Sudan - The ten year plan of economic and social development 1962-1971 (Vol. 5 of 5) : Annex C : industry in the Sudan

P]LE ;.COPY Annex AF1 4 VOL. 5 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INDUSTRY IN THE SUDAN October 30, 1963  EQUIVALENTS IS. 1.00 = $2. 8716 $1. 00 = iS. 0345 1 feddan = 1. 038 acres = 4; 200 square metres 1 kantar of seed cotton = 311.85 lbs. = ca. 100 lbs. of lint  AE'iNEX C INDUSTRY Public Sector Manufacturing 1. The Government has undertaken a number of projects in the manufacturing sector. These may be summarized, along with their cost as follows: TABLE 1 Government Manufacturing Projects Total Investment made Investment in Estimated prior to 6/61 Plan Period Investment (in , millions) Direct Manufacturing Sugar Factories Guneid 1.9 7T,9 9.8 Khashm El Girba - 10,1 10.1 Total - Sugar 1.9 18.0 19.9 Tannery 0.4 0.6 1.0 Cardboard Factory 0.2 0.7 0.9 Food Processing Plants Canneries at Iau & Karima - 1.4 1.4 Onion Dehydrating Plant- Kassala 0.5 0.5 Mviilk Powder Plant- Babanousa OA8 0.8 Total - Food Processing- 2.7 2.7 Total Investment - Direct Manufacturing 265 22.0 24.5 Other Investments Industrial Bank - 2.5 2.5 Industrial Research Institute - 0.3 0.3 New Equipment for Mint and Stores & Equipment Dept. - 065 065 Total - Other _ 3*3 3.3 Investments Grand Total - Government Expenditures during Plan Period 265 25.3 27.8  2. Government proposes to make total investments of E25.3 million during the plan period. All of the manufacturing projects included were known in 1961 and it is not contemplated that additional ones will be added. The projects proposed should all be completed during the first half of the plan; continuing Government investment in industry is not provided for. 3. To manage these various governmental manufacturing endeavors, a new Board has been established; until now the projects have been supervised by the Ministry of Commerce, Inclustry and Supply. Under the new system, it is planned that the Industries Board will function as an autonomous agency, managing the manufacturing companies until such time as the companies are attractive enough to be sold and turned over to private enterprise. The mission expects that it will take a reasonable period before the Board will be adequately staffed and be in a position to function effectively managing the various enterprises. It also recommends that no effort be spared in obtaining a staff of individuals with extensive broad business experience connected with large enterprises and with a feeling for scientific managerial techniques for service with this Board. In the near future, the Government will have over E25 million invested in business; it must have overall managers experienced in business, not only technicians and administrators, to maximize the benefits from this investment. Although certainly the experience of manage- ment could be built up in time in the Sudan, perhaps the best investment which can be made now is the employment of managers who will be able to avoid scme of the usual pitfalls rather than acquiring known experience the hard way. 4. One vital requirement for modern, efficient management is accurate information. The common term by which all inputs (hours of labor and pounds of raw material, for example) can be added together and compared with the outputs is the financial one. Accurate financial information is absolutely necessary to provide management with the tools with which to make decisions. The Government manufacturing enterprises need to install adequate cost and accounting procedures and systems to provide management with the financial information it requires to run an efficient enterprise. The information needed is not just property records and financial statements available long after the period involved is past but cost and other data which is available quickly to allow management to make intelligent decisions on a day-to-day and month-to-month basis. 5. A discussion of each of the sectors and the projects within the sectors follows: Sugar Factories 6. Sugar imports in the Sudan have increased from about 100,000 tons/year in the early 1950's to over 150,000 tons in 1961. Before the recent rise in the international sugar price, the net cost of sugar imported  - 3 - to the Sudan was E32 per ton. Thus, in 1961, almost E5 million of foreign exchange was used for purchasing sugar. This provided the motive for entering sugar production. Two mills and adjacent planned and supervised cane growing areas were planned, each with an initial rated capacity of 60,000 tons per year (4,000 tons cane per day). 7. The first mill has been built at Guneid; the land was formerly used for cottcn cultivation and is irrigated by water pumped from the Blue Nile. There are substantial indications that the area is not very suitable for sugar cultivation and would not have been recommended by agri- cultural research. The area is dry, water needs are high as are the pumping costs, cane yields per acre are not extraordinary and sugar content in the cane is modest. Although specific cost data is not yet available, it would be doubtful if the cost of sugar production including adequate depreciation will compare favorably with normal wyorld sugar market prices, and even more doubtful if a reasonable profit on the investment could be earned. Costs at Guneid will probably be higher than those at Khashm El Girba as noted later even before allowing for the past benefits of the cotton which was grown in the area. 8. The plant is complete and the area of land devoted to cane cultivation is being increased each year; by 1965, the plant should have sufficient raw material to run at capacity for the full milling season. Only about 10,000 tons of sugar were produced in the millts first season; operations were hampered primarily by difficulties with mechanical cane harvesting and handling equipment. Due to these difficulties, almost half the cane was harvested by mere manual methods by contractors; before investing in a great deal more mechanical harvesting equipment either at Guneid or at Khashm El Girba, it would be desirable to analyze the costs of the two different methods of harvesting including the cost of capital for the equipment needed; it might be that manual harvesting by contractors is more economic. 9. Construction of the second sugar mill started in the spring of 1963 at Khashm El Girba. The mill will also have a capacity of 60,000 tons and should be ready in time, if not too soon, to process cane from the agricultural scheme. Agricultural test station results indicate that cane yields per acre and sugar yields from the cane should be more favorable than at Guneid. W-ater for irrigation will come from a dam reservoir on the Atbara River and will be gravity flow most of the year, although pumps will be used to lift the water from the reservoir to the canal system at certain times, thereby increasing the useful water storage provided by the reservoir. Cost of sugar production  v, 4 - has been estimated at f33 per ton excluding depreciation and interest and at E40 per ton (i.e. 5.3 U.S. cents a pound) including depreciation and interest, but without allowing for profit. 10. By the end of the 10-year plan, production of sugar at the two mills should reach the capacity of 120,000 tons per year. The cost of sugar from these mills, however, will probably be higher than the long-run world market price for sugar and profitability on the investment based on selling at world sugar price levels will likely be negative. The mills might, of course, be enlarged to provide more sugar; a capacity totaling 150,000 tons is mentioned in the plan. Before enlarging either of the present mills, a thorough investigation needs to be carried out to determine if enlargement is more desirable than constructing other facilities elsewhere. The present mills are large and definitely of an economic size. The cost of the sugar should not be adversely affected by their size provided they are run efficiently. The problem of the expected high costs for sugar lies in the agricultural part of the operation. Cane transport costs would be adversely affected by mill enlargement, and sugar recoverable from cane is reduced as time between cutting and milling increases. Following this, even if cane is grown in the general vicinity, at some point it becomes more economic to rnultiply mills rather than enlarge them. Further, an investigation in the agricultural aspects might determine more favorable areas for cane cultivation in the Sudan; if this is the case, the next mill might be located in such an area. Tannery 11. The Government Tannery at Khartoum was completed and went into production in November, 1961. It has a capacity of about 5,000 tons annually and was financed under an agreement between the Sudan and Yugoslavia; the latter supplied the plant, technical know-how and personnel for technical supervision up to the present time. There had been a small private tannery in the Sudan which has since shut down; Government states that it undertook the new tannery only because the private parties were not aggressive enough in increasing production. There is, of course, some tanning on the cottage level in the villages. 12. Tanning would appear to be a natural industry for the Sudan. In the past, Sudan has exported substantial quantities of hides and imported finished leather. A modern tannery can be of economic benefit first in fulfilling Sudan's own needs for leather (now stated to be about 150 tons/year); in addition to this, it can also provide means to upgrade and increase the value of exports in a reasonably labor-intensive industry.  - 5 - 13. The plant is operating and filling the needs of the Sudan for finished leather; quality is good. In addition to this it is exporting, but primarily semi- finished rather than finished leather, and the financial benefit of the former is not as great as the latter. No specific cost data could be obtained. Looking ahead, this plant although perhaps oversized, with good management and aggressive marketing especially in exports, could provide a great benefit to the Sudan. Cardbcard Factory 14. The Government Cardboard Factory at Aroma (near Kassala) was completed and trial runs started in January, 1963. As raw material, the plant is designed to use cotton plant stalks which are readily available from nearby agricultural areas. This plant was also built under the Yugoslav credit and technical assistance during plant start- up is provided under the agreement. The plant is simple and for its type its capacity of about 4,000 tons annually (three shifts) is economic. Planned production in 1970/71 is only half this (2,000 tons annually) however, and the present demand is less still. 15. The cost of the basic raw material should compare favorably with other raw materials used for cardboard manufacture. Chemical costs, however, are expected to be high because of high transport costs as will be overhead costs because of low equipment utilization. The plant is still in the midst of start-up and no product had been sold through April 1963. Food Processing Plants 16. The two canneries, the onion dehydrating plant and the dry milk plant are to be financed under an agreement reached with Russia in about 1961. The plant concepts have been agreed to. Each of the canneries is planned to allow for the production of 3 million tins or about 1,200 tons annually. The output of the onion plant is planned to be about 5,000 tons per year while the milk plant will have a capacity of 25 tons of milk a day, or about 830 tons of milk powder per year. Virtually no information was available to the mission on these plants. There is a real question whether sufficient agricultural produce will be available for the plants to operate at a reasonable utilization factor and whether adequate markets for some of the products can be developed in a reasonable time.  -6- Industrial Bank 17. This Bank started operations in the second half of 1962 and has been successful in developing projects and making loans since that time. Advice on and supervision of bank operations are provided effectively by a small expatriate staff (4 people) and the bank's successful operations for the coming few years will depend on this staff. In the long run, of course, Sudanese will be trained to take over all management levels. 18. A majority of the expatriate staff, however, is being replaced as contracts are terminating. Qualified replacements will be needed. The bank's future will be built on the foundations provided by these personnel and it is well worth the relatively small extra cost for an especially qualified individual over just an average person. For Sudanese staff, the bank has had personnel seconded to it from various Government Departments. The development bank might be faced with a large turnover of Sudaniese if these individuals are returned to their original departments. This would be a blow as these would be the individuals who had been trained to eventually operate the bank. For efficient management, Sudanese employed by the development bank should be permanent employees and employment should be on a career basis (personnel, of course, would be able to resign to accept more desirable positions and could be discharged for inadequate performance). Some individuals with actual experience in industry should also be employed by the bakc; these men would know the problems of industry, some of the solutions to the problems, and how the bank could best contribute to industrial development. 19. Looking ahead, the Industrial Bank should be in a position to make a large contribution to the development of industry. Although there may be a few large plants which might call on foreign capital, there will be many small enterprises established and expanded instages to manufacture primarily light consumer goods. These smaller enterprises should eventually grow and be the backbone of Sudan industry. And it is these smaller enterprises which the Industrial Bank is especially designed to assist. 20. The Industrial Bank, however, is rapidly approaching the point where it will need more resources. These resources should preferably be freely available and should not be tied to supporting purchases only in particular countries. Although the Industrial Bank is Government-owned, the real issue is whether it is well managed and to date it has been. The Industrial Bank appears suitable consequently as a vehicle for loans to the industrial sector except for such larger projects as are discussed later, or developed in the future.  Industrial Research Institute 21. The Industrial Research Institute was discussed in chapter VI of the main report. Certainly most of the functions to be performed are valuable and financial assistance to undertake these functions would make a desirable small project of aid. At the same time, consideration should be given as to whether a separate Institute is the most desirable method of accomplishing the functions or wvhether the functions could be performed within an existing organization such as the Industrial Bank or perhaps the University. New Equipment for Mint and Stores and Equipment Department 22. This part of the 10-year plan was not reviewed specifically. Equipment of this type should probably be financed out of the normal government budgets. Private Sector Manufacturing in Plan 23. The total private investment in manufacturing in the plan is estimated at E51 million. In addition to this, under the Government Sector, the Industrial Bank is expected to require E2.5 million which, in fact, may be loaned for private industry expansion. Therefore, the private sector would be expected to invest a total of about T53.5 million. 24. In the first year of the plan, 1961/62, it is estimated that private manufacturing investment amounted to E7.7 million. This rather high figure was the result of a substantial investment in the new textile mill and certain other "lump" investments. The future prospect for investment might be as follows: TABLE 2 Private Investment Projections E ii1illions Investment over 10 years per plan 53.5 Less: Investment made first year 7.7 Balance over last nine years 778 Less: Lump investments in petroleum refining, textiles, cement 9.0 Balance for normal projects over nine years 36.8 Average Annual Investment over nine-year period in normal projects and any lump projects not yet committed. 4.1  - 8 - 25. With a proper investment climate, a forecast of average investment of about