For the crowds that lined the streets of Juba on July 9 to celebrate the birth of the world’s newest nation, South Sudan’s independence was the triumph most had never dared believe would happen. But as the dust settles in the capital, the reality of building a nation from scratch has finally begun to sink in.
It has been six years since the Government of Southern Sudan (GOSS) was established following a peace deal with the north. In that time, the south has taken major strides towards autonomy, says Lise Grande, executive director of the UN Development Programme (UNDP) in South Sudan, recalling the parlous state of affairs in 2005.
But with official independence, the hard work has in a sense just begun. “However far we’ve come in the six years of transition, it should not be underestimated how hard it’s going to be or how long this is going to take,” says Grande. “We’re looking at one of the largest state building efforts since World War II that spans everything from delivering basic goods to creating an entire legal system.”
Despite its vast natural resources, South Sudan remains one of the poorest places on earth. Five decades of conflict have meant that basic infrastructure for power, water and communications is desperately lacking. Illiteracy among the population of 8 million is more than 70%, and infant mortality in 2010 was the highest in Africa.
DEAL OR NO DEAL
A shadow has also been cast over independence by an on-going armed conflict between the Sudan Armed Forces (SAF) and former members of the south’s ex-rebel fighters Sudan People’s Liberation Army (SPLA), in two disputed oil-rich border states – Southern Kordofan and Abeyei. The conflict threatens to push the two countries back into full-blown war, according to the International Crisis Group. Khartoum declared a two-week ceasefire in late August, but senior UN officials reported on September 7 that air raids on civilians in Kordofan were continuing, urging an immediate end to the attacks.
But even if hostilities cease, north and south will still have to reach an agreement on oil – the main source of revenue for both economies. Over three-quarters of Sudan’s oil reserves lie in the south, with most of the rest in the disputed territories; and while the south has the oil, the north has the infrastructure needed to process it and transport it. The only oil refineries in the vast territory are found in Khartoum and Port Sudan, connected by thousands of miles of pipes that transport the oil from the south to the north. The Bank of Sudan estimates that Khartoum’s income was 50% oil-based at independence. Both the IMF and World Bank calculate that 98% of South Sudan’s revenues come from oil.
When the CPA was signed, both countries agreed to split revenues 50/50, but that agreement expired upon independence. Since then, the north has demanded the south pay transit fees of $22.80 a barrel to compensate for lost revenues. Juba officials claim that these fees would account for up to 20% of the value of each barrel of oil sold by South Sudan. It is also demanding international compensation for the $15 billion President Omar al-Bashir claims Sudan will lose by 2015 as a result of the deal; the IMF estimates Sudan’s losses will be closer to $5 billion.
Although the south managed in July to ship its first consignment of 1 million barrels of oil to China National Petroleum Corporation and insists it will continue to do so, President Bashir has threatened to shut down the pipelines if the south does not comply with Khartoum’s demands.
Officials in Juba claim the price set for transit fees is extortionate; they argue it would amount to as much as 20% of the value of oil sold by South Sudan. “The amount of money Khartoum wants us to pay is unreasonable,” says David Loro Gubek, undersecretary at the ministry of energy and mining. “If Khartoum insists that unless we pay they are not going to allow us to use these things, then the Republic of South Sudan may have to take a very sharp decision that may not be in the interest of the companies.”
The government says it is exploring alternatives, including building its own pipeline through Kenya, thereby by-passing the north, despite widespread doubts among analysts about the feasibility of such a project.
Kathelijne Schenkel, programme coordinator at the European Commission on Oil in Sudan (ECOS), says neither side can afford to prolong a deal in the long term: ECOS studies suggest Sudan and the south may only have another 10 years of proven oil reserves. “Sudan has estimated proven reserves of 6.4 billion barrels. Exploration is going on in large areas, and we don’t know what will be found, but the current supply is finite, so it’s not in either country’s interests to not make a deal,” Schenkel says.
A CLEAN SLATE
Despite concerns over oil revenues, Juba will nevertheless benefit from a substantial debt deal which will write off the former united Sudan’s $37.98 billion in external debt, $30.8 billion of which is in arrears.
The debt, which stretches back decades, is split between public- and private-sector creditors. Multilaterals comprise 15% of the total, including $1.45 billion to the World Bank and $1.54 billion to the IMF, while private creditors account for $5.9 billion.
There had been disagreement over how the debt should be split, and uncertainty over whether creditors would agree to a write off, concerns that were heightened by the doubts over oil revenues. But according to Ian Bannon, acting country director for Sudan and South Sudan at the World Bank, a deal has now been agreed in principle in which Khartoum will take on all the debt on condition that creditors commit to debt relief on the ex-Sudanese debt within two years under the IMF and World Bank’s Heavily Indebted Poor Country (HIPC) Initiative, and that South Sudan helps to lobby for this on Khartoum’s behalf.
“The expectation is that this is a done deal,” he says. “It’s terribly important that the south starts off with a clean slate. The priority now is to figure out what the priority is.”
GREEN GOLD
One priority, Bannon says, should be diversifying the economy away from its almost complete dependence on oil. The region boasts large tracts of highly fertile, arable land, 90% of which has yet to be harnessed towards agriculture. USAID (the US Agency for International Development) estimates that yield on land under cultivation is less than half that in the US.
Low production levels mean that food security remains a priority for the new government, with an estimated 54.6% (4–5 million) of the population living below the poverty line. The UN’s Food and Agricultural Organization estimates that 1.4 million South Sudanese still rely on food aid.
By investing in the region’s agriculture, USAID and other agencies hope not only to lift the local population out of poverty but also to strengthen South Sudan’s position in east Africa. Such investment would also bolster food supplies in a region that is suffering its worst drought in a generation.
“We hope that by lifting up agriculture in South Sudan, we will lift up agriculture in neighbouring countries too,” Franklin Moore, deputy assistant administrator for Africa at USAID, said at a recent investor conference on South Sudan.
Bilateral and multilateral aid agencies are pushing for the country to join the East African Economic Community (EAC), where its agricultural resources would be a crucial asset. Such backing, together with its resource wealth, offers a glimmer of hope for the fledgling nation and could also strengthen its hand in trade negotiations across the region: increased cooperation with Kenya, Tanzania and Uganda – and the prospect of access to ports and other trade routes on the east coast – could prove invaluable to the land-locked state.
The nation’s agricultural potential is also a major draw for foreign investment – not all of it welcome. A recent report by the Oakland Institute, a California-based research group, places Sudan at the centre of foreign land grabs in Africa, which accounts for 70% of the global rush to invest in increasingly valuable farmland. As much as 9% of the South’s overall land or arable land is already signed over to foreign investors, and many more contracts are under negotiation, while reports abound of local governors selling vast areas of arable land to foreigners for their own profit.
Howard Buffett, son of renowned US investor Warren Buffett, says the conflict over land use in South Sudan lies at the heart of the country’s political and economic future. “There will be certain countries and investment groups who will offer quick profits for short-term gains,” Buffett, whose eponymous foundation funds development projects in South Sudan, tells Emerging Markets. “The products they produce will be almost exclusively for export, and they will do nothing to promote soil health or improve farming practices in the region.”
SOUTH SUDAN’S CHOICE
The new government is under substantial pressure to make the right decisions, says Buffett. Juba’s new political elite is responsible for creating and maintaining a productive economy that makes the most of the country’s vast resources while making sure the proper oversight exists to encourage sustainable investment and to prevent exploitative deals.
But many of the newly anointed civil servants are former rebels who lack relevant experience, a fact which complicates the task of nation-building. “All or part of the new government were part of the movement for independence,” says UNDP’s Grande. “Trying to help people used to living in the bush to transform into a way of life working in a government institution is not easy. It’s easy for corruption to take hold; we’ve got to address that.”
But if the challenges are huge, the potential rewards are even bigger, something which Buffett says is key to attracting foreign investment. “South Sudan has the opportunity to do something virtually no other African nation has done: they have the chance to start fresh. If they start making smart decisions they will attract a lot of dollars.”