Khartoum’s Economic Achilles’ Heel: The intersection of war, profit, and greed

 

Sudan’s increasingly urgent economic crisis, which has recently grown more acute because of financial isolation related in part to tighter sanctions enforcement for Iran, has become the Sudanese regime’s greatest vulnerability. This economic vulnerability has caused sanctions relief to replace debt relief as the regime’s primary preoccupation, giving the U.S. government powerful leverage to support an inclusive peace deal in Sudan that leads to a transition to democracy. 

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Sudan’s increasingly urgent economic crisis, which has recently grown more acute because of financial isolation related in part to tighter sanctions enforcement for Iran, has become the Sudanese regime’s greatest vulnerability. This economic vulnerability has caused sanctions relief to replace debt relief as the regime’s primary preoccupation, giving the U.S. government powerful leverage to support an inclusive peace deal in Sudan that leads to a transition to democracy. In a situation where grand corruption and mismanagement of mineral resources are among the key drivers of deadly conflicts in Sudan, understanding the Sudanese regime’s economic vulnerabilities in greater detail can equip policymakers to better tailor their financial pressure measures to target top Sudanese leaders and their enablers, who orchestrate large-scale atrocity crimes and theft in Sudan.

When the Omar al-Bashir regime seized power in 1989, the regime and its supporters quickly came to dominate the economy in obvious and subtle ways. The country’s profitable parastatal groups and private sector corporations were undercut. The regime and its supporters began to dominate and extract wealth for themselves from the economy’s key strategic and high-value sectors, including the oil, transportation, communications, and construction industries. The regime privatized state corporations, giving over the control of these corporations to regime-affiliated businesses and charities—on a non-competitive basis and for low prices. The regime-affiliated economic networks of hundreds of commercial companies, which dominate what might otherwise be a productive and independent private sector, constitute what many Sudanese people call a “gray economy.” This gray economy thrives in the shadows of the “deep state,” the latter being a term Sudanese people use to refer to the networks that have managed through their control of the gray economy to hijack the national economy and exploit that power to generate benefits for themselves. Some government institutions figure prominently among the key operators in this gray economy. These government institutions operate alongside companies controlled by regime cronies which hold monopolies over entire sectors of the national economy and are well protected. These government institutions include, among others, the economic outshoots of the ministries of Defense and Interior, and the National Intelligence and Security Services (NISS) which all have dozens of companies operating in the commercial arena. Senior ruling National Congress Party (NCP) officials and members of their immediate and extended families also own protected companies. These groups all receive privileged treatment in the allocation of government contracts and in countless waivers of government dues for customs, taxation, and other business transactions.

This economic duality makes the Sudanese government highly vulnerable, inside and out. State-enshrined grand corruption, combined with economic mismanagement and short-sighted, opportunistic over-spending of finite public money on unproductive pursuits, have left the regime heavily indebted. Tighter enforcement of sanctions on Iran has prompted global financial institutions to de-risk and stop doing business with risky clients, including Sudan. This isolation has created a cash crunch with fewer sources of outside revenue and foreign currency flowing into state coffers. Regime officials and their supporters have relied on this cash to maintain high-cost lifestyles and fund patronage networks. Recent banking restrictions now affect individual transactions and directly hamper access to cash by some key operators in the gray economy. These restrictions have helped prompt a concerted Sudanese government-led lobbying effort to have sanctions—particularly U.S. sanctions—lifted as quickly as possible.

The Sudanese government’s financial vulnerabilities and urgent desire to have sanctions lifted create significant new leverage at an opportune moment for U.S. leaders and the international community. In particular, the financial pressure that Sudanese leaders feel now can be tightened and eased by U.S. policymakers in strategic ways as part of a system of coercion and incentives that is one part of a broader enhanced comprehensive U.S. strategy with Sudan. This broader U.S. approach with Sudan should include expanded diplomatic resources and more concerted engagement in support of a single unified inclusive national process and a transition to democracy.

The Sudanese government claims that U.S. sanctions have created the hardships that Sudanese people experience. Regime officials minimize the role they themselves have played in mismanaging the economy, in wasting and abusing resources and in diverting the Sudanese public’s money away from the productive and human development sectors—particularly agriculture, health, industry, and education—toward private accounts or to fund war against Sudanese citizens in peripheral regions. In addition to devoting a disproportionate share of the national budget to the military and security sector, the regime is also believed to run a covert budget which is not subject to oversight by government agencies. This covert budget is said to benefit interest groups close to the inner circles of power, and to equip the regime’s military, security, and police forces to better repress dissent and challenges to its authority.

Inside and outside of Sudan, the Sudanese regime has skillfully disseminated propaganda and deployed a number of diversionary tactics to advance its narrative and attempt to persuade diverse audiences to support its positions in various international forums—including at the United Nations in New York and Geneva, at the African Union, at the Arab League, with European partners, and in the legislative and executive branches of the U.S. government. The Sudanese government’s campaign has left significant multilateral actors without the leverage or political will that the United States is now in a unique position to deploy.

 

Recommendations

To the Government of Sudan, the Enough Project recommends the following:

  1. End conflict. Facilitate a genuinely comprehensive and inclusive solution to end Sudan’s civil wars, and steer the country to a democratic transition.
  2. Increase accountability. Fight official corruption, and introduce transparency measures. Give Sudan’s independent Auditor’s Chamber prosecutorial powers. Empower other accountability institutions, such as Sudan’s Chamber of Public Grievances (ombudsman chamber), according to well-established international standards. Reform the mandate, composition, and powers of the recently-formed National Anti-Corruption Commission in accordance with international standards and best practice.
  3. Protect the independence of the judiciary and the media.
  4. Support the tracing and return of stolen public funds.
     

To the Sudanese opposition, civil society, academics, and institutional reform experts, the Enough Project recommends:

  1. Plan for integration and reform. Work for better coordination and integration of ongoing initiatives for the development of alternative policies for the reform of the economic sector and other sectors vital for the stability of the state in the event of transition to democracy.
  2. Research and document all stolen public funds and assets. Prepare plans for the recovery of these assets and for holding accountable those responsible for their diversion.
     

To the African Union and the United Nations Economic Commission for Africa (ECA), the Enough Project recommends:

  1. Support illicit finance investigations. Provide technical assistance to civil society efforts to enable them to identify, investigate, and document illicit financial flows from Sudan, in particular from the diversion of oil revenue. Then, enhance accountability by supporting efforts to recover such funds.