Comprehensive economic planning in the Sudan

l/NITED NATIONS

\ECONOMIC

lA N D

SOCIAL COUNCIL

Distr, LIMITED

3/CN.H/CP/9

3 September 1962 Original: KNGLISH

ECONOMIC COMMISSION FOR AFRICA

Meeting on Comprehensive Economic Planning

Addis Ababa, 15 - 20 October 1962

COMPREHENSIVE ECONOMIC PLANNING IN THE SUDAN

(J.G. KLSVE)

62-2085

E/CN.14/OP/9

COMPREHENSIVE ECONOMIC ELiOTING IN TJHS STJDAN : ;

General objectives of development

(i) Qualitative targets

After a thorough, analysis of the economic structure of the.Sudan it soon became evident that the usual objectives for . planning in developing countries would be fully applicable to

this, country. That is to. say that the highest priority was

given in general to the following objectives:

(a) a rapid growth of national income per head;

(b) a diversification of the economic structure;

(c) an increase of exports':ana--^f -import^ suistitat^Loiil^n order to maintain and even to raise the-coverage.of imports by

; exports; =. ■■:..."

(d) further improvement of social conditions (health, education,

■"■•■-' eto.) and of the employment situation; ; (e) maintenance of a reasonable stability of prices.

In preparing the plan, some difficulty was encountered in connection with the fact that objective (d) - improvement of social conditions-- claimed considerable funds which would, otherwise, have been available for tt*e fulfilment of the first three"purely economic objectives. A compromise had to be found, therefore, so that the plan"would guarantee good progress in all

the directions indicated, at the same time.

(ii) Quantitative targets

1 In order to have some idea of ■■the required rate of growth, - it was pat, first of-all, that it would be desirable to bring

: the economy, within one .generation, very near to the stage of

■■'■■■■: s~el^sustained growth. Comparisons were made with the situation

in some North African countries .and, as a, result., it was con

cluded that a doubling of national income per head would be re- 1 quired to bring Sudan near to the, above-mentioned stage of

growth. The increase of population in the Sudan is estimated

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to "be some 2*8 per cent per annum* Doubling of per capita national income in some 25 to 30 years would, therefore, call

for the quadrupling of national income in the same period of

time. From the outset, the plan period was fixed at 7 years,

in connection with the completion" of -the huge- Roseires Dam

" project, Which is included in the plan. The postulated long- : term rate of growth would imply, for the.first f-ye&T period, 1 "'■'■■'a growth of total national-income of some 4° to 45 per cent.

Calculations bore out, furthermore, that a. growth of 42 per cent would be compatible with a-satisfactory fulfilment of the other arboVe-mentioned: objectives, at the same time.

2. Planning production and investment (i) Traditional and modern production

As an introduction to the second part of this paper, it ,: . ■ . .might be useful to draw attention to a special feature of the

methods of planning applied.. Primarily, ^or statistical reasons, tiie total economy was divided into a traditional and a modern

part. por the year 1955/56 national income statistics covering

the whole economy were available. However,: for the following

years only statistics regarding modern type capital formation

were prepared- The main reason for the lack of complete production statistics for those lator years was to obtain reliable production figures covering the whole agricultural sector. With the time, the means and the forces available, it was only possible to reliably assess the production of that part of the economy that produoes with modern type capital goods*. The decision

■■■■•= was made to concentrate statistical endeavours on that modern

■ \ ■ part of the economy, foremost, and to. deal more summarily with - : , ., %h& other, part that produoes in a traditional way. Examples

. of production in a .modern way are.cotton growing in irrigated : agriculture, rail transport, administration, etc., wile examples

; : of traditional production are various types of rainland culti-

■;r vation, of livestock production, of craft industries, etc. In

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this way, it was possible to come to a set of reasonably oomplete

data for the period 1955/56 - 1960/61 as regards that part of

the economy which allows for the application of more modern planning techniques. On the other hand, it was: roughly assumed

that the production of the traditional part of the economy

would.have increased in that period slightly more, proportionally, than the growth of the working population. It should be well noted that this distinction between a modern and a traditional

sector has a purely statistical basis and does not coincide with distinctions .such as that between a monetized and subsistence . .sector or that made in "dualistio-economy-theories"*

(ii). The: planning of the traditional sector

" For various reasons, it was assumed that.the growth of production in the traditional sector, during the plan period,

would be slightly more than proportional to the growth of the

working population. First of all, it had to be taken into account that Various government investments of an infrastruc-

tural or other nature (e.g. schools, hospitals, communication, agricultural information, etc.) would indirectly raise produc

tivity and that a rapid growth of the modern part of the, economy would provide an increasingly strong demand for the products of the traditional part. On the other hand, as the growth of the modern sector exceeds by some 5 Per cent the growth pf the traditional sector, a certain shift of working population, bet ween the two sectors of the economy had to be taken into consi

deration.

(iii) 'The planning of the modern sector

The above-mentioned growth of the gross domestic product of the whole economy, together with the assumed growth of the traditional sector, implied that the production of the modem

sector would grow by some 57 "to 62 per cent.

As a second general starting point for the planning of

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this sector, use has been made of the concept of capital-output fa-fcio... The, statistical information enabled.a rather-exact calculation of tbiS; ratio.for the past.period. This value was not immediately applied to. the plan period, but, as far as possible, it was ascertained whether a different value

connection with changes in tljie invest- purpose, detailed calculations were

.::.■ |md^rtak;en, regarding the .effect: on gross domestic product of ..T^^Pfe Projects that were, either.already under execution, or

:y;:-:-?®x?.-d?^ef--n?-°®B--ar3!:* in an^ case, to .especially satisfy the c.:, .'??°°n:d f?:f *h*:?3- °i1?ae0tiye3.r9f the plan. To the.former type

of prooects.belp^ged^he,.building of dams and tiie irrigation works, and their associated investments, in order to make use of the water that w±±l- beconrer a^il-ablev ^

■:o took: already some 40 ^per cent of the total-investment volume.

:■:-■l-Waer&ds it was possible to fix the amount of -investments for ,■■■ -those .projects :.:i ?;r. .e::ac-^ v:a;; the allocation for purposes

-,1of. raising and diversifying exports and■'impo'rt substitution - ■-■ -remai-ned more or^l^sg- -subject to economid policy. Scrutinizing

1 idle, practical possibilities for-export promotion and import

" subst-iilution, it appearedr-however.: that they were clearly

■-^ linked-up toa:great extent, with the realization of a number : ' • o"f definite prooects, and only for certain commodities'could

■L ■ ■ it" be assumed-tfea^'export' or "inpc-r^ substituitin "would increase

■ r-"autoniatioaliy»v> In this- Way./' it :was-possible 'to -asses'^ the

■ - effect .on1 g3?Oss' 'domestic■' product ■•of another 20: per cent of the ''"■ investment-voluEie 'ss finally'■ included in Lthe plan. ■' ^ ■

As a result of these various calculations and other con siderations, a gross capitalWou^put-ration .of-:-3.4:£or-the plan- : , ■period w^s arrived at, v,Thus?... the .required, increase... of gross

domestic product: .in, the,, modem, sector demanded' a net investment

• .-:°* .so-me-vf^- 34p^.r^llion- in Ulyct p,a-';Gd.r.- In,.add>it:j.c-n.3 replaoe-

ment investment has been taken into account. , , .

.. .j i. r^t^.^-j-|-J|-J-,||..|| . | ^ ■i|Jia^itjiBiBi>tiiiirtiiHinMiiWBiniijaatM^i^iii>^ ■ limn' inmiiwwtii itfiimrrrrfliinrii—"■■miner. n:n""i Ti.ii' ". : i. . n " ii

S/GfrVH/cSP/9

Page 5 ■■'■■

The allocation of this amount of £S 34-0 million presented, of course, little difficulty for the 60 per oent earmarked for

definite projects (see above). As.a matter of fact, the majority

of those projects were of a directly productive type, in the fields of agriculture, industry, railway transport, etc* It stands to reason, therefore, that of the remaining 40 per cent, a large share had to be allocated to social type and other infrastructural investments. The Ministries of Health and Edu cation had presented detailed long-term plans, and although some curtailment of those plans was necessary, the allocation of resources in this direction is deemed to warrant considerable progress with respect to the fourth objective of the develop

ment plan (the "social" objective).

3» Financing of investments

After the fixation of the total required, investment vol ume, it was estimated whict part could p.ossibly. be carried by the private sector, from calculations regarding private savings

and foreign private capital, (see sub. 3, ii> h^reun^er). Sub

sequently, it was assumed that the public sector would have to take care of the remaining share in the total investment volume.

-' (i)' The public sector.

The planning of public income, expenditure and savings Was greatly facilited by the fact that ah economic classifica

tion of the budget was available.

The projection of Government income was based on a separate analysis of the possible growth of main categoried of revenue, namely:

. (a) the projection of revenue from participation in agri cultural undertakings (cotton boards) and from export

duties and royalties, was based on the estimated growth

of exports; - -

Page 6 /

(b) revenue from import duties was naturally based on projected imports, taking due account of import substitution;

(c) revenue from consumption and excise duties and from sugar monopoly profits was assumed to grow pari passu with the growth of private consumption;

(d) .other taxes, amongst which the business profit tax,

were taken to increase at the same rate as gross domestio product;

;(e) income from .public corporations, other than those men—

, tioned sub. (a), was based on a scrutiny of their in

dividual accounts and forecasts.

It must be remarked that import duties account for, roughly, 40 per cent of public revenue. Bearing in mind the fact that a considerable import substitution was planned for the plan period, it is clear that the above projection of total public revenue is slightly less than equal to the growth of gross domestic product- A proportional increase would have meant a shift in the taxational structure which - for the time being - was deemed inopportune.

Turning attention now to the Government's current expen diture, it must be stated that in the preceding years the Sudan was, like other newly independent nations, confronted with a considerable growth of such expenditure. A detailed analysis showed, however, that various factors' would be less

active in raising current expenditure in the plan period. On

the other hand, it was clear that intensified development efforts would entail a considerable upward pressure. It was considered that an allowance of an average growth of 5 Per oent Per annum would cover such development claimss as: well as a normal

natural increase. Of course, in this rather limited allowance of 5 per cent, an element of economic policy is embodied*

Public revenue and expenditure, thus projected, resulted

in estimates of public savings, which are not adequate to

cover public capital'formation in the-plan peratfd. The possibilities of securing private savings for1t&e public : "'''sector are, so far, strictly limited, and even though

-certain measures to increase sudH a transfer :havo been incorporated in the plahy their possible effe&t is bound to remain insignificant in comparison- with the estimated gap between public savings and public capital formation. A not inconsiderable inflow of public'foreign capital will have to make up for the remaining difference. '■■'It may be stated, '"' ' however, that the required amount of such oapital is by

'~";; no means unrealistic in *view of, firstly, the amount of

" ■credit already secured, and, secondly, in view of the pos- i :: sible continuation o.f grants.-obtained in past years. Even ... , if all public foreign capital has, to be. obtained on a loan- : ., basis, the resulting.debt^servicing. will not constitute a

;. . . burden of more .than 9 per cent of the level; of exports at the end of the plan period. . ...;-.

(ii) The private sector ...

■-.U' It has been possible to calculate;a propensity to save

for the private sector for the period 1955/56-^ I960/6L For

. . the sake of oarefulness, a somewhat lower smarting value,

namely 8.per cent,.has been fixed,, for;the,plan period, but ..>

. ■ on the other hand, it has been assumed that the ratio would gradually rise to some 10 per cent towards, the end of the .period, as a result of various measures,, such as the develop-

; meat of local insurance companies, the issue of,premium bonds, the raising of the interest rate of the.Post;Office Savings .-'■■■■ Bank, etc. More important^ perhaps, is the consideration that,

in the past, a clear correlation was observed between the creation of investment opportunities and fprthcpming savings.

It has even been observed that...when new investment opportuni

ties presented themselves, like the sale of favourable plots

for housebuilding, or the granting of pump scheme licenoes, or

the acceptance: of projects under the, "Approved Industries Act",

Page 8

there was often;a tendency tp lower consumption .in order to creat sufficient savings for.the financing of such investments.

• Many prpjects and developments in the plan call for the co-

% - operation of private capital, such,as the development of pump -.-. : schemes that will make use of;the Roseire:s Dam Waters, or

similar industrial projects to comply with the requirements ..of import substitution, and, also, the growing qf short _ .staple cotton for the recently established textile industry,

All. this , justifies a certain optimism such as that expressed ,; in the assumption of a growth of the private,savings ratio ..-■ -from 8 1jo 10 per cent. It should- "be noted tb.at these percen-

;.. : tages refer to the modern part ,of the economy only.

In addition," it has been reckoned that the- be it rather

; limited - inflow of private foreign Capital of :the past, will continue:iri the plan period, Iii fact, various industrial projects-li-ave already "been approved in which foreign capital will participate. - : - "'■ ■

The Balance of Payments ;t-Sl

Earlier in this paper, some general information regarding

' 'the-export prbjection was given. Cotton represents some 60

per cent of the Sudan's exports. The second objective of the plan might call for a broadening of exportse Such a diversi fication of exports is necessarily a .gradual, structural long -term development.' Moreover, it was very difficult to find,

at rather short noticej new-commodities for export that would

■ be favourably competitive in the world market<r However, inten sified research in this field is going on* ; Although, therefore, a Certain broadening of the export is part and parcel of the

plan (the share of cotton is planned.to go down by some 5 Per cent), the accent-, with respect to. the fulfilment of the diver

sification-objective, was laidr primarily, on import substitution.

As a consequence of-the latter, the share of manufacturing in

- -gross domestic product of the whole:economy will grow from 1.6 percent in!1960/61 to 3.8 per cent in 1967/68, or will more

than double.

Page 9 -v. ■;.:"

A considerable problem in the export projection was the assessment of the trends of demand, supply and prices in world

markets for those agricultural commodities (especially cotton, Oilseeds and gum arabic) on which tlie export of the Sudan is

mainly based. For this purpose, the advice of some internation al organizations was very helpful*

For the projection of imports, use was. made of the end- use classification for tho last five years. Thus, it was

possible to split imports into four categories, nanely consumer goods, building materials, raw. materials and capital goods, and to relate each of thsse categories to specific aggregates, in the following way:

(a) consumer goods to consumption of the moder sector;

(b) building materials and capital goods to the investment

volume'; "" ....

(c) raw materials to gross domestic product (modem sector).

The coefficients, found, for these relations - in. the, past

were also applied to the plan period* This implies of course

the assumption that, as a matter of economic policy in principle, no import-restrictions will be applied in that period other

than those prevailing in the. las.t. years. After this projection of imports, detailed studies wore undertaken regarding practical

possibilities for substitution by domestic production* By

"practical" is meant that possibilities were taken into account

only where it was certain that local production would start

during the plan period, Naturally, the amounts of import-

substituion, included in.the plan, are equal to $he value, of

the planned imports of final products, less the§value of raw

materials, to be imported for their production. This import

of raw materials, however, is in most cases negligible," as

the plannining of import-substitution deliberately aimed at

finding those.-commodities that could-be wholly &v almost

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■ ;■- wholly produced -with national raw materials. Examples are;

■ sugar, coffee, wheat, timber, cotton textiles, fertilizers.

The balance of services shows, as in many other developing countries, a structural deficit. The plan includes various investments which will have a favourable effect in this field

(e.g» expansion of national sniping, airline and insurance companies). It is, nevertheless, expected that the deficit in. services may continue to increase for some time to come.

Moreover, a riss in interest payments on foreign debts had to be taken into account. They.are bound to surpass the quite

■ .considerable, interest receipts towards the end of the period.

All in all, a deficit in the current account had to be planned which will have to be completely covered by a net capital inflow, as it was considered inappropriate to make use of the - at pre sent adequate - foreign reserves for investment financing. It

was assumed that in principle the reserves will only be used

in bad years, to sustain the planned investment volume.' This implies, of course, that in that case, they will be replenished to an adequate level in following prosperous years.

Naturally, the total net capital 'inflow, thus calculated, , should correspond with thv internal financial deficit discussed

■ in the previous section of this paper. This correspondance

was not immediately attained, but as the difference proved to

be rather small, it was not difficult to reach a complete - inner consistency of the plan, by adjusting such instrumental

variables as export and import substituion, and by adjustments in the target, namely the growth of gross domestic pr&dUct which, for this purpose,-was, initially, deliberately put at

a range^ value. ■ . ..-■■:

5« Employment planning ■ ...>■■

It was clear, from the outset, that the rapid development

of the Sudanese economy would require a considerable increase

of technically skilled labour of all types and levels. For this

reason special attention was given to quantifying supply

and..demand of this labour. As for the demand for technical

skills, three levels were distinguished, namely:

(a) managerial, proffessional, sub-professional and technical;

(b) skilled craftsmen, and

(c) semi-skilled and unskilled.

The requirements of the main branches of economic activity were assessed as far as possible- A great number of details

were contained in the various project-submissions. Moreover,

the Sudan has already a long experience in irrigated agriculture

and therefore certain ratios were available between feddanage

and manpower requirements. Squally, certain ratios between the building volume expressed in value, and the size and composition

of the labour force were available for the building industry.

For manufacturing, use was made of the lists of personnel of

a number of enterprises. The requirements for railway trans

port, which is predominant in the transport sector in the Sudan, as well as the requirements for communications and for public

utilities, were derived from the submissions of the various

public corporations. As for the supply of technical skills, this could fee well estimated on the basis of the plans of the

Ministry of Education and of the University of Khartoum, whereas further information was collected concerning vocational training

courses, scholarships, post-employment courses, etc. It stands to reason that as far as possible the capacity of the schooling facilities was based on the foreseen demand, but inevitably the final comparison between supply and demand led to the conclusion that about 40 per cent of the required skilled workers would have to be trained "on the job". This considerable percentage comprises, however, for a large part, truck- and tractor drivers

and similar easy-to-train workers.

It should also be mentioned that the calculated increase

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of demand for unskilled and semi-skilled workers does not inconsiderably surpass the growth of the working population in the modern sector, and that the plan foresses, therefore, a continuation of the shift of labour from the traditional to

the modern sector and/or absorption of disguised unemployment.