EconomyIssue 04 - 2024MAGAZINE
GBO_ South Sudan

The socio-economic minefield called South Sudan

Factors exacerbating South Sudan’s oil revenue decline include volatile global oil prices, internal instability and poor-quality crude oil

History has been witness to the newly independent nations (especially the ones coming out of the clutches of colonialism) using the elections as a way to chart out their own socio-economic journeys. However, South Sudan, the world’s youngest nation, which won its freedom in 2011, after a long conflict with Sudan, has not conducted its first election yet.

Though a tentative date has been set for a national election this year (22nd December 2024), the timing remains in question, with the United Nations and other global bodies doubting whether adequate preparations have been made for the important exercise. The reason behind the broad scepticism lies in the fact that the election was supposed to take place in 2015 but got postponed after the young African country entered into a civil war.

South Sudan has failed to establish a robust electoral framework crucial for fair and credible polls, including constitutional, legal, financial and political conditions to ensure the feasibility of holding a credible national election. Also, ongoing disagreements among political leaders are equally threatening to complicate the situation further.

Nation on the brink of collapse

As per the S&P Global estimates in May 2024, the newly independent country saw a months-long halt to crude exports due to a rupture in its export pipeline through war-torn Sudan, a situation which worsened things further for the African country.

Landlocked South Sudan was producing 150,000 b/d of crude oil until February, when it declared force majeure on crude loadings from Port Sudan due to the pipeline outage. Some 90% of government revenues and most of its foreign exchange come from oil exports.

According to the Platts OPEC Survey from S&P Global Commodity Insights, output fell to 70,000 b/d in March and 60,000 b/d in April. Meanwhile, a $12 billion cash-for-crude deal signed in December 2023 by South Sudan’s recently sacked finance minister and a member of the UAE’s ruling family, stamped by ministries in the two countries and seen by Commodity Insights, has shone a light on the poor state of South Sudan’s public finances.

The agreement reportedly guarantees the newly formed nation $12 billion, almost twice the country’s GDP, in three tranches subject to delivery of cargoes of South Sudanese crude, purchased at a $10/b discount to a Platts benchmark. It is not clear whether the first $5 billion instalment of the loan had been delivered. The agreement, which stipulates payments will be made into a UAE bank account, has proven controversial in South Sudan due to its length.

While a staggering 7.1 million of South Sudan’s 12 million-strong population are acutely hungry, the country’s problems have got further complicated due to the presence of factors like a weak economy, rampant corruption, catastrophic floods, and deadly clashes in much of the countryside.

A sorry picture

The power struggle between the Sudanese Armed Forces (SAF) and the Rapid Support Forces (RSF) erupted into a large-scale conflict in April 2023 and has been driving humanitarian needs in the country ever since. Conservative estimates say the conflict has killed at least 15,500 people, while some estimates are as high as 150,000, and counting.

The brutal conflict since April 2023 has resulted in the displacement of over 12 million Sudanese people, thereby representing the largest displacement crisis in the world. Humanitarian access too got severely curtailed.

The conflict made things harder by expanding its ugly head into the African nation’s “breadbasket”, Al Jazirah state, by exacerbating the country’s food crisis. And then add the looting of businesses, markets and humanitarian aid warehouses, which are further contributing to food shortages.

The conflict has decimated the country’s public infrastructure, including the health system. The latter is suffering from an acute staff shortage, funding and medical supplies crunch, in addition to repeated attacks, looting and occupation of medical facilities and hospitals. More than 70% of health facilities in conflict-affected regions of Sudan are inoperable.

Before the conflict’s outbreak, Sudan’s economy was marred by rampant inflation and shortages of essential goods. Now, the conflict has worsened the crisis further as nearly half of the African country’s population has remained unemployed while the Sudanese pound has lost at least 50% of its value. In Khartoum, factories, banks, shops and markets have been looted or damaged, further reducing the population’s access to goods, services and cash.

People have also been facing pockets of internet and communication blackouts, leaving millions struggling to contact their families, seek safe zones, access essentials and use mobile money services. In February 2024, all three of Sudan’s main internet operators were reported offline, leaving almost 30 million Sudanese without internet or telephone access for more than a month.

According to the International Rescue Committee (IRC), children are at particular risk in Sudan. At least 10,400 schools in conflict-affected areas are shuttered, leaving an estimated 19 million children without education and at risk of abuse or exploitation.

Election faces funding roadblock

The government has been urged multiple times to hold elections, as promised under the 2018 Revitalised Agreement on the Resolution of Conflict in South Sudan. Amid implementation delays, a road map was endorsed in August 2022 to guide the peace process and elections.

In December 2022, the government reconstituted key bodies, including the National Constitutional Review Commission and the National Electoral Commission, as a precursor to elections. However, both entities face financial challenges, with the National Constitutional Review Commission yet to receive any funding.

While the National Electoral Commission and the Political Parties Council, a body tasked with promoting political dialogue and cooperation, have received some funding, the amount is insufficient for full operations. International stakeholders, including the United Nations, the African Union and the European Union, had expected the government to finance the elections, but ongoing delays have left these bodies advising and encouraging the government from the sidelines, concerned about the lack of progress.

Another reason behind the meagre funding is the sharp reduction in oil revenues, compounded by economic hardships and the diversion of resources by the ruling elite.

At independence in 2011, and before the conflict that began two years later, South Sudan’s daily oil exports stood at 300,0000 barrels. However, the ongoing conflict and infrastructure damage have led to a steady decline in production, with current exports reduced to approximately 150,000 barrels per day. Factors exacerbating South Sudan’s oil revenue decline include volatile global oil prices, internal instability and poor-quality crude oil.

Abigail Kabandula, post-doctoral fellow in global governance and Director of Africa Centre, University of Denver, said, “The payment structure for oil proceeds dictates that private oil companies claim nearly 60% of production as their share, while neighbouring Sudan also takes a significant portion based on agreements made during independence. Consequently, South Sudan receives revenue only from approximately 45,000 barrels out of the total daily production ranging from 150,000 to 170,000 barrels. It is from this limited allocation that the government funds 98% of the national budget.”

Divisions among political stakeholders

President Salva Kiir and First Vice President Riek Machar share a complicated history and entrenched mistrust of each other that threatens the integrity of the entire electoral process.

“The two have clashed and have been on opposing sides off and on since 2013, leading to civil war. Their complex relationship now threatens the integrity of the electoral process amid fears of ethnic tension. Critical tasks such as the training and deployment of 33,000 security personnel remain unfinished, risking national stability. Ensuring nationwide election security is paramount; however, the absence of unified national security forces raises concerns about voter safety,” Abigail Kabandula observed.

Unlike other post-conflict African countries, where the international community facilitated elections, South Sudan’s transition depends solely on its current transitional government, mandated to lead until December 2024.

“Despite South Sudan’s political and security challenges, immediate steps can facilitate peaceful elections. Leadership dialogue, expedited funding and enhanced security mechanisms are essential. Meanwhile, regional and international stakeholders can be engaged to secure robust financial support and complete critical tasks. If a rumoured joint ticket between Kiir and Machar materialises, it could potentially reunite the country and set a course for stability,” Abigail Kabandula concluded.

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