Sudan: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
Growth will slow substantially in 2011
Insufficient improvement in Sudanese oil prices limited economic growth in 2010. The rise in prices expected in 2011 will still be too weak in order to significantly underpin the economy. Moreover, political uncertainties connected with the probable independence of South-Sudan will deter investment. Nonetheless, several sectors such as farming (notably cotton, grain, sugar cane, sorghum), breeding (a third of production), and services will continue to develop. But their growth will not be strong enough to offset the slowdown of foreign investment. Projects will moreover be more concentrated in North- Sudan along the Nile Valley, such as the White Nile Sugar Project financed by Saudi funds, joint Egypt/Sudan farm projects, and dams to be constructed by Chinese companies. Inflation will likely exceed 10% reflecting the rising cost of imports caused by the strong downward pressure on the Sudanese pound.
Unsustainable foreign debt
The fiscal deficit will persist and grow, reflecting notably the government participation in financing infrastructure projects and the payment of domestic arrears while the growth in revenues will slow. The current account deficit will narrow slightly under the twofold effect of the stagnation in exports and the slowdown in capital good imports due to foreign investors' cautiousness. Foreign exchange reserves will remain insufficient to cover this deficit. With the restrictions on access to foreign currency instituted by the Central Bank complicating matters in financing foreign trade, operators have turned to the informal market to meet their currency needs. The government will thus be likely to resort to borrowing from foreign financial institutions. Since Sudan has not yet benefited from debt reduction or cancellation under the HIPC and MDRI initiatives its external position will remain unsustainable.
Political uncertainties that jeopardize investments
The general elections called for in the comprehensive peace treaty concluded in 2005 between the mostly Muslim North-Sudan and the Christian and animist South were ultimately held in April 2010. The final phase of that treaty involving a referendum was held in January 2011 on the independence of South-Sudan. The voting on that referendum has not been delayed, as one might have feared, by the need to resolve the problem posed by the Abyei oil-bearing region located in central Sudan. The question of drawing this region and more largely South-Kordofan into Sudan or South-Sudan has not yet been resolved since the independance of South-Sudan on 9 July this year. In any case, uncertainties over the sharing of the oil wealth, the management of Nile waters, and the division of the debt burden between the North and the South could durably destabilise both regions. Especially since each one will have to contend on its territory with contestation by rebel groups. But North and South Sudan will have no choice but to come to terms in the near future. Although the oilfields are located in the South, the refineries, stocking infrastructure, and oil port are in the North. Despite the agreement on a cease-fire, the confrontations that irrupted in Darfur late 2010 have heightened political tensions. .
Strengths
- Strategic position between the Middle East and West Africa
- Attractiveness to investors from emerging countries
- Improved economic diversification
- Elections held in 2010 as planned
Weaknesses
- Heavy dependence on oil revenues
- Underdeveloped banking networks
- Unsustainable foreign debt
- High risk of political turmoil