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Oil's decline threatens Sudan government

Officials, who have used petrodollars to solve their political problems, may not be able to quell public anger over a troubled economy.

March 23, 2009|Edmund Sanders

KHARTOUM, SUDAN — Ask a Sudanese citizen what troubles him these days and he might not even mention Darfur or the International Criminal Court arrest warrant against the president.

To many here, it's the economy that is keeping them up nights.

Sudan's once-hard-charging economy, a source of national pride over the last five years, is in danger of grinding to a halt because of plummeting oil prices.

With the nation's oil-dependent budget in tatters, government employees are facing pay cuts. Newly opened luxury hotels are slashing rates. Even supermarkets are feeling the pinch.

"People don't have as much money," said grocery store owner Nassir Aldin, who said his sales were down 50% since last year. Aldin was once able to sell Kellogg's Corn Flakes, a luxury item here, for $12 a box. Now it's down to $9, and still no one is buying.

For Sudan's embattled government, which is facing increased international isolation because of the ICC war crimes case against President Omar Hassan Ahmed Bashir, the financial crisis is the latest unwelcome development, and one that could have a steep political cost.

For years, the government has used rising oil revenues to fund a military buildup and buy political support, including paying off opposition leaders and arming private militias such as the janjaweed in the Darfur region.

"Oil is what has kept them in power," said Mohamed Ibrahim Nugud, secretary-general of the Communist Party in Sudan.

Economists predict that if oil prices don't rebound, public anger over the economy could cause much more domestic frustration than Darfur or the ICC arrest warrant. In 1985, protests over rising gas and food prices helped bring down the government.

"This is the fuel of revolution," said Elhaj Hamed M.K. Haj Hamed, a political economist at the Social and Human Development Consultative Group here in Khartoum. Sudan has been one of Africa's fast-growing economies since it began exporting oil in 1999. Oil revenues account for about 65% of the national budget and 97% in the autonomous southern region.

Beginning in 2006, the rise in crude prices helped transform this dusty capital into a modern city with dreams to build a skyline that would rival Dubai's. The growth was all the sweeter to many Sudanese because it came despite U.S. sanctions, imposed over the bloodshed in Darfur and the government's support of organizations on Washington's list of terrorist groups.

When the international credit crunch hit last year, Sudanese officials joked that U.S. sanctions had insulated them. But when oil prices sank from above $140 a barrel last summer to as low as $35 recently, they stopped laughing.

"The era of oil dependency is over," Finance Minister Awad Ahmed Jaz told state governors this year.

Now monthly oil revenue is half last year's level. In February, officials said they'd collected barely enough to cover expenses.

The government is scrambling to cut costs and raise revenues. Last month, state employees in the south went unpaid. In Khartoum, government doctors went on strike to protest missing paychecks. Sales taxes were raised to 20%.

The government of southern Sudan has approved the first income tax on its citizens, who are among the poorest in Africa.

"But raising taxes is not the answer," said Abdulla Mursi, sales manager at a new Nissan dealership in Khartoum.

Higher import levies, now about 137%, pushed up the price of a Nissan Tiida compact, known as the Versa in the U.S., from $33,000 to $41,000. Mursi said sales had dropped so much that tax revenue from his dealership had gone down the last two months.

Real estate values and rents also are falling, particularly in high-end neighborhoods, said Syman Osman, a Khartoum broker. He blamed the ICC case, which made some foreigners nervous about possible reprisals.

Besides oil revenue, much of the recent development has come with help from Arab nations. But falling oil prices are also hurting Sudan's Middle East partners. And the ICC case, which alleges that Bashir orchestrated a brutal counterinsurgency in Darfur, could increase international pressure to boycott the country.

The government in the south, led by the former rebel group the Sudan People's Liberation Movement, might find a warmer reception from international lenders. But the crisis is likely to be much more severe in the south.

The recent oil price drop is forcing the southern government to live on a quarter of the money it budgeted. And officials have come under fire from citizens who ask where $6 billion in oil money has gone since the south started receiving a 50% share of the national proceeds in 2005. Roads, schools and electricity are still rare in much of southern Sudan.

Ali Abdalla Ali, an economic analyst and co-founder of the Khartoum Stock Exchange, said oil revenue should have been used to build up other industries, such as cotton, gum arabic, nuts and agriculture.

"The problem with oil is that once you have it, you think it will just go on and on. This is a good lesson for us," he said.

Many Sudanese complain that the oil party is ending before anything trickled down to them. Standing in an unemployment line in front of the United Nations compound in Khartoum, electrical engineer Mike Abadi, 35, acknowledged the new roads, streetlights and office towers around him. But he said his life hadn't changed.

"I've never seen anything from the oil," he said. "Some of us never even knew Sudan had oil."

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edmund.sanders@latimes.com

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