By Emad El-Din Aysha, PhD
South Sudan enjoys the twin status of being the youngest nation in the world and, at the same time, the most oil-dependent country on the planet. 98% of South Sudan’s export revenues are from hydrocarbons. Being the new kid on the block, however, does not mean it does not know how to wield oil as a weapon, both regionally and internationally. There is much that can be learned here, both good and bad. One of the most amazing things about South Sudan, from a petroleum perspective, is that it even exists. To cite Khaled Medani of McGill University—a speaker at a recent conference on South Sudan— “If I was President Omar Al-Bashir, I wouldn’t have allowed the South to go independent, if only because of all the oil.”
According to Amnesty International researcher Ahmed El-Zobier, 80% of Sudanese oil is located in the South, leaving the North losing out on 50% of its budget revenue and 75% of its international payments capacity following southern independence in 2011. The whole point of John Garang’s Sudan People’s Liberation Movement (SPLM) rebellion—reveals Medani—was oil. Technically the SPLM took off in 1983 as President Bashir began to implement Islamic law. The larger SPLM fear, however, was that Khartoum would appropriate all of the proceeds to itself following Chevron’s oil finds that, by pure coincidence, were made in 1983.
Chevron facilities were actually attacked by rebel groups, with expatriate workers injured or killed. Garang’s larger “destabilization campaign” was meant to quite literally scare off investors and so force the regime to kowtow to SPLM demands, explains Medani. President Bashir’s priorities, however, lay elsewhere. The South remaining within the national fold was a greater threat to Al-Bashir, since it meant a more democratic Sudan and the very real possibility of a secular, liberal presidential candidate with a following across the entire country. A split country allows Al-Bashir to limit the voters to the Arab and Muslim constituencies.
It seems that Al-Bashir concluded after all these years that the war simply wasn’t winnable, resigning himself to garnering his fair share of oil proceeds, added Dr. Ibrahim Elnur, Associate Professor of Political Science at the American University in Cairo and author of Contested Sudan: The Political Economy of War and Reconstruction. South Sudanese oil is exported via Port Sudan on the Red Sea coast, generating ample oil revenues for the North.
But two can play at this “pipeline politics” game, argues Medani, since South Sudan is trying to circumvent the North with planned pipe routes through Ethiopia—the Ethiopian Transport Corridor—and through Kenya and Uganda. These three countries are, not coincidentally, “mediators” in the conflict between the North and the South, said Medani. Not to forget that 85% of Sudan’s and Egypt’s water is from the Blue Bile, which comes out of Ethiopia.
South Sudan has been able to shelter itself thanks to oil. Small arms are flowing into the country from Ghana, paid for by oil revenues, but there is no enforcement mechanism in place like that monitoring and interdicting ISIS oil-trafficking activities. The reason is that the two big players on the global scene, the US and China, do not see eye-to-eye over the conflict. China has invested billions in South Sudan and gets 5% of its national oil from that country, Medani underlined.
Paying the Rent
Another surprising fact about South Sudan is that it is actually classed as a “middle income country” by the World Bank and UNDP, explained another speaker at the same Sudanese conference, Gabriel Abraham of Deloitte Consulting Inc.—a governance expert who advised the Government of South Sudan (GOSS) during the run-up to independence. GOSS has sold $4.3b worth of crude oil since 2011, and began its new government with an initial budget of $2b. He further revealed that the US alone had provided more democracy and development aid to South Sudan in 2011 than to the whole of sub-Saharan Africa.
Most of this money has either been kept under wraps or spent on the war effort. According to Medani, 38% of South Sudan’s oil revenues are going to the security sector while only 7% has been spent on education. A third conference speaker, Abraham Awolich, Director of Administration and Finance at the Sudd Institute, explained that even the SPLM leaders—following the untimely death of Garang—have kept all of the petroleum proceeds to themselves individually. The money has not even been shared with their tribes and home provinces. Tellingly, fighting has concentrated on the oil-producing provinces with rivals groups literally fighting over oilfields.
The tribes themselves are riven by conflict, he explained, adding that tribal solidarity only makes itself felt in the presence of a common (often tribal) enemy. That was why the Dinka rallied around their kinsman President Salva Kiir and fought the Nuer who have their own love-hate relationship with the leadership of the breakaway SPLM Movement-in-Opposition. Consequently Awolich cautioned against any embargo similar to the ISIS model. This is a warrior society, he explained. Tribesmen would not blink in the face of international action. The most important thing is to create “incentives for peace” by using oil revenues to employ and educate the young.
With 70% of the population below the age of thirty and hardly any schools, the young automatically become perfect candidates for subversion, Awolich said. The poor have nothing to lose by going to war. North Sudan knows this and exploits it. When asked what he would do with the $1.8b worth of aid that South Sudan received on independence, Awolich answered that he would spend it on himself.
Awolich was only half joking given that this was what other corrupt officials were doing, funnelling off aid money to Swiss bank accounts. Otherwise his top spending priority would be roads, a good avenue for oil expenditure with multiple benefits. People in his own village had to go through Ethiopia and back to be able to get anywhere in South Sudan. He even began his talk by saying that it was easier to go to Cairo than to go to Khartoum.
When asked about the role of international oil companies (IOCs) in the Nigerian Civil War, with the “independence” of Biafra in 1967, Medani answered that the parallels with South Sudan only went so far. He explained that human rights activists in Canada, including himself, had made a big mistake when they boycotted the Canadian companies that took over Chevron’s assets. (The political instability made Chevron’s investments unprofitable). GOSS simply brought in the Chinese, Malaysians, Indians, and French in their stead.
In the lull between the Canadians leaving and the Chinese taking their place, GOSS took up the intelligent tactic of focusing on smaller, independent oil companies and “played them off against each other.” This kept their influence on decision-making in the South to a minimum. Nigeria traditionally took a different track, focusing on the oil majors like Shell and other large conglomerates, but this practice ate away at the country’s sovereignty in the process. Even weak countries can be surprisingly autonomous and effective when they are devoid of corporate influences, Medani explained.
Ahmed Farid Moaaz, Country Manager and Director for Sea Dragon Energy has always insisted that dealing with the oil “juniors”—small and medium sized firms—is the safer bet for developing nations. They do not have the same kind of financial wherewithal as the majors, but they have less negotiating power over governments as well.
Another plus for GOSS is that the government uses exploration and production sharing agreements (EPSAs) by decree of the 2012 Petroleum Act. According to Dr. Ibrahim Elnur this framework does not set a fixed percentage for production and profits shared. The percentage is negotiated contract by contract, a wise move given that South Sudan does not have the finances to build its own pipelines and refineries, and they’ve gotten the Chinese to do this for them in exchange for a larger slice of the oil pie.
North Sudanese himself, Dr. Elnur said that Khartoum had experience effectively managing its oil portfolio in the past because the United States had embargoed the country, a move that kept American companies out of the game. Medani adds that the petroleum act prohibits provinces in South Sudan from signing their own separate oil deals. GOSS was wary of the very cessationist impulse that gained its independence.
GOSS has proven it is technically proficiency too. At one point in the 2012 negotiations over oil fees with Khartoum, South Sudan’s president completely shut down oil production, says Abraham Gabriel, despite the dire warnings of his expert advisors that the pipes would corrode and the wells would become unusable. In 2013 production started up again in no time at all. It was not policy mistakes or even ethnicity that was driving the conflict, but rather just corruption, he said.
Corruption and Oil
According to South Sudan Law Society researcher David K. Deng, the country’s Petroleum Revenue Management Bill (2013) stipulates that at least 2% of oil revenues go to the oil producing states and local councils to compensate people for hardships endured thanks to concession deals. The presidency has yet to implement this clause, however, and has also blocked parliamentary legislation to establish a “Petroleum Registry.” There is even legislation to have oil revenues deferred to a “stabilization account” to guard against price swings and a “future generations fund” with capital investments for when the oil runs out that have been quietly shunted to maximize revenues in the here and now.
The situation has become so bad that natural resources watchdog Global Witness has called for a moratorium on new oil contracts until all of the country’s petroleum laws are enacted and transparency guaranteed, a request that was politely declined by the regime. South Sudan’s own Legislative Assembly issued a moratorium on mining in November 2010, a legal tactic that also been used quite effectively in Uganda and Liberia. In 2014 Global Witness even spent seven months investigating a company called Star Petroleum to no avail, failing to find out who the company’s shareholders are since the other companies were all registered in tax havens. A loophole in South Sudan’s oil law also allowed said company to attain its concessions without any competition.
Elite groups have been hoarding the country’s enormous agricultural and hydraulic resources too, adds Abraham Gabriel. A GOSS-World Bank investigation in 2013 found that $2b—equal to the country’s initial budget—had disappeared on grain contracts. Of the close to 1,200 contracts awarded, only 17 were actually honoured. As with IOCs, multinationals were not the culprits here, as local notables got the contracts, supposedly with the intention of growing corn for the sake of food security. That being said, multinationals among other international players were involved in the “land grabs” that were feeding the ethnic conflict. Tribes were being driven off their lands and so pitted against other tribes for mere survival—control of land rights and water resources—an all too common feature in East Africa.
According to the Oakland Institute, the Texas-based Nile Trading and Development (NTD) won a 49-year long lease over a million hectares of land in 2008 to produce biofuels. Egypt’s Citadel Capital and Concord Agriculture were only able to get a 25-year lease for its 105,000 hectares in 2009. Even Saudi Arabia and Jordan are in the land grabbing business on the African continent, along with China, Brazil, and South Korea.
More significantly though is the distinctive pattern of corruption and displacement driving violence in South Sudan, to cite Dr Elnur again, since this is just a repeat of what happened in Sudan proper since the earliest days of its independence. Pastoralists were driven off their grazing lands to make way for mechanised cash-crop agriculture, although multinationals were not involved at the time. The same, it seems, holds true of hydrocarbons, as similar “displacements occurred in the 1990s, particularly in oil concession areas such as Unity State,” said Sara Pantuliano, a Research Fellow with the Humanitarian Policy Group. Global Witness estimates that close to 1.7m people have been displaced because of the ongoing conflict.
Perhaps there is too much bureaucracy in a place like Egypt, but there also is stability and permanence in contrast to the Sudanese situation, says Hamid Ali, Associate Professor and Chair, Department of Public Policy and Administration at the American University in Cairo. He was one of the organizers of the above-mentioned conference, along with the Global Studies Consortium; “An Exploration of a Forgotten Conflict—South Sudan: Past, Present and Visions for the Future.” Even so, South Sudan stands out as a stellar test case of how much you can do with what little you have!