Sherine Abdel-Razek considers the effect south Sudan's referendum outcome may have on local and neighbouring economies Seventy-five per cent of Sudan's oil reserves, thousands of acres of highly fertile River Nile basin agricultural land, tropical forests and other natural resources are only some of the economic appeals that south Sudan boasts. No wonder, then, the Sudanese economy is feeling the pinch of the expected split. The countdown to the referendum saw the local currency, Sudanese pound, losing ground and inflation, mainly caused by uncertainty over the future, pushing prices of essential goods through the roof. In an interview with Asharq Al-Awsat newspaper published last month, Sudanese Minister for Finance and National Economy Ali Mahmoud Abdel-Rasoul warned the people of the north that tough austerity measures would have to be undertaken should the southern Sudanese vote for independence. The Sudanese parliament has already approved a number of measures aimed at reducing expenses, including cuts in subsidies on some food items and oil. The country also moved recently to curb imports as a means to preserve its international reserves, which are limited and couldn't help in defending the Sudanese pound, which have been sliding against the US dollar. Abdel-Rasoul asked the Sudanese in the north to reduce spending on luxury items. "I have spoken to them about the importance of returning to local products: to corn, millet and to kisra [Sudanese corn bread] and cooking it at home," he said. The effect of south Sudan's secession is not as bad -- if bad at all -- on neighbouring countries. Being ignored for decades by Khartoum, the region, or the new country (if the referendum results in secession), has a poorly developed infrastructure that provides good investment opportunities in the construction and transportation sectors, such as road building, most of the country covered in jungle with no or poor access. Egypt and East African countries can be large players on the investment scene due to proximity, according to Ibrahim Mansour, head of Okaz Securities, a Cairo- based investment bank. According to Mansour, both the Egyptian government and private companies have been tapping this virgin market since the peace agreement in 2005. Citadel Capital and El-Sewedy Cables top the list of private companies. Citadel has investments in cement, agriculture, railways, banking and oil. A good chunk of the Egyptian investment in Sudan is concentrated in the south, but problems related to poor infrastructure and difficulties related to money transfers have made investment difficult. In August, Faiza Abul-Naga, Egyptian minister of state for international cooperation, said the value of Egyptian investment in Sudan in 2008 and 2009 mounted to LE3.5 billion, a 30 per cent increase over its level in 2002, which ranks Egypt fifth among foreign investors in Sudan and third among Arab countries. Meanwhile, East African nations such as Kenya, Uganda and Ethiopia could reap trade and investment opportunities worth billions of dollars to help develop south Sudan if it splits from the north. According to Reuters, companies in neighbouring Kenya and Uganda, from taxi firms to Kenya's largest lender by assets, Kenya Commercial Bank (KCB), are already tapping boundless opportunities in Juba, the south's capital. Kenya's exports to south Sudan almost doubled between 2005 and 2009; rising to 12.8 billion shillings ($157.7 million) from 6.8 billion shillings after south Sudan rebels signed a peace agreement with Khartoum. South Sudan neighbours Uganda's main export market, importing goods worth $184.6 million from East Africa's second largest economy. "It's virgin territory. It has got the potential to be the biggest economy in the region in the next 10-20 years," KCB Chief Martin Oduor- Otieno said in a Reuters interview. According to Reuters, analysts believe the new state would seek to export its oil to the Indian Ocean via a yet-to-be-built corridor through Kenya, in order to sidestep Khartoum. Hungry for the south's resources, countries such as China and Japan will happily finance the export route. However, fears that secession won't be peaceful loom over investments. A report prepared by Economic Frontier, a London-based research company, The Cost of Future Conflict in Sudan, concludes that if the referendum sparks conflict, and it runs for 10 years, Sudan's neighbours could lose over $25 billion in gross domestic product (GDP) due to lost Sudanese demand on their products and the presence of refugees on their borders, along with the risk perception of the region. As for Sudan itself, losses could reach $50 billion. While the majority of Sudan's proven oil reserves of 6.3 billion barrels is in the south, all of Sudan's crude exports are carried through a pipeline running north to Port Sudan, which makes the oil industry vulnerable to internal conflict. Sudan is Sub-Saharan Africa's third largest oil producer. As for Egypt, the report notes that, "the risk... is still serious. Apart from specific economic impacts, it has a very strong strategic interest in Sudan because of the Nile. Impacts of conflict and its aftermath on the use of the Nile could have significant economic consequences for Egypt." Such losses and risks have been factored into the investment decisions of companies investing in Sudan since 2005, according to Okaz's Mansour, who said that yields on investment there must outweigh the risks. While most senior Citadel officers with portfolios in Sudan declined to reveal their plans for the post-referendum period when contacted by Al-Ahram Weekly, due to the "sensitivity of the timing," as one of them put it, Citadel's CEO Ahmed Heikal told Bloomberg last month that he is prepared for the challenge of operating in Sudan. "Certainly investing in these areas is not for the fainthearted," Heikal says. "The returns make it compelling to invest. If you want to wait until there is no political risk, then go invest in Switzerland," he added.
