The US's decision to remove Sudan from its State Sponsors of Terrorism list after nearly three decades will benefit the country's private sector by providing much-needed access to finance and technology, analysts told The National.
“Short-term, it will allow the banking system to finally establish corresponding relationships with banks overseas. For the past 27 years, I think all of Sudan had one bank – one corresponding relationship with the world,” Amro Zakaria Abdu, chief executive of Madarik Finance, said.
“That, in a way, crippled the banking system and it made it much more expensive for people to secure loans or loan guarantees. Because you always had to go through third parties … that would charge exuberant amounts of interest,” he added.
The lack of an ability for many Sudanese firms to buy directly from the US has hampered a range of industries – from farmers struggling to buy machinery to an aviation industry that had “broken down” due to an inability to secure spare parts, said Mr Zakaria, a Sudanese national whose company is based in the US.
“We have been left behind for almost three decades. The country needs everything and every little development will have a huge impact on the quality of life for people,” he said.
The US had lifted many sanctions on Sudan in 2017, but its removal from the State Sponsors of Terrorism list on Monday “removes another barrier to international trade and investment”, said Peter Feldman, a partner at law firm Dentons.
“While this designation, in itself, did not prohibit all commercial activity with Sudan, it did prohibit some, and the reputational risks that it carried made even business that was allowed riskier,” Mr Feldman said. “Removing Sudan from the list of State Sponsors of Terrorism is another step on the path to reintegrating Sudan in the global economy.”
Sudan’s economy is facing multiple challenges. Gross domestic product was shrinking even before Covid-19 and is forecast to contract 8.4 per cent this year, according to the International Monetary Fund.
The Washington-based lender also projects annual inflation will increase to over 140 per cent this year and that higher government borrowing to fight the pandemic will push the government’s debt-to-GDP ratio above 259 per cent.
“Sudan's macroeconomic indicators remain worrying – inflation is extremely high and purchasing power is continuing to be eroded,” said Aly Verjee, senior researcher at the US Institute of Peace.
While the country’s SST delisting is “well overdue”, its removal alone will not be enough to rescue the country’s economy, he said.
Many of Sudan’s challenges are linked to “years of ineffective governance and political instability”, Isaac Kwaku Fokuo Jr, founder of Dubai-based Botho Emerging Markets Group, said.
“The current transition government needs to do its part to build an enabling ecosystem for local entrepreneurs and job creators to attract foreign investments and partnerships.”
Sudan has a lot of economic potential, he said, with 80 per cent of its 135 million acres of agricultural land still uncultivated. It also benefits from a strategic position between Sub-Saharan Africa and the Middle East.
“Well-curated political reforms, led by the transition government, will allow the country to make positive strides towards economic growth,” Mr Fokuo Jr added.
Removal from the list will open the door for Sudan to secure debt relief from the IMF and other multilateral agencies, Sanya Suri, an analyst at The Economist Intelligence Unit, said.
“In order to secure debt relief from the IMF, though, the Sudanese authorities will need to demonstrate evidence of having implemented economic policies approved by the IMF, in particular those set out in the new 12 month staff monitored programme agreed in September 2020.”
Once this completes, she expects the fund to approve another, and for new funding from the IMF to begin flowing in early 2022.
Some bilateral lenders could also write off debts, Ms Suri said, but added this would be contingent on a successful democratic transition in the country.
“While foreign direct investment will pick up in 2021, stronger investment growth is likely only after the completion of the 2022 elections,” she said.
One significant bonus of the banking system reopening will be that currently “remittances currently flow into Sudan largely through informal means”, Matthew Ward, an East and Central Africa senior analyst at consultancy Oxford Analytica, said.
A United Nations Development Report published in September found that about $3bn of annual remittances flow into Sudan – 10 times the amount received through official transfers.
“If they were to be re-routed through the formal banking sector this would provide an immediate boost to the tax base and foreign exchange inflows, which could in turn help stabilise the currency,” Mr Ward said.
“However, this is unlikely to happen quickly, as the huge gap between the official and black-market exchange rates effectively makes this a loss-making proposition for remitters.”