South Sudan’s economic hopes hang in the balance as oil extraction resumes, but experts warn that this temporary fix may exacerbate long-term problems if corruption and poor governance are not addressed.
South Sudan‘s Oil Production: A Lifeline for the Economy?
The Resumption of Oil Production in South Sudan
After nearly a year-long shutdown, South Sudan has resumed oil production. The decision to restart operations is seen as a much-needed lifeline for the country’s economy, which has been struggling with chronic economic challenges, corruption, and institutional weaknesses.
South Sudan is a landlocked country located in East Africa, bordered by Sudan to the north, Ethiopia to the east, Kenya and Uganda to the southeast, Democratic Republic of Congo to the southwest, and Central African Republic to the west.
It gained independence from Sudan on July 9, '2011'.
The country has a diverse geography, with savannas, forests, and mountains.
Juba is its capital and largest city.
South Sudan's economy is primarily driven by agriculture, with major crops including sorghum, maize, and cotton.
A Small but Struggling Economy
South Sudan’s overall economy has suffered immensely during the yearlong shutdown. ‘The country’s GDP has contracted by 5% since the conflict in Sudan began,’ while the oil and gas sectors shrunk by 70%. Despite its oil wealth, South Sudan’s national budget is among the lowest in the East African region.
South Sudan is one of the world's poorest countries, with a largely agricultural-based economy.
The country has significant oil reserves, which account for over 90% of its export earnings and government revenue.
However, the economy is heavily reliant on oil production, making it vulnerable to fluctuations in global oil prices.
Additionally, corruption and instability have hindered economic growth and development.
According to the World Bank, South Sudan's GDP per capita is approximately $400, ranking it among the lowest in the world.
Oil Production: A Double-Edged Sword
While the resumption of oil production may offer some hope for a nation battered by economic crises and political instability, it also paves the way for longstanding issues like corruption and poor governance to resurface. Historically, rises in oil revenues have tended to fuel already-endemic corruption while increasing conflict and worsening societal inequalities.
The global oil industry is a significant contributor to the world's energy supply.
According to the U.S. Energy Information Administration, in 2020, the world produced approximately 33.6 billion barrels of crude oil.
The top five oil-producing countries are the United States, Saudi Arabia, Russia, Canada, and China.
Oil production has been increasing steadily over the years, with a growth rate of about 2% annually.
Major oil-producing regions include the Middle East, North America, and the Former Soviet Union.
Diversification: The Key to Economic Recovery
Analysts stress that South Sudan needs to diversify its economy and reduce its dependence on oil as its chief source of revenue. ‘What the government needs to do is venture into other sectors such as gold mining, forestry, trade, and land oil revenue,’ said Boboya James Edimond, an independent political and economic analyst.
The Impact of Conflict in Sudan
The conflict in Sudan has had a significant impact on South Sudan’s economy. ‘The country relies heavily on Sudanese pipelines and export infrastructure to ship its crude oil to global markets via Port Sudan,’ but the ongoing civil war in Sudan has resulted in the displacement of millions of people from Sudan into neighboring regions, including South Sudan.
The Misuse of Oil Proceeds
There are concerns that funds could be diverted to bribe factions in Sudan, including the paramilitary Rapid Support Forces (RSF), whose civil war against government forces has resulted in widespread displacement and humanitarian crises. In addition, there is a risk that oil proceeds could be misused to finance the conflict in Sudan.
A Long-Term Solution
In Edimond’s view, there’s only hope for South Sudan if the oil can be utilized to eradicate poverty. ‘The resumption of oil production is not a solution to South Sudan’s economic woes,’ he said. ‘It’s a temporary fix that will only exacerbate the country’s problems in the long run unless the government takes concrete steps to address corruption, poor governance, and institutional weaknesses.’
