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Possible Economic Strategies to Diversify the Crude Oil-Based Economy in South Sudan

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Possible Economic Strategies to Diversify the Crude Oil-Based Economy in South Sudan View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by South East Academic Libraries System (SEALS) POSSIBLE ECONOMIC STRATEGIES TO DIVERSIFY THE CRUDE OIL-BASED ECONOMY IN SOUTH SUDAN Abe Khamis Kambamba STUDENT No: 209910119 EDS 504 This study was presented in partial fulfilment of the requirements for the degree of Master of Arts in Development Studies at Nelson Mandela Metropolitan University Supervisor: Dr Savo Heleta 2016 1 ABSTRACT Post-independence South Sudan has many areas in which progress is required in order to develop the economy. South Sudan’s economy, for is still run largely (98%) on oil revenues. In order to improve the standards of living of the citizens, good governance, transparency and accountability are the key. These will help build confidence, stability as well as the credibility of the government. How to achieve diversification of the economy in order to move away from the overdependence on oil will be the focus of this research. Diversification, especially in the context of small and fragile economies, has become an important topic. This research will investigate possible economic strategies to diversify the crude-based economy in South Sudan and will assess the circumstances under which economic diversification can be achieved. The research will identify and analyse the issues that impede and hinder economic growth in the non-oil sectors of the South Sudanese economy and explore how far the government has delivered the conditions necessary for the private sector to grow so that it can contribute considerably to the diversification and growth of the economy and the nation. This research was started in 2012, one year after South Sudan got its independence from Sudan. The country’s first Development Plan was rolled out in 2011. Unfortunately, a war broke out in December 2013, disrupting life in the new country, especially economic activities. A peace treaty has since been signed to end the war. The government, however, still continues forward with just one source of revenue – oil. Nonetheless, the findings of this research will offer an analysis as well as recommendations for ways to diversify the South Sudanese economy once peace is firmly established in the country. 2 DECLARATION I, Abe Khamis Kambamba, student number 209910119, hereby declare that this Guided Research Report for MA in Development Studies is my own work and that it has not previously been submitted for assessment or completion of any postgraduate qualification to another University or for another qualification. Abe Khamis Kambamba 3 ABBREVIATIONS UN United Nations NGOs Non-governmental organisations AU African Union SPLM-DC Sudan People’s Liberation Movement - Democratic Change RSS Republic of South Sudan FDI Foreign Direct Investment TTs Telegraph Transfer BOSS Bank of South Sudan GOSS Government of South Sudan SPLA Sudan People’s Liberation Army SSPS South Sudan Police Service NCP National Congress Party DDR Demobilisation, disarmament and re-integration SSDP South Sudan Development Plan 4 TABLE OF CONTENTS ABSTRACT 1 DECLARATION 2 ABBREVIATIONS 3 TABLE OF CONTENTS 4 CHAPTER ONE: INTRODUCTION 5 Rationale and background of the study 5 Statement of purpose 6 Aims and objectives 7 Scope of research 7 Methodology 7 Limitations 9 CHAPTER TWO: LITERATURE REVIEW 10 Oil revenues and government spending 12 Oil industry challenges 15 CHAPTER THREE: FINDINGS AND DISCUSSION 17 Key issues and challenges 17 The roadmap for economic diversification 17 Why diversify? 18 Economic freedoms 19 Trading freedom 19 Financial freedom 20 Labour market 21 Property rights 22 Corruption 22 Provision of security 24 Reform agenda 25 CHAPTER FOUR: RECOMMENDATIONS AND 28 CONCLUSION Recommendations for diversifying the economy 28 Set the enabling environment 28 Manufacturing and industrial development 29 Role of government ministries 30 Conclusion 38 REFERENCES 41 Appendix 1: Informed consent form 43 5 CHAPTER ONE 1.1 Rationale and background of the study The economy of the Republic of South Sudan (RSS) is driven by one major revenue source – oil (SSDP 2011-13 2.4.2.1). South Sudan secured its independence from Sudan in 2011. The country’s population is just over 8 million people, while it has a total area of 644,329 sq. km. More than half (51%) of the population is below the age of eighteen; 72% of the population is below the age of thirty; 83% of the population is rural; 27% of the adult population is literate and 51% of the population live below the poverty line. Since the end of the war in 2005, however, 55% of the population now has access to improved sources of drinking water (Kaplan, 2007). The communication and transportation networks are poor, with less than 200 km of paved roads. About 85% of the oil output, which before 2011 was controlled by Sudan, is located in the now independent South Sudan.(USAID JUBA 2011). South Sudan’s strength at present lies in its unexploited natural resources. It is rich in oil. The country also has large deposits of minerals such as gold, copper, iron ore and zinc chromium as well as game parks with diverse flora and fauna for tourism. There is also an abundance of forest reserves and fertile land watered by the Nile River which comes with high rainfall. However, many of the natural resources and minerals, apart from the oil, are not economically exploited on a large scale. The country’s weaknesses lie in its past, as it has been riddled by decades of conflict, violence and destruction, which have left neither industries nor an effective education and skills base amongst its peoples. The South Sudanese society is not homogeneous; it is comprised of 64 different ethnic and tribal groups. Furthermore, the country is effectively landlocked, with Ethiopia, Kenya, Uganda, the Democratic Republic of Congo (DRC) and the Central African Republic (CAR) surrounding it. South Sudan is administratively divided into 10 states in the three greater regions of Bahr el Ghazal, Equatoria and the Upper Nile. The capital, Juba, is located on the White Nile River. The current economic statistics and indicators of RSS show that it is weak, 6 underdeveloped, has inadequate infrastructure, and is dominated by an oil economy. Since 2005, 98% of South Sudan’s budget has come from oil revenues. The GDP in 2011 was estimated to be 13.227 US dollars; GDP per capita 1,546; inflation (cpi) 46.2% (July 2010-July 2011) (Danieiwitz, 2011). Oil export amounted to 71% of the total GDP in 2010, which was 30 billion Sudanese pounds, according to the National Bureau of Statistics 2011. The sector areas of agriculture and forestry, roads and road transport, energy (electrical power supply), mineral and mining, animal resources and fisheries, and water resources are underdeveloped. The country does not have any major industries apart from the oil industry. All processed goods are imported, and 78% of households depend on crop farming or animal husbandry as their primary source of livelihood. Oil and the public sector dominate the formal economy. The rates of unemployment and underemployment are very high, with little formal sector employment (Evans, 1999). South Sudan has many areas in which progress is required in order to develop the economy. To improve the standards of living of citizens, good governance, including transparency and accountability, is the key. This can help build confidence, stability and the credibility of the government. Therefore, ensuring macroeconomic and fiscal stability and diversification of the economy in order to move away from the overdependence on oil will be the main aspects of this research (Evans, 1999). 1.2 Statement of purpose A strong, growing and sustainable economy is the goal of every nation in the world. A sustainable economy enhances a nation’s standard of living by creating wealth and jobs, encouraging the development of new knowledge and technology, and helping to ensure a stable political climate. An economy needs to be based on a wide range of profitable sectors in a country. Economic diversity and sustainability are interlinked, can help reduce a nation’s economic volatility and assist in the creation of strong institutions, sustainability and service delivery (Rodrik, 2008). 7 The purpose of this research is to identify and analyse the issues that impede and hinder diversification and economic growth in the non-oil sectors of the South Sudanese economy. The research will explore how far the government has delivered the conditions necessary for the private sector to grow so that it can contribute considerably to the economy. 1.3 Aims and objectives The research aims to explore the factors that prevent or hinder economic diversification in South Sudan. It also aims to suggest the opportunities available to South Sudan to diversify its economy so that it can avoid depending only on oil resources. The objective of the research is to offer recommendations for possible economic diversification in South Sudan in the near future. 1.4 Scope of research This research will focus on the attempts (or the lack of attempts) to diversify the South Sudanese economy, focussing specifically on South Sudan since independence (2011 to 2014) and with specific attention on the capital, Juba, which is the centre of national government. The research will focus on identifying government policies that either hinder or enable economic diversification and the economic growth of non-oil sectors, concentrating on the economic and policy environment. 1.5 Methodology Using a qualitative research method, the study was carried out using desktop research for the policy analysis and field research through the use of semi-structured interviews with selected respondents in South Sudan. More specifically, respondents who were interviewed to obtain the data and relevant information on the topic included traders and 8 government officials in Juba.
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