Export Revenue vs. Official Exchange Rate: Insights into Policy Directorate Circular No. 1/2025

On Aug 4, 2025

Habib Allah Abdelwahab

Anyone reading the recent circulars issued by the Central Bank concerning export policies and procedures, in light of the current state of foreign trade and the fragile economic conditions the country is enduring, will realize that the Central Bank has, intentionally or not, missed many opportunities to achieve the most valuable objectives of its monetary policy: stabilizing the exchange rate and securing a reasonable foreign reserves buffer. It also becomes clear that the Bank has, quite blatantly, overlooked the complexities and realities of the present and future of the country’s foreign trade. The consequences include structural distortions in the very framework of foreign trade and the Central Bank’s diminishing influence over the management of monetary policy—particularly when we know, as decision-makers within the Bank do, that most hard currency in economic circulation (especially in commercial activity) has been, for quite some time, outside the banking system and thus beyond the Central Bank’s reach. One of the most prominent results of these imbalances is the ongoing collapse in the value of the national currency.

Here, I intend to discuss Policy Directorate Circular No. 1/2025, the latest directive issued by the Central Bank of Sudan on export controls and procedures.

Concepts and Principles of Discussion

This discussion focuses on paragraph (6) of the circular, which concerns keeping export proceeds in the exporter’s account for 21 days before the Central Bank offers to purchase them at its declared official rate. The discussion is framed around the following concepts and principles:

The exporter, by nature of commercial behavior, seeks to maximize profits within the boundaries of laws governing export activity.

The official exchange rate declared by the Central Bank has, for over three years, remained approximately 25% to 30% below the free (parallel) market rate.

Exporters procure their goods from the local market, priced at the free market rate, and seek a return that compensates for the actual cost of exports calculated at that same rate.

The disparity between the two rates has created several issues that directly and negatively affect export revenue inflows and the export sector as a whole.

Exporter Options

The circular leaves exporters with a range of options: from devising new business models like dual-function companies, to risk aversion and exiting the market altogether, or resorting to evasive tactics using temporary companies and withholding export proceeds. The negative impact of the official exchange rate has also spilled over into the expatriate sector, whose remittances are comparable in value to gold exports.

Dual-Function Companies

The first option involves exporters forming companies that engage in both export and import activities simultaneously to benefit from their export proceeds and avoid the pitfalls of the official exchange rate. It’s widely known that the official rate is at least 30% lower than the rate determined by market forces—a terrifying margin in the business world that inevitably leads to capital erosion. However, this dual-function model is structurally harmful. It distorts the foreign trade framework and weakens overall performance in both activities, since each requires specialization to ensure economic efficiency. Nevertheless, under current exceptional circumstances, such companies are the only ones that can continue operating.

Specialized Export Companies

The second option applies to companies solely involved in export. The circular offers these companies a narrow window of just 21 days in which they must navigate between “opportunity and threat”: the opportunity to sell proceeds to an importer (at market price) and the threat of Central Bank confiscation at the official rate, which as mentioned is 30% lower at best. Since the opportunity is uncertain and the threat is guaranteed, these companies are forced to choose between two paths:

Exit Export Activity: This is a rational move for investors everywhere. Indeed, most specialized exporters exited the Sudanese market in the past two years due to fear of losses from the official rate. They relocated to safer countries with lower risk and greater trade opportunities.

Temporary Companies (Paper Companies): Other companies, still active in exports, operate through temporary front companies that comply with regulations of the relevant authorities (Central Bank, Ministry of Trade, Customs, Ports, etc.) but premeditate non-repatriation of proceeds. The proceeds are left for the original (capital-owning) companies. These temporary companies knowingly accept being legally targeted by the Central Bank, which investigates, pursues, and bans them without actually recovering the proceeds. As a result, the revenue stays with the real exporter but outside the banking system. These paper companies are easy to replicate under existing rules, allowing new ones to spring up as fast as the Central Bank bans the old—perpetuating procedural chaos, all due to fear of the official exchange rate. That said, legal violations carry real costs, which will eventually force original exporters to exit the market.

Expatriate Savings

In early 2021, the exchange rate was fully liberalized to match the parallel market rate. Although this bold move raised concerns, it yielded highly positive results: it neutralized currency speculation and attracted large financial transfers from expatriates. The economy achieved a rare state of general equilibrium not seen in two decades. According to the Central Bank’s 2021 financial report, expatriate remittances jumped to $1.3 billion, up from $0.43 billion in 2020 (less than half a billion dollars). However, they declined to $1 billion by the end of 2022 and likely shrank even further in 2024 and the first half of 2025. Sadly, it is now evident that the situation has reverted to pre-2021 conditions. Most expatriates have stopped transferring savings through the banking system—opting instead to send money to countries where their families relocated due to war, or to use unofficial channels. The primary reason: the official exchange rate is simply not rewarding.

The Unattractive Official Exchange Rate

Despite the Central Bank’s diligent efforts to implement controls and procedures to boost foreign currency inflows into the banking system, the outcomes have been counterproductive. The unattractive official exchange rate—combined with the 21-day surrender rule—has triggered direct negative consequences on export activity and revenues. These include the rise of dual-function companies, the exodus of specialized exporters, the proliferation of paper companies, and the general retreat of expatriates from the official financial system.

$1.5 Billion in Export Losses Due to War

The Central Bank must recognize that Sudan’s trade balance was already severely unbalanced before the war. The current conflict has only worsened this state and placed enormous pressure on the national currency. If left unchecked, this pressure will lead to total collapse.

In the export sector, the Bank is well aware that several key commodities have dropped out of the trade balance for at least an entire season. These include gum arabic, live and processed meat, and groundnuts—all of which are now produced and marketed in areas under militia control. These products constitute about 28% of total exports, with an average value of $1 billion, according to Central Bank data from 2021, 2022, and 2024.

As for sesame, it is on the verge of exiting the global market this season due to two main reasons: the rising cost of production and the strong entry of Brazil into the Chinese market—at the expense of African suppliers, especially Sudan, which holds the largest share among African exporters to China. According to Central Bank export data, sesame represents 12% of exports, nearing $500 million in value. If competitiveness against Brazilian supply doesn’t improve next season, the trade balance will deteriorate further in line with sesame’s contribution.

While gold exports offer a potential lifeline for the trade balance and national currency strength, scaling up gold output requires long-term investments that won’t yield results for years.

The Country Needs an Additional $2.5 Billion in Imports

Export problems coincide with a projected sharp rise in import needs—by no less than 30% over current volumes. This stems from logical and practical factors, primarily the expansion of government-controlled secure areas. Markets now face urgent and large-scale demand for consumer and capital goods—most of which were destroyed or disrupted during the war. This urgent demand translates into real demand for foreign currency, derived from the need to import these goods.

Using the average import volume from 2021, 2022, and 2024 as a benchmark, and factoring in fuel imports (which make up 20% of all imports), along with imports of sugar, wheat, flour, medicine, manufactured goods, foodstuffs like cooking oil, transport equipment, industrial inputs, and construction materials, we estimate that Sudan will need at least $2.5 billion in imports. This figure excludes military-related imports, for which no data is available but which undoubtedly represent a significant share.

Projected Trade Deficit: Around $8 Billion

Taking into account the above facts and examining them alongside Central Bank statistical data from previous years, we see that the average trade deficit ranged between $3 and $5 billion. Based on the emerging facts discussed here, I expect the trade deficit to reach approximately $8 billion. If no urgent and appropriate measures are taken, the national currency will continue to fall to alarming levels.

Proposed Solutions

The economic challenges facing Sudan, worsened by the ongoing war, require a high degree of sensitivity and seriousness—qualities not lacking among decision-makers at the Central Bank and the Ministry of Finance and Economic Planning. Nevertheless, I offer the following policy suggestions to the Central Bank in hopes of contributing to a rational and effective monetary strategy, assuming no unseen obstacles exist. I am confident the current leadership at the Bank will consider them:

Extend the waiting period for proceeds in the exporter’s account from 21 days to three months to reduce fear and risk.
Move the exchange rate closer to the free market rate to make it attractive for exporters and expatriates alike.
Collaborate with the Ministry of Finance to provide tax incentives to exporters in proportion to their export volumes, as is done in similar economies, instead of treating them with criminal suspicion.
Offer additional incentives to expatriates to increase their remittances through the banking system.

Habib Allah Abdelwahab – International Trade Expert

Shortlink: https://sudanhorizon.com/?p=6807