Gov’t should rethink on oil overdependence

By Daniel Athior’o Atem

The many years of conflict between the North and South Sudan were a disservice to infrastructure and industrial development. Nearly all of South Sudan’s resources were directed to defense at the expense of other key sectors. Blessed with huge oil deposits, South Sudan’s economy is heavily dependent on oil exports.

According to the Observatory of Economic Complexity (OEC) 2018 data, the most recent exports are led by Crude Petroleum ($1.63B), Forage Crops ($32.1M), Raw Cotton ($13.8M), Gold ($12.4M), and Dried Legumes ($9.98M). The most common destination for South Sudan export is China ($1.59B), United Arab Emirates ($48.3M), India ($44.4M), Pakistan ($24.2M), and Uganda ($3.19M). Oil contributes over 75 percent of the country’s GDP.  

After gaining independence on 9 July 2011, it was thought that oil revenue would significantly contribute to post-conflict development that is financing infrastructure development, industrialization and other country developmental aspects. From the look of things, however, our leaders have become so comfortable with oil generated revenue that they do not think of developing other sectors. Other important sectors like manufacturing, agriculture, education, tourism, fishing and other minerals have been neglected. While millions of our brothers and sisters languish in absolute poverty, political and military leaders are selfishly benefiting from oil revenue in the name of consolidating national defense. These leaders live a lavish lifestyle with family members living and studying abroad.

Dependency on oil and neglecting the other sectors goes against the basic principle of sustainable development. Squandering the oil revenues today compromises the capacity of future generations to benefit from the same. Countries like Qatar and Saudi Arabia realized that it is important to effectively use oil revenue to develop other sectors. Policymakers in those countries are anxious to obtain the greatest benefits for their economies from the extraction of these exhaustible resources by designing appropriate policies to achieve desired goals. Policymakers in South Sudan have forgotten that when you develop the manufacturing sector, for example, thousands of locals get jobs, export earnings increase, people’s incomes improve and purchasing power projecting the country to middle-income status. While oil deposits may get exhausted, the developed sectors will sustain the economy for years.

With few politicians privy to oil resources management, South Sudan has and continues to lose millions of dollars in shady deals and contracts. Chinese companies which take a bigger share of oil operations in the country have been criticized for unfair agreements. China National Petroleum Corporation (CNPC) has benefited from the South Sudanese Civil War in that the long-running conflict deterred the state-owned enterprise’s competitors from even thinking of touching the market. Conflict and poor leadership only create a favourable ground for these companies to exploit our resources without government monitoring. To date, no one knows how much South Sudan economy has lost to these companies since everyone is busy with politics.  

Continued dependency on oil cannot be the solution to rebuilding South Sudan as experience has shown that persistent poverty still continues in Nigeria, Angola, Equatorial Guinea, Libya and Congo-Brazzaville some of Africa’s oil-producing superpowers. Despite holding 14 per cent of the world’s oil reserves, for many people in Africa’s oil-producing countries, increased oil output has only brought continued poverty and more violence. The revenue from Africa’s booming oil sales rarely reaches the people who live where the oil is produced. The increased inflow of oil revenue in these countries also creates a breeding ground for corruption. Therefore, if our leaders fail to learn from this rich history of oil on the continent, South Sudan is doomed.

Way forward:

The first step is for the government to increase transparency in oil deals agreements. These agreements should be made in broad daylight with guidance and witness from non-state actors in South Sudan. Civil Society Organizations have previously been sidelined in the agreement process and yet they understand societal challenges better than the government. Their advice and input in the process will ensure that communities get a fair share from oil development.

Diversification of the economy is more important now than ever. One argument is that diversified economies perform better over the long term. Now that the country has registered some peace, oil revenue can be used to develop key sectors such as infrastructure, education, health and industrialization which will create more jobs and widen the government’s tax base. Although the oil sector contributes significantly to the country’s GDP, it only offers a few jobs for locals. Developing other sectors like manufacturing also prepares the countries to be self-sufficient in future just in case oil resources get depleted.

Oil companies should be tasked to give back to communities where they operate. Priority should be given to corporate social responsibilities that promote investment in human capital through sustainable health and education programmes. These companies should build schools, health centres, water points and road networks in communities where they operate.

Much of the oil monies are lost through corruption. It is therefore important for the government to get tough on corrupt public servants through enacting laws.  

Diversifying away from oil proves a sustainable option for South Sudan. This helps protect the economic viability of the oil sector and prevents massive revenue losses. Over time, the country can absorb the impact and continue moving forward towards the future.

The author was a World Bank Blog4Dev2019 Winner for South Sudan|| A Member of the Youth Transforming Africa||Mandela Scholar.

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