Foreign Capital Inflows, Domestic Savings and the Price of Political Stability in the Sudan: Weisskopf Revisited

JOHN S. HENLEY and VASSILIS DROUCOPOULOS University of Edinburgh, Department of Basinem Studia. Edinburgh, UK

MOHAMED A. IBRAHIM State Trading Corporation, Sudan

This paper reworks Weisskopra estimates of the effect of foreign capital M o w on domestic savings for a later time period. The Sudan is presented as an example of a public sector dominated economy, dependent on one major export crop and politically unstable. While Weisskopf's savings function had an indication of a negative relatiomhip between public sector ravings and official foreign capital inflow, problems of collinearity between the independent variables cast doubt on its utility for analysis of economies dependent on limited primary exports. The negative relationship between public sector savings and official is explained in terms of the expansion of the state's bureaucracy and military.

'Receiving aid is not just like receiving a/white/elephant but like making love to an elephant. There is no pleasure in it, you run the risk of being crushed and i t takes years before you see the results'.

P Streeten, A poor nation's guide to getting aid New Socieiy. 154 ( 1 February 1968)

INTRODUCIlON

The impact of foreign resources on domestic saving in underdeveloped economies has attracted much attention in recent years. The breakdown of the consensus amongst economists in the mid- 1960s that capital inflow plays an important part in prom- oting economic growth in low income countries was specifically questioned in relation to the impact of capital inflow o n domestic saving by Haavelmo.' Rahman, testing Haavelmo's hypothesis. demon- strated a statistically negative relationship between the saving ratio and the capital inflow ratio by taking a cross-section of 3 1 developing countries.2 He suggested that governments may voluntarily relax domestic saving efforts especially where the populace is poor and political stability is a problem if more capital inflow is available. Many other studies also find a negative relationship between domestic savings and capital inflows.'

Clearly it is rather crucial for theories of under- development to work out behavioural explanations

of the relationship between foreign capital inflow and domestic saving rates, In this paper we first apply Weisskopf's model to rework estimates of the effect of foreign capital inflow on domestic saving using data from the same sample of 44 countries he analysed for a later time period?

Second, we seek to test the Griffin and Enos proposition that the negative impact of foreign cap- ital inflow on domestic savings is caused by the tendency of both private entrepreneurs and govern- ments to use foreign capital inflow to subsidize their consumption in countries experiencing a savings constraint.' Third, we present a case study of the Sudan as an example of a state capitalist economy experiencing a savings constraint with a long history of political instability, foreign indebtedness and economic dependence.' We suggest that further work needs to be devoted to analysing the strategic decision-making pay-off matrix of different govern- ments if adequate behavioural explanations of the relationship between capital inflow and domestic savings are to be achieved.

WEISSKOPF'S MODEL

Weisskopf's analysis was conducted in terms of two gaps - a savings gap and a trade gap.' The notion

CCC-0143-6S70/80/OOO1-0 l3HfM.W 138 MANAGERIAL AND DECISION ECONOMICS, VOL 1, NO. 3, 1980 0 iieyden & Son Ltd, 1980

underlying his analysis is that there are two inde- accurate foreign capital inflow, the data was trans- pendent resource constraints on growth. First, there formed into three year moving averages. A further is that due to the inability to mobilize domestic six countries were climinated because data was not saving and. second, that due to the inability to complete for all variables. The remaining 29 coun- obtain foreign capital to finance the import of capi- tries were grouped according to their binding con- tal goods for investment. A third case occurs when straint using Weisskopf's specification of coefficients both domcstic savings and foreign capital are in- and the results of the regression analysis of national sufficient. Weisskopf specifies three different invest- statistics. Our results are presented in Table 1 com- ment functions that correspond with the three bind- pared with Weisskopf's classification of binding ing constraint cases and estimates a permissible constraints. range of values for the coefficients. Only nine of the countries were found to have

the same resource constraint as Weisskopf found I = (I + b y + ( 1 + c ) F + d E and of these, seven experienced the savings con-

straint. Six countries continued to maintain a trade surplus throughout the time period of both studies.

The savings function of the countries identified as experiencing a savings constraint was then esti- mated following Weisskopf.' The results of this exercise are presented in Table 2. Out of the 10 countries for which savings data was available,

Where Gross Investment I is the dependent vari- three displayed a positive relationship between able in the three cases. In case A, the indcpendent foreign capital inflow and domestic savings but this variables are Gross Domestic Product Y, Net was only significant in the case of Greece. Of those Foreign Capital Inflow F (defined as trade deficit) seven with a negative relationship, five were sig- and Exports E. In case B, they are Y and Imports nificant. Of the five for which comparison could be M. In case C. the independent variables are F and made with Weissopf's estimation of the impact of E. foreign capital inflow on savings, four retained a

In our replication of Weisskopf's analysis. we negativc relationship (regardless of significance), used statistics from the same sample of 44 underde- while South Korea had changed from a significantly veloped countries. However, time series data was negative relationship in the period covered by collected from the Unired Nations Yearbook of N a - Weisskopf to a non-significant postitive relationship rional Accomrs Srarisrics from 1961-1974 instead during our time period (see Table 3). Finally, it is of OECD statistics used by Weisskopf.x Seven interesting to note that the export coefficient ap- countries which had trade surpluses for the whole peared, as expected, always with a positive sign. of the period and two that had surpluses for 12 out Several other studies have shown the same relation- of the 14 years were excluded from the original ship to exist between savings and exports, as sample o n the grounds that whcn the behavioural pointed out by Mikesell and Zinser."' saving function is estimated later we assume causal- Griffin and Enos suggest that the negative impact ity flows from capital inflow to domestic saving and of foreign capital inflow on domestic savings can be not vice versa. To smooth out the short run fluctua- explained by the tendency of both private entrep- tions in imports and exports and to estimate a more reneurs and governments to use foreign capital

JOHN S. HENLEY has been a Lecturer in Organizational Behaviour at the University of Edinburgh since 1975. He graduated BSc.(Eng.) from University College London in 1965 and PhD from the London School of Economics in 1974. H e has taught at the University of Nairobi, Kenya and the London School of Economics. His major research interest is in comparative industrial relations and the management of labour in industrializing economies. He is currently directing an SSRC financed research project on industrial workers in Kenyan manufacturing industry.

VASSlLlS DROUCOPOULOS studied Economics in Athens, New York and Edinburgh. Since 1973 he has been Lecturer in International Business at the University of Edinburgh. He is currently engaged in research on the size and growth of international firms.

Address: University of Edinburgh, Department of Business Studies, William Robertson Building, 50 George Square, Edinburgh E H 8 9JY, UK

Case A: Savings constraint

b > O , ( 1 + c ) < 1, d > O

Case B: Tradc constraint I = - a / y - P / y Y + l /yM p / y < o . I / y > I

Case C : Both savings and trade constraint

I = A + p F + u E @ > O . 0 > 0

MAHAMED A. IBRAHIM is an executive with t h e State Trading Corporation, of the Sudan. He graduated MSc, in Business Studies in 1977 from the University of Edinburgh. He

. made h i s contribution to this paper while a student in the University of Edinburgh and in no way should the paper be construed as representing the views of his present employer.

MANAGERIAL AND DECISION ECONOMICS, VOL. 1, NO. 3, 1980 139 0 Heyden & Son Ltd. 1980

~

Table 1. Classification of Countries by the Constrdnt Case Compared With Weisskopf's Classification

Cwnw

Argentina Barbados Bolivia Brazil Burma Ceylon Chile Colombia Costa Rice Cyprus Dominican Republic El Salvador Ghana Greece Guatemala Guyana Honduras India Iran Iraq Ireland Israel Jamaica Jordan Malaysia Malta Mexico Netherlands Antilles Pakistan Panama Paraguay Peru Philippines Portugal Puerto Rico South Africa Swth Korea Spain Taiwan Thailand Trinidad/Tobago Tunisia U W U W Venezuela

Rrm n m pried

1961-1 974 1961-1974 1961-1974 1961-1974 1962-1974 1961-1974 1961-1973 1961-1974 1966-1974 19651974 1961-1973 1961-1974 1961-1971 1961-1974 1961-1974 19651 973 1961-1974 1961-1 974 1961-1974 1961-1974 19661 974 19651 974 1965-1 974 1961-1973 1 961 - 1 974 1961-1974 1961-1974 1961 -1 974 1961-1969 1961-1974 1961-1974 1961-1974 1961-1 974 1961-1974 1961-1974 1961-1 974 1 96 1 -1 974 1961-1974

1961-1974 1961-1974 1961-1974 1961-1 974 1961-1 974

dricluhn cu

Trade surplus Incomplete data

C Trade surplus

B Incomplete data

A B A C B

Incomplete data C A A

Incomplete data A A

Trade surplus Trade surplus

B Unclassifiable

A A

Trade surplus B B

Incomplete data A B A

Unclassifiable A

Unclassifiable A

Trade surplus A B

no data Unclassifiable Trade surplus

A Trade surplus Trade sur~lus

W J d d n m prlod

1954-1965 1953-1 959 1958-1966 1953-1966 1953-1962 1958-1966 1960-1966 1953-1966 1957-1965 1959-1966 19551966 1958-1966 1955-1965 1953-1966 19-1964 1954-1965 1953-1966 19-1965 1959-1965 1953-1962 1953-1963 1953-1964 195S1966 195S1966 19551965 19551966 1953-1966 1957-1965 1954-1966 1960-1966 1954-1965 1954-1964 1953-1962 1954-1964 1953-1966 1953-1966 19-1966 19551964 1953-1965 1957-1966 1953-1964 1960-1966 1955-1964 1960-1966

' .c(r*(knlon c.u

B Unclassiflable Unclassifiable

C A

Unclassifiable Unclassifiable

A A C C B A B C A A A

Trade surplus Trade surplus

C A

Unclassifiable A

Trade Surplus A A B C

Unclassifiable C C A A A

Trade surplus A B A B

Trade surplus Unclassifiable

A Trade surplus

inflow to subsidize their consumption. It was in- tended to test this proposition by disaggregating gross domestic savings into corporate, governmen- tal and private savings using data from the countries experiencing a savings constraint. Unfortunately complete data was only available from Guatemala and Honduras. The regression equations for the two countries were as follows. Guatemala (1961-1974)

S(~)=49.5'+0.07Y+0.32E -0.33*F R'=0.69 (1.95) (1.4) (1.4) (-1.8)

S(g) = -69.3 + 0.24 Y - 0.74E - 0.36F R' = 0.78 (-1.03) (1.79) (-1.21) (-0.75)

S ( p ) = -48.0 + 0.009 Y + 0.37E - 0.25'F R2 = 0.77 (-0.6) (0.05) (0.49) (-2.42)

Honduras (1961-1974)

S(C) = 10.87 + 0.004 Y -+ 0.07E + 0.34F (0.46) (0.05) (0.24) (1.38)

S(g) = 19.3 - O.19* Y +0.68*E +O.17F (0.83) (-2.02) (2.38) (0.70)

S ( p ) = -39.7 +0.06 Y + 0.06E - 0.28F (-1.18) (0.46) (0.14) (-0.80)

R 2 = 0.91

RZ = 0.76

RZ = 0.85

r ratios in parentheses, where S ( c ) = Corporate Savings, S(g) = Government Savings and S ( p ) = Private Savings. (*) indicates an estimate significant at the 10% level of significance.

For Honduras it seemed that there was no sig- nificant relationship between foreign capital inflow and the desire of saver groups to change their

140 MANAGERIAL AND DECISION ECONOMICS, VOL 1, NO. 3, 1980 @ kleydcn & Son Ltd. 1980

Table 2. The Estimated Savings Function# (S = a + bY + cF+ dm Country Tim period a b C d

Chile 1961-1973 0.15 -0.0027 -0.43 0.W (1.27) (-0.12) (-2.61) (3.06)

Costa Rica 1-1974 -266.ff -0.07 -0.425' 0.728c (-5.3) (-1.15) (-3.74) (2.84)

Greece 1961-1974 -21.35' 0.19 1.1P 0.26 (-7.38) (5.1 8) (5.02) (1.41)

Guatemala 1961-1974 -59.5" 0.48" -0.061 0.083 (-2.66) (3.36) (-0.49) (0.41)

Honduras 1961-1974 -99.W 0.006 -0.7F 0.7F (-5.99) (0.45) (-3.25) (1 1.75)

Jordan 1961-1973 -29.W 0.37b -0.31b 0.01 (-2.05) (1.93) (- 1.86) (0.02)

Paraguay 1961-1974 -886.0 0.04 - 1 .32b 0.32 (-1.39) (1.23) (-1.93) (1.58)

Philippines 1961-1974 968.0" 0.082b -1.14 0.14 (2.87) (1.91) (-1.35) (0.88)

South Korea 1961-1974 3.5 0.104' 0.007 0.05 (0.23) (6.68) (0.10) (0.87)

Tunisia 1961-1974 11.9 0.20b 0.027 1.- (.33) cue) (0.33) (5.78)

R'

0.995

0.996

0.996

0.997

0.977

0.63

0.998

0.997

0.996

0.993

~ ~ ~~~

t ratios in parentheses. Indicates an estimate significant at a 10% level of significance. Indicates an estimate significant at a 5% level of significance.

savings behaviour during the time period studied. However, in Guatemala there was a significant negative impact both on corporate domestic savings and private domestic savings. This might be exp- lained in terms of capital inflows encouraging cor- porations to consume rather than retain profits or providing a substitute for indigenous entrepeneurial activites. Alternatively it may have led to the con- sumption of imported and exportable consumer goods. In any case the results would appear to contradict Alamgir's findings with respect to Bang- ladesh, but support Suckling's study of the Republic of South Africa and Gupta's cross-sectional analysis of 40 Less Developed Countries." Whether the capital inflow that produced this negative relation- ship was official or private is not considered in Alamgir's paper. This will be considered later in a case study of the Sudan.

~

Table 3. Current and Weisskopf's Estimation of the Foreign Capital Inflow Coefficient in the Equation S = a + by + CF + d F

Current Estimation WelakopPs wtlmatlon Country Tlme period Value of 'c' T i m period Value d 'c'

Costa Rica 1966-1974 -0.425' 1957-1965 -0.584

Honduras 1961-1974 -0.7F 195S1966 -0.880' (-3.74) (-1.25)

(-3.25) (-2.40)

(-1.86) (-2.63)

(-1.35) (- 1.37)

Jordan 1961-1973 -0.31b 1959-1966 -0.955'

Philippines 1961-1974 -1.14 1953-1962 -0.209

South Korea 1961-1974 0.007 1953-1966 -0.81?' (0.1 0) (-2.13)

r ratios in parentheses. Indicates an estimate significant at a 10% level of signifi-

" Indicates an estimate significant at a 5% level of signifi- cance.

cance.

CRITICISMS AND ALTERNATIVES

There are numerous statistical and definitional problems inherent in the econometric excercise re- ported above so that it is not entirely unexpected that there is only moderate correspondence be- tween our results and those of Weisskopf, quite apart from the fact that they relate to different time periods. First, errors arise from non-systematic re- visions of national income accounts.'2 Second, the conventional calculation of domestic savings by subtracting foreign capital inflows from gross in- vestment overstates the association of aid with growth and understates the importance of domestic savings as such.13 Third, aggregating all forms of capital inflows hides the variety of different impacts on growth and ignores any cumulative effect of capital inflow.'* The tenor of the literature would seem to be arguing for disaggregating economic statistics in order to specify more precisely the relationships involved and the variety of uses to which foreign capital is put."

Certainly since Griffin published his original at- tack on foreign aid in 1970 there have been many words printed both supporting and attacking his position.'" Various authors have attempted to pro- vide behavioural explanations of the relationship that is demonstrated between aggregate foreign capital inflows and domestic savings." Chen, for example, using time series data demonstrates that official capital inflow, at least with respect to five Asian countries, is associated with a negative domestic savings effect, while private capital inflow has a positive association.'* When both types of capital inflow are aggregated there is greater varia- bility in the relationship and a decline in statistical

MANAGERIAL AND DECISION ECONOMICS, VOL 1, NO. 3, 1980 141 0 Heyden & Son Ltd, 1980

fit. This result, however, does not refute the Griffin and Enos argument, for it could be interpreted as implying that aid is used indirectly to subsidize investment by providing a conducive economic and political environment for private, consumption- oriented joint ventures. It also blurs the issue of the differing private and social rates of return likely to apply to official infrastructural investment and di- rect private investment.

Possible behavioural relationships between capi- tal inflow and domestic saving are not too difficult to construct. For example, it is plausible that gov- ernments might choose to trade-off the short-run political advantage of not raising domestic saving through taxation against long-run diseconomies as- sociated with increasing indebtedness. This is par- ticularly so when these governments are dependent on foreign interests which take the view that aid is primarily a means of facilitating capitalist expan- sion. As Hazari comments: 'There is generally a fear in the minds of both governments and the richer sections of the community (in less developed countries), that a low rate of growth might generate a revolution, a process through which the rich lose much more than the poor'.'' Hence, purchasing growth in the short-run, above all of consumption, may be attractive even if there is a risk of entering the 'vicious circle' outlined by Griffin.2" Hazari also suggests strong personal reasons why political elites are unwilling to tax high income groups heavily, namely, their shared consumption patterns.2' It is convenient for officials to rationalize this policy in terms of the higher gross saving rate of wealthy groups compared with that of lower income groups. However, not only do elites tend to consume goods with a high foreign exchange content, they also encourage poorer groups to shift their consumption patterns in emulation of elites.

While it is important to focus attention on the propensity of elites to indulge in ostentatious con- sumption it is also vital not to become mesmerized with the 'Mercedes ratio' and ignore wider conside- rations of who benefits from additional consump- tion, e.g. nutrition, health, education.22 This is to raise the issue of political objectives and the role of the state in managing class relationships and the distribution of national wealth. There is perhaps a tendency in the empirical literature to ignore the variety of political economies in the Third World and to assume venial politicians and inefficient bureaucracies confronting omnipotent transnational corporations, skilled at repatriating profits and ex- acerbating inequality. If this is so it is misleading for many of the poorest countries in the world, the private sector is in fact very small so that private- sector-to-private-individual consumption is less im- portant than the extravagant and uncontrolled ex- pansion of the state bureaucracy, particularly where it is a central instrument of political patronage and

In the second half of this paper we present a case

study of the Sudan to illustrate some of the com- plexities involved in trying to interpret domestic savings performance in an economy dominated by the public sector.

THE SUDANESE DEVELOPMENT PATH

An historical analysis of the pattern of economic development of the Sudan suggests strong reasons for the pre-eminence of the state bureaucracy. Brit- ish colonial economic policy was directed primarily towards developing the Sudan as a producer of cheap cotton for the Lancashire textile industry and other raw materiak2' The Gezira Scheme which started operation in 1925 providing irrigated land for tenant farmers had become the backbone of the economy by Independence in 1956.25 If anything, its importance is understated by measures of its economic significance. for it represents the model on which successive governments have attempted to expand agriculture. The problems of diversifying the mono-culture of the economic base have been scarcely overcome for cotton still accounted for about two-thirds of total export earnings.2"

Barnett, in an interesting study of the Gezira Scheme, argues forcefully that the nature of the tripartite 'partnership' between the government, the Scheme's management and the tenant farmers is a central feature of the historical process leading to the underdevelopment of the Sudan.27 Since the tenants have their productive activities prescribed by the management of the Scheme right down to details of what they should grow and where and when to pick and plant, they are, according to Barnett. more akin to 'rural proleterians' than far- mem2". Above all their function is to organize the input of labour (including their own) to grow specified agricultural produce for sale on the world markets through government agencies. Thus, specifically state organized and controlled large- scale agriculture has been and continues to be a crucial feature of the Sudanese economy. The na- ture of the tenant farmers' relationship with the government has become more explicitly exploitative since the farmers were forced to shoulder the con- sequences of the financial mismanagement of the central authorities. As Buxton states, 'In mid 1978 Sudan agreed with the International Monetary Fund to make the tenants pay land and water charges on other crops as well as cotton, and to increase the cotton acreage again. me tenants'] incomes squeezed to the point that many have emigrated to oil-rich Gulf States, went on strike and for a time refused to plant the new cotton crop. The charges remain top priority for the IMF and are a condition of the current world Bank financing package. . . '2"h

The most recent spate of schemes designed to turn the Sudan into 'the granary of the Arab World'

142 MANAGERIAL AND DECISION ECONOMICS, VOL 1. NO. 3,1960 0 tieyden & S o n Ltd. 1980

are explicitly following the Gezira model although they now also include a fourth party, the supplier of foreign capital, in the partner~hip.’~‘ However, many of these grandiose schemes have become bogged down in the Sudan’s perennial problems of inadequate infrastructure, adding yet another twist to the debt spiral.29b

The manufacturing sector was very small before Independence when hardly any factories employed more than 50 people. Various government initia- tives since then have had only limited impact on local production with manufacturing and mining increasing its share of gross domestic product from 4.5% in 1955-1956 to 8.3% in 1973-1974.’’ Awad’s review of government policies up to 1969 came to the conclusion that the private sector con- sisted of a collection of import-substituting indus- tries which were becoming increasingly dependent on the state for assistance, monopolistic and relied on capital intensive machinery and imported raw material^.^^ With the advent of President Nimairi’s regime in May 1969, the strategy of economic development went through a very short-lived radi- cal change when Soviet experts were brought in to prepare development plans. A large-scale prog- ramme of nationalization was embarked upon. This phase was abandoned in the wake of the failure of pro-communist army officers to sustain their coup of July 1971. Lockspeiser points out that Nimairi was already purging leftist elements before the COUP

so that his real commitment to radical economic policies must remain in doubt.32 Since 1971, Nimairi’s government has denationalized much of industry and embarked on soliciting foreign private investment in joint ventures on an increasing scale in order to achieve self-sufficiency in basic con- sumer

A major characteristic of the Sudanese economy has been the trend towards indebtedness with a large public sector deficit every year since Indepen- dence except 1959-1960.34 The need for financial aid from outside led the government to first accept International Monetary Fund help in 1966. Since then the Sudan has secured no less than six IMF stand-by credit arrangements, the latest being ag- reed in June 1978. The Sudan was also the first LDC to borrow $200 million Special Drawing Rights in May 1979 under the Witteveen sup- plementary facility. In return for the loan, Sudan will have to limit domestic credit expansion espe- cially in public sector, revitalize agricultural produc- tion for export crops and the existing development programme to be financed by higher levels of domestic savings and capital inflows.3s It seems improbable that any of these conditions will be met, least of all the requirement for both higher domes- tic savings and capital inflows, as the subsequent analysis suggests. Furthermore, according to the World Bank-which, in February 1980, was ready for a new $65 million loan to Sudan - the latter’s total external debt amounted to a staggering $3.4

billion at the end of 1978. By the same year, Sudan had a debt service obligation of about $300 million representing a debt servicing/export ratio of 35%, and the World Bank has calculated that this ratio would increase by 1984 to 41%. But servicing payments made in 1978 (during which there was a partial rescheduling of some debts) were only $76 million, and there has been no servicing of the commercial debt since then.36

With this history of indebtedness, coupled with experience of communist ‘subversion’, it is hardly surprising that the regime could see no political future for itself cut off from the world market economy. Yet once the agricultural exporting base of the economy had been established on state capitalist lines it was logical to continue to embark on further large-scale state controlled agricultural development schemes following on the Gezira model. For geopolitical reasons the Sudan had once. more become of interest to Western and Arab interests, in particular to Saudi Arabia alarmed at the collapse of the Ethiopian Empire and Soviet involvement in the Horn of Africa, and with an embarrassment of riches since the 1973-1974 oil price rise. In the next section, we consider the extent to which the Sudan is likely to be sinking towards a new level of dependency and under- development.

CAPITAL INFLOW AND DOMESTIC SAVINGS

In a country like the Sudan where the per capita income is pitifully low and the financial institutions to mobilize domestic savings are very weak, the burden lies on the public sector to generate domes- tic savings from its activities to finance investment project^.^' Table 4 indicates quite clearly that the government’s record is extremely poor with a con- tinuing fiscal deficit and even a deficit in public savings from 1971-1974. The major factor con- tributing to this decline in saving is the rapid in- crease in government expenditure not matched by a proportional increase in its current revenue. The really spectacular increase in the fiscal deficit has occurred since 1974, however, as more and more repayments have become due on development pro- jects. A n indication of the scale of the decline is indicated by the fiscal gap for 1974 which had increased by nearly 90% over that for the previous year.

Equally significant is the rising deficit incurred by local government administration and the poor per- formance of public entities despite considerable capital investment. The ILO Report comments on the composition of government current expenditure as follows:

‘There has been a significant redirection of cur- rent budgetary resources away from economic

0 Heyden & Son Ud, 1980 MANAGERW AND DECISION ECONOMICS, VOL 1, NO. 3, 1980 143

Table 4. The Sudan: Public Income and Expenditure 1%4-1%5 to 1973-1974 (E Sud. millions at current prices)

1- 1- 1 9 8 6 1967- 18Bk 1- 1970- 1611- 1612- 1 9 7 s nm 1966 ledd 1967 196B 1969 1970 1971 1972 1973 1974

Central Government current revenue 73.7 75.2 85.8 99.0 114.6 149.4 164.6 163.7 173.4 213.9 Central Government current expenditure 63.2 74.3 83.2 86.4 107.1 144.0 146.4 153.3 164.8 209.9

Central Government surplus 10.5 0.9 2.6 12.6 7.5 5.4 18.1 10.4 8.6 4.0 Surplus (or deficit) incurred

Surplus (or deficit) incurred by local governments -1.6 -0.3 -1.1 -4.4 -5.7 -15.8 -13.5 -18.4 -15.4 -22.6

by public entities -0.3 3.0 7.8 -3.8 13.1 16.1 2.2 7.1 4.4 9.6

Public savings 8.6 3.6 9.3 4.4 14.9 5.7 6.8 -0.9 -2.4 -9.0 Development expenditure 36.7 32.2 32.3 25.2 29.6 28.8 26.6 29.8 29.6 48.0

External accommodation 13.8 17.5 17.7 25.1 10.6 13.1 11.5 10.7 9.2 32.0 Net domestic borrowing and

deficit financing 14.3 11.1 5.3 5.7 4.1 10.0 8.3 20.0 22.8 25.0

Fiscal gap met by -28.1 -28.6 -23.0 -20.8 -14.7 -23.1 -19.8 -30.7 -32.0 -57.0

(Source: Ref. 6, p. 176.)

services towards defence and security and general administration. Such redirection may have been defensible during the civil war; the continuation of such a trend in the future would clearly be detrimental to the development process'.'"

Successive governments have been able to finance this expansion of the state apparatus both by in- creasing domestic revenue and by increasing na- tional indebtedness to foreign interestsa3' In the next section we will consider the impact of this foreign capital inflow on domestic savings.

THE IMPACI: OF FOREIGN CAPITAL INFLOW ON DOMESTIC SAVINGS IN THE SUDAN 19661974

impact of gross domestic product (GDP) on sav- ings. This could be interpreted in either of two ways; by the increase in budget deficits with in- creases in GDP or the relative decline in the prop- ortion of government expenditure devoted to pro- ductive development p~ojec ts .~ ' Foreign capital in- flows would appear to have a negative impact on savings but the coefficient is not significant. We have also tried a TSLS version of the above regression - the second structural equation being

Y = 181.19 + 4.12E - 2.1 1 F (1.58) (7.21) (-0.35)

R2 = 0.90

with the following result:

S = 172.41 -0.69Y+2.64E- 1.26F R2=0.38 (1.83) (-1.54) (1.42) (-0.46)

~~

The same method and model derived from Weiss- kopf was used first to identify the binding constraint and then to regress domestic savings on gross domestic product, exports and foreign capital Inflow. In the cross-country comparisons above, we used trade deficit to define foreign capital inflow, while in the case study of the Sudan we use official loans and grants and private direct capital inflow for greater pre~ision.~" This is particularly important in this case for balance of payments statistics seriously understate the true position because more and more goods and services are not immediately paid for, and loan and service payments not met, 50

these do not show up on the balance of payments. Regressing gross domestic savings (S) on gross

domestic product ( Y ) , exports (E) and foreign capi- tal inflows (F) the result is

S = 109.06*-0.34Y*+ 1.19E-0.53F R 2 = 0 . 5 6 (2.25) (-2.32) ( 1 39) (-0.24)

(+) significant at the 10% level. The regression shows that there was a negative

Finally. from a 'first difference' form we obtained

S = 0.49 - 0.20 Y + 0.S7E - 0.35F R2 = 0.23 (0.03) (-0.87) (0.54) (0.14)

In sum, all three regressions give us insignificant results. Before continuing with the discussion it might be rewarding to disaggregate foreign capital inflows between public and private sectors.

From Table 5 it is clear that private investment was virtually self-financing from 1966-1974 with a total net private capital inflow of fS1.5 million. In this situation. we would expect domestic savings to be affected mainly by changes in export earnings and GDP and only marginally by capital inflows. The argument that the negative impact of foreign capital inflow on domestic savings derives from the reduced incentive to local investors of having foreign exchange available to finance investment clearly does not apply in the case of essentially state capitalist economies such as the Sudan, where foreign capital is simply not available to the private sector in significant amounts. By contrast, as shown

144 MANAGERIAL AND DECISION ECONOMICS, V O t 1, NO. 3.1980 0 lleydcn & Son Ltd, 1980

Table 5. official loans and Grants, Net Private Foreign Capital Inflow and Public Invest- ment (€ Sud. millions at cur- rent prices)

F-b F w 1,. of L. F,. am a 96

1966 12.6 3.9 32.2 39 1967 15.5 6.2 32.3 48 1968 15.5 1.2 25.2 62 1969 17.0 2.9 29.6 57 1970 16.4 1.0 28.8 57 1971 19.7 -3.0 26.6 74 1972 17.6 -2.7 29.8 59 1973 23.4 -3.9 29.6 79 1974 24.4 -4.1 48.0 51

~

(Source: National Planning Commission, Economic Survey, various issues; Bank of Sudan Annual Report 4 (1973)).

in Table 5 , foreign capital inflow is the major source of public investment.

Reworking the regression analysis using official loans and grants (public capital inflow) and public sector savings, the result for the period 1966-1974 is

Spub=31.55*- 0.07Y - 0.25E +2.10Fp,b (3.03) (-1.51) (-0.77) (1.31)

R2 = 0.74 (*)significant at the 5% level.

The sign of the foreign capital inflow coefficient is postive but the value of the coefficient is insignificant.

However, a closer look at the correlation matrix reveals that there is a very strong correlation be- tween y and E, between Y and Fpub and also between E and Fpub.

Correlation Matrix Spub

Y -0.806 Y E -0.736 0.947 E Fpub -0.636 0.916 0.967

Thus the equation is plagued with multicollinearity so to overcome this problem we tried a ‘first differ- ence’ form

Spub= 0.99 - 0.05Y - 0.50E + 2.54Fmb (0.24) (-0.70) (-1.29) (1.90)

R2 = 0.54 We also ran

Spub = 24.40* - l.15Fp,,t RZ = 0.40 (2.51) (-2.18)

(*) significant at the 5% level; (t) significant at the 10% level

Therefore, no firm conclusion can be reached, though looking at the correlation there would seem to be a clear negative relationship between public savings and official capital inflows.

This problem of multicollinearity is probably not unique to the Sudanese case and it would seem that the problem is more widespread. Gulati observes a significant correlation between capital inflow and GDP in the case of South Moreover, where an economy is heavily dependent on the export of a small number of primary raw materials inevitably growth of GDP is going to be closely tied to the vagaries of the relevant commodity markets which, in turn, might be expected to influence the flow of inter-governmental loans. This phenomenon is the essence of underdevelopment and depen- dence and must raise serious doubts about the utility of Weisskopf‘s analysis when applied to sig- nificantly mono-cultural economies.

DISCUSSION

In many ways the Sudanese development path rep- resents an extreme version of the underdevelop- ment syndrome; highly uneven economic growth with development centred on the capital city and the surrounding area of irrigated land while a vast hinterland is virtually devoid of infra~tructure.~~ Extreme inequality in levels of economic develop- ment has been coupled with political instability. First there has been the long standing sectarian rivalry between the two great ‘ tariqas’ (religious sects) of the northern Arab provinces, the Ansar and the K h a t m i ~ y a h . ~ ~ As Lockspeiser observes:

‘The political reserves of the rurally based sects are a huge conservative force which both prevent their incorporation into a progressive front and evokes opposition to ‘progressive’ measures and government^'.^'

Equally the sects are deeply suspicious of each other. Coalition governments of the sectarian par- ties representing the interests of the two ethnic factions have invariably foundered as one group thought it was losing out to the In addition to competition between the Arab ‘tariqas’ there has, of course, been open civil war between the north and the black African southern provinces. By the end of the war (1963-1972) defence accounted for 31% of government spending while the army had been expanded to 35 000 - five times its size at Independence.”

A third feature of the Sudanese political system which has contributed towards its instability has been the strong and consistently radical stance

and a ‘first difference’ form of the labour movement, both independently and in co-operation with professional groups!8 This radi- cal stance, however, came to an abrupt end follow- ing the abortive coup of 1971, when union leaders

SpIb = -3.64 + 1.40Fp,b R2 = 0.25 (- 1.34) (1.42)

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who had been co-opted into the Nimairi’s govern- ment after the coup of 1969, were implicated in the

Since 1954, there have been two periods of par- liamentary democracy (1954-1958 and 1964-1969) interspersed with military administrations. Both the two civilian governments and the Abboud military junta collapsed as a result of fragmentation of the leadership into ethnic factions unable to command sufficient support to implement necessary economic reforms. Nimairi’s military regime which has been in power since 1969 has survived longer than any of its predecessors partly as a result of the inability of opposition groups to form a sufficiently broadly based coalition to challenge Nimairi’s personal position. In keeping with the Sudan’s political tradi- tions, Nimairi’s administration has shown itself adept at radically altering its policies to meet prag- matic considerations of survival. There have been several attempted coups, however, suggesting con- trol of the state remains as problematic as in the past in the absence of any common will.“’ As M. G. Smith has observed of culturally plural societies in general, ‘the unity of negation’ found in opposing autocratic rule is a highly unsatisfactory basis for solidarity once a coup has s~cceeded .~’ The use of power and authority inevitably have become crucial for maintaining and controlling the state, and ex- pansion of the security forces and the civil service a concomitant of this use of power. The growth of the state’s payroll in the Sudan has progressed in sev- eral distinct phases as a response to the problems of maintaining political stability. The security forces have expanded from 7500 in 1956 to 50000 in 1976 with major expansions occurring after the outbreak of the civil war in 1963 and the co-option of the rebel army into the regular army at the cessation of hostilities in the south in 1972. After the crisis of October 1Y64 and the collapse of the Abboud military junta, as a result of pressure prin- cipally from the Professionals Front and the elec- tion of a sectarian coalition civilian administration in April 1965,q’2 the government began a policy of guaranteeing employment to all graduates of uni- versities and post-secondary institutions; up to 1970, this policy extended to the graduates of secon- dary schools. In 1974, the policy was revised to exclude university graduates in such fields as arts, humanities, law, general science and mathematics. However, the government still guarantees employ- ment to ‘professional category’ university graduates and to non-degree tertiary-level technicians includ- ing even Sudanese graduates from foreign institu- tions.53 A third phase of expansion of public ad- ministration is currently underway with the creation of a Ministry of People’s Local Government charged with the decentralization of administrative authority from Khartoum to local units.

The ILO Mission Report estimates that the gov- ernment wage bill (excluding the military) has been growing at 12% per annum during the last decade

plot.49

while employment in the civilian sector of govern- ment has been growing at 10% per a n n ~ m . ~ ~ Un- doubtedly this is conspicuous consumption but of a public rather than private form.

CONCLUSION

In the first section of this paper we reworked Weisskopf’s analysis of the impact of foreign capital inflows on domestic savings in 44 developing coun- tries using data from a later time series abstracted from Unifed Nations Yearbooks. Despite severe re- servations about the comparability of national in- come statistics, and using different time periods, our results were broadly comparable with those of Weisskopf. However, disaggregation of domestic saving in to private and public sector saving for Guatemala showed that there was a strong negative impact‘ of foreign capital inflow on the saving be- haviour of the private sector. This finding con- tradicted that of Alamgir for Bangladesh. In order to probe this relationship in more depth we consi- dered the case of the Sudan.

A brief analysis of the evolution of the political economy of the Sudan suggests that it has two abiding characteristics. First, the political system is segmented into fiercely partisan factions which in the past has given rise to political instability, fre- quent excursions into unconstitutional direct action and even open warfare. Second, the state has his- torically always been the major employer and pro- ducer, being directly involved both in the develop- ment and management of the agricultural exporting base as well as public administration. Successive governments have expanded the state bureaucracy and the security forces in the pursuit of political and economic control. However, as the 1LO Report observed, the point was being reached when there was a real danger of strangling the export base by steeply regressive taxation.

‘More than four-fifths of the nations tax revenues come from indirect taxes and, what is more, a large part of the total realization of indirect taxes is linked to foreign trade activities. The yields from export duties, import duties, consumption taxes, as well as the exchange tax, are heavily influenced by the export of a single commodity namely cotton: fluctuations in this volume cannot but have an unsettling effect on public revenue. The excessive dependence on indirect taxation has made the fiscal system unnecessarily regres- sive and reduced its responsiveness to expanding revenue needs’.5q

Using Sudanese data for the public sector, there was some indication that saving by the public sector was negatively correlated with oficial foreign loans and grants. Undoubtedly in the case of the Sudan,

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the government has been purchasing short run political advantage by financing an expansion of the state apparatus with foreign loans and relaxing its saving effort.

As a final caveat to our case study of the Sudan, it should be noted that we are not suggesting that the negative relationship between foreign capital inflow and public saving exclusively implies con- spicuous private consumption by a small elite. This seems unlikely from casual observation. What is conspicuous in the Sudan is underemployment of public servants on not particularly high wages. This group represents an elite relative to the majority of the rural population, a ‘bureaucratic bourgeoisie’ dependent on the state.‘“

The implication we would draw from our case study is that there are a range of alternative be- havioural explanations of the negative relationship between capital inflow and domestic savings. One such model is provided by the Sudan where histori- cal, political, cultural and economic factors have led to conspicuous expansion of the state bureaucracy and a decline in the domestic saving rate. Clearly there must be countries where the private sector is relatively larger, where political stability is less problematic and elites more entrenched, and where

capital inflows do lead to extravagant consumption by private individuals. In essence we are suggesting that it is necessary to elaborate alternative models of the political economies of developing countries in some considerable detail before we can gain further insight into the relationship between saving behaviour and foreign capital flows. Disaggregation of government expenditure patterns, particularly between development oriented investment, general administration, internal security and the army may suggest more precisely the factors attracting foreign capital inflow and reducing domestic savings. The army build up and proliferation of personalized dictatorships in the Third World seems at least as likely a cause of the decline in domestic savings as private conspicuous consumption, however indefen- sible the latter may be. Lastly, more light will be shed into the issue when this is related to and explored within the ‘dependence-imperialism’ nexus, that is, when it is acknowledged that ‘ . . . aid creates and maintains an upper stratum in the reci- pient country with vested interests in maintaining economic and political ties to the donor countries, while these ties and the comparative advantages reinforced by aid contribute to the stratification and stability of the world capitalist system’.”

NOTES AND REFERENCES

1. T. Haavelmo, Comment on W. Leontief‘s ‘The Rates Of Long-Run Economic growth and Capital Transfers from Developed to Underdeveloped Areas’, Study Week on the Econometric Approach to Development Planning. Pontificae Academie Scientarium Scripta Varia, North Holland, Amsterdam (1965).

2. M. A. Rahman, Foreign capital and domestic savings: A test on Haavelmo’s hypothesis with cross-country data. Review of Economics and Statistics, 50, 137-138 (Feb- ruary 1968).

3. Perhaps the most widely quoted are: K. B. Griffin and J. L. Enos, Foreign assistance: objectives and consequ- ences. Economic Development and Cultural Change 18. 313-337 (April 1970); T. E. Weisskopf, The impact Of foreign capital inflow on domestic savings in underde- veloped countries. Journal of lnternational Economics 2, 25-38 (February 1972); C. F. Papanek, Aid, foreign private investment, savings and growth in less de- veloped countries. Journal of Political Economy 81, 120-130 (January/February 1973); K. Griffin, Foreign capital, domestic savings and economic development. Bulletin of the Oxford University Institute of Economics and Statistics 32 ,931 12 (May 1970); H. B. Chenery and P. Eckstein, Development alternatives for Latin America. Journal of Political Economy 78,9661006 (JulyIAugust 1970).

4. Time series data for the period 1961-1974 was collected from The United Nations Yearbook of National AC- counts Statistics (various issues).

5. K. B. Griffin and J. L. Enos, Ref. 2. 6. We prefer to use the term ‘state capitalist economy’

rather than ’administrative state’ as adopted by the ILO/UNDP Mission Report, Growth Employment and Equity: A Comprehensive Strategy for the Sudan p. 147. ILO Geneva (19761, (hereafter referred to as ILO Report). The former term implies the dominant role of the state in managing economic relationships both internally and externally.

7. T. E. Weisskopf, Ref. 2, pp. 27-32. 8. Apart from different data sources and time periods we

used different deflators. Weisskopf used a single gross

domestic product deflator for each country. We con- verted to constant prices by means of different deflators for the different variables of each country estimated from Vol. 111 of 1975 U.N. Yearbook of National Accounts Statistics, New York (1976). On deflating see also W. T. Newlyn, Foreign finance, in The Financing of Economic Development, ed. by W. T. Newlyn, p. 131. Oxford University Press, Oxford (1977).

9. T. E. Weisskopf, Ref. 2, p. 31. 10. R. F. Mikesell and J. E. Zinser, The nature of the savings

function in developing countries: A survey of the theoretical and empirical literature. Journal of Economic Literature 11, 18 (March 1973).

11. M. Alamgir, Foreign capital inflow, saving and economic growth - A case study of Bangladesh. Bang- ladesh Economic Review 11, 577-598 (April 1974); J. Suckling, Foreign investment and domestic savings in the Republic of South Africa, 1957-1972, The South African Journal of Economics 43 (31, 315-321 (1975); K. L. Gupta, Foreign capital inflows, dependency burden and saving rates in developing countries: a simultane- ous equation model, Kyklos 28 (Fasc. 21, 365.

12. See R. W. Hooley, The measurement of capital forma- tion in underdeveloped countires. Review of Economics and Statistics 49, 199-208 (May 1967). Moreover, the literature is replete with data and methodological prob- lems of the issue under discussion. See C. P. A. Bartels, The effect of foreign capital inflow on domestic savings in developing countries: a critical survey. Zeitschrift f i r Nationaldkonomie 35 (Part 1-21. 17&173 (1975); F. Stewart, Foreign capital. domestic savings and economic development: Comment. Bulletin of the Ox- ford University lnstitute of Economics and Statistics 33, 139-141 (May 1971); K. Griffin, Foreign capital, domes- tic savings and Economic development: reply. Bulletin of the Oxford University Institute of Economics and Statistics 33, 157-158 (May 1971); Ref. 10, pp. 1-3, 12; G. F. Papanek, The effect of aid and other resource transfers on savings and growth in less developed countries. The Economic Journal 82, 934-950 (Sep- tember 19721.

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13. This point is made by C. Stoneman in a critique of Papanek. See C. Stoneman, Foreign capital and economic growth, World Development 3, 15 (January 1975).

14. Perhaps the most telling criticism of those who would interpret the negative correlation between foreign capi- tal inflow and savings behaviour as a sufficient reason for cutting off al l foreign capital inflow. Nonetheless, two simulation exercises by Bhagwati and Grinols lend some support to the concern that foreign aid holds developing countries to ransom and capital inflows have adverse effects on domestic savings. See J. N. Bhagwati and E. Grinols, Foreign capital, dependence, destabilisation and feasibility of transition to socialism. Journal of Development Economics 2, 35-98 (June 1975); and E. Grinols and J. N. Bhagwati, Foreign capital, savings and dependence. Review of Economics and Statistics 58, 416424 (November 1976).

15. E. K. Y. Chen, Domestic saving and capital inflow: The Asian experience. Economia lnternazionale 30, 113-120 (February 1977); E. Eshag, Foreign capital, domestic savings and economic development: A comment. Bulle- tin of the Oxford University Institute of Economics and Statistics 33, 154 (May 1971); G. F. Papanek. Ref. 12, 1972; J. Riedel, Economic dependence and entrep- reneurial opportunities in the host country- MNC rela- tionship in Research in International Business and fi- nance, ed. by R. G. Hawkins, p. 241 and comment by W. A. Chudson, p. 263. JAI Press, Connecticut (1979).

16. K. Griffin, Ref. 3. 17. An important issue relevant to this point is whether

causality should be infared from the relationship be- tween foreign capital inflows and domestic savings. On this, see D. C. Dacy, Foreign aid, government consump- tion, saving and growth in less developed countries. The Economic Journal, 85, 549 (September 1975); C. P. A. Bartels. Ref. 12, p. 170; F. Stewart, ref. 12, p. 141, 142; E. K. Y. Chen, Ref. 15, p. 114; and G. F. Papanek, Ref. 3, p. 941.

18. E. K. Y. Chen, Ref. 15, p. 117. 19. B. R. Hazari, Foreign aid, conspicuous consumption and

domestic savings: some theoretical observations. Jour- nal O f Development Studies, 12. 198-199 (January 1976).

20. K. Griffin, ref. 12, p. 161. 21. Ref. 19, p. 199. 22. C. Kennedy and A. P. Thirlwall, Foreign capital domestic

savings and economic development: comment. Bulletin of the Oxford University lnstitute of Economics and Statistics 33, 137 (1971); F. Stewart, Ref. 12, p. 138; K. Griffin, Ref. 12, p. 159; E. Grinols and J. N. Bhagwati, Ref. 14, p. 416.

23. There is much debate amongst political scientists about the 'overdeveloped' nature of the post-colonial state and the extent to which an inflated bureaucracy is a central feature of underdevelopment. See C. Leys, The 'overdeveloped' post colonial state: a re-evaluation. Review of African Political Economy 6, 39-48 (1976).

24. The Sudan was ruled from 1898-1956 as an Anglo- Egyptian condominium. Effectively it was ruled directly by the UK.

25. The Gezira Scheme produced 65%. of the country's cotton,^%. of the wheat, 15%.0f the groundnuts and 12Oh.of the dura (sorghum) between 1955-1968. It is claimed to be the world'r largest farm with nearly 100000 tenants. Originally run by two private com- panies, it was nationalized in 1950. The IMF edvocated its denationalization in the 1960s without success. See M. M. Ali. The Sudan's Economy 19551968 with Spe- cial Reference lo Export Instability, PhD Thesis, Cam- bridge University (1974). It is interesting to note that the Gezira Scheme now accounts for 75%. of the country's cotton production, financial Times (16 February 1978).

26. J. Buxton, Saving the Gezira rcheme. Financial Times (27 February 1980).

27. A. Barnett, A Sociological Study of Gezira , PhD Thesis, Manchester (1973).

28. (a) See also B. Rounon-Tchnigoua, L'Exploitafion de la Force de Travail au Soudan, pp. 40,57. UER d'Economie Politique, Universite de Paris (19771. (b) J. Buxton. Ref. 26. See also, 1. Beeson, Turbulence besets Sudan'a 'Gar-

den of Eden'. Guardian (27 October 1979). 29. (a) For example, the Rahad Scheme which is being

jointly financed with Arab money as is the Jonglei Canal project through the Arab Authority for Development and Agricultural Investment. The Sudan also currently boasts one of the largest sugar projects in the world at Kenana. This scheme has just limped on stream two years behind schedule and at nearly six times the original estimated cost. See also, J. Kiss, Will Sudan be an Agricultural Power? Institute for World Economics of the Hungarian Academy of Sciences, Budapest (1977). (b) A. Lycett, Sudan cuts its dreams down to size. The Times (6 March 1980).

30. National Planning Commission, Economic Survey vari- ous issues.

31. M. Awad, Government Policy towards Private Industry In Sudan. L'Egypte Contemporaine 61, No. 340 (April 1970).

32. J. Lockspeiser, The Sudanese Communist Party and the Government of the Sudan 19451971. Unpublished MSc. Thesis, Edinburgh (1977).

33. The level of dependency of the Sudan on manufactured goods imported from elsewhere is indicated by the fact that despite being one of the world's largest producers of cotton it has to import textiles. The government launched a four phase 15 year programme in 1972 to achieve self-sufficiency in textile manufacture.

34. Ref. 6, p. 26. 35. Financial Times (13 July 1978) and (19 May 1979). 36. J. Buxton, Further talks in London on Sudan debt,

Financial Times (14 December 1979, 19 August 1980). It would be very interesting to elaborate the relationship between the debt repayment problem of the Sudan and capital imports along the lines suggested by K. Griffin, Ref. 12, p. 161.

37. The Sudan IS among the 25 'least-developed countries' in the world with a per head income of only about $120 estimated for 1972, World Bank Atlas Washington, DC (1974).

38. Ref. 6. p. 177. 39. According to the ILO Report the government's 'revenue

performance has been superior by any standard' in- creasing from around 17%. of GDP in the early 1960s to 28% in the early 1970s (p. 177).

40. F. Stewart, Ref. 12, p. 140 and J. Riedel, Ref. 15, p. 240 forcefully point out the drawbacks of using current account deficits to define foreign capital inflows. On the same problem see W. T. Newlyn, Ref. 8, p. 117; U. C. Gulati, Effect of capital imports on savings and growth in less developed countries. Economic Inquiry XVI, 564 (October 1978); Y. K. Hahn, The effect of foreign re- sources on domestic savings The South African Journal of Economics 42 (No. 11, 88 (1974). However, most externally financed development does not show up in the balance of payments because the money is simply transferred from aid donor to contractor or supplier without coming into the Sudan. J. Buxton, Economic strategy gets under way. Financial Times (13 July 1978). In a country like the Sudan where even the most basic statistics are suspect, it is hardly surprising that infor- mation on private sector saving and capital formation is impressionistic. See Ref. 6, p. 495-502.

41. Despite increased revenue, development expenditure had fallen to around 23%. of central government recur- rent expenditure in 1973-1974 from a peak of Wok,. in 1964-1965 (See Table 4).

42. U. C. Gulati, Foreign investment and domestic sav- ings-a comment. The South African Journal of €conomics U (NO. 4). 444 (1976).

43. The lack of adequate infrastructure is illustrated by the statistic that during the period 1969-1970 to 1973-1974 freight train delays as a percentage of total trains run were as much as 99.3%. on average. There are only 333km of asphalt roads of which Khartoum province has nearly half yet the Sudan is the largest country in Africa.

44. The Ansar are loyal to the house of el Mahdi and are represented by the Umma (Nation) party. The Khat- miyvah are followers of the house Mirghani and domi- nate the National Unionist Party (NUP).

45. Ref. 32, p. 147.

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46. For example, the first civilian government was control- led by the NUP but this fragmented into a rural wing and a secular urban wing. A coalition government was then formed between the Umma and the rural wing of the NUP reconstituted as the People’s Democratic Party (PDP) in July 1956. This collapsed in 1958 under pres- sure from mass protests against the worsening economic situation. The PDP then sought reconciliation with the NUP but to prevent them forming the govern- ment the Umma leaders invited General Abboud to take over as President, apparently in the mistaken belief that they would remain part of the government. In the event it was an entirely military affair.

47. The North-South conflict started in 1955-five months before formal Independence with the mutiny of the Southern Equatoria Corps but this spread to become a wider protest against northern influence and control.

48. The Sudanese labour movement managed to maintain an unusually significant political role long after Indepen- dence. See A. E. Ali Taha, The Sudanese Labour Move- ment: A Study o f labour Unionism in a Developing Society, PhD Thesis, University of California, Los Angeles (1970).

49. After the failure of the pro-communist coup the labour movement was purged and incorporated by govern- ment decree into the Sudan Socialist Union. It is not clear the extent to which radical elements survive un- derground.

50. Apart from the July 1971 leftist coup which was suc- cessful for three days, there have been at least two major right wing attempts, in September 1975 and July 1976, and a number of less momentous convulsions the latest being in April 1979.

51. M. G. Smith, Some developments in the analytic framework of pluralism, in Pluralism in Africa, ed. by L. Kuper and M. G. Smith, p. 448. University of Calfornia Press (1969). It is interesting to note that since the spring election of 1978 to the Sudanese Socialist Union, the only legal political organization, President Nimairi has co-opted the AnsarlUmma Party leader el-Sadiq

al-Mahdi sentenced to death in absentia for his involve- ment in the 1976 coup attempt into the Central Commit- tee of the SSU. Likewise Nimairi included Ahmed Ali al-Mirghani of the NUP and a leading member of the Khatimyyah and Hassan Abdall al-Torabi once general secretary of the Muslim Brothers. By the end of 1978 el-Sadiq al-Mahdi had gone into voluntary exile in protest against Nimairi’s support of the Egyptian-Israeli peace agreement.

52. The Professionals Front’s origins can be traced back to the 1930s and early attempts by educated urban groups to get political representation. In October 1964, in the course of widespread opposition to the Abboud military junta, judges, lawyers, university and other teachers, engineers, doctors, students, workers and Gezira ten- ants formed themselves into a ‘Professionals Front’ and called a general strike. The Professionals Front then combined with a l l the political parties to form the United National Front until the military regime was defeated. The Professionals Front was well represented in the transitional civilian government and was able to negotiate for the creation of 15 special graduates (i.e. post-secondary) constituencies for the election of 1965. The new government of Mahgoub was naturally eager to placate educated urban interests.

53. Ref. 6, pp. 115-116. 54. Ref. 6, p. 116. The state bureaucracy numbers about

400 000 having been 176000 ten years ago, financial Times (13 July 1978).

55. Ref. 6, p. 181. 56. 1. G. Shivji, Class Struggles in Tanzania, Monthly Review

Press, New York (1976). There would appear to be certain parallels between Tanzanian and Sudanese de- velopment with regard to the expansion of the state bureaucracy and indebtedness.

57. L. Richards, The context of foreign aid: modern im- perialism. The Review of Radical Political Economics 9, 59 (Winter 1977)

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