Sudan the stage for internal armed conflict

On 15 April 2023, a confrontation began between Abdel Fattah al-Burhan, head of the Sudanese Armed Forces (SAF) and head of the ruling junta, and the paramilitary Rapid Support Forces (RSF), led by Mohamed Hamdan Dogolo, known as "Hemedti". These two generals, formerly allies, had helped remove Omar al-Bashir during the street protests of 2019, then in the coup d'état of 2021 which ousted civilians from the government in charge of the transition. Nevertheless, growing tensions, fuelled by disagreements over the integration of the RSF into the SAF (Hemedti wants to retain its independence and control over economic activities) have led to a conflict over control of the state. Most of the fighting is taking place in the south-west of the country, particularly in South Kordofan and Darfur, where ethnic atrocities are being committed; the capital, Khartoum, is also the stage of violence. The Sudanese people, whom the two factions are trying to win over, are bearing the full brunt of the repercussions of the conflict: violence, high living costs, malnutrition and epidemics (cholera, measles, dengue fever) have led to the deaths of more than 7,500 civilians, including 1,200 children, according to a report dated mid-September 2023. Public infrastructures have been damaged (70% of hospitals in combat zones are out of action) and international aid is insufficient and struggling to be delivered. As a result, by 2024, more than 40% of the population will be acutely food insecure, on the verge of famine, according to the FAO. Five million Sudanese have already been displaced, including 1 million who have fled the country to Chad, Egypt, South Sudan, Ethiopia or the Central African Republic. If the conflict persists in 2024, the human flux will continue to grow and put pressure on Sudan’s seven neighbouring countries. The country's mineral reserves and strategic position on the Red Sea are of interest to investors from the Gulf and Russia. The latter signed an agreement in February 2023 for a project to build a naval base in Port Sudan, which would enable it to control part of the world's oil trade and supply. The two warring parties benefit from international support, such as the Russian mercenary group Wagner, which is arming the RSF in exchange for gold revenues. The United Arab Emirates is also accused of supplying arms to Hemedti, in order to preserve their close ties; between 2016 and 2017, the general had sent mercenaries to support the Arab coalition in Yemen. Al-Burhan, for his part, can count on Egypt's military and diplomatic support, and is stepping up his visits abroad in an attempt to establish his credibility. Finally, Saudi Arabia, which has asserted its neutrality with regard to the conflict, has been conducting negotiations since April 2023, alongside the United States, but the truces signed have never been respected. The process of normalisation with Israel, which began in early 2023, came to a halt following the Sudanese and Israeli-Palestinian conflicts, as well as the restoration of diplomatic relations with Iran.

Economic activity on the wane

The conflict led to a large contraction in GDP in 2023 and spared no sector. The first to be hit was industry, most of whose activity is concentrated in Khartoum State, where most of the fighting is taking place. The destruction of physical capital, equipment and infrastructure (transport, buildings, pipelines) and the fighting around them have hampered production and the transport of goods. As a result, oil extraction and refining have fallen off considerably, as has gold mining. Services (business, wholesale and retail) and agriculture, the country's two main sectors, have also suffered heavy losses as a result of extreme insecurity, looting and a lack of access to markets, inputs and finance. The lack of liquidity and the collapse of the currency have hampered commercial transactions. As a result, the country's exports (groundnuts, oil, cotton, gum arabic and livestock) have collapsed. In 2024, growth will depend on how the conflict pans out, although the contraction in GDP could be more modest. Oil and gold production and exports are likely to increase. If there is a lull in the fighting, the country will be able to count on a recovery in the agricultural sector, the return of international aid and reconstruction, despite the exodus of a large part of the skilled workforce and the modification of international trade routes which have diverted away from Port Sudan. Investment flows, mainly from the Gulf States, were halted in 2023 and are unlikely to resume immediately, given the climate of insecurity. Supply disruptions, extremely high prices, lack of access to infrastructure, insecurity and unemployment led to a fall in consumption in 2023, which represented 94% of GDP. Extreme poverty (35.7% of the population) and hyperinflation will prevent demand from really picking up again in 2024. Inflation, fuelled by the war, will remain extremely high (in 3 digits), while the Central Bank will continue to monetise the public deficit.

Virtual disappearance of the state and partition of the country

Both exports and imports have fallen considerably, enabling the trade and current account deficits to decline in 2023. In 2024, the deficit could widen as a result of a resumption of imports on back of an upturn in domestic demand, insufficient local production and reconstruction needs, and purchases of military equipment. Remittances from the Sudanese diaspora and international aid, plus a partial recovery in exports, would mitigate the rise in the deficit.

At the same time, budget revenues and expenditure also shrank in 2023. The disruption to trade and production led to a collapse in the country's tax revenues. This has put a major squeeze on social spending (halting the payment of civil servants and subsidies), which has been eclipsed by military spending. With the virtual disappearance of the state, with its administrations and budgetary capacities, the deficits have become very small and cover reduced sums. Financial room for manoeuvre will be very tight in 2024. Each of the warring parties is trying to control its own territory, its own administration and its own budget. The RSF controls the west and south, and is trying to conquer the centre, with Khartoum, in order to gain control of the institutions and make money from the gold trade. The FSA is established in the north and east, has moved its staff to Port Sudan and collects the transit fees for South Sudanese oil.

External budgetary support from the main trading partners (Gulf States and China) and multilateral organisations will remain blocked while the conflict continues (the IMF did not renew an Extended Credit Facility that expired in December 2022). Only humanitarian aid is still reaching the country. Financing options will remain very limited so the Central Bank will be forced to monetise deficits, which will fuel inflation. Debt relief under the HIPC (Heavily Indebted Poor Countries) initiative has been suspended since 2021 and is likely to remain so, which will contribute to the accumulation of arrears and increase debt unsustainability.