Understanding and Avoiding the Oil Curse in Sudan

This paper examines the impact of the oil boom, as a blessing or curse, on Sudan’s economy, analyzes the key features of the country’s growth experience before and after the oil boom and articulates Sudan’s underlying political and economic issues. The results show that, the contribution of oil to real growth has been strong; however, the effects on technological innovations are insignificant. Dutch Disease and fiscal linkages are the main mechanisms that transmitted the negative effects of the boom. Specifically, the resultant misalignments of the RER; have caused an overall loss of competitiveness measured by the negative contribution to TFP growth; also oil dependence has led to greater export concentration undermining long-run economic diversification. Moreover, the regime of politics and economy engendered by the elites’ distributive politics tends to magnify the impact of shocks and has worsened the procyclicality of fiscal policy and contributed to excessive currency appreciation. In the end the combined effects of these factors led to the crowding out of private investments, diluting the economic and social impact of largely oil-driven growth and further weakening state institutions. The policy implications of these findings are indicated.  

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