Japanese Investment Breaks South Sudan Oil Deadlock

Japanese Investment Breaks South Sudan Oil Deadlock

Without oil, the only major source of revenue for South Sudan, the country would be essentially bankrupt. Fortunately, Japanese investment is changing that.

Africa’s vast natural resource wealth offers obvious benefits to multinational corporations and states, but the extraction of those resources continues to plague host governments and foreign developers. That trend is nowhere more prevalent than in South Sudan, where an increased oil production capacity could supply much-needed lifeblood to the young country’s economic development. This bright outlook has thus far been stymied, however, by Khartoum’s control of the oil pipeline to the Red Sea, which was shut down last Sunday as retaliation for Juba’s alleged support of the Sudan Revolutionary Front, a collection of rebel groups that continue to harass Sudanese military positions.

The oil issue is rooted in development programs pursued by the north during Sudan’s decades of civil war culminating in Juba’s independence. Given the north’s possession of the infrastructure necessary for piping out the 350,000 barrels of oil per day that could be produced in South Sudan, Juba lacks any real control over its oil exports. Tensions most recently came to a head in late 2011, when Khartoum confiscated crude oil valued at approximately $815 million USD as “compensation” for delinquent transit fees charged for the south’s access to the 15,000km pipeline to the Red Sea. The subsequent fifteen month long closure resulted in severe economic contractions in both Juba and Khartoum.

Luckily the south may have a saving grace. Japanese carmaker Toyota Tsusho recently announced that it will be providing an estimated $4 billion USD to construct an alternative pipeline from South Sudan to Lamu, a major Kenyan port on the Indian Ocean. If the pipeline is completed, its profits could drive a massive 70% growth in the South Sudanese economy.

The proposed pipeline presents a lose-lose situation for Khartoum however, if it is successfully constructed. The north lacks sufficient political clout to halt the Japanese investment, and it needs the oil revenues to keep an otherwise sluggish economy alive. Perhaps more pressingly – at least from President Omar al Bashir’s position – the north remains threatened by rebel groups still fighting within its borders. To take a weak stance against the rebels could invite new aggression from the south, regardless of Juba’s support for the groups.

While South Sudan might at first appear sure to gain from the Japanese project, its president and other leaders are faced with challenges of equal, if not greater, magnitude than those of the north. The north’s spoiler potential is significant from a security standpoint, and the risk of renewed conflict over the Lamu pipeline and other deep-seated issues (such as the status of Abyei, a province disputed by Juba and Khartoum) will loom large in the weeks ahead. But, even if the pipeline could begin exporting oil tomorrow, the south needs to plan strategically for the end of its reserves, which could come within the next ten years, according to Alex de Waal’s February essay in Foreign Affairs.

Without oil, the only major source of revenue for South Sudan, the country would be essentially bankrupt. If profits from the pipeline are realized, Juba must learn from the mistakes made by many of its African neighbors and invest heavily in the development of better infrastructure and new industries. Otherwise, South Sudan will only perpetuate the resource curse that has dogged so many African countries in the past five decades.

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