South Sudan

• The economy of South Sudan is still fragile, characterised by high dependence on oil, limited domestic production and a high reliance on imports. In the short and medium term, government spending will remain a key driver of the non-oil economy.

• The country has a shortage of skilled human resources in all key sectors of the economy.

• Despite the abundance of natural resources, the linkage between resources and structural transformation is still very weak, hence the failure to maximise “returns” from available natural resources.

South Sudan gained independence on 9 July 2011 and its first year of independence was characterised by economic hardships. The size of the economy, measured by nominal gross domestic product (GDP), was SSP 43.1 billion (South Sudanese pounds) (equivalent to USD 14.4 billion) in fiscal year (FY) 2011/12, compared with SSP 42.9 billion (equivalent to USD 14.3 billion) in FY 2010/11. However, real GDP growth contracted in FY 2011/12 by 27% as a result of the shutdown of the oil pipelines and is projected to further contract by 16.3% in 2012/13 owing to the delay in full resumption of oil production.

The main driver of recent and future expected economic development is oil production. About 98% of government revenue stems from the oil sector, which contributes over 60% of GDP in terms of direct exports and associated investment¹. The non-oil economy is dominated by subsistence farming and livestock. However, the agricultural sector is not well developed and the country still relies on imports to meet its food requirements. Furthermore, the poor infrastructure makes transporting agricultural and animal products to market very difficult. In the absence of oil exports, agriculture and services are expected to drive growth in 2013, therefore resulting in lower economic growth.

The country faces a number of challenges requiring critical government attention in coming years: a high poverty rate (an estimated 50.6% of South Sudanese citizens live below the poverty line), weak public service delivery systems (specifically in rural South Sudan), rapid population growth (arising from a combination of high fertility rates and migration following independence and the end of the conflict with Sudan), the economy’s over-dependence on oil and a shortage of human resources in all sectors of the economy.

The nominal GDP was SSP 42.9 billion (equivalent to USD 14.3 billion) in FY 2010/11 and SSP 43.1 billion (equivalent to USD 14.4 billion) in FY 2011/12. However, real GDP growth contracted by 27% in FY 2011/12 as a result of the shutdown of the oil pipelines. Given this contraction and the inadequacy of available safety net measures, the country’s poverty rates are expected to increase beyond the 2009 levels of 50.6%. The economy is projected to further contract by 16.3% in FY 2012/13 due to the delay in full resumption of oil production. As a result of this delay, the outlook for the third quarter of 2013/14 is not expected to improve.

South Sudan continues to rely on oil production as a major driver of the economy. The oil sector accounted for the largest share (about 60%) of GDP in 2010 and oil revenues have accounted for almost 98% of public revenue over the years. The economy’s overdependence on oil affects its resilience and sustainability against external economic shocks. This calls for a gradual policy shift toward developing the non-oil sectors, specifically agriculture, mining and manufacturing, thus leading to more inclusive development and poverty reduction.

In FY 2012/13 and 2013/14, the government will continue operating a tight fiscal and monetary policy ruling out printing money or excessive local borrowing. The FY 2012/13 budget was based on the need to overcome the adverse economic and fiscal impacts of the shutdown of the oil pipelines. To control expenditure and balance the budget, the Council of Ministers approved a SSP 6.5 billion austerity budget – a reduction of about 40% in the initial annual budget. For 2013/14, the government has committed to pursuing the fiscal austerity measures, with targeted increases in spending on the infrastructure and service delivery sectors.

The government has also put in place measures to increase non-oil revenue and reduce government expenditure. These include revenue diversification towards non-oil sources, increases in tax rates on certain items, drastic spending cuts and mobilisation of external funding, including budget support. According to the 2012/13 budget plan, the tax reform measures have resulted in an increase in non-oil revenue from SSP 10 million in FY 2011/12 to approximately SSP 70 million in FY 2012/13. Despite these good intentions, the past record shows that budget discipline and fiduciary assurance mechanisms are major challenges, partly because internal peace and security have always been fragile and the national budget has been used to “buy peace”. According to the South Sudan Integrated Fiduciary Assessment Report 2012, the annual national budgets have limited credibility due to major weaknesses in budget execution. The low predictability of available funds from one quarter to another, coupled with a cash-rationing system, have led to a huge build-up of payment arrears. Compounding the problem, reporting and accounting, external audit, legislative oversight and public access to information are still in their infancy (hence the high fiduciary risk). Given that public finance management (PFM) is a key deliverable for the government and development partners, fixing these weaknesses should be a top priority.

On a positive note, expectations that oil production will resume in 2013 have eased pressure on foreign exchange and inflation rates. The August 2012 agreements on oil, security and trade issues signed by the two heads of state of Sudan and South Sudan and the impending resumption of oil production present brighter short- and medium-term economic and social prospects. Given expectations of an improved economic outlook, inflation and foreign exchange rates have continued to stabilise. Having reached a peak of 74% in May 2012, the annual consumer price index inflation dropped from 43.3% in August 2012 to 42.9% by September 2012, further decreasing to 25.2% in December 2012. The lower inflation rate was mainly associated with decreased prices for food and alcoholic beverages and a good agricultural yield. On the other hand, since September 2012 the parallel market exchange rate has remained stable at SSP 4.2-4.3 per US dollar, compared to SSP 5.4 per US dollar in May 2011. Sustaining these positive trends will depend on how fast oil production resumes. The delay in oil production will negatively affect both macroeconomic budget assumptions for FY 2013/14 and the country’s foreign exchange supply.

The economy is fragile and characterised by high dependence on oil and reliance on imports. Volatility in oil prices and production makes macroeconomic and budgetary planning difficult. The government has yet to develop a comprehensive macroeconomic framework encompassing all sectors of the economy and has limited capacity to forecast key macroeconomic variables. The South Sudan Development Plan (SSDP) stipulates three key macroeconomic objectives: i) short- and medium-term macroeconomic growth; ii) long-term fiscal sustainability; and iii) broad-based sustainable economic growth.

The Ministry of Finance and Economic Planning (MoFEP) is mandated as the government’s fiscal agent, with the key objective of maintaining long-term fiscal sustainability. However, the government’s inability to implement the past approved budget has led to significant expenditure overruns. This failure to control expenditure underlies both the budget’s inability to provide enough fiscal reserves for managing security shocks and current fiscal policy’s strongly inflationary impact.

In 2011, the MoFEP started implementing a within-year fiscal rule of quarterly cash limits to ensure fiscal discipline and macroeconomic stability. This was intended to smoothen government spending over the financial year, increase the predictability of public spending and improve budget execution relative to budgeted allocation. The 2012/13 budget featured new measures to strengthen expenditure control, including tracking current expenditure against the budget, monitoring arrears build-up more closely, establishing better control of the wage bill and strengthening revenue administration systems. Budget execution remains a major challenge and the first quarterly performance review for FY 2012/13 shows that pockets of budget overruns still exist, particularly in the security sector.

The government has committed to operating a tight fiscal and monetary policy in the short- and medium-term that rules out printing money or excessive domestic borrowing. In FY 2011/12, monthly spending was reduced from SSP 840 million to SSP 730 million under the three-month austerity budget rule following the oil shutdown. The 2012/13 budget further reduced monthly expenditure to approximately SSP 530 million – a total annual budget cut of SSP 2.4 billion. For FY 2013/14, the government has committed to preserving the spending levels set by the austerity budget, with targeted spending increases in the infrastructure and service delivery sectors.

Government expenditures are rigid in order to adapt to shocks. This jeopardises the quality of public goods, particularly in the education, health and infrastructure sectors. A review of the budget outlays indicates that capital expenditure as a share of total expenditure fell from 31% in FY 2011/12 to only 12% in FY 2012/13, leading to a 40% drop in infrastructure spending. This spending pattern is clearly not sufficient to support medium- and long-term economic growth. The government can mitigate this problem by restructuring budgetary allocations and expenditures to emphasise allocations to productive sectors of the economy, as well as reduce allocations to consumption items (such as salaries) that consume about 46% of the current budget.

 

 

Proper conditions for operating realistic and active monetary policy are lacking, as is clarity concerning the monetary policy framework. Macroeconomic data on GDP, monetary aggregates, government finances, external assets and the institutional capacity of the Bank of South Sudan are still very limited to permit construction of a basic monetary model adapting the monetary or inflation-targeting approach. An active monetary policy also requires a well-developed and functional financial sector to transmit monetary policy interventions, yet the financial sector is still shallow and underdeveloped. 

Discussions with the Bank of South Sudan have revealed that choosing an exchange policy is one of the most challenging macroeconomic policy decisions the country currently faces. The government’s preferred policy was to use the auction-based allocation system to allow foreign exchange to find an equilibrium level and then to peg the rate at that level. This proved unsuccessful and the exchange rate has been pegged at SSP 3.0 per US dollar. Shortly after the oil shutdown, foreign exchange shortages led to the South Sudanese pound sharply depreciating against the US dollar on the parallel market, reaching a buying rate of SSP 5.4 per US dollar. Since the announcement of the oil deal, the exchange rate on the parallel market has been stable from September 2012 to-date at SSP 4.20-4.30 per US dollar. 

The market value of the SSP in South Sudan’s capital city Juba is estimated to be about 40% lower than the official rate. Consequently, a significant number of foreign exchange transactions take place in the parallel market, making monetary policy somewhat inactive. The government needs to prioritise reducing the spread between the official and parallel market rates by devaluating the SSP. Given that most commodities are priced at the parallel market exchange rate, devaluating the currency to the parallel market rate would not have a significant impact on general price levels.

The monetary data required for analysing monetary policy (for example the evolution of Central Bank interest rates, measures taken by the Central Bank to increase credit to the private sector, balance of payments statistics and the Central Bank’s plans to implement a monetary policy) are neither readily available nor officially published. It is therefore currently impossible to assess the impact of real interest rates on business or the Central Bank’s response to the oil shock, as well as to discuss the country’s monetary policy in depth. That said, the only available anecdotal evidence on the Central Bank’s response to the oil shock indicates that foreign exchange has been rationed inasmuch as possible.

While the current account balance trend was positive and increasing in FY 2009/10, 2010/11 and 2011/12, it became negative in FY 2012/13. The positive trend was mainly associated with a strong posting of oil exports; exports of non-oil goods and services only ranged from 1.3%-1.5% of GDP. Consequently, due to the shutdown of oil production and collapse of oil exports, the current balance projection for FY 2012/13 is USD -411.4 billion. Given that oil is a major source of export earnings, the current-account balance excluding transfers could deteriorate drastically to -2.8% of GDP for 2012/13, compared to 5.7% in FY 2011/12 and 11.8% in FY 2010/11. Due to its weak agricultural and manufacturing sectors, South Sudan is highly dependent on imports for consumption. Going forward, if the country is to address this imbalance the government should prioritise initiatives to diversify the economy, particularly through boosting food crops to reduce food dependence and implementing reforms to encourage the commercial farming of fruits and cereals, floriculture and horticulture.

The government has made some progress with the regulatory framework – particularly in the areas of trade and investment laws, including business registration, the Companies Act, the Arbitration Act and investment promotion. However, the trade policy and regulatory environment is still embryonic and may not have an adequate impact on the country’s future trade developments. Remaining challenges include the absence of business regulations governing standards conformity and quality assurance, the lack of human and institutional capacity to implement legislation and poor infrastructure.

South Sudan is a landlocked country. Regional co-operation is therefore critical not only to ensure food security and peace, but also to foster infrastructural development. South Sudan has initiated the process to gain membership in the East African Community (EAC). The country will have to address its major infrastructure weaknesses and align its tariff structures and related instruments to those of the regional bloc to fully benefit from its customs union and Common Market Protocol.

The country’s debt level is not published due to absence of a debt management framework and debt management unit. The legal framework for public borrowing as defined by the Constitution allows both the central and state government to contract debt. In the absence of a debt strategy and strong co-ordination and information-sharing mechanisms among different agencies responsible for contracting debt, this represents a high risk for debt sustainability. According to the World Bank, total debt stock at end-December 2012 amounted to SSP 3.0 billion, or 12% of GDP; 75% of this is short-term domestic debt, including SSP 1.1 billion in one-year bills borrowed from commercial banks, SSP 450 million in short-term advances from the Bank of South Sudan and SSP 690 million in accrued arrears to suppliers. Foreign debt amounts to 25% of total debt, with repayment terms linked to oil. In an optimistic scenario where oil revenue resumes in 2013, the government would be able to repay the external debt and refinance the domestic debt. However, given the current uncertainty concerning the resumption of oil revenue and the availability of domestic and external financing, the government faces substantial short-term repayment and refinancing risks.

South Sudan is still classified as a post-conflict country and has one of the most constraining business climates in the world. It suffers from a high degree of socio-economic fragility, overlapping legal and regulatory instruments, weak institutional and human capacities, dilapidated infrastructure, weak financial sector and extremely low social development indicators, as well as a lack of clarity among federal, state and county jurisdictions over business licensing, taxes and customs. The country further suffers from persistent external and internal threats to peace, security and stability, a war-ravaged infrastructure and a narrow economic base with heavy dependence on the oil sector. The lack of an environment propitious to business activities means that many South Sudanese are on the public sector payroll.

The banking sector is still in its infancy and vulnerable to shocks. Very little data are currently available regarding the state of the Bank of South Sudan and there is doubt about the health of the financial system. While the size and reach of financial markets is limited but improving, capital markets are non-existent. According to a 2011 report issued by the Congressional Research Service, an estimated 1% of the population has bank accounts. Information on private-sector credit as a percentage of GDP is not readily available, nor are information systems in place to measure the share of non-performing loans and level of capital risk. Adherence to the Basel core principles is limited and capacity weaknesses result in poor-quality risk management in financial institutions.

Given the nature of the economy, microfinance is limited and inefficient. Only a handful of microfinance institutions (MFIs) currently provide microfinance services. The available MFIs only service about 1% of potential clients, offer a limited range of products and do not address the productive, rural and agricultural sectors effectively. Certain MFIs suffer from a high default rate. Feedback from microfinance agencies depicts limitations, including unstable access to funds (particularly grants and equity), lack of a regulatory framework enabling them to better fund themselves through savings, and poor capacity (poorly trained staff, lack of IT systems, inadequate monitoring and controls, etc.). Further issues hindering the provision of microfinance include low staff retention, limited geographical and sectoral outreach due to security concerns and difficult client access to productive training. 

The PFM system is still weak, thus compromising the quality of public spending. An assessment of the integrated fiduciary reports shows a still-substantial fiduciary risk and a number of areas requiring urgent attention, including: i) enacting appropriate laws for allocating the national revenue fund; ii) strengthening accountability and accounting capacities, as well as domestic resource mobilisation; iii) prioritising spending and tracking expenditures of government agencies; and iv) complying with procurement laws. In response to these challenges, in FY 2012/13 the government introduced a number of PFM reforms including using an integrated financial management information system (IFMIS), reforms in payroll procedures and government expenditure and introducing policy-based budget targeting results. Nevertheless, the effectiveness of these reforms is compromised by the budget’s lack of credibility stemming from weaknesses in budget execution, reporting, external audit, legislative oversight and public access to information. Moreover, while the government has introduced an IFMIS to better control and manage expenditure, the system is limited to expenditure reporting and is only available to a few spending agencies.

The government’s procurement function, which has been associated with substantial leaks of public funds, is in urgent need of reform and professionalism. Enacting the Procurement Act and strengthening procurement and disposal units at the spending agency level will be critical.

The 2012/13 budget speech to the National Assembly by the Minister of Finance and Economic Development mentioned improvements undertaken by the Ministry of Finance and Planning, together with the Ministry of Labour, Public Service and Human Resource Development. Examples include: i) all national employees apart from Ministry of Defence employees are paid through the South Sudan electronic payroll system; ii) the Directors-General or department heads certify that staff under their control are present and working; iii) government employees are paid directly through the banks; and iv) related payments, including incentives, overtime and bonuses (if any) are taxed according to tax law. The budget’s introduction has significantly reduced the risk of paying ghost workers and contributed to increasing non-oil revenue. The remaining challenge is that personal records kept at the spending agency level are not up to date and the non-inclusion of the defence sector, the largest single beneficiary of public funds, has compromised the reform’s effectiveness.

South Sudan being a new country, none of the governance indicators (such as the Mo Ibrahim index or the corruption perception index) are available. Development partners are providing support to the South Sudan Anti-corruption Commission (SSACC), audit chamber, parliament, civil society and media with the goal of promoting anti-corruption efforts. The SSACC developed an anti-corruption strategy for 2010-14 and a five-year work plan consisting of a series of preventive and responsive measures at all three levels of government, as well as among non-state actors. A number of steps have been taken to strengthen and improve governance, including: i) enactment of some laws; ii) public awareness and education campaigns; and iii) the SSACC February 2012 ruling making the disclosure of annual net worth (including incomes and assets of spouses and children) mandatory for all constitutional post holders and senior civil servants. In addition, the government has indicated its strong commitment to transparency and accountability in oil management through joining the Extractive Industries Transparency Initiative (EITI). The outstanding issue in South Sudan today is the need to ensure that the policies and laws passed are implemented by adequately funding and strengthening the capacities of oversight institutions.

The economy is highly dependent on a depleting oil resource. Oil revenue accounts for 98% of government revenue and the oil sector contributes about 70% of the country’s GDP. Information on terms of agreement with multinational enterprises is not available publicly. That said, the government has undertaken a number of actions to improve the linkage between the natural resources sector and other key sectors of the economy. These include passing the Investment Act (emphasising the creation of an enabling environment for private sector development), prioritising infrastructure development and implementing the country’s medium-term capacity building plan.

The government subscribes to MDG 7: ensure environmental sustainability. South Sudan faces a number of environmental problems, including unregulated exploitation of natural resources, climate change, predation as a result of two decades of conflict, large numbers of returnees and oil extraction. All these factors play a role in exploiting and destroying the natural resources base, compromising the livelihoods of the communities that depend largely on the land and its resources for a living.  

The government’s environmental policy offers opportunities to mitigate some of these threats. The South Sudan Legislative Assembly is also addressing matters of environmental concern as a cross-cutting issue as it scrutinises both legislation and oversight functions. The government has committed to sustainable development by enforcing environmental and social impact assessments for all development programmes and projects, acceding to and ratifying applicable beneficial multilateral environmental treaties, conventions and agreements, and promoting inclusive participation, access to information and good governance in sustainable natural resources management and environmental protection.

The political situation remained fragile in 2012 due to conflicts between South Sudan and Sudan that resulted in the closure of South Sudan’s oil fields in late January 2012. The capture and occupation by South Sudan of the town of Heglig in April 2012, as well as the deployment of armed officers on the border with Sudan, further complicated the political situation and resulted in an influx of over 100 000 refugees to South Sudan’s Upper Nile State. More recently, negotiations between South Sudan and Sudan, mediated by the African Union’s High Level Implementation Panel (AUHIP) and the United Nations, have begun to resolve the political situation: an initial agreement on oil-related financial arrangements was reached on 3 August 2012 and a more comprehensive agreement on a number of issues – namely a common border, security, trade and economic relations – was signed on 27 September 2012. A buffer zone established under the 3 August 2012 deal will enable the two countries to implement the August 2012 agreement for resumption of oil production and exports in coming months.

No agreement, however, has been reached on the final status of Abyei, the key disputed region, as well as the Blue Nile and South Kordofan states. The key to sustainable progress and development is reconciliation, peace and security through the parties’ genuine and steadfast commitment to resolve the remaining contentious post-succession issues rapidly, with the assistance of development partners and the AUHIP.

The country has not made much progress in reaching MDG 2 (achieve universal primary education), MDG 4 (reduce child mortality), MDG 5 (improve maternal health) and MDG 6 (combat HIV/AIDS, malaria and other diseases). Government policies, institutional capacity and spending are inadequate to achieve universal basic education. Literacy, equitable early child development (ECD) access and teacher and student learning standards are still low. Consequently, only 27% of the population aged 15 years and above is literate; 53% of the urban adult population is literate, compared to 22% of the rural adult population; and 40% of the population between ages 15-24 is literate. The gross enrolment rate for primary schools in 2010 was 75% (comprising 85% males and 15% females), while the net enrolment rate for primary school stood at 46%. In addition, about 40% of teachers are not trained and the capacity for curriculum development and inspection is weak owing to limited resources. In fact, the ECD delivery system is almost non-existent and the mechanism to ensure efficient use of resources needs to be strengthened.  

Policies and funding permit only limited access to essential health and nutrition services and protection against the financial burden of illness, particularly for the poor populations. South Sudan has one of the worst health indicators in the world. In 2011, the infant mortality rate was 102 per thousand live births, the under-five mortality rate was 135 per thousand live births and the maternal mortality rate was 2 054 per one hundred thousand live births; only 17% of children were fully immunised. A full 45% of the overall population has no access to improved sources of drinking water; 67% of the urban population has access to improved sources of drinking water, compared to 53% of the rural population; and 80% of the population does not have access to any toilet facility.

Malnutrition remains a big challenge and the single biggest contributor to child mortality, even though the prevalence of severely undernourished children (under five years) declined in the then-State of Southern Sudan from 131 per thousand children in 2006 to 122 per thousand children in 2010. The proportion of the population below the minimum level of dietary energy consumption stood at 47% in 2009, far removed from the government’s 11% target by 2015.

While policies for prevention and treatment of HIV/AIDS, tuberculosis and malaria exist, funding and implementation are limited. The MDG progress report for 2012 indicates improvements in some key indicators compared with 2006 statistics. In 2011, the population’s comprehensive knowledge of HIV stood at only 9%; the ratio of orphans to non-orphans in schools was 26%, compared to 10% in 2006; access to antimalarial treatment was 5%, compared to 47% in 2006; the proportion of households with at least one insecticide-treated mosquito net was 52.3%, compared to 38% in 2006; and the proportion of tuberculosis cases under DOTS was 48%, compared to 36% in 2010.

Though still limited, the legal and policy framework provides an adequate basis for a national social protection system. Social protection is enshrined in the Bill of Rights included in the 2011 Transitional Constitution of South Sudan.

The SSDP 2011-13 recognises the important role of the social protection plan in mitigating and sustaining livelihoods. The government aims to develop an integrated and comprehensive social protection policy framework encompassing different social welfare schemes, including the Child Benefit Cash Transfer Programme, which will focus on providing universal financial coverage for all families with children as a means of sharing the national resources and fostering poverty reduction.

Despite the quality of South Sudan’s legal framework, the public administration system is weak and public services generally restricted in their scope and reach. Access to essential basic social services critical to human development is particularly low: only 40% of the population has access to healthcare and 70% of health facilities rely on non-governmental organisations for operational support. Primary school attendance (with a gross attendance rate of only 75% and a net attendance rate of only 46%), immunisation coverage for children and access to safe water and sanitation are all low.

Poverty is generally widespread and coupled with a complex web of vulnerabilities. Over 50% of the population lives below the national poverty line, with rural poverty more pronounced (55.4%) than urban poverty (24.4%) and clear regional disparities in poverty levels. The incidence of income poverty ranges from as low as 25% of the population in Upper Nile state to 75% of the population in Northern Bahr el Ghazal state. States such as Warrap, Unity and Northern Bahr el Ghazal, which were substantially isolated by conflict and remain disconnected from the relatively prosperous areas, are the most affected. While the national poverty gap stands at 24%, it is almost double (47%) among the poor, suggesting that 50% of poor people are chronically poor.

Equally significant is the high level of inequality in income distribution. The richest 40% of the population accounts for 70% of total consumption. With a Gini coefficient of 45.5, income inequality is now above the average sub-Saharan Africa level of 43. The inequality level is higher in rural areas (44.1) compared to urban areas (41.9).

The SSDP in its broad outline recognises the high correlation among poverty, social vulnerability and gender inequality. Women (who constitute 49% of the population) are generally marginalised and unable to contribute effectively to social, economic and political development. Significant disparities exist in labour participation, business ownership, land tenure, property ownership and inheritance practices.

Steep differences also exist in the ratio of female to male enrolment in primary and secondary education, even though it has been rising in primary, secondary and tertiary education. In primary schools, the ratio of girls to boys rose from 58.6% in 2008 to 59.3% in 2010 (EMIS, 2009 & 2010). In secondary education, it rose from 36% in 2009 to 40.8% in 2010. This improvement is not sufficient to sustain the supply of female students in higher education. Factors that force girls out of school include a late start in education, as well as family and cultural responsibilities (girls are more likely than boys to provide care and support to aged or sick relatives). Thus eliminating gender disparities remains a challenge at the secondary and tertiary education levels.

The ratio of literate females to males stood at 55% (EMIS, 2009 & 2010). The government is pursuing its commitment to reducing illiteracy among the adult population through formal, informal and non-conventional educational strategies and enacting relevant laws.

Although maternal health has performed poorly, maternal deaths have dropped over the past few years. The Sudan Household Health Surveys indicate that the maternal mortality rate of 2 054 per one hundred thousand live births in 2006 improved to 1 989 deaths per one hundred thousand live births in 2008. Deliveries attended by “skilled” health staff or skilled birth attendants increased from 10% in 2006 to 19.4% in 2010.

South Sudan is a large (619 745 square kilometres) country that is very rich in natural resources, many of which remain to be discovered. The available natural resources are water, hydropower, fertile agricultural land (about 90% of which is arable land), gold, diamonds, petroleum (with proven reserves of 7 million barrels), hardwoods, limestone, iron ore, copper, chromium ore, zinc, tungsten, mica and silver. In addition, South Sudan's protected area of Bandingilo National Park hosts the second-largest wildlife migration in the world.

Yet South Sudan has not managed to maximise “returns” from its abundant natural resources. Consequently, it has one of the worst social indicators in the world, poor infrastructure and high youth unemployment. Unequal access to the country’s natural resources wealth has frequently been central to internal conflicts.

Due to the country’s recent independence and years of political instability, laws and policies (from the Constitution to national laws governing resources to municipal ordinances) are in deep flux. In the course of developing the legal framework, there has been little clarity on the jurisdictions of different governmental agencies. For example, the Transitional Constitution gives joint authority over natural resources and forestry to the national and state governments, but does not provide further guidance. This ambiguity in the roles of different government levels has created challenges to implementation and enforcement and generated opportunities for corruption and bribery. 

The structure and type of governance is yet to be clearly defined or agreed upon, despite its significant implications for natural resource management. The selection of a federal or a decentralised unitary system could have profound long-term effects on decision-making with regard to natural resources, the effectiveness of environmental governance and the potential for conflict. The current severe shortage of trained personnel at the national and state levels is a significant barrier to implementing an efficiently decentralised system.²

One important challenge facing South Sudan’s forestry sector is a lack of awareness and common understanding of the status and future direction of forest management. An estimated 45% of forest cover and a large proportion of biodiversity have been lost since the outbreak of the war in 1983. If properly managed, forestry resources (including teak and mahogany) could help diversify South Sudan’s oil-dependent economy, promote food security and alleviate poverty in rural communities. Instead, weak and inadequate co-ordination mechanisms between national and state government bodies with regard to programme implementation, resource allocation, enforcement and accountability lead to extensive illegal logging and forest conversion. While the draft forest policy contains provisions to protect the country’s diverse forest reserves, limited information is available on the forest resource base. The lack of accessible information, coupled with a modest budget for staff hiring and training and the government’s limited ability to enforce forestry laws, results in a mismanagement of forest resources.

South Sudan is also struggling to determine whether customary law, statutory law, or some combination thereof should apply to land use at the local and community levels. The 2009 Land Act granting communities the right to own land and be a part of the consultation process is yet to be implemented. As of late 2012, not a single parcel of community land had been formally recognised (although a project supported by USAID was underway to help communities and the government carry out the process of designating community lands). The lack of formal designation of community lands held under traditional tenure has led to frequent and extensive land-grabs.³

The Abyei conflict has damaged the area’s water and land resources. As a country that lies almost entirely in the Nile Basin, South Sudan is demanding a large share of Nile waters to develop agricultural projects. However, it faces the challenge of sharing Nile water resources with other riparian states in the Basin. Since the Comprehensive Peace Agreement did not adequately address the distribution of Nile waters, six upper riparian states – South Sudan, Ethiopia, Kenya, Rwanda, Uganda, and Burundi – signed the Cooperative Framework Agreement (CFA)⁴ in 2010.⁵ The ratification of the CFA led to the creation of the Nile Basin Initiative to which South Sudan was admitted as a full member in July 2012, bringing membership to ten states.⁶ Since the CFA excludes Egypt and Sudan, it is unlikely to resolve Nile water distribution issues.

Corruption represents a considerable challenge, particularly in the natural resources sector. An estimated USD 4 billion was “lost to corruption” or “stolen” by South Sudanese government officials in 2012 and there have been several reported cases of illegal petroleum extraction.⁷ In establishing its legal and policy frameworks governing the extraction and management of natural resources and their revenues (including concession arrangements), South Sudan is making conscious efforts to include provisions for transparency, public engagement, accountability and revenue management standards drawing from international best practice.⁸ In 2012 South Sudan passed the Petroleum Act aiming to reduce the country’s dependence on oil and use these revenues to support development in other sectors. The act contains provisions to promote transparency in oil management, improve governmental accountability and prevent corruption and bribery.⁹

The Petroleum Act calls for increased public reporting and requires the Ministry of Petroleum and Mining to publish revenue and production data annually.¹⁰ It requires adherence to EITI, the international standard promoting transparency in private-sector payments to the government in the oil, gas, and mineral sectors. It also requires companies to disclose all oil-related payments to the government.¹¹ The South Sudan Legislative Assembly has not yet approved the Petroleum Revenue Management Law, which will ultimately govern management of oil revenues. While the law ensures that state governments receive a proportion of the oil revenue, it does not contain adequate safeguards to protect citizens’ traditional and customary land rights.

Notwithstanding the government’s efforts, the conditions for success in managing natural resources and their effective linkage with the country’s structural transformation are only partially met. Three fundamental weaknesses impede structural transformation and sustainable management of available natural resources: the lack of socio-economic development; weak governance and institutional capacity; and a climate of insecurity and instability. Furthermore, some of the natural resources pose a challenge in their own right, including the lack of absorptive capacity for oil revenues; the lack of financial safeguards to cushion the economy against volatility in oil prices; the delay in implementing mechanisms for saving a portion of oil revenue for future generations; the lack of regulation to protect the population and land from pollution; heavy reliance on Sudan’s infrastructure to process and export oil; tensions resulting from competition for water; and the weak judicial system to settle land disputes. As a result of these weaknesses, natural resources have not been effective sources of social and structural transformation.

1. The country does not publish official data on GDP by sector due to lack of information on the agricultural sector, which employs about 83% of the population.

2. http://www.brookings.edu/~/media/research/files/reports/2012/6/south%20sudan/06%20federalism%20work%20kimenyi.pdf

3. Deng, D.K. (2011), “‘Land belongs to the Community’: Demystifying the ‘global land grab’ in Southern Sudan”, LDPI Working Paper No. 4, Land Deal Politics Initiative, Cape Town.

4. www.internationalwaterlaw.org/documents/regionaldocs/Nile_River_Basin_Cooperative_Framework_2010.pdf.

5. www.ispionline.it/it/documents/WP%2046_2012.pdf.

6. www.nilebasin.org/newsite/index.php?option=com_content&view=article&id=127%3Asouth-sudan-admited&catid=40%3Alatest-news&Itemid=84&lang=en.

7. www.nilebasin.org/newsite/index.php?option=com_content&view=article&id=127%3Asouth-sudan-admited&catid=40%3Alatest-news&Itemid=84&lang=en.

8. http://www.globalwitness.org/sites/default/files/library/Blueprint%20for%20Prosperity_LR_1.pdf

9. USAID (2003), Towards Integrated NRM in South Sudan.

10. http://www.globalwitness.org/sites/default/files/library/Blueprint%20for%20Prosperity_LR_1.pdf

11. www.globalwitness.org/sites/default/files/library/Blueprint%20for%20Prosperity_LR_1.pdf