Sanctions and Targeted Divestment: Still Needed
On August 14th in this space, Ibrahim Adam argued for the removal of United States sanctions and an end to the international targeted divestment campaign meant to turn the screws on Khartoum. The argument is convincing only if you accept Mr. Adam’s implied premises: that the war in Darfur is merely a result of economic deprivation, poverty automatically begets widespread violence, and a well meaning Omar al Bashir is ready to “hasten changing Sudan to an equitable, democratic country” but prevented from doing so by misinformed Westerners. Each of these myths unravels upon closer inspection. Contrary to Mr. Adam’s claims, smart economic sanctions and targeted shareholder engagement and divestment represent some of policymakers’ best tools for peacefully altering the NCP regime’s murderous behavior.
First, the facts. Poverty does not automatically beget violence, nor does its absence ensure peace. Beninese, for example, enjoy a GDP per capita $1,300 lower (at an estimated $1,100) than their Sudanese counterparts, but somehow manage to avoid unceasing large-fatality civil wars. Furthermore, the war in Darfur reached its staggering death toll primarily because al Bashir escalated the conflict, arming janjaweed militias to attack civilian populations. In a relationship exactly inverse to that described by Mr. Adam’s thesis, the war in Darfur was bankrolled by the very oil-driven foreign direct investment (FDI) inflows he praises.
Mr. Adam would also do well to examine why the US sanctioned Sudan in the first place. It was not (initially) “to do the right thing by Sudan,” but to do the right thing by the US’s own national security interests. At the time, the NIF regime was enthusiastically playing host to Osama bin Laden’s al Qaeda and its training camps. In return it received ample (off-budget) resources for the security agencies that kept its stranglehold on power. The al Qaeda-derived cash hardly benefited Sudan’s populace; the North experienced an unprecedented political crackdown, while the civil war with the South became even bloodier.
While US sanctions have caused myriad headaches and missed business opportunities for the NIF/NCP regime, contrary to Mr. Adam’s claims, they have done little to further the plight of ordinary Sudanese. Then and now, US sanctions provide generous exemptions for food (which apparently even includes Coca-Cola’s syrup) and medical products to enter the country. It is hard to take seriously Ibrahim Adam’s claim that “”˜excess’ deaths from US sanctions… probably runs into the hundreds of thousands.” Surely the government of Sudan, which provided the small arms and air force behind the initial and most violent 2003-2004 stage of the war (not to mention the North-South civil war), bears more direct responsibility for “excess” deaths.
The dawn of the oil era in 1999 inaugurated a period of rapid economic growth, and Sudan’s elites rushed to cash in. Skyscrapers, five-star hotels, and golf courses serving the wealthy have sprouted in Khartoum, but the poor – not by accident – have stayed as impoverished as ever. Despite ballooning national budgets, government spending on the poor remains paltry even by regional standards. The European Coalition on Oil in Sudan noted in an April 2008 report that, despite Sudan’s strong economic growth, its pro-poor spending stands at only 3% of GDP, compared with an African average of 7.5%. When they do happen, infrastructure improvements are usually geared towards areas populated by elite groups. For example, Sudan’s recent forays into dam building at Merowe and Kajbar will simply connect to the existing grid, which only services a small area of the country, rather than provide power to new areas. Of course, these dam projects have led to some unwelcome developments, too: the deaths of dozens of civilians, the uncompensated displacement of hundreds more, and severe environmental degradation.
Most of government’s oil revenues – up to 70% by one former finance minister’s reckoning – go towards military expenditures. In 2000, al Bashir openly stated his intention to use oil revenue to build a domestic arms industry. The following year, the government officially spent US $349 million, or 60% of the 2001 oil revenue, on the military. The government of Sudan’s military budget doubled in the years following the first oil exports. Since 1999, Sudan has failed to diversify away from extractive industries. Oil comprises roughly 90% of Sudan’s export revenues. Much of the rest is made up of large-scale commercial agricultural exports to the Middle East. As a recent New York Times article noted, were those exports reoriented towards Sudan’s neediest, they could nearly eliminate starving Darfur’s reliance on international food aid.
At the nexus between FDI, petroleum, and weapons lies a handful of powerful (chiefly Asian) multinational corporations. Operating where most Western firms fear to tread, these companies happily turn a blind eye to Khartoum’s abuses, effectively handing the NCP and its military an oily carte blanche. Most provide little in the way of employment or economic benefits for average Sudanese: upwards of two-thirds of the workforces of some oil companies are foreign. Some of these companies engage in human rights abuses more directly, facilitating weapons transfers and conspiring in the displacement of civilians to make way for oil and dam projects. Although many of these “highest offenders” are Chinese, Indian, or Malaysian state-owned enterprises, they nevertheless rely on Western capital to finance and expand their operations, listing on stock and bond markets around the world.
Therein lies the point of leverage for Western governments and investors. FDI, of course, is an amoral instrument that can just as easily drive the growth and democratization Mr. Adam envisages as reinforce and widen existing inequalities. Khartoum’s existing business arrangements largely play the latter role for the simple reason that it further entrenches the regime in power. But in spite of the government’s abusiveness, companies can change that calculus. It is here that targeted shareholder engagement and divestment can yield fruitful results.
A case in point is the Canadian mining company La Mancha Resources. After months of sustained shareholder pressure, La Mancha, the primary foreign player in Sudan’s mineral extraction industry, took a comprehensive set of steps to improve the company’s business practices in Sudan and aid marginalized populations in Darfur. La Mancha agreed to:
“¢ Commit to refraining from new investment in the country until a peacekeeping force consistent with United Nations Security Council Resolution 1769 has been deployed in Darfur with the full compliance and cooperation of the Sudanese government;
“¢ Significantly increase funding of humanitarian efforts in Sudan by contributing to projects in Darfur. This contribution comes in addition to the existing humanitarian efforts the company has been supporting for several years in its area of operations;
“¢ Send its president to personally meet with Sudan’s then-Minister of Energy & Mining (now Minister of Finance), Dr. Awad Ahmed al Jaz, to discuss the situation in Darfur and to encourage the government to fully comply with the implementation of UNSCR 1769;
“¢ And submit to a full, independent third-party review of La Mancha’s security apparatus, environmental impact, hiring practices and community development programs.
Though exemplary, La Mancha is not acting alone – more than ten other corporations (of diverse national origins) have either taken similar steps to ameliorate the situation in Darfur and their own business practices, or have left the country entirely. (It should be stressed that a responsible corporate actor that remains in the country, like La Mancha, is in most cases preferable to a reformable firm that leaves and opens the door for one with fewer scruples.) Whether due to the divestment movement, the increased shareholder risk – reputational and operational – that attends operating in Sudan, or a combination thereof, circumstantial evidence suggests the stock markets punish those firms that refuse to behave responsibly. A recent Sudan Divestment Task Force (a project of the Washington, DC-based Genocide Intervention Network) study found “highest offenders” in Sudan underperformed their peer group average by 45.97% over one year, 22.23% over three years and 7.22% over five years.
Still, a handful of players in Sudan’s oil industry remain resistant even to dialogue. But that number now looks set to shrink as the US’s Sudan Accountability and Divestment Act (SADA), signed New Year’s Eve of 2007 takes effect. In addition to encouraging targeted divestment at the state and municipal levels, SADA bars federal contracts (and allows states to act likewise) with “highest offenders” that refuse to take substantial action, forcing multinationals to choose between business with America and the insidious revenue streams they provide for Sudan.
Naturally, Khartoum has struggled to break free from the tightening economic noose. Of the sanctions added and enforced by the Bush administration, those restricting the dollar-denominated trade of oil have proven most nettlesome. The government of Sudan has repeatedly attempted to shift to trading in Euros, but has yet to make the transition. European sanctions in this vein could do much to persuade Khartoum of, say, the relative desirability of non-military solutions to the deep-seated inequality between the country’s center and periphery.
Economic pressure, of course, mainly affects one party – Khartoum – while leaving other nefarious actors, such as N’djamena, untouched. But although Darfuri rebel groups and the SPLM do not always act with the best of intentions, the repressive NCP regime unambiguously bears the greatest share of responsibility for the sorry state of Sudan. Economic pressure therefore remains vital to shifting this brutal but ultimately pragmatic regime towards a more peaceful and equitable relationship with its own citizens. Short of a dramatic NCP policy shift, lifting sanctions and ending the divestment movement should remain out of the question.
Daniel Millenson co-founded the Sudan Divestment Task Force, a project of the Genocide Intervention Network.