In a bid to curb smuggling activities and attract foreign currency into the country’s cash-strapped treasury, the exportation of gold in Sudan is now open to private mining companies.
Until now, Sudan’s central bank has been the sole body legally allowed to buy and export gold and set up centres to buy the metal from small-scale miners. But in a new regulation circulated on January 1, the central bank said private mining companies could now export up to 70 per cent of their products provided they deposited proceeds in local banks and selling the other 30 per cent to the central bank.
This has immediately taken effect as al-Fakher a private company became the first to take advantage of the new regulations, exporting an initial 155 kg. Gold traders in Sudan welcomed the central bank’s move to open up exports but said the government-set exchange rate and the requirement to turn production over to the bank makes the trade unattractive.
Mohamed Tabidi, a prominent jeweller and one of Khartoum’s main gold dealers said that traders should be allowed to export the entire quantity of gold, with a refusal to give 30 percent to the Central Bank of Sudan. He further stated that they are asking the central bank to deal with traders according to the market price and via direct negotiations, as the official exchange rate is unrealistic.
Sudan has experienced protracted social conflict, civil war, with the loss of three-quarters of its oil production due to the secession of South Sudan in July 2011. The oil sector had driven much of Sudan’s GDP growth since 1999. For nearly a decade, the economy boomed on the back of rising oil production, high oil prices, and significant inflows of foreign direct investment.
Since the economic shock of South Sudan’s secession, Sudan has struggled to stabilize its economy and make up for the loss of foreign exchange earnings. Also, the inter-ethnic conflicts, lack of basic infrastructure in large areas, and reliance by much of the population on subsistence agriculture keep close to half of the population at or below the poverty line.
According to the US Geological Survey, Sudan is Africa’s third-biggest producer after South Africa and Ghana. Sudan is attempting to develop non-oil sources of revenues, such as gold mining and agriculture. Any added revenue generated from the new system would help Sudan’s government cope with severe economic pressure as it tries to navigate a three-year political transition.
However, before the new regulations, government officials claimed that the central bank bought gold at a discount to the international price. As a result, an estimated 70-80 percent of it was smuggled abroad. Gold production in the north began soaring just as oil income fell off, but because so much was smuggled abroad, the state was deprived of foreign exchange.
In a 2020 budget statement last week, the finance ministry said that the central bank has been printing Sudanese pounds equivalent to $200 million a month to buy and export gold to finance subsidized commodities, mainly fuel and wheat. This has led to the loss of control of the economy and the transformation of the economy into a state of explosive inflation and near-freefall of the exchange rate in the parallel market.
This new system will only if the government makes the market favourable for investors without them feeling exploited. Also, sticking to the rules without breaching the agreement made between private investors and the government could amount to tremendous success in the revenue generated in reviving the country’s struggling economy.