Sudan

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Sudan
Meeting the Poverty MDGs by 2015
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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.

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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

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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

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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

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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

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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)

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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.

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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)

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Meeting the Poverty MDGs by 2015

•  

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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.

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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

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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.

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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

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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.

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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)

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Meeting the Poverty MDGs by 2015
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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

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Meeting the Poverty MDGs by 2015
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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)

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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

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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

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Meeting the Poverty MDGs by 2015
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Meeting the Poverty MDGs by 2015
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Meeting the Poverty MDGs by 2015
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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)

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Meeting the Poverty MDGs by 2015
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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

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Meeting the Poverty MDGs by 2015
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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)

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Meeting the Poverty MDGs by 2015
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Meeting the Poverty MDGs by 2015
Assumptions for Figure III.6 Median Case
Conflict
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Meeting the Poverty MDGs by 2015
Figure III.6 Forecasted Growth and the Hazard of
War (Median Case)
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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

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Meeting the Poverty MDGs by 2015
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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

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Meeting the Poverty MDGs by 2015
Intl Poverty Line
1,168
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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

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Meeting the Poverty MDGs by 2015

• Box III.1
• Refer to Ali (2004)

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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.

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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.

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Meeting the Poverty MDGs by 2015
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Meeting the Poverty MDGs by 2015
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Meeting the Poverty MDGs by 2015
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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