From Hijacked to Mismanaged Economy: Post-Revolution Sudan by Dr Abbas Abdelkarim

03:40 AM August, 04 2021

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عباس عبد الكريم-السودان
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Abstract
The islamist tyrannical, corrupt regime in Sudan, established in 1989, was brought down and a transitional government was formed in September 2019. Elements of the ravaged economy created during the old regime have been well known. Rather than relying on the revolutionary forces to immediately bring back the hijacked economy, recover the embezzled funds and fight corruption, the transitional government economic policy and action were different. Following neoliberal approach, economic measures proposed targeted macroeconomic stabilisation through immediate lifting of subsidies and freeing the exchange rate, without viable pre-conditions being in place. The government plan to mitigate negative effects of removing the fuel and food subsidies was to raise wage of civil servants and to provide cash transfers to the poor. Both of these two measures as proposed were totally inappropriate. This paper shows how the government missed the revolutionary moment and presents a critique of its economic measures made in the period September 2019-December 2020.
What the Transitional Government Should Have Done (September 2019- End 2020)
The two most important political economic conclusions of the 30-year period of the old regime are:
A kleptocratic regime that has been deeply established through the power of the state may not be changed without using the power of the state.

Shrunken disposable income and reduced domestic demand can only be reversed by a domestic demand-led economic regime.
The transitional government actions were different from the demands of the revolutionary forces that brought it. As elements of the hijacked economy have been publicly well known, it was expected from the transitional government to act strongly on recovering the embezzled funds and bring to justice the embezzlers, announce a fierce war on corruption, use all possible force to close all the other aspects of the hijacked economy (e.g. smuggling) and put the hundreds of the Islamic party, military and security companies, that the Islamist government had established, under the control of the Ministry of Finance and Economic Planning (MoF). In order to accomplish these measures, the government could have used emergency laws and rules developed under the revolutionary jurisdiction. This would have been possible by utilizing the immense public support available that could have silenced hesitant and opposing voices, including that of the remnants of the old regime in the military. No effective move has been made by the government; the embezzlers and the corrupt remained free and many of them fled or were allowed to flee the country. Companies owned by military, security and the rapid support forces remain outside the control of the MoF.
It was also expected that the government would place the Economic Salvation Plan (ESP) already developed by the civil government political incubator, Forces of Freedom and Change (FFC), for wide discussion among stakeholders and experts, to develop, and secure consensus on a short-term socioeconomic plan to be the base of the 2020 budget.
The main objectives of the ESP were: dismantling the kleptocratic economic regime, preparing and implementing urgent intervention package using national resources available to stop deterioration of the economy, implementing pro-people, pro-poor economic policies aiming at realising social justice, empowering the public sector to play a pivotal role in the economy, reducing military expenditure and directing resources toward the marginalised regions and people, economic empowering of women and eliminating the trend of feminisation of poverty and establishing effective federal government system with adequate resources to fund education, health and infrastructure (FFC 2019). The outline of measures proposed in the ESP, it is believed, addressed well a lot of the socioeconomic legacy of the old regime. However, the MoF brought some external experts to work out the 2020 budget and announced a number of measures on top of which was a macroeconomic stabilisation package: reducing macroeconomic imbalances (e.g., fiscal deficit) through removing/reforming commodity subsidies and freeing exchange rate. The imperatives of eliminating the kleptocratic regime and bringing a demand-led growth regime led by the state aiming at empowering the poor, found no or, only a superficial attention.
A Brief Note on the Ideological Underpinnings of the Transitional Government Economic Policy and Their Critique

The government adopts an economic policy based on the neoliberalist ideology and economic thought. The neoliberal economic theory asserts that developing countries have to remove obstacles to free market capitalism and allow capitalism (meaning the private sector alone) to generate development. According to neoliberalism, in essence, economic policy is to do away with government policies and institutions that are seen as limiting the free market. The main economic role of the government is to promote a business-friendly environment that encourages companies to invest, produce, and export under free trade setting (see Rodrik 2017, Thomson 2015). However, this is not how the currently industrialised Western countries and the Newly Industrialised Countries of East Asia and elsewhere have developed.

At an earlier stage in their development, the industrialised Western countries adopted interventionist policies (using tariffs, subsidies, and other protectionist measures) to foster their industrial, trade and technological development (Caldentey 2008).The state as key to the development process and to resolving market failure and capital scarcity has been prominent in the industrialisation experiences of Japan, followed by the ‘East Asian Tigers’ (South Korea, Hong Kong, Taiwan and Singapore), and then other NICs (e.g. Argentina, Brazil, Malaysia, Thailand, Indonesia and China).The notion of the developmental state was first coined by Chalmers Johnson in 1982 in reference to Japan rising to an industrial power, and then has been used to describe the role of the state in successful industrial transformation. Each country used its own version of the developmental state in terms of the combination, sequence and change of policies over time, but they all intervened in markets in order to guide economic development and strengthened ties between government and domestic capitalists (see Evans and Heller 2013, Kyle 2017, Sing and Ovadia 2018).

‘Less government and more private’, as is called for by neoliberalism, in the present situation of Sudan means strengthening the economic hegemony of the kleptocratic Islamist elements who are currently controlling the economy. This undeserved control cannot be broken by the market forces and requires state intervention to claim back the hijacked economy. Again, the market forces will not alleviate the extreme poverty which the majority of the population suffer from. Cause of poverty in Sudan has not been scarcity of resources, but misuse of resources, as El Amin (2003) and IMF (2013), among others, have pointed out. Directing huge resources to wars, civil conflicts and regime security, population displacement and loss of the economic base of the displaced, diverting resources to political allies, widespread corruption and lack of poverty reduction effort are among the main reasons causing and exacerbating poverty in Sudan during the 30 years of the old regime.

The Government’s Stabilisation Package

Subsidy reforms and freeing the exchange rate have generated enormous reactions from the economic experts of FFC, other economic experts, political and social organised entities, and from individuals in the media. Some oppose these measures on ideological grounds as a package of the Washington Consensus (IMF/World Bank) meant to impoverish developing countries and bring them under the control of economic imperialism. Some others take them as measures that had been tried in Sudan since the 1970s and which generated detrimental effects on the people. Other groups and individual experts believe that there are many other sources of income that the government can tap on which can reduce the imbalances while preparing the grounds to mitigate adverse effects of stabilisation measures when introduced. These other sources according to the FFC group of experts are, ‘recovery of siphoned funds abroad, the restoration of the Ministry of Finance’s jurisdiction over public funds, government control of companies in the military sector, and control of the production and the exportation of gold and other strategic commodities’ (Khalifa 2020).
What was peculiar about the government’s proposed stabilisation package was that it was in a rush for implementation more than the IMF itself, which the government invited for advice. The IMF ‘cautioned against rapid fuel subsidy removal given recent international experience suggesting high social sensitivity to such reforms’ (IMF 2020, p15).
The IMF proposal that reforms should be carefully sequenced, and condition- based rather than time bound and that a Social Safety Net (SSN) should be in place prior to implementation of subsidy reforms. The ultimate endeavour of both the MoF and the IMF was the implementation of the full package of the Washington Consensus, bringing about an economic regime modelled on the neoliberal economic policies. The IMF feared that the MoF rush might disrupt the establishment of a neoliberal regime, of which the IMF is a primary international vanguard.
The government plan to mitigate negative effects of removing the fuel and food subsidies was to raise wage of civil servants and to provide cash transfers to the poor. Both of these two measures as proposed were totally inappropriate, as exemplified below.

Civil Service Wage Increase: An Economic Measure or a Political Bribe؟
This sub-section attempts to demonstrate that the decision to increase civil service pay, legitimate at it may be on its own right, would cause detrimental economic effects on most of the population. The measure has been taken in isolation, not as part of an economic development policy package that could lead to improving the livelihood of most of the Sudanese people. This argument is expounded as follows.
Proportion of the civil servants in the total employed people
The figures below are computed from tables number 4.2 and 4.5 of the last Sudan Labour Force Survey (MoHRD and ILO 2013).
At the end of 2011 (time of the Survey), all wage workers made 42% of the total employed persons (total employed plus unemployed make the total labour force). Self-employed composed 39.2%, unpaid family workers 12.1%, business owners 5.7% and others 1.1% of the total employed.
Civil service workers made only 6.8% of all wage workers and 2.8% of the total employed people in the country. In other words, 93.2% of all wage workers and 97.2% of all the employed, in addition to a huge army of unemployed people, are outside the civil service, and no measures have been taken to enhance their livelihood.
Effects of the pay rise
The decision to increase the civil service wage level is being taken at a time of severe scarcity of most of the goods that constitute the demand basket of the civil servants (and most of the other people). It is common knowledge that increasing money supply in the conditions of supply of goods being restricted would lead to price increase (and not only on the goods that civil servants buy). This happens at times when the inflationary pressures are already remarkably high. While this new source of inflation may eat up part or most of the increase in the new pay the civil servants receive, the effect on the 97.2% other employed people (and the rest of the population) would be a further worsening of their livelihood.
It will be a big fallacy to assume that the civil service pay increase would lead to a pay rise of private sector employees.
Firstly, the private sector workers are not able to leave, or threaten to leave their jobs to join the civil service, as, simply, the civil service is not expanding.
Secondly, the number of the urban unemployed (with a high proportion of them coming from the more educated segments) was double the number of all civil servants (tables 4.5 and 5.4 in the Survey), and the number of the unemployed is expected to have risen since the Survey time. This means, the private sector will not be lacking workers if some leave and it would be under no pressure to increase the wage level.
Thirdly, even if we hypothetically assume that some pay rise occurs in the private sector, this will only lead to employers increasing price of products and services and, hence, adding to the inflationary pressures. We cannot assume productivity would grow, and hence help stabilising or reducing cost, as there are no indications whatsoever of improvements in the technology and skill levels, supply of electricity, etc.
Political motivation leading to economic chaos: a final note.
The wage level of the civil service has remained unchanged for long time and it is legitimate to think of revising it. However, introducing it at times of uncontrollable inflation and of deteriorating domestic production base and level adds another source for further worsening livelihood of the population.
The pay increase was fixed at an average of 569% without securing any source of permanent funding. Right from the start, the Ministry has been facing difficulties in securing the necessary funds. The intention, it seems, to fund the increase by funds gained from the elimination of subsidies. So, we have a situation of subsidising the relatively well-off by taxing the poor. What would be the political economic interpretation of this action؟
Social Safety Net in Conditions of no Proper Planning and no Secured Funding
The second measure to mitigate the effects of removing subsidies proposed by the government was to introduce a social safety net (SSN) programme. The SSN rose in the 1990, particularly in relation to the World Bank/IMF structural adjustment programmes (SAP). SSN programmes were introduced to mitigate the negative impacts of SAP on the poor. Of course, various official programmes providing support to the poor existed much earlier than the SSN programmes. According to the World Bank (2019), 36% of the very poor (living under USD 1.9 a day), escaped extreme poverty because of SSNs. SSNs are more prevalent in middle- than lower-income countries (LICs). SSN benefits contributed 13% of total consumption of the poor in LICS.
SSN programmes include cash transfer (conditional or not conditional), in-kind transfer (e.g., direct food provision, school feeding programmes), public works (e.g., food for work), social services (e.g., access to health, housing), etc., and are being provided by various international and bilateral organisations and governments.
The government plan for cash transfer: a plan without funding
‘The authorities indicated that about 60 percent of the population (about 4 million families) need assistance. They expressed a preference for a temporary (2–3 year) Quasi-Universal Basic Income (QUBI) scheme covering 80 percent of the population, because with almost-universal coverage, targeting of benefits would be simpler and faster, and the impact on the politically important middle class would be stronger than with a more targeted approach, which would facilitate a more rapid progress in implementing painful reforms’ (IMF, 2020, p14). According to the IMF, this plan will cost USD 2 billion per year, about 5.25% of the Gross Domestic Product (GDP). By all means this is extremely large if compared with the government total revenue and grants for 2018 and 2019, which were estimated at 7.8% and 6.4%, respectively (IMF 2020, Tabe1 and p. 32). The government was expecting to finance the project from donor assistance.
The IMF observed that ‘viable plans for subsidy and SSN reforms are not fully developed’ (p.11), and government plan would be difficult given limited donor assistance. It suggested an alternative plan to cover 60% of the population, with average assistance per person at USD 3.3 per month, USD 20 for a household of 6, which it said, ‘in the range of the World Bank considers appropriate’. This plan total cost will comprise 2.5% of the GDP (IMF 2020, p.14).
Donor assistance to cover the cost of the plan for either of the two scenarios above has not come. Lack of funding was not the only problem. The mechanism to execute the plan sought of by the MoF reflects a severe lack of understanding of the demographic and social reality in Sudan. From another side, the plan of cash transfer has not included any development component that can help protecting the vulnerable receivers beyond the 2-3-year planned period.
Mechanism of disbursement: the cash may not reach the majority in need.
The MoF plan is to use a telephone transfer system without considering the following. Sudan has no proper population registration system, and not enough is known about distribution, settlements and movements of certain segments of the population (e.g., nomadic population). The majority of the population cannot afford having a mobile telephone, and even more difficult, the majority of the population, including the growing communities round the urban centres, have no access to electricity. In countries where the telephone system is used for transfer, it is used just for notification and the beneficiary would have to encash from a bank or a post office branch. How could this be possible in Sudan with only a couple of hundreds of such branches (not to mention that a large number of the recipients would have no identification documents)؟
From the perspective of the suggested management system alone, the cash transfer project, to say the least, is a difficult undertaking. At most it can reach a segment of the urban and sub-urban population who suffer less poverty incidence than the rural and would lead to wide-scale corruption.
Lack of including development components.
It is very clear that the cash transfer project has not been based on a proper study. Reviewing international literature on the subject inform that there has never been a project at this scale, 80% of the population. Most of the projects, except emergency relief related to natural disasters and wars have a development component to empower the communities to become self-sustained economically in the future. Some African examples of such projects are given below.
Egypt (Pathways of Women’s Empowerment-IDS 2011)
The Egyptian Conditional Cash Transfer programme targets low-income families with school-aged children, with a focus on female-headed households. It aims to empower women. Mothers receive the monetary transfers from the government with the condition of children adhering to minimum school attendance, visits to health care facilities and observing nutrition advice. Girls receive more money than boys for attending and staying at schools. Through the control of money received, women play an active and more positive role for the family. It has been established that when women control the household budget, food and education improve (see for example, Hou, X, 2016).

Ethiopia (DFID, 2011)
The Productive Safety Nets Programme is multi-donor supported standing cash transfer programme that reaches 8 million persons every year, not necessarily the same people every time as it is directed according to the need. Being a standing transfer programme, it overcomes the inefficiencies of annual appeals. It is a cash transfer-cum-public works programme and is considered the largest social protection programme in Africa, reflecting strong commitment of donors and the Ethiopian Government.

Cameroon (The World Bank, 2016)
A social safety net project was established by Government of Cameroon and the World Bank covering 65,000 extremely poor households, mostly in five regions with a small percentage in two cities. Beneficiaries are required to spend the money in health, education, nutrition, public service, and training. They are encouraged and supported to develop income-generating activities. A certain amount is given in two transfers as investment capital.

The MoF project is for 2-3 years, so what will happen thereafter؟ Do we expect donors to finance such a project by USD 2 billion a year (close to the total government revenue and grants received for 2019)؟ It is very clear that the project was only announced to pass the plan to eliminate subsidies and free the exchange rate and has never been thought of as implementable.
Beyond social transfer to citizenship entitlement

While the neoliberals (governments and World Bank /IMF) support social protection projects, for them these are risk management instruments that are necessary because of ‘inefficient development’. Once development is efficient, private insurance will play a more prominent role. This paper conceives of social protection in the same way Deverux and Sabates-Wheeler (2007) consider as the activist position in the social protection debate. The activist position considers social transfers as ‘targeted welfarist handouts that are necessary but perhaps uncomfortable intermediate step between ad hoc humanitarianism and the ideal of a guaranteed ‘universal social minimum’, where entitlement extends far beyond cash or food transfers and is based on citizenship, not philanthropy or enlightened self-interest’ (Deverux and Sabates-Wheeler 2007, p.1) . Poverty is a result of social injustice and structural inequalities. Social protection and expanding people’s opportunities and choices are citizenship entitlement.

During the transitional period and beyond, economic growth in Sudan should be pro-poor. Economic growth is considered to be “pro-poor” if the incomes of the low-income group increase proportionally more than the incomes of the higher income groups. This is possible if growth enhances the ability of the poor to participate in, contribute to and benefit from growth (OECD 2009, p.3). This is not the intention of the economic policy of the transitional government.

Final Conclusions

The old regime was officially brought down but many of its remnants still strongly exist in the transitional government, in the security forces, in the civil service, in the media and in business. While lately some slow progress has been made in dealing with some of its legacies, still the road is long and has become complicated with the current composition and direction of the government allying itself with reactionary regional powers and with the vanguards of economic imperialism (World Bank, IMF, and others).
With political determination and using the revolutionary jurisdiction, which was very much legitimate in this juncture, the government could have re-gained control of the available economic resources, which are not little. The government could have planned not only for a macroeconomic stabilisation programme with no adverse effects on the poor but could have also invested in economic growth and human development. Controlling the illicit trade alone that has been reported by the Global Financial Integrity (2020) could have been enough to eliminate the deficit of the balance of payments. But the government has chosen to ignore working with the pro-revolution stakeholders. Two years have been lost during which people’s livelihood continued to deteriorate at a fast pace and the weak civilian government has been increasingly detaching itself from the revolutionaries. Delay in action to bring back the hijacked economy has not only weakened the civil rule and the trust of the revolutionaries in it but has allowed the counter revolution to recollect its strength and start fighting back and build alliances with the military component of the government and within the FFC, supposedly the political incubator of the revolution. This situation has led several revolutionary factions to leave the FFC.
When the revolutionary moment is not captured, revolutionary change may get delayed or may even get reversed. The hope lies with the revolutionary organisations outside the FFC led by the Resistance Committees (neighbourhood- and locality-based groupings of young men and women), who were the most effective force in bringing down the old regime and currently remain the vanguard protectors of the revolution together with the Sudanese Professional Association (the elected one), the Sudanese Communist Party, and other leftist political groupings.

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