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South Sudan’s oil sector needs to become more transparent
South Sudan’s oil sector needs to become more transparent
Report 172 / Africa

Politics and Transition in the New South Sudan

Now that South Sudan’s self-determination has been realised, long-suppressed grievances and simmering political disputes have re-surfaced, threatening instability on the eve of independence.

Executive Summary

Now that South Sudan’s referendum is complete and its independence from the North all but formalised, focus must increasingly shift to the political agenda at home. A new transitional government will preside over a fixed term from 9 July 2011, during which a broadly consultative review process should yield a permanent constitution. Critical decisions taken now and immediately after independence will define the health and trajectory of democracy in what will soon be the world’s newest state. Two factors may shape the coming transition period more than any other; first, the degree to which the South’s ruling Sudan People’s Liberation Movement (SPLM) allows an opening of political space in which a vibrant multi-party system can grow; secondly, the will to undertake democratic reform within the SPLM, as intra-party politics continue to dominate the political arena in the near term. Embracing pluralism now – both inside and outside the party – would lay a foundation for stability in the long term. Failing on either front would risk recreating the kind of overly centralised, authoritarian and ultimately unstable state South Sudan has finally managed to escape.

Post-referendum negotiations continue between the SPLM and the National Congress Party (NCP) toward a peaceful separation and a constructive North-South relationship. While they consume considerable attention of the SPLM leadership, the political landscape in South Sudan has begun to transform. From the signing of the Comprehensive Peace Agreement (CPA) in 2005, South Sudan’s divergent ethnic and political communities were united behind a common goal: self-determination. Many suppressed grievances, choosing not to rock the boat until that objective was achieved. Now that the vote has been cast and its results endorsed, the common denominator is gone, and long-simmering political disputes are beginning to re-surface. Likewise, a series of armed insurgencies, recent militia activity, and army defections highlight internal fault lines and latent grievances within the security sector. Continued fighting has challenged government capacity to manage domestic conflict, risks further polarisation of ethnic communities and their political leaders and could stoke broader insecurity.

Jockeying has intensified between the SPLM and Southern opposition parties over the composition and powers of a transitional government and duration of the transitional period. The SPLM desires to move expeditiously toward a transitional constitution amid all that must be done before independence, while the opposition fears it is manipulating the process to entrench its power. A domineering approach from the SPLM has jeopardised the goodwill created by an important political parties’ conference in late 2010. Stifling debate and poor political management of such processes unnecessarily risk further antagonism among opposition parties, particularly at a time when the challenges in realising independence and managing domestic security concerns make Southern unity all the more important. The SPLM must recognise that meaningful opposition participation – including in defining the transition and in a broad-based government – is not a threat to its power but an investment in stability and legitimate rule. A politics of exclusion may in the long run undermine the very power some party hardliners are trying to consolidate.

Managing South Sudan’s ethno-regional diversity will continue to be a tall order. Political accommodation is a necessity regardless of what form the transitional government assumes. The SPLM leadership will have a difficult chessboard to manage, finding roles for a wide range of party (including many members now returning home), army and opposition elements. It must avoid a “winner-takes-all” mindset and view the appointment of a broadly representative government not as appeasement alone but as recognition of Southern Sudan’s pluralist character.

The liberation struggle is over, the CPA era is coming to a close, and it is thus time for the SPLM to mark a new chapter in its evolution. A review of the party’s modus operandi is necessary if it is to maintain cohesion, consolidate its legitimacy and deliver in government. Party reforms should aim to manage internal divisions, erode a top-down military culture, professionalise operations and trade coercion for enhanced internal dialogue. Meanwhile, there is no denying that Southern opposition parties are weak; their resources, membership and structures are thin. While the SPLM must engender a conducive environment, opposition parties are equally responsible for pursuing shared national interests, shouldering national responsibilities and developing credible alternative platforms that target a national constituency. Continued national and international support for political party development is essential.

Once the transition period commences, reviews of several key policy areas and resultant strategies will shape the political and economic structure of the emerging state and help determine the response to the high post-independence expectations that Southerners have placed on their young government. Decentralisation has been championed in rhetoric and neglected in practice. Examination of the current model is in order, as there remains a disproportionate focus on the central government and its capital city, in political, economic and development terms. Expectations for improved development and service delivery in the lives of ordinary Southerners will necessitate increased devolution to states and counties so as to avoid the very centre-periphery dynamic that lay at the heart of Sudan’s national woes.

Post-CPA arrangements on oil revenue sharing between North and South have occupied a prominent place in political discourse, but far less attention has been paid to future revenue sharing policy within South Sudan. Given almost exclusive dependence on oil money, decisions as to how petrodollars are managed and shared may soon occupy a prominent place in national politics. Ownership rights, a nationwide revenue allocation model and a corresponding regulatory architecture must be established. If well administered, the oil sector can be a key instrument for decentralising authority, empowering state and local politics and accelerating development in the new South. If not, corruption and mismanagement could prompt national division and surrender another victim to the resource curse.

The transition period will be capped by the country’s first independent elections. The electoral system must accordingly be reviewed so as to overcome the shortcomings of the 2010 polls by ensuring a level playing field and providing the best possible opportunities for diverse, accountable and genuinely representative institutions.

Fair or not, the soon-to-be independent Republic of South Sudan will for some time be judged in the context of its decision to separate. One-party rule, tribal-oriented politics or significant governance or internal security failures would generate criticism from sceptics who argued the region could not govern itself. The opportunity now presents itself to prove them wrong; it is up to the South Sudanese to take it.

Juba/Nairobi/Brussels, 4 April 2011

Op-Ed / Africa

South Sudan’s oil sector needs to become more transparent

Originally published in The African Report.

South Sudan’s fortunes have always been tied to its oil. The discovery of oil in the late 1970s deepened tensions between the South Sudanese and the regime in Khartoum and fueled violence after the outbreak of Africa’s longest-running civil war as both sides vied to control the region’s oil fields.

Oil then laid the groundwork for South Sudan’s secession. A landmark 2005 peace deal granted Juba half of the South’s oil revenues, pumping billions into the new semi-autonomous government.

But the sudden wealth gravely compromised the country’s stability. By 2013, only two years after independence, the elite scramble for South Sudan’s oil riches helped trigger a fresh war that may have killed 400,000 people while displacing millions.

Nowadays, despite a 2018 peace agreement and a government of national unity, Juba’s monopoly on oil revenue obstructs a broader political settlement the country desperately needs.

South Sudan’s leaders siphon off the bulk of the petrodollars, leaving much of the population starved of basic services and, in some parts of the country, on the brink of famine.

Pervasive corruption has become a huge source of frustration for donors, including the US, which allocates a billion dollars a year primarily to sustain humanitarian relief. South Sudan produces roughly 150,000 to 170,000 barrels a day. But because of the share owed to oil companies and fees paid to Sudan, it earns income from 45,000 barrels at most, according to the best estimates available. Little of that income reaches the national budget due to off-budget expenditures, undisclosed debt payments, and allocations to its opaque state oil company Nile Petroleum.

Those who still support South Sudan cannot ignore its rotten finances. Since oil underwrites the entire South Sudanese state, addressing the country’s deep troubles is impossible without a focus on its vanishing petrodollars. A first step in this direction is making the oil economy more transparent, not only in South Sudan, but also in Europe, host to many of the country’s commercial financiers.

Oil fuels tensions

Despite staggering poverty and underdevelopment, South Sudan qualified as a middle-income country at its birth thanks to its oil wealth. But instead of serving as a foundation for state-building, oil poisoned South Sudan’s politics. Before independence, rebel commanders enriched themselves through a mix of taxation, aid diversion, artisanal gold mining, deforestation, and outright looting. This culture of illicit self-dealing quickly came to resemble a free-for-all when the 2005 peace agreement unlocked billions of petrodollars.

After independence, oil money papered over the South’s ethno-political divisions until President Salva Kiir moved to consolidate power, tightening his grip on oil funds in the process. Only two years after secession, a leadership struggle between Kiir and internal challengers, led by his main opponent Riek Machar, burst into a civil war that drained state coffers, with oil production decreasing because of the conflict.

To stay afloat, South Sudan turned to a handful of commodity traders to purchase future deliveries of oil, including Swiss-Singaporean Trafigura, which bought South Sudan’s oil through secretive pre-payment arrangements. These high-interest cash advances worked like the petrostate equivalent of a payday loan scheme, piling up debt while hiding South Sudan’s finances ever further from sight.

Back to the books

South Sudan’s future would appear less bleak if the countries that foot the bill to alleviate the country’s humanitarian disaster focused on making sure Juba accounts for its oil revenue.

Donors should make a concerted effort to push Juba to comply with existing laws and provisions in the 2018 peace agreement to ensure that oil proceeds are paid into a single public oil revenue account. One source of leverage is through the IMF, which has given South Sudan $550m in the past year but with few strings attached. The IMF should condition future disbursements on the exclusive use of the public oil account.

Outside pressure on Juba should be supplemented with pressure on South Sudan’s financiers. European governments should urge trading companies with a strong corporate presence in Europe to disclose their payments to South Sudan and demand the funds be deposited into the official oil account.

They should also consider drafting regulations requiring commodity firms under their jurisdiction to certify compliance with South Sudan’s law. This could work. Following engagement by the UN Panel of Experts on South Sudan, Glencore has disclosed purchasing $950m of South Sudanese oil since 2018. Additional leverage could come from widening the regulatory net to the commodity firms’ insurers and bankers, many of which are also in Europe.

Declining output and global decarbonisation mean that South Sudan will not be in the oil business forever, and given the trouble it has caused there, the transition may provide as much opportunity as risk. Still, bringing the oil money back onto the books of the national budget could at least give the South Sudanese a chance to reset their bloody politics now, not when the oil pumps stop.