1. What’s the summary?
2. The current state of Sudan’s trade balance
3. How would increasing investment impact Sudan?

 

What’s the summary?

Sudan has signed a $6 billion agreement to construct a brand-new port, Abu Amama Port, and an economic zone in the Red Sea with a consortium led by the AD Ports Group and Invictus Investment of the United Arab Emirates (UAE).

Almost all of the nation’s imports and South Sudan’s oil exports are currently routed through Port Sudan. The Abu Amama port being built to the north is set to channel a sizable portion of the nation’s international trade and will include an industrial zone, an international airport, and an agricultural zone spanning upwards of 400,000 acres.

While Osama Daoud Abdellatif, CEO of the Dal Group –the largest conglomerate in Sudan– leads Invictus Investment, AD Ports Group is majority owned by ADQ, an Abu Dhabi sovereign wealth fund.

According to the official Wam news agency of the United Arab Emirates, the consortium was given the “right to develop, manage, and operate port and economic zone assets” in Sudan as a result of the agreement.

The agreement was reached a week after the ruling military leadership of Sudan signed a peace accord with a number of civilian groups on December 5. The agreement was meant to help the country escape the political impasse it has been in since army chief, Abdel Fattah al-Burhane, led a putsch in October 2021.

According to the Wam agency, Sudan is a “major trading partner” of the UAE, with $1.86 billion in exports to the country in 2020, while the UAE exported $1.14 billion to Sudan during the same year.

The current state of Sudan’s trade balance

Sudan was the world’s largest exporter of groundnut meal ($35.4M) and other oily seeds ($746M) in 2020. However, the military takeover in October 2021 set off a political standoff that has had a detrimental impact on the Sudanese economy. In Sep 2022, Sudan’s total exports decreased by 37.6% year on year (YoY) to $190.2 million while its imports increased 68.6% while In Sep 2022, which led to a trade deficit of $804.1 million.

Gold ($1.84 billion), other oily seeds ($746 million), crude petroleum ($317 million), ground nuts ($305 million), and sheep and goats ($143M) are Sudan’s top exports, according to data from The Observatory of Economic Complexity (OEC 2020). The country exports many such goods primarily to the UAE ($1.86B), China ($766M), India ($254M), Saudi Arabia ($241M), and Italy ($164M).

Sudan gets approximately half of its wheat from Russia, thus the conflict in the Ukraine has made the situation worse. Increased import requirements and increased global food prices have led to greater import expenses, worsening the balance of payments and increasing food insecurity as a result.

How would increasing investment impact Sudan?

In addition to a free trade zone and a sizable agricultural enterprise, the package also comprises an expected $300 million deposit to the Sudanese central bank.

Following the coup, Western donors pulled out billions of dollars in aid and investments to Sudan, further destabilizing an already fragile economy and depriving the government of critically needed capital inflows. Nearly a third of earnings were anticipated to come from grants in 2021–2022, however since the military coup, foreign aid has been suspended. The Sudanese pound (SDG) depreciated as a result of the stoppage in outside grants, hurting the balance of payments.

According to Abdellatif, the $4 billion port, a joint venture between DAL Group and Abu Dhabi Ports, which is managed by Abu Dhabi’s holding firm ADQ, will be capable of handling a variety of commodities and compete with the nation’s primary national port, Port Sudan.

It would be situated roughly 200 km north of Port Sudan and have an industrial and free trade zone fashioned after Dubai’s Jebel Ali as well as a small international airport,  Osama Daoud Abdellatif, DAL group chairman, states. He added that the project is in “advanced stages,” with studies and plans finished.

Long plagued by infrastructure issues, Port Sudan was forced to close for six weeks late last year due to a political blockage, costing it business from considerable international shippers.

According to Adbellatif, “The UAE wants a stable Sudan so they can do more and more of these investments, but we are not waiting for everything to be perfect.”

Over the course of 2023–2024, growth is anticipated to average around 2%, driven by agriculture, particularly exports of cattle, as well as mining and a rebound in the services sector. Following the government’s pledge to lessen the fiscal deficit and limit monetization, inflation is projected to decrease but remain high.

The ripple effects of the Ukraine crisis will continue to put pressure on the balance of payments and the exchange rate through 2023.

Sudan will have to import significant quantities of food and wheat at markedly increased costs. Higher fuel prices won’t have a negative impact on the balance of payments because higher South Sudanese transit fees and crude export inflows virtually perfectly balance higher petroleum and fuel purchase import payments.

According to the World Bank, over the two-year period 2023-2024, the fiscal deficit is predicted to average approximately 2%. In the absence of grants, the authorities are expected to postpone capital expenditure and rely on trade receipts and revenues from the export of gold and animal products to finance increasing wages and transfers. Total spending is predicted to amount to an average of 12.4% of Gross Domestic Product (GDP), while total revenue as a percentage of GDP is predicted to amount to an average of 10.2% of GDP.

Even though the debt-to-GDP ratio should continue to drop due to the authorities’ expectations that they will keep their debt servicing obligations intact, delays in achieving the Heavily Indebted Poor Countries (HIPC) completion point are predicted to keep debt ratios elevated.

It will take significant effort to reverse the trend of poverty. According to projections, there will be a rise in extreme poverty through 2023.  It is paramount that the political deadlock is quickly resolved, and Sudan reengages with the international community in order to effectively turnaround its economy. An objective that is entirely conceivable given that Sudan’s political and military opponents came to a tentative agreement in November to end the nation’s protracted political crisis.

The framework agreement, according to the opposition Forces for Freedom and Change (FFC) coalition, aims to put an end to the military takeover of 2021 and establish new guidelines for civilian government that will be followed by elections. According to the statement, the two parties will soon sign a definitive agreement, news that offers some promise in a potentially dire scenario.