Analysis: Finances, not fighting, force Sudans to the negotiating table

By Simon Allison 7 June 2012

Talks have resumed between South Sudan and Sudan, after a long hiatus characterised by fighting talk and even some real fighting. But given the precarious state of both countries’ finances, and the prohibitive cost of war, the negotiating table is suddenly looking a lot more attractive. By SIMON ALLISON.

In January this year, South Sudan decided to halt oil production, a grand diplomatic gambit to force the hand of Sudan proper at the negotiating table.

As the pipelines dried up, so did 98% of the south’s revenue. That figure is not a typo. Already a desperately poor country, South Sudan has, since January, been reliant on just 2% of its expected revenue. And now it’s feeling the pinch.
Statements emanating from the office of President Salva Kiir have grown increasingly tetchy as finances get worse. In a desperate letter to 75 current and former staff, the president accused government officials and cronies of helping themselves to some $4 billion of public funds. “Many people in South Sudan are suffering, and yet some government officials simply care about themselves,” he wrote. “We fought for freedom, justice and equality. Many of our friends died to achieve these objectives. Yet once we got to power, we forgot what we fought for and began to enrich ourselves at the expense of our people.

“I am writing to encourage you to return these stolen funds (full or partial),” he added, promising confidentiality and immunity from prosecution in return. That $4 billion figure mentioned by Kiir represents two years’ worth of oil revenue, and – as the Globe and Mail explains – goes some way towards clarifying why South Sudan remains so poor and hungry.

Greedy businessmen are also being told to do their bit for their country. Specifically, they were admonished on Tuesday not to hoard food or fuel, a practice which the government blames for soaring prices. The problem is considered so serious that the police’s investigative unit was instructed to arrest “any person if he does not want to expose the fuel to citizens for sale because he wants to make a bargain in the black market such that he keeps the fuel price up,” according to deputy interior minister Salva Mathok Gengdit.

The government’s right about one thing: prices are soaring. One writer in the Sudan Tribune outlines how food prices in the capital Juba have more than doubled over the last six months. A heap of tomatoes that sold for two South Sudan pounds in December now goes for five pounds; bread went from 12 to 30 pounds; and mutton from 18 to 30 pounds per kilogram.

All of which raises the question: for how much longer can South Sudan maintain its oil shutdown? When the boycott was announced in January, the public was told, confidently, that a new pipeline through Kenya would be built in just nine months. By October, that is. This was wildly optimistic even in the best-case scenario, assuming construction began almost immediately. But not only is there no construction, there’s not even a contract; it doesn’t even look like a tender for the project has gone out. So it will be years until there is a viable alternative to Sudanese pipelines and paying hefty transit fees to the coffers of the hated Khartoum administration; years that the struggling South Sudanese economy simply doesn’t have.

And so to the negotiating table it is. Select cabinet ministers from Juba are meeting their Khartoum counterparts in Addis Ababa, under the watchful eyes of an African Union mediation team. Neither party is talking economics; instead, the theme is border security and how to calm tensions which have escalated in recent months, to the point where fears of an all-out war were genuine and well-founded.

But for Khartoum, too, the economy poses an even greater existential threat than the conflict with the south. It’s no surprise that the greatest flash point occurred on the border’s most lucrative area, the Heglig oil fields in Sudan.
For decades, the Sudanese government propped up its regime using cash from southern oil fields – long before South Sudan was an independent entity. Without those oil fields, the economy is foundering. The International Monetary Fund politely described the challenges it is facing as “daunting”, and recommended immediate and severe emergency austerity measures.

In a sign of desperation, this week the ruling party approved plans to scrap the fuel subsidy, a move described by a businessmen’s union as “catastrophic”. The union added, with unmistakeably threatening undertones, that to go through with it would put the government at the “eye of a storm”. And if the government paid any attention at all to what happened when Nigeria tried to scrap fuel subsidies, they would understand that this was no idle threat.
Khartoum will never regain control of those southern oil fields. But what it can do is make peace with the south so that it can continue to exploit the oil it does control (such as the Heglig field). More importantly, it can make a deal with the south to resume oil exports through Sudan, allowing Khartoum to collect the transit fees.

These transit fees were the sticking point last time, part of what precipitated Juba’s oil shutdown. It was widely reported that Khartoum demanded $36 per barrel, while Juba wanted just $1 per barrel, a figure used to illustrate the complete disparity between the two negotiating teams. This was not entirely accurate; Juba’s real offer was closer to $12 per barrel. There is not quite so much daylight between $12 and $36; negotiations around these figures are a lot more feasible.

Strangely enough, both countries’ dire economic positions have forced them back into negotiations. Literally, neither country can afford a war; and neither government can afford to let its economy spiral even further out of control. To avoid this, they know they have to work together, as difficult as it will undoubtedly be. In near-bankruptcy lies the Sudans’ best hope for peace. But also, it must be noted, a greater chance of war; desperate governments do desperate things, and I have argued before that Sudan’s overt belligerence earlier this year was designed to create a war economy and consolidate President Omar Al-Bashir’s wavering support. Still, a war economy requires real money, and that is something in very short supply everywhere right now. DM

South Sudan independence still comes at a price on Reuters
South Sudan’s solution to economic independence on Sudan Tribune
The dangerous logic of Bashir’s belligerence on Daily Maverick

Photo: Men wait in line with their jerry cans at a gas station in Juba, May 14, 2012. (REUTERS/Adriane Ohanesia)


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