Sudan: Risk Assessment
Country Risk Rating
|E||The highest-risk political and economic situation and the most difficult business environment. Corporate default is likely.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
Sluggish growth dependent on primary sector
Substantial progress has been made on restoring macroeconomic stability and strengthening growth since the shock of South Sudan's secession in 2011. The restructuring of the public finances and tightening of monetary policy has enabled a reduction in inflation to below the 20% threshold, a reduction in the current account deficit and support for growth.
Growth is expected to remain stable in 2016, without, however, returning to its pre-crisis level. It is likely to continue to be driven by minerals, agriculture and taxes on the transit of goods to South Sudan, with agriculture still a key sector of the Sudanese economy, both in terms of activity (42% of GDP) and jobs (80% of total employment). Gum arabic production should rise, under the impetus of government reforms supported by the World Bank and the Fund for Agricultural Development. However, the sector is likely to remain vulnerable to the El Niño effect, which could have a negative impact on agricultural activity. Gold output is also expected to climb to reach 100 tons in 2016 (compared with 80 in 2015), as is oil production. As for the manufacturing sector, this will be stimulated by foreign investment in the sugar industry and in textiles, which should profit from the fall in commodity prices. The services sector will continue to be hampered by the predominance of low-productivity informal work, as well as by administrative complexity.
The decline in business owners' confidence combined with high production costs and difficult access to credit is likely to weaken private investment, which is likely to remain limited to subsoil exploration. Meanwhile, inflation is expected to dip but to remain high, thus still putting pressure on household consumption. The inflation level in Sudan is likely to continue as one of the highest in Africa. After facing upward pressure following the removal of wheat price subsidies, the depreciation in the exchange rate against the dollar and disruptions to supply because of the conflicts, inflation is expected to fall gradually, in the light of the central bank's tight monetary policy and low imported food prices.
Twin deficit on narrowing trend
The independence of South Sudan resulted in a sudden decline in Sudan's external trade, previously driven by the oil sector. In 2016, Sudan is likely to benefit only slightly from the recovery in exports linked to the exploitation of new oil sites, in view of the relatively weak barrel prices. Likewise, gold export revenues are expected to contract slightly, because of lower export volumes. However, the trade balance should hold up thanks to exports of sesame seeds, mostly to Asia (China, United Arab Emirates and Saudi Arabia). Foreign direct investment will not be enough to cover the current account deficit, which should stabilize in 2016.
The budget deficit is expected to remain at a stable, low level, sustained by a prudent budgetary policy and by cuts to current spending (subsidies received by the health system, other social spending)Furthermore, the fragility of the banking sector is likely to tighten and cut back on the supply of credit to the private sector. On top of this, the rate of inflation is hurting real interest rates and weakening banking margins.
Unfavorable business climate
President Omar el-Bashir, supported by the National Congress Party, was re-elected (with 94.5% of the votes cast) for five years in the presidential elections held in April 2015, after 25 years in power. His victory was foreseeable, given the boycott by the opposition. These controversial elections took place in a climate of palpable political tensions and were marked by violence and administrative problems criticized by the EU, the United Kingdom, Norway and the United States. The security situation in the five federated states of Darfur remains very unstable. Tensions persist between government and rebel forces on top of recurrent intercommunity confrontations.
Externally, despite South Sudan's attainment of independence in July 2011, disputes concerning the border demarcation, transit taxes and the national identity of the people in each country are unresolved and straining relations between the two states. The shared economic stakes around oil production and transport have, however, pushed the two countries to cooperate with each other. The business climate is particularly poor, as underlined by the World Bank assessments, placing the country in 159th position out of 189 countries. Deficiencies, especially regarding cross-border trade and in obtaining loans are adversely impacting on governance.