South Sudan Economic Development: Oil, Governance, and Growth

Introduction

South Sudan gained independence from Sudan in 2011 but has been embroiled in civil conflict ever since. This instability has hampered the country's ability to lay the groundwork for economic development. The evidence shows that there is a pathway to economic development even for the least-developed countries, and this paper elaborates on what those steps might look like for South Sudan.

South Sudan is a landlocked country of 12.5 million people that split from Sudan in 2011. It is a multiethnic society, with different tribal groups living in the basin of the White Nile, which flows from Lake Victoria until it meets the Blue Nile. The split from Sudan came after years of civil war along a largely religious fault line — the north of Sudan is predominantly Muslim, the south predominantly Christian. The country is one of the least-developed on earth: GDP per capita is around $2,000, ranking 203rd in the world, between Uganda and the Solomon Islands. Its level of development is broadly in line with that of its neighbors. The country does have potential oil wealth, however, ranking between Malaysia and Indonesia in terms of proved reserves, though it has no refining capacity (CIA World Factbook, 2016).

Precursors to Economic Development

The first precursor to economic development is resources. South Sudan's primary resource is its oil reserves, which are sufficient in principle to provide a much higher standard of living than currently exists. GDP per capita is on par with nations that lack this oil wealth, which means there is at least the potential for meaningful economic advancement. That said, Yemen holds comparable oil reserves and has similarly failed to capitalize on them. This raises a key question: given the baseline resources to generate wealth, what else is required to actually deliver it? South Sudan is also a fertile agricultural region, capable of supporting many forms of production (CIA World Factbook, 2016).

Several factors shape the answer. The first is political stability. Economic development in a country like South Sudan is largely dependent on foreign direct investment, and foreign investment in turn depends on the ability of foreign corporations or governments to earn a return. In the normal course of business, earning a return on oil is not inherently difficult — but exploiting petroleum resources requires long-term capital commitments. Companies willing to make such investments need assurance that the political environment will remain stable enough to justify the risk. Political stability is one of the key prerequisites for foreign investment, alongside economic stability, infrastructure, labor force quality, legal reliability, and openness to foreign capital (Asiedu, 2006).

South Sudan presently lacks nearly all of these preconditions. Infrastructure is poor — only approximately 200 km of paved roads exist, and electricity is supplied mainly by diesel generators (CIA World Factbook, 2016). The country has been mired in civil war since independence, further complicating the political environment. One in six South Sudanese has been displaced from their home, and the fighting is rooted in ethnic conflict and land disputes (BBC, 2016). Essentially, the population is engaged in land conflict as a consequence of the country's power vacuum. With no credible central authority, the risk of conflict is persistent, and that risk has consistently materialized.

Government Structure and Oil Wealth

The literature on government structure and economic development is instructive, though it does not readily apply to an active conflict zone. Economic development simply does not take place during active conflict. Foreign firms are unwilling to invest even when oil reserves exist, because they cannot guarantee the security of their operations or the supply chains needed to sustain them. While South Sudan's agricultural potential is real, lifting a landlocked nation out of poverty to a meaningful degree will ultimately require developing its oil resources.

There are few clear lessons to be drawn from the disbursement of oil revenues when it comes to political structure. Democracies like Canada and Norway perform well, but so do absolute monarchies like Qatar and the various emirates of the UAE. It is therefore questionable whether the form of government is itself the decisive variable in managing oil revenue. If there are lessons to be learned, they may come from other multiethnic African nations like Nigeria. More likely, the relevant lessons concern the mechanisms by which economic growth is generated — specifically, how South Sudan might best exploit its oil resource given its particular circumstances.

Democracy is an interesting model where resource exploitation is concerned, but South Sudan faces unique structural challenges. Having never had functioning democratic institutions, it would struggle to establish a democracy capable of operating in any meaningful way. A paper democracy is easy to establish; a functional one is far harder. South Sudan's territory is home to many ethnic groups, most of whom depend on the land for their livelihoods. The stakes surrounding land use are therefore enormous. With no single group holding a majority, a functioning democracy would require South Sudanese tribes to form coalitions in order to govern. Such coalitions would be fragile, given the differences between groups, the high stakes of land disputes, and the sheer number of parties that would need to cooperate to form a governing majority.

No single tribe could hold power in South Sudan, making compromise essential to any democratic system's sustainability. Yet under democracy, South Sudan could easily encounter a "Nigeria problem," in which the groups living on oil-rich land stand to benefit substantially while others have no effective means of sharing in that wealth. In Nigeria, the communities whose land produces the oil are not the ones controlling the government, and this mismatch has generated significant conflict: the government distributes oil revenues as it sees fit, while the affected communities receive little benefit relative to what is extracted from their land.

Studies have shown that oil wealth is inversely related to democratization. When governments with weak democratic institutions realize they control tremendous natural wealth, they have little incentive to strengthen democratic institutions, since doing so would reduce their control over resource distribution (Anyanwu & Erhijiakpor, 2013). Many scholars have argued that oil wealth in particular undermines democratic governance because of the strongly uneven geographic distribution of natural resources within countries (Ko, 2014).

The relationship between democracy and oil wealth is therefore generally poor. The exceptions tend to be nations that had already established strong democratic institutions before their oil resources were developed — Norway, Canada, and the United Kingdom among them. For nations whose oil wealth predated or coincided with independence, democracy has seldom taken lasting hold, and where it has, it has typically been in flawed form.

Conclusion

Where autocratic leadership has succeeded in producing economic development, it is because it has built consensus among the population and executed long-run visions for infrastructure and education. The form of government itself is not the direct cause of success. What autocracy does allow, however, is rapid decision-making and sustained execution of a long-term vision. The quality of that vision matters enormously. A democracy may produce a sound vision but struggle with execution — particularly where there is no population consensus on priorities or on how resources should be distributed.

South Sudan's path to economic development runs through a sequence of prerequisites that are currently absent: an end to civil conflict, the establishment of rule of law, investment in infrastructure and education, and a governing framework — democratic or otherwise — capable of making credible long-term commitments to foreign investors. The comparative evidence from resource-rich developing states suggests that political stability and governance quality matter far more than governance form. Until South Sudan achieves the former, debates about the latter remain largely academic.

References

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