Monday, August 28, 2017 12:55 PM / BMI
BMI View: Increasing tensions between Sudan and Egypt will pose a risk to the political stability of the two countries and hurt traderelations. The involvement of other East African governments in the spat will also pose a potential threat to regional relations.
A number of political flashpoints between Sudan and Egypt will negatively affect the countries' relations and regional stability over the coming quarters. Sudan's import ban on Egyptian agricultural goods will damage prospects for trade in both countries and exert inflationary pressure. A further bilateral issue is the longstanding dispute regarding the Halayeb Triangle area along their mutual border, for which negotiations have failed thus far.
Additionally, Sudan's support of Ethiopia in the disagreement surrounding the Grand Ethiopian Renaissance Dam (GERD) will add fuel to the fire, meaning that a breakdown in relations would potentially have wider regional implications. As such, we believe that the increasing level of hostility over multiple issues between the countries poses a risk to both their investment environments and their domestic and regional stability.
Four Freedoms Agreement And Trade In Jeopardy
The Four Freedoms Agreement between Sudan and Egypt, signed in 2004, allows freedom of movement and the right to work, live and buy property in either country without a permit. It is at risk due to the deterioration in relations between the two states. Sudan imposed entry visa requirements for Egyptian men aged 18-50 in April, with Egypt subsequently reciprocating. Trade relations have also deteriorated, with Sudan having banned Egyptian agricultural and livestock imports.
While Sudan originally passed a temporary ban in September 2016 for the nominal purpose of safety concerns, another ban was put in place and approved by the cabinet in late May 2017, with no reason given. This, alongside other problems, has contributed to a rise in Sudanese inflation, last measured at 33.5% y-o-y in February, up from 18.2% in August 2016.
While the country is receiving increasing agricultural investment from the Gulf, domestic production is not sufficient to meet demand. As such, these developments are negative for the investment environment, and will weaken bilateral trade. If Sudan-Egypt relations deteriorate further, new trade or movement legislation could be put in place, jeopardising the Four Freedoms agreement.
Halayeb Triangle Dispute Deepening
A dispute surrounding the area on Sudan and Egypt's eastern border known as the Halayeb Triangle is likely to intensify the disagreements. The area is purportedly rich in manganese ore.
Although the Halayeb Triangle has been disputed since 1956, recent developments have put it back in the spotlight. In 2015, Egypt created a parliamentary district in the area for its parliamentary elections. In March 2017, the Khartoum government established a committee to work on demarcating the Sudanese border without the involvement of Egypt. Afterwards, in April, Khartoum formally requested that the Egyptian government hand the territory over to them.
Since Sudan-Saudi relations have improved in recent years, the Sudanese government has likely taken advantage of its improved international standing in order to risk demanding sovereignty in the area. Egypt has rejected attempts by Sudan to submit the matter for international arbitration. In light of this, tensions regarding the border are likely to increase over the coming months.
Ethiopian Dam Controversy Will Cause Regional Troubles
The GERD and its impact on regional relations will further complicate matters. The dam is currently under construction and is due to be completed in 2019, according to our Infrastructure team. According to some studies, Ethiopia's large hydropower project would restrict Nile water flow to downstream countries, which would affect Egypt and its Aswan Dam most of all.
Relations between Ethiopia and Egypt have been strained since 2013, when Egyptian politicians were recorded on camera discussing a potential plot to sabotage the dam. After initially opposing the project, Sudan then supported Ethiopia and signed agreements to source power from it.
At the same time, Eritrea opposed the dam and sided with Egypt, reflecting an extension of the bitter relations between Ethiopia and the former. We view the risk of a wider dispute as unlikely, given that Egypt only has the backing of Eritrea while Ethiopia has the support of other upstream Nile countries plus Sudan. However, there is a possibility of other countries becoming entangled if Egypt-Sudan relations deteriorate further.