Addis Adaba, Ethiopia – When South Sudan seceded in July 2011, the world knew that they would be taking the vast majority of the Sudan’s oil wealth with them. A new country with dismal infrastructure but vast oil reserves, hopes were high that despite years of conflict, South Sudan could use its oil wealth to build itself up.
But what good is all that oil in a country that cannot get it safely and reliably to market? This question is especially pressing due to the fact that domestic crude refining capabilities are non-existent and the only immediately available partners are their old foes to the north.
Since independence – and of course for some years before – Khartoum sowed unrest and instability in South Sudan. Sudan continues to subvert the fledgling land-locked nation today through political and economic means. Indeed, both countries have been implicated in conducting proxy wars inside the other.
A particularly egregious and high profile example of this behaviour came late last month when the Sudanese government took South Sudan’s oil hostage as it was en route to Port Sudan. Khartoum claimed that the reason for this was for unpaid transit and refinery usage fees. Juba regarded this move as theft, and accused Sudan of colluding with foreign oil companies to underreport South Sudan’s oil production figures.
In response, Juba has halted all crude oil production as the two countries continue to negotiate the terms of transit fees. With so much at stake for both countries, the stalemate must come to an end sooner rather than later. For South Sudan, oil revenues make up 98 per cent of its budget. And Sudan is used to relying on oil revenues, which for years were split 50-50 with the south. Because of this reality, South Sudan and Sudan must broker a deal on revenue sharing to ensure both countries economic well-being; neither can go long without the stream of oil returns.
Although South Sudan has gained independence, it remains economically dependent on its northern neighbour. The South has no refining capabilities and Port Sudan is the only current outlet for its oil. And this is not just with regards to oil: Much of the imported goods and agricultural products come from or through the north as well.
A potential deal, however, likely will not represent a long-term solution, as Khartoum has proven over time that they are not negotiating from a position of good faith.
Consider the actions of Khartoum in the run up to secession. In May of 2011, South Sudan accused the north of an economic blockade, which disrupted transport routes southward. Indeed, in Juba, the price of diesel rose from about SP2.75 ($1) per litre to around SP5 ($1.90) per litre, and subsequently the cost of transport was increased. These allegations show Khartoum flexing its power in a bid to prove to the South that it would continue to remain reliant on the north neighbours, in case there were doubts to the contrary.
That episode clearly demonstrates why, in the long term, South Sudan must take steps to rid itself of its reliance on Sudan, for its own economic health. With regards to oil and other goods, the country’s leaders must find alternatives to relying on the north – because the Sudanese government has already validated fears that they may engage in this sort of economic interference.
In light of these facts, what options can South Sudan pursue?
It’s no secret that South Sudan would like to join its southern neighbours in the East African Community (EAC) comprising Kenya, Tanzania, Uganda, Rwanda and Burundi. South Sudan is already a member of the Intergovernmental Authority on Development (IGAD), which includes Ethiopia, Sudan, Uganda, Kenya, Somalia, Djibouti and Eritrea. However, the political problems of Somalia, frosty relations between Eritrea and Ethiopia – and the similarly delicate relationship between Juba and Khartoum – have challenged the ability of IGAD to carry out its charter.
In a move that would bind South Sudan economically to the EAC, Juba has made overtures to the Kenyan government to link to the Kenyan port of Lamu via an oil pipeline. The two governments have signed a memorandum of understanding to build a pipeline, which makes sense in light of regional developments. Kenya has had plans to make Lamu a major port in the region since at least 2009, when the Kenyan government introduced LAPSETT, the Lamu Port-Southern Sudan-Ethiopia Transport corridor. The proposed plan of constructing an oil refinery and airport in Lamu, as well as a network of roads and railways in the region has already begun. Included in this massive project is a Juba-Lamu rail link.
Nairobi is seriously committed to this project, but the cost (approximately $4bn) and difficulty of the route still leaves some doubt. Also, renewed fears about Indian Ocean piracy have raised concerns on whether expanding the Lamu port is a strategically wise idea.
Partners due east
But there is also another strategic move on the table. South Sudan has also a strong link with its neighbours in Ethiopia, and Addis Ababa has been a strong ally and regional force in brokering agreements and moderating discussion between the former foes. Some of its feats include the agreement between the NCP and SPLM signing a temporary administration and security pact for Abyei, the contested border region, and even committing peacekeeping troops in the region.
Now ties between the countries, and Djibouti, a link to the sea, have been strengthened. Ethiopia and South Sudan have signed an accord regarding the pipeline, which includes language strengthening communications and railway infrastructure.
The proposed pipeline to Djibouti would be of a similar length and cost to the one to Lamu. They would also both pass through oil rich regions (in Uganda with the Lamu pipeline and in Gambela with the Djibouti pipeline). The presence of potentially more untapped oil reserves presents the possibility of one or both of these plans coming to fruition.
Ethiopia has already made serious commitments to improving rail infrastructure. In 2010, the country inked a deal with Chinese partners to create a railway system improving the Djibouti-Dire Dawa-Addis Ababa link and expanding it from Addis Ababa to Gambela in the west.
It’s also important to note that Djibouti hosts a much more productive port, when compared with Lamu. Much of the imported goods for Ethiopia’s 80 million residents come through that port, and it has a high terminal capacity – which has doubled since 2001. This plan is on track to be completed by 2015, and South Sudan could link Juba to Djibouti by building a railway to Gambela. This would link the country to a reliable, productive port that isn’t Port Sudan within four years.
Good for the whole region
Whatever plan is pursued, the region as a whole stands to gain. A developing South Sudan is a boon to the region, as it will link its growing market with those in the strengthening East African Community and beyond. It will enhance infrastructure, not only pipelines and railways, but also roads and fibre optic communication networks. In the next ten or 15 years, Sudan may be pulled closer to Ethiopia, Kenya and Djibouti. For South Sudan, this would mean even greater economic opportunity without the interference of Khartoum.
With the influx of Chinese, Ethiopians, Kenyans and Ugandans in Juba over the past two years, these opportunities surely are not lost on the South Sudanese. With so many options on the table, South Sudan should act to effectively diminish Khartoum’s economic power in their lopsided bilateral relations.
However, with alternative solutions at least three years away, solving the current puzzle with Sudan remains a high priority. Perhaps the recent moves to work with the Ethiopian and Kenyan governments are simply political manoeuvres to improve South Sudan’s negotiating position as the two countries hold discussions in Addis Ababa.
However, a deal with Sudan will inevitably be a short-term solution. South Sudan’s recent action hopefully represents some serious long term strategic planning for the future of South Sudan and its position in the region.
Wossen Ayele is a researcher focused on East Africa and currently based at the Forum for Social Studies (FSS) in Addis Ababa, Ethiopia. He is a graduate of Yale University.
Follow him on Twitter: @wossen