Oil and Agriculture in the Post-Separation Sudan

The Comprehensive Peace Agreement (CPA), which was signed by the government of Sudan and the Sudanese People’s Liberation Movement (SPLM) ended more than 20 years of civil war. According to the CPA, the Sudan’s government has 50% of the oil exploited from the wells existing in the south in addition to the oil produced from the northern wells. The latter represents about 30% of the total oil production in Sudan. In January 2011, the people in southern Sudan have voted for separation from the Sudan and in July 2011 the Republic of South Sudan was officially announced as Africa’s newest state. Now the CPA period is over and the south possesses its entire production of oil, but need to use the export infrastructure that exists in the north to export it. For that the south need to pay fees and customs for which the exact amounts need to be further negotiated. Sudan would lose a huge part of its revenue from oil, which constituted a growing share in its trade, government revenue and GDP during the last decade. In this paper, an attempt has been made to investigate the implications the separation of Sudan and the establishment of the RSS may have on the Sudanese economy. The paper is motivated by the fact that Sudan (North) will lose a significant part of its revenue from oil. Oil has been contributing considerably to the economy as represented in its GDP, exports, and government income during the last decade. The objectives of the study include evaluating the impact of the separation, estimating the expected loss, and proposing recovery scenarios which may consider regaining some of the expected losses. GTAP CGE model with its Africa database is used as the tool for analysis. The database and closure assumptions have been modified to match the objectives of the analysis. The separation scenario is exemplified by 20% cut in the petroleum output and 10% reduction in the total population. The recovery scenario uses the updated data as a baseline and simulates efficiency improvements in the negatively affected sectors as an approach to boost the GDP. The effectiveness of enhancing the efficiency of the agricultural sector in Sudan is covered in Siddig et el., (2011), where they found it having several positive implications at the national and regional levels. Results show that separation would be costly to the economy at large and to households at most. Despite the restoration of the GDP value by the recovery scenario, many variables of the economy would remain unrecovered. The GDP would decline by -19.97% due to the separation scenario, which became the target to be recovered by the recovery scenario that increases the efficiency parameters of the negatively affected sector by separation scenario in order to boost their output, and hence push the GDP to recover. However, this does not imply any similarity in the structure of the economies of the ex-ante and ex-post separation. The impact of the two scenarios on the sectorial output is shows that the separation scenario would pronouncedly increase the output of many exports and imports substitutes. They are led by oilseeds, which is a major Sudanese agricultural export and wheat, which is a major import, where both have shown increases in their production. It is also found that the exports of oilseeds, other crops and livestock would increase in response to the loss in the foreign currency earning caused by the separation. At the household level, the separation scenario reduces demand while the recovery scenario regains some parts of the lost demand. However, the magnitude of change is always higher for the separation scenario and smaller for the recovery scenario. This is translated in a huge welfare loss due to the separation, which cannot be recovered by the described recovery settings. This implies that policy makers in Sudan need to carefully consider the negative implications of the separations as reflected in the recent substantial increases in prices. In this regards, it is important to note that the simulated cut in the output of oil in this study is in the optimistic side. This means that the loss in oil revenue could be higher. Furthermore, many other implications are not incorporated in this simulation such as the currency issues, inflation, and other measures taken by the government. The latter embraces the increase in the price of oil in the domestic market and the removal of subsidies in some sectors. These policies and procedures could lead to further aggravation of the situation in the post separation era.