Sudan Business Forecast Report Q4 2008

National Unity To Remain Elusive

With less than a year to go until democratic elections are due to take place in Sudan, preparations for this historic poll - a key landmark set out in the 2005 Comprehensive Peace Agreement (CPA) between the government and former southern rebels - remain well behind schedule. There has been some progress over the past quarter, but more than three years after the peace agreement, other key pre-requisites for these long-envisaged elections remain unfulfilled. In large part, this is due to procrastination by President Omar al-Bashirs National Congress Party (NCP), which remains fearful that the elections will result in a dilution - or destruction - of its power. Despite the clouded political outlook, Sudans economy is expected to remain relatively robust over the coming two years, and we forecast real GDP growth of 12.9% and 9.5% in 2008 and 2009, respectively, partly thanks to strong growth in the non-oil economy.

As the six-year transition period set in motion by Sudans 2005 CPA moves toward its last couple of years, there are signs that China is positioning itself ahead of a possible change in power dynamics between Sudans ruling party and the South of the country. While China is making increasingly significant offers to South Sudan, Khartoum loyalists in the North are not only keen to retain their special relationship with the Peoples Republic, but are also once again making overtures to the US, in the hope of normalising relations with America, ahead of the possible election of a hostile Democratic administration. However, with US President George W Bush nearing the end of his term, time is running out for a deal with the US.

Slowing expansion in the oil economy will represent one of the greatest risks to sustainable real GDP growth over our forecast period. In our view, the oil sector is unlikely to undergo significant growth, even if South Sudan remains part of Sudan. Although new oilfields (including in the troubled Darfur provinces of western Sudan) should be exploited, many older existing fields in the South have a limited lifespan. Moreover, there are reports that Khartoum loyalists are pressuring the oil industry to over-produce at present, to maximise revenues ahead of the Souths possible secession.

Sudans largely underdeveloped road and rail networks remain a major drag on the countrys business environment. In an effort to improve regional transportation links, Sudan and Uganda signed a memorandum of understanding in Q308 to establish a rail link between Gulu in the north of Uganda and Wau. The line would run through Jubu, the capital of South Sudan, and the link to Wau would allow connection to the Cairo-Wau line. Building of the 920km line will be supervised by a Joint Ministerial Transport Commission (JMTC), which is also expected to be involved in ongoing projects to improve road links between the two countries.