oil 276.0 1,408.0 1,377.0 1,510.9 1,994.2 Livestock 114.0 66.0 2.0 117.1 97.9 Sesame 127.3 146.9 104.5 74.6 74.5 Cotton 47.2 53.0 44.4 62.2 107.9 Total exports incl others 780.0 1,806.7 1,698.7 1,949.1 2,542.2 Imports cif Machinery & equipment – 323.5 442.5 620.8 662.0 Manufactured goods – 293.7 296.5 555.0 699.0 Transport equipment – 158.7 202.9 255.8 372.0 Wheat & wheat flour – 207.9 138.1 221.3 200.7 Total imports incl others 1,415.0 1,552.7 1,585.5 2,446.4 2,736.2

Source: IMF, DOTS.

Balance of payments, IMF series (US$ ) 1999 2000 2001 2002 2003 Goods: exports fob 780.1 1,806.7 1,698.7 1,949.1 2,542.2 Goods: imports fob -1,256.0 -1,366.3 -1,395.1 -2,293.8 -2,536.1 Trade balance -475.9 440.4 303.6 -344.7 6.1 Services: credit 81.6 27.4 14.6 132.2 36.5 Services: debit -274.9 -647.6 -660.3 -818.2 -830.3 Income: credit 19.1 4.6 17.8 29.2 10.0 Income: debit -123.2 -579.6 -571.9 -638.0 -879.2 Current transfers: credit 702.2 651.3 730.4 1,085.9 1,218.4 Current transfers: debit -393.7 -453.3 -452.5 -454.5 -516.8 Current-account balance -464.8 -556.8 -618.3 -1,008.1 -955.3 Direct investment in Sudan 370.8 392.2 574.0 713.2 1,349.2 Direct investment abroad 0.0 0.0 0.0 0.0 0.0 Inward portfolio investment (incl bonds) 0.0 0.0 0.0 0.0 0.0 Outward portfolio investment -10.0 -10.0 -10.0 1.0 15.0 Other investment assets -78.5 -38.4 -53.4 -55.1 -148.0 Other investment liabilities 41.2 102.9 92.8 41.6 181.2 Financial balance 323.5 446.7 603.4 700.7 1,397.4 Capital account nie credit 13.0 45.8 16.5 11.9 0.0 Capital account nie debit -67.2 -68.7 -135.8 -105.2 0.0 Capital account nie balance -54.2 -22.9 -119.3 -93.3 0.0 Net errors & omissions 750.5 167.2 368.4 -0.5 492.2 Overall balance 73.2 114.8 123.9 -150.9 245.3 Financing (– indicates inflow) Movement of reserves -9.0 -98.1 -58.6 129.5 -322.9 Use of IMF credit & loans 0.0 0.0 0.0 0.0 0.0

Source: IMF, IFS.

External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end) 1998 1999 2000 2001 2002 Public medium- & long-term 9,225.9 8,852.0 8,646.8 8,487.5 9,042.9 Private medium- & long-term 496.0 496.0 496.0 496.0 496.0 Total medium- & long-term debt 9,721.9 9,348.0 9,142.8 8,983.5 9,538.9 Official creditors 7,666.4 7,505.2 7,329.7 7,201.7 7,494.8 Bilateral 5,615.2 5,494.1 5,383.5 5,302.5 5,504.3 Multilateral 2,051.2 2,011.1 1,946.2 1,899.2 1,990.5 Private creditors 2,055.5 1,842.8 1,813.1 1,781.8 2,044.1 Short-term debt 6,349.0 6,069.5 5,973.7 5,879.5 6,276.6 Interest arrears 5,893.0 5,760.6 5,703.4 5,738.5 6,139.4 Use of IMF credit 772.1 714.7 625.0 551.2 573.2 Total external debt 16,843.0 16,132.2 15,741.5 15,414.2 16,388.7 Principal repayments 58.5 43.5 58.6 53.9 22.3 Interest payments 2.7 13.4 2.4 1.8 1.2 Short-term debt 0.0 0.0 0.0 0.0 0.0 Total debt service 61.2 56.9 61.0 55.7 23.5 Ratios (%) Total external debt/GDP 157.5 151.6 139.9 127.6 120.9 Debt-service ratio, paida 5.2 4.0 2.6 2.4 0.8 Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services. Source: World Bank.

Foreign reserves (US$ ; end-period) 2004 2000 2001 2002 2003 Sep Total reserves incl gold 247.3 117.8 440.7 847.2 1,359.2 Total international reserves excl gold 247.3 117.8 440.7 847.2 1,359.2 Gold, national valuation 0.0 0.0 0.0 0.0 0.0

Source: IMF, IFS.

Exchange rates (SD per unit of currency unless otherwise indicated; annual averages) 2000 2001 2002 2003 2004 US$ 257.1 258.7 263.3 261.0 257.8 £ 389.0 372.4 394.6 426.1 470.6 € 237.6 231.7 248.8 295.5 320.1 R 37.0 30.0 25.0 34.5 40.0 Rmb 31.1 31.3 31.8 31.5 31.1 ¥ 2.39 2.13 2.10 2.25 2.38

Source: IMF.

Editors: Philip McCrum (editor); Hania Farhan (consulting editor) Editorial closing date: February 28th 2005 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]