In August 2015, South Sudan’s warring parties agreed to form a power-sharing transitional government, bringing an end to the civil war that cost the country tens of thousands of lives and created over 2 million refugees. Despite the peace deal, however, the country continues to be plagued by security issues, political discord, and a failing economy that has hindered the country’s post-war development. Here are several important factors as to why South Sudan’s economy has not been able to grow in the aftermath of the conflict.
Sources: NYTimes.com, Frontier-Economics.com, Center for Conflict Resolution (CECORE), Centre for Peace and Development Studies (CPDS), SudanTribune.com, Bloomberg.com, ANBA.com.br
Many of South Sudan’s oil fields were damaged in the war, and production has dropped to less than half of what it was at its peak. The country is paying approximately $25 USD in debt repayments for every barrel of crude oil exported, making it extremely difficult to turn a profit, especially when coupled with low oil prices worldwide. Due to these factors, South Sudan is likely to record a negative GDP growth in 2016, despite growing 30.7 percent two years ago.
Despite the fact that nearly 90 percent of South Sudan’s land is arable and cattle and sheep are plentiful, the country imports the vast majority of both food and non-food items. The lack of diversity in the economy has made the declining oil revenue an even bigger problem for the struggling economy.
Small business owners unable to deal with irregular electricity supplies have had to turn to private companies to power their storefronts. Privately owned generators, many of which draw on black market fuel, charge top dollar, making it difficult for entrepreneurs to turn any kind of significant profit.
Human costs of conflict, such as death, disease, and hunger, are enormous, and the food security issues in Sudan are of special concern. A study by Frontier Economics, the Center for Conflict Resolution, and the Centre for Peace and Development Studies found that the effects of hunger on labor productivity could cost the Sudanese economy over $6 billion in lost GDP in the next five years alone.
Due to continuing skirmishes and sporadic violence across the country, the government is slow to demilitarize, increasing the amount spent on security forces and equipment. This detracts from funds that could be spent on building necessary infrastructure and takes focus away from economic development.
An International Monetary Fund consultation in May 2016 found that the Sudanese transitional government is spending far more than necessary on operational expenses. In order to limit its arrears accumulation, South Sudan must cut its expenses, especially payroll, operations, travel and investment, according to IMF.
The IMF recommends that South Sudan’s central bank reestablish its position and regain control over monetary policy by refraining from lending to the government, setting inflation on a decelerating path, and gradually start replenishing its international reserves.
With an uncertain security situation and lack of fiscal transparency, potential international donors are wary of pouring money into South Sudan. The IMF has urged the government to increase transparency and demonstrate a strengthened commitment to political unity and public financial management in order to raise the necessary money from external sources to aid the economic rebuilding.
Since the exchange rate of the South Sudanese pound was liberalized in December 2015, the value of the South Sudanese pound has dropped nearly 90 percent. Inflation has approached 300 percent, exacerbating the already fragile economy.
Prices for food and general household products have increased in conjunction with the devalued South Sudanese pound, making it difficult for importers to bring in necessary goods and for citizens to purchase what they need.
The U.S.s still has an economic embargo on South Sudan, making it difficult for the country to engage with international partners to further its economic development. IMF mission chief Eric Mottu encouraged the country to “secure comprehensive support for debt relief and the lifting of sanctions,” pointing specifically to its eligibility for debt relief under the IMF’s Heavily Indebted Poor Countries Initiative.
Making the security situation in South Sudan even more uncertain, leaders of some rebel groups have not signed onto the peace deal. The danger of continuing violence threatens the transitional unity government’s effectiveness, and deepens the already existing mistrust between its leaders.