Riyadh, Asharq Al-Awsat—As protests against fuel subsidies cuts continue to engulf Sudan, Dr. Mustafa Osman Ismail, Sudanese Minister of Investment, informed Asharq Al-Awsat that the government took this controversial decision in order to avoid complete economic collapse.
Ismail said the removal of fuel subsidies was a decision dictated by the reality of the country’s staggering economic problems, adding that while “responsible and civil” protests against this corrective measure are acceptable, any acts of sabotage, destruction of property, or harming of citizens will be dealt with strongly. He reiterated that the government’s aim in cutting subsidies is to create a stable national economy, curbing inflation and rising prices.
The Minister affirmed that the move to cut subsidies was preceded by a reform process that included both government and opposition leaders. He called for calm and stability, saying that Sudan’s investment climate will suffer as a result, adding that contrary to popular belief, Sudan’s economy is set to grow this year.
This interview has been edited for length.
Asharq Al-Awsat: Popular protests against the Sudanese government’s decision to cut fuel subsidies have erupted across the country in recent days. Why did Khartoum take the decision to cut fuel subsidies?
Dr. Mustafa Osman Ismail: This decision was deemed necessary in light of current economic conditions. The Ministry of Finance is currently borrowing from the central bank, a trend that is reflected in a higher exchange rate, rising inflation, and soaring commodity prices. These facts translate into hardship for the Sudanese people. The government faced a crisis in terms of continuing to fund these subsidies and many options were brought up for discussion. In my opinion, focusing on withdrawing fuel subsidies does not do justice to the government’s larger program of reform. The point is to fix the entire subsidy system. Under the current subsidy rates, although oil is purchased at the global rate of USD 110 per barrel, it sells for USD 49, resulting in a loss of USD 61 per barrel.
This was something that not only benefited poorer citizens, but the foreign presence in the country as well: there are 30,000 African Union-United Nations Mission (UNAMID) soldiers stationed in Darfur in addition to 5,000 soldiers stationed in the Abyei area. There are also more than 50 embassies and diplomatic missions located in Khartoum, all of whom benefitted from subsidized petrol.
Q: In your view, does this justify cutting fuel subsidies?
First, I should note that fuel subsidies were not the only type of subsidies to be removed—basic goods are also affected by the decision. Second, we must remember that this gasoline is not only used within Sudan, but in fact, much of it finds its way into neighboring countries. Remember that the price of oil is global and always comes with taxes. When this smuggled, subsidized gasoline makes its way into other countries it feeds foreign governments while exhausting the Sudanese state budget and in no way benefits the Sudanese people, especially the poor. This all leads to a weak Sudanese economy, a deteriorating exchange rate, rising prices and a poorly-balanced state budget that ends up harming all Sudanese people.
Q: What is the government’s philosophy of reform, then?
The government’s philosophy of reform is to reclaim the benefits of these subsidies that are currently feeding non-Sudanese institutions and people as a means to repair the Sudanese economy in the short-and medium-term. We aim to stabilize prices and save the Sudanese people from the perils of rising costs and a potential economic collapse, returning to a place where all actors are benefitting. We also aim to rectify the subsidy system so as to directly benefit the vulnerable—we consider all Sudanese workers vulnerable, because their salaries are not sufficient. Therefore we must direct some of our efforts toward increasing salaries so that workers can buy what they need.
Q: Is there currently a strategy in place to take advantage of this move?
The aim of this aspect of our reform program is to increase aid for poor families—what we call ‘social support’—while at the same time confronting the budget deficit so that gasoline does not become scarce once more.
Q: But these nation-wide protests indicate that many Sudanese reject these measures. How do you explain this rejection?
Of course, removing fuel subsidies is difficult to swallow for many citizens, and thus they have the right to express their opinions in a responsible and civil way. The harshness of these increases can be compared to a first ‘extrication’ operation—the citizen will inevitably have to endure some of these austerity measures, but it must be noted that after the people of Sudan have become accustomed to oil extraction gains flowing into the state budget and the resulting increase in wealth, it is difficult to wean them off of subsidies and benefits. Thus the state did a good job of engaging in dialogue with citizens and political forces with the aim of working together to prevent economic collapse. If citizens have alternative ideas on how to solve the crisis, we are open to discussion and willing to implement them, instead of engaging in dialogue after decisions have been made.
Q: However it appears that people are not satisfied with this argument. Why not?
I think the path that the government has taken is best—this view is reinforced by the political parties and factions of various communities that agree with the measures. However, prices have gone up before increases were implemented, although this is limited to gasoline. I felt it was better to inform citizens on what these measures mean, knowing that many will not be convinced of the feasibility of the government’s reform program. Some—but not all—opposition elements want to take advantage of these difficult circumstances despite the fact that a large segment of the Sudanese population approves of these measures, knowing that they are taken in the name of improving our country’s economy.
Q: What effect do these protests and instability have on the investment climate in Sudan?
I am firmly convicted that the investment sector will not fully recover unless the Sudanese economy stabilizes. Currently, investors are alienated thanks to fluctuating exchange rates, increased inflation, rising commodity prices, etc. In my opinion, the government must reach out to the vulnerable segments of the population in order to improve the economy as a whole. In this framework, removing fuel subsidies is understood as a solution—albeit a painful one—to our country’s economic woes.
Q: Have economic policies had any impact on economic growth in Sudan?
We had expected the Sudanese economy to shrink last year as a result of the increasing exchange rate, yet World Bank reports estimated that the economy actually grew by 1.6 percent. The World Bank also estimates it will grow another 2.6 percent this year.