A Tale Of Two Sudans
If the two Sudans can resolve their differences, the two countries can emerge as powerful resource-based economies.
When Southern Sudan emerged as the world’s newest nation after breaking away from Sudan (also called North Sudan) in 2011, it was clear the secession had to be followed up with reforms and adjustments in both countries.
While South Sudan’s social and economic indicators are poor, there is tremendous scope of using its oil revenues to elevate the standard of living of its 8.3 million people.
“Social indicators are generally well below regional norms, and the country’s infrastructure is almost non-existent (there are only 100 kilometers of paved roads, mainly in the capital Juba),” notes the IMF.
Revenues from crude oil can help improve the social and economic indicators, which are said to be far below regional levels.
“Although South Sudan has sizeable economic potential, major challenges will need to be overcome if this potential is to be realized,” says the IMF.
Among these challenges are lack of strong infrastructure and institutions and poor labour skills.
“A pre-condition for addressing these challenges is the achievement of a lasting settlement of bilateral issues and tensions with Sudan.”
The country produces around 300,000 barrels per day of crude oil, but its exports have been hampered by excessive transportation fees imposed by Sudan. The northern neighbour has demanded $32-36 per barrel as fee to cross its border, while the south has offered $1 as fee.
Co-operation will be important as the two countries remain interdependent for their oil industry. Southern Sudan has most of the resources, while the north has much of the infrastructure, including refining and logistical infrastructure.
While there are three refineries in North Sudan with a total refinery capacity of 122,000 barrels per day, Southern Sudan has none.
The Energy Information Administration, the U.S. Department of Energy’s research arm, says the two countries’ combined crude reserve range anywhere between 4.2 billion barrels to 6.7 billion barrels, much of it locked in Muglad and Melut Basins.
“Due to civil conflict, oil exploration prior to independence was mostly limited to the central and south-central regions of the unified Sudan,” the EIA notes. “Natural gas associated with oil production is mostly flared or re-injected. Despite known reserves of 3 trillion cubic feet (Tcf), gas development has taken the backseat to oil development and gas exploration has been limited.”
Crude production in the two countries had averaged 450,000 bpd in 2011, but since appears to have fallen as the two countries failed to agree on security and export arrangements.
Latest data available for the countries, show exports averaged 330,000 bpd in 2011, with China accounting for two thirds of the exports, and Malaysia (30,000 bpd) and Japan (25,000 bpd), absorbing the remainder.
While analysts expects Sudan and Southern Sudan to increase exports in 2013, for now the production disruptions are destabilising both Sudan and Southern Sudan.
Sudanese President Omar Al-Bashir s’ government in Khartoum is facing unrest and tensions as the stalemate with its southern neighbour continues.
He is also wanted by the International Criminal Court for crimes against humanity and war crimes in Darfur.
“The regime in Khartoum is in crisis, faced with multiple challenges that, combined, profoundly threaten its existence and Sudan’s stability,” notes the International Crisis Group. “The economy is in a freefall that any oil deal with South Sudan will only slow, not arrest.”
Indeed, the ICG believes that the President’s tactics of dividing and ruling has made a bad situation worse, and Sudanese hope that a coup could lead to his ouster. Recent arrests of key security figures for allegedly planning a coup underlines the simmering tensions in the country.
“A key hurdle – though not the only one – is President Omar Hassan al-Bashir. He has further concentrated authority in a small circle of trusted officials and is unwilling to step aside”, says EJ Hogendoorn, Crisis Group’s Horn of Africa Project Director. “Many hope for regime change via coup or military overthrow but have not considered the dangers”.
Clearly, the secession of southern Sudan has not resolved the challenges facing the two countries.
“Sudan needs a truly comprehensive peace agreement, not a partial settlement that serves the government’s divide-and-rule tactics and perpetuates the unacceptable status quo,” the ICG notes. “At the same time, the NCP needs to be part of any transition. Leaving it out in the cold would be costly. Its elites are too powerful to ignore, and the opposition is too divided and inexperienced to rule alone.”
Sudan’s economy is set to decline 11.1% this year and a further 0.6% next year, as the secession of South Sudan led to the country losing around three-quarters of its oil production, half of its fiscal revenues, and about two-thirds of its international payment capacity, says the International Monetary Fund.
“The authorities’ reform package of June 2012 is an important step toward restoring macroeconomic stability and reducing the economy’s dependence on oil,” says the IMF. “They would allow macroeconomic conditions to improve gradually starting in 2014, with non-oil growth picking up to about 4.5%, inflation declining to single digits, and the fiscal deficit dropping to about 1.5% of GDP.”
The Chinese could wield some influence in bringing the two parties together, especially as the Asian giant has huge investments in the country.
Chinese companies led the development of the Sudanese oil sector, led by the China National Petroleum Company (CNPC). Not only was CNPC the main developer of the fields, but also in the construction of the pipeline to Port Sudan.
Other resource companies also believe in the long-term potential of the two Sudans.
Canaco Resources Inc., a Toronto-listed company, bought Shark Minerals Inc. on December 17, lured by its massive acreage in Sudan.
The company is currently focused on exploring the Galat Sufur Project, a 20,020 square kilometre land package in northern Sudan near the border with Egypt that forms part of the Arabian-Nubian Shield, also known as Galat Sufur.
“Galat Sufur has had little, if any, modern exploration activity prior to Shark and is considered prospective with many artisanal miners active within the region,” the company said in a statement. “Shark has been exploring Galat Sufur for the past 12 months and has identified several drill targets and an initial drill program is under way.”
In addition, Shark controls the 4,846 square kilometre Ghazal Project near the Eritrean border in north-eastern Sudan.
Sudan is also looking to seal loans and financing agreements worth USD4-billion in the New Year, according to Suna, the state news agency.
The Crisis Group says Sudan must reform or face a civil war – which would negatively impact its southern neighbour.
“Most Sudanese know what is necessary to end decades of conflict. Even before independence in 1956, it was clear that power and resources should be shared more equitably with marginalised regions. The historical focus was often on South Sudan, but other areas have suffered as well,” says the ICG, arguing that other regions have also risen in armed revolt for greater say in resource development.
“This dynamic will not change unless there is fundamental structural reform of how the country is governed, and all its political forces – the NCP, the traditional parties, the SRF and youth groups – work together to create a more inclusive and representative government that accepts and respects the tremendous diversity of the Sudanese peoples.”
© alifarabia.com 2012
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