South Sudan economy 'in intensive care' as famine looms

Child on anti aircraft gun A child plays on an anti-aircraft gun in South Sudan's oil-rich Unity State as war and famine stalk the land

At night, the glow from the lights of the oil installations in Paloich cuts through many miles of undeveloped South Sudanese countryside.

During the day, the gleaming pipes and hard edges of modern technology stand in stark contrast to the simple huts of the nearby villages.

Oil is the new nation's greatest source of income. But in the three years since South Sudan declared its independence in July 2011, the oil wealth has not brought much development.

Now the oilfields at Paloich and elsewhere are threatened by the civil war that broke out in December 2013, and which is damaging all aspects of life in South Sudan, including the economy.

The fighting between South Sudan government troops and rebels has all but stopped production in Unity State, one of the country's two oil areas.

The rebels have said they are targeting the other area, in Upper Nile state, home to Paloich and other oilfields.

'Precarious'

Overall, oil production is now less than half of the 350,000 barrels per day the country was churning out at the time of independence.

"This is not enough for South Sudan," economist Peter Biar Ajak says. "The financial situation is quite precarious."

Predictions that South Sudan's economy would grow by 35% in 2014 have proved to be tragically wide of the mark.

Man's hand on parched soil Famine is threatening to add to South Sudan's many economic problems

The fighting has displaced more than a million people, and as farming has been disrupted there are fears the country could slide into famine.

Even in the capital Juba, there are consequences.

"People are not earning money from what they're doing and the prices of everything have increased," says Mike Ismallah, who works at the Konyo Konyo market in the capital, Juba.

With the war rumbling on, no-one is focusing on development or growth now.

Hardship

For many in South Sudan, though, that assessment also holds true for the period before the civil war began.

Independence, which came after decades of conflict with Khartoum, was expected to bring the dividends of peace to the beleaguered South Sudanese.

The years of war, coupled with an even longer period of neglect, meant the vast majority of the population was living in hardship.

President Salva Kiir South Sudan's president Salva Kiir is at war with rebels backed by former politicians

As its flag was raised for the first time, South Sudan was one of the least developed places on earth.

The late rebel leader John Garang had talked of "taking the towns to the people", bringing representation, development and services to the rural areas where most people live.

The oil billions should have achieved this vision.

Austerity measures

Yet even before conflict broke out in Juba, there was growing dissatisfaction with the pace of change.

As part of a row with Sudan, the South Sudanese leaders took the extraordinary decision, in January 2012, to shut down their own oil production.

The new country needs to export its oil through Sudan's pipelines, refineries and export terminal, but there was no agreement on how much this would cost.

When Khartoum began confiscating South Sudan's oil, the new country's leaders simply stopped the flow from their oilfields.

For more than a year, until a deal was reached with Sudan, the South Sudanese had to live with stringent austerity measures.

All development was put on hold. Salaries came late. Poverty rates grew.

People waving South Sudanese flags While the South Sudanese celebrate independence, there is little cheer in the economy

A $10bn (£5.8bn; 7.3bn euros) road-building programme, vital for boosting the economy and getting goods to market, was set aside.

A leaked World Bank briefing note warned that the shutdown would probably cause a collapse in the country's overall wealth.

The note also warned of a massive devaluation of the South Sudanese Pound (SSP); an exponential rise in inflation; and a depletion of South Sudan's reserves.

In the end, the fledgling country did survive the shutdown - but it came at a cost.

"The government used some of its reserves, but also borrowed at very expensive commercial terms," says former minister Lual Deng.

According to some reports, almost half of the 2013-14 budget was used to pay back loans.

James Copnall reports on South Sudan's fragile economy

Corruption

The shutdown was not the only problem for the economy - corruption is widespread.

President Salva Kiir famously wrote a letter to 75 current and former officials, accusing them of stealing $4bn.

Most of the rest of the government's money is spent on salaries, particularly for the military.

South Sudanese also complain that the country's resources have not been equally shared.

Any money left after the austerity measures has been concentrated in the national capital, and to a lesser extent the capitals of the 10 states.

Banana stall in Konyo Konyo market South Sudan is blessed with fertile lands yet these bananas are imported from Uganda

Rural development has been close to non-existent.

South Sudan also suffered when Sudan stopped any trade with the new country, driving prices in the border states up.

To complete a gloomy picture, South Sudan's oil is expected to run out in the next few years.

But the country is blessed with abundant fertile land, so the plan is to diversify away from oil towards agriculture.

This will need substantial investment, not just in new technologies and training, but also on physical infrastructure.

At the moment, the roads are so bad that a surplus in one area cannot be taken to market in another, or exported for profit.

However, this much-needed diversification cannot take place while all energy and money is concentrated on the (civil) war effort, and while farmers are fleeing conflict.

Lual Deng's verdict is gloomy: South Sudan's economy is "in intensive care".

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    08:51: BANK OF DAVE Radio 5 live

    Dave Fishwick, the minibus salesman who founded the "Bank of Dave" is on Radio 5 live. What does the banking market need? "What we desperately need out there is challenger banks," he says. What's also needed is "tighter control of the bigger banks to prevent greed and corruption," he adds.

     
  2.  
    08:36: MARKET REPORT

    The fallout from Tesco's results yesterday continues today. The supermarket is the biggest faller on the FTSE 100 Index so far this morning down 2.3% to 167.05p. European markets are down generally. The FTSE 100 is down 0.45% to 6390.17, Germany's Dax is down 0.40% to 9011.29 and France's Cac-40 has fallen 050% to 4136.95.

     
  3.  
    08:23: PEARSON EARNINGS
    penguin

    Pearson's chief executive John Fallon says the firm's £50m cost-cutting programme is on track and "momentum in digital, services and emerging market education is building, which will drive a leaner, more cash generative, faster growing business from 2015."

     
  4.  
    08:06: SPIRIT PUBS TAKEOVER

    Could this be the beginning of a bidding war? The pub chain has said it has rejected a takeover proposal from Irish cider maker C&C Group today. Spirit is already in talks with brewer and pub owner Greene King about its proposed £723m takeover offer. C&C, the maker of Magners and Bulmers, has until 20 November to announce a firm takeover offer.

     
  5.  
    07:51: PEARSON EARNINGS

    Pearson has reported flat underlying revenue for nine months to the end of September and a 1% fall in in what it calls headline growth for the period. It blames the strength of sterling against key emerging market currencies for the fall. Penguin Random House has performed well in the third quarter, it adds without giving detail. It says the integration of its businesses is "progressing well and is on track to deliver benefits in 2015 and beyond".

     
  6.  
    07:38: HIKMA WARNING

    Hikma Pharmaceuticals says it has received a warning letter US Food and Drug Administration after an inspection at its manufacturing plant in Portugal. "In the letter, the agency raised issues related to investigations and environmental monitoring at the facility," said the firm, which is taking the letter "very seriously."

     
  7.  
    07:26: TSB EARNINGS
    The TSB logo

    Impairments - that is, bad loans - fell to £23m from £32.2m, said TSB. Loans rose 7.7% to £22bn compared to a year ago, but fell from a peak of £23bn six months ago. TSB won 9.7% of all new or switched bank accounts, it said, adding £500m of deposits.

     
  8.  
    07:18: PEARSON FINANCE CHIEF STEPS DOWN

    Robin Freestone, chief financial officer of Financial Times and Penguin Random House owner Pearson has announced he is standing down after 10 years with the firm, including eight in his current role. He will probably leave the firm in 2015 after a successor has been found, said the firm.

     
  9.  
    07:08: TSB EARNINGS

    TSB third-quarter profit before tax fell 14% to £33.1m compared with the same time a year ago, after operating expenses rose. But revenue swelled 18% to £199m

     
  10.  
    06:54: EU PAYMENT Radio 5 live

    Sarah Hewin of Standard Chartered on 5 live says the payment has to be made in the next few months. That could mean more borrowing, she says.

     
  11.  
    06:41: EU PAYMENT Radio 5 live
    British Prime Minister David Cameron

    Sarah Hewin of Standard Chartered is explaining why the UK has to pay an extra £1.7bn to the EU on 5 live. "The UK has been doing better since 1997 than we thought and that's resulted in this extra payment. The Netherlands will pay more, while France and Germany get a rebate."

     
  12.  
    06:29: AMAZON RESULTS Radio 5 live

    Paul Kavanagh of wealth manager Killik is talking about Amazon's loss-making results last night. "It begs the question about what is happening here with this strategy. The shares fell 11% in after hours [in the US]." Investors may be growing tired of ever-more sales expansion with little profit to show for it, he tells 5 live.

     
  13.  
    06:20: CHALLENGER BANKS Radio 5 live

    Paul Kavanagh of wealth manager Killik says it's difficult for banks to persuade customers they offer something new. When a challenger bank succeeds, the larger banks often take the best ideas, he says on 5 live.

     
  14.  
    06:12: CHALLENGER BANKS Radio 5 live

    Steve Davies is still on 5 live. He says challenger banks are forcing their larger competitors to think more about the customer and service - think Metro bank opening on Sundays. Competing on rates is more difficult, he says. TSB results coming up later.

     
  15.  
    06:03: CHALLENGER BANKS Radio 5 live

    Steve Davies of accountants PwC is on 5 live talking about so-called challenger banks. Can they challenge the largest high street banks? "They have to be able to offer something a little bit different," he says. "The challenge is around innovation," he says. Customer is key, he adds.

     
  16.  
    06:00: Howard Mustoe Business reporter

    Good morning. Get in touch via email blizlivepage@bbc.co.uk and twitter @BBCBusiness.

     
  17.  
    06:00: Matthew West Business reporter

    Morning folks. It's Friday, we're nearly at the weekend. But before that, TSB kicks off bank earnings season and Shire has financials out as well. There's also some service sector data but the big bit of data is the first estimate of third quarter GDP. We'll bring you it all as it happens as always.

     

Features

From BBC Capital

Programmes

  • The smartphone that answers backClick Watch

    Smartphones get smarter – the prototypes that talk and say ouch when you drop them

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.