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Peacekeeping troops from China, deployed by the United Nations Mission in South Sudan (UNMISS), patrol outside the premises of the UN Protection of Civilians (PoC) site in Juba, South Sudan, on 4 October 2016. AFP/Albert Gonzalez Farran
Report 288 / Africa

China’s Foreign Policy Experiment in South Sudan

China, traditionally averse to intervening abroad, is testing the role of peacebuilder in South Sudan, where it has unique leverage. This could portend a growing global security role, but further Chinese engagement will likely be tempered by self-interest, capacity constraints and aversion to risk.

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Executive Summary

China’s longstanding principle of non-interference in other states’ internal affairs is evolving with its growing global footprint. As Chinese overseas investment and business links grow in scope and depth, Beijing faces increasing threats to its citizens, economic interests and international reputation. That, in turn, has confronted China with the inherent limitations of its traditional hands-off foreign policy posture. How it responds over time will have a profound impact on Beijing’s international role. The most prominent test case appears to be Africa and, within the continent, South Sudan, where Chinese measures to protect its citizens and economic interests, coupled with its support for an end to the war and pursuit of humanitarian objectives, seem a calculated trial run for a more proactive global role.

China first experimented with deeper involvement in Sudan in response to powerful international criticism (culminating in calls to boycott the 2008 Beijing Olympics) of its support for Khartoum, which was fighting a brutal counter-insurgency campaign in Darfur. Using its influence with the Sudanese government and in the UN Security Council, China helped ensure deployment of UN peacekeepers to Darfur in 2008. Later, when Libya’s civil war erupted in 2012, China’s evacuation of its citizens generated national pride and increased both its people’s and its investors’ expectations about Beijing’s global profile. In both instances, China extended the boundaries of its time-honoured diplomacy, suggesting growing willingness to take action when its interests are threatened.

When South Sudan’s civil war broke out in late 2013, Chinese advocates of a more flexible interpretation of the non-intervention policy saw an opportunity to try new approaches to protect their nation’s interests. Several factors were at play. Huge investments made the state-owned China National Petroleum Corporation (CNPC) both an economic and political actor. At the same time, China’s interests were aligned with those of others – mediators and Western powers – seeking to end the conflict. Working together with the Horn of Africa’s regional body – the Intergovernmental Authority on Development (IGAD), charged with mediating South Sudan’s peace process – and Western actors, Chinese policymakers believed they could intervene constructively while managing reputational risks.

This was a step beyond its traditional approach: Beijing could claim broad adherence to the non-interference principle even as it used its influence to bring warring parties together and bridge differences between Western actors and South Sudanese leaders. It engaged in the peace process held in Ethiopia, hosted discreet talks among warring factions in Sudan, shaped UN Security Council action, sent peacekeepers to the UN peacekeeping mission in South Sudan (UNMISS) and joined the August 2015 peace agreement oversight body.

This is a crucial time for peacemaking in South Sudan and a crucial time for China to test its newfound role. It’s important to get both efforts right.

In short, China might still oppose interference in others’ affairs, but its definition has become more elastic. It continues to draw a line at intruding on matters of domestic governance; opposes regime change or unilateral military intervention; and believes that showing respect, rather than exerting pressure or inflicting punishment, is how to elicit cooperation and improvement in governance. Having itself been a victim of sanctions and public opprobrium, it favours more discreet persuasion. But direct involvement can be justified when civil conflicts cross borders, threaten regional security and stability or create large humanitarian crises, and when regional and local authorities and the UN have granted their imprimatur. In such cases, China tends to support political dialogue without imposing outcomes, save when those directly relate to the safety of its citizens or investments.

If China’s steps are tentative, there is good reason. It is aware of its newcomer status to international peace and security efforts, particularly via multilateral institutions, and is careful not to overreach. It is actively learning from its own experiences and the successes and missteps of other would-be peacemakers. Its diplomatic corps is not yet sufficiently staffed or trained. But its considerable economic and political influence mean that, when it steps in, it inevitably brings leverage to the table that traditional mediation efforts – whether in South Sudan or elsewhere – sometimes lack.

Despite differences in approach, so far collaborating in South Sudan has benefited China, Western countries, their African partners and the South Sudanese people. They should continue along this path. This is a crucial time for peacemaking in South Sudan and a crucial time for China to test its newfound role. It’s important to get both efforts right.

Beijing/Nairobi/Juba/Brussels, 10 July 2017

I. Introduction

China’s involvement with Sudan’s southern region began when it forged a partnership with Khartoum to develop its oil industry in the late 1990s. For much of the previous decade the West had worked to isolate the Sudanese government for human rights abuses and support for terrorism.[fn]For previous reporting on China’s involvement in South Sudan, see Africa Reports N°186, China’s New Courtship in South Sudan, 4 April 2012; N°39, God Oil & Country: Changing the Logic of War in Sudan, 10 January 2002. For recent work on South Sudan, see Africa Reports N°236, South Sudan’s South: Conflict in the Equatorias, 25 May 2016; N°243, South Sudan: Rearranging the Chessboard, 20 December 2016.Hide Footnote U.S. sanctions, and the country’s prolonged civil wars (1955-1972 and 1983-2005) – fought in the vicinity of major oil deposits, mostly in the south – deterred investors.[fn]For a summary of U.S. sanctions against Sudan, see “Brief Timeline of Key of Key Sanctions Events in Sudan”, Center for Global Development, 6 October 2011; Crisis Group Africa Briefing N°127, Time to Repeal U.S. Sanctions on Sudan?, 22 June 2017.Hide Footnote

In March 1997, the state-owned China National Petroleum Corporation (CNPC) and a consortium of mostly Asian oil companies signed an oil development deal with the government.[fn]Luke Patey, The New Kings of Crude: China, India, and the Global Struggle for Oil in Sudan and South Sudan (London, 2014).Hide Footnote Then new to overseas investment and operations and less daunted by security and political risks than most companies, CNPC obtained concessions for largely untapped oil reserves with limited competition. Other Chinese companies followed, leading to closer bilateral political and diplomatic ties.

Khartoum’s enemies, particularly the Sudan People’s Liberation Movement/Army (SPLM/A) fighting the government in the South, said China was enabling an autocratic regime and tied the Chinese-financed oil investments to mass displacement, gross human rights violations and environmental degradation.[fn]Crisis Group Report N°39, God, Oil and Country: Changing the Logic of War in SudanGod, Oil and Country: Changing the Logic of War in Sudan, 10 January 2002; “The scorched earth: oil and war in Sudan”, Christian Aid, 13 March 2001; “Sudan: The Human Price of Oil”, Amnesty International, 4 May 2000; “Sudan, Oil, and Human Rights”, Human Rights Watch, 24 November 2003.Hide Footnote The government sought to prevent Chinese contact with Southern rebels, and Beijing largely obliged.

Keen to tap into an underdeveloped market with, at the time, few competitors, Chinese nationals and companies flocked to South Sudan after it achieved formal independence in July 2011.

The 2005 Comprehensive Peace Agreement (CPA), which ended the Second Sudanese Civil War and paved the way for the South’s independence, dramatically changed the situation.[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 2. Also see, The New Kings of Crude, op. cit.Hide Footnote Chinese businesses trickled into the South’s capital, Juba, soon after the CPA was signed, and, unbeknownst to Khartoum, the China National Petroleum Corporation surreptitiously dispatched employees to learn more about the new government. It took the Chinese government longer to adjust.[fn]Crisis Group interview, Chinese businessman, Juba, April 2016.Hide Footnote Salva Kiir, then Sudan’s first vice president and now South Sudan’s president, bluntly reminded Chinese leaders during his 2007 visit to Beijing that most oil fields lie in the South and the CPA guaranteed its right to secede. Beijing opened a consulate in Juba the following year.[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 3.Hide Footnote

Keen to tap into an underdeveloped market with, at the time, few competitors, Chinese nationals and companies flocked to South Sudan after it achieved formal independence in July 2011. But the region soon proved volatile and risky for businesses.[fn]Crisis Group interview, Chinese businessman, Juba, April 2016.Hide Footnote In January 2012, Juba shut down oil production after negotiations over pipeline fees with Khartoum deadlocked. Production did not restart until April 2013.[fn]“Two Sudans’ oil disputes deepens as South shuts down wells”, The Guardian, 26 January 2012; “South Sudan restarts oil production”, Financial Times, 7 April 2013.Hide Footnote Civil war broke out in December that year and disrupted production again. Oil workers had to find shelter in UN bases until companies could airlift them to safety.[fn]Crisis Group Africa Report N°217, South Sudan: A Civil War by Any Other Name, 10 April 2014, pp. 15-17.Hide Footnote Chinese nationals scrambled to flee the war zone; their shops were looted and business projects halted.[fn]Crisis Group interviews, Chinese officials, Juba, Beijing, 2016.Hide Footnote Beijing made the unprecedented decision to step in, with three related aims: (1) protect Chinese citizens and economic interests; (2) support an end to the war; and (3) serve humanitarian objectives.[fn]Crisis Group interviews, Chinese officials, Juba, 2014-2016.Hide Footnote Although this was an emergency response, it also became a calculated trial run for a more proactive role in step with China’s expanding overseas footprint and international stature.

This report begins with a review of the evolution of China’s non-interference principle. It analyses China’s motivation, objectives and methods for supporting the South Sudan peace process, as well as its interaction with warring parties and mediators. It studies how China – a relatively new, albeit influential arrival to international peace processes – reinforces, complements, or contradicts traditional diplomatic approaches. It also analyses lessons from the South Sudan experience about China’s evolving understanding of its role in the world and its interpretation of non-inter­ference. This report is primarily based on interviews with policymakers, diplomats, company executives and academics in Beijing, Shanghai, Juba, Addis Ababa, Nairobi and Washington. Many requested that their names be withheld.

II. Evolution of Non-interference

China’s proactive approach to South Sudan appears to be a significant departure from its longstanding principle of non-interference.[fn]安惠候,“不干涉原则与’新干涉主义’”, 《外交季刊》 [An Huihou, “Non-Interference Principle and ‘neo-interventionism’”, Foreign Policy Journal], vol. 104 no.4 (2012); 王嵎生, “中国外交的变与不变(上)”, 《解放日报》[Wang Yusheng, “Changes and continuation of Chinese diplomacy (First Half)”, PLA Daily, 29 October 2012]. An Huihou is the former Chinese ambassador to Egypt and Wang Yusheng is the former Chinese ambassador to Nigeria.Hide Footnote In fact, despite official rhetoric suggesting an unchanging doctrine, China’s interpretation of non-interference has evolved in a way that mirrors that of its definition of national interests and objectives.[fn]Proponents of a more flexible approach argue that non-interference must evolve along with China’s growing global footprint and expectations it will protect its nationals and investments overseas. Furthermore, if interpreted strictly, non-interference would compel China to accept outcomes deriving from other international actors’ interventions that are ineffective or not in China’s interests. They also argue that China’s “free riding” on global stability supposedly provided by others is neither sufficient nor sustainable. Crisis Group interviews, Chinese officials in the foreign ministry and State Council, diplomats and scholars, Beijing, Shanghai, Juba, and Addis Ababa, February-March 2014, January-April 2016. Also see, 催洪建, “‘不干涉’ 的安全观该更新了” [Cui Hongjian: “The ‘non-interference’ security concept should be updated”], Global Times, 28 July 2012; 王逸舟, 《创造性介入:中国外交新取向》[Wang Yizhou, Creative Involvement: A New Direction in China’s Diplomacy] (Beijing, 2011). For more on the evolution of the Chinese approach to peacekeeping prior to 2000, see Crisis Group Asia Report N°166, China’s Growing Role in UN Peacekeeping, 17 April 2009, pp. 3-5.Hide Footnote Even as the theoretical debate continues, Beijing has charted a middle path maintaining the broad non-interference principle while stretching its interpretation and experimenting with various ways of applying it.[fn]Crisis Group interviews, Chinese diplomats and scholars, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote

A. China Goes Out

Beginning in the 1990s, China became rapidly integrated into the world economy. In 1996, then-President Jiang Zemin first called for companies to “Go Out” and invest; in 1999, the Communist Party of China (CPC) formally adopted the “Go Out” strategy, supported by state financial institutions.[fn]Financial institutions supporting the “Go-Out” strategy (走出去战略; Pinyin: Zǒuchūqù  Zhànlüè) include China Development Bank (CDB), the Export Import Bank of China (China Exim Bank), policy banks such as Bank of China, and the China-Africa Development Fund. 陈杨勇,江泽民’走出去’战略的形成及其重要意义,人民网 [Chen Yangyong, “The creation and significance of Jiang Zemin’s ‘Go Out’ strategy”], People’s Daily online, 10 November 2008; “China goes global with development banks,” Bretton Woods Project, 5 April 2016; Karl P. Sauvant and Victor Zitian Chen, “China’s Regulatory Framework for Outward Foreign Direct Investment”, Columbia University, 22 February 2014.Hide Footnote Annual overseas direct investment grew from $2.7 billion in 2002 to $170.11 billion in 2016.[fn]The commerce ministry began recording outbound direct investment statistics in 2002. “2010 Statistical Bulletin of China’s Outward Foreign Direct Investment”, Ministry of Commerce of the People’s Republic of China, 16 September 2011. “MOFCOM Department Official of Outward Investment and Economic Cooperation Comments on China’s Outward Investment and Cooperation in 2016”, Chinese commerce ministry, 18 January 2017. By 2015, nearly 30,000 enterprises had invested overseas. “Report on Development of China’s Outward Investment and Economic Cooperation 2015”, Chinese commerce ministry, December 2015.Hide Footnote In Africa, Chinese direct investment grew from $1 billion in 2004 to $24.5 billion in 2013.[fn]Lihuan Zhou and Denise Leung, “China’s Overseas Investments, Explained in 10 Graphics”, World Resources Institute, 28 January 2015.Hide Footnote Although the over-stretched foreign ministry has no exact tally, the number of citizens residing abroad is believed to be about five million and rising, including some one million in Africa.[fn]Jonas Parello-Plesner and Mathieu Duchâtel, “How Chinese Nationals Abroad Are Transforming Beijing’s Foreign Policy”, East Asia Forum (www.eastasiaforum.org), 16 June 2015.Hide Footnote

Driven by energy needs and backed by the state, national oil companies led the “Go Out” march. Because the most readily accessible oil deposits already had been exploited, Chinese companies often ended up in fragile states, taking on political and security risks to outflank competition from better funded, better equipped, more experienced – but also more cautious – Western oil majors. Mining and construction companies joined in, likewise often operating in underdeveloped and unstable regions.[fn]Crisis Group Asia Report N°153, China’s Thirst for Oil, 9 June 2008.Hide Footnote

Even so, when overseas interests were in jeopardy, “rather than trying to influence outcomes in a crisis overseas, Beijing preferred withdrawal”. [fn]Mathieu Duchâtel, Oliver Bräuner and Zhou Hang, “Protecting China’s Overseas Interests”, Stock­holm International Peace Research Institute, June 2014, p. 47.Hide Footnote From 2006 to 2011, China conducted ten large-scale evacuations of nationals from foreign countries due to riots, wars or natural disasters, typically with minimum military participation.[fn]“近年来中国的重大撤侨行动”, 新华网 [“China’s major operations to evacuate nationals in recent years”], Xinhua News online, 31 March 2015.Hide Footnote The choice to withdraw rather than intervene was dictated by both principle and pragmatism. A former special representative for African affairs said, “Interference has to be backed up with capability. Although China was a big power, its capability to project power was not sufficient”.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, September 2014.Hide Footnote

B. Darfur: “Cleaning up the Mess”

China’s initially reluctant engagement with the Sudanese government over the Darfur war represented an early and notable departure from non-intervention and toward engagement with multilateral peace and security efforts.

In 2003, Darfur rebels took up arms against the Sudanese government. Khartoum and allied militia groups responded with a brutal counter-insurgency campaign.[fn]Crisis Group Africa Briefing N°14, Sudan’s Other Wars, 25 June 2003; Crisis Group Africa Reports N°76, Darfur Rising: Sudan’s New Crisis, 25 March 2004; N°80, Sudan: Now or Never in Darfur, 23 May 2004; N°83; Darfur Deadline: A New International Action Plan, 23 August 2004.Hide Footnote Beijing’s close economic and political ties with Khartoum, particularly via the oil industry, led to Western accusations that it was bankrolling and protecting a genocidal regime.[fn]China invested billions of dollars in Sudan’s oil industry and imported 60 per cent of Sudan’s crude oil before 2011. China became Khartoum’s largest arms supplier around 2004 and helped Sudan build its domestic arms manufacturing industry. It was responsible for more than 70 per cent of total small arms and light weapons (SALM) transfers to Sudan between 2001 and 2008. Beijing also was seen as Khartoum’s protector in the UN Security Council. Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 20; “Arms, Oil, and Darfur: The Evolution of Relations between China and Sudan”, Small Arms Survey, Sudan Issue Brief, Number 7, July 2007; “Supply and Demand: Arms Flow and Holdings in Sudan”, Small Arms Survey, Sudan Issue Brief, Number 15, December 2009.Hide Footnote Activists called for a boycott of the 2008 Beijing Olympics, China’s purported coming-of-age show. Denying any responsibility for the Darfur war, yet fearing a public relations crisis, Beijing sought to “clean up the mess”.[fn]The foreign ministry argued the Darfur issue dated back to 1916, when it was under British control, and said: “It would be too far-fetched to blame China”. “外交部部长助理翟隽就苏丹达尔富尔问题举行中外媒体吹风会 [“Assistant Foreign Minister Zhai Jun Briefs Chinese and Foreign Media on the Darfur Issue in Sudan”], press release, Chinese foreign ministry, 12 April 2007. Crisis Group interview, Chinese scholar on Africa studies, Shanghai, March 2016.Hide Footnote In May 2007, it appointed Liu Guijin, a seasoned diplomat, as its special representative for African affairs and the Darfur issue.[fn]“China appoints Darfur post”, Associated Press, 10 May 2007.Hide Footnote

In 2007, through public statements and private messaging, Beijing persuaded Sudanese President Omar al-Bashir to accept UN peacekeepers, hinting that Khartoum’s obstinacy could cost it China’s support at the UN.[fn]This was not an empty threat: abstentions by China and the U.S. on a 2005 UN Security Council vote to refer the situation in Darfur to the International Criminal Court allowed it to pass. Crisis Group Africa Briefings N°28, The AU's Mission in Darfur: Bridging the Gaps, 6 July 2005; N°43, Getting the UN into Darfur, 12 October 2006; Crisis Group Africa Reports N°105, To Save Darfur, 17 March 2006; N°134, Darfur’s New Security Reality, 26 November 2007; N°152, Sudan: Justice, Peace and the ICC, 17 July 2009; Crisis Group Report, China’s Growing Role in UN Peacekeeping, op. cit.Hide Footnote Chinese diplomats helped broker agreement for an African Union/UN hybrid mission with peacekeepers from developing nations to allay Bashir’s fear that Western forces would be used in the service of regime change.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, March 2016. Former U.S. Special Envoy to Sudan Andrew Natsios said China’s influence was a “critical factor” leading to Sudan relenting. Andrew Natsios, “Statement to the Senate Foreign Relations Committee”, 11 April 2007.Hide Footnote After the International Criminal Court (ICC) ordered Bashir’s arrest in March 2009, the envoy assured him: “China did not support ICC’s decision” but also advised him not to expel humanitarians or condone violent attacks against Westerners.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, March 2016.Hide Footnote

During the 2005 CPA’s implementation, Beijing also supported negotiations over the division of oil revenues between Khartoum and the Southern Sudan regional government.[fn]While most oil is in the south, it is exported via a pipeline through Sudan. For detailed analysis of China’s role in the oil negotiations, see Crisis Group Report, China’s New Courtship in South Sudan, op. cit., pp. 26-31.Hide Footnote China acted as an influential party at the table, even as it shied away from full-fledged mediation.[fn]Crisis Group interview, Liu Guijin, former Chinese special representative for African affairs and on the Darfur issue, Beijing, March 2016.Hide Footnote In the process, Beijing accumulated experience, gained regional and international players’ trust and built up capability and confidence in mediation, paving the way for its later engagement in South Sudan.

C. Libya: Catalyst for Change

In February 2011, conflict in Libya led to a massive operation to evacuate Chinese nationals working in construction and other sectors. The ten-day evacuation was the largest in Chinese history: 35,860 nationals. For transport and escort, the People’s Liberation Army and Navy (PLA/N) dispatched aircraft and frigates that sailed through the Red Sea and the Suez Canal to the Mediterranean for the first time. A dozen government agencies, nine embassies, commercial airlines and state-owned enterprises participated in the operation; multiple countries in Europe, the Middle East and North Africa facilitated the transit.[fn]马利(主编),《国家行动 -利比亚的撤离》 [Ma Li (ed.), National Operation – the great eva­cu­ation from Libya] (Beijing, 2011), pp. 199-201. “外交部:中国撤离在利比亚公民行动实现 ‘四个第一’”, 新华网 [“Foreign Ministry: China’s evacuation of nationals in Libya realises ‘four firsts’”], Xinhua News online, 6 March 2011.Hide Footnote

State media hailed the evacuation as “an unprecedented” display of military might, diplomatic leverage, financial prowess and mobilising skills.[fn]“特写: ‘回家的感觉太好了!’ – 中国撤离在利比亚人员行动圆满结束”, 新华社 [“Special report: ‘It feels too good to be home!’ – Chinese operation to evacuate nationals from Libya ends in perfect success”], Xinhua News, 6 March 2011. 王逸舟, 《创造性介入:中国外交新取向》[Wang Yizhou, Creative Involvement: A New Direction in China’s Diplomacy] (Beijing, 2011), p. 75.Hide Footnote The impressive operation inspired national pride but also raised expectations that China would protect its citizens elsewhere. Later, this would be cited as a factor justifying intervention in South Sudan.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March-April 2016.Hide Footnote

The Libya evacuation also exposed the limits of China’s ability to protect its investments. Although its citizens were brought home safely,[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., p. 9.Hide Footnote Chinese infrastructure projects worth over $18.8 billion were damaged by fighting, NATO airstrikes, looting and vandalism.[fn]马宁, “利比亚动荡 中国企业利益损失几何?”, 新华网, [Ma Ning, “Libya Turmoil: How much did Chinese companies lose?”], Xinhua News, 25 March 2011; “陈德铭:中国在利比亚项目损失严重”, 凤凰网, [“Chen Deming: China’s projects in Libya suffer severe loss”], Ifeng, 7 March 2012.Hide Footnote Oil imports from Libya to China fell from 150,000 barrels per day in 2010 to just 19,000 by 2014.[fn]“China”, U.S. Energy Information Administration, 14 May 2015, p. 10. “Libya is a major energy exporter, especially to Europe”, U.S. Energy Information Administration, 21 March 2011.Hide Footnote Beijing, like many other countries, was convinced that NATO’s Libya campaign exceeded the UN Security Council’s authorisation (which passed with China’s abstention) and resulted in regime change “without any legal or institutional proceedings”.[fn]Crisis Group interview, senior Chinese foreign ministry official, Beijing, February 2014. In May 2011, then-Chinese Ambassador to the UN Li Baodong twice stated China’s opposition to the NATO campaign, saying it was based on an “arbitrary interpretation” of UN resolutions. United Nations Security Council 6528th meeting, UN Document S/PV.6528, 4 May 2011. United Nations Security Council 6531st meeting, UN Document S/PV.6531, 10 May 2011. Chinese scholars spoke of a sense of “deception and betrayal” by the West, and blamed Western military intervention for the ensuing chaos in Libya. Zheng Chen, “China and the responsibility to protect”, Journal of Contemporary China, vol. 25, no. 101 (2016), p. 693. Ruan Zongze, “Responsible Protection: Building a Safer World”, China International Studies, vol. 34 (May/June 2012).Hide Footnote

Libya focused the attention of Chinese foreign policy decision-makers and thinkers and sharpened the debate on the contours of non-interference. Many began to argue that China needed to engage actively in global security affairs to prevent such chaos from arising in the first place and to shape outcomes.

III. South Sudan: The Pilot Project

South Sudan’s civil war began in December 2013 with fighting and ethnically-targeted killings in the capital, Juba.[fn]Crisis Group Report, South Sudan: A Civil War by Any Other Name, op. cit.Hide Footnote Violence soon spread across the country. Rebels with the Sudan People’s Liberation Movement/Army – In Opposition (SPLM/A-IO) targeted and destroyed some oil infrastructure and killed South Sudanese workers on Chinese-owned oil facilities. Chinese workers were evacuated in emergency conditions.[fn]“97 Chinese workers evacuated from South Sudan to Khartoum”, Xinhua, 25 December 2013.Hide Footnote The Horn of Africa regional body, the Intergovernmental Authority on Development (IGAD), immediately launched mediation efforts between the government and the rebels in an attempt to stop the war and prevent neighbouring states from being pulled into a regional conflict. Both China and Western states backed these efforts. IGAD’s chief mediator, Seyoum Mesfin, a former Ethiopian foreign minister and ambassador to China, provided Beijing a known and credible entry into the mediation. China’s interests in South Sudan and strong relations with the regional mediators made South Sudan an ideal testing ground for Beijing’s increasingly nuanced approach to non-interference.

A. Chinese Interests on the Ground

Although South Sudan accounts for only 2 to 5 per cent of China’s annual oil imports, oil is front and centre among Beijing’s concerns.[fn]“China”, U.S. Energy Information Administration, updated 14 May 2015.Hide Footnote While the volume may appear small, its political and geopolitical significance is not.

Sudan was the Chinese oil industry’s first overseas success and retains symbolic importance. It was there that China’s oil corporation and its subsidiaries cut their teeth on international operations, proved their mettle and gained operational experience.[fn]The New Kings of Crude, op. cit., p. 111.Hide Footnote The China National Petroleum Corporation (CNPC) also demonstrated its ability to enhance China’s energy security, winning Beijing’s support for further expansion. As oil prices soared between 1998 and 2003, output from Sudan “contributed significantly to the company’s growth”.[fn]Crisis Group interview, CNCP official, Juba, April 2016.Hide Footnote The Khartoum refinery became a frequent stop for visiting Chinese government and party officials.[fn]The New Kings of Crude, op. cit., pp. 101-102.Hide Footnote

After the 2005 peace agreement, when it appeared likely South Sudan would gain independence, CNPC deepened its engagement with Juba – at first secretly, for fear of offending Khartoum.[fn]Crisis Group interview, Chinese businessman with first-hand knowledge, Juba, April 2016.Hide Footnote But CNPC and its partners found building relations with South Sudan challenging. Juba drove a hard bargain when it came to restructuring contracts and the volatile political environment undercut production.[fn]Crisis Group interviews, officials in the petroleum ministry, businesspeople, Juba, 2013-2016.Hide Footnote As noted, the government shut down operations in January 2012 over deadlocked talks with Sudan on oil transit fees.[fn]Crisis Group Report, China’s New Courtship in South Sudan, op. cit., pp. 20-31.Hide Footnote Boom-time was over and the immediate loss of almost all government revenue was partially covered through loans taken against future oil production whose cost continues to be paid.[fn]Crisis Group Report, South Sudan: A Civil War by Any Other Name, op. cit.Hide Footnote South Sudan’s economic downturn had begun.

Although oil flow resumed in April 2013, the civil war that broke out in December shut down production in three fields in Unity state (the larger Upper Nile state fields remained operational).[fn]Both are near the border with Sudan and near areas where fighting has taken place. “South Sudan restarts oil production”, Financial Times, 7 April 2013. Crisis Group interview, CNPC managers, Juba, April 2016.Hide Footnote The global decline in oil prices in 2014, combined with the war, presented a dual challenge for the oil companies. In January and February 2016, when benchmark crude oil prices dipped to lows below $30 per barrel, CNPC lost nearly $2 million a day, although it still is banking on South Sudan stabilising and oil prices have since increased.[fn]Crisis Group interviews, CNPC managers and Chinese diplomats, Juba, April 2016.Hide Footnote

Although CNPC officials routinely downplay the company’s influence on Beijing’s decision-making, executives of national oil majors are prominent members of the elite decision-making class. The Communist Party’s Central Organisation Department appoints these top executives, who typically hold vice ministerial rank. It is not uncommon for oil company executives to ascend to prominent political positions.[fn]Crisis Group Asia Report N°275, Stirring up the South China Sea (IV): Oil in Troubled Waters, 26 January 2016, p. 5. Zhou Yongkang, CNPC general manager 1996 to 1998, played a crucial role in CNPC’s venturing into Sudan. He became a member of the Politburo Standing Committee in 2007 and security czar. In retirement, he was arrested on corruption charges in 2015. “Profile: China’s fallen security chief Zhou Yongkang”, BBC, 11 June 2015.Hide Footnote Although CNPC is primarily a profit-seeking corporation, it can be called upon by the party to fulfil policy or political goals such as employment and diplomacy. Diplomats said CNPC was asked to absorb the loss and stay put in South Sudan. The company in turn sought and expected protection from the Chinese state.[fn]Crisis Group interviews, Beijing, March 2016; Addis Ababa, April 2016; Chinese scholar, Shanghai, April 2016.Hide Footnote

Operational costs, with cheap rent and labour, were low and profit margins were as high as 50 per cent before the current economic crisis.

Oil companies were not alone in investing in South Sudan. Other companies followed suit, accompanied by Chinese loans.[fn]In January 2012, Kiir received Li Yuanchao, member of the Politburo, in Juba. The two sides discussed additional loans potentially guaranteed against future oil reserves. Crisis Group Report, China’s New Courtship in South Sudan, op. cit., pp. 10-11.Hide Footnote Bilateral trade reached $534 million in 2012; by 2013, roughly 100 Chinese companies were registered in South Sudan, covering energy, engineering, construction, telecommunications, medical services, hotels, restaurants, and retail.[fn]“中国和南苏丹合作简介”[“Brief introduction to China-South Sudan Cooperation”], official website of the Economic and Commercial Counsellor’s Office of the Chinese Embassy in South Sudan, updated 8 December 2013.Hide Footnote Some saw South Sudan as a “paradise for investors”: a country rich in oil income, with huge infrastructure needs, nearly no industry and no Western competition.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016. Zhong retired from the position in August 2016.Hide Footnote Operational costs, with cheap rent and labour, were low and profit margins were as high as 50 per cent before the current economic crisis.[fn]Crisis interviews, Chinese businessmen, Juba, April 2016; correspondence, Chinese businessmen, July 2016.Hide Footnote

Yet risks also are plentiful. Beyond war and political instability, robberies, kidnapping and petty crime threaten property and personal safety. Both government and rebel groups have sought to protect Chinese businesspeople and infrastructure, expecting (and sometimes receiving) financial benefits in exchange.[fn]Crisis Group interviews, South Sudanese government officials and rebel leaders, Juba, Addis Ababa, 2014-2015.Hide Footnote But the government, which has been running a deficit and mortgaging future oil revenue since 2012, is chronically delinquent on contractual and loan payments. Investors are therefore increasingly hesitant to make substantial investments.[fn]Crisis Group interviews, Chinese businessmen in construction, telecommunications, and hospitality, Juba, April 2016.Hide Footnote

B. A Pilot Project for Diplomacy

When civil war broke out in December 2013, CNPC evacuated many employees on company airplanes. Other Chinese citizens fled via self-organised caravans. Although not specifically targeted, Chinese retail shops and restaurants were looted or burned down in the fighting.[fn]Crisis Group interviews, CNPC managers and other Chinese businessmen, Juba, April 2016.Hide Footnote

Chinese officials debated whether to leave or stay with lessons from Libya fresh in their minds. Another withdrawal would mean leaving oil fields and other investments behind, likely to be damaged by war; it also would mean forfeiting economic and political leverage to influence events.[fn]Crisis Group interviews, Chinese diplomats and scholars with state-affiliated think-tanks, Beijing, January-March 2016.Hide Footnote Diplomats said Beijing was also driven by “a sense of responsibility” to preserve South Sudan’s economic future, which lives or dies with the oil industry.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote Zhong Jianhua, who replaced Liu as special representative on African affairs in 2012, arrived in Nairobi as IGAD launched its mediation process. In response to IGAD’s request for China’s engagement, Beijing stepped up its involvement. Between 2014 and the signing of a peace agreement in August 2015, China was consistently engaged and supportive of the mediation process.

For Beijing, South Sudan became a real-world laboratory to test the boundaries of its non-interference principle. It did so in what, domestically, was a relatively less contentious arena: unlike conflicts and disputes in Asia, Africa seldom falls under Beijing’s domestic media spotlight or becomes the subject of nationalist passion. A Chinese scholar on African affairs said:

China can afford to stomach the cost of trial-and-error of new approaches in Africa. China hopes to form “Chinese solutions”. In comparison, Myanmar and the South China Sea are much more sensitive and mistakes there are much more costly to China.[fn]Crisis Group interview, Chinese scholar on African affairs at a government-affiliated think-tank, Beijing, January 2016.Hide Footnote

As a result, the foreign ministry’s Africa Department has more room to manoeuvre, undertake policy initiatives and delegate authority and influence to the field.[fn]Crisis Group interview, Chinese foreign ministry official, Beijing, March 2014.Hide Footnote Diplomats in Juba and Addis Ababa were ready to engage with the South Sudan mediation, which one diplomat described as “a pilot project for Chinese diplomacy”. It was expected that this experience would shape the debate in Beijing about non-interference and thus contribute to formulating “Chinese solutions”.[fn]Crisis Group interview, Chinese diplomat, Addis Ababa, April 2016.Hide Footnote

IV. China in Action

The government sees itself as a newcomer to conflict resolution, and is viewed as such by partners. Though vaguely defined and still evolving, an outline of what “Chinese solutions” might look like is beginning to emerge from its engagement with South Sudan.

A. Chinese Solutions

1. Setting the table, not forcing outcomes

China appears most comfortable in the role of a table-setter, leveraging its political and economic influence to bring parties together. Its flexibility in providing aid has helped ensure the quick release of small in-kind donations covering transportation and accommodation for participants in negotiations.[fn]“During mediation between Darfur and Sudanese government for example, Chinese funding support always came in handy. It allowed people to travel and convene,” said a UN official involved in the process. Crisis Group interview, Addis Ababa, April 2016.Hide Footnote But Beijing, is only slowly becoming comfortable with directly setting agendas, proposing terms in agreements or drafting documents – and even then tends to do so behind the scenes.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote

Beijing displayed such table-setting to good effect in January 2015 when Sudan-South Sudan relations were strained over support for one another’s rebels.[fn]Tensions between the two Sudans escalated in December 2014 as Sudan’s defence minister, Abdel Rahim Hussein, and intelligence chief, Mohamed Atta, claimed that Juba had continued to harbour and support Sudanese rebel groups. Atta warned South Sudan that any incursion by rebel forces from its territory would be treated as an “assault”, and threatened to pursue rebels inside South Sudanese territory. In response, SPLA spokesperson Philip Aguer said Khartoum’s comments amounted to a declaration of war. “Khartoum again warns Juba against supporting Sudan’s JEM rebels”, Sudan Tribune, 17 December 2014. “Sudan warns South Sudan against ‘hostile moves’ by rebels in its territory”, Reuters, 17 December 2014.Hide Footnote Leveraging its longstanding ties with the Sudanese government, Beijing sent Foreign Minister Wang Yi to convene a “special consultation meeting” in Khartoum that included South Sudan’s warring parties, Ethiopia, Sudan and IGAD.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March 2016, Juba, April 2016.Hide Footnote Zhong Jianhua, then special representative of the Chinese government on African affairs said:

We hoped to help elevate Sudan’s international status. Choosing Khartoum gave the Sudanese government considerable recognition and encouragement. We acknowledged Sudan’s role in addressing the conflict and believed that it should play an important role. Sudan very much welcomed the decision and felt that we paid enough respect by making it the host.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote

The meeting did not produce concrete resolutions, but Beijing secured renewed commitments to oil infrastructure security, melding its economic interests with those of Sudan and South Sudan. It “put Sudan and South Sudan on notice … China sent a message to the Sudanese government that supporting conflict in South Sudan would go against Chinese interests. Western countries were not in a position to do so”.[fn]Crisis Group interview, senior U.S. official, Washington, May 2016.Hide Footnote The event also “made IGAD refocus its attention and added new momentum to the peace process”.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote Chinese influence encouraged Khartoum to exercise restraint in South Sudan, which also helped set the Sudanese government up in 2016 for its negotiations over sanctions relief from Washington, which was counselling the same approach.

Beijing considered this a “ground-breaking” initiative. “It was the first time that we called upon leaders of countries in the region to discuss conflict resolution in another country”.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote Western and African partners increasingly have urged Beijing to take on more responsibility, given its permanent seat on the UN Security Council and leverage over parties concerned.[fn]“South Sudan’s famine is China’s chance to lead”, Bloomberg, editorial, 27 February 2017.Hide Footnote According to one UN official: “It can punch way more weight … China can put its foot down on deadlines. It can be tougher. It can insist on implementation”.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote

2. Chinese interests as global interests

China was as surprised as the rest of the world when the civil war began, and scrambled to secure its oil infrastructure in the volatile Greater Upper Nile region. Some installations were destroyed in the first weeks of the war and opposition forces threatened to attack and destroy others.[fn]The war started in Juba and quickly spread throughout Greater Upper Nile. Crisis Group Report, South Sudan: A Civil War by Any Other Name, op. cit.Hide Footnote

China hedged between the government and SPLM/A-IO (the rebel grouping negotiating with the government), providing financial and other support to both parties conditioned upon their guaranteeing the security of oil infrastructure or, in the case of the rebels, not attacking it. Beijing may have overestimated the SPLM/A-IO’s capabilities after the first few months of war; it was in the rebels’ interests to overstate their ability to threaten the fields, a case they continue to make.[fn]Attacking the oil fields again would have put them at odds with Khartoum, which was their primary source of arms. Crisis Group interview, SPLM-IO member, December 2016.Hide Footnote

China, alongside most of the international community, also overestimated SPLM/A-IO leader Riek Machar’s command and control over the forces operating in his name. When Johnson Olony, a rebel turned government general in 2013, defected (again) to the opposition in 2015, his first act was to march on the oil fields – flouting Machar’s agreement with the Chinese.[fn]Crisis Group Africa Report N°228, South Sudan: Keeping Faith with the IGAD Peace Process, 27 July 2015, p. 14.Hide Footnote His forces briefly captured Melut town and were poised to launch an offensive on the well-defended Palioch oil fields nearby. Chinese and Western diplomats rushed to avoid an oil shutdown amid calls to pull out foreign workers.[fn]Crisis Group interviews, U.S. officials, Washington, May 2015.Hide Footnote In the end, Olony’s forces were turned back by South Sudanese government forces. But the incident demonstrated the limits of China’s arrangement with Machar.

The wider international community supported China’s efforts to protect oil infrastructure; few could envision war-ravaged South Sudan rebuilding without oil revenue.[fn]Crisis Group interviews, Western and regional diplomats, Addis Ababa, 2014-2015.Hide Footnote However, China was the only actor prepared to provide direct help to keep the oil flowing. Quiet understandings with both the government and rebels offered China the prospect of benefits beyond wartime security – good relations with Juba and, on the ground, with the leadership of oil-producing states that former rebels would have governed had the peace agreement been fully implemented.[fn]Crisis Group Report, South Sudan: Rearranging the Chessboard, op. cit. The 2015 IGAD peace agreement provided that the two major oil-producing states of South Sudan were to be governed by Machar’s rebels. “Agreement on the Resolution of Conflict in the Republic of South Sudan”, IGAD, 17 August 2015, pp. 17-18.Hide Footnote

3. African solutions to African problems

China has called for “African solutions to African problems”, an approach that gives Beijing’s policy considerable room to evolve.[fn]Premier Li Keqiang debuted China’s commitment to the concept in May 2014. “第十五届’蓝厅论坛’在外交部举行, 外交部长王毅发表主旨演讲” [“The 15th ‘Lanting Forum’ takes place in the foreign ministry; foreign minister Wang Yi delivers keynote speech”], press release, Chinese foreign ministry, 26 November 2015; Crisis Group interviews, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote In South Sudan, it insists on IGAD’s lead role and is reluctant to reach for the reins even when the process falters. “We have to let local people decide their own fate, even though they might end up with nothing”, said a senior diplomat.[fn]Crisis Group interview, Beijing, March 2016.Hide Footnote It also can be swayed by African endorsements. In May 2011, following fighting in Abyei, a region disputed between Sudan and South Sudan, an African Union (AU) Peace and Security Council communiqué helped put an end to Beijing’s resistance to the idea of intervention by external actors. China subsequently voted at the Security Council in June to authorise peacekeepers for Abyei.[fn]As one diplomat said: “When China and Russia saw it was African text, they were okay”. Crisis Group interview, EU diplomat, Addis Ababa, April 2016; “Communiqué: The Peace and Security Council of the African Union (AU), at its 280th meeting held on 20 May 2011, in Addis Ababa, considered the implementation status of the Comprehensive Peace Agreement (CPA) in Sudan”, PSC/PR/BR (CCLXXX), 20 May 2011; “Communiqué of the Consultative Meeting between Member of the Council of the United Nations and the Peace and Security Council of the African Union”, United Nations, 21 May 2011. “Resolution 1990 (2011)”, S/RES/1990 (2011), 27 June 2011.Hide Footnote

Western diplomats found that the most effective way to win China’s (and Russia’s) approval of – or acquiescence to – Africa-related UN Security Council resolutions is to obtain backing from the body’s African members.[fn]Crisis Group interview, Western diplomat, Addis Ababa, April 2016.Hide Footnote When African council members are divided, for instance over whether to support an arms embargo for South Sudan, China has urged the bloc to find a common position it can support.[fn]Crisis Group interview, Western diplomat, Juba, June 2016.Hide Footnote

That said, there are signs China’s approach is evolving. As it becomes more familiar with, and invested in, international peace and security mechanisms, it has begun to try to shape regional positions behind the scenes rather than passively follow them. This has been most notable with respect to Sudan and South Sudan.

4. Persuasion not punishment

China typically resists sanctions, shuns open criticism and prefers behind-the-scene persuasion. Itself once a target of sanctions, Beijing retains an ideological aversion to them, seeing them as instruments of Western coercion.[fn]Crisis Group interview, Chinese scholar, Beijing, 26 January 2016.Hide Footnote It also argues sanctions rarely achieve the intended effect and often backfire.[fn]Crisis Group interview, Chinese diplomat, 21 April 2016.Hide Footnote In practice, however, China has often adopted a more nuanced approach.

When sanctions are discussed, China occasionally mediates between the government and Western powers. “The Troika often raised the threat of sanctions”, a Chinese diplomat recounted, “China would play the role of ‘good cop’ to ease tensions”, urging patience from Western partners while counselling the targeted party to make concessions.[fn]Crisis Group interviews, Chinese diplomats, April 2016. The U.S., UK and Norway, have operated as one unit when mediating conflicts in and between the two Sudans, coordinating policymaking and speaking with one voice. The term “Troika” first surfaced in early 2001 as the three countries began to pursue concerted efforts in the Sudan peace process.Hide Footnote Functioning as messenger rather than enforcer allows Beijing to leverage its political influence without risking it.[fn]Other governments – including Ethiopia, Japan and Uganda, among others – have played this role with the South Sudanese government in recent years. Crisis Group interviews, Juba, Addis Ababa, 2014-2016.Hide Footnote China has used this approach on several occasions in recent years, including in efforts to secure the release of some of the thirteen senior SPLM members Kiir arrested and accused of plotting a coup in 2013.[fn]“S. Sudan releases two political detainees, calls for ceasefire”, Sudan Tribune, 27 December 2013; “Communiqué of the 23rd extra-ordinary session of the IGAD assembly of heads of state and government on the situation in South Sudan”, communiqué, IGAD, Nairobi, 27 December 2013; “Direct talks on South Sudan open in Ethiopia”, BBC, 5 January 2014; “South Sudan rejects call to free detainees as troops defect”, Bloomberg, 6 January 2014.Hide Footnote

On 3 April 2014, with four still in custody (and as war and atrocities continued) the U.S. announced a sanctions regime on South Sudan.[fn]“Executive Order – Blocking Property of Certain Persons With Respect to South Sudan”, the White House, 3 April 2014.Hide Footnote Chinese diplomats subsequently met with senior South Sudanese officials, including Kiir, advising flexibility and pragmatism rather than “taking the West head-on”.[fn]Crisis Group interview, Chinese diplomat, April 2016.Hide Footnote Juba announced the remaining detainees’ release on 25 April “to promote peace and reconciliation”.[fn]“South Sudan frees alleged rebel leaders”, Al Jazeera, 25 April 2014.Hide Footnote Although the U.S. imposed individual sanctions the following month due to alleged involvement in atrocities and for undermining peace negotiations, they targeted lower ranking individuals than initially envisaged.[fn]“John Kerry visits South Sudan, warns gov’t and rebels to avert ‘genocide’”, Associated Press, 2 May 2014; “U.S. sanctions both sides of South Sudan conflict”, Reuters, 6 May 2014. The U.S. had threatened to sanction top leaders on both sides but instead sanctioned two operational generals. The number later rose to six, the most senior sector commander.Hide Footnote

China’s somewhat ambivalent relationship to sanctions is evidenced by its record at the Security Council. On 3 March, China voted in favour of a U.S.-sponsored resolution laying the groundwork for targeted sanctions in advance of a 5 March peace process deadline.[fn]UNSC S/2015/2206, 3 March 2015.Hide Footnote Initially, China objected, due to ongoing negotiations, but it ultimately voted in favour, to “send a unified message”.[fn]“中国反对通过联合国南苏丹制裁决议” [“China opposes passing UN resolution imposing sanction on South Sudan”], BBC, 27 February 2015; “UN sets up sanctions regime for S. Sudan”, VOA News, 3 March 2015. The resolution also established a UN Panel of Experts to provide regular reporting to the Security Council on South Sudan.Hide Footnote Subsequently activists called for sanctioning both Kiir and Machar. In talks with the U.S., Beijing agreed not to block Washington’s efforts to sanction moderately high-ranking commanders in July 2015 in return for taking more senior officials off the sanctions list.[fn]Crisis Group interview, Addis Ababa, 22 April 2016.Hide Footnote This allowed Beijing to both stand with the international community and mollify Juba. Before the vote, South Sudan’s Vice President James Wani relayed Kiir’s “high regards and sincere gratitude” for Beijing’s “objective stance” to the Chinese ambassador.[fn]“南苏丹副总统瓦尼紧急约见马强大使” [“South Sudanese Vice President Wani requests emergency meeting with Ambassador Ma Qiang”], Chinese embassy in Juba, 3 March 2015.Hide Footnote

The flexibility also reflects back-and-forth between the capital, more concerned about principles, and the field, more preoccupied with influencing developments on the ground. With intimate knowledge of the conflict, peace process and parties involved and influenced by daily interactions with other international players, frontline diplomats may see the utility of sanctions. “Sometimes in order to have the process moving, you need to show teeth. Ultimately you need some leverage”.[fn]Crisis Group interview, Chinese diplomat, Addis Ababa, April 2016.Hide Footnote While never quite identical, the diplomats’ views also began to converge with those of counterparts in Beijing in seeing sanctions, or their threat, “as leverage to influence future behaviour instead of punishment for past behaviour”.[fn]The first round of U.S. and UN sanctions were for past human rights abuses and ceasefire violations, and not designed to shape future behaviour. Crisis Group interview, senior U.S. official, Washington, May 2016.Hide Footnote

5. Development-focused governance vs. liberal democratic governance

Beijing generally sees underdevelopment as the root cause of instability and believes its governance model better suited to cure this than Western democracy.[fn]Crisis Group interviews, Chinese diplomats, Juba and Addis Ababa, April 2016. Liu Guijin, speech, “Protecting Interests and Nationals in Africa: Chinese and European Approaches and Experiences”, CICIR-SIPRI, Beijing, 12 September 2014. Also see, “Peacekeeping, Mediation, Assistance, Escort, Development – Wang Yi Talks about Five Keywords of China’s Assistance to Peace and Security in Africa”, Chinese foreign ministry, 11 August 2016.Hide Footnote As one diplomat said: “People don’t have enough to eat. Most are illiterate. Does Western democracy really work [in South Sudan]?”[fn]Crisis Group interview, Juba, April 2016.Hide Footnote Some Chinese analysts believe the West places “too much emphasis” on “procedural legitimacy” at the cost of stability, which they argue requires a strong regime, especially in nation-building’s early stage.[fn]Crisis Group interview, Chinese analysts of African affairs at a state-affiliated think-tank, Beijing, January 2016.Hide Footnote

China believes its own post-Mao model of governance and development – a hybrid of planned and market economy under one-party rule – fits the Horn of Africa and is more appealing than Western democracy.[fn]Crisis Group interview, senior Chinese diplomat, Juba, April 2016.Hide Footnote As one scholar put it, African nations (or at least their leaders) are attracted to the Communist Party’s ability to make decisions, mobilise resources and speedily launch ambitious endeavours thanks to its concentration of power and absence of effective dissent.[fn]Crisis Group interview, Chinese scholar on Africa Studies, Beijing, January 2016. The Ethiopian People’s Revolutionary Democratic Front is among the most enthusiastic African adherents to aspects of the Chinese model. Others include ruling parties in South Africa, Zimbabwe and Namibia. Yun Sun, “Political Party Training: China’s Ideological Push in Africa?”, Africa in Focus, Brookings Institute, 5 July 2016.Hide Footnote

Rather than pushing its model, Beijing soft-sells it. An official said: “We don’t have slogans like the West does. We only share experiences”.[fn]Crisis Group interview, Liu Guijin, former special representative for African affairs and on the Darfur issue, Beijing, March 2016.Hide Footnote Between 2010 and 2013, the Communist Party organised workshops for senior SPLM cadres in Juba and Beijing on topics including poverty alleviation, social and economic development, public opinion guidance and party-building.[fn]Zeng Aiping, “China-Africa Governance Exchanges and Experiences”, Chinese Institute of International Studies (www.ciis.org.cn), 3 December 2015.Hide Footnote The embassy also “explained China’s governance principle and practice” to South Sudanese officials.[fn]Crisis Group interview, Chinese diplomat, Juba, April 2016.Hide Footnote

B. China’s Assets

Chinese diplomats and African officials also say Beijing has gained the trust of parties because it is seen as the most neutral among mediators.[fn]Crisis Group interviews, Beijing, Juba, Addis Ababa, January-April 2016.Hide Footnote Its interests are clear and, rather than pushing particular paths, it is more focused on the end state of peace and economic stability. Beijing assiduously avoids the appearance of taking sides, shuns public denunciation and is reluctant to resort to pressure or punishment. As its primary concern appears to be protecting its commercial interests, maintaining amicable relations with all sides constitutes a hedge against risks: “keeping a low profile” helps ensure it “makes no enemies”.[fn]Crisis Group interviews, Chinese diplomats and scholars, Beijing, January-March 2016.Hide Footnote Moreover, loans and assistance typically come with no strings attached, which governments see as welcome alternatives to Western donations that are tied to human rights conditions or governance standards.

There are historical affinities as well. China shares with many African countries “painful memories” of humiliation and oppression by Western powers,[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote a similarity that both helps guide Beijing’s approach and appeals to its African counterparts. All in all, this combination of factors provides Chinese diplomats with access to important players, access often appreciated by its Western partners, who are frustrated and concerned about their own lack of leverage.[fn]Crisis Group interviews, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote

Even as it deepened ties with Juba, Beijing maintained close relations with Khartoum. Its access to both sides was valuable to the IGAD mediation.

South Sudan is a case in point. Initially, its leaders viewed Beijing with suspicion and resentment due to its support for Khartoum. However, after the 2005 peace agreement, pragmatism drove both Beijing and Juba to establish and solidify political, economic and party ties. Kiir visited Beijing in 2005 and 2007. Even as it deepened ties with Juba, Beijing maintained close relations with Khartoum. Its access to both sides was valuable to the IGAD mediation.[fn]Crisis Group interview, U.S. official, Washington, May 2016.Hide Footnote

1. Economic leverage

Oil accounts for almost all South Sudan’s exports.[fn]At independence, oil accounted for 98 per cent of government revenue. “South Sudan – Over­view”, World Bank, updated 9 April 2016.Hide Footnote The consortium led by China’s oil corporation accounts for most of the investment in its oil industry; its withdrawal would render it impossible to maintain production levels and could prompt a collapse of the formal economy. Therefore, Beijing’s message to Juba was relatively clear-cut, “if you want us to stay, you have to keep us safe …. In the short run, you must ask the troops to safeguard our oil fields. In the long run, you have to stop fighting and implement the ceasefire”.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, March 2016.Hide Footnote

Beijing delivered a similar message to the opposition, and secured an unwritten promise that it would not attack the oil fields.[fn]The promise was cemented through ongoing engagement with senior rebel leaders and financial inducements. Crisis Group interviews, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, March 2016; SPLM/A-IO officials, Addis Ababa, 2014-2015; Nairobi, 2016.Hide Footnote China’s National Petroleum Corporation “at the Chinese government’s behest” continued production and, at some points, paid Juba higher-than-market prices, even when running a loss.[fn]Crisis Group interviews, Chinese diplomats, Juba and Addis Ababa, April 2016. China was granting such terms in hopes of renewing its contracts and winning future concessions.Hide Footnote

In the same spirit, Beijing leveraged its loan policy. Before the civil war, the Ex-Im Bank had pledged loans and credit for at least three projects; it subsequently held off from disbursing the money because of the conflict and related economic challenges.[fn]Crisis Group interview, Chinese businessman, Juba, 12 April 2016; Peter Bashir Gbandi, South Sudanese acting foreign minister, Juba, 13 April 2016. See also, “进出口银行与南苏丹签署融资合作文件” [“Ex-Im bank and South Sudan sign financing cooperation document”], China Ex-Im Bank, 28 July 2014; “Republic of South Sudan Staff Report for 2014 Article IV: Debt Sustainability Analysis”, International Monetary Fund (IMF), 2 December 2014; “Even China has second thoughts on South Sudan after violence”, Los Angeles Times, 20 February 2014.Hide Footnote Other loans and investments also are on hold. China insists that: “Without peace, our money would go down the drain”.[fn]Crisis Group interview, Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote

Ultimately, Beijing’s economic clout translates into political influence, and both Juba and the opposition have learned to respect China’s interests and messaging.[fn]Crisis Group interviews, Chinese, Western and African diplomats, Juba and Addis Ababa, April 2016.Hide Footnote This extends to Khartoum, according to one UN official: “Whatever China said was listened to very carefully [by] both Sudan and South Sudan”.[fn]Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote

2. Humanitarian assistance

Beijing has skilfully tailored the timing and manner of delivery of modest donations to produce maximum impact. Since the outbreak of civil war, China has provided at least $49 million in humanitarian assistance, with $10 million going to the World Food Programme (WFP), other in-kind aid and occasionally as emergency cash.[fn]For a breakdown of major pledges totalling $21 million between December 2013 and July 2014, see Zhou Hang, “China’s emergency relief to South Sudan”, The Diplomat (http://thediplomat.com), 26 October 2014. Additionally, China has pledged or delivered humanitarian assistance of at least $29 million and 8,750 tons of food since then. “China pledges 10 mln USD aid to South Sudan”, Xinhua, 24 August 2016; “China to provide S. Sudan with financial, food aid amid famine; envoy”, Xinhua, 26 April 2017; “China contributes US$5 million to WFP’s emergency operation in South Sudan”, press release, World Food Programme, 6 June 2017.Hide Footnote

While comparatively small,[fn]By comparison, the U.S. – the single largest contributor – has pledged $2.4 billion in humanitarian assistance since late 2013 for aid to South Sudanese in-country and in refugee camps in neighbouring countries. “South Sudan – Crisis: Fact Sheet #8 Fiscal Year (2017)”, United States Agency for International Development 25 May 2017.Hide Footnote assistance tends to be free from restrictive regulations, conditionality, or domestic media scrutiny, affording Beijing flexibility and manoeuvring room that OECD Development Assistance Committee member states typically lack; by the same token, China can be more responsive to Juba’s requests. For example, China provided food, shelter and water for the temporary SPLA-IO military assembly areas used when its members returned to Juba to form the transitional government. It worked in coordination with Western countries that could not provide such assistance to a military encampment but could transport soldiers to Juba.[fn]This was permissible in-line with the Troika’s approved mandate to spend funds in support of implementation of the August 2015 peace agreement.Hide Footnote “The embassy drew a list of things needed worth about $1 million. We built prefabricated houses, provided generators, mosquito nets … [which were] in place just in time for the return of the 1,300 soldiers”.[fn]Crisis Group interview, Chinese diplomat, April 2016.Hide Footnote

Juba has been more likely to listen to China – which has turned a blind eye to human rights violations – than to Western countries, whose relationships with the government dramatically deteriorated in recent years. This appears to have been the case with regards to ensuring continued humanitarian access; access to rebel-held areas. The Chinese ambassador secured Juba’s consent for China to support UN WFP operations and its agreement to the WFP’s sensitive cross-line food deliveries to rebel-held areas. A Chinese diplomat said:

I went to talk with the foreign minister and the minister of humanitarian affairs. I told them that China was going to give the government $8 million in humanitarian assistance. I also said we can’t neglect people in the three northern states and that China wanted to provide them $5 million of food assistance.[fn]Crisis Group interview, Chinese diplomat, April 2016.Hide Footnote

C. China’s Limitations

1. Experience and capability

Compared with its Western counterparts, the Chinese foreign ministry is only in the early stages of building institutional infrastructure, acquiring expertise and establishing its authority on matters related to conflict resolution. “The British and French have been here more than 100 years. We are learning. For many years we were very careful and only interested in economic and trade issues” said a senior diplomat in Addis Ababa.[fn]Crisis Group interview, Addis Ababa, April 2016.Hide Footnote

Beijing also is handicapped by a shortage of field capacity. Embassies across Africa face a dramatic increase in their workload as the number of nationals and companies grows, but without a concomitant increase in staff or resources.[fn]Crisis Group interview, Liu Haifang, Associate Professor, Peking University, Beijing, January 2016.Hide Footnote When the civil war broke out in 2013, the Chinese embassy in Juba had about twenty staff, compared with about 300 American and local employees in the U.S. embassy.[fn]Crisis Group interview, Chinese diplomat, Beijing, March 2016. U.S. figure is from “Report of Inspection Embassy Juba, South Sudan, Report Number ISP-I-13-29A”, United States Department of State and the Broadcasting Board of Governors Office of Inspector General, May 2013.Hide Footnote Supporting South Sudan’s peace efforts placed additional demands on the mission, but it was not given supplementary resources. The Chinese special envoy does not have a dedicated support team; instead, he relies on desk officers at the Western Asia and North Africa Department when in Beijing, and on embassies while in the field.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March 2016, Addis Ababa, April 2016. For a sense of the scope of the U.S. diplomatic effort, see Princeton N. Lyman and Robert M. Beecroft, “Using Special Envoys in High-Stakes Conflict Diplomacy”, Special Report 353, United States Institute of Peace, October 2014.Hide Footnote

2. Expertise

Chinese diplomats also suffer from a relative paucity of first-hand information. The foreign ministry is one of the very few reservoirs of expertise and field intelligence, yet positions in Africa are less coveted than those in Europe or North America, resulting in a comparatively shallow bench for talent. Diplomats rarely have the freedom, time or authority, to go on fact-finding trips.[fn]Crisis Group interviews, foreign ministry officials, Beijing, March 2014, Addis Ababa, April 2016.Hide Footnote Nor does China possess a network of field-based NGOs to complement diplomats’ knowledge.[fn]Crisis Group interviews, Chinese diplomats, Beijing, March 2016, Addis Ababa, 22 April 2016. Ambassador Liu Guijin said early in his involvement in Darfur he had read everything China had produced on Sudan, but was “shocked” that his Western counterparts “even knew how many concubines each of them [rebel leaders] had and which one was pretty”. Crisis Group interview, Beijing, March 2016.Hide Footnote Western NGOs on the ground are often nervous about engaging China, fearful that sensitive information could be passed on to Juba (a concern many also express about IGAD member states).[fn]Crisis Group interviews, NGO staff, Juba, 2014-2016.Hide Footnote

Outside the foreign ministry, conflict resolution is a nascent discipline and country-specific expertise remains underdeveloped. Although African studies has gained prominence in recent years in think-tanks, most are state-affiliated and the field is underfunded and overlooked compared with U.S.-China relations or hot-button issues in Asia. African studies have tended to focus on broad cross-cutting subjects, rather than country-specific analysis. Moreover, field research by scholars faces both funding constraints and bureaucratic hurdles – a trip abroad of more than five days requires special approval.[fn]Crisis Group interviews, scholars in think-tanks and universities, Beijing, January 2016 and March 2017.Hide Footnote “China has increasing political will but feels constrained …. It doesn’t have many experts who truly understand South Sudan. The reservoir of expertise in China is small”.[fn]Crisis Group interview, scholar in a state-affiliated think-tank who specialises in Sudan and South Sudan, Beijing, January 2016.Hide Footnote

3. The costs of peacemaking

China has paid a price – both economic and in terms of human lives – as a result of its greater role in peacemaking in South Sudan. In 2014, a $38 million, multi-year arms contract between the South Sudanese government and the China North Industries Corporation (NORINCO) was made public.[fn]“China halts arms sales to South Sudan after NORINCO shipment”, Bloomberg, 30 September 2014.Hide Footnote Senior diplomats said the contract was signed before the war began and that NORINCO, although a state-owned enterprise, was seeking profit rather than advancing any state agenda.[fn]Crisis Group interviews, Beijing, March-April 2016. China’s ministry of foreign affairs (MFA) does not have formal authority over state-owned enterprises. The largest, including China North Industries Corporation (NORINCO), are overseen by the State-owned Assets Supervision and Administration Commission (SASAC), which is of equal bureaucratic rank with the MFA.Hide Footnote The embarrassment caused by the publicity led China to halt the remainder of the contract on grounds it was “inappropriate”.[fn]“China halts arms sales to South Sudan after NORINCO shipment”, Bloomberg, 30 September 2014.Hide Footnote It was the first public indication that China was willing to sacrifice economic gains – in this case a relatively small contract – in the interest of its peacemaker role. Whether this becomes more standard policy remains to be seen.

China’s peacekeeping role also has security implications. Following rushed evacuations and fearful for its workers’ safety, China included protection of workers on oil installations in the UN peacekeeping mission’s mandate in 2014.[fn]S/RES/2155 (2014), 27 May 2014.Hide Footnote Backing this up with action, China deployed its first-ever peacekeeping infantry battalion to South Sudan in January 2015.[fn]Previously, China had 350 engineers, medical and other non-combatant personnel in the mission. The additional 700-strong battalion made UNMISS home to the largest number of Chinese peacekeepers. “Chinese peacekeepers start deployment in South Sudan”, Reuters, 16 January 2015. “UN Mission’s Contributions by Country”, United Nations, 31 July 2016.Hide Footnote But when fighting broke out in Juba in July 2016, Chinese peacekeepers were caught in the crossfire. Five were wounded and two eventually died.[fn]Luo Zheng, “艰难一日,我南苏丹维和步战车遇袭事件始末” [“A hard day: recount of the attack on Chinese peacekeeping infantry fighting vehicle in South Sudan”], China Military, 19 July 2016.Hide Footnote The deaths shocked the nation and the soldiers were publicly mourned.[fn]“维和英雄李磊忠魂归乡 万余群众冒雨相送” [“Peacekeeping hero Li Lei’s soul returns home, thousands brave rain to attend funeral ceremony”], Xinhua, 22 July 2016; “南苏丹维和士兵中秋为两位牺牲战友摆碗筷” [“Peacekeepers in South Sudan set the table for two deceased comrades for Mid-Autumn Festival dinner”], China Central Television, 16 September 2016.Hide Footnote Nonetheless, Beijing subsequently reaffirmed its growing commitment to multidimensional peacekeeping operations.[fn]“综述:中国愿为联合国维和事业作出更大贡献” [“Review: China is willing to make greater contribution to UN peacekeeping”], Xinhua, 28 July 2016.Hide Footnote China is expanding the peacekeeping categories in which it is deploying troops and making multi-year commitments to seven missions.[fn]Crisis Group interview, Chinese diplomat, New York, February 2017.Hide Footnote It also is exploring how it can further develop its role and has set up a task force supported by the $1 billion UN Peace and Development Fund that President Xi announced in September 2015.[fn]Remarks by H.E. Xi Jinping President of the People’s Republic of China at the United Nations Peacekeeping Summit, 28 September 2015; “China to set up $1b peace fund”, China Daily, 29 September 2015.Hide Footnote

V. Road Ahead: Collaboration and Competition

China and the West have largely worked collaboratively on South Sudan and their approaches broadly have complemented each other – providing a model for future cooperation. Beijing’s softer, more private forms of persuasion benefit from the contrast with the Troika’s (the U.S., UK and Norway) harder line. Both Chinese and U.S. diplomats express optimism regarding prospects for coordinated and complementary efforts and are in close contact. Yet overarching U.S.-China tensions colour this engagement and IGAD and its member states must also ensure they do not get dragged into geopolitical rivalries that could undermine their peace efforts.

A. Different Approaches on Economic Issues

Coordination likely will prove more challenging on questions of governance and accountability, and collaboration will coexist with competition. On economic issues, challenge likely will intensify as South Sudan faces a politically-induced economic crisis (prolonged instability has cut oil production by nearly half; international oil prices have fallen; the country experiences hyper-inflation; and corruption is rife)[fn]“Press Release: IMF staff completes 2016 Article IV Mission to South Sudan”, International Monetary Fund, 1 June 2016.Hide Footnote and needs budget support to cover a $300 million fiscal gap in FY 2016-17.[fn]Before the civil war, donors almost never provided direct budget support and development aid was administered through the UN, NGOs or private contractors. Very little of this proved effective, making donors even more wary. “South Sudan seeks $300 mln in external support for budget”, Reuters, 29 August 2016.Hide Footnote Western donors seek to leverage Juba’s requirement for a fiscal bailout to extract commitments to economic reform and fiscal responsibility.[fn]There are questions as to whether the new U.S. administration will pursue the same policy. In 2012, it was reported that South Sudan’s elite had stolen $4 billion. “South Sudan officials have stolen $4 billion: president”, Reuters, 4 June 2012.Hide Footnote While Western nations insist any rescue package “will come with extremely intrusive demands” (which Juba rejects),[fn]Crisis Group interview, EU official, Addis Ababa, April 2016. These conditions include revenue and spending transparency to ensure a bailout does not line the pockets of corrupt officials or finance more violence. “What we want to see is real-time information on how much the government is getting, how much and where it is spending. We do not want to tell it where to spend. We want to ensure that money is not going into some elite’s bank accounts. We can’t justify spending our taxpayer dollars that way”. Crisis Group interview, senior U.S. official, Washington DC, May 2016.Hide Footnote Beijing is uncomfortable with what it deems direct interference in South Sudan’s domestic affairs and demurs on demanding fiscal transparency.[fn]In this, it is shaped by its own unhappy experience, having faced its share of Western criticism over its lack of transparency on military spending. Crisis Group interviews, Chinese diplomats and scholars, Beijing, January-March 2016; Chinese analyst at a state-affiliated think-tank, Beijing, January 2016; senior U.S. official, Washington, May 2016.Hide Footnote For now, China generally has hewed the Western line, echoing the IMF’s advice to the government and refrained from pledging more credit or loans.[fn]Crisis Group interview, senior U.S. official, Washington DC, May 2016.Hide Footnote But some Western countries fear China could unilaterally help Juba, weakening their leverage.

B. Strategic Cooperation on Political and Security Issues

On political and security issues, China prefers to work through regional actors rather than directly with the West. That is the case with South Sudan’s Joint Monitoring and Evaluation Committee (JMEC), for instance, which oversees the peace agreement and embodies “three-party [China-Africa-West] cooperation under a multilateral framework” that Beijing feels “comfortable with”.[fn]Crisis Group interviews, Chinese diplomats, Juba, April 2016.Hide Footnote A Chinese representative is present at JMEC meetings, but “only listens”, one African diplomat noted.[fn]Crisis Group interview, African JMEC member, Juba, April 2016.Hide Footnote At the same time, China has calibrated its contribution to maintain sway, providing financial and material support, and ensuring Chinese personnel are in influential positions.[fn]Crisis Group interview, senior African diplomat and senior Chinese diplomat, Juba, April 2016. “中国政府向JMEC提供30万美元资金支持” [“Chinese government offers $300,000 financial support to JMEC”], Chinese embassy in Juba, 18 April 2016. Crisis Group interview, UN official, Addis Ababa, April 2016; Chinese diplomat, Juba, April 2016.Hide Footnote

Mechanisms like JMEC allow China to justify a form of intervention under the mantra of “African solutions for African problems”. It likely will continue insisting on IGAD’s lead role, even as Western diplomats express doubt about the regional grouping’s commitment.[fn]China is comfortable working through IGAD, particularly given its close relations with Ethiopia, the organisation’s chair. Crisis Group interview, UN official, Addis Ababa, April 2016.Hide Footnote This approach enables China to both secure its influence within boundaries acceptable to its African partners and cooperate with the U.S. While this offers prospects for cooperation, it also carries the risk that South Sudan could suffer from any broader deterioration in U.S.-China relations.

VI. Conclusion: Engagement with Chinese Characteristics

Although China remains largely risk-averse, the degree of its involvement in South Sudan would have been “beyond imagination” even a few years ago.[fn]Chinese diplomats and scholars, Beijing, Juba and Addis Ababa, January-April 2016.Hide Footnote Its experience in the field will continue to inform the debate in Beijing about what level and kind of policy approach is possible, consistent with the non-interference principle.

The new boundaries of Beijing’s interpretation of this principle are yet to be officially delineated, but its rhetoric and actions in South Sudan suggest a rough outline. Specifically, Beijing appears to see direct involvement as legitimate when:

  • Civil conflicts threaten to spill over across borders, jeopardise regional security and stability and cause large-scale humanitarian crises. They are then “no longer internal political affairs but regional security affairs”.[fn]Crisis Group interviews, Chinese scholar, Beijing, 26 January 2016; Liu Guijin, former special representative of the Chinese government on African affairs, Beijing, March 2016. Also see 王逸舟, “创新不干涉原则,加大保护海外利益的力度”, 《国际政治研究》 [“Introduce new ideas on the non-interference principle, increase efforts to protect overseas interests”], International Political Studies, (Feb. 2013), p. 3.Hide Footnote
     
  • UN authorisation, regional approval and local consent are obtained.[fn]For instance, during the Darfur crisis, Beijing conditioned its involvement on “AU approval, UN resolution, and the Sudanese government’s acceptance”. Crisis Group interviews, Liu Guijin, former special representative of the Chinese government on African affairs, Beijing, March 2016; Zhang Chun, Senior Fellow, Centre for Africa and Middle East Studies, Shanghai Institutes of International Studies, Shanghai, March 2016. Also see Wang Yizhou, “New Direction for China’s Diplomacy”, Beijing Review, 8 March 2012.Hide Footnote
     
  • Actions are taken to facilitate political dialogue without imposing outcomes. “We would not meddle with … who should be the president and who should not. We only care about achieving a ceasefire and getting everyone to the table”.[fn]Crisis Group interview, Zhong Jiahua, then special representative of the Chinese government on African affairs, Beijing, 8 March 2016.Hide Footnote

In contrast, Beijing sees intervention as illegitimate interference when:

  • Attempts are made to influence domestic politics, such as dictating regime types, siding with political parties or figures or shaping political outcomes.[fn]Crisis Group interviews, Chinese scholar, Beijing, January 2016; Zhong Jianhua, then special representative of the Chinese government on African affairs, Beijing, March 2016; Also see Lu Shaye, “中非新型战略伙伴关系的几点思考” [“Some Thoughts on the New Strategic Partnership between China and Africa”], speech given at the Institute of International Strategy at the Party School of the Central Committee of the CPC, Beijing, 19 September 2012.Hide Footnote
     
  • Demands are made on governance issues, such as revenue, spending, political freedom and accountability.[fn]Crisis Group interviews, Chinese diplomats and scholars, Beijing, January-March 2016.Hide Footnote
     
  • Intervention is made unilaterally or with a minority group of nations without UN authorisation or regional consent.
     

Finally, China considers that a “red line” is crossed with the initiation of:

  • Unilateral military intervention in a country’s domestic affairs.
     
  • Regime change.[fn]Crisis Group interview, Chinese foreign ministry official, Beijing, March 2014.Hide Footnote

For the most part, China’s engagement is driven by self-interest although to a lesser degree it has taken into account the desire to export its own governance and development model and shape global norms. Such a distinction increasingly may blur if Beijing comes to see cultivating local political allies who share its views as the most effective means to protect Chinese interests and if it gains the confidence and capability to do so. In South Sudan and the wider Horn of Africa, where Beijing senses political affinity with governments, China has been discreetly promoting its model of governance and development through exchanges and training while resisting actions advancing Western values and political models.

Rather than the hard-edged doctrine its official rhetoric may suggest, non-inter­ference is likely to remain elastic and will continue evolving as China balances newfound activism and traditional risk-avoidance and maintains theoretical flexibility to accommodate experimentation.

China increasingly is being called upon to act, perhaps more than it would like.

As this evolution occurs, contradictions and tensions are bound to surface, in South Sudan and elsewhere, among competing Chinese interests, but also between China’s approach and values and those espoused by the West. At a minimum, Beijing will need more sophisticated expertise on peace and security issues, including peacebuilding and complex emergencies. China has a ready-made rationale and means for doing so – its increased engagement in UN peacekeeping as well as the China-UN Peace and Development Trust Fund, which could be accompanied by funding for more training, research and international exchange opportunities for Chinese practitioners and scholars.[fn]President Xi announced on 28 September 2015 that China would establish a $1 billion China-UN peace and development fund. Subsequently, on 7 May 2016 representatives of China and the UN signed an agreement China would provide $200 million in annual funding over ten years for a UN Peace and Development Trust Fund. “China signs agreement with UN to finance peace, security activities”, Xinhua, 7 May 2016.Hide Footnote China increasingly is being called upon to act, perhaps more than it would like. South Sudan is a first test case and, so far, it has illustrated a simple point: that, by working together and melding their at times distinct approaches, China and the West can form a more effective force for stability than either could separately.  

Beijing/Nairobi/Juba/Brussels, 10 July 2017

Appendix A: Map of South Sudan

Map of South Sudan. International Crisis Group/KO, July 2017.
This picture shows spent munitions lying on the ground at an abandoned oil treatment facility at Thar Jath in Unity State, South Sudan, 28 February 2015. AFP PHOTO / Tony Karumba
Report 305 / Africa

Oil or Nothing: Dealing with South Sudan’s Bleeding Finances

Upon South Sudan’s independence in 2011, many hoped the country’s oil wealth would help build the state and lift citizens out of poverty. Instead, politicians have shunted these revenues toward patronage and personal enrichment, feeding internal conflict. Transparency and accountability are badly needed.

What’s new? South Sudan’s rulers keep a tight grip on its oil wealth, blocking outside scrutiny and obstructing reforms urgently needed to ease both popular hardships and political tensions. Along with International Monetary Fund support, a peace deal has kickstarted new efforts to fix the country’s broken finances.

Why does it matter? South Sudan’s five-year civil war killed up to 400,000 people and brought the young nation close to collapse. If President Salva Kiir’s government begins to clean up the country’s budget, as it has pledged to do, opponents will have fewer incentives to take up arms again.

What should be done? Reform-minded South Sudanese and their external partners should focus on making the oil economy more transparent and accountable by ensuring that revenue deposits go in a single public account and through other anti-corruption measures. Donors should press commercial lenders to disclose their payments to Juba and follow South Sudanese law.

Executive Summary

South Sudan’s rotten state finances are derailing the young country from its already fraught path to peace and stability after a brutal civil war. Top officials hold the country’s oil riches close, barring scrutiny of spending and allowing rampant misappropriation of funds. This slush-fund governance is at the heart of South Sudan’s system of winner-take-all politics and helps explain why so much went so wrong so quickly after independence in 2011. 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. Reform-minded South Sudanese and outside partners should narrow their focus to those measures that begin to pry open the lid on the country’s oil wealth, ensuring, for starters, that oil revenues are deposited in a single public account. Simultaneously, donors should consider commercial levers to make South Sudan’s finances more transparent and accountable to its people, a critical step in halting the country’s tailspin.

The 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 neighbouring 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. The 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.

As South Sudan struggles to recover from civil war, its broken state finances are receiving renewed attention. During the war, Kiir mortgaged future oil exports for 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. Meanwhile, his loyalists diverted large portions of state revenue from the official budget, which is so leeched that the government routinely fails to pay salaries. The result is a cash-strapped state and a deeply aggrieved population with little confidence in its leaders, amplifying political and ethnic animosities.

Stabilising the country appears impossible without fixing its economy. South Sudan is a divided and fragile state that requires fairer power sharing in the centre and a devolution of authority outside Juba, but the parties cannot reach such a political settlement until they are adequately accounting for and sharing the oil funds. Frustrations are also boiling over among donors, who increasingly believe that their huge sums of humanitarian aid are sustaining a kleptocratic elite.

An acute economic crisis triggered by falling oil prices in 2020 opened a window to press for changes, but an uncoordinated approach could squander the chance. Over a ten-month period starting November 2020, South Sudan received some $550 million in relief from the International Monetary Fund (IMF), a lump sum equivalent to past annual budgets. The IMF received promises of some reforms but there were few strings attached. This support helped Juba stave off further slides in its currency but left many reform-oriented South Sudanese and donors frustrated that a government in such disrepute and so resistant to reforms received so much for so little.

A more coordinated strategy is needed. Drawing from the 2018 peace deal’s ambitious reform agenda, and the government’s technical commitments to the IMF, South Sudanese reformers and outside actors should pursue more select financial reform priorities that can redirect oil revenues back onto the books of the national budget. These should include the public disclosure of government revenues and debts, aided by the designation of a single oil revenue account, as well as efforts to shore up the weak guardrails that to date have permitted the looting of government deposits. Future IMF disbursements and donor support should require such transparency in total oil revenues, rather than simply accepting better management of funds that make their way into the official budget.

One further way for donors to boost their limited influence in Juba is through systematic engagement with the commodity firms, and their bankers and insurers, upon which South Sudan depends. For instance, donor governments should use the threat of regulation to encourage companies to disclose their payments to Juba, consistent with the way these companies increasingly disclose payments in other places. If they fail to do so, governments can consider demanding special licences that require such disclosure and certify compliance with South Sudanese law for companies under their jurisdiction to operate in South Sudan’s oil sector. Banks and insurers should protect themselves from legal and reputational exposure by requiring the same of their customers who do business in South Sudan.

At the same time, South Sudanese authorities and outside powers must start thinking now about South Sudan’s impending transition from a carbon economy as its oil production declines, new investment in it looks less attractive and the world sets bolder decarbonisation targets. In particular, donors should consider how their present and future support might help reconfigure, rather than reinforce, the top-down, centralised political economy that has led to such bloody destruction. Reform will not come easy, given the incentives for President Kiir and his allies to cling to South Sudan’s oil wealth. If the political class and outside powers do not succeed in convincing Kiir to enact these reforms, however, the country could squander an opportunity to find its footing before its wells run dry.

 Juba/Nairobi/Brussels, 6 October 2021

I. Introduction

South Sudan’s slide into civil conflict, barely two years after it achieved independence in 2011, has left the young nation and its outside backers with the herculean task of halting its tailspin while forging a political path forward. A violent contest for power, partly driven by the political elites’ desire to control the country’s oil revenues, has exacerbated its deep ethno-political and regional divisions. The linchpin of South Sudan’s economy, oil accounts for 85 per cent of government revenue and over 94 per cent of exports.[fn]South Sudan typically estimates total annual oil revenues at between $800 million and $1 billion. Its 2020-2021 budget, however, prepared by the ministry of finance, estimates net oil revenues at 90.244 billion South Sudanese pounds, at an official exchange rate of 167 pounds to the U.S. dollar, compared to non-oil revenues of 14.7 billion pounds. Crude oil accounted for 94.6 per cent of official exports in 2019, according to the Organisation for Economic Co-operation and Development (OECD) website.Hide Footnote

Prior to its independence from Sudan, the South’s case that it could build a viable state was straightforward. Even though the region did not have strong institutions, a cohesive army or an internal political settlement, the South Sudanese pinned their hopes on their oil wealth, arguing they could use it to build the state, create jobs and develop infrastructure. The petrodollars were indeed substantial: despite sky-high poverty and underdevelopment rates, at its birth South Sudan qualified as a middle-income country based on its per capita GDP.[fn]At its birth in 2011, South Sudan had a higher GDP per capita (around $1,516) than all its neighbours, according to the World Bank.Hide Footnote

Instead of propelling the young country forward, however, oil helped hold it back. Under President Salva Kiir, oil revenues supplied a slush fund for patronage politics and personal enrichment that the elite squabbled over. In 2013, a leadership struggle that included a fight over this giant prize degenerated into civil war. Peace efforts, in turn, have repeatedly turned into an exercise of squeezing subventions for as many belligerents as possible into the state budget. Although Kiir (from the Dinka ethnic group, the nation’s largest) and his main opponent, Riek Machar (an ethnic Nuer, the nation’s second largest such group), signed a peace deal in 2018 and formed a unity government in early 2020, their accord could easily crumble as combatants turn their guns on each other again.

Meanwhile, attempts by some officials to bring transparency to public finances and curb corruption continue to flounder: the books recording the oil revenues remain closed. After the global plunge in oil prices pushed the state into fiscal crisis in 2020, the government is more willing than before to discuss reforms of its murky finances in hopes of attracting badly needed support and investment. But South Sudanese activists and external partners will need a concerted strategy to take advantage of that window, lest South Sudan’s money continue to disappear with scarcely a trace.

This report examines South Sudan’s oil economy and its role in the country’s upheaval. It outlines recommendations to the South Sudanese and their external partners to make the country’s finances more transparent and their custodians more accountable, with an overall objective of reducing incentives for bloody struggles over power. The report is based on dozens of interviews with South Sudanese officials and activists, foreign diplomats and private-sector actors conducted in South Sudan, the U.S., the UK, Belgium, Netherlands, France and Switzerland in 2020 and 2021, as well as an extensive review of the available documentation of the country’s finances.[fn]These include available oil marketing reports, quarterly financial reports, sporadic production data and public presentations prepared by the ministry of petroleum, draft and approved budgets prepared by the ministry of finance, presentations from oil production companies, relevant legal and arbitration documents, and data gathered by other institutions, including the UN and the International Monetary Fund, as well as various confidential government documents and contracts seen by Crisis Group.Hide Footnote

II. Polluted Politics

A. Oil, Independence and Civil War

War has beset what is now South Sudan for over half a century. Insurgents took up arms against Khartoum’s rule on the eve of Sudan’s independence in 1956, ushering in protracted civil strife that left as many as two million people dead. But while the dominant narrative had the “African” south pitted against the “Arabised” north, Southerners were fighting for decades among themselves as well, primarily along ethnic and communal lines.[fn]Many South Sudanese perceive the communal fighting as pitting the country’s largest ethnic group, the Dinka, against the Nuer, the second largest. The Dinka dominate the Bahr el Ghazal region, while the Nuer control the Greater Upper Nile region. Smaller ethnic groups, meanwhile, formed their own militias, including in Equatoria. See Crisis Group Africa Report N°300, Toward a Viable Future for South Sudan, 10 February 2021.Hide Footnote

The discovery of oil in the late 1970s intensified the conflict with Khartoum. In the late 1990s, under President Omar al-Bashir, Sudan escalated its counter-insurgency in the South to clear the way for development of oil fields, most of which are located just south of today’s Sudan-South Sudan border. It won some battles but drew condemnation for its abuses of civilians, which also broadened Western and especially U.S. sympathy for the Southern cause. Regional peace talks and strong-arming by the George W. Bush administration finally helped convince Bashir, who feared U.S. military intervention, to accept a 2005 peace deal with the Sudan People’s Liberation Movement (SPLM), the political wing of the insurgent Sudanese People’s Liberation Army (SPLA), that promised the South a secession vote six years later. Khartoum also consented to give the newly semi-autonomous South 50 per cent of revenues from the oil produced there, a bonanza for an area roughly the size of France with only a smattering of small market towns.

Oil ... laid the groundwork for South Sudan’s secession.

Oil thus laid the groundwork for South Sudan’s secession. Flush with petrodollars, the SPLM’s rebels-turned-rulers could have not wished for more propitious timing: international oil prices reached new highs in 2004 and kept climbing, briefly soaring above $100 a barrel for the first time in 2008, then hovering above that mark from 2011 until 2014.[fn]“Brent Crude Oil”, Trading Economics, September 2021.Hide Footnote Led by Kiir, the SPLM quickly forged Southern consensus behind independence by handing out plum positions and promising a broad-based government after secession, which was all but a fait accompli by the time the 2011 referendum arrived.

But the sudden wealth gravely compromised the country’s stability. The SPLM had always been a shoestring operation, with field commanders largely left to finance their own units through a mix of taxation, aid diversion, cattle rustling, artisanal mining, logging and outright looting. During the war with Khartoum, some top rebels enriched themselves, buying upscale homes in Nairobi and Kampala. The 2005 Comprehensive Peace Agreement and the accompanying oil money propelled the elite’s propensity for illicit self-dealing to new heights. The influx of billions of dollars into a proto-state without established institutions resembled a free-for-all.[fn]See, for instance, Greg Larson, Peter Biar Ajak and Lant Pritchett, “South Sudan’s Capability Trap: Building a State with Disruptive Innovation”, Center for International Development at Harvard University, October 2013, p. 4.Hide Footnote Some officials, meanwhile, justified their scramble for oil money as recompense for decades of wartime suffering.

Pervasive corruption quickly helped erode Southern solidarity. Ethnic mistrust hardened as oil revenues appeared to concentrate in the hands of the SPLM elite, which many Southerners viewed as dominated by Kiir’s ethnic group, the Dinka. Since many smaller Southern ethnic groups had spent decades resisting the SPLM’s dominance, they remained on the periphery of the new quasi-official patronage network. Resentment deepened after a string of corruption scandals, including the 2008 “Dura saga”, when the government of the then semi-autonomous region awarded some $3 billion of contracts (at the official exchange rate) to a range of companies for the purchase and storage of cereals that mostly never arrived.[fn]Many contractors were apparently never paid. “The Report of the Auditor General on the Financial Statements of the Government of Southern Sudan for the Financial Year Ended 31st December 2008”, National Audit Chamber, Republic of South Sudan, 2012. The audit, conducted in 2012, found roughly $150 million paid under the contracts in 2008 at official exchange rates at the time. A Reuters investigation cited an insider saying “several hundred million dollars were frittered away” in the scheme. Hereward Holland and Pascal Fletcher, “Special report: In South Sudan, plunder preserves a fragile peace”, Reuters, 20 November 2012.Hide Footnote  In 2012, Kiir said the government could not account for $4 billion, dispatching dozens of private letters accusing senior officials of embezzling funds in the lead-up to independence, a move that further ratcheted up internal tensions.[fn]Letters Kiir sent to dozens of current and former officials demanding return of funds, 12 May 2012. Signed template on file with Crisis Group. Machar, then Kiir’s vice president, disputed the $4 billion figure and questioned Kiir’s political motives.Hide Footnote

After independence, oil emerged again as a cause of trouble. Facing deadlocked negotiations over how much to pay Sudan for the use of a pipeline transporting crude from Southern oil fields to export via Port Sudan on the Red Sea, Juba shut down its oil production in 2012 to force Khartoum’s hand. South Sudan’s army then captured the Heglig oil fields just across the border inside Sudan, triggering a short-lived border war before pulling back amid global outcry. Having cut off its only source of revenue, the government secured over $1 billion in oil-backed loans to tide itself over until exports resumed, a mechanism it would later deploy to fund itself during South Sudan’s civil war, in effect mortgaging the state’s future.[fn]South Sudan secured the loans from the country’s main foreign producers, China National Petroleum Corporation (CNPC) and Malaysia’s Petronas. See “Note Verbale Dated 31 October 2019 from the Permanent Mission of South Sudan Addressed to the UN Security Council”, UNSC S/2019/861, 1 November 2019.Hide Footnote

Government unity crumbled soon thereafter. Senior party officials began manoeuvring to challenge Kiir’s SPLM leadership and, therefore, his presidency. Kiir meanwhile abandoned his strategy of political inclusion and moved instead to consolidate power, tightening his own grip on the oil funds in the process. Discontent grew within the SPLM. The dispute escalated in 2013, when Kiir sacked Machar, who served as his vice president, along with many other top party officials. In December that year, gunshots rang out after a party conference as Dinka and Nuer elements of the elite presidential guard tasked with protecting both Kiir and Machar exchanged fire, plunging the nation into weeks of ethno-political bloodshed that descended into a five-year civil war. The conflict disrupted oil production, then drained South Sudan’s coffers. Fighting erupted just as a global commodity boom slowed, sending oil prices below $80 per barrel. Since South Sudan had based its export fee negotiations with Sudan on boom-time prices, the oil slump further eroded government income.[fn]Under the terms of a Transitional Financial Arrangement (TFA), South Sudan agreed to pay Sudan a one-off sum of $3.028 billion by 31 December 2016, through a fee of $15 per barrel of oil transported through Sudan. In addition, South Sudan agreed to pay Sudan a transport fee of $9.10 per barrel of oil produced in Upper Nile state and $11 for oil produced in Unity state, in total $24.10 and $26 per barrel respectively, regardless of the oil price. The terms were renegotiated in 2016, reducing payments toward the Agreement balance when oil prices fell below $50 per barrel, though keeping the fees the same.Hide Footnote

Widespread discontent with the government’s failure to improve South Sudanese people’s dire living conditions is putting the peace deal at further risk.

The ruling elite’s predation continues to threaten South Sudan’s stability. Though the 2018 big-tent peace deal brought the two main belligerents Kiir and Machar somewhat closer, on paper at least, and eventually led to a unity government, the simmering insurgency in Central Equatoria remains unresolved, in part because a rebel leader refused to sign out of frustration with, among other things, Juba’s monopoly on the country’s oil wealth.[fn]Crisis Group Africa Briefing N°169, South Sudan’s Other War: Resolving the Insurgency in Equatoria, 25 February 2021.Hide Footnote More critically, as noted, Kiir has yet to fulfil many of the pledges he made in the peace accord, such as incorporating former rival fighters into the army, often on the grounds that his government lacks the funds. Opponents view these claims as spurious and proof that Kiir has no intention of sharing the country’s wealth with non-loyalists, while Machar also faces accusations that he is hogging the spoils of peace.[fn]Crisis Group interviews, opposition politicians and commanders, 2018-2021.Hide Footnote Widespread discontent with the government’s failure to improve the South Sudanese people’s dire living conditions is putting the peace deal at further risk of collapse and feeding perceptions that armed struggle is the only avenue for effecting political change.

B. Obstructing a Settlement

As even South Sudan’s leaders acknowledge, the fight for petrodollars underlies much of its internal political strife, while fanning the flames of its ethnic and regional divisions.[fn]Crisis Group interviews, 2018-2020. In a May 2020 speech, President Kiir said: “All of us would be ashamed if we met our fallen comrades, because we have not lived up to their expectations. … The SPLM/SPLA was not formed to fight for the rights of a few to positions of power and wealth”. Salva Kiir, “2020 SPLA Day Speech”, 16 May 2020.Hide Footnote To be sure, these problems owe much to decades of colonial and Sudanese neglect that left South Sudan one of the least developed places in the world. Yet oil-dependent countries often suffer from political pathologies, and South Sudan is no exception.[fn]There is a body of research and analysis suggesting that oil-dependent states generally have poorer governance and are less democratic than non-oil-dependent countries, in part due to the ease of diverting funds and the volatility of oil prices. See Terry L. Karl, “The Perils of the Petro-State: Reflections on the Paradox of Plenty”, Journal of International Affairs, vol. 53, no. 1 (1999), p. 31; Paul Collier and Anthony Venables (eds.), Plundered Nations: Successes and Failures in Natural Resource Extraction (London, 2011); and Alexandra Gillies, Crude Intentions: How Oil Corruption Contaminates the World (Oxford, 2020).Hide Footnote The pot of oil revenues claimed by those atop South Sudan’s system dramatically raises the stakes of holding power, accentuating the winner-take-all nature of South Sudanese politics (which as discussed prevails even now, notwithstanding the power-sharing arrangement between Kiir and Machar). This centralised contest for oil money thus also obstructs the political reforms South Sudan so desperately needs, including, as Crisis Group has previously recommended, the adoption of a more consensual form of national governance and a devolution of authority and resources.[fn]Crisis Group has argued that a sustainable political settlement in South Sudan must have elements of both. Crisis Group Report, Toward a Viable Future for South Sudan, op. cit.Hide Footnote

[President] Kirr’s hold on oil revenues clearly works against more equitable power sharing.

Kiir’s hold on oil revenues clearly works against more equitable power sharing. His loyalists dominate the finance ministry, the Central Bank and the state-owned Nile Petroleum Corporation, known as Nilepet. Furthermore, despite the 2018 peace deal’s power-sharing provisions, Kiir’s confidants, including close kin and loyal lieutenants, operate as a shadow government, bypassing the institutions the formal administration controls in cooperation with the political opposition, and thus retaining the real balance of power and fuelling discontent in Machar’s camp.[fn]For instance, in the absence of a functioning budget, government ministers from both Kiir and Machar’s camp pay frequent visits to Tut Gatluak, President Kiir’s security adviser and now a major powerbroker, to seek funds. Crisis Group observations; Crisis Group interviews, senior politicians, Juba, 2020-2021.Hide Footnote The presidency’s centralised control of oil funds – and desire to maintain it – also complicates efforts to meet widespread demands for greater decentralisation, as the SPLM originally promised, or even to open up space for dialogue among South Sudanese about what proportion of national funds should flow to state and local administrations.[fn]Crisis Group Report, Toward a Viable Future for South Sudan, op. cit.Hide Footnote Of the 5 per cent of oil revenues that the constitution obliges the government to send to oil-producing states and counties, little appears to reach those destinations.[fn]A March 2021 government audit found that the state had opened the relevant accounts only in 2014 and that, by 2020, it had given $55.8 million of the $85.6 million transferred to the account for oil-producing areas to ineligible recipients. The same report found numerous illegal transactions from these accounts, including to the Office of the President, the finance ministry and individual politicians. “Report of the Auditor General on the Accounts of 2 per cent and 3 per cent of Net Oil Revenue of Oil Producing States and Communities for the Period 2011 to 2020”, March 2021. Copy on file with Crisis Group. Parliament’s budget committee members also noted they “continue to receive complaints about the 2 per cent and 3 per cent transfers to oil-producing states and communities”.Hide Footnote

Further, South Sudan’s petroleum politics empower the elite most resistant to change. Kiir’s government has spent the bulk of oil funds that did reach the budget on the military and the security sector, instead of building basic services that could alleviate the population’s suffering. During the war, his administration predictably bolstered the army and the infamous National Security Services, while also backing government-aligned militias.[fn]An official note appended to South Sudan’s 2017/2018 budget lamented that “expenditures are largely skewed toward defence at the expense of poverty reduction. Security and accountability/public administration and rule of law spending have accounted for over 70 per cent of the total budget over the past three fiscal years”.Hide Footnote These institutions acquire additional off-budget funds through Nilepet, and through the operation of private security companies guarding the oil fields.[fn]See, for example, “Final Report of the UN Panel of Experts on South Sudan Submitted in Accordance with Security Council Resolution 2428 (2018)”, UNSC S/2019/301, 9 April 2019; “Final Report of the UN Panel of Experts on South Sudan Submitted in Accordance with Security Council Resolution 2206 (2015)”, UNSC S/2016/70, 22 January 2016; “Capture on the Nile”, Global Witness, April 2018; and “Fueling Atrocities: Oil and War in South Sudan”, The Sentry, March 2018.Hide Footnote These additional off-budget revenues not only insulate much of the officer corps from oversight but also provide them with powerful financial incentives to protect the status quo. The top brass itself sponsors militias across the country, undermining efforts to tame violence persisting after the 2018 peace agreement.

C. A Hazy Future

Given the scale of the problems, it seems entirely possible South Sudan might be better off without oil – and such a future could be nigh. The country’s production peaked at over 300,000 barrels per day at independence but has decreased to half that, in part due to the conflict, and South Sudan’s government projects oil production to continue to halve roughly every five years.[fn]“MOP Petroleum Report: June 2018-May 2019”, Ministry of Petroleum, Republic of South Sudan. The joint venture oil production companies forecast similar rates of decline. “GPOC Resumption and Growth Journey”, presentation to the 2019 South Sudan Power and Oil Conference, Greater Pioneer Operating Company, 29 October 2019; “DPOC: A Catalyst for Growth in South Sudan”, presentation to Africa Oil and Power 2018, Dar Petroleum Operation Company, September 2018. Copies on file with Crisis Group. See also “South Sudan oil output declines as fields reach peak”, Reuters, 2 July 2021. International oil companies have said they will not renew their participation in the dominant consortium in Upper Nile state when the agreement expires in 2027. “South Sudan to take over oil fields managed by China’s CNPC”, Bloomberg, 26 August 2020.Hide Footnote Volatile oil prices, instability and the poor quality of much of South Sudan’s crude, meanwhile, discourage investment needed to repair damaged wells, extend their lifespan and search for new deposits. The high costs and fraught politics of exporting South Sudan’s oil through Sudan further deter prospective investors, which already face the prospect of global decarbonisation.

Any move away from [oil] production would precipitate a collapse in the government’s income and diminish [its] legitimacy.

Since oil underwrites the entire South Sudanese state, any move away from production clearly would precipitate a collapse in the government’s income and further diminish the authorities’ threadbare legitimacy. Yet the transition may also give South Sudan its best chance at recasting its rentier state. The challenge can hardly be overstated: the government has barely paid attention to the agrarian and pastoral economies, which sustain much of the population. It has also consistently failed to explore other potential sources of income and has yet to build the roads and infrastructure that could spur economic growth.[fn]The government says it is setting aside 10,000 barrels of oil a day to fund roads and infrastructure projects, but this opaque program has come under intense scrutiny for mismanagement and corruption allegations. See next section below.Hide Footnote It is therefore difficult to imagine what a post-carbon future would look like absent significant external support, and South Sudan thus faces a critically short window to improve its relations with the outside world. Still, given how much of South Sudan’s politics revolves around this centralised resource, a transition away from oil also presents the clearest opportunity to change the entrenched power dynamics in South Sudan that have proven so destructive.

III. Emptied Coffers: Siphoned Off and Pre-sold

A. The Path of a South Sudanese Petrodollar

South Sudan earns income from less than half of the roughly 150,000 to 170,000 barrels a day it produces. The proceeds of around 55 to 60 per cent of total output goes to the three joint venture oil producers in the country, as profit and to cover their costs.[fn]See Appendix H. The three joint venture companies are the Dar Petroleum Operating Company, which is a partnership between Nilepet (8 per cent), China National Petroleum Corporation (41 per cent), Petronas (Malaysia, 40 per cent), Sinopec (China, 6 per cent) and Tri-Ocean Energy (Egypt, 5 per cent); the Greater Pioneer Operating Company, which is a partnership between Nilepet (5 per cent), CNPC (40 per cent), Petronas (30 per cent) and ONGC Videsh (India, 25 per cent); and the Sudd Operating Company (SPOC), which is a partnership between Nilepet (8 per cent), ONGC Videsh (24.2 per cent) and Petronas (67.8 per cent). The same international companies make up the joint ventures that produce oil in Sudan.Hide Footnote According to the UN Panel of Experts, these costs likely include the producers’ contracts with security and other companies working in the oil fields, which are largely controlled by South Sudan’s security elite – one way in which they can likely tap into off-budget funds.[fn]See “Final Report of the UN Panel of Experts on South Sudan Submitted in Accordance with Security Council Resolution 2428 (2018)”, UNSC S/2019/301, 9 April 2019; “Final report of the Panel of Experts on South Sudan submitted pursuant to resolution 2471 (2019)”, UNSC S/2020/342, 28 April 2020.Hide Footnote South Sudan remains entirely dependent on Sudan to get its oil to international markets, which means that a further 28,000 barrels per day go toward paying Khartoum for the use of its pipelines and paying off a $3 billion compensation settlement South Sudan agreed to after independence.[fn]See Appendix G.Hide Footnote (The government has said it expects to settle its compensation obligations by the end of 2021, though transit-related fees to Sudan will remain.)

That leaves South Sudan with the proceeds from up to roughly 35,000 to 45,000 barrels per day at present production levels, according to the best estimates available. Much of this money is vulnerable to diversion before it reaches the national budget, however. Nilepet regularly receives tens of millions of dollars in oil revenues from producing companies and the government, but these allocations are not reliably disclosed and have never been audited.[fn]“Nilepet defiant to audit requisition, says auditor-general”, Eye Radio, 30 May 2021.Hide Footnote Tightly controlled by Kiir loyalists and the security elite, the state-owned company appears to fund parts of South Sudan’s security services and war machine.[fn]The 2019-2020 budget includes an allocation to Nilepet of 24.9 billion pounds ($160 million), though it is unclear how this amount is calculated and whether it was paid in full. On the role of security actors in Nilepet, see “Capture on the Nile” and “Fueling Atrocities: Oil and War in South Sudan”, both op. cit.Hide Footnote

Other ad hoc forms of budgeting obscure the country’s finances. In 2019, Kiir announced he was setting aside 30,000 barrels of oil per day for road projects with Chinese companies, overseen directly by the Office of the President, though the government can now only afford to fund the project with 10,000 barrels per day.[fn]Kiir set up a “China desk” within his office to oversee the project. Kiir speech, 14 May 2019. The IMF attributed the drop from 30,000 to 10,000 barrels per day to the “cash squeeze” after oil prices dropped. “Republic of South Sudan: Staff Monitored Program and Request for Disbursement Under the Rapid Credit Facility”, IMF, 17 March 2021. The ministry of finance said the outlay of 30,000 barrels per day created “large deficits in the budget and in the balance of payments” that forced the government to draw down its foreign currency reserves to finance imports and public expenditures. “FY 2019-2020 Approved Budget Book”, Ministry of Finance, Republic of South Sudan, 19 December 2019.Hide Footnote  This opaque arrangement shields substantial revenues from oversight and has already led to scandal, including accusations of mismanagement and corruption.[fn]Sam Mednick, “South Sudan struggles to increase oil production after war”, Associated Press, 29 May 2019. Kiir later sacked his minister for presidential affairs, Mayiik Ayii Deng, citing mismanagement of the project amid an uproar over poor road construction. Kiir reappointed Mayiik Ayii as foreign minister in September 2021.Hide Footnote Kiir has since promised to “dedicate” 5,000 barrels per day to pay government salaries, a move that would make little sense if South Sudan had a functioning budget.[fn]President Salva Kiir address to the nation on occasion of tenth anniversary of South Sudan’s independence, 9 July 2021.Hide Footnote More oil funds still are used to repay hefty commercial loans, including from the Qatar National Bank, the Africa Export Import Bank and the commodity traders, including Sahara Energy.

A 2013 law stipulates that all oil revenue is to be deposited in a single Petroleum Revenue Account. The government’s failure to do so resulted in a clause in the 2018 peace deal ordering the closure of all other petroleum accounts.[fn]South Sudan’s Petroleum Revenue Management Act (2013) states in section II.6 that “any Petroleum Revenue due to the Government shall be paid into the Petroleum Revenue Account for subsequent transfer in accordance with provisions in this Bill”. Section 4.8.1.2 of the 2018 peace agreement mandates “the closure of any petroleum revenue accounts other than those approved by law within three months of the start of the transition”. The peace deal also forbids the “depositing or diverting any petroleum revenue into any account other than the Petroleum Revenue Account at the [Bank of South Sudan]”.Hide Footnote Three years on, the authorities have yet to implement that provision. In addition to these ad hoc allocations, both the government and Nilepet receive payments from sales, fees and resource-backed loans in several international accounts.[fn]There is some debate over whether the government could consider this arrangement as one account spread over multiple banks. Crisis Group telephone interviews, Western officials, Juba, April-May 2021.Hide Footnote In the past, the government instructed some buyers of its oil to make payments directly to third parties. This fragmented, ad hoc system creates an ideal climate for large-scale misappropriations of cash.

The management of funds that do reach the budget is equally poor. Weak institutional guardrails and limited oversight facilitate fraud and embezzlement, including “ghost worker” payrolls and collusive contract schemes, which can alone account for billions of dollars in missing funds.[fn]For major investigations of two distinct billion-dollar corruption scandals, see Foltyn, “How South Sudan’s elite looted its foreign reserves”, op. cit.; and Mark Anderson and Michael Gibb, “As South Sudan Seeks Funds for Peace, a Billion-Dollar Spending Spree”, Organized Crime and Corruption Reporting Project, December 2019. The UN Commission on Human Rights in South Sudan says “staggering amounts of money and other wealth have been illicitly siphoned from South Sudan’s public coffers and resources”. “Human rights violations and related economic crimes in the Republic of South Sudan”, Conference room paper of the Commission on Human Rights in South Sudan, A/HRC/48/CRP.3, 23 September 2021.Hide Footnote The government did not even publish a budget for the 2020-2021 financial year, while expenditure reports are typically late and incomplete. Even a recent government audit of the use of the first batch of International Monetary Fund (IMF) funds found that millions could not be accounted for.[fn]Crisis Group telephone interviews, Western diplomats, August-September 2021.Hide Footnote In sum, South Sudan’s official budgeting often has little to do with how the state funds itself or where the money goes.[fn]Former allies of Kirr in the Jieng Council of Elders, a Dinka ethno-nationalist lobby group of influential figures, note: “The public budget, which is presented to the parliament is hardly the basis of expenditures. In fact, fictitious institutions that do not appear in public budgets get to spend the money while public institutions are cash-starved”. “Breaking the Silence – The Way Forward”, Jieng Council of Elders, 19 February 2021.Hide Footnote

Note: This visual traces the journey of oil revenues in South Sudan from oil production to the national expenditure budget. Numbers are indicative rather than definitive.

B. Wartime Lenders of Last Resort

Oil-backed loans further cloud South Sudan’s financial horizons. Racked by civil war and hamstrung by limited access to international capital markets, South Sudan started using its future oil shipments as collateral in exchange for quick cash soon after independence. Since 2012, South Sudan appears to have received some $2 billion, at least, in advanced oil sales.[fn]This estimate is based on Crisis Group’s own dataset and calculations. One analysis of trading data estimated that South Sudan may have received as much as $2 billion in pre-payments between 2013 and 2018. “Juba’s payday loan habit”, Africa Confidential, 30 August 2019.Hide Footnote While these oil-backed loans brought in new revenue, the government never disclosed the loans’ contract terms or repayment schedules, obscuring the long-term implications. Its repayment obligations then deprived the treasury of revenue and foreign exchange, as lower oil prices meant more oil was needed to pay off the same amount of debt, pauperising the country’s balance sheets. According to the ministry of finance, more than 86 per cent of the country’s $1.51 billion in external debt as of 2020 was owed to commercial lenders.[fn]"Statement of the Auditor General on the Audit of the Rapid Credit Facility (RCF) of November 2020 from International Monetary Fund (IMF)", National Audit Chamber, 9 September 2021.Hide Footnote

As mentioned above, the South Sudanese elite’s debt acquisition habits started developing before the civil war, when Juba borrowed over $1 billion against future oil production from the China National Petroleum Corporation and Malaysia’s Petronas, two of the main oil firms operating in the country, during the 2012 oil shutdown. In 2012, the government also started a commercial relationship with the Qatar National Bank which eventually grew into a $650 million loan that Juba is still servicing with the delivery of two cargoes of crude oil per year.[fn]“Final Report of the UN Panel of Experts on South Sudan Submitted in Accordance with Security Council Resolution 2521 (2020)”, UNSC S/2021/365, 15 April 2021.Hide Footnote

South Sudan then started to turn to less orthodox lenders: commodity traders.[fn]Commodity traders have substantially increased their global lending since around 2007, encouraged by booming commodity prices and regulatory reforms tied to the financial crisis that suppressed commercial banks’ appetite for risk. Crisis Group telephone interviews, traders and bankers based in Switzerland, the UK, France, Belgium and the Netherlands, January-June 2020. Trafigura, one of the world’s largest commodity traders, noted that its pre-payments rose from $700 million in 2013 to over $5 billion in 2019, saying: “International banks have substantially reduced their exposure to emerging market lending credit. … With public equity and debt markets often also inaccessible to emerging market resource producers, commodities buyers – the big trading firms – have been left as one of the few sources of credit and working capital”. “Prepayments Demystified: An Addendum to the Commodities Demystified Guide”, Trafigura, January 2020.Hide Footnote A handful of trading firms purchased most of South Sudan’s oil from 2013 onward and then started lending the government money through “pre-payment arrangements”, the sum totals of which neared, if not exceeded, $1 billion.[fn]Crisis Group dataset and calculations. Crisis Group telephone interviews, traders and bankers based in Switzerland, the UK, France, Belgium and the Netherlands, January-June 2020. UK court documents confirm that the Swiss-Singaporean trader Trafigura provided around $300 million in pre-payments between March 2013 and May 2018, when the government stopped repaying Trafigura while striking new deals with other traders. Judgement, Government of South Sudan v Trafigura in the UK High Court, 19 June 2020. While Trafigura was the most prominent lender to South Sudan at first, it later gave way to substantial credit facilities from B.B. Energy and Sahara Energy Resources DMCC, which forms part of the Sahara Group. See Appendix E. For example, the government received over $400 million from multiple traders in pre-payments during the 2017/2018 financial year. “Final Report of the UN Panel of Experts on South Sudan”, UNSC S/2019/301, op. cit. In April 2019, the IMF reported that at least $328 million in pre-payments were outstanding, with almost $100 million still unpaid the next year. “2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of South Sudan”, IMF, June 2019; Final Report of the UN Panel of Experts on South Sudan, S/2021/365, 15 April 2021.Hide Footnote These payments work like the petrostate equivalent of a payday loan scheme: the government gets cash advances at high interest rates in return for future oil deliveries. As lenders typically pre-pay in dollars but get repaid through crude oil, oil price fluctuations can require the government to ship far larger quantities than anticipated at the time of the agreement. Discounts on the value of future oil and fees can make these deals even more expensive for Juba.[fn]In his 2019/2020 budget speech, the finance minister acknowledged: “This practice comes with significant cost to the budget and deprives us the true value of our oil revenue”. See also “African Economies Haunted by Oil-Backed Loans as Traders Call in Debts”, Organised Crime and Corruption Reporting Project, November 2020.Hide Footnote

South Sudan has little to show for these secretive pre-payments.[fn]Such loans can serve a legitimate purpose, particularly where they help states with limited access to conventional credit unlock revenues tied up in undeveloped natural resources. South Sudan’s oil industry was fully developed upon independence, however, undermining this conventional justification.Hide Footnote Only a handful of officials know the terms of the pre-sales, and their power to line pockets today with tomorrow’s riches has mostly served to heighten their political opponents’ fury and ordinary citizens’ sense of injustice.[fn]In 2019, for example, the IMF noted that South Sudanese authorities “were unable to provide a full list of contracted oil advances and their repayment terms”. “2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of South Sudan”, op. cit. Further, as pre-payments are not tied to the physical delivery or transfer of any product, the recipient may deposit large amounts of money without much oversight.Hide Footnote Furthermore, the availability of this financial lifeline may have emboldened the government to resist enacting reforms that attract more traditional forms of budget support, while the resulting debt pile shrinks future leaders’ capacity to arrest South Sudan’s tailspin.

South Sudanese leaders have repeatedly pledged to halt advanced oil sales ... but found the habit hard to kick.

South Sudanese leaders have repeatedly pledged to halt advanced oil sales, including in the peace deal, but found the habit hard to kick. In June 2019, the government announced it had suspended pre-payment arrangements and set up a committee to investigate the practice, but the IMF found that such loans had continued until at least the following May. As of April 2021, South Sudan still owed Sahara Energy $99 million, but had reportedly cancelled its loan facility with the company and said it planned to clear the debt by September. In 2019, the Africa Export-Import Bank gave the government an additional $400 million credit line, to be repaid through the allocation of future oil cargoes.[fn]“Final report of the Panel of Experts on South Sudan submitted pursuant to resolution 2471 (2019)”, UNSC S/2020/342, 28 April 2020. Previous credit facilities with the Africa Export-Import Bank saw repayment through oil cargoes lifted by the international commodity firm Glencore, working with the local company Trinity Energy, according to the UN Panel of Experts. Final report of the Panel of Experts on South Sudan submitted pursuant to resolution 2428 (2018)”, UNSC S/2019/301, 9 April 2019. The Africa Export-Import Bank reportedly lent South Sudan $200 million previously. “South Sudan secures $500 mln financing facility from AfreximBank”, Reuters, 15 April 2019. A June 2021 meeting between President Kiir and the Bank focused on “ways to consistently deliver crude cargoes designated for loan repayment”. Facebook post, Office of the President, Republic of South Sudan, 11 June 2021.Hide Footnote

Regardless of whether they are still purchasing the oil in advance, commodity traders remain the key buyers of the South Sudan government’s share of oil, according to the ministry of petroleum, a significant shift from the early days when Chinese firms purchased the vast bulk of South Sudan’s allotted cargoes.[fn]China still imports much of South Sudan’s oil, primarily through its state-owned China National Petroleum Corporation, which is the largest shareholder in two of South Sudan’s three main oil-producing joint ventures, and thus a recipient of significant quantities of oil to cover its costs and profits. See Appendix H. The government’s share of the oil, however, is predominantly sold to international traders, whose payments make up the vast bulk of government revenues. See Appendix E.Hide Footnote In 2020, the petroleum ministry identified nine companies as having purchased the government’s entire annual share of oil exports: all were either standalone commodity traders or trading arms of major oil companies, the majority of which have a strong corporate presence in Europe.[fn]See Appendix E.Hide Footnote As a result, a small circle of traders, plus the banks and insurers that underwrite them, many of which are headquartered in the world’s financial capitals, have outsized influence upon South Sudan’s finances and politics.[fn]Commercial banks provide traders with critical financing, and in some cases the banks wind up shouldering much of the risk that commodity traders take on. Financing ranges from standing credit facilities that traders can draw upon as they wish, usually subject only to a set of restrictions on their use agreed in advance, to highly bespoke loans that finance specific pre-payments, trades or projects. Under these arrangements, commercial banks, or a group of commercial banks, may agree to assume none, some or all of the risk associated with the deal, such as if the borrowing government fails to make repayments. In some cases, traders might also syndicate their loans after they have been made, in effect trading on parts of the loan, and its risks, to banks and other financial institutions. Traders and their banks are also able to pass on much of the risks that lending to a government like South Sudan entails to insurance markets, most notably Lloyds in London, where they can insure up to 90 per cent of the value of a contract against a range of risks, including a government default to broader political risks such as changes in governments and their policies. According to interviews, the most common form of insurance for these kinds of transaction is “contract frustration indemnity insurance” obtained via the Lloyds Insurance Market in London, though “political risk insurance” was also cited as relevant in some cases. Crisis Group telephone interviews, traders and bankers based in Switzerland, the UK, France, Belgium and the Netherlands, January-June 2020.Hide Footnote

C. IMF Relief

South Sudan plunged into a fiscal crisis in 2020. Floods, locusts and the COVID-19 pandemic had already precipitated an economic downturn when a steep drop in oil prices halved the government’s revenue while doubling the amount of oil it needed to repay its creditors.[fn]The government based its draft budget on projected oil prices of $55 per barrel. South Sudan’s oil exports are subject to high fixed costs, meaning that even modest price drops can badly hurt government revenues. South Sudan’s Dar Blend is priced using the Dated Brent price and its Nile Blend by ICP Minas. South Sudan has typically discounted its prices because its oil is poorer in quality than that produced elsewhere. According to the petroleum ministry, the average discount was around $9 per barrel for Dar Blend during the 2018-2019 financial year, though these fluctuate considerably, and interviews suggest that there was little discount when prices were low in 2020. South Sudan also pays Sudan transit fees of $9.1 per barrel for Dar Blend and $11 per barrel for its Nile Blend, and makes payments to clear the $3.028 billion debt to Khartoum to which it agreed upon independence. See Appendix G.Hide Footnote In August of that year, the Central Bank announced that it had run out of foreign reserves and would be unable to stop the South Sudanese pound from depreciating.[fn]“South Sudan central bank says foreign exchange reserves have run out”, Reuters, 19 August 2020.Hide Footnote As national and state authorities laboured to keep down consumer prices on staples like water (which must be purchased because treated water is not publicly available) and food, the government decided to print money, which in turn further fuelled inflation.[fn]Press statement, Office of the Governor of the Central Bank, 6 November 2020.Hide Footnote Internal documents said government revenue would decline 60 per cent from previous projections. Civil servants and soldiers went without pay for months.[fn]Even senior officials get only a few hundred dollars per month in wages. “FY 2019-2020 Approved Budget Book”, op. cit.Hide Footnote

The IMF stepped in to provide economic relief, which eventually totalled more than half a billion dollars. In November 2020, the Fund provided its first-ever budget support to South Sudan by releasing $52.3 million in emergency assistance, citing the severe impact of the pandemic and falling oil prices on the country’s public finances.[fn]The government and IMF say about $6 million went to paying arrears to South Sudan’s diplomats overseas, while the remainder was split into three batches of roughly $14.5 million each to clear back salaries in the civil service, sub-national institutions and the security sector.Hide Footnote It followed up quickly with a much larger disbursement of $174.2 million in March 2021, which came with a program that allows the Fund to monitor the government’s commitment to carrying out reform.[fn]“IMF Executive Board Approves US$174.2 Million Emergency Assistance for South Sudan to Address the COVID-19 Pandemic”, press release, IMF, 30 March 2021.Hide Footnote The IMF identified eleven key measures it expects the government to enact, including monetary and exchange rate adjustments, new anti-corruption provisions, a single treasury account, and improved cash management and cash forecasting.[fn]See “Republic of South Sudan: Staff Monitored Program and Request for Disbursement under the Rapid Credit Facility – Press Release; Staff Report; and Statement by the Executive Director for the Republic of South Sudan”, IMF, 2 April 2021.Hide Footnote South Sudan then received a further $334 million from the IMF as part of a $650 billion disbursal, the largest of its kind in the institution’s history, to all 190 members.[fn]“South Sudan Receives USD 334 Million from the IMF”, press release, Bank of South Sudan, 25 August 2021.Hide Footnote

The combination of IMF stopgap relief and rebounding oil prices has thus far given respite to the government and prevented fiscal collapse, but South Sudan’s economic woes – declining oil production, meagre to no foreign reserves, high-risk debts – are hardly solved. Despite its massive dimensions, the bailout has failed to extract major concessions from the ruling elite, and the program’s critics say future budget support should be tied more directly to verifiable changes.[fn]Crisis Group interviews, officials in Washington, London, Juba, 2021.Hide Footnote Furthermore, the IMF loan appears to have aggravated political bickering, despite bringing about few substantive changes other than the rare semblance of transparency in how the funds are used.[fn]Government accounting shows that most of the first IMF disbursement and half of the second served to settle salary arrears of public workers, including in the security sector.Hide Footnote In particular, the government’s decision to use the money to pay only its own soldiers, and not former opposition forces loyal to Machar, added to the overwhelming disillusionment with the peace process in Machar’s camp, which has since split into two largely as a result of this discontent.[fn]Crisis Group interviews, opposition members, 2020-2021. This grievance has been cited by commanders who broke away from Machar’s leadership under the leadership of his former military Chief of Staff Simon Gatwech in August 2021.Hide Footnote

A protracted fiscal crisis may finally motivate South Sudan’s leaders to mend their broken relations with donors.

Yet South Sudan’s economic distress may actually have a silver lining. The government is less likely to launch expensive military operations or flagrantly skirt a UN arms embargo to buy new weapons. Insurgents may also have fewer incentives to rebel, since the government has a smaller pot of money with which to purchase peace. More critically, a protracted fiscal crisis may finally motivate South Sudan’s leaders to mend their broken relations with donors.

IV. Mounting Frustrations and the Search for a Strategy

A. Donor Dilemmas

Thus far, donors have struggled to articulate a coordinated strategy pushing for reforms in South Sudan. The government’s failure to provide basic services to its populace is an especially sore spot for major donors, which foot the bills for aid agencies and organisations to provide education, health care, sanitation and more.[fn]The previous head of the UN mission in South Sudan, David Shearer, articulated this dilemma shortly before leaving his position: “The wealth of the country bypasses its people, siphoned off in secrecy with no public accountability for how it is spent. South Sudan has also become one of the most dependent nations in history. Its education and health systems, its roads and infrastructure are provided by outsiders. As the international community, we have to ask ourselves if we have too eagerly stepped in and shouldered responsibilities that should be the job of the South Sudanese government, thereby adding to their dependency”. “The Challenges of Confronting COVID-19 amidst Fragile Peace in South Sudan”, ACCORD, 17 March 2021. The government allocates shockingly little government revenue to services: South Sudan’s 2019-2020 budget sets aside more money for health-care allowances for MPs than for the entire health ministry.Hide Footnote Worse, diplomats see few options at their disposal. Donors are understandably reluctant to use relief to a population suffering chronic food shortages as leverage for political or economic reform, given what they view as the government’s cruel indifference to its own people’s hardship.[fn]Crisis Group interviews, U.S., UK and European officials, 2018-2021.Hide Footnote They also fear that punitive measures could make the state even wobblier, in turn worsening the plight of South Sudan’s beleaguered citizens.[fn]Ibid.Hide Footnote

Targeted sanctions, Western powers’ pressure tool of choice in recent years, have probably yielded some results but failed to generate substantial reforms. During the Trump administration, the U.S. Treasury Department steadily diverged from the UN and European Union (EU) by adopting a significant number of additional unilateral financial sanctions against South Sudanese companies and individuals, though both the EU and UK have recently added an individual each to their sanctions lists as well.[fn]In April 2021, the UK sanctioned Sudanese businessman Ashraf Seed Ahmed Hussein Ali, known as “Al Cardinal”, citing misappropriation of South Sudan’s state assets. In March 2021, the European Union sanctioned former opposition commander Gabriel Moses Lokujo, citing human rights violations.Hide Footnote Many of these measures cited the misappropriation of public funds.[fn]“South Sudan-Related Sanctions”, U.S. Department of the Treasury, last updated 26 February 2020.Hide Footnote Some Western officials believe that this escalation of targeted sanctions, and the threat of more, affected the thinking of South Sudanese elites at critical junctures in the peace process.[fn]Crisis Group interviews, officials in Juba, Washington, London, 2020-2021.Hide Footnote In particular, they believe that threats of more sanctions helped convince Kiir and Machar to form the unity government in February 2020.[fn]Ibid.Hide Footnote Government representatives repeatedly mentioned the sanctions in diplomatic meetings and hired at least two firms to lobby for their removal in the U.S.[fn]In 2019, the government signed a $4.8 million deal with Gainful Solutions. “Press Release on Contract with the Government of South Sudan”, press release, Gainful Solutions Inc., 7 May 2019. In 2020, the government also paid AZ Media $280,000 for lobbying services in the U.S., which included efforts to remove sanctions. “Agreement between the Government of South Sudan and AZ Media PR Inc.”, 1 September 2020.Hide Footnote

Donors have also struggled to get regional powers – especially Kenya, Uganda and Sudan, which mediated in 2018 peace talks – to increase pressure on South Sudan’s leaders to clean up the government’s finances. Kenya’s business-minded elite rarely cracks down on illicit money flows from abroad (even if its diplomats are aghast at the state of South Sudanese politics); nevertheless, Nairobi made news recently by freezing the account of South Sudan’s cabinet affairs minister and key Kiir ally, Martin Lomuro Elia, for suspected money laundering, before quietly unfreezing his funds.[fn]“South Sudanese minister’s millions frozen in Kenyan bank”, The Star, 15 June 2021. Kenya later lifted the freeze on the accounts. Brian Wasuna, “High Court Lifts Freeze on Minister’s Accounts”, The Nation, 22 September 2021.Hide Footnote  Uganda’s political and military elites, too, share commercial ties with South Sudanese elites and are happy to welcome their channelling millions of dollars into bank accounts in Uganda with few questions asked.

Sudan, meanwhile, would have the most to gain if South Sudan cleaned up its image enough to attract investment in its oil industry, yet its relations with Juba are primarily handled by its military elite, who are unlikely to push for reforms. Khartoum is also swamped by an array of other pressing negotiations with its southern neighbour, including over border disputes, trade relations and peace talks with Sudanese rebels in Juba.

Most East African officials say they do not believe additional sanctions would be helpful.

Most East African officials say they do not believe additional sanctions would be helpful. Regional envoys may also have promised Kiir to push for existing economic sanctions to be lifted if he moved forward with the peace deal. Many analysts believe the deeper misalignment is that regional elites suffer little from the status quo as donors pick up the tab.[fn]Some believe that East African elites are happy to profit from South Sudan’s crisis, given the amount of aid that flows to South Sudanese refugees, particularly in Kenya and Uganda, as well as the number of East Africans employed in South Sudan’s humanitarian and peacebuilding sectors. Crisis Group interviews, regional, African and Western analysts and officials, 2018-2021.Hide Footnote

Since it is clear that punitive measures alone will not prise South Sudan’s oil riches out of the ruling elite’s hands, some donor officials are hoping that IMF engagement could at least create momentum for reforms. At the IMF’s behest, the government set up an oversight committee tasked with coordinating the rollout of key measures in various ministries and institutions, while communicating progress to the Fund and other donors.[fn]See “Roadmap: Implementing the Public Financial Management priorities in the Revitalized Agreement of the Resolution of the Conflict in South Sudan,” PFM Oversight Committee, January 2021, posted on the Ministry of Finance website in August 2021.Hide Footnote A nine-month Staff Monitored Program, which creates a basis for the Fund to monitor the reform program, was attached to the second round of IMF funds and may add impetus to the committee’s work and facilitate greater international oversight. Already as a result of the IMF support, authorities moved the powerful Technical Loans Committee, which oversees government borrowing, from the president’s office back to the finance ministry, which Kiir’s party also controls but is subject to greater oversight. Officials say South Sudanese officials seem keenly aware that current progress could determine the availability of additional IMF funds.[fn]South Sudan could be considered for more IMF funds, including through an Extended Credit Facility, as soon as at the end of the nine-month Staff Monitored Program in December 2021, depending in part on the Fund’s review of progress to date. Crisis Group interviews, UN and Western officials, June-September 2021.Hide Footnote

Yet other donor officials fear that the IMF relief could weaken the pressure for substantial reforms. Given their chronic search for leverage, the large influx of IMF money with few major up-front reforms surprised many, even though some of their own governments sit on the IMF board. This makes clear the IMF engagement was never integrated into a broader coordinated donor strategy in South Sudan.[fn]Diplomats from the major donor countries frequently expressed surprise and at times frustration at the IMF disbursals, some stating clearly that the actions are not coordinated with a broader donor reform strategy. Several donor officials also expressed frustration or confusion at the lack of inter-agency coordination on IMF oversight within their own governments, with one diplomat comparing it to one hand not knowing what the other was doing. Crisis Group interviews, March-August 2021.Hide Footnote Some Western capitals may also turn their focus on other priorities, given the IMF lead on the financial reform agenda, potentially leading to less pressure overall.[fn]One major Western donor in 2021 scrapped considerations for its own push for select financial reforms from Juba, opting instead to follow the IMF’s lead. Crisis Group interview, senior Western official, Juba, June 2021.Hide Footnote The speed of the disbursals was also a surprise: the IMF dispensed the second, larger round of funds before the government’s internal watchdog completed its audit on the first batch. The audit found millions of dollars could not be accounted for.[fn]“Statement of the Auditor General on the Audit of the Rapid Credit Facility (RCF) of November 2020 from International Monetary Fund (IMF)”, National Audit Chamber, 9 September 2021.Hide Footnote

B. A Laundry List of Reforms

Following the peace deal and new IMF engagement, domestic reformers and international backers still have a window to press for meaningful financial reform. By agreeing to form a unity government in February 2020, President Kiir hoped in part to improve his relations with the country’s key Western donors. Today, he faces an economy that will struggle to stay afloat once the IMF relief runs out.

South Sudanese activists and outside partners lack a clear roadmap to achieving such reforms, however. The most obvious reference point for South Sudanese and donors to press for improved state finances has been the detailed pledges all parties in the unity government made in the 2018 peace deal, which envisages an overhaul of South Sudan’s oil sector and public finances. Commitments include opening South Sudan’s books and thus bringing transparency and oversight to government revenues, debts and expenditures, largely in line with South Sudan’s existing laws. They also include the reform of major institutions such as the Central Bank; enquiries into key government bodies involved in the oil economy; the creation of a least six new agencies to strengthen management of public finances and resources; and the review of at least twelve major pieces of legislation relating to management of the economy. All in all, the peace deal’s financial reform roadmap binds the government to take at least 65 distinct steps, few of which it appears to be making much headway in taking.

[The South Sudanese] oil sector is governed by strong legislation that needs to be enforced rather than revisited.

Sensible as it may be, the laundry list approach lacks strategic focus and is thus unlikely to lead to more than a few piecemeal changes. More critically, the country’s oil sector is already governed by strong legislation that needs to be enforced rather than revisited. Against this backdrop, perhaps the most important step donors could take would be to identify a handful of key reforms along the lines highlighted in Section V that would be at the very top of the long list of priorities that activists and diplomats are already pressing government officials on – a list that currently includes progress toward elections, reduction of insecurity, constitutional reform and justice for victims of war crimes, to name a few. Even the shorter list of IMF priorities may still be too extensive, if the goal is substantive change.[fn]Officials describe an atmosphere of dialogue with government officials about reform but say progress thus far has been limited to what one called the “low-hanging fruit”. Crisis Group interviews, Western officials, August-September 2021.Hide Footnote Still further commitments Juba made to the Financial Action Task Force (FATF), following South Sudan’s addition to its “grey list”, adds to the muddled reform agenda.[fn]The FATF grey list comprises countries working with and monitored by the FATF on commitments to counter money laundering, terrorist financing and proliferation financing. “Jurisdictions under Increased Monitoring – June 2021”, FATF, undated.Hide Footnote

V. Pressing for Change

A. Priority Reforms

Amid the financial wreckage, reform-minded South Sudanese and outside powers need to figure out where to focus. Ideally, Kiir would enact all the reforms his government has committed to. In practice, though, those seeking reforms will need to be more strategic, prioritising for the near term the particular steps most likely to bring change.

South Sudanese and their outside partners should start by coalescing around the demand for a single, designated, transparent oil revenue account, as required by South Sudanese law and as the government agreed to create in both the peace deal and with the IMF. They should also insist that its balance and activity be regularly disclosed publicly in accordance with South Sudanese law.[fn]The Petroleum Revenue Management Bill (2012) states: “Any Petroleum Revenue due to the Government shall be paid into the Petroleum Revenue Account”, including “any amount deriving from the sale of the Government’s oil and gas entitlement”. The act also requires full transparency of oil revenues, including public quarterly reports of the balance and itemised transactions of the Petroleum Revenue Account. Articles 4.8.1.2, 4.8.1.10, 4.8.1.14.2 and 4.10.1.2 of the peace agreement also require the identification of a single designated oil revenue account and the closure of all other oil revenue accounts.Hide Footnote Although no panacea, such a change is a key first step toward the regular disclosure of South Sudan’s revenues and loans, without which credible public finances are all but impossible.[fn]The peace agreement’s Articles 4.8.1.3, 4.12.1.5, 4.14.3, 4.14.4 and 4.14.8 require the government to publicly identify all debts, including all debts collateralised against oil.Hide Footnote

While the designation and exclusive use of a transparent public oil account should be a precondition for improved ties with donors, other steps will also be necessary. Most urgent is the immediate disclosure of all government revenues and debts, a prerequisite for almost all other critical reforms as well as for rebuilding trust between the government, the population and donors. This disclosure should include timely publication of accurate budget documents, expenditure sheets and oil marketing reports, as well as the allocations of oil to Nilepet and other off-budget projects, a practice which should end.[fn]Article 4.8.1.14.14 requires the review and transformation of Nilepet, which also remains a prominent example of financial secrecy despite receiving vast oil revenues. Nilepet’s board has been reconstituted, which could be an opportunity to clarify its allocation of oil as a first step toward reform.Hide Footnote Until such transparency exists, donors and international financial institutions, including the IMF, should decline to provide further budget support.

But transparency alone will be insufficient. Corruption is endemic, and manifest in tactics ranging from unbudgeted withdrawals, inflated procurement contracts and ghost workers to exchange rate manipulation and self-dealing oil-field service contracts.[fn]Article 4.12.1 identifies several measures designed to improve payroll and cash management to ensure legitimate salaries are regularly paid and that unauthorised and unbudgeted withdrawals of public funds are stopped.Hide Footnote The newly established Public Financial Management Oversight Committee and its subcommittees offer an important focal point for emplacing guardrails against these practices, but they need to show they can deliver results by limiting the practice of unbudgeted withdrawals for private use and by ensuring ministries produce regular budget and expenditure reports that reflect actual government spending. Given its rock-bottom reputation among donors, the government may need to accept external oversight and auditing.

There could be easy wins, too. Kiir’s entourage may retain the balance of real power, but an array of new officials, including long-time Kiir opponents, hold positions of authority in the unity government. They have already taken positive steps. In February 2020, for instance, the petroleum ministry, led by a Machar ally, published the first Oil Marketing Report – a vehicle for sharing information on oil sales with the public – since June 2015. It has also committed to releasing monthly production data.[fn]In 2019, the petroleum ministry lost some of its clout with the dismissal of powerful head Ezekiel Lol Gatkuoth and the creation of a “China desk” in the Office of the President to manage up to 30,000 barrels of oil per day for construction of a series of roads in partnership with Chinese companies. Yet it retains access to significant data and a legal mandate to publish this information. As of August 2020, the petroleum ministry no longer sits on Nilepet’s board. “Ministry of Petroleum releases annual report: Petroleum report provides detailed financial information and statistics from the South Sudan oil sector”, Electric Energy Online, 21 February 2020.Hide Footnote The government should build on these developments and, in accordance with its own laws, ensure regular and timely public reporting of oil production and exports. Donors could support internet portals that regularly update oil production and revenue figures and make key documents, including laws and marketing reports, more easily available to a wide audience.

B. Coordinating Pressure

South Sudan cannot fix its politics without restoring credibility to its public finances.

Few expect Kiir to loosen his grip on state finances of his own accord, given that his mode of politics relies on patronage networks and off-budget financing. To increase pressure on his administration, reform-minded South Sudanese – particularly civil society and religious leaders, but also disenchanted politicians – should to the degree they can do so safely build a coalition with regional allies and (where helpful) donors to coordinate their messaging, driving home the point that South Sudan cannot fix its politics without restoring credibility to its public finances, while doing their part to safeguard the work of civil society and journalists.

South Sudan’s neighbours can be of particular assistance. Sudan, which has pledged to make its own oil sector more transparent, could eventually help shed light on South Sudanese oil exports that transit its territory by disclosing more about its own industry. Kenya and Uganda should strengthen and enforce regulations to combat money laundering, particularly in the commercial banking and real estate sectors, which are benefiting from the proceeds of South Sudanese corruption. Both countries have incentives to do so. Uganda has landed on the FATF’s “grey list”, leading the EU to designate it as a “high-risk third country”.[fn]“Jurisdictions under Increased Monitoring – 21 February 2020”, FATF, February 2020. See also “Delegated Regulation amending Delegated Regulation (EU) 2016/1675 supplementing Directive (EU) 2015/849 of the European Parliament and of the Council”, European Commission, 7 May 2020.Hide Footnote Kenya’s next assessment under the FATF framework is under way, with results expected in 2022.[fn]Assessment Calendar”, Financial Action Task Force, undated.Hide Footnote

Donors, meanwhile, should better articulate both what they expect South Sudan’s government to do and what it might get in return – and stick to these priorities and commitments. In doing so, the IMF and donors must resist the temptation to latch on to any single reform as proof of South Sudan’s commitment to change. For example, President Kiir may well offer greater transparency over non-oil revenue streams in exchange for more budget support; donor institutions should reject this trade-off, demanding transparency in oil revenues, where the rot in South Sudan’s finances originates. The IMF in particular should not take transparent management of its loans to South Sudan alone as evidence of meaningful progress and should integrate the findings of South Sudan’s own audits of these funds into its Staff Monitored Program.

Greater coordination among the IMF and donors, and within donor governments, is also required. Many donor officials expressed frustration or surprise at the sudden disbursement of IMF support to South Sudan in late 2020 and early 2021, without any coordination over how this might be leveraged to encourage reform.[fn]Crisis Group interviews, Western officials in Juba, Washington and London, 2020.Hide Footnote IMF officials, for their part, maintain that the Fund has a technical mandate and that it relies on its board to provide political oversight of its activities.[fn]Crisis Group interview, senior IMF official, June 2021.Hide Footnote Donor governments should accordingly increase their engagement with the IMF at senior levels, including with board members, to make sure that the Fund’s efforts in South Sudan are not at cross-purposes with attempts to improve governance in Juba. Meanwhile, IMF officials should also recognise the deeply political nature of any assistance and strive to align their efforts more closely with other diplomacy.

Lastly, donors should not ignore their most important allies: the South Sudanese people. Kiir and Machar are deeply unpopular both within their own camps and among the wider population. Diplomats should make clear to both the political class and the citizenry the costs and missed opportunities of their leaders’ failures. Donors should emphasise that they are prepared to reset relations with South Sudan, whether it is through a pledging conference or additional World Bank support, if and when South Sudan’s ruling elite embarks on a more credible political transition, which would likely require both Kiir and Machar to step aside. They should also speak up in defence of journalists and civil society activists who focus on corruption or financial reforms and are routinely arrested or harassed because of their work, including by the National Security Service, which is among the beneficiaries of IMF funds.[fn]“Preliminary Narrative Report on the Utilization of RCF Funds”, Ministry of Finance, Government of South Sudan, 15 March 2021; “Preliminary Narrative Report on the Utilization of RCF 2 Funds”, Ministry of Finance, Government of South Sudan, 15 June 2021.Hide Footnote

C. Corralling Commercial Actors

The small number of international firms that provide a large percentage of South Sudan’s revenues require more attention, too. The U.S. currently regulates the export of certain goods to designated South Sudanese companies through special licenses (discussed in Section V.D).[fn]The U.S. Treasury has issued several advisory notices to U.S. companies warning of risks associated with businesses and transactions linked to South Sudan, while the UK’s National Crime Agency followed suit by issuing an “amber alert” noting illicit financial risks in South Sudan. See “Advisory on Political Corruption Risks in South Sudan”, Financial Crimes Enforcement Network, 6 September 2017; and “Amber ALERT South Sudan: Illicit Finance Risks”, UK’s National Crime Agency, March 2020. The EU does not currently identify South Sudan as a “high-risk third country” under its anti-money-laundering legislation, despite South Sudan’s recent addition to the FATF’s “grey list,” which often sets a precedent for the EU list.Hide Footnote Using these and other mechanisms there is more they could do.

For starters, donors and external partners should state clearly to commercial actors under their jurisdiction that they expect them to follow South Sudanese law, including by routing all payments to a single designated oil account and making sure their contracts expressly require compliance by all parties with the country’s laws.[fn]Notably, the Petroleum Act (2012) and the Petroleum Revenue Management Act (2012).Hide Footnote  South Sudan has sold a majority of its oil cargoes to companies with an established presence in Europe since the outbreak of civil war, while the rest went to firms with ties to China, Russia and the United Arab Emirates. While Western governments may be the most likely to do so, all of these governments should encourage these companies to disclose all payments and loans to South Sudan, something that the companies might be willing to do if urged to do it collectively and some already do in other countries where they operate.[fn]Companies prefer collective action in part to mitigate “first mover” disadvantages and minimise exposure to repercussions. Crisis Group telephone interviews, traders and bankers based in Switzerland, the UK, France, Belgium and the Netherlands, January-June 2020. Following engagement with the UN Panel of Experts, Glencore disclosed that it paid $425.7 million, $375.8 million, and $152.7 million in 2018, 2019, and 2020 respectively for crude oil originating in South Sudan. "Payments to Governments Report 2018", Glencore; "Payments to Governments Report 2019", Glencore; "Payments to Governments Report 2020", Glencore.Hide Footnote Banks and insurers, too, should require that all contracts by clients operating in South Sudan comply with South Sudanese law, which would help protect their reputation and guard against legal risks. Transparency among foreign commercial partners could also motivate Juba to open its own books, since these disclosures would mean that South Sudan itself has less to hide.

Objections that such disclosure requirements, if imposed solely or primarily by Western governments, would only lead Juba to favour non-Western firms or force Western firms out of the South Sudanese market are misplaced. South Sudan is not in a position to turn away business, while shrinking profits have nudged most traders to look for new markets, rather than abandon them. Oil companies, moreover, have regularly disclosed payments elsewhere when legally required to do so in the U.S. and EU, while commodity traders have slowly started to report under voluntary standards established by the Extractive Industries Transparency Initiative.[fn]Commodity Trading Transparency: EITI’s Role in Commodity Trading”, Extractive Industries Transparency Initiative, undated.Hide Footnote Further, even if some Western firms did leave the South Sudanese market, nothing suggests that their present trading or disclosure behaviour is currently any better for South Sudan than that of the non-Western firms that could replace them.

Companies should be aware that their involvement in South Sudan has clear reputational and regulatory risks.

Corralling these commercial actors will require governments to open formal or informal channels with their management. At present, the companies complain that messages concerning commerce in South Sudan, including industry-wide alerts, are vague and inconsistent across Western jurisdictions, meaning they invest in little beyond minimal legal compliance. Donors can provide more regular advice on corruption risks in South Sudan, as the U.S. and UK have begun to do, while taking care not to discourage responsible investment in South Sudan and acknowledging that companies are wary of being treated as foreign policy tools.[fn]Crisis Group telephone interviews, traders and bankers based in Switzerland, the UK, France, Belgium and the Netherlands, January-June 2020.Hide Footnote Yet companies should be aware that their involvement in South Sudan has clear reputational and regulatory risks should they not follow South Sudanese law and engage transparently.[fn]For instance, Norway’s global pension fund, the world’s largest, recently divested from India’s Oil and Natural Gas Corporation due to its business in South Sudan. The fund’s watchdog, the Council on Ethics, explained: “In general, the Council finds it difficult to envisage that a company can engage in oil production in South Sudan under the prevailing conditions without courting a high risk of contributing to serious norm violations”. “Recommendation to exclude Oil & Natural Gas Corp Ltd from investment by the Norwegian Government Pension Fund Global”, Council on Ethics, 8 January 2021.Hide Footnote

D. Carrot-and-Stick Approach

If South Sudan’s leaders fail to take the opportunity to carry out meaningful reforms, as their track records suggest they will, donors face a range of unappealing options.

As noted above, additional targeted sanctions are an option, though by themselves they are hardly likely to be transformative. Applying or threatening targeted sanctions can shift individual behaviour at key junctures but is unlikely to bring systemic change. The costs can also be high and indiscriminate; even targeted sanctions can throttle legitimate businesses and cut off civilians from banking services in an economy that offers only limited commercial appeal to banks. Still, countries such as Kenya, Uganda, the U.S. and the UK could do more to pressure the ruling elite, notably by threatening to seize assets or end family education privileges abroad, especially if they tied the threat or application of these measures to specific demands and commensurate positive incentives. If countries applied such pressure in conjunction with conditioned offers of IMF or other donor support tied to requests for reform, then donors could employ a strategic carrot-and-stick approach that has thus far been lacking.

Furthermore, the U.S., UK, Switzerland and the EU could consider requiring special licenses for people and businesses under their jurisdiction to operate in South Sudan that are conditional on transparency measures and compliance with South Sudanese law. Trade with South Sudan’s oil sector would thus require a permit from relevant government authorities. The EU insists on a similar licence for exports to Russia and Iran, while the U.S. already requires licencing for the export of certain goods to fifteen companies in South Sudan.[fn]“Supplement No. 4 to part 744 of the EAR”, 83 FR 12475, 22 March 2018.Hide Footnote A licencing regime could make the purchase and advance purchase of South Sudanese oil, as well as the financing and insurance of such transactions, subject to a permit requiring public disclosure of all related payments to the government as well as demonstrable adherence to other South Sudanese laws. The threat of such regulation could also be used as an incentive for commercial actors to work with donor governments on voluntary collective disclosure of their activities in South Sudan.

Some South Sudanese believe that outside assistance is also entrenching a predatory elite.[fn]Crisis Group interviews, South Sudanese civil society activists, 2020-2021. Statements by South Sudanese civil society representatives to donor officials in closed-door discussions, 2021. See also Jok Madut Jok, “Testimony before the U.S. Senate Foreign Relations Committee”, 20 September 2016.Hide Footnote Donors’ long-term presence in South Sudan risks becoming a clear moral hazard, should it allow the government to forever neglect its population.[fn]Ibid.Hide Footnote But the nuclear option of threatening to limit or cut off aid if South Sudan’s leaders continue to pilfer oil funds is polarising, and rightly so, given the potential humanitarian fallout. In any case, few donors are willing to seriously consider any strategy that risks hurting the South Sudanese people in the near term. Rather than speculating about this possibility, donors should do more due diligence to make sure less assistance falls into the hands of Juba elite through logistics subcontracting, rent and exchange rate manipulation, and by expanding their footprint as much as possible outside Juba. Toward that end, donors could also consider shifting more assistance to direct cash transfers in rural areas, as is being tried in Somalia and Sudan.[fn]On a larger scale, the World Bank and donors are funding a $820 million cash transfer scheme that is supposed to reach 80 per cent of Sudanese families. See Nafisa Eltahir, “Sudan's basic income scheme aims to ease economic pain”, Reuters, 29 April 2021. For Somalia, see “Launch of €6.5m mobile money cash transfer programme”, Somalia Cash Consortium, 27 June 2021; and Sara Jerving, “The evolution of cash transfers in Somalia”, Devex, 29 July 2019. See also Susanne Jaspars, “Going remote: Learning from aid practices in Somalia and Sudan for the COVID-19 crisis”, London School of Economics blog, 17 April 2020.Hide Footnote

The only durable route to fixing South Sudan’s finances, and the aid conundrum, is through its politics. Financial remedies alone will not fundamentally change South Sudan’s system of predatory winner-take-all politics, which reinforces the widely held sense that the use of force is the only way to obtain a share of power. As Crisis Group has previously argued, the South Sudanese should agree to some form of decentralisation to reduce the government’s power, devolving power and resources locally. Donors who have grown frustrated with the country’s political quagmire should push regional leaders and the AU harder to convince the ruling elite of the need for a more consensual form of governance. Many South Sudanese, fearing more power struggles, desperately want a political reset: the National Dialogue, which concluded in 2020, called on both Kiir and Machar to step aside instead of competing in forthcoming elections, possibly scheduled for 2023.

E. Beyond the Petrostate

The South Sudanese and their long-term donors also need to start thinking about South Sudan’s inevitable transition from a carbon economy. When the oil wells dry up or stop producing, as they eventually will, South Sudan will become much more reliant on state-level administration and revenue collection, as well as local economic growth. As mentioned above, the coming end of oil is yet another reason why authorities should speed up the devolution of power, a widespread demand of the South Sudanese population, which would make local administrations less dependent on a revenue-starved future central government.

For their part, one fairly novel option that donors could consider would be to offer conditional budgetary support in exchange for leaving oil in the ground, with an eye toward piloting a future global initiative to low-income countries that will struggle to move to a decarbonised economy.[fn]Similar programs have been tried in Africa to halt deforestation. Norway, for instance, pledged hundreds of millions of dollars to Liberia and Gabon to keep forests intact. Abdi Latif Dahir, “Gabon will be paid by Norway to preserve its forests”, Quartz, 23 September 2019. Over a decade ago, Ecuador tried to convince richer countries to pay it to leave untapped oil in the ground but gave up in 2013. Andres Schipani, “Ecuador admits defeat in plan to keep oil in the ground for a fee”, Financial Times, 16 August 2013.Hide Footnote Some observers are already arguing that oil-dependent countries, especially those prone to conflict, may need to be coaxed away from fossil fuels with financial assistance.[fn]The World Bank suggests that financial transfers to countries like South Sudan may be necessary for a low-carbon transition. “Finally, lower-income and conflict-affected countries with large proven, but not yet extracted fossil fuel reserves – many of them in Africa – pose challenges. … Creating cooperative incentive structures may require additional financial, technology or knowledge transfers to enable investments in diversification, ease the socioeconomic implications of a transition and encourage domestic low-carbon policy measures”. Further, “simulations suggest that the incentives needed for the most vulnerable [fossil fuel-dependent countries] to participate in a global [low-carbon transition] would cost only one eighth of the savings that their participation would generate in other countries”. “Diversification and Cooperation in a Decarbonizing World: Climate Strategies for Fossil Fuel-Dependent Countries, World Bank Group, 2020, pp. 72-73. There are already calls for richer countries to offer countries debt relief to move away from carbon-based economies. Somini Sengupta, “How debt and climate change pose ‘systemic risk’ to world economy”, The New York Times, 7 April 2021.Hide Footnote Of course, paying Juba not to produce oil might be too much for some donors to swallow, particularly given that they could conceivably renege on their pledge after a year or two and pocket both the assistance money and the oil revenues (although any such assistance could be turned into hefty debt obligations if the government reneges on commitments to keep crude reserves in the ground).

Nevertheless, testing this idea in South Sudan could make sense for several reasons. South Sudan's oil revenues are small for an oil-dependent economy, and donors are already deeply invested in the country's welfare. More critically, in few places does the opacity of oil money’s flow so clearly hinder a move away from conflict. To help change the country's toxic oil political economy, donors could firmly demand that the funds be transparently spent and accounted for by the government in line with the country’s laws and constitution. Further, these conditions can include Juba exploring more non-oil sources of income and growth, such as agriculture or renewable energy. These assistance funds could also be devolved to state-level governments in line with South Sudan’s constitution, thus helping counterbalance the winner-take-all aspect of the country’s politics, which has centralised oil revenue in Juba.

VI. Conclusion

South Sudan’s finances are in ruins. The oil that the South Sudanese once believed would fund the development of their new state instead unleashed, then fuelled, a bloody power struggle. The country’s leaders have emptied the state’s coffers, siphoning off its oil income and mortgaging its future oil revenue. The capture of state resources has helped keep President Kiir and his allies in power, but it has come at great cost to the population and prevents a broader political settlement that could stabilise the country going forward. The South Sudanese and external partners should focus on key reforms that will bring transparency and accountability to its mismanaged public finances. South Sudan’s elite is already staring at the horizon of a post-carbon future, an existential threat to their rickety state. Delaying reforms any longer will only further isolate the country as it nears a time when it will need all the help it can get.

Juba/Nairobi/Brussels, 6 October 2021

Appendix A: Map of South Sudan’s Oil Infrastructure

Appendix B: Where Does South Sudan’s Oil Money Go?

Note: This visual traces the journey of oil revenues in South Sudan from oil production to the national expenditure budget. Numbers are indicative rather than definitive. 

Appendix C: Estimated South Sudanese Oil Revenues (in Billions of Dollars), 2011-2020

“Cooperation Agreement between Sudan and South Sudan on Oil Related Matters” (2012), Oil Marketing Reports produced by the Ministry of Petroleum, Expenditure Reports produced by the Ministry of Finance, and reporting by the Central Bank of South Sudan.

The South Sudanese fiscal year runs from June to May. Gross and net revenue data for 2015-2016 and 2016-2017 is taken from expenditure reports produced by the ministry of finance, as Crisis Group could not obtain Oil Marketing Reports covering these periods. *Jul. 11 to Jan 12 only (7 months) **April 13 to May 14 (14 months).

All data is based on the government of South Sudan’s own reporting, which is not always timely or consistent. It can therefore not be assumed entirely accurate, and Crisis Group has not been able to independently verify the reported data. The abandonment of the fixed exchange rate in December 2015 further complicates data for 2015-2016, which converts South Sudanese pound (SSP) oil revenues to dollars using the quarterly SSP revenues and average exchange rates reported by the finance ministry. Net revenue is an imprecise category. The government’s methodology for calculating this number does not appear consistent across reporting years, but typically subtracts Nilepet allocations, payments to Sudan and commercial loan repayments from gross revenue. In some years, only actual payments to Sudan are subtracted. In others, the amount owed to Sudan appears subtracted, whether actual payments were made or not. Nilepet allocations and commercial loan repayments should be considered government revenue.

Appendix D: Barrels, Cargoes and Buyers of Oil

All data is based on the government of South Sudan’s own reporting, which is not always timely or consistent. It can therefore not be assumed entirely accurate, and Crisis Group has not been able to independently verify the reported data. The majority of the data is based on figures reported by the petroleum ministry in its Oil Marketing Reports.

Appendix E: Purchasers of Government Cargoes of Oil

Oil Marketing Reports, Ministry of Petroleum of South Sudan. *Jul. 11 to Jan 12 only (7 months) **April 13 to May 14 (14 months).

*** Glencore has purchased several cargoes through the South Sudanese company Trinity Energy. Some of those cargoes are tied to a loan agreement involving the South Sudan government, Trinity Energy, and the African Export-Import Bank, according to the UN Panel of Experts, which reported the loan was secured with crude oil ultimately purchased by Glencore. Glencore disclosed that it paid $425.7 million for crude oil originating in South Sudan in 2018, $375.8 million in 2019, and $152.7 million in 2020.

Appendix F: Outstanding Oil Compensation Debt to Sudan (in Billions of Dollars), 2012-2019

“Cooperation Agreement”, Ministry of Petroleum, Central Bank of South Sudan, 2012.

As part of the 2012 “Agreement on Oil and Related Economic Matters” between South Sudan and Sudan, a debt of $3,028 billion was agreed, to be paid off by a fixed fee per barrel of oil to transit through Sudan. See Appendix G. The terms have been renegotiated on several occasions, including in 2016, and the repayment schedule postponed. The outstanding balance, as reported by the government of South Sudan, is recorded below.

Appendix G: Structure of Oil-related Fees Paid by South Sudan to Sudan

These figures are based on the revised arrangement made in 2016.

Appendix H: Exploration and Production-sharing Agreements for Joint Venture Companies Producing Oil in South Sudan

Details of these agreements come from the Petroleum Marketing Report produced by South Sudan’s ministry of petroleum for the financial year 2018-2019, the most recent for which information is available. The data here does not reflect any renegotiations that have taken place since that time.