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Business & Economy

Another look at diversification

It was a typical ministerial gathering where mining ministers from the Arab world met in Khartoum last week, but came out with a clear message on the need for economic diversification.
Statements by Minister of Petroleum and Mineral Resources Ali Al-Naimi and his Sudanese counterpart Kamal Abdelatif hit the news when they said joint ventures between the two countries to utilize Red Sea resources will start production as early as 2014. The two countries concluded an agreement almost four decades ago back in 1974 to exploit mineral resources that lie deep under the Red Sea waters.
According to Al-Naimi, the Kingdom has invested some $ 50 billion in the mining sector and that 1,700 licenses have been issued so far covering more than 73, 000 sq. km.
After long delays for a host of reasons, including the need for some technological advances to deal with the deep water excavation, a joint venture between the Saudi firm Manafa International Trade Co. and the Canadian firm Diamond Fields International Ltd. received a license two years ago to operate on a 115 sq km area west of Jeddah, where it is expected to start producing gold, copper and probably silver.
Statement by the Sudanese minister Abdelatif said that already a deposit of 150 tons of gold had been identified in addition to one million tons of copper, though the Canadian counterpart suggests that the amount of copper could be half of what had been announced.
The Saudi-Sudanese joint drive to utilize these deposits is a natural move to exploit the two countries’ natural resources, but more than that it adds to the effort to diversify the economic base away from oil.
The case of Sudan speaks clearly for that. Earlier last decade, the country became a small oil producer pumping daily some 500,000 barrels per day. But because of political turmoil that has been engulfing Sudan, the southern part of the country opted to secede last year taking with it more than two thirds of Sudan’s known oil reserves and more significantly the bulk of its hard currency stream.
The direct impact of that loss came with a remarkable drop in Sudan’s national currency against the dollar in addition to climbing inflation. The first step taken by the Sudanese government was to push in the area of mining, creating an independent ministry for the purpose of pushing efforts and compensate some of the lost hard currency revenue.
For the years before unorganized mining activity escalated all over northern part of Sudan prospecting mainly for gold.
Last year, Sudan managed to export more than 30 tons of gold that netted $ 1.5 billion. According to Abdelatif so far the country has succeeded in exporting 41 tons netting $ 2.5 billion and is expected to export 50 tons of gold next year. A gold refinery was inaugurated in Khartoum earlier this year, and more supervision through the central bank helped in pushing upward the gold contribution to the government coffers. In addition some 85 companies have already been licensed to operate in 120 locations. Sudan’s main mining activity used to be with Ariab Company, which was bought out some months ago by the Egyptian tycoon Naguib Sawiris, who formed a joint venture with the Canadian firm La Manche Resources to run the mining facility.
This is a clear drive to diversify and find a new source to compensate though partially for the oil revenue that used to bring to Sudan on average $5 billion annually, but for a country like Sudan this is just another repeat of an emphasis on another extractive industry. Gold or other mines are depletable resources that use intensive capital and technology to benefit a few.
Saudi Arabia on the other hand has huge hydrocarbon resources and given its rational management of this resource it became in effect the central bank for the oil industry that looks at Riyadh to make for any shortfall in supplies or to help moderate crude oil prices that have an impact on world politics and economy.
The growing crude domestic consumption in the Kingdom because of galloping need for power generation and transportation will put eventually some constraints on the ability of the Kingdom to expand on its crude oil ability to export in future and meet ever growing world market needs for additional supplies.
That requires more emphasis on the drive to diversify the economic base. Sudan is known to have rich natural resources in terms of arable land as well as animal husbandry. Already the Kingdom has intensified its drive in the area of investing in agriculture abroad to secure foodstuffs. Sudan is one of the places eyed by Saudi investors for that purposes but results achieved so far are far less than modest, which indicate the need to put more political will to cut through the red tape and bureaucracy to make things happen.

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