South Sudan may be rich in oil, water and natural resources, but it is still struggling for survival. The years of civil war have left their mark. There's still a lack of almost everything: infrastructure, schools, hospitals, energy, water and, since earlier this year, also fuel. And that despite the large oil reserves in the country. With independence a year ago, much of the oil in Sudan went to the south, but the pipelines needed to export it pass through the north.

Currently, there's no oil running through those pipelines - North and South Sudan have so far failed to agree on transit fees. North Sudan wants $36 (29 euros) a barrel, while South Sudan is only willing to pay one dollar. In January, the south accused the north of stealing large amounts of oil and stopped oil production altogether for a time.

Now the coffers are empty since oil makes up 90 percent of the country's revenues. This is threatening to slow the country's economy down to a halt, says Wolf-Christian Paes of the Bonn-based International Center for Conversion (BICC): "If there's so solution over the pipeline question, South Sudan will be insolvent in terms of foreign currency within months or even weeks." The south has begun printing money to be able to continue paying salaries.

Lack of infrastructure

That in its turn has led to a rise in inflation, which currently stands at 19 percent, while economic growth has slowed down significantly. Food prices have exploded and agricultural production is on the decline. Although the country is considered promising for farming and is considered to have good growth potential, the United Nations' Food and Agriculture Organization (FAO) is worried about a famine in the near future. That's a danger which, according to Paes, is mainly due to the lack of infrastructure.

"Small farmers as well as agricultural companies have the problem that they're very far from the markets," says Paes. Roads to Uganda and Kenya - the two closest markets for exports - are in extremely poor conditions and transport is therefore very costly.

An alternative pipeline?

The situation for oil doesn't look much better. South Sudan has poor connection to its neighbors so that exporting oil is difficult without using the north's pipelines. That's why the country is thinking about building an alternative pipeline through Kenya. The costs would be around three billion dollars - but it is unclear how the government could raise that money. Banks so far don't seem to be interested in investing in the project - some experts say that South Sudan's oil reserves might not be as large after all so that the investment might not yield enough returns.

Another issue is that the planned pipeline would have to run through politically unstable territory. Abraham Matoc Dhal of Rumbek University in South Sudan says that the ecological risks of building a pipeline or a refinery are other factors driving up the risks of investment. Possible ecological damage could lead to a loss of farming land, reduce numbers of cattle and lead to rural depopulation. Taking all this into account, the actual cost of oil production and transport would be much higher than currently envisaged.

Diversifying the economy

But despite those difficulties, Matoc says, South Sudan has managed to create the right framework for foreign investors to bring new money into the country. The government has passed laws to boost development of the private sector to make the country more attractive. The country is also eager to attract the kind of foreign investors who will bring technological know-how with them.

Matoc stresses that South Sudan needs to make it a priority to become more independent of oil revenues. "The revenues of countries around the world are first and foremost based on taxes rather than oil exports," he says. South Sudan, he adds, has other natural resources like gold, uranium and fertile soil and thus the potential to support a diversification of its economy.

Initial progress

The new strategy seems to working, says Matoc. He is convinced the country should be able to feed its people and build up its infrastructure. South Sudan immense wealth of natural resources will allow the government to borrow money which it can invest in infrastructure projects.

You can see progress already, just one year after independence, he adds. In the capital Juba, there are new roads, ministries have been renovated, the building sector is booming. Despite all the challenges and difficulties, life in Juba has improved.

Author: Lina Hoffmann / ai
Editor: Michael Lawton