6 January 2014

South Sudan: The Economics of Stability in South Sudan


Little more than two years since declaring independence, South Sudan is now in what can only be described as a civil war. Right now representatives of both sides are in Addis Ababa for peace talks backed by Ethiopia, Uganda and Kenya amongst others.

While many pundits have and continue to point to ethnic based threats to stability, few have paid enough attention to the raw economics of the situation.

South Sudan's government inherited one of the world's poorest and most traumatised populations. An independence struggle since 1947, protracted conflicts and endemic poverty make a stark picture: many farmers, for example, do not have the skills to plough their fields.

Ninety percent of the population live in poverty; over half of the population of 8.3 million are below the age of 18 and as many are considered "food deprived".

Only one in five has access to health care, one in sixteen to working toilets and only half of civil servants have completed primary education. The country is landlocked and has little in the way of a formal economy.

These dire statistics, however, only tell one side of the South Sudan story. The other is oil. On independence, President Salva Kiir's government inherited a lucrative hydrocarbon revenue stream.

In 2012 the government was projected to earn R30 billion a year or just over R25,000 per household although these funds have largely not reached government coffers because of conflict with the North.

While where these resources would go is open for speculation, how long they will last is less so. By its own estimates, the government expects a rapid drop off in oil revenue: the R30 billion earned in 2012 will dwindle to R20 billion by 2020 and to less than R10 billion in 2030.

That means in less than twenty years, South Sudan's oil revenue will be a third of what it is today and even less in real terms when considering the on-going double digit inflation rates. Worse still, President Kiir's government has no other meaningful source of revenue: only 2% comes from non-oil sources.

And here in lies the kicker, no matter the position of the West or its interest in pushing for peace, the oil revenue is only possible with the approval of Khartoum and Sudan's International Criminal Court indicted President Bashir.

Because there is no other way to export the oil except through the Sudan controlled oil pipeline, South Sudan's revenue is effectively controlled by Sudan.

Clearly this creates an incentive for opposition forces to first secure the oil fields as they are working to do and then strike a deal with Khartoum, before conceding control in any peace negotiations.

In the meantime, a hungry population and years of unmet expectations have put enormous pressure on South Sudan's first independent government to deliver so-called "peace dividends" and to deliver them fast.

These dividends are costly partly because South Sudan is a vast country with almost no tarred roads and few services. Of the handful of functioning schools, clinics and hospitals, the majority are run by South Sudan's humanitarian community, itself anxious to see the new government take-over.

Furthermore, fears of a demobilised military coming home to no jobs makes it imperative the government maintains its expensive security apparatus currently absorbing over a quarter of stated government expenditure.

Civil servant recruitment and salaries are on the rise and currently constitute more than half of government budget leaving little money for delivery.

If anything, the first two years of independence have only managed to convince South Sudan's leadership how difficult it is to meaningfully deliver services within any particular election cycle.

It is abundantly clear to even the casual observer that promising and delivering better services is an unlikely path to securing power simply because it is so difficult to meet the population's expectations in South Sudan.

Accordingly, the promise of a democratic system that grants power in return for service delivery appears hollow to many power brokers in South Sudan.

These dynamics shape the raw economics of decision making in South Sudan. When combined with low life expectancies, risks of continued internal and cross-border conflicts, a politics dominated by ethnicity and tribalism, worrying signs of baked in corruption and nepotism, a stark and dangerous incentive structure emerges.

While the government postures about spending on high profile projects and the international community presses for service delivery, South Sudan's leadership is more likely concerned about getting their share of the oil before it runs out. While it is possible that the country's leadership may be able to resist these incentives, it would be naïve to expect a politics that is not inherently shaped by them.

Sadly, South Sudan might be misled by the optimism of the very partners it relies most on. The international development community is weary and stretched thin after maintaining an expensive, on-going humanitarian operation in some of the world's most hostile terrains.

South Sudan's donors want to see the government spend on social services, infrastructure and agricultural development both because these are the best bets to alleviate poverty and because they will allow donors to finally plan their exit.

Current development plans expose a blind-sided focus on poverty alleviation and service delivery without any means to address a loss of revenue that makes the US fiscal deficit look like a walk in the park.

Without a realistic long-term plan, government officials will likely do as anybody would on a sinking ship; spend now and be long gone by the time the waters reach the upper deck.

Already, many of South Sudan's elite have cottoned on to the wisdom of using the good times to secure a future offshore. Simply put, two thirds of the oil will be gone in less than twenty years and the demands from the population will only be greater.

With that short a horizon, the temptation to get rich now and get out is going to be a lot stronger than the pull of a mediated solution to the current or indeed future internal conflicts.

Alexander O'Riordan has been working on projects in South Sudan with the European Union and United Nations Development Programme since 2007.

O'Riordan is an Aid Effectiveness and Donor Funding Researcher.

Read more articles by Alexander O' Riordan.

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