A recent report, “Oil or Nothing: Dealing with South Sudan’s Bleeding economy” notes that South Sudan secured prepayment credit facilities during the civil war. This involved advance loans from “a small group of commodity traders and commercial banks, piling up debt while hiding the country’s finances ever further from sight”.
While cash flowed into the government, various high-ranking officials diverted large amounts of the revenue. As a result, South Sudan often struggles to pay salaries.
The International Monetary Fund (IMF) provided around $550 million in a process starting in late 2020. It only secured minor concessions.
The ICG report called on foreign states to bring more pressure to bear to reform South Sudan. The government should direct oil revenues back onto the books, with public disclosure of debt and revenues.
The peace deal signed in 2018 could help, as it includes reforms designed to combat corruption and build more accountable public finances. But, for the most part, the new government has slow-rolled or evaded implementation.
South Sudanese people have suffered terribly from the failure of their leaders to forge a peaceful foundation for the new country. Just two years after independence, the country fell into a civil war that raged for years and left up to 400,000 dead, a shocking toll in a country of only some 12 million.
Peace talks led by neighboring leaders resulted in the 2018 agreement and a power-sharing arrangement between President Salva Kiir and his main rival, Riek Machar, though an insurgency continues in the south. But the government is riven by internal power struggles and its reluctance to lift the shroud from upon the oil economy is blocking reforms that could sustain a broader political settlement.
Oil has always been central to South Sudan’s political fortunes. The landmark 2005 peace deal that paved the way for its secession from Sudan granted Juba 50 per cent of the South’s oil revenues, pumping billions into the new semi-autonomous government as it prepared to stand on its own.
The easy money quickly built a vast patronage system that helped unite rival camps but also papered over the country’s deep ethno-political divisions. This largesse abruptly ended as President Kiir moved to consolidate power after independence, sidelining his rivals and firming up his grip on the oil economy.
Its result was to fracture the country into warring ethno-political camps that continue to be a source of instability despite the formation of a unity government in 2020.
The report also called on donors to engage with commodity dealers and banks, who have provided critical financial support for South Sudan. The threat of regulation should be used to force traders to disclose payments. Banks and insurers should also be threatened with legal and reputational exposure.
A dispute between President Salva Kiir and vice president Riek Machar in 2013 sparked accusations of an alleged coup and fed into a civil war. The two agreed to a peace deal in 2018 and a unity government emerged in 2020.
The state used IMF funds to pay government soldiers, the ICG report said, but not forces loyal to Machar.
The pot of oil revenues claimed by those on the top South Sudan’s system dramatically raises the stakes of holding power, accentuating the winner-take-all nature of South Sudanese politics,” the report said.
The president continues to control the oil funds. The constitution requires 5% of oil revenues go to oil-producing areas, but in reality often falls short.
Given the oil revenues, South Sudan has done little to develop other parts of its economy, the ICG said.
Also, the report put total production at 150,000-170,000 barrels per day. Of this, 55-60% of proceeds go to the three producing companies. Another 28,000 bpd goes to Sudan to pay for pipeline use and a $3 billion compensation package. South Sudan expects to have paid off the compensation obligation by the end of the year.
This leaves South Sudan with 35,000-45,000 bpd.
Kiir has made various statements about dedicating oil flows to projects. In 2019, for instance, he set aside 30,000 bpd to support road projects with Chinese companies. He has also raised the possibility of dedicating another 5,000 bpd to paying salaries.
Other calls on the fund include commercial loan repayments, to Qatar National Bank, the Africa Export Import Bank and Sahara Energy. It owes $650 million to the Qatari bank, the ICG said, and at least $1 billion to commodity traders under pre-payment agreements.
South Sudan’s production is declining and recovery figures are low. One novel option suggested by ICG was that donors could provide conditional budgetary support to leave the oil in the ground.
The country’s revenues are relatively small. Donors are already working in the country. Furthermore, the oil revenues are helping entrench the conditions for conflict.
Donors could demand transparency in the spending of such funds. They could also encourage Juba to consider alternatives, such as agriculture or renewable energy
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