The South Sudanese literally walk over vast crude deposits, yet over 51 percent of the 9 million citizens live below the poverty line, the country faces a big food gap and austerity measures are choking the economy. Twenty one years of civil war left the infrastructure in ruins and South Sudan needs sustainable peace to rebuild itself.
Until the independence of South Sudan on July 9, 2011, Khartoum controlled and managed completely the oil industry in Sudan, sharing with the South half of the revenue of government profits made from southern wells. However, there were always suspicions of cheating: according to the British-based Global Witness, the declared figures from the Sudanese oil authority and those from Chinese-led consortiums did not match over the same fields. And the Government of South Sudan accused Petrodar, a Chinese-Malaysian company, of keeping secret a production of 40,000 barrels per day and operating over 600 wells instead of the declared 300 or so.
With independence, South Sudanese could finally take full charge of the 350 thousand barrels of crude the country produces daily. Oil minister Stephen Dhieu Dau said that between July 9 and December 31, 2011, the country made over 3.2 billion dollars in crude sales, although few saw the oil bonanza making much difference on the daily lives of ordinary citizens.
At the end of January, the Government of Juba decided to shut down its oil production after a series of conflicts over oil fees with Khartoum. The measure was very popular although the oil revenue covered 98 percent of the budget and left the public coffers with no money.
Without oil, the Government designed an austerity budget, guaranteeing salaries but halving other expenses. Many critical development projects were shelved. Dollars became scarce and expensive and the prices skyrocketed. Shoppers soon realized that the money in their pocket could buy fewer and fewer essential commodities: prices rose almost 51 percent between March 2011 and 2012.
Government spokesperson Barnaba Marial Benjamin accused some traders of conspiring to inflate prices artificially in order to increase profits, but nothing has been done to control market prices. Meanwhile the South Sudan Pound (SSP) has just got weaker and weaker. On the black market the dollar sells for 4.7 pounds even though the official rate is around 2.9 pounds per dollar.
Traders complain that the expensive and scarce foreign currency is the main culprit for the inflation in South Sudan. Prices in the popular markets rise by the day and many goods are in short supply, including fuel and drugs, even lifesaving anti-retrovirals. Juba was in the dark for over one month because the Government failed to pay the fuel bills and so generators were switched off. Southerners now joke that the better name for the ministry in charge of power production is “ministry of darkness”.
With the oil shutdown the Government had to look for other sources of revenue and the first one at hand was taxation. During the five years between the peace agreement and independence how much tax was collected, or where it ended up, was never clear. Some suspected well positioned individuals were collecting the taxes for themselves.
The austerity budget changed the situation. The Government put in place a centralized system of tax collection that dues went up 300 percent in some cases. Consumers, especially poor Southerners who have always struggled with the South’s expensive food prices, paid the price.
The Government has been looking far and wide for loans to avert an economic meltdown. At the end of April, President Salva Kiir Mayardit visited China eyeing some financing. The Chinese refused to invest in an alternative oil pipe from South Sudan to the still-to-be-built Lamu port in Kenya. After Kiir returned from his trip, spokesperson Marial announced that China offered over eight billion dollars in loans for major development projects to be built by Chinese companies over a two-year period. He did not make clear what conditions the loans would come with or how the South would pay them back. Many are worried the enormous loans could lock the South’s into debt for many years. But a source at the European Union in Juba told me that the Chinese are not denying or confirming the amount that would represent a strong vote of trust in the Government and economy of South Sudan. Experts say South Sudan could try to finance their way through the current crisis by selling oil futures, but so far at government level no one came public about the option.
The head of the UN Mission in South Sudan, the Norwegian Hilde Johnson, in a meeting she held with Catholic and Episcopalian bishops, described the current economic and social situation in South Sudan as trying and testing. The World Bank said at the beginning of May that it was deeply concerned with the economic and development impact of the unresolved oil issues and how this will affect the people of both South Sudan and Sudan, particularly the most vulnerable. John Ashworth, an expert on South Sudan-Sudan issues, is more positive: he says the austerity measures will not disrupt South Sudan. The economy is still of subsistence, based more on barter than in money and the Southerners learned how to live without a budget during the long years of war.
On May 2, the UN Security Council approved unanimously Resolution 2046 – after overcoming Russia and China’s reluctance – telling South Sudan and Sudan to stop fighting within 48 hours, put in place signed border security arrangements within two weeks and return to the negotiations table under the African Union and Intergovernmental Authority for Development’s auspices within three weeks and to have all outstanding issues resolved in the next three months. Or potentially face non-military sanctions!
South Sudan said it was ready for talks and even to resume exporting oil through the Sudanese infrastructure if Sudan is more reasonable about the fees it charges. Oil minister Dhieu said recently that the oil shutdown cost already the country 2.4 billion dollars.
President Omar al Bashir said his top priority is not oil but security, but the economy of Sudan is also badly affected by the oil shutdown. He has always liked to negotiate from very strong positions, taking brinkmanship to very dangerous levels. April’s border war was part of it. However, rhetoric was been toned down and the all-out war drums seem to have been silent – at least for a time.