Juba’s future will be built on sound oil governance
Saturday February 25 2023
Claims that government officials in South Sudan connived with a private company to secure a $30 million loan from the African Export-Import bank (Afreximbank) is unlikely to attract more than a shrug of resignation from people familiar with how Juba manages its public affairs. Corruption and stealing of oil revenues have become the norm rather than the exception.
Long before the outbreak of the civil war in December 2013 and the collapse of international prices for crude oil two years later, South Sudan had become the poster child of the oil curse. Revenues from Juba’s 45,000 barrels share of daily oil output crowded out other sectors of the economy to account for 98 percent of national income.
And, although 80 percent of its dirt-poor population depend on agriculture for livelihood, not sufficient attention has been given to the sector. This has left many of the strife-torn country’s 11 million people hungry.
Oil has also become a curse for South Sudan for another reason. The feeling that the south, where the bulk of the resource is found, was getting short-changed by Khartoum was a key motivator for secession. And since independence in June 2011, mismanagement and the contest for control of oil revenues, have been a source of internal instability, fanning discontent and conflict.
It is not difficult to see why. Oil would propel South Sudan into a middle-income economy, yet poverty remains deep and widespread. The South’s oil fields produce between 150,000-170,000 barrels of crude per day, but only about a third of that is effective income. The rest of production goes to Khartoum and the oil companies that pump it out of the ground.
In the absence of a solid governance framework, revenues from oil are not properly accounted for, and have been the focus of the many factions within the ruling coalition.
When civil war broke out and production collapsed 2013 and the government could not finance its $550 million a year budget, oil was mortgaged to savvy commodity traders in secrecy.
The World Bank and the International Monetary Fund have been concerned that proceeds from oil sales are not deposited into a single account.
The status of the sovereign fund into which any windfall earnings above a price of $25 a barrel would go is unknown. At an average price of $60 a barrel, South Sudan should be earning anywhere close to $2.7 million daily — $985.5 million a year. That should yield a budget surplus of $435 million, but poor governance means it cannot be accounted for.
If they cared, South Sudanese’s social status should be enough to make them tell the cabal in Juba that they need to stop bleeding the national coffers if they are to build the nation.
Without accountability and an open, predictable and transparent budget framework, it will be impossible to leverage the oil resource to spur development and structural transformation of the economy.
The imperative for a reset to Juba’s management of the oil resource should be obvious. Without sound and people-centric spending of the oil resource, South Sudan will not be able to break and escape the cycle of violence.