Sunday, July 10, 2011

South Sudanese Now Must Build an Economy

South Sudanese Now Must Build an Economy

By WILL CONNORS in Lagos, Nigeria and MAGGIE FICK in Juba, Sudan
Wall Street Journal

Officials of the Republic of South Sudan basked Sunday in the glow of a one-day old nation. By Monday, they will begin work on building an economy that now depends on oil for 98% of its revenue.

South Sudan officials say they will focus on weaning the economy away from oil by investing in the country's agricultural sector, which is among the most fertile in the region.

But the world's newest country, hived off Saturday from Sudan, Africa's largest nation, still lacks basic health, education and roads, not to mention hotels, a decent airstrip and other essentials to accommodate investors.

Given those challenges, celebrations aren't expected to last long. South Sudan is already a major recipient of aid as it seeks to create the conditions for domestic and foreign industry to flourish.

The U.S., for example, has spent $300 million on development assistance to South Sudan as it has sought to create a new government. The European Union recently approved a similar amount of aid to the country.

"There really isn't a private sector that's sufficiently broad" to absorb the unemployed, U.S. Ambassador to the United Nations Susan Rice said on Sunday. "There is a great deal to be done," she added.

Still, South Sudan has lots of oil. Nearly all of the 500,000 barrels of oil produced a day between north and south comes from the south.

But the south splits the oil revenue with the Khartoum-based northern government, which owns the pipelines, refineries and ports from which the oil is exported. Since a 2005 peace accord with the north, the south has depended on oil revenue to pay salaries and keep its interim government running.

That is why the government is talking about a path that seeks investors beyond the energy field.

"The resources with which nature has endowed our land are abundant enough to attract the interest of development partners both from the public and private sectors from many countries across the world," South Sudan President Salva Kiir said during independence ceremonies Saturday. "So we should exploit these possibilities to better the lives of our people."

From 2007 to 2010, private investors acquired roughly 6.5 million acres of land in South Sudan, an area about the size of Massachusetts, according to the charity Norwegian People's Aid. Investment has gone into timber, mining as well as oil.

"The south has plenty of water and rainfall and is very fertile, so if they can establish good governance and use their oil money to develop the economy, there's a good chance for them to succeed," said Hassan Satti, an economist based in Khartoum. "But if they start badly, they will be in trouble."

Large-scale farming is virtually nonexistent in South Sudan, and there are just 30 miles of paved road in the whole country. Its capital, Juba, isn't connected by road to the south's largest towns.

Some government ministries operate out of trailers. Foreigners from neighboring African countries dominate local markets and have set up hotels and restaurants to cater to the influx of aid workers.

"South Sudan is very open for business," said Doug Bushman, member of the Southern Sudan-American Trade Association. "They really need everything."

Power cuts are common, and the electric grid depends on an oversized diesel generator, as do most of the hotels and aid-group offices. A blockade to the north imposed by the Khartoum government nearly brought Juba to a standstill last month when fuel stocks ran out before fuel could be trucked from neighboring Kenya.

Meanwhile, talks with the north over shared oil revenue have stalled. Neither side can agree on how long the two sides should continue a 50-50 split of revenues, or if or how much the south should pay in transit fees to ship the oil north through Khartoum-owned pipelines.

Some U.S. officials warn South Sudan against using its oil wealth as a crutch, and urge it instead to develop alternative industries as soon as possible. "It is so simple to be corrupt in the oil industry," U.S. Special Envoy to Sudan Princeton Lyman said. "It will hurt the image of the new government quickly" if oil revenues are mismanaged.

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