The Darfur Conflict by Osman Suliman

Author:Osman Suliman [Suliman, Osman]
Language: eng
Format: epub
ISBN: 9780415811491
Barnesnoble:
Publisher: Taylor & Francis
Published: 2012-09-05T00:00:00+00:00

7

Economic Institutions

Marketing and Credit Markets

Agricultural financing has probably been the main limiting factor facing the development process in Sudan. In such an economy with a large traditional sector, savings by workers are very low. Since labor income is mostly consumed, the saving that does occur mostly consists of retained earnings, the only flexible and secure savings supply. Hence, the savings share from capital income is relatively high.193 Nonetheless, it has been argued that savings are low because capitalist profits are low, relative to national income.194 Moreover, the inflationary environment, with imperfect market information, makes long-term lending risky. Banks concentrate on financing working capital as part of the general policy of sustaining short-run programs designed to maintain the already existing productive capacity. On the supply side, most of the population are poor and have no confidence in the few savings institutions that exist. As a result, personal savings are low, both on average and at the margin.

In Sudan, foreign exchange shortage is an absolute constraint on growth in that, even if domestic savings were available to allow an increase in investment, the absence of the required complimentary foreign exchange makes such an increase impossible. In fact, the Bank of Sudan has at times put a moratorium on cash withdrawals in foreign currency from all foreign currency-denominated accounts. Hence, the urgency to obtain foreign capital does not stem from a desire to increase the growth rate beyond the national capacity to save. Rather, their ambition is to obviate a fall in production below the levels attained. That is, for the time being foreign investment is not so much needed to increase national savings for growth, but more in its role of foreign exchange, in order to avoid recession.

Ever since the late 1960s, Sudan has relied heavily on foreign aid (mainly from the Gulf countries) and domestic borrowing, rather than broadening its own tax base and mobilizing savings to generate higher investments. Before the mid-1960s, the state’s revenues, accrued from taxes and profits of the public sector, were enough to finance both short-term government expenditures and long-term public investment projects. By late in that decade though, eighty-seven percent of the development expenditure for public projects was financed by foreign borrowing and recourse to the banking system.195 In fact, in 1967 a fiscal statute amendment, underwritten by the then incumbent Minister of Finance, allowed the government to finance public agricultural schemes directly from the central bank rather than from the Treasury or the agricultural bank. The consequences have been grave.

The resultant fast printing of money and debt monetization procedures have, inevitably, accelerated rampant inflation, especially as world prices soared after the Organization of Petrolium Exporting Countries (OPEC) price shocks of the 1970s. Furthermore, bad debt accumulation against the tenants of public schemes has become more of a political issue than a pure economic one. Politicians have, expediently, used the endorsement of bad debt cancellation as a tool for gaining more votes in agricultural areas. In addition, production relations, between the tenants and the government,

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