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- Policy moves from loans to foreign investment -

A decade of far-reaching reform has aimed to open up Sudan to foreign investors. Years of central-command economics had almost driven the country into the sands by the early 1990s, plagued by a weakening currency, raging inflation and at best minimum growth, if not actual decline. Worse still, Sudan had all but fallen out with the International Monetary Fund (IMF) and access to foreign finance and loans dried up. Taking on this legacy was far from easy, recalls Sabir Hassan, governor and chairman of the board at the central Bank of Sudan since 1994 and regarded as one of the prime architects of economic reform. "Our first priority was to stabilise the economy at the minimum possible cost, because without a stable economy we couldn't achieve growth," he says.

Fiscal and monetary policy was reined in while the government attempted to rebuild its badly-dented relationship with the international financial community. Problems with the IMF stemmed back to the 1980s when Sudan said it was unable to repay the big loans extended by the Fund during the previous decade. The IMF responded by halting new payments to the country in 1984 and the World Bank soon followed suit. Relations between the two sides went from bad to worse. At one point, the IMF even threatened to take the unprecedented step of expelling Sudan from its membership, but it was not until the mid-1990s that Mr Hassan and his colleagues managed to re-establish even minimal contact. Sudan started making some debt payments and entered into a three-year structural-adjustment programme, backed by the IMF in 1997. Even then, Sudan and the IMF were still at odds: the Fund wanted the government to impose shock measures to kill off an inflation rate running into three digits. "We told them that we had tried this approach three times and didn't agree," says Mr Hassan. "We took the gradual approach to exchange rate adjustment and it worked, and we were able to stabilise the exchange rate."

The country has not suffered from foreign exchange difficulties in the last three years and has been able to build up its hard currency reserves. And the economy has returned to growth, with output rising about five per cent a year. The government was able to pull down inflation without damaging the economy, says Mr Hassan. "These tough measures did not have a very negative impact on growth." IMF officials expressed satisfaction with both Sudan's performance on resumed debt payments and the state of its economy during a visit to monitor the government's policy last year. But they emphasised that the authorities should take even more action to curb a still worrying rate of inflation, running at over 15 per cent a year. Now that relations with the Fund have been restored to normal, Sudan is back in the fold of the international financial community.

In November last year, the World Bank agreed to resume relations with Sudan, ending a 10-year hiatus in dealings with the country. World Bank officials say it has also agreed to offer technical assistance to Sudan in the field of irrigation and will support the government's efforts to reduce poverty. Significantly, the country has moved away from its traditional belief that loans and credits are the best way to finance economic development. Today, the government's development policy is based on the principle that encouraging foreign investment is a much safer bet than stacking up debts for future generations to worry about. "We welcome direct foreign investment. It is much better than financing through a loans policy," says Mr Hassan. "We prefer investment to foreign aid." The procedures governing applications from investors have been simplified and restrictions lifted on the right of investors to repatriate their profits.

Sudan has regained access to overseas finance and investment. "Our efforts in economic reform convinced investors," he says. "We have been attracting foreign direct investment in Sudan over the last three years - first in oil and more recently in the agricultural sector and meat production." Mr Hassan believes that Sudan's experience could be an example for other countries on the continent which rely heavily on overseas loans and aid. "We think our model is very good compared with that of other African countries which have received similar external assistance," he says. "If countries in Africa follow our model then they, too, will be able to convince investors to come to them."