Protests erupted in Khartoum after Sudanese President Omar Hassan al-Bashir announced the elimination of fuel subsidies last week. The question remains whether al-Bashir’s regime can weather these riots and restore political and economic stability to Sudan or if his regime will be threatened by a Sudanese Arab Spring.
Since Sudanese President Omar Hassan al-Bashir’s announcement last Sunday that the government intends to cut fuel subsidies, Khartoum has erupted in daily protests. As protestors set gas stations and businesses ablaze, security forces have retaliated with tear gas and beatings. The government crackdown has resulted in hundreds of arrests and between 70 and 200 deaths as the government scrambles to quash riots likened by many to those of the Arab-Spring.
In his televised address on Sunday, al-Bashir explained that the fuel subsidies were costing the Sudanese government $1.7 billion a year and that removing these were necessary to rescue the struggling economy. These austerity measures were inspired by a 2012 IMF report which denounced the subsidies as “fiscally costly, inequitable, and inefficient.” The IMF recommended eliminating government fuel subsidies to combat Sudan’s economic troubles and lead to more equitable growth. The IMF estimates that 50 percent of subsidies go to the richest 20 percent of Sudanese households and benefit cross-border smugglers of oil. In addition, the high cost of subsidies reduces funds available for much needed investment in physical infrastructure and social services.
Sudanese Minister of Finance Dr. Mustafa Osman Ismail defends al-Bashir’s decision to instate these austerity measures, stating that they are “a solution – albeit a painful one – to our country’s economic woes.” Citing oil smuggling as well as a deteriorating exchange rate, “soaring” commodity prices, a poorly-balanced state budget, and spiraling inflation, Ismail asserts that the economy must stabilize if Sudan is to attract investment and flourish.
Expensive fuel subsidies are only one factor contributing to Sudan’s floundering economy. A more than two-decade-long civil war was finally settled two years ago by the secession of South Sudan, taking with it 75 percent of Sudan’s oil output. Since then, real GDP has grown by -0.6 percent and the Sudanese economy has suffered growing budget deficits, current account deficits, and reductions in exports and official reserves. Inflation was officially recorded at 36 percent in 2012, a figure already suggesting chronic inflation, though local businesspeople say a more accurate figure is closer to 50 percent.
While removing the fuel subsidies may make fiscal sense, it appears that the IMF and the Sudanese government did not anticipate the intensity of the domestic reaction. In recommending the removal of fuel subsidies, the IMF claimed, “international experience shows that most subsidy reforms occur without major civil unrest.” The violent unrest indicates that the IMF and policy-makers may be out of touch with the reality of the lives of ordinary Sudanese.
Following the announcement – and even before the subsidy cuts were implemented – fuel prices nearly doubled and the Sudanese pound depreciated from 7.3 Sudanese pounds to the dollar last week, to 8.2 pounds to $1 on Wednesday. The poor have felt the effects of the government’s austerity measures most sharply; the increase in fuel prices and depreciation of the Sudanese currency have forced some families to chose between foods, school, or transportation.
Both opposition parties and members of the ruling National Congress Party (NCP) have harshly criticized al-Bashir’s choice to eliminate subsidies and respond violently to the protests. NCP officials sent a memo to the President, calling for him to immediately suspend the economic austerity measures, cease censorship, investigate the deaths at the hands of security forces, and compensate those affected. The National Consensus Forces (NCF), a coalition of opposition parties, have described al-Bashir’s television address as “a proof of disregard” for the Sudanese people and the rationale behind the subsidy cuts as “propaganda and lies.” The official spokesperson of the NCF has urged the Sudanese people to protest in the streets and call for the “downfall of the regime,” which is widely perceived as corrupt.
Opinion appears to be split on whether the protests will fizzle out like previous bouts of unrest or lead to an Arab-spring style regime change. If al-Bashir heeds his party’s advice to reinstate subsidies and make reparations for the violent crackdown, there is a chance he could placate the population and maintain his regime. However, it may be too late for al-Bashir to salvage his credibility and re-assure the Sudanese that his regime provides for the people, rather than lining his and his cronies own pockets. Opposition parties, which were previously unorganized and divided, may gain the popular support necessary to finally challenge al-Bashir.
Regardless of the outcome, Sudan will remain risky for investment due to macroeconomic and political instability. The Sudanese Minister of Finance acknowledges “the investment sector will not fully recover unless the Sudanese economy stabilizes.” This means Sudan must find a way – a more effective and less controversial means than cutting oil subsidies – to combat its high inflation, to stabilize its currency, and balance its budget. Sudan must diversify its economy and invest in infrastructure and human capital, so that it no longer has to rely on just oil and mineral exports for revenue.
In addition to addressing economic instability, Sudan must combat domestic and regional instability. Despite the end of the Sudanese civil war, tensions remain between Sudan and South Sudan. South Sudan is the center of oil production, but relies on pipelines through Sudan to access ports for export. Disagreements over transit fees, border security, territory, and accusations of supporting rebel movements have reduced oil output from 300,000 bpd in 2011 to 190,000 bpd in October 2013 and Sudan even shut down its connecting pipeline in April 2013.
Continuing domestic conflicts in East Sudan, South Kordofan, Darfur and the Blue Nile region, coupled with the current protests in Khartoum will stifle Sudan’s investment climate unless the government is able to resolve its internal strife. Sudan must forge lasting agreements with South Sudan and its border regions to normalize relations and build cooperative, mutually beneficial economic relationships. This will probably require power- and resource-sharing, significant reform, and policies that will lead to equitable growth. Whether this is possible under al-Bashir or if this requires an Arab-Spring style regime overhaul remains to be seen.