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Sudan

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Title: Sudan


1
Sudan
Meeting the Poverty MDGs by 2015
2
Meeting the Poverty MDGs by 2015
  • Three Important Disclaimers though the analysis
    to be presented here is based on a sensible
    conceptual framework, it is by no means final.
    The estimates of the overall resource envelope
    and the resource gap/ODA are PRELIMINARY.
  • The estimates reflect a top-down
    macro-perspective. May be modified/adjusted to be
    consistent with the needs assessments bottom-up
    approach, to be produced by the other
    sector-specific clusters
  • The required resources for meeting the MDGs.
    These estimates could be taken to include
    physical investment as well as other
    growth-promoting non-capital expenditure BUT they
    are not final
  • No attempt is made at this level to allocate
    aggregate ODA between GOS and GOSS or other
    levels of government. This must await the new
    budget the wealth-sharing implementation
    protocols.

3
Meeting the Poverty MDGs by 2015
  • Two fundamental objectives starting in 2005
    make significant progress by 2010, especially in
    the south (and the Three Areas), and, reduce
    poverty by half by 2015.
  • Important milestones. New era of post-conflict
    Sudan peace agreement/resolution of Dar Fur
    conflict and formation of government of National
    Unity (2005) interim period, mid-term elections
    (2008) referendum on self determination for
    Southern Sudanese (2010)
  • Making Unity Attractive. Target substantial
    economic and social gains for South and other
    marginalized areas especially during the five
    years prior to 2010
  • The potential for post-conflict growth is huge,
    especially in the south and other war-affected
    regions
  • Achieving the poverty MDGs by 2015. Forces
    accelerated social and economic development

4
Meeting the Poverty MDGs by 2015
  • Implication for poverty reduction and growth
    (based on Ali (2004) see Box III.1 for the
    technical conceptual framework)
  • Reducing poverty by half in 10 years requires the
    head-count ratio to decline by an annual rate of
    about 6.7 percent
  • Using a plausible estimate of the growth
    elasticity of poverty (of 1.357), real GDP per
    capita must grow at an annual average rate of 5
    percent throughout the period
  • With the Sudanese population assumed to grow at 3
    percent, the economy must grow by an average rate
    of about 8.0 percent per year throughout the
    period

5
Meeting the Poverty MDGs by 2015
  • The bottom line the resource requirements 
  • Follow the conventional approach set the rate of
    GDP growth equal to the investment rate
    (investment GDP ratio) divided by the incremental
    capital output ratio (ICOR)
  • For the Sudan, set the ICOR 3.3 average for the
    peaceful period of 1975-79 and the more recent
    1990s as well as comparable to the median for
    recent African post-conflict experiences
  • With the assumed ICOR, an average annual
    investment rate of 26.4 percent of GDP will be
    required to achieve the 8 percent real GDP growth
    rate

6
Meeting the Poverty MDGs by 2015
  • However, an important cautionary note is in
    order Admittedly, this framework hinges upon
    two fundamental assumptions
  • that the resource flows (i.e. savings, including
    foreign savings provided in the form ODA) are
    effectively used for growth-promoting investment
    and,
  • that investment efficiency is high
  • For these two assumptions to be plausible,
    however, substantial progress must be achieved on
    various institutional and policy fronts,
    especially with regard to
  • the transparency and accountability of oil and
    aid management and the overall budget
  • Restructuring of the budget to pro-growth/pro-poor
    programs, guided by the PES

7
Meeting the Poverty MDGs by 2015
  • The Dynamics of Growth Over three Post-conflict
    Episodes (2005-2015)
  •  Peace Onset (2005-2006) post-conflict growth
    (for the Sudanese economy as a whole) in this
    period is not likely to be significantly higher
    than 2004
  • Growth was already quite high throughout the
    second half of the 1990s, though it has not been
    pro-poor
  • Risk of war recurrence (or new wars) may still be
    high, leading investors to exercise the option of
    waiting
  • Moreover, capacity is usually severely limited
    and aid tends to be substantially allocated to
    livelihood needs (very important for welfare
    enhancement but not necessarily directly
    effective for raising growth in the short run)

8
Meeting the Poverty MDGs by 2015
  • The Dynamics of Growth Over three Post-conflict
    Episodes (2005-2015)
  • Postconflict1 (2007-2010) and Postconflict2
    (2011-2015) like other post-conflict economies,
    the Sudanese economy is likely to experience
    dramatic growth rates during the following four
    to five years
  • Perceived risks of recurrence of conflict in the
    following period is substantially reduced
  • Improvements in the institutional and policy
    environment is likely to be realized, usually
    enough for enhancing absorptive capacity for aid
    and other domestic resources for financing
    reconstruction
  • The combination of improved policy environment,
    foreign aid, and the initial conditions of
    depleted capital stocks and rudimentary
    infrastructure due to the long civil war, allow
    the growth potential to be realized
  • This is likely to be quite substantial in the
    case of the Sudan, given the longevity of its
    civil war and the devastation that affected the
    economy of the south and other war-affected
    regions in the north, including Dar Fur
  • Growth is also likely to remain high during the
    third phase, as the economic and policy
    environment continue to improve, though the
    impetus due to catch-up growth is likely to
    moderate over time.

9
Meeting the Poverty MDGs by 2015
  • The Growth profile in the post-conflict
  • In light of the above considerations, the
    estimated annual average growth rate of 8 percent
    required for halving poverty (which amounts to a
    total growth rate of 88 percent between 2005 and
    2015) is assumed to broadly follow the
    post-conflict growth dynamics discussed above
    (Table III.1 see also Annex tables III.1
    III.2. A-D)

10
Meeting the Poverty MDGs by 2015
  •  

11
Meeting the Poverty MDGs by 2015
  • Peace Onset (2005-2006)
  • Growth rates during 2005-2006 of the peace
    onset episode are assumed to average 8 percent
    per annum, slightly up from the 7.6 percent
    projected for 2004
  • Assuming that the economy will experience a
    steady but modest rise in growth during this
    period is consistent with the growth profile of
    post-conflict countries coming out of long civil
    wars, when macroeconomic stabilization was
    achieved and growth started to happen before the
    conflict ended.

12
Meeting the Poverty MDGs by 2015
  • Post-conflict I (2007-2010)
  • Growth is assumed to rise to 9 percent per annum,
    reflecting among others, the envisaged expansion
    of the Sudanese oil economy, with the envisaged
    doubling of production as the new oil fields come
    in stream
  • With substantial foreign direct investment and
    more aid, and hopefully, meaningful improvements
    in policy and economic management capacity the
    assumed growth rates appear plausible

13
Meeting the Poverty MDGs by 2015
  • Post-conflict II (2011-2015)
  • This period is assumed to account for the
    remainder of the required growth, which comes to
    a rate of growth of 7.2 per annum
  • Though the assumed growth rate are still high,
    compared to the previous six years the economy is
    assumed to slow down though economic policy and
    institutional environment is likely to
    consolidate
  • Barring new discoveries the oil economy is
    envisaged to reach its maximum capacity.

14
Meeting the Poverty MDGs by 2015
  • Resource Requirements, Resource Gap and Aid
    (2005-2015)
  • For the post-conflict Sudan to achieve the
    growth rates necessary for meeting the poverty
    target by 2015, substantial resources will be
    needed (Table III.1)
  • The required investment rate amounts to 26.4
    percent of GDP in the peace onset period,
    reaching a high of 29.7 percent for post-conflict
    I, before declining to the more normal levels of
    23.8 percent in post-conflict II
  • The resource requirements might seem prohibitive,
    especially if compared to historical investment
    rates, which averaged about 19 percent during the
    1990s

15
Meeting the Poverty MDGs by 2015
  • However, foreign direct investment is likely to
    pick up, including in the non-oil sectors of the
    economy FDI flows to Sudan increased from an
    annual average of 0.3 of GDP for the period
    1992-1997 to an estimated 7.7 of GDP in 2003
  • Moreover, with the envisaged budget restructuring
    required by the PES, more domestic resources
    could be reallocated to growth-promoting current
    and capital investment programs in agriculture,
    infrastructure as well as the social sectors
  • Nevertheless, the remaining resource gap would
    still require relatively substantial amounts of
    foreign aid.

16
Meeting the Poverty MDGs by 2015
  • Net resource gap/ODA it is, therefore, assumed
    that a combination of new FDI, enhanced domestic
    private investment as well as increased
    allocation to public investment could raise
    investment ratios significantly beyond the 1990s
    average of 19 percent
  • Under this scenario the resource gap that must be
    financed by ODA would come to about 5.5, 6 and
    2.8 percentage points of GDP for the three
    post-conflict episodes, respectively (Table
    III.1)
  • In terms of current US dollars per capita, under
    this scenario the average Sudanese would receive
    32 of ODA per year during peace onset, 46
    during post-conflict I, and 32 during
    post-conflict II (Figure III.1)

17
Meeting the Poverty MDGs by 2015
18
Meeting the Poverty MDGs by 2015
  • The required net aid flows per capita for Sudan
    will be much larger (at least for the first two
    post-conflict periods) than the median ODA flows
    of recent post-conflict countries which have
    amounted to 23, 32,33 for each of the three
    periods respectively
  • Moreover, the per capita ODA flows for peace
    onset and post-conflict I will be much greater
    than those experienced by the Sudan following the
    end of the first civil war but will be slightly
    less in post-conflict II (Figure III.2)
  • Given the staggering and unsustainable external
    debt (of more than 20 billion) debt relief
    requirement implies significant resource
    commitments from the donor community
  • Nevertheless, despite Sudans large needs for net
    foreign aid, there is the expectation that the
    latter can generate further resources as an
    oil-producing country, including attracting more
    foreign direct investment and restructuring the
    budget

19
Meeting the Poverty MDGs by 2015
20
Meeting the Poverty MDGs by 2015
  • A Focus on Southern Sudan (and the Three Areas)
  •   The Implications of the of one country, two
    systems. In the context of the peace agreements
    signed so far, it is important to note that the
    Government of Southern Sudan (GOSS) is given
    substantial sovereign economic powers (see Box
    III.2)
  • subject to the provisions of the Framework for
    Wealth Sharing (FAWS) and the constraints set by
    an agreed upon overall macroeconomic policy, GOSS
    is, essentially, entitled to pursue an
    independent development strategy
  • therefore, it seems reasonable to attempt a
    projection of the resource requirements for the
    region (as well as the Three Areas)

21
Meeting the Poverty MDGs by 2015
  • Average Required Growth. Given the level of
    development of the Southern region as reflected
    in per capita GDP it can be shown that the
    average growth elasticity of poverty in Southern
    Sudan (and the Three Areas) would be equal to
    0.653, which is about a half the absolute value
    of the elasticity estimated for the Sudan as a
    whole
  • With the required reduction in poverty of 6.7
    percent per annum, real per capita GDP in the
    south (as well as the Three Areas) must grow at
    an average annual rate of 10.3 percent per annum
  • Given the assumed average population growth rates
    (which account for repatriation of IDPs in the
    north and refugees in the case of the south Box
    III.3 and Appendix Table III.1), overall real GDP
    must grow by 15 percent per annum for the south
    and by 13 percent for the Three Area
  • These are relatively high rates of growth, though
    for regions emerging out of a long civil war it
    should not be surprising

22
Meeting the Poverty MDGs by 2015
  • The Dynamics of Growth in the post-conflict.
    Due to the envisaged massive repatriation of
    Southern Sudanese during 2005-2009, both growth
    and required resources are assumed to vary across
    the three post-conflict episodes (Tables III.2
    III.3)
  • GDP in South Sudan is assumed to grow by 15
    percent in the first two years of the peace
    onset episode, and by a staggering 18 percent in
    post-conflict I (2007-2010), but is assumed to
    decelerate to the still high rate of 12 percent
    per annum in post-conflict II (2011-2015)
  • For the Three Areas, growth is also assumed to be
    high, following a similar pattern, at 12, 15, and
    12 percent in the three periods, respectively
  • Despite substantial capacity constraints, the
    Southern economy is likely to be driven by
    massive outlays in the social, livelihood, and
    infrastructure sectors
  • In the following (post-conflict I) period, growth
    is likely to continue to be high, where in
    addition to infrastructure, agriculture will
    start contributing to growth, especially as the
    structure of incentives for this sector remains
    favorable on the face rising aid and oil proceeds
  • The high growth trend is expected to continue in
    the remaining five years (post-conflict II), as
    the regions average per capita income continues
    to be lower than the national average

23
Meeting the Poverty MDGs by 2015
24
Meeting the Poverty MDGs by 2015
25
Meeting the Poverty MDGs by 2015
26
Meeting the Poverty MDGs by 2015
  • The Resource requirements. Given the assumed
    ICOR for south Sudan and the Three Areas (Box
    III.3), the following required investment rates
    (as a ratio to GDP) as well as in terms of
    current dollars per capita can be derived (Tables
    III.2-III.3)
  • Required investment for south Sudan accounts for
    83, 108 and 60 percent of the southern GDP for
    peace onset, post-conflict I and
    post-conflict II, respectively
  • Similarly, for the Three Areas, the required
    investment accounts for 66, 90 and 60 percent of
    the Three Areas GDP for peace onset,
    post-conflict I and post-conflict II,
    respectively
  • However, the corresponding rates (relative to the
    overall GDP of the Sudan) are quite manageable
    (Figure III.3)
  • South Sudan required investment rates (as shares
    of overall Sudans GDP) are given by 4.6 7.5 and
    5.4 percent for peace onset, postconflict1 and
    postconflict2, respectively
  • Three Areas required investment rates (as shares
    of overall Sudans GDP) are given by 0.61 0.97
    and 0.80 percent for peace onset,
    post-conflict I and post-conflict II,
    respectively
  • On the other hand, the corresponding rates for
    the north would decline steadily from over 20
    percent for the first two post-conflict episodes
    to less than 18 percent for the last episode
    (starting with 2011)

27
Meeting the Poverty MDGs by 2015
28
Meeting the Poverty MDGs by 2015
  • A much more striking story is provided by
    required investment in terms of current dollars
    per capita, with the south (and the Three Areas)
    projected to account for much higher resources
    than the national average (and especially the
    north) under the MDGs-based strategy (Figure
    III.4 and Tables III.1-III.4)
  • The share of required investment allocated to the
    south would grow from less than 1/6 of the total
    in peace onset to about one quarter the total
    thereafter  
  • In per capita current dollars, required
    investment for the south (three areas) is
    estimated at 125 (94) during peace onset,
    which is significantly less than half the
    national average of 153
  • However, per capita investment for the south (and
    the Three Areas) is projected to rise sharply to
    255 (221) in post-conflict I, which surpasses
    the declining national average of 178 and,
  • In post-conflict II the required resources for
    the south (and the Three Areas) would rise
    further reaching 270 (316), which is
    substantially higher than the national average of
    207

29
Meeting the Poverty MDGs by 2015
30
Meeting the Poverty MDGs by 2015
  • What Gains Can the PES/MDGs-based Strategy
    Deliver for the Sudan?
  • An important strategic economic and political
    consideration is how the relationship between
    Southern Sudan and the rest of the country will
    evolve between 2005 (peace year) and 2010 (the
    referendum year), and 2015, the year when the
    poverty target is to be achieved
  • The country as whole will achieve substantial
    growth, especially the south (as well the Three
    Areas, and presumably other war-affected
    regions) Figure III.5
  • The envisaged stellar growth performance under
    the strategy would also, among other improvements
    in the political process and democratization,
    lead to a significant reduction of the risks of
    future conflicts in Sudan (Figure III.6)

31
Meeting the Poverty MDGs by 2015
32
Meeting the Poverty MDGs by 2015
Assumptions for Figure III.6 Median Case
Conflict
33
Meeting the Poverty MDGs by 2015
Figure III.6 Forecasted Growth and the Hazard of
War (Median Case)
34
Meeting the Poverty MDGs by 2015
  • The huge growth differential between the south
    (Three Areas) and the rest of the country permits
    both regions to dramatically reduce the initial
    income gap with the national average (Figure
    III.7)
  • The income of the average Sudanese living in
    southern Sudan (or the Three areas) was estimated
    at about one quarter the national average in 2005
  • Under PES/MDG-based strategy, the income per
    capita in these regions would rise to close to 35
    percent of the fast-growing national average in
    just five years (by 2010)
  • And, after five more years (by 2015), the income
    levels in these region would reach almost 45
    percent of the national average, again in a
    strongly growing overall economy

35
Meeting the Poverty MDGs by 2015
36
Meeting the Poverty MDGs by 2015
  • Social welfare, measured by income levels per
    capita will be significantly enhanced, again
    especially in the south and Three Areas (Tables
    III.1-III.4 Figure III.8)
  • The income level of the average Sudanese in 2005
    may be above the international poverty line (
    3.2 a day in 1995 PPP)
  • However, an average Sudanese living in the south
    (or the Three Areas) is likely to start 2005 with
    an income level significantly below the
    international poverty line
  • By 2010, the income level from these regions
    would inch much closer to the international
    poverty line, but would still be below that
    target income
  • Finally, the average Sudanese from the south (and
    the Three Areas) is projected to make higher
    income enough to put her above the poverty line

37
Meeting the Poverty MDGs by 2015
Intl Poverty Line
1,168
38
Meeting the Poverty MDGs by 2015
  • An overarching Conclusion. Even with
    phenomenal growth levels in the south for ten
    consecutive years, the average Sudanese living
    there (and in other war-affected areas) is likely
    to remain poorer than the average Sudanese,
    especially those living in the north
  • It will take much longer to shake-off the legacy
    of more than 40 years of civil wars
  • However, a thousand-mile march must start with a
    first step and it will be a very Worthwhile
    FIRST STEP

39
Meeting the Poverty MDGs by 2015
  • Box III.1
  • Refer to Ali (2004)

40
Meeting the Poverty MDGs by 2015
  • Box III.2 The Economic Powers of the Government
    of Southern Sudan (GOSS)
  • The Protocol on Power Sharing (PPS) provides for
    the establishment of a Government of Southern
    Sudan (GOSS) as per the borders of 1/1/56.
    Schedule B of the agreement enumerates the
    exclusive legislative and executive powers of
    GOSS to include the following economic powers
  • borrowing money on the sole credit of the
    Government of Southern Sudan within the national
    macro-economic policy
  • development of financial resources for the
    Government of Southern Sudan
  • taxation and revenue raising in Southern Sudan
    as a whole and,
  • reconstruction and development of Southern Sudan
    as a whole, subject to the provisions of the
    Wealth Sharing Agreement.

41
Meeting the Poverty MDGs by 2015
  • Box III.3 Assumptions for Southern Sudan and
    Three Areas Baseline Income levels, Population
    growth and Efficiency of Investment
  • While there are huge data limitations, a set of
    reasonable estimates can be provided, relating to
    the base-line per capita GDP, population growth
    during the projection period, and the capital
    intensity of investments (ICOR) (Appendix Tables
    III.1 III.2)
  • According to a methodology that assumes a linear
    relationship between per capita GDP (in PPP
    units) and life expectancy across countries (due
    to Ali, 2004), the Southern Sudan per capita GDP
    is estimated at approximately equal to one
    quarter of the overall per capita GDP for the
    country, which comes to about US417 in 2004 (in
    1995 PPP)
  • The initial income per capita for the Three Areas
    is assumed to be the same at US 417 in 2004 (in
    1995 PPP)
  • The size of the population of the Southern Sudan
    (residing in the region) is based on UNICEF
    (2004 p. 30-32) estimates, adjusted for a
    gradual repatriation of Southern Sudanese IDPs in
    the north as well refugees in other countries
    (Appendix Table III.1)
  • The population of Southern Sudan is projected to
    grow by an annual average of 6.3 during
    2005-2009, and by 2.9 (equal to the national
    average) thereafter leading to a rise of the
    size of population of southern Sudan from 8
    million in 2005 (about one fifth the total) to
    approximately 11 million in 2010 and almost 13
    million in 2015 (about one fourth)
  • The size of population in the Three Areas is
    estimated at 1.3 million in 2004 and is assumed
    to grow at the national average rate of 2.9
    reaching 1.6 million in 2010 and 1.8 million in
    2015.
  • Productivity of investment for both the South
    and the Three Areas, an ICOR of 5.5 is assumed
    for 2005-2006, rising to 6.0 for 2007-2010,
    before declining to 5.0 for the remainder of the
    period (2011-2015).
  • The much higher assumed ICOR is justified by the
    view that investments in these war affected
    regions will be dominated by the highly
    capital-intensive infrastructure, which is likely
    to start immediately and will peak in the
    following two periods. Moreover, the efficiency
    of investment is likely to be lower than the
    national average and will only improve gradually
    over time.

42
Meeting the Poverty MDGs by 2015
43
Meeting the Poverty MDGs by 2015
44
Meeting the Poverty MDGs by 2015
45
Meeting the Poverty MDGs by 2015
46
Meeting the Poverty MDGs by 2015
47
Meeting the Poverty MDGs by 2015
  • Assumptions for Gradual Approach
  • For Gradual approach for South and 3 Areas we
    used different GDP growth rate.
  • For Population assumptions for South we assumed
    from 2005-2009 we used growth rate of 2.85
    percent and added .383 million IDP each year.
  • From 2010-2015 we only used the growth rate of
    2.85 percent for South.
  • For North is basically the residual of Sudan,
    South and 3 Areas
  • For 3 areas we used the same GDP growth rate as
    South
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