Sudan: The Hijacked Economy (1989-2019) by Dr Abbas Abdelkarim

03:37 AM August, 04 2021

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عباس عبد الكريم-السودان
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Abstract
This short essay is to reveal some elements of the kleptocratic regime that ruled in Sudan over thirty years (1989-2019) and how such regime had been established using power of the state. A concrete case of illicit trade that has been very well documented by Global Financial Integrity is presented and further expanded to include some other forms of illicit trade and capital flight that were there and that may still be continuing at present.
Introduction and Objective
The islamist tyrannical, corrupt regime in Sudan, established in 1989, was brought down and a transitional government was formed in September 2019. The coup of 30 June 1989 by the political islamist party, using their military arm, had one major objective: to hijack the economy for self-enrichments All the declared political and social agenda and actions, and the oppression, liquidation and massacre committed were to serve this major objective.
It is important to note that many elements of the corruption of the old regime that have become public knowledge from the media are not well documented. This short essay (which will be developed further and appear in other venues in English and Arabic) attempts to persuade writers, journalists, government and private sector employees, and other informants to come forward with evidenced materials on the corruption of the old regime.
Documenting the functioning of the kleptocratic regime that ruled Sudan for 30 years is important not only as history but because the deep state created still very much exists two years after the transitional government has been formed (see Abdelkarim, 2021, Advance, Preprint). Exposing how the deep state has been created and some modes of its operation in the economic front is an important step in eradicating it.
Manifestations of the Hijacked Economy (1989-2019)
Economic growth and wealth created during the period 1991-2018, especially during oil exportation and before the secession of South Sudan, 2000-2010, , has gone primarily and illicitly to the benefit of the regime’s allies (see World Bank 2020, for the rate of growth during that period). The amount and methods of corruption during the 30-year period were unprecedented. Sudan occupied rank 173 and 174 out of 180 in 2019 and 2020, respectively, in the global corruption country ranking published annually by Transparency International. For many years, since the inception of the Corruption Perceptions Index in 1995, Sudan has remained among the most corrupt 5% countries (see transparency.org website).
The coup of 30 June 1989 by the political islamist party (currently National Congress and other groups that have separated from it)) had one major objective: to hijack the economy for self-enrichments. All the declared political and social agenda and actions, and the oppression, liquidation and massacre committed were to serve this major objective.
Because allies and agents of the old regime were not necessarily participants in the market, extra-market (or extra-economic) measures, e.g., violence, oppression, etc., have been taken to guarantee their control and possession of a large share of the national wealth. The Enough Project (2017) described the regime as violent kleptocracy. Enough defines violent kleptocracy as a ‘system of state capture in which ruling networks and commercial partners hijack governing institutions for the purpose of resource extraction and for the security of the regime. Ruling networks utilize varying levels of violence to maintain power and repress dissenting voices’ (The Enough Project 2017, p13).
The manifestations of the hijacked economy are many and not all documented. The below represents a non-complete inventory based largely on Martini 2012, The Enough Project 2017, and El Amin 2019.
(‘Them’ and ‘their’ below refer to the ruling party).
Sacking, for no qualification or performance-based reasons, thousands of individuals from the civil service, other government and semi-government institutions, state enterprises, the military and the police and appointing thousands of their party cadres, especially in high and middle management positions.

Weakening or abolishing some established government institutions generally, and especially economic institutions, and transferring much of the public policy issues and decision making to institutions, committees, councils and bureaus established and managed by them.

Fighting and driving to bankruptcy national capitalists who were not their political allies, or who did not accept to work with them, through unfair treatment in government contracts, bank funding, tax collection, government procedures, land allocation, and sometimes they openly confiscated businesses.

Establishing hundreds of companies under the ownership of government entities, army, security, paramilitary, and the ruling party that received concessions not available to others. Most of these companies were not audited, and the activities of the majority were not publicly known. Corruption within these companies was the rule.

Assisting thousands of their political allies to establish businesses and providing them with special facilities such as financing, tax reduction, government contracts, land allocation, etc.

Privatising government enterprises, many of which were making or could be making profit if they were not embezzled and selling them at prices far below their actual value (and the difference was misappropriated). The Auditor General Office in a TV broadcast in June 2020 listed some privatised companies selling price of which had never been reported to and collected by the government.

Liquidating and selling or damaging assets of megaprojects, like Gezira Scheme, assessed at USD 50-100 billions, without any accountability for the collected funds and damage caused.

Selling various government assets inside and outside the country and misappropriating all or a large part of the proceeds.

Selling millions of acres of agricultural land and of huge number of residential plots to foreign entities and local political allies without publicly declaring the deals and not reporting the proceeds.

Oil (especially before the secession of South Sudan) and gold extraction and sale provided huge opportunities for corruption amounting to many USD billions (see the next section below).

By 2010, before the secession of the South and while its oil was still being extracted and embezzled, the former president alone has syphoned off USD 9 billion, according to the BBC website (2010).

In addition to the forms of corruption mentioned above, direct misappropriation of government funds by various ways and all kind of activities (e.g., receiving commission on public procurement) was a daily occurrence.

Keeping a blind eye on their cadre embezzling public funds and receiving bribe, and giving them clear priority in appointment, promotion, training and travel in mission.

Corrupting some other government employees at all levels through giving them handouts (under different names) and encouraging them to receive bribe was deliberately planned to keep them.
The next sub-section presents a concrete case of hijacking the economy.
Illicit Trade, Lost Income, and Capital Flight: A Case Study of a Hijacked Economy
Global Financial Integrity (GFI) is a Washington, DC-based think tank, focused on producing reports providing information and analyses of trade-related illicit financial flows. ‘GFI is committed to constructively engaging with policymakers, civil society, the press, and other relevant stakeholders to develop effective, pragmatic policy solutions in pursuit of curbing illicit financial flows’. Using data from the Bank of Sudan Foreign Trade Statistical Digests, the International Monetary Fund’s Direction of Trade Statistics, UN COMTRADE (UN International Trade Statistics Database), GFI conducted a value gap analysis of Sudan’s global trade transactions. ‘A value gap is the difference in value between what any two countries report in a bilateral trade exchange. It is indicative of trade misinvoicing, which is used to move money or value out of one country and into another, as well as to evade value-added tax and customs duties’ (GFI 2020, p.1).
Illicit trade and lost income
In the period 2012-2018, and in 374 bilateral trade relationships with 70 trading partners, Sudan reported a total trade original value of which was US$65.0 billion. Against this amount, GFI estimated US$30.9 billion in value gaps (Table1).
The GFI Report focused on two main export commodities, crude oil, and gold. Sudan reported exports of crude oil valued at US$4.8 billion (62.3 million barrels) during the seven-year period, while in comparison its trading partners reported imports of US$8.9 billion (112.2 million barrels. In gold, Sudan reported exports of US$8.6 billion (205,446 kilograms) and at the same time trading partners reported US$12.7 billion (404,732 kilograms) (GFI 2020, p. 2-3).
Table 1
Sudan International Trade Value Gap 2012-2018
Amount in USD As a % of Sudan’s reported trade
Total trade value gap 30.9 billion 47.6
Crude oil sector value gap (4.1 billion) 85.4
Gold sector value gap (4.1 billion) 47.7
Source: Global Financial Integrity (GFI) 2020, Sudan and Trade Integrity, Washington DC, May 2020.
Note: Crude oil and gold are included in the total.
In terms of potential lost revenue of tax and other levies, the government may have lost as much as US$5.7 billion in 7 years (that is, USD 814 million on average annually) due to these differences in reported value (GFI 2020, p. 1).
On another front of paramount importance, the economy has lost USD 31 billion in foreign currency income in the period 2012-2018.
The smuggled gold
Based on the above-given information, Sudan reported exporting 202,446 kilogram of gold and receiving USD8.6 billion (average of USD 41,860 per kg), while trading partners reported importing 404,703 kilogram and paying USD 12.7 billion (average of USD 31,378 per kg). The GFI Report has remarked that the 199,286-kilogram difference was gold that had been smuggled (equivalent to 97% of the reported; or almost half of all exported) but has not referred to a difference in the price. The average price calculated above lumps together the price of the officially exported and the smuggled. If the average price of the officially exported was USD 41,860 per kg, as has paid to Sudan, the same for the smuggled would be USD 20,573, which was half of the official price. Such a slash in the price could only happen in a money-laundering transaction (transferring illicitly acquired funds abroad). Trading partners in the importing countries could be aware of the situation, and hence would be in a position to dictate price. If the smuggled gold went through the official channel, Sudan would have received USD 8.7 billion (and not 4.1). For all exported gold, the amount would have been USD 17.3 billion (and not 8.6). The government lost tax and tariff income from the smuggled gold was about USD 1.6 billion (using the same tax rate applied by GFI), which was about USD 230 million annually.
Trade value gap enough to cover balance of trade and balance of payment deficit.
The total trade value gap in Table 1 is then to be corrected to (30.9 +4.6) USD 35.5 billion for the period 2012-2018, which means an average annual loss of hard currency income of USD 5.1 billion, and of 935 million USD million government tax income. According to data from Bank of Sudan (IMF 2020, p. 22) the deficit of the balance of trade (BOT) was USD 3.2 billion and of the balance of payments (BOP) was USD 1.5 billion in 2018. (The BOT is the difference between exports of goods and imports of goods, and the BOP is the difference between the inflow of foreign exchange and the outflow of foreign exchange. The BOT is a constituent of the BOP). The lost hard currency inflow resulting from the estimated trade value gap could have more than covered the deficit of the BOT and turned it and the BOP into positive.
Trade value gap is an underestimate; the actual could be much higher!
In the GPI report, the trade value gap for the period 2012-2018 was estimated at USD 30.9 billion. Adding value gap resulting from the smuggled gold, the amount was corrected to 35.5. However, it is to be claimed that there were/ still are other, not recorded sources of trade value gap which make it in reality much higher.
GFI covered 374 bilateral trade relationships with 70 trading partners in 2012-2018. These were the large trading partners. Hundreds of other smaller trade transactions could have occurred but were not possible to include/trace.

The Bank of Sudan was the source of the recorded trade relationships which then GFI traced with the trading partners abroad. However, there were many other trade transactions made by military, security, ruling party, and other politically influential companies that would never pass through the Bank of Sudan. Finance and accounts of these companies were not audited and their transactions (or at least part of them) were not on any official record (Sudan Audit General has declared that in writing, and in the media). Exporting by these companies was largely meant to fly capital to other countries.

For long time, boarder smuggling (in and out and at all directions) has been going on with no ability or will to control it.
Other forms of capital flight
The hijackers pf the economy knew that there would come a time when their hegemony will no longer continue and they would need to transfer their embezzled wealth, or a large part of it, into other countries. So, in additions to the above, other methods of capital flight included:
Buying foreign currency and smuggling the cash into other countries (bank transfer was not possible because of the economic sanctions). Smuggling by influential persons, and others who could bribe, was facilitated and protected by officials.

Receiving illicit commissions on government sales and procurements in private foreign account.

Receiving public loans and other payments due to the government of Sudan in foreign accounts that had been officially opened by the Bank of Sudan. (Not long time ago came in the media the story of a USD 100 million loan from China that had not been known to the Bank of Sudan).

A final note

An increasing segment of the national income being flown to outside the country has contracted domestic investment, especially in the livelihood sector, and shrunken disposable income which again lead to decline of production of goods and provision of services for the domestic market and to increase of unemployment.

Cited References
-Abdelkarim, Abbas (2021): Sudan Transitional Government Economic Measures: Missing the Revolutionary Twinkling. Advance. Preprint. https://doi.org/10.31124/advance.14132246.v1 

-BBC website, 2010, Sudan's President Bashir 'siphoned off millions' – ICC., 10 December 2010. https://www.bbc.com/news/world-africa-12025213

-Elamin, Niematallah. (2019). A theoretical analysis of corruption in Sudan: Causes, diagnostics, consequences, and remedies. African Journal of Political Science and International Relations. 13. 4-16. 10.5897/AJPSIR2018.1134.
https://academicjournals.org/journal/AJPSIR/article-full-text-pdf/387106E60696

-GFI-Global Financial Integrity, 2020, Sudan and trade integrity, Washington, Dc, May 2020. https://www.bing.com/searchØŸq=Sudan+and+Trade+Integrity+Glob...4b9995dced63556a5913

- IMF (2020) Sudan Selected Issues, IMF Country Report No. 20/73, March 2020 Washington, D.C. https://www.imf.org/en/Publications/CR/Issues/2020/03/10/Sud...elected-Issues-49255

-Martini, Marai, 2012, Corruption and anti-corruption in Sudan, Transparency International, issue 342,22 August 2012.
https://www.transparency.org/files/content/corruptionqas/342...ruption_in_Sudan.pdf

-Transparency International website: transparency.org


Abbas Abdelkarim -Dubai

Email: [email protected]

Webpage: https://https://www.abbasconsult.comwww.abbasconsult.com