Iguacu Blog

South Sudan: Oil and the Generals

Feb 12, 2016
South Sudan: Oil and the Generals
Rebecca Greenhalgh
Senior Associate, Pro Bono at Ashurst

Rebecca is a practicing solicitor with extensive experience in developing and managing pro bono initiatives within a law firm setting, with particular emphasis on schemes suitable for overseas and dual-qualified lawyers. She has experience at the International Criminal Tribunal and is a member of the CEO’s Committee for the Access to Justice Foundation.

Jamam refugee camp from the air | Photo Credit: Robert Stansfield/Department for International Development

While the international community has paid limited attention, those with the levers of power in South Sudan have squandered the potential fruits of independence. The vast majority of the South Sudanese people live with poverty and fear, powerless pawns in a struggle for power and wealth.

A country riven by conflict, South Sudan’s level of development is one of the world’s worst. Almost three quarters of the adult population are illiterate. Infectious diseases run rampant and healthcare is almost non-existent. Many parts of the country are inaccessible for almost 6 months out of the year due to poor or non-existent infrastructure.

Yet, relative to other African countries, South Sudan is not poor. Its vast oil reserves allowed for significant initial public spending as it gained independence from Sudan. The estimated spending of $350 per capita was four times the average of other East African states. Additionally, an international aid package of $100 per capita, the most generous of any country in East Africa, meant that South Sudan had a significant head start as the newest country in the world.

However, just three years after its independence, the country is nearly bankrupt and at war. Given the government’s initial spending boost and the country’s abundant wealth, how did South Sudan find itself in such a dire situation?

The conventional explanation for its weak performance often emphasizes its weak capacities to respond to a mounting challenge to build a new state. But a closer examination of its brief modern history reveals that South Sudan has been in crisis from the moment of independence, with oil and rentier-politics at the heart of the problem.

South Sudan’s public spending compared to other regional countries in 2011


THE PRICE OF OIL WEALTH

A united Sudan was a vast country, with most of its wealth concentrated in the capital, Khartoum. The rest of the country, especially Southern Sudan, was dreadfully poor. Then, in the 1970s, Chevron found oil, a discovery that promised riches. Three quarters of this oil was in Southern Sudan. A history of exploitation, marginalization and deprivation by the North, meant the Southern Sudanese were determined that these new riches would not be stolen. In 1984, the rebels of the Sudan People’s Liberation Army (SPLA) attacked Chevron’s fields, bringing oil exploration to a stop.

This prompted a 15-year-long war. In the midst of this conflict, Chinese oil workers came to work the oilfields and build pipelines. By 1999, Sudan was finally able to export its oil, increasing the government’s budget tenfold in the next 8 years.

Around 2004, renewed international efforts to find peace in Sudan prompted the SPLA to make a choice: fight Khartoum, which could now rearm itself with its new riches, and face an increasingly uphill battle, or talk peace. A peace agreement based on sharing the country’s wealth became a much easier choice when the national budget started growing 25 percent each year. In 2005, the Comprehensive Peace Agreement (CPA) was signed between the SPLA and its political arm, the Sudanese People’s Liberation Movement (SPLM), and the Sudanese Government. The oil wealth was divided equally between Khartoum and the rebels (SPLA and SPLM, together known as SPLM/A).

REARM, RECRUIT AND CONSOLIDATE POWER

Importantly, the SPLA had not won the war at the time that the CPA was signed. Nor was it even the largest Southern Sudanese armed group. There were many other armed groups. The largest group, the South Sudan Defense Forces (SSDF), consisting of many diverse and loosely connected militia, was rivalling, or even outnumbering the SPLA. However, the CPA made the SPLM into the ruling party in southern Sudan and the SPLA into the official army of southern Sudan.

Absorption of rebel groups into SPLA

With the newly found riches, the SPLM/A sought to establish and consolidate its authority. During the interim peace period between 2005 and 2011, after which the independence referendum was to take place, their answer was to absorb other rebel groups. All diverse groups who rebelled, or southerners who left the Sudanese Armed Forces (SAF), were all welcomed into the SPLA. Just before independence was declared in 2011, the SPLA commanders even started recruiting thousands of youths simply to stop them from being tempted to join anti-SPLA militias.

Against the stipulations in the CPA to disarm and demobilize various rebel groups, the interim period of peace had meant the opposite. This period was used as a way to retire unfit combatants, while the SPLA recruitment continued. Less than 10,000 of the target 90,000 combatants were actually demobilized.

Integration of rebel groups was lauded throughout the international community as it ostensibly reduced and neutralized actors that could destabilize the country. However, it also resulted in a disjointed army. Indeed, it has been described as ‘a collection of militias’ as many of those absorbed have never submitted to central command and control. The integrated militias still answered to their former leaders, who were assigned the ranks of General at integration for their allegiance. Together with bestowing of new ranks and the absorption of militia groups, the expenditure also rose.

OIL AND INDEPENDENCE

Establishing SPLM/A’s authority had meant that they were in the dominant position to access the newly found oil wealth. However, they still had to share the oil equally with Khartoum. Given that most of it was located under the southern Sudan’s territory, the achievement of independence would give them full control.

President Salva Kiir immediately saw the biggest threat to independence in the militias: the armed Southern Sudanese who would sell their allegiance to the highest bidder. Khartoum had long used these militias to fight the SPLA, and it was feared that they could wreck Kiir’s hopes for an independent South Sudan.

Also, to make sure that the referendum went smoothly, the SPLM/A needed an army big enough to deter any meddling from Sudan. But in 2005 the SPLA had just 35,000 soldiers; all volunteers.

Hence, negotiations with the biggest militia commander, General Paulino Matiep began, and in January 2006 they signed a deal. Paulino became a top general in the SPLA and his troops were put on the SPLA payroll. All SPLA salaries were doubled to keep them happy.

THE 745 GENERALS

Over the next five years the SPLA continued to grow by absorbing other militia, disconnected youths and rebels.

By independence, the SPLA had 745 generals, that is 41 more than the four U.S. services combined and second only to Russia. Each general was paid handsomely and also received a personal group of bodyguards, vehicles and at least one house.

And on the eve of independence salaries for the SPLA were doubled.

Meanwhile, ordinary citizens thought that peace was supposed to mean fewer armed men, and fewer guns, not more of them…

SPENDING THE BOUNTY

Upon independence, South Sudan became rich. Under the 2005 agreement, the revenue from oil was divided equally between Juba and Khartoum: but now South Sudan received it all. Its income was largely dependent on oil and now its revenue doubled.

Unfortunately, the new-found riches now made greed central to the South Sudanese politics. This is reflected in how the government spent the money. The key question became who would take their share? The answer was those who could exert the greatest influence and disrupt the system.

As the oil money gushed in, the ones who were getting paid were:

  • militias on the border who were willing to take the price that Khartoum was offering;
  • the SPLA generals at Headquarters whom Salva Kiir needed for security and order;
  • the SPLM, whom Salva Kiir needed to win the election;
  • the generals with troops who were willing to mutiny if there were no pay raises;
  • and tribal leaders, whose allegiance must be bought.

The 2013 World Bank report on South Sudan’s public spending reveals where and how this money is spent:

2011 Budget and Outturn

Health, education, social services, and block transfers to states, have all received a small proportion of budget and all remained below the planned spending. On the other hand, security and public sector payroll have been vastly overspent.

In total, wages for security and the public sector constituted 60 percent of all expenditure …a large increase from previous years, and reflected the SPLM’s tactic of absorbing militia and keeping them content through rentier-politics. Education and health received a meagre 8 percent and 4 percent respectively. South Sudan’s defense spending was three times higher than Ethiopia’s and 5–10 times as much as a proportion of GDP.

In addition, it is also clear than the government was not planning ahead, even with varying increases in income from oil exports. It’s spending was dictated by the rule: whatever is available, is spent.

This was the Villa at the Sheraton Hotel, Addis Ababa, which was rented for six nights in January 2012 by President Salva Kiir. During his stay, he authorized the shutdown of oil production. The hotel normally charges $30,000 per night.

The Villa at the Sheraton Hotel, Addis Ababa, which was rented for six nights in January 2012 by President Salva Kiir | Photo Credit: destinia 


CYCLE OF VIOLENCE, OR WHO GETS WHAT

Now, with a vast number of public service and security personnel, not everyone was being paid equally. Seeing the inequality, different elite groups started a cycle of rebellions to show that they could disrupt the status quo, and, thus, should be paid more. With various rebellions springing up, the leaders divided the wealth and the ordinary people continued to receive very little.

WHAT HAPPENS WHEN THE MONEY RUNS OUT

Finally, In January 2012, South Sudan shut down its entire national production due to a dispute with Sudan over transit payments. Such a decision has never been made by a country before. Given that oil revenue constitutes around 98 percent of the country’s revenue, oil productions were almost identical to government revenue. South Sudan started running out of money.

At the same time, South Sudan had one of the largest expenditures on military per GDP in the world. The government borrowed to fill the gap, but funds soon ran out. While Kiir finally resolved the dispute and switched the oil back on in April 2013, oil production never reached the pre- shut down levels. South Sudan’s GDP declined by 49 percent during 2012, a contraction without precedent in the world.

During this time, reserves between $1–2 billion were used up, debts of an estimated $4.5 billion were run up and the budget was cut down…except for the army.

As President Salva Kiir started running out of money, he dismissed most of his cabinet. Many of the stakeholders who supported Kiir based on rents now realized that Kiir did not have enough money for everyone, only those with the greatest influence will get a share.

A few months later the fighting in South Sudan began.


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