Outlook for 2011-12

• Southern Sudan is likely to become independent in July 2011, but the process is fraught with risks as the north and south need to agree on many contentious aspects of independence, including borders, oil and debt.
• The National Congress Party (NCP), headed by the president, Omar al-Bashir, will maintain control in the north, but the loss of the south will expose it to renewed challenges from opposition forces, including rebels in Darfur.
• The Southern People's Liberation Movement (SPLM) enjoys near total control in its region, but there is a risk that tribal conflicts may break out.
• We have revised our fiscal deficit forecast down to an average of 0.7% of GDP in 2011-12 owing to higher oil prices, but reliance on oil revenue is a concern.
• Real GDP growth is expected to ease from an estimated 5.2% in 2010 to an average of 4.2% in the forecast period as political uncertainty inhibits investment. Oil output will rise only marginally to 483,000 b/d in 2012.
• Foreign-exchange restrictions will be gradually eased, and we expect the Sudanese pound to continue to depreciate against the US dollar.
• Rising imports will cancel out any gains from the expected increase in oil prices, and the current-account deficit will widen to an average of 6.2% of GDP in 2011-12.

Monthly review

• Sudan's police have broken up protests in Khartoum and elsewhere, beating and arresting demonstrators. The government appears to be stifling opposition to prevent any mimicking of popular uprisings in North Africa.
• Southern Sudan's army have fought different tribal and political militias in several deadly outbreaks of violence in parts of Southern Sudan and Abyei.
• Sudan's national army has experienced heavy clashes with Darfuri rebels. The past three months have seen intensification in fighting in Darfur while international attention has been focused on the Southern Sudan referendum.
• The SPLM has stated that oil revenue sharing with the north will not continue after southern secession, preferring a transit fee arrangement. The north has not asserted its position yet, and prolonged negotiations are expected.
• Mohammed Khair al-Zubair, a finance minister during the 1990s, has replaced Sabir Mohammed al-Hassan as governor of the Bank of Sudan. This is unlikely to bring any great change in central bank policy or management.
• The Bank of Sudan is doubling the amount of hard currency Sudanese travelling overseas can buy, signalling a belief that pressure on the Sudanese pound has eased.

Southern Sudan is likely to become independent in July 2011 following January's referendum on independence for the south, in which 98.8% of southerners voted for "separation". The president, Omar al-Bashir, has issued a decree accepting the results, and there have been no legal challenges. The secession process is fraught with risks however, as the north and south still need to reach agreement on many aspects of independence, and 20% of their shared border has still to be delineated. Mr Bashir's National Congress Party (NCP), which dominates the north, will seek to exact the maximum political and economic reward for its broad co-operation in the secession process. Although domestic opposition may be emboldened by the south's secession, as well as by recent regional uprisings in Tunisia, Egypt and Libya, Mr Bashir will hope to counter this by boosting his international support following the peaceful referendum. Although the exact shape of the new Southern Sudan state is unclear, its immediate future will be dominated by the Sudan People's Liberation Movement (SPLM), whose control of the regional parliament, state governorships and assemblies is almost total. The dysfunctional, oil-dependent economy, a lack of infrastructure and fears of fragmentation along tribal lines will be the primary concerns of the new state that is expected to come into being on July 9th.

Intensive negotiations are under way to reach a new political settlement as the 2005 Comprehensive Peace Agreement (CPA), which ended the decades-long civil war, will expire in July 2011. In the north, it appears that the NCP, led by Mr Bashir, has accepted that the costs of preventing southern secession are too high. It will instead focus on the political and economic price it can exact for co-operation in the secession process. The NCP will maintain control in the economic heartland of the country, including the capital, Khartoum, with the position of Mr Bashir cemented by patronage networks that span the NCP, the business community, the army and the security services. However, it could face emboldened opposition following the Southern Sudan referendum, from both aspiring secessionists in Darfur and eastern Sudan and political rivals in Khartoum. Fiscal austerity measures will also stoke discontent with NCP rule, and successful popular uprisings in North Africa may inspire anti-government demonstrations. Mr Bashir's position will be boosted as international pressure over the Darfur conflict and the International Criminal Court (ICC) arrest warrant against him for genocide, eases as a reward for accepting southern secession.

The exact shape of the new state in Southern Sudan is uncertain. The SPLM, led by the regional president, Salva Kiir, which dominates the Government of Southern Sudan (GOSS), will try to promote southern unity. However, internal conflict in the south may escalate, especially after independence. Economically, the north and south will remain interdependent for the foreseeable future, particularly because the country's oil, which provides the vast majority of both governments' revenue, is largely located in the south but needs to be exported through a pipeline to Port Sudan in the north. Oil-revenue-sharing arrangements will be extremely difficult and an SPLM-NCP joint negotiating team is discussing this and other difficult issues such as borders and citizenship. The negotiation process will proceed painfully slowly, and some issues may not be resolved until after July.

What will Southern Sudan look like?

Following the referendum in January, Southern Sudan is expected to become the world's 193rd independent state when the Comprehensive Peace Agreement (CPA) expires on July 9th 2011. It has an agreed national flag and anthem, but key issues including the exact border with the north, the longest in Africa, remain unresolved. The new government will inherit one of the most underdeveloped regions in the world, which, despite its potential oil wealth, lacks key infrastructure and skilled labour after 20 years of civil war.

Politics

There remain fears that an independent Southern Sudan could fragment internally after a brief, initial honeymoon period. The regional Government of Southern Sudan (GOSS), dominated by the Sudan People's Liberation Movement (SPLM), already struggles to maintain order within its overmanned armed forces and to mitigate inter-tribal conflict in a region where militias and weapons proliferate. There will be ongoing tensions over tribal representation, with many southerners worried that the Dinka will dominate their government. There may also be clashes with militias loyal to former members of the SPLM, such as George Athor and Lam Akol, who have personal reasons to oppose the ruling regime. The SPLM leader and GOSS president, Salva Kiir, has promised a "broad-based government" in the new state, although it is expected that key positions will be dominated by the SPLM, who in the past have tolerated little opposition.

The south will also face new inflows of displaced people as thousands of Sudanese of southern origin living in the north, especially in Khartoum, Blue Nile and Kordofan states, migrate south. Uncertainty surrounds the status of southerners living in the north after independence. The Sudanese president, Omar al-Bashir, has publicly pledged to protect them, but figures in his government, such as the information minister, Kamal Obeid, had previously suggested that they would not enjoy citizenship rights and possibly be expelled. The South Sudan Relief and Rehabilitation Commission (SSRRC) estimate as many as 200,000 have migrated south since October 2010 and that, of the 1.5-2m southerners currently living in the north, as many as 500,000 could yet leave. Similarly, Muslims living in Southern Sudan, who make up a prosperous trading class, face an uncertain future and could migrate north, depriving the new state of an economic asset.

Economy

Relations with the north will greatly affect Southern Sudan's economy. Marred by years of violence, underinvestment and widespread illiteracy, the south's dysfunctional economy is heavily dependent on oil revenue-making up 98% of government income. Although plans for a pipeline to the Kenyan coast have been mooted, with no funds available to finance such an initiative, the existing pipeline through the north to Port Sudan remains the only export route. The current agreement, which splits oil profits 50-50 between north and south, is being renegotiated, and an amicable settlement will be crucial for both economies. Trade with the north will also be essential for the south to obtain many commodities and manufactured goods.

The new state will also seek an increase in foreign investment, and some firms will be tempted by the opportunity of gaining a first-mover advantage in Africa's newest state. Companies from neighbouring Kenya, Uganda and Ethiopia already enjoy a presence in the south and can be expected to increase their involvement. The country may also benefit from new international loans and grants, as well as development aid (which it already receives). However, access to funding may be complicated by concerns among international donors and lenders about the levels of corruption in Southern Sudan.

International relations

The US has stated that it will recognise a "sovereign, independent state" in Southern Sudan, and the EU welcomed the referendum result, as did China, despite initially favouring unity. The ruling SPLM will hope that recognition will be followed up by much needed international aid. Southern Sudan can also expect favourable relations with its neighbours. Uganda and Kenya, in particular, have led investment, and Egypt has checked its historical hostility to the south, increasing support for development projects in recent years (partly motivated by concerns about Nile waters).

Far more important to the success or failure of the new state will be its relationship with the north. The terms of division are to be negotiated in the months prior to formal secession, including oil profits and border demarcation, and the level of agreement in these talks may affect how the two states interact and co-operate afterwards. It is unlikely that disagreements could spark a resumption of the civil war, but sporadic clashes and crises are probable during the transition. Fighting would probably be focused on Upper Nile and Unity states, where there are key oilfields. There is also a risk of conflict in South Kordofan and Blue Nile, northern states that contain sizeable populations allied to the SPLM. A third area, Abyei, will probably choose to join Southern Sudan in a parallel referendum, although renewed violence between northern and southern backed groups is possible. The logistics of that vote will be particularly difficult given Abyei's remote location and opposition from local Missirya Arabs, who are afraid of losing their traditional nomadic grazing rights.

Note

If secession takes place as planned in July 2011, it will be necessary to make separate forecasts for the two newly created countries and disaggregate historical economic data series, although this will largely be based on estimates, because few data are available currently at a regional level. For the time being, however, all of our economic forecasts-including for the fiscal and national accounts and external sector-treat Sudan as a whole in 2011. In theory, Southern Sudan could be formally independent by July 9th, following the six-month transition period specified in the CPA. In reality, the transition may be slower for a number of political and practical reasons, including, for example, the difficulty for Southern Sudan of issuing a new currency to replace the Sudanese pound earlier than 2012. After secession, our coverage will probably change, and may involve launching a new Country Report for Southern Sudan or, at least initially, covering it in a separate annex to the Sudan Country Report.

No elections are definitively scheduled within the forecast period, with the possible exception of several state elections that were postponed in April 2010. The SPLM has indicated that it will form a new government after the end of the CPA period in July 2011, but this is likely to be done by reshuffle, not election.

Sudan's relations with the US have improved in recent years, and US sanctions may be eased as the Sudanese government seeks reward for allowing southern secession. Relations with EU countries, which provide the bulk of donor aid to Sudan, have been made more difficult by the ICC arrest warrant (as they are members of the court, unlike the US). However, Western countries are currently more focused on facilitating the peaceful secession of Southern Sudan, to prevent a return to civil war.

The Gulf Arab and Asian countries, particularly China, that have invested heavily in Sudan will continue to support the government. Egypt has a particular concern about the possible impact of southern secession on the sharing of Nile waters. The African Union will continue to back Mr Bashir against the ICC, although some member states take a contrarian line on this. Although relations between Sudan and Chad have become more amicable recently, there is still a risk they could revert to arming and supporting each other's rebel groups. Southern independence could lead to northern Sudan moving away from African states and focusing more on relations with Arab and Islamic ones.

National economic policy in 2011-12 will remain largely subservient to short-term political needs, although fiscal policy is constrained by the transfer requirements of the various regional peace agreements. The government has announced subsidy cuts as the main thrust of a fiscal austerity package for 2011. It will look to widen the tax base and reduce exemptions in line with IMF recommendations. It aims to diversify the economy away from its dependence on oil, which is forecast to generate 65% of central government revenue in 2011-12-and around 98% of GOSS revenue. Other policy goals include rebuilding international reserves (which have been depleted defending the currency), strengthening the banking system and restoring confidence in public financial management.

Sudan has substantial debt arrears with multilateral and bilateral lenders, and there will be an increased chance of debt relief following the referendum and Darfur talks. The authorities will seek to finance infrastructure projects and the fiscal deficit by borrowing from Gulf Arab countries, China and India, although they have made commitments to the IMF on limiting the amount of new non-concessional debt. International donors provide substantial funds to Sudan, mainly through UN agencies and non-governmental organisations, although the government will continue to restrict the operations of some of these groups.

The fiscal deficit is expected to remain manageable over the forecast period, at less than 1% of GDP each year, but Sudan's overwhelming dependence on oil revenue remains a concern. These forecasts, which aggregate the fiscal accounts of both the central and the southern governments, are based on relatively benign oil price assumptions; the deficit could widen sharply if oil prices underperform. A recovery in oil prices boosted government revenue by an estimated 26% in 2010, to SP26.2bn (US$11.3bn). The Economist Intelligence Unit expects revenue to be pushed even higher to 33% by the 2011 oil price spike, but to grow more slowly over the rest of the forecast period as oil prices drop. Tax receipts are forecast to rise and the depreciation of the Sudanese pound in 2011 will push up the local-currency value of oil export revenue. These trends will help to offset the costs of the transition to southern secession, which will weigh on security budgets. Nonetheless, the central government was sufficiently concerned about its fiscal position to introduce a new austerity package in January, including a phased reduction in subsidies on fuel and sugar. This has already sparked protests, and implementation could be delayed. Total government spending rebounded strongly after the 2009 crash in oil prices and rose by an estimated 29% to SP30.9bn in 2010, but will grow more modestly in 2011-12.

The GOSS's spending is funded almost entirely by oil revenue transfers from the national government, which will average about US$2.9bn a year in 2011-12. This figure may alter after independence depending on the agreement made between the two governments over oil. The south would prefer to pay a transit fee to the north rather than splitting revenue, but any fee has yet to be settled. Southern Sudan risks a fiscal crisis at the time of separation as the GOSS struggles to cope with corruption, inflation and the cost of preparations for secession. High oil prices during the forecast period will ease the pressure, although most expenditure will be on wages, and the capacity to improve infrastructure and public services will remain low. The GOSS has approved a SP5.5bn budget for 2011, roughly the same as in 2010.

Sudan's financial sector is isolated, given US sanctions and general underdevelopment. It was therefore relatively insulated from the global credit squeeze, but it has home-grown problems, chiefly high levels of non-performing loans (NPLs), which stood at 20% of total loans at end-2009. In 2011-12 the Bank of Sudan (the central bank) will seek to improve banking supervision, restructure the banking system and increase provisioning levels in an attempt to address NPLs. It manages monetary policy largely by issuing Islamic financial certificates, setting reserve requirements and manipulating the exchange rate. After a period of supporting liquidity by making deposits at commercial banks, the central bank is now adopting an austere monetary policy, with higher reserve requirements (which rose from 8% to 11% in 2010), to tackle inflation. Southern Sudan will remain vulnerable to the north's monetary policy and money supply until it can launch its own currency, expected no earlier than 2012.

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In recent years, oil production has been the main driver of growth, although agriculture still accounts for more than one-third of GDP and employs two-thirds of the population. The services sector is also expanding. Official data on real GDP are problematic as they do not capture the large informal economy; they also use an outdated base year, 1982 (although this will change soon). However, we estimate that real GDP growth picked up to 5.2% in 2010, led by growth in services and utilities. It is forecast to ease to 4.1% in 2011, as political uncertainty inhibits investment and then rise to 4.3% in 2012. Oil output is forecast to edge up to average 483,000 barrels/day in 2012. We forecast that dated Brent Blend will average US$101/barrel in 2011 and US$85/b in 2012. Dar Blend, which comprises more than half of Sudan's export volumes, is expected to trade closer to benchmark prices than in previous years-narrowing the average Sudanese price differential with Brent to around US$6/b in 2011-12-as more refineries around the world become able to process it.

In 2011-12 government consumption will continue to expand, as politics drives spending, and private consumption will also grow, although more gradually. There will be a reasonable amount of state investment in infrastructure, particularly electricity generation and transmission. Growth will remain unevenly spread, being particularly strong in Khartoum and the southern capital, Juba, but the government faces political pressure to invest in marginalised regions. Much private investment will be delayed owing to a lack of financing and concerns over political risks, although if southern secession is managed relatively smoothly, investment may beat expectations. Imports and non-oil exports will both grow gradually in 2011-12.

Inflation in Sudan remains high, partly reflecting supply bottlenecks (owing to inadequate infrastructure and uncompetitive markets). Central bank data suggest inflation rose to 15.4% in December, taking the annual average to 13.1%. Food price inflation spiked in January, especially in the south, as political risk concerns disrupted supplies. We forecast that inflation will average 11.1% in 2011 as the Sudanese pound depreciates further, growing to 11.8% in 2012 as world food prices rise. The government's plans to cut subsidies on sugar and fuel will also add inflationary pressure.

The central bank operates a managed float of the pound through foreign-currency purchases and daily limits on the trading band. This is intended to smooth volatility related to oil exports and foreign direct investment flows, but from mid-2010 the central bank was defending an increasingly unrealistic premium on the black-market rate; the difference was at times as much as 30%, as a scarcity of foreign exchange and political uncertainty depreciated the black-market rate. In November 2010 the central bank, probably after depleting its minimal reserves (for which data have not been published since March), finally permitted a devaluation of sorts, by permitting banks to purchase foreign currency at a premium of 18.3%-equivalent to the black-market premium. This unusual step was probably temporary. The authorities prohibit banks from disbursing foreign transfers in foreign currency, require a 100% cash margin on most imports and restrict the foreign exchange that can be taken abroad or sent in personal transfers, but these restrictions are being eased in 2011. The official exchange rate is forecast to depreciate to an average of SP2.83:US$1 in 2011 and SP3.11:US$1 in 2012.

Oil sales will continue to generate the bulk of export revenue, which will rise to an average of US$12.1bn in 2011-12. Imports-chiefly food, machinery and manufactured goods-will average US$10.1bn over the period. The trade balance is forecast to rise to an average of US$2bn in 2011-12, boosted by the oil price spike in 2011 before returning in 2012 to a level similar to that seen in 2010. The non-merchandise deficit will grow to an average of US$5.9bn in 2011-12, owing to rising income and services debits related to foreign companies' profit repatriation and engineering services payments, although net current transfers will remain positive, boosted by remittances from Sudanese working abroad. Overall, the current-account deficit, which we estimate reached US$4.1bn (6.3% of GDP) in 2010, will average 6.2% of GDP in 2011-12.

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On March 8th riot police used force to break up a demonstration by women activists in Omdurman, beating and arresting many. This severity shows the government's determination to stifle and suppress protest and opposition, to prevent the possible escalation of a popular uprising following the examples of Egypt and Tunisia. This particular protest was intended to mark International Women's Day and (ironically, given the police response) to campaign against violence against women. Protesters were also drawing attention to the case of a Sudanese woman raped by members of the security forces in mid-February. She had been detained because of her involvement in a youth group called Girifna, which has been calling for and participating in protests.

The following day riot police violently broke up another protest, in central Khartoum, organised by youth groups and the National Consensus Forces, a loose opposition coalition. The protest was intended to be peaceful, to show solidarity with the people of Egypt, Libya and Tunisia. However, beforehand the chairman of the National Consensus Forces, Farouk Abu Issa, said that the coalition was calling for the Sudanese president, Omar al-Bashir, to step down and that the Sudanese people would continue fighting in the way that people had in Egypt and Tunisia. For its part, the ruling National Congress Party (NCP) warned that the protest would be illegal, accusing the organisers of wanting to spread chaos. In the event, as soon as protesters started to chant slogans, security forces moved in. Meanwhile, sporadic protests continue elsewhere. In late February several hundred protesters reportedly took to the streets in Kassala after a civilian driver was killed by the local anti-smuggling police, and on March 10th several hundred graduates protested about unemployment in El Fula, an oil town in South Kordofan.

So far the only concession that the government has made to temper its uncompromising response to protests was in mid-February when Mr Bashir announced that he would not seek another presidential term after his current one ends in 2015. Otherwise the NCP has sought to represent the uprisings in Egypt and Tunisia as reflections of popular Arab nationalist or even anti-Zionist sentiment. For example, in early March one senior NCP official, Gutbi al-Mahdi, claimed that the uprisings in the Arab world were a prelude to the liberation of Jerusalem from Israeli control. However, in reality Mr Bashir (who has been president for nearly 22 years) presides over an autocratic regime that is unwilling to share or cede power except when forced to, as in Southern Sudan under the Comprehensive Peace Agreement.

On March 8th nine southern opposition parties announced that they were withdrawing from a committee set up to draft a new constitution for Southern Sudan, accusing the Sudan People's Liberation Movement (SPLM), the ruling party in Southern Sudan, of dominating the review process. The withdrawal may prove only temporary, but it is indicative of the divisions between the SPLM and southern opposition parties, and of the possibility that these divisions may widen before or after Southern Sudan secedes from Sudan. The largest of the nine opposition parties are the SPLM-Democratic Change (SPLM-DC), the United Democratic Salvation Front, and the South Sudan Democratic Front. These and the other parties feel aggrieved by the SPLM's near-total dominance of the Government of Southern Sudan (GOSS) and the southern parliament, the Southern Sudan Legislative Assembly, and accuse the SPLM of dominating the constitutional review committee.

The preparation of a new or revised constitution for Southern Sudan is just one of the tasks currently preoccupying GOSS and the SPLM. GOSS is preparing a National Development Plan for 2011-13 and a South Sudan Vision 2040, and ministries are meant to be preparing their own five-year strategies. Following a meeting in mid-February of the SPLM political bureau, the SPLM announced that the official name of the new state, after secession, will be South Sudan. The SPLM also announced that it had approved the new country's flag and the name of the country's future currency, the South Sudan pound. These decisions were subsequently approved at a meeting of the Southern Sudan Political Parties Leadership Forum, which is a forum for south-south political dialogue.

Deadly outbreaks of fighting have continued to occur in parts of Southern Sudan and in the disputed area of Abyei, on the north-south border. On February 27th renewed fighting between the Sudan People's Liberation Army (Southern Sudan's army, SPLA) and forces led by a renegade SPLA commander, George Athor, reportedly caused 92 fatalities and a further 164 wounded. Earlier in February some 200 people were killed when forces loyal to Mr Athor attacked civilians and SPLA troops. Meanwhile in the Todaj area, near Abyei, seven people were killed on February 26th when militiamen from the Missirya tribal group attacked police. A local leader claimed that the attack occurred when police tried to disarm some Missiriya. Separately, Sudanese media reported that on March 1st 15 SPLA soldiers were killed in an ambush in the areas of Gok Machar and Safaha in North Bahr al-Ghazal, while on March 6th fighting broke out in Upper Nile State between SPLA soldiers and a militia allegedly loyal to the SPLM-DC. In a different kind of incident, in early February the GOSS co-operatives and rural development minister, Jimmy Lemi Milla, was shot and killed in his office in broad daylight by a former driver and relative, apparently for personal rather than political reasons.

The frequency and degree of armed clashes in the south and border areas (primarily Abyei) is disconcerting and is not for a lack of agreements meant to prevent such clashes. Following sporadic talks late last year, in early January a delegation representing Mr Athor signed a ''permanent cease-fire agreement'' with GOSS. However the agreement apparently did not satisfy Mr Athor (a former SPLA deputy chief of staff) or his supporters, and clashes appeared to start when Mr Athor's forces were expected to gather at agreed sites from where they would be integrated into the SPLA. In Abyei traditional leaders and officials signed two agreements in January in Kadugli, South Kordofan, which were intended to prevent further clashes. With UN facilitation, on March 4th the NCP and the SPLM signed an agreement to implement the Kadugli Agreements. In late February the governor of Unity State, Taban Deng, said that arrangements were being made to integrate southern soldiers leaving the national army, the Sudan Armed Forces and soldiers of Gatluak Gai, a renegade SPLA commander who broke away from the SPLA after the elections in 2010, into the SPLA.

Abyei in the middle

The outbreak of fighting in Abyei province on February 27th highlights that many key issues between north and south remain unresolved, despite January's referendum on southern independence. Abyei has long been a disputed region and is increasingly referred to as "Sudan's Kashmir": a region that may provide an intractable conflict between north and south in years to come. Abyei lies between the northern state of South Kordofan and the southern state of North Bahr al-Ghazal. Under the terms of the 2005 Comprehensive Peace Agreement that ended Sudan's civil war, Abyei was declared simultaneously part of both states, subject to a separate referendum to determine whether it would join the north or the south. However this referendum, scheduled for January 9th 2011, did not take place, after the north and south governments failed to agree on its terms. With little indication of when this vote will eventually happen, increased tension and violence remain likely.

The dispute has historical and ethnic components and much to do with oil and water resources. Abyei is dominated by two tribal groups. To the south are the largely Christian and Animist sedentary Ngok Dinka, kin of the Dinka who dominate the ruling Sudanese People's Liberation Movement (SPLM) in Southern Sudan. To the north are the largely Muslim nomadic Missiriya, who herd their cattle into Abyei during the dry season and depend on the River Kiir's year-round flows. Despite an historical cohabitation, Sudan's first civil war (1956-72) divided the province's communities. During the second civil war (1983-2005), these differences were exacerbated as the Ngok Dinka largely sided with the south, with many of the SPLM's leaders originating from Abyei, and the Missiriya became clients of the north's ruling National Congress Party (NCP), with many eventually joining government-backed militias. Abyei formed a key battleground, and several thousand inhabitants, mostly Ngok Dinka, were displaced. Moreover, even after the civil war officially ended in 2005, Abyei was the source of direct clashes between the SPLM and northern backed militias, and later Sudanese army troops in 2007-08, causing a further 25,000 to be displaced.

One of the key questions is whether such refugees, currently living in the south, should vote in the long-awaited referendum. Moreover, should the Missiriya, who are resident in the province for only a few months a year when they are grazing, be entitled to vote too? Even without the refugees, the Ngok Dinka outnumber the Missiriya in Abyei for most of the year and would probably vote to join the south, fearing persecution from the Islamist northern government if they remain in the north. However, during the dry season the Missiriya outnumber the Ngok Dinka and, if classed as residents in the referendum, would probably ensure Abyei became northern, fearing the loss of crucial water resources if it was given to the south.

All about oil?

Augmenting these ethnic disputes has been Abyei's oil. Part of the reason why the north sponsored Missiriya militia to harass the Ngok Dinka during the civil war was to get access to the oil discovered there in the 1970s and 1980s. By 2003 Abyei was producing 76,000 barrels/day (b/d), or 25% of Sudan's total oil production at that time. However, since then production has declined as other fields have come on stream. Moreover, after a long-drawn-out dispute between north and south over what the borders of Abyei were, the Permanent Court of Arbitration in The Hague decreed that the key oilfields of Bamboo and Heglig 2B were outside Abyei and actually part of the northern state of South Kordofan. With both sides accepting this ruling in 2009, the only field left in Abyei was Diffra, which produced less than 4,000 b/d in 2009. Overall, 85% of Sudan's oil production comes from southern oil fields and only 15% (including Diffra) comes from the north. Although oil revenue is currently split equally between north and south, after independence, Southern Sudan will switch to paying the north a transit fee for using its Red Sea pipeline, depriving Sudan of previous revenue. Although this might increase the importance of Diffra, Sudan's Ministry of Oil is confident that new fields elsewhere and more efficient extraction will compensate the north and that it will eventually produce more oil than its newly independent southern neighbour. Oil then should not be exaggerated as the cause of the continued Abyei dispute.

The determination of the NCP and the SPLM to hold onto Abyei has as much to do with domestic politics as oil. Both Ngok Dinka and some southern politicians have accused the Sudanese government of deliberately stirring up trouble in Abyei to both secure Abyei's resources for the north and to simultaneously undermine southern Sudan's preparations for independence. Yet some reports suggest that the president, Omar al-Bashir, has less control over the actions of the Missiriya and other militias than often supposed, and is turning a blind eye to avoid being damaged domestically. The Missiriya traditionally supported the opposition Umma Party before being won over to the NCP during the civil war. The NCP want to retain Abyei to keep Missiriya support and deprive their rivals at a time when their authority is questioned by the secession of the south and continued unrest in Darfur. They also fear that losing more territory will weaken them further. The north, in turn, has accused the south of encouraging Ngok Dinka militancy. For the south too, the Ngok Dinka are a key constituency of the SPLM's and their credibility will be damaged if Abyei's sedentary residents feel abandoned to the north. Moreover, if Abyei joins the north it could spark yet another refugee crisis of Ngok Dinka fleeing south, which the fragile new state would struggle to cope with.

The beginning of the dry season, when the Missiriya traditionally enter the disputed region to seek water has only exacerbated the current violence. Tribal leaders have looked to Mr Bashir and southern president, Salva Kiir, for a solution but, since both pledging in late January 2011 that a referendum would happen in March, little has happened, and none of the key disputes standing in the way of the vote taking place have been resolved. Both leaders are due to meet with Thabo Mbeki, a former South African president, to discuss the matter in the capital, Khartoum, later in March. However, many of Abyei's residents may begin wondering if the current impasse will share the fate of a similar vote promised after the end of the first civil war in 1972 that never came to take place. This proved to be one of the many unresolved issues that helped reignite the second civil war in 1983, and the war-weary residents of Abyei will hope that history does not repeat itself.

Renewed and heavy clashes between Darfuri rebels and the Sudan Armed Forces (SAF) were reported in early March. On March 9th an SAF spokesman, Khaled al-Sawarmi, claimed that government forces had killed 100 rebels, captured 15, and destroyed seven vehicles and seized five others during fighting in the Jebel Marra region in North Darfur. Although these figures may be exaggerations, there is little doubt that the past three months have seen intensification in fighting in Darfur. Rebel groups have hardened their positions on negotiations and the government has stiffened its military response while international attention has been focused on the Southern Sudan referendum. Earlier in March the joint UN-AU peacekeeping mission in Darfur, UNAMID, confirmed that bombs had been dropped near Samra and Bersi, two villages in North Darfur. The government is also continuing to pursue divisive political tactics to try to maintain control over Darfur and to weaken opposition. In particular, it is using the long-discredited Darfur Peace Agreement (DPA) to muddy the waters at the same time as holding talks with rebel factions in Doha, Qatar, and pursuing other talks inside Sudan.

Complicating matters, in early March the government announced that it intended to create two new states in Darfur (Bahr al-Arab and Jebel Marra), in addition to the existing three (North, South and West Darfur). Furthermore, the government official in charge of negotiations over Darfur, Ghazi Salaheddin Atabani (a presidential adviser and senior NCP figure), said that the government still planned to hold a referendum on the administrative arrangements of Darfur. Such a referendum was provided for by the DPA, but that agreement has always been rejected by the mainstream rebel Justice and Equality Movement (JEM) and the Sudan Liberation Movement/Army (SLM/A) of Abdul Wahid al-Nur, and has even been rejected by Minni Minnawi, the main rebel faction leader who originally signed it. For their part, encouraged by the example of Southern Sudan, JEM and the SLM/A, are now seeking a higher degree of self-determination for Darfur and will not welcome the proposal to divide the region into more states. A negotiated settlement to the conflict is therefore unlikely soon, unless a new approach to peace talks is adopted.

Speaking at a press conference in the southern capital, Juba, on February 15th, the SPLM secretary-general, Pagan Amum, said that oil revenue sharing would not continue after the secession of the south, saying that there would be ''no continuation, whether 50% or anything''. The claim is in effect only a bargaining position and an assertion, as the SPLM has yet to agree arrangements with the NCP. SPLM officials have previously suggested that the SPLM and the NCP might eventually agree to a tapering revenue-sharing arrangement, for example with the percentage share of net revenue from southern oil going to Khartoum reducing from its current level of 50% to 0% in steps over a number of years. However, it is perfectly possible that the SPLM may insist on ending the element of revenue sharing and switching to a fees-only arrangement. This may be administratively simpler, and it will doubtless be welcomed by Southern Sudanese wanting to believe that they are not sharing southern oil with the north. All the same, the SPLM may struggle to contain the fees demanded by the north, and as a result, discounting oil price changes, its net earnings from southern oil may change little. The NCP has not publicly asserted its negotiating position on the matter. However, as northern Sudan controls the two pipelines through which oil from the south is exported and will have to be exported in the future (there being no alternative route), the NCP has a strong bargaining position.

On March 7th a second reading of the Southern Sudan budget for 2011 began in the Southern Sudan Legislative Assembly (SSLA). The budget is reported to total SP5.7bn (US$2bn) compared with a total of SP5.6bn in 2010 (including the supplementary budget passed mid-year), but has not yet been passed by the parliament. In reviewing the draft budget, the parliamentary Committee of Development, Economy and Finance made a number of recommendations and requests, including:

• for all spending agencies, including the Ministry of Finance and Economic Planning, to submit quarterly reports to the SSLA;
• immediate development of hydroelectric power; and
• revival of a number of agricultural and industrial schemes, including agricultural projects in Mongala and Nzara, cement factories in Kapoeta and Managayat, a sugar factory in Melut, a tannery in Malakal, a rice scheme in Aweil, and a fruit plant, a brewery and an iron factory in Wau.

In the longer term, the development of hydroelectric power and agricultural and industrial schemes is vital for Southern Sudan if its economy is to diversify and become less dependent on oil revenue. In late February GOSS and the World Bank Group launched a private-sector development programme in Southern Sudan. However, speaking at the launch, the vice president of Southern Sudan, Riek Machar, acknowledged that there were many obstacles to private-sector growth, including arbitrary taxation, insecurity, lack of legislation, and severe corruption and dishonesty, which he said deterred foreign investment. Mr Machar reminded the audience about the 2008 grain corruption scandal, which he said had embarrassed GOSS.

Meanwhile the revenue outlook for Southern Sudan this year is positive so far, but not good enough to rule out fiscal difficulties. Sudan's net oil revenue in January were US$461.4m, of which Southern Sudan's share was US$192.8m, including US$47.1m revenue from oil sold on the domestic market. With average oil prices this year set to remain well above the US$50-60/barrel range on which GOSS budgets are usually based, GOSS's total oil revenue is likely to be in the range of US$2.2bn-2.7bn (equivalent to at least SP6bn-7.3bn at the official exchange rate).

On March 7th Mr Bashir appointed Mohammed Khair al-Zubair governor of the Bank of Sudan (the central bank), replacing Sabir Mohammed al-Hassan. The departure of Mr Hassan ends a period of speculation about his position in the bank, but the appointment of Mr Zubair is unlikely to bring any great change in central bank policy or management. Mr Zubair was finance minister in Sudan for a period during the 1990s. Mr Hassan had reached the end of his term and told reporters that he had asked for it not to be renewed, on grounds of health and family.

On February 27th the Bank of Sudan, announced that it was doubling the amount of hard currency Sudanese travelling overseas can buy and that it would allow withdrawals of hard currency from special accounts. This announcement apparently signals the central bank's belief that pressure on the Sudanese pound has eased slightly. This is plausible, following the successive steps taken by the authorities last year, which included allowing commercial foreign-exchange transactions to be made at a premium of 18.3% to the central bank's official rate, and the imposition of restrictions on some imports and increased duties on others. Nonetheless, even with the Southern Sudan referendum now past, Sudan still faces a difficult economic environment, with government revenue set to shrink after the secession of Southern Sudan, and little prospect of an upturn in investment.

The central bank may therefore soon make a further controlled depreciation of the Sudanese pound. Indeed, according to a Sudanese newspaper, Al Ray Al Aam, the authorities aim to unify the official and black-market exchange rates at a value of SP3:US$1. As of early March, the commercial exchange rate was around SP2.77:US$1. The national budget forecast an exchange rate of SP2.7:US$1. Meanwhile, inflation remains more or less under control. According to data released in February by the central bank, headline inflation rose from an average of around 10% in the period August to October 2010 to 15.4% in December and 16.7% in January, which is above the government's target of 10%. What the central bank measures as ''imported inflation'' rose over the same period from around 6% to 12%.

At a press conference on March 1st the GOSS investment minister, General Oyay Deng Ajak, said that GOSS was still consulting on the question of whether the capital of South Sudan should be relocated. According to Mr Deng, four options are being considered, one being to relocate the state government of Central Equatoria but leave the national capital in Juba, the others involving moving the capital to a new site, either within Central Equatoria, or to a place called Ramciel, which is notionally the geographic centre of Southern Sudan but is not yet even a town. Mr Deng acknowledged that many countries' capitals were not geographically central and that relocation would be expensive. But the fact that he and other officials are giving the subject consideration is an indication of the political sensitivities within Southern Sudan about land use rights and ownership. Juba and Central Equatoria, where the city lies, have historically been the territory primarily of the Bari, not the Dinka or Nuer, the two tribal groups that are most represented in the SPLM and GOSS. However, it is also an indication of what ideas or schemes GOSS is willing to spend time and money on. Given that Juba has a complex of purpose-built ministry buildings, and a parliament building, all of which have been rehabilitated over the past six years, it appears excessive to try to relocate the capital now. This may not prevent GOSS throwing some money at the idea in the future, much as last year a Gulf-based company was contracted to draw up a set of animal-shaped city development designs for the ten state capitals in Southern Sudan.

Download the numbers in Excel

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Please see graphic below

Please see graphic below

Please see graphic below

Land area

2.5m sq km

Population

43.3m (mid-2010, Economist Intelligence Unit estimate)

Main towns

Population in '000; 1993 census (some may have more than doubled since then)

Khartoum (capital): 925 El Obeid: 228

Port Sudan: 305 Wad Medani: 219

Kassala: 234 Gedaref: 189

Omdurman: 229 Juba: 115

Climate

Northern Sudan: hot and dry in September-May; rainy season from April/May to September/October depending on latitude (average annual rainfall 100 mm). Southern Sudan: rainy season from April to October (average annual rainfall 1,000 mm)

Weather in Khartoum (altitude 390 metres)

Hottest month, May, 26-42°C; coldest month, January, 16-32°C; driest months, January-April, usually no rainfall; wettest month, August, 72 mm average rainfall (average annual rainfall 200 mm)

Languages

The official language is Arabic, which is spoken by about 60% of the population; English is also widely spoken in the south. There are an estimated 115 tribal languages, of which over 27 or more are each spoken by more than 100,000 people

Measures

Metric system. Some local measures are also used:

1 diraa = 58 cm; 1 feddan = 0.39 ha; 12 keilas = 1 arde = 1.98 hl

Currency

In 2007 the Sudanese pound replaced the Sudanese dinar as the national currency at a value of SP1=SD100. The pound is made up of 100 qirush/piaster

Time

3 hours ahead of GMT

Public holidays

Independence Day (January 1st); Coptic Christmas (January 7th); Peace Agreement Day (January 9th); the Prophet's birthday (February 15th 2011); Coptic Easter (April 24th-25th 2011); Labour Day (May 5th); Revolution Day (June 30th); Eid al-Fitr (August 30th 2011); Eid al-Adha (November 6th 2011); Islamic New Year (November 28th 2011); Christmas Day (December 25th)

The dates of the Islamic festivals are uncertain because they depend on the actual sighting of the moon. There are additional regional public holidays in Southern Sudan

Official name

Republic of Sudan

Legal system

Sharia (Islamic law) applies in both civil and criminal cases in the north-although there are some special provisions for non-Muslims. The south has a non-Islamic legal system

National legislature

Sudan has a bicameral parliament with a 450-member National Assembly (with 60% of seats elected by majority voting in geographical constituencies and 40% by proportional representation, including 25% reserved for women), together with a Council of States composed of two representatives elected by each state assembly

National elections

April 2010 (presidential and parliamentary)

Head of state

Omar al-Bashir, who took office following a 1989 coup and was sworn in as president in October 1993, was most recently re-elected in April 2010

National government

The government is a coalition between the National Congress Party (NCP) and its former adversary in the north-south civil war, the Sudan People's Liberation Movement (SPLM), with a few minor parties such as the Eastern Front also represented

Main political parties

The main northern opposition parties include the Democratic Unionist Party (DUP), the Umma Party and the Popular Congress Party (PCP). In Darfur the main political-military groups are the Justice and Equality Movement (JEM) and the fragmented Sudan Liberation Movement (SLM)

The presidency

President: Omar al-Bashir (NCP)

First vice-president: Salva Kiir (SPLM)

Second vice-president: Ali Uthman Mohammed Taha (NCP)

Assistants to the president:

;Nafie Ali Nafie (NCP)

;Musa Mohammed Ahmed (EF)

Key ministers

Agriculture: Abdul-Halim Ismail al-Muaafi (NCP)

Cabinet affairs: Luka Biong (SPLM)

Communications & IT: Yahia Abdalla Mohammed Hamad (NCP)

Defence: Abdel-Rahim Mohammed Hussein (NCP)

Education: Farah Mustafa Abdalla (NCP)

Electricity & dams: Osama Abdullah Mohammed al-Hassan (NCP)

Finance & national economy: Ali Mahmoud Abdul-Rasool (NCP)

Foreign affairs: Ali Ahmed Karti (NCP)

Foreign trade: Elias Neyama Lel (SPLM)

Health: Abdalla Tiya Gumaa (NCP)

Industry: Awad Ahmed al-Jaz (NCP)

Interior: Ibrahim Mahmoud Hamed (NCP)

Investment: George Bioring (SPLM)

Irrigation & water resources: Kamal Ali Mohammed (NCP)

Justice: Mohamed Bushara Dosa (NCP)

Labour: Dak Dok Bichok (SPLM)

Minerals: Abdul-Bagi al-Jailani (NCP)

Oil: Lual Achuil Deng (SPLM)

Social welfare & insurance: Amira al-Fadil Mohammed al-Fadil (NCP)

Transport: Chol Ram Pang (SPLM)

Central bank governor

Mohammed Khair al-Zubair