DIRECTIONS FOR REFORM A COUNTRY ECONOMIC MEMORANDUM FOR RECOVERY AND RESILIENCE IN SOUTH SUDAN a © 2022 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000. Internet: www.worldbank.org This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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Additional material relating to this report can be found on the World Bank South Sudan website. www.worldbank.org/southsudan DIRECTIONS FOR REFORM A COUNTRY ECONOMIC MEMORANDUM FOR RECOVERY AND RESILIENCE IN SOUTH SUDAN i ii TABLE OF CONTENTS CHAPTER 1 SOUTH SUDAN’S ECONOMY ................................................................................................... 1 1.1 Pre-Independence (2005 - 2010) ................................................................................................................ 6 1.2 Conflict Economy (2011- 2018) .................................................................................................................. 6 1.3 Economy During a Fragile Peace Transition (2018-2021) ............................................................................ 13 CHAPTER 2 REPOSITIONING THE OIL SECTOR......................................................................................... 21 2.1 Overview of South Sudan’s Oil Sector........................................................................................................ 22 2.2 Estimates of Oil production and Revenues ................................................................................................. 25 2.3 Oil Sector Regulation and Oversight........................................................................................................... 27 2.4 Oil Revenue Investment Options................................................................................................................. 30 CHAPTER 3 BUILDING RESILIENCE FOR FOOD SECURITY...................................................................... 33 3.1 Food Production and Consumption Dynamics........................................................................................... 34 3.2 South Sudan’s Agricultural Potential and Constraints.................................................................................. 36 3.3 South Sudan’s Food Insecurity Trap .......................................................................................................... 40 CHAPTER 4 DIRECTIONS FOR REFORM .................................................................................................... 43 4.1 Getting the Basics Right: Peace, Stabilization, and Institutions................................................................... 44 4.2 Improving Oil Sector Governance .............................................................................................................. 46 4.3 Escaping the Food Insecurity Trap.............................................................................................................. 48 BIBLIOGRAPHY ............................................................................................................................................ 50 LIST OF FIGURES Figure 1: Livelihood Sources by Quintiles 2009.................................................................................................. 5 Figure 2: Individuals Living in Households Affected by Shocks (by Quintile of Consumption, %).......................... 5 Figure 3: Business Performance Indicator in Percentages................................................................................. 10 Figure 4: Business Entry Timeline..................................................................................................................... 10 Figure 5: Primary Source of Livelihood in 2016................................................................................................. 11 Figure 7: Access to Electricity in 2016.............................................................................................................. 11 Figure 6: Poverty Headcount in 2016............................................................................................................... 11 Figure 8: Quality of Housing in 2016................................................................................................................. 11 Figure 9: Access to Water Sources in 2016...................................................................................................... 12 Figure 10: Access to Sanitation Facilities in 2016.............................................................................................. 12 Figure 11: Inflation Developments.................................................................................................................... 14 Figure 12: Exchange Rate Developments......................................................................................................... 14 Figure 13: Natural Risks: Floods, Drought, and Land Degradation.................................................................... 19 Figure 14: Flood-Related Displacement............................................................................................................ 19 Figure 15: South Sudan’s Oil Blocks................................................................................................................ 23 iii Figure 16: Oil Production Estimates ................................................................................................................. 25 Figure 17: South Sudan’s Oil Export Revenues................................................................................................. 26 Figure 18: Cereal Production, in thousands of MTs........................................................................................... 35 Figure 19: Crop Production, Settlements, and Infrastructure............................................................................. 35 Figure 20: Agricultural potential May-Sept, 2006-2019..................................................................................... 38 Figure 21: Length of the rainy season in days ................................................................................................... 38 Figure 22: Main Agricultural Production Zones and Their Contexts in South Sudan........................................... 39 Figure 23: Evolution of Food Insecurity 2014-2021........................................................................................... 41 Figure 24: Most Frequent Food Insecurity Phase Per County 2017-2020.......................................................... 41 Figure 25: Decomposition of Estimated Populations in Areas Experiencing Critical Food Insecurity................... 42 Figure 26: Factors Influencing Food Insecurity.................................................................................................. 42 LIST OF TABLES Table 1: Overview of Policy Options.................................................................................................................. xiv Table 2: Key Macroeconomic Indicators 2009 - 2011........................................................................................ 3 Table 3: Key Macroeconomic Indicators 2012 – 2017........................................................................................ 9 Table 4: Key Macroeconomic Indicators 2018-2021......................................................................................... 13 Table 5: Food Insecurity: Comparison by Poverty Status................................................................................... 18 Table 6: Food Insecurity: Comparison of Urban Poor and Rural Poor ............................................................... 18 Table 7: Shareholders of Operating Companies in South Sudan........................................................................ 23 Table 8: Distribution of the Government’s Oil Revenue...................................................................................... 26 LIST OF BOXES Box 1: The Economic Cost of Conflict in South Sudan....................................................................................... 7 Box 1: The Economic Cost of Conflict in South Sudan....................................................................................... 8 Box 2: South Sudan: Significant Data Challenges............................................................................................. 12 Box 3:The IMF Staff-Monitored Program.......................................................................................................... 17 Box 4: Toward a Climate Change Adaptation Agenda for South Sudan............................................................. 20 Box 5: South Sudan’s Oil Sector Governance Frameworks............................................................................... 28 Box 6: Investment Options for Oil Revenues Under Various Scenarios.............................................................. 31 Box 7: The African Continental Free Trade Area (ACFTA) and Other Regional Initiatives..................................... 46 iv ACROYNMS AND ABBREVIATIONS ACC Anti-Corruption Commission FSNMS Food Security and Nutrition Monitoring ACFTA African Continental Free Trade Area Survey FX Foreign Exchange ADB African Development Bank GDP Gross Domestic Product AML Anti-Money Laundering GNPOC Greater Nile Petroleum Operating ARCSS Agreement on the Resolution of the Conflict Company in the Republic of South Sudan GPOC Greater Pioneer Operating Company BOP Balance of Payments GRADE Global Rapid Post Disaster Damage bpd barrels per day Estimation BSS Bank of South Sudan HCI Human Capital Index CAMP Comprehensive Agriculture Master Plan HDDS Household Dietary and Diversity Score CES Central Equatoria State HDI Human Development Index CFT Combating the Financing of Terrorism HFO Heavy Fuel Oil CNPC China National Petroleum Corporation IBES Integrated Business Enterprise Survey CPA Comprehensive Peace Agreement IBRD International Bank for Reconstruction and CPI Consumer Price Index Development CSO Central Statistical Organization IDP Internally Displaced Person DAC Development Assistance Committee IMF International Monetary Fund DDR Disarmament Demobilization and IOM International Organization for Migration Reintegration IPC Integrated Phase Classification DIIS Danish Institute for International Studies IPIS International Peace Information Service DPOC Dar Petroleum Operating Company JOC Joint Operating Company DSGE Dynamic Stochastic General Equilibrium MPM Ministry of Petroleum and Mining EAC East African Community MT Metric Tons ECF Extended Credit Facility NAP National Adaptation Plan EITI Extractive Industries Transparency Initiative NBS National Bureau of Statistics EOR Enhanced Oil Recovery NDC Nationally Determined Contribution EPSA Exploration and Production Sharing NDS National Development Strategy Agreement NOC National Oil Company FAO Food and Agriculture Organization (UN) NPGC National Petroleum and Gas Corporation FCDO Foreign and Commonwealth Development OCHA Office for the Coordination of Humanitarian Office Affairs FCS Food Consumption Score ODA Official Development Assistance FFAMC Fiscal and Financial Allocation Monitoring OECD Organization for Economic Co-operation Commission and Development FGF Future Generation Fund ORSA Oil Revenue Stabilization Account v P/PET Precipitation (P) to Potential SCM Synthetic Control Methodology Evapotranspiration (PET) SMP Staff Monitored Program PA Petroleum Act SPF State and Peacebuilding Fund PFM Public Financial Management SPOC Sudd Petroleum Operating Company PoC Protection of Civilians SSHS Southern Sudan Household Survey PPADA Public Procurement and Asset Disposal SSP South Sudan Pound Authority TA Technical Assistance PPP Purchasing Power Parity TFA Transitional Financial Agreement PRA Petroleum Reserve Account TNLA Transitional National Legislative Assembly PRMA Petroleum Revenue Management Authority TSA Treasury Single Account PSA Production Sharing Agreement UN United Nations R-ARCSS Revitalized Agreement on the Resolution of UNHCR United Nations High Commissioner for the Conflict in the Republic of South Sudan Refugees RSS Republic Southern Sudan WASH Water, Sanitation, and Hygiene vi ACKNOWLEDGEMENTS This Country Economic Memorandum was prepared by Joseph Mawejje (Economist) and Nadia Piffaretti (Senior Economist) under the overall guidance of Mathew Verghis (Practice Manager, Macroeconomics, Trade, and Investment) and Firas Raad (Country Manager, South Sudan). The team recognizes the extensive discussions with and guidance from Sudhir Shetty (Consultant) during report preparation. Eric Nimungu (Consultant) also contributed to the report. We are grateful for comments provided by peer reviewers: Kevin Carey (Advisor, Middle East and North Africa Region); Bernard Harborne (Resident Representative, Timor-Leste); and Albert Sala (Senior Economist). The team gratefully acknowledges useful feedback received from David Ariic Reng (Sudd Institute, Juba); Elliot Mghenyi (Lead Agriculture Economist); Erik Magnus Fernstrom (Practice Manager, Energy & Extractives); Holger Kray (Practice Manager, Agriculture); Juvenal Nzambimana (Senior Agriculture Specialist); Malcolm Smart (Foreign and Commonwealth Development Office, Juba); Paavo Eliste (Lead Agriculture Economist); Vanina Forget (Senior Agriculture Economist); Xiaoping Wang (Lead Energy Specialist / Program Leader); and Yves Le Bail (Adviser, Energy & Extractives). This study benefitted from key findings from the “The Dynamics of South Sudan’s Conflict Economy” analytics. Nora Dihel (Senior Trade Economist) was co-TTL in the earlier stages of the study. The team is grateful for the contributions of the following individuals to the background research: Andres Elizondo, Augustino Ting Mayai, Ben Shepherd, Benjamin Petrini, Bo Andree, Brian D’Silva, Erick Fernandez, Jakob Rauschendorfer, Karen Coulibaly, Khadija Shaikh, Melissa Williams, Nadege Yameogo, Patrick McSharry, Phoebe Spencer, and Supriyo De. The team is also grateful to Arden Finn, Bernard Harborne, Freeha Fatima, Jan von der Goltz, Rakesh Nichanametla, and Utz Pape, whose analysis for the Poverty, Jobs, and Covid-19 impact reports provided useful background material. Preparation of the report benefitted from useful discussions with colleagues in the South Sudan Country Office, Government of South Sudan counterparts, development partners, and the members of the private sector. Florence Poni (Team Assistant) provided logistical support, while Lomoro Sindani (Consultant) managed the communications and dissemination strategy. Support from the State and Peacebuilding Trust Fund (Grant #0A9011) is gratefully acknowledged. The State and Peacebuilding Fund (SPF) is a global fund administered by the World Bank to finance critical development operations and analysis in situations of fragility, conflict, and violence. The SPF is kindly supported by: Australia, Denmark, France, Germany, The Netherlands, Norway, Sweden, Switzerland, The United Kingdom, as well as IBRD. vii EXECUTIVE SUMMARY South Sudan is at a crossroads in its efforts toward made it difficult to complete a full-blown CEM, this report recovery, reconstruction, and development. South Sudan nevertheless shows what South Sudan can do to recover, gained independence in 2011, in what was expected to be a improve resilience, and sustain future growth by leveraging new dawn for the conflict-torn country. At the time, optimism its resources. was high, given high commodity prices, the country’s The cost of the conflict has been immense, with abundant natural resources, and international goodwill. South Sudan’s real GDP per capita in 2018 estimated However, weak institutions and recurring cycles of conflict at being one third of the counterfactual estimated for have curtailed progress, and often reversed gains. Initial peace a nonconflict scenario. Conflict has affected virtually efforts proved futile, and the country relapsed into conflict in all sectors of the economy, with output contracting for 2013 and again in 2016 as successive peace agreements consecutive years during 2015 – 2018. At the same time, collapsed. These conflicts precipitated a macroeconomic the conflict has sustained an economy in which illicit flows crisis and economic decline with widening fiscal deficits, high thrived, reflecting systemic misappropriation of public and persistent inflation, and spiraling foreign exchange rate resources and failed attempts at state building. Overall, the spreads. Poverty is ubiquitous and has been reinforced by conflict resulted in an estimated 65 percent contraction in real displacement and recurring climatic shocks. Consequently, per capita GDP between 2013 and 2018, and is estimated a decade after gaining independence, South Sudan remains to have cost South Sudan an accumulated loss in aggregate caught in a web of fragility and economic stagnation. While GDP of some $81 billion from 2012 – 2018, equivalent to recent efforts to integrate the military command structure $11.6 billion per year on average (80 percent of the 2010 should be commended, the peace process has progressed GDP). Consequently, the country’s estimated real per capita slowly, and continued subnational conflicts continue to GDP in 2018 ($608) was about a third of the counterfactual threaten a peaceful transition. Instability, a non-diversified estimated for a scenario without conflict ($1,880). economy, corruption, and poor delivery of services remain among the most important risks to the country’s long-term The adverse impacts of conflict have meant that South growth prospects. Sudan remains among the least developed countries in the world. Real household disposable income declined by This Country Economic Memorandum (CEM) an estimated 70 percent from 2011 to 2018 (IMF 2019b) as discusses South Sudan’s economic performance since the country struggled to establish the governance conditions independence, with a focus on leveraging the country’s necessary for stable and sound economic development. natural capital to support recovery and resilience. Oil Consequently, despite its considerable natural wealth in the and agriculture dominate South Sudan’s economy, with oil form of oil and arable land, South Sudan is now one of the contributing 90 percent of revenue and almost all exports, poorest countries in the world, with more than 3 out of 4 while agriculture remains the primary source of livelihood for more than four in five households. However, the potential people living under the international poverty line. At the same gains from oil have been limited by governance challenges, time, conflict-related destruction of the physical infrastructure with misappropriation of oil revenue facilitated by opacity and and the collapse of service delivery have meant that there lack of accountability in the sector. At the same time, food has been no improvement in already low levels of access to security has deteriorated consistently since independence, social services. Consequently, South Sudan’s development often reaching crisis levels in some subnational jurisdictions. indicators are also some of the lowest in the world.1 A Thus, a focus on the country’s use of its main endowments child born in South Sudan today will only be 31 percent of natural capital--oil and arable land--is warranted in the as productive when they grow up as they could be if they early stages of recovery. While severe data limitations have enjoyed access to a complete education and total health. 1. South Sudan ranks 185th out of 189 countries in the UN’s Human Development Index (HDI) and 172nd out of 174 countries in the World Bank’s 2020 Human Capital Index (HCI). viii This is lower than the average for Sub-Saharan Africa (40 early April 2020 (World Bank 2020a). Together with concurrent percent) and for lower-income countries overall (37 percent). shocks that have included flooding, locust infestations, and intermittent flareups of conflict in parts of the country, these The conflict dynamics remain fluid despite the peace developments have upended the recovery, with the economy agreement. The signing of the latest truce in September contracting by an estimated 5.1 percent in FY2020/21. 2018, and the subsequent formation of a unity government in February 2020 has reopened a window for the country to The broad-based rise in commodity prices due to the follow toward stability and sustainable development. While war in Ukraine have on balance affected South Sudan the levels of violence have declined since the signing of the adversely. Ukraine and Russia are major exporters of 2018 peace accord, recent events point to the persistent risk agricultural, energy, and mineral commodities, and the of a reversal of this trend, with escalating localized violence initial impact of the war is primarily through higher world and incidents of roadside ambushes and attacks in 2021. prices of these commodities. Although higher oil prices While the authorities have taken commendable steps to have improved budget revenues and strengthened the integrate the military command structure, cantonment and external position for South Sudan, these benefits can be training sites for combatants are underfunded and they lack sustained only if more robust mechanisms can be put in food and shelter; unified forces have yet to graduate; and place to improve accountability and reduce the misuse of the disarmament, demobilization, and reintegration (DDR) oil revenues. On the other hand, as in the rest of the region, program pledged by the Revitalized Agreement for the South Sudan has experienced an unprecedented increase Resolution of Conflict in South Sudan (R-ARCSS) has stalled. in the prices of food and basic household commodities, with While it is prudent to expect that the peace process will take high-frequency data indicating that in Juba, market prices time, the remaining aspects must be prioritized. These efforts of selected cereals rose by 10 - 25 percent from December should go hand in hand with the strengthening of state and 2021 to March 2022. Rising food prices also reflect the county institutions. fall in domestic cereal production due to adverse climatic conditions, and the resumption of localized conflict in 2021. Following the 2018 peace deal, the economy had started With more than 60 percent of the population (7.7 million recovering but recent shocks, including the COVID-19 people) facing acute food insecurity in 2022, an already pandemic, subnational conflict, and flooding have stalled dire food insecurity situation will be worsened if food prices progress. The economy grew by an estimated 3.2 percent continue to rise. in FY2018/19, following the signing of the peace agreement, ending a period of four successive years of GDP contraction. The authorities have initiated an economic and fiscal Growth in FY2019/20 accelerated to an estimated 9.5 percent management reform program aimed at macroeconomic as the economy benefitted from the resumption of oil production stabilization and improved public financial management in some of the oilfields that had been damaged during conflict, (PFM). The reform program prioritizes the modernization of as well as positive developments in agriculture as returnees the country’s public financial and economic management brought more land under cultivation. However, the COVID-19 systems. More broadly, these reforms are intended to pandemic precipitated a large terms of trade shock for South create the conditions for strong and inclusive growth by Sudan, with low oil export revenues exposing the country’s restoring fiscal discipline; ensuring transparency in economic vulnerability to external shocks. At the same time, jobs were management; implementing a rules-based monetary policy lost due to Covid-19 restrictions, with one in eight households framework; and addressing distortions in the foreign (13 percent) reporting the loss of all income from their main exchange market. In support of this effort, the IMF approved job activity at some point since the onset of the pandemic in a nine-month Staff Monitored Program (SMP) for the period ix from March 31 to December 31, 2021. Performance under exported live animals worth $107,000; oil seeds worth the SMP has been satisfactory. All but one of the quantitative $294,000; and wood products worth $9.6 million. Other targets were met, with the clearance of arrears being the exports included fish, dairy, apparel, and textile articles. With only exception. a comparative advantage in agriculture, these products can be seized upon to build a diversified and competitive export Getting South Sudan to realize its potential will require sector that could provide opportunities for many South steps aimed at consolidating peace and strengthening Sudanese. institutions, as well as targeted reforms tailored at harnessing its rich natural capital for development South Sudan faces significant data challenges that impact. Addressing the drivers of fragility and ending conflict impede credible economic monitoring. Despite efforts should go hand in hand with strengthening institutions as to establish an independent central statistics agency, only first-order prerequisites for inclusive economic recovery. limited official statistics have been compiled in South Sudan South Sudan’s natural capital has the potential to sustain since 2015, which has hampered effective monitoring and future growth by managing the use of its renewable resources analysis of the country’s socioeconomic conditions (see Box (arable land) as well as its nonrenewable (oil and mineral) 2). While a few macroeconomic data are produced by the resources. However, the oil sector is faced with numerous National Bureau of Statistics and the Bank of South Sudan, governance challenges, including off-budget revenue and these are usually delivered with significant delays and are expenditure practices. In addition, production has peaked in of poor quality. The most recent nationally representative some blocks, requiring new investment to ramp up output. In household survey was completed before independence agriculture, the country’s potential has not been realized as a in 2009. At the same time, a lack of budget transparency result of years of conflict, displacement, and climate shocks affects the quality of fiscal data. Current efforts by various that have sustained high levels of food insecurity. institutions to monitor humanitarian conditions are helping to fill important data gaps to some degree, but they are neither With the gradual return of peace, the agricultural sector harmonized nor geographically representative. could provide the impetus for economic recovery, while also supporting diversification. Outside of the oil sector, The rest of this CEM is structured as follows: Key South Sudan has a diversity of low-hanging fruits that could messages and a summary of recommendations follow this potentially lead to diversification. A reconstruction of the executive summary. Chapter One reviews South Sudan’s country’s mirror trade data shows that its exports were economic developments through the independence-conflict- estimated at $1.6 billion in 2019, with oil accounting for 96 recovery transitions. Chapter Two discusses governance percent of total exports. However, among its official non-oil challenges in the oil sector and opportunities for reform. exports, the following products could potentially play an Chapter Three discusses pathways for building resilience important role in driving diversification: live animals, meats, in agriculture and escaping the food insecurity trap. And hides, edible vegetables and fruit, oil seeds, wood and wood Chapter Four concludes with directions for reform. products, cotton, and non-oil minerals. In 2019, South Sudan Despite efforts to establish an independent central statistics agency, only limited official statistics have been compiled in South Sudan since 2015, which has hampered effective monitoring and analysis of the country’s socioeconomic conditions. x Oil accounts Agriculture remains for revenue and almost all exports 90% the primary source of livelihoods for 80% households. xi KEY MESSAGES 01 Addressing the drivers of fragility, ending underlying causes of the conflict and restoring peace all forms of conflict, and ensuring peace and stability in line with the provisions in the R-ARCSS and stability in all parts of the country are must be prioritized, building on key milestones already prerequisites for an inclusive economic achieved as part of the peace process. recovery. Conflict has affected all sectors of the country’s economy, disrupted livelihoods • Provide adequate resources for cantonment and and jobs, and precipitated a debilitating training of combatants to facilitate timely graduation humanitarian crisis. While the signing of the of a professionalized and unified defense force. September 2018 peace agreement brought an end to many years of conflict and the formation of a unity government in February 2020 started • Fast-track the disarmament, demobilization, a three-year transitional period, the dynamics and reintegration (DDR) program outlined in the on the ground remain fluid, with the persistence R-ARCSS. of localized violence in some parts of the country. Recent efforts to integrate the military • Fast-track the transitional justice, accountability, command structure should be commended. reconciliation, and healing provisions outlined in Nevertheless, progress has been slow on key Chapter 5 of the R-ARCSS. aspects of the peace process. Addressing the 02 Stay the course on macroeconomic reforms and • Continue on a stabilization path so as to provide the continue on a stabilization path, building on the basis for a sustainable and inclusive economic recovery. key milestones already achieved in unifying the (In this respect, the authorities are making commendable exchange rate and taming inflation. South Sudan progress and are encouraged to stay the course.) has endured a protracted macroeconomic crisis, with high inflation and an overvalued exchange • Ensure independence of the central bank and rate. These challenges have been reinforced continue to avoid monetization of budget deficits. by low institutional capacities for economic management and reform. More recently, although • Take steps to improve budgetary transparency and the COVID-19 pandemic disrupted the nascent resource allocation to help restore credibility. economic recovery, the authorities have embarked on a reform program. The ongoing public • Eliminate off-budget revenue and expenditure practices and align resource allocation with the financial management (PFM) reform process, National Development Strategy so as to improve and commitments under the IMF Staff Monitored service delivery and the effectiveness of fiscal policy. Program (SPM) have yielded some initial positive results leading to Lower inflation and exchange • Over the medium term, leverage comparative rate stabilization. In addition, these reforms are advantages to diversify the economy so as to providing opportunities and the building blocks for achieve multiple objectives that include creating jobs, a stronger, inclusive, and more resilient recovery. broadening the tax base, and achieving sustainable It is therefore critical that the authorities stay the and inclusive growth. course on these reforms as the country attempts to take advantage of the peace dividend to rebuild • Invest in the production of quality and timely statistics a diversified economy capable of creating jobs and to support evidence-based policy processes. reducing poverty. xii 03 Improve oil-sector governance South Sudan’s economy is one of the least • Ensure that all oil revenues and expenditures are on budget and used effectively to achieve national diversified economies in the world, with the development goals. oil sector contributing 90 percent of public revenue and almost all exports. However, • Ensure a comprehensive audit of the activities of governance challenges in the sector are limiting Nilepet in line with the provisions of the law. its contribution to improving living standards for the people, and sustaining development. At • Consider joining the Extractive Industries the same time, in the absence of strong fiscal Transparency Initiative (EITI) to leverage best practices rules, the country is vulnerable to terms-of- for the management of natural resource revenue. trade shocks and budget volatility. There are opportunities to improve the contribution of the • Strengthen institutions for oil revenue management oil sector to national development in the short and environmental protection. term, while the authorities go about formulating and implementing a robust investment and • Ensure consistent implementation of oil sector diversification program to anchor long-term revenue management policies and regulatory growth and development prospects. frameworks to ensure transparent and prudent use of oil revenue. • Develop strong fiscal rules to support the country’s stabilization and investment objectives. 04 Support the resilience of the agricultural • Improve preparedness to better respond to food sector in order to reverse the food crisis and security early warning systems; and link the early achieve food security for all households. warning systems with extension and advisory Despite the country’s significant potential for services so that farmers may better respond to the agricultural production, South Sudan’s food challenges, thereby building resilience. security has been consistently worsening since independence, leading to one of the • Stabilize smallholder agriculture by ensuring public world’s worst food crises. Reform in the safety so as to allow for the voluntary return of internally agricultural sector will benefit from a transition displaced persons (IDPs) and refugees. Part of the from a humanitarian to a development- challenge of voluntary returns will surround land claims, oriented response that leverages the country’s and land ownership and tenure will require support as agricultural potential. This will require returnees reclaim previously occupied or held property. investment in human and social capital, and rebuilding trust among communities that • Improve agricultural sector production and have been eroded through years of conflict productivity by investing in access to inputs, and government failures. Such investment post-harvest handling, storage infrastructure, is necessary in order to support productivity extension services, and animal health. increases and diversification. • Foster community resilience and strengthen social capital through community-based approaches so as to improve resilience to shocks, social cohesion, and human capital development, while closing important gender gaps. xiii Table 1: Overview of Policy Options Short -Term Policy Medium -Term Policy Longer-Term Policy General Policy Directions Options Options Options • Facilitate timely and • Fast-track transitional • Embark on a 01 orderly graduation of a justice, accountability, disarmament, professionalized. and reconciliation, and demobilization, and Focus on getting the unified defense force. healing provisions. reintegration (DDR) program. basics right, with • Improve budgetary • Increase investment in particular attention paid transparency. basic infrastructure, and • Take advantage of South to peace, macroeconomic eliminate restraints on Sudan’s comparative • Align resource allocation stabilization, domestic and regional advantage in agriculture to the National trade. to diversify the economy. and institutional Development Strategy. strengthening. • Facilitate production • Close critical technical • Ensure coordination of timely and quality capacity and and credibility of fiscal, national statistics. governance gaps in key exchange rate, and government functions. monetary policies. • Audit Nilepet activities. • Ensure consistent • Strengthen institutions 02 • Ensure that oil revenues implementation of oil for oil revenue sector policy, legal, and management and and expenditures are on Improve oil sector regulatory frameworks. environmental budget. protection. governance to strengthen • Consider joining the • Provide quarterly oil the sector’s contribution Extractive Industries • Operationalize the oil sector performance to the economy. Transparency Initiative revenue stabilization and reports. (EITI), and begin future generation funds. implementing its provisions. • Allocate resources to • Invest in appropriate • Strengthen farmers’ 03 improving access to climate adaptation social and human inputs. measures. capital. Support agriculture • Ensure safety along • Invest in extension • Streamline land sector resilience in order corridors linking services and post- ownership and land to exit the food insecurity agricultural production harvest handling tenure systems to deal trap. to markets. infrastructure. with land claims by returnees. xiv Chapter 1 SOUTH SUDAN’S ECONOMY 1 1.1 Pre-Independence (2005 - 2010) Despite vast wealth in natural resources and Sudan to earn substantial revenues that averaged 18 percent considerable foreign aid inflows, when South Sudan of GDP. (Table 2 provides a snapshot of South Sudan’s key gained independence in 2011 it was one of the poorest macroeconomic indicators 2009 – 2011) countries in the world. South Sudan’s development was South Sudan enjoyed a period of macroeconomic undermined by years of conflict and neglect that can be stability immediately before independence, with low traced to the pre-independence period. At independence inflation and a fixed exchange rate policy. Inflation was the size of the country’s economy was estimated at $35.3 low and stable in the two years preceding independence, billion, with a GDP per capita estimated at $3,374 (in PPP and averaged 5.1 percent in 2009, before declining to 1.3 2011 international dollars) (IMF 2019a). Yet the country percent in 2010. In the two years between 2009 and 2010, was also faced with large gaps in human development, core and food inflation averaged 5.4 percent and 3.0 percent ubiquitous material deprivation, and an acute lack of respectively. At independence, South Sudan’s exchange services. The oil sector dominated the economy and rate was fixed at 2.95 South Sudanese pounds to the US accounted for an estimated 61 percent of GDP, while the dollar - the rate that prevailed at the time of secession from service and agricultural sectors contributed 34 percent and Sudan in 2011. At that time, a fixed exchange rate regime 5 percent respectively. Agriculture was the primary source was possible because the oil sector was booming, and South of employment and livelihood for 69 percent of the South Sudan enjoyed a healthy balance-of-payments position Sudanese. Wage employment was the main source of that allowed for the accumulation of international reserves. livelihood for 12 percent of the population, with an additional Abundant windfalls from oil exports resulted in successive 4 percent relying on business enterprises (NBS 2009a). budget surpluses in the four years from 2008 to 2011, the Decades of conflict had affected livelihoods, settlement cumulative value of which amounted to nearly $500 million, patterns, and farm production, resulting in relatively high levels or about 4 percent of the country’s 2010 GDP. of market dependence for most household consumption in the country (Thomas 2019). In this respect, the structure of However, while South Sudan’s government earned South Sudan’s economy and employment was unlike that of significant oil revenue, most of these resources went many countries at similar levels of development. toward payroll expenses, and did not contribute to long- term development. In 2010, oil accounted for 98 percent of The return of relative peace, high oil prices, and goodwill government revenue, underlining the country’s dependence from the international community sustained optimism in on the sector. During this time, the country earned around $2 the years leading to independence. The signing of the 2005 billion in budgetary revenues from the oil sector. While capital Comprehensive Peace Agreement (CPA) brought an end to spending accounted for about 20 percent of expenditures an era that included two civil wars, and laid the groundwork (3.2 percent of GDP), the wage bill accounted for about 40 for independence in 2011. Economic growth averaged 5.3 percent of expenditures (6.6 percent of GDP) in 2010, similar percent in the two years that preceded independence, with to the amount for operating expenses (6.8 percent of GDP). activities in the retail trade, real estate, and construction In this respect, wage expenses as a proportion of the budget subsectors driving growth in the non-oil sectors. During this were higher in South Sudan than in Uganda (18 percent) and time, the non-oil economy benefitted from peace dividends Kenya (24 percent). and donor aid inflows as the economy quickly established itself as the most important destination for East Africa’s The public sector has played an important role in South exports (World Bank 2013). In the five years from 2006 to Sudan and has often served as a form of patronage, 2010, oil production averaged 338,700 barrels per day, and but it has also played an important redistributive function. the price of oil hovered around the $100 mark, allowing South Outside of the military, the public service employed about 2 44,000 people in 2011, including some 20,000 personnel government expenditure was immense, increasing from attached to the rule of law functions (police and prisons). At 7.7 percent in 2005 to an average of 38 percent from 2006 the same time, the South Sudanese armed forces employed to 2011. These large outlays on security-related salaries about 90,000 personnel in 2005; but this number grew squeezed out expenditures on the provision of general quickly to about 200,000 in 2015 and 330,000 in 2018, services, including in the education and health sectors. corresponding to the period with the highest intensity of Average spending in these two sectors averaged 7.8 percent conflict. Consequently, the share of military salaries in total from 2006-2011. Table 2: Key Macroeconomic Indicators 2009 - 2011 2009 2010 2011 Real GDP Growth 5.0 5.5 -4.6 Oil 3.5 6.7 -2.7 Non-Oil 6.8 4.2 -6.9 Revenue (SSP millions) 4,240 5,757 4,889 (% GDP) (15.0) (17.1) (11.0) o/w oil 4,121 5,630 4,782 (% GDP) (14.6) (16.7) (10.7) Expenditure (SSP millions) 4,235 5,576 4,424 (% GDP) (15.0) (16.6) (9.9) o/w salaries 1,977 2,206 1,335 (% GDP) (7.0) (6.6) (3.0) o/w operating expenses 1,256 2,280 2,146 (% GDP) (4.4) (6.8) (4.8) o/w capital 1,002 1,091 943 (% GDP) (3.5) (3.2) (2.1) Fiscal Balance (SSP millions) 5 181 465 (% GDP) (0.0) (0.5) (1.0) Inflation, annual average 5.1 1.3 46.6 Exchange rate 2.95 2.95 2.95 Nominal GDP (SSP millions) 28,252 33,656 44,558 Source: South Sudan authorities; World Bank staff estimates 3 Burdened by huge state and peacebuilding challenges, 51% as well as extreme institutional and socioeconomic In 2009, the poverty deficits, South Sudan has struggled to leverage its natural rate was estimated at resources to develop a modern economy. With a long history of conflict, South Sudan has never had an extended window of opportunity in which to develop its institutional 55% higher among rural households structures and capacities. Consequently, the country has struggled to establish the governance conditions necessary 24% in urban ones for stable and sound economic development. While South Sudan was the recipient of substantial international support 20% in the six-year interim period from 2005- 2011, it was beset of the poorest of the with corruption, insecurity, and political instability – some of population, the age-old pitfalls that have plagued other post-conflict, resource-rich developing countries. At the same time, weak lived in households institutions were exploited by bureaucratic elites to siphon off large amounts of the country’s resources. These conditions 83.7% that were chiefly occupied in produced a country that is currently one of the poorest in agriculture in 2009 the world, known more for its humanitarian crises than its unexploited potential and wealth. Private sector development was hampered by a difficult completion rates were generally low, especially among girls, business environment, with constraints on access children in rural communities, and in the poorest quintiles. to finance and informal taxation being particularly The adult literacy rate was estimated at 27 percent, and 30 burdensome. The business sector was largely informal, percent of the population did not have access to basic health characterized by self-employed individuals, or small privately services. In rural areas, where a majority of the poor live, only owned firms producing services or simple, consumable 30 percent of the population could read and write, compared products. Businesses were also typically young and to around 50 percent among urban populations. Only 55 included a sizeable foreign presence among medium and percent of the population had access to an improved drinking large establishments. While there is little information on the water source, and 20 percent to an improved sanitation business environment during the CPA period, it is generally facility. known that businesses have faced significant challenges on many fronts. For example, with an underdeveloped financial Shocks had a disproportionate impact on different sector, access to finance emerged as a serious issue, groups within the population. Although households across especially for microenterprises (NBS 2009b). In addition, the economic spectrum derived their livelihoods from three informal taxation at checkpoints across transportation routes main sets of activities: agriculture (including crop farming and was pervasive and continued to stifle economic activities. animal husbandry); wages and salaries; and “other” (including business enterprises, property income, remittances, pension, and aid), the significance of each of these activities varied by economic class. In the poorest 20 percent of the population, Poor human development outcomes 83.7 percent lived in households that were chiefly occupied reflected limited social service delivery. in agriculture. The household activities of the wealthiest 20 Poverty was driven by a lack of services and reinforced percent were more diverse: 57.4 percent worked chiefly by a low level of educational achievement. In 2009, the in agriculture, and 27 percent lived mostly on wages and poverty rate was estimated at 51 percent, and was even salaries. With a large dependence on agriculture, the most higher among rural households (55 percent) than urban ones common threats to livelihoods were related to climate, pests, (24 percent), reflecting differences in human capital and and loss of livestock assets (Figure 2). While there were no access to services. In homes where the head of household striking differences by wealth quintiles, individuals living in had no education, or only some primary education, there rural areas were more likely to experience these shocks, were higher levels of poverty. Educational attendance and particularly those caused by drought or flooding. 4 Figure 1: Livelihood Sources by Quintiles 2009 Source: World Bank 2011 Figure 2: Individuals Living in Households Affected by Shocks (by Quintile of Consumption, %) Source: World Bank 2011 5 A weak health care system contributed to poor health sustaining high rates of infant and child mortality. The outcomes, with endemic diseases contributing the most maternal mortality ratio was also among the highest in the to mortality and morbidity indicators. Child mortality world, estimated to be 2,054 per 100,000 live births (2006 rates were estimated at 106 per 1000 live births in 2010, SSHS), flowing in part from poor access to health care an improvement from 135 per 1000 live births in 2006 services prior to delivery. Skilled health personnel attended (RSS 2010). Infant mortality was estimated to be 75 per too few women during labor (10 percent) and most deliveries 1000 live births in 2010 (SSHS 2010), lower than 102 per occurred at home. South Sudan has also experienced a 1000 live births in 2006 (2006 SSHS). At the same time, heavy burden of malaria, which was estimated to account for childhood nutritional outcomes improved somewhat, 20-40 percent of all health care facility visits and 30 percent of with the prevalence of underweight children declining to hospitalizations in 2010. In addition, a number of preventable 28 percent in 2010 from 33 percent in 2006. However, or treatable Neglected Tropical Diseases (NTDs), including further improvements on childhood health outcomes were Bilharzia and Trachoma, are endemic to South Sudan. constrained by low immunization coverage (17 percent), 1.2 Conflict Economy (2011- 2018) Counting the cost: The toll of conflict on the economy. The economic fallout from the conflict has been immense. destroyed when the country descended into full-scale conflict After independence in 2011, South Sudan descended in December 2013. To date, oil production is estimated at into conflict in December 2013, following disagreements about 156,000 bpd in FY2021/22 is less than one half of its within the top governing elites; these altercations quickly pre-crisis level. escalated into full-scale civil war. Initial peace efforts proved The structure of the economy changed significantly futile, and the country descended into conflict again in 2016 due to the decrease in oil production and the toll taken soon after signing a peace agreement, formally referred to by the ensuing macroeconomic crisis, as well as the as the Agreement on the Resolution of the Conflict in South effect of conflict on the non-oil economy. The relative Sudan (ARCSS). The conflict caused severe damages to contribution of the non-oil economy expanded as the country infrastructure and assets, led to loss of lives, and disrupted experienced conflict and upheaval, and oil production was livelihoods. At the same time, the conflict precipitated a suspended. Consequently, the share of the oil sector humanitarian crisis, driving displacement and food insecurity. declined, from about 60 percent in 2011 to about 32 percent To date, 2 million people remain internally displaced and in 2019. While the economy recovered briefly in 2014--with 2.3 million South Sudanese refugees are still residing in the oil and mining sector growing by 18 percent--the non-oil neighboring countries (UNHCR 2022). Overall, the conflict economy continued to struggle, and the cumulative effects of is estimated to have cost South Sudan an accumulated loss conflict and a difficult macroeconomic environment weighed in aggregate GDP of $81 billion from 2012 to 2018 (see Box heavily on private sector activity. From 2012-2018, the non-oil 1). Consequently, South Sudan’s estimated real per capita sector contracted by a cumulative 37 percent as conflict and GDP in 2018 ($608) was a third of what it is estimated to have macroeconomic instability exerted a large toll on economic been in the absence of conflict ($1,880). activity (Mawejje 2020). The conflict was preceded by a total shutdown of oil With decreasing oil revenues, the fiscal deficit widened production for six months after independence. The as the government struggled to replace lost revenue. government of South Sudan decided to shut down its Following the shutdown of oil production, the fiscal situation entire national oil production in January 2012, following a worsened: it went from a surplus of 1.0 percent of GDP dispute over the terms of export arrangements with the in 2011 to a deficit of 16.3 percent of GDP in 2012. The government of Sudan. These developments triggered the government responded to the crisis in a number of ways. country’s first economic crisis, with output contracting by an Initially, anticipating that the shutdown would last only a few estimated 46 percent. While oil production resumed on a months, the authorities relied on foreign reserves, eventually small scale in April 2013, precrisis production levels were not reducing them to critically low levels. Then the authorities reached again, since critical production infrastructure was started accepting advance payments from international 6 oil traders for future oil deliveries; the Ministry of Finance professionals, left their roles to find employment elsewhere, accumulated arrears to civil servants, a practice that has bleeding the public service of much-needed technical persisted to date,2 and the authorities resorted to monetary capacity. Those who stayed significantly scaled back on financing of the deficit with net advances from the central their efforts, compounding an already alarming public service bank amounting to 11.2 percent of GDP in FY2011/2012. situation. Consequently, the public service was burdened by With decreasing revenue, high inflation, and expenditure limited capacity and gross inefficiency, with limited motivation pressures, financial controls were circumvented. As a to deliver services. result, control of the payroll was lost. Payment decisions Exchange rate policy was undermined by vested interests, became ad hoc and were based on nontransparent criteria; with persistent foreign exchange shortages exerting expenditure arrears grew; and the use of the budget as a pressure on the exchange rate. From independence in policy instrument was undermined by significant spending 2011 until December 2015, the South Sudanese pound (SSP) occurring outside the budget. was pegged to the US dollar at 2.95 SSP/US$. This official Monetization of the fiscal deficit, supply-side constraints, exchange rate, however, became increasingly unrealistic as oil and unsound exchange rate policies led to runaway revenues and foreign exchange receipts fell, initially during the inflation. Coupled with economic mismanagement, the dire 2012 government shutdown of oil production, and again when fiscal situation precipitated an economic crisis, with rising oil prices and production fell in 2014. From mid-2014, the inflation and the development of a parallel exchange rate parallel market rate rose from about 4 SSP/US$ to 17 SSP/ market. In the context of limited access to external financing, US$ by late 2015. The widening gap between the official and fiscal deficits were financed partly by printing money. parallel exchange rates discouraged investment and spurred Consequently, the country experienced a surge in inflation further rent seeking. Initial attempts to reform the system were that rose from 1.7 percent in FY2013/14 to 480 percent in undercut by resistance from those who benefitted from the FY2015/16, resulting in a near collapse of macroeconomic parallel market. In December 2015, the authorities officially conditions. Exchange rate depreciation, market disruptions, switched to a de jure floating exchange rate system, with a and conflict-induced domestic supply constraints view toward eliminating the parallel exchange rate market. contributed to this accelerated inflation. In a bid to reduce Under the new regime, the Bank of South Sudan (BSS) the country’s huge macroeconomic imbalances and to create supplied foreign exchange through market-based auctions. the conditions needed to build a stable macroeconomic While initially successful, the reform was undermined by environment, the government adopted a floating exchange excessive monetary expansion and a shortage of foreign rate regime in December 2015. Monetization of the fiscal exchange that exerted downward pressure on the exchange deficit, however, led to a sharp depreciation of the local rate and delayed convergence of the official and parallel rates. currency which, coupled with loss of confidence in the economy, resulted in the development of a parallel foreign exchange market. Accumulation of government arrears affected morale and productivity in the public service, further weakening the government’s ability to deliver services. Not only did The government of the Republic of the government finance itself through accumulated arrears to civil servants—many of whom were not paid for months—but South Sudan decided to shutdown it accumulated large contingent liabilities on its balance sheet. its national oil production in January By FY2015/16 arrears were estimated at 23.3 percent of GDP. In addition, unrealized budgetary allocations meant that 2012, following a dispute over export many public sector departments were barely meeting their arrangements with the government minimum running costs, paralyzing government services. With these challenges, many public servants, particularly the of Sudan. 2. While the authorities made efforts to address this issue using resources secured from IMF under the RCF in November 2020 and March 2021, salary arrears have once again built up, and were estimated at 5 months at the end of March 2022. 7 Box 1: The Economic Cost of Conflict in South Sudan The economic cost of South Sudan’s conflict was estimated by modelling a counterfactual non-conflict scenario (Box1:Figures 1-4), using the synthetic control methodology (SCM). The SCM creates a counterfactual (synthetic control) as a weighted average of other control units (in this case, countries) that were not affected by the treatment (in this case, the South Sudan conflict), such that the outcome and characteristics of the treated unit and its counterfactual are as similar as possible during the pre-shock period. “Synthetic South Sudan,” which is our counterfactual for South Sudan in the absence of conflict, was constructed using data between 2008 and 2011. The effect of the conflict was then estimated by comparing data for actual and synthetic South Sudan in the period 2012–18. If the conflict had not occurred, the accumulated per-capita real GDP in the period 2012–2018 would have been $7,070 higher (measured in constant 2010 dollars per person), which amounts to $1,010 per person-year on average. Moreover, in aggregate terms, the accumulated real GDP in that period would have been $81 billion higher (measured in constant 2010 dollars), equivalent to $11.6 billion per year on average, or about 80 percent of the 2010 GDP. Net exports and investment were the main channels through which conflict affected the economy. These two components declined dramatically in the post-treatment period. By contrast, consumption increased as the government increased expenditure on security and peacekeeping operations. (Refer to Mawejje and McSharry (2021) for a detailed discussion of the methodology and analysis.) Box 1 Figure 1: GDP Per Capita: Actual vs Box 1 Figure 2: Total Consumption: Actual Synthetic South Sudan vs Synthetic South Sudan Box 1 Figure 3: Total Investment: Actual vs Box 1 Figure 4: Net Exports: Actual vs Synthetic Synthetic South Sudan South Sudan 8 With dwindling oil resources flowing into the budget, 56 percent in 2014, reflecting lower demand. At the same development assistance has played a major role in South time, real annual labor productivity growth plummeted by Sudan. Relative to its size, South Sudan is a major recipient 62 percent, despite a positive employment growth rate of bilateral and multilateral aid; humanitarian interventions of 12 percent (Figure 7). While business entry was closely constitute the bulk of aid flows into the country, in line linked to political developments and conflict dynamics, a few with its massive needs. According to estimates from the businesses were able to survive. Nearly half (47 percent) of International Monetary Fund (IMF) and the Organization the businesses included in the 2014 World Bank Enterprise of Economic Co-operation and Development’s (OECD) Survey were started in the short period between 2010 and Development Assistance Committee (DAC) database, official 2012, taking advantage of the peace dividend. Then, as development aid (ODA) amounted to approximately one-third South Sudan gravitated toward renewed conflict in 2013, of the budget between 2011 and 2015. According to the the number of new businesses started to decline (Figure United Nations Office for the Coordination of Humanitarian 8). However, a small but significant number of businesses Affairs (UN OCHA), South Sudan’s humanitarian needs included in the survey (7 percent) started operations before increased from US$ 0.9 billion in 2013 to $2 billion in 2014, the CPA; 3 percent of them had started their operations and averaged $1.5 billion from 2015-17. By contrast, its before the year 2000, exhibiting a high degree of resilience. budgetary expenditures were estimated to have averaged Despite the adverse business environment at the time, the $1.4 billion from 2016-17. optimism of firms was reflected in more forward-looking decisions, with 38 percent of businesses buying fixed assets, While business optimism remained high, the destruction a rate similar to the African average. Since the enterprise wrought by the conflict weighed heavily on business surveys were carried out early in the conflict, this result likely performance. The conflict decimated an already fragile reflected optimism in anticipation of a quick resolution of business environment: many firms scaled down operations the conflict. or exited altogether. Real annual sales growth declined by Table 3: Key Macroeconomic Indicators 2012 – 2017 2012 2013 2014 2015 2016 2017 Real GDP Growth -46.1 13.1 3.4 -10.8 -11.2 -6.9 Oil -59.0 -81.0 442 -52.3 -17.3 18.4 Non-Oil -30.0 78.8 -29.1 12.7 -9.7 -12.4 Revenue (% GDP) 34.4 7.7 27.9 16.2 45.7 34.8 o/w oil 28.4 1.5 23.1 13.2 35.9 31.4 Expenditure (% GDP) 34.7 16.9 31.1 27.1 50.6 35.2 o/w salaries 10.8 5.3 8.7 13.4 14.4 4.7 General Government Balance % GDP -0.3 -9.2 -3.2 -10.9 -4.9 -0.3 Current Account Balance %GDP -20.6 8.7 -4.8 -6.1 -7.5 -12.5 Gross foreign reserves, $ millions .. .. 363 282 73 50 Inflation, annual average 45.1 0.0 1.7 153 410 125 Nominal Exchange rate (official) 2.95 2.95 2.95 2.95 18.5 88.3 Nominal Exchange rate (market) 4.0 4.3 4.3 6.9 25.2 109.0 Nominal GDP in SSP millions 35,198 54,358 41,188 43,242 63,274 289,279 Source: World Bank staff estimates 9 Figure 3: Business Performance Indicator in Percentages Figure 4: Business Entry Timeline Source: World Bank Enterprise Surveys, 2014 The conflict worsened poverty and deepened receiving public services, especially in the rural areas. It also an already dire humanitarian crisis. caused extensive damage to the educational and health care infrastructure, with an estimated 31 percent of schools The conflict, and the protracted macroeconomic crisis it across the country having suffered some form of attack since spawned, disrupted livelihoods and drove poverty rates 2013, and many others occupied by IDPs or armed forces. to unprecedented levels in both rural and urban areas. Many schools were therefore shut down across the country. Between 2009 and 2016 the poverty headcount increased Out of the schools that remained open at any point since by 4.5 percentage points per year, or 32 percentage 2013, one in four were nonfunctional by the end of 2016. In points overall. While data limitations do not allow for more 2016, teacher attendance fell by almost a third, primarily due granular analysis of the poverty dynamics during this period, to the governments’ continuing failure to pay teacher salaries. suggestive evidence points to a large surge in poverty Furthermore, inflation had reduced the ability of households occurring between 2015-16, which could account for about to pay school fees. By 2017, about 4 in 10 children in urban 50 percent of the overall increase in the period 2009-2016. areas were not going to school, and were unable to do so During this period, poverty levels increased to 76.4 percent because of a lack of financial resources. in 2016, with the percentage of poor rural households increasing from 55 percent in 2009 to 80 percent in 2016, Infrastructure provision was extremely poor and almost and the number of poor urban households from 24 percent exclusive to urban households. Access to modern sources to 54 percent. The sharp increase in poverty coincided with of energy for lighting and cooking was low: in 2016 only the escalation and spread of the conflict starting in 2013; the 3 percent of households were lighting their homes with macroeconomic crisis that was driven by the depreciation of electricity, and virtually none were using electricity as a source the local currency; the onset of near hyperinflation; and lack of cooking (Figure 11). Electrical connections were more of service delivery. The very high levels of welfare deprivation common in urban areas, but virtually nonexistent in rural observed in South Sudan translated into widespread hunger areas (14 and 1 percent respectively). The poorest 40 percent and food insecurity, leading to large-scale child malnutrition of households according to a measure of consumption and stunting. expenditure did not have access to electricity at all. In 2016, about 78 percent of the population lived in traditional mud The increase in poverty was accompanied by a collapse huts with grass thatched roofs (tukul/gottiya) (Figure 12). The of service delivery, exacerbating already dire living water, sanitation, and hygiene (WASH) infrastructure was conditions for a majority of the South Sudanese. The destroyed, constraining access to these services for many conflict deprived a large portion of the population from households, especially in the rural areas (Figures 13 and 14). 10 Figure 5: Primary Source of Livelihood in 2016 Figure 6: Poverty Headcount in 2016 Figure 7: Access to Electricity in 2016 Figure 8: Quality of Housing in 2016 Source: World Bank 2017 Figure 9: Access to Water Sources in 2016 Figure 10: Access to Sanitation Facilities in 2016 Source: World Bank 2017 11 The conflict drove displacement, resulting in a high proportion per day, compared with 86 percent of rural, and 75 percent of the poor and IDPs relying on humanitarian aid. Conflict of urban residents. Along with a higher incidence of poverty, led many South Sudanese to flee their homes: in 2020 there IDPs also had deeper poverty (that is, larger poverty gaps) were nearly 1.6 million IDPS, and some 2.2 million refugees than residents and refugees, with IDPs living on less than in six neighboring countries. In a country with an extremely half the income threshold of $1.90 PPP per capita per day. high prevalence of poverty, IDPs were faced with particularly Overall, 4 out of 5 IDPs in the poorest quintile depended on dire humanitarian needs. About 91 percent of them lived aid as their primary source of livelihood. below the international poverty line of $1.90 PPP per capita Box 2: South Sudan: Significant Data Challenges In South Sudan, capacity for data generation is weak, and data gaps are challenging the ability to perform credible economic monitoring. Years of instability have affected the ability of the country to develop reliable systems. The Central Statistical Organization’s (CSO’s) capacity to produce statistics has been severely eroded due to conflict-driven damage to infrastructure and office equipment; disruption of staff salary payments; and cessation of donor projects and training opportunities. Deteriorating security conditions and geographical divisions have also crippled the CSO’s ability to collect statistical information to cover all activities and all parts of the country. As a result, since 2015 only limited official statistics—including, but not limited to national accounts (NA), price indices, and poverty data—have been compiled, which has hampered effective monitoring and analysis of the country’s socioeconomic conditions. The National Bureau of Statistics and Bank of South Sudan produce a limited range of data. While the National Bureau of Statistics (NBS) produces monthly Consumer Price Index (CPI) data, these are usually delivered with significant delays and are of poor quality. GDP data are also produced, but neither the government nor partners use them because of underlying weaknesses in the quality of the data. The Bank of South Sudan maintains a monthly database of key indicators, but important data, including the balance of payments, are not fully developed. Fiscal data are affected by lack of transparency on revenues, expenditures, arrears, and debt. Updated and nationally representative data for welfare and poverty measures are dated. The most recent nationally representative household survey was conducted before the country’s independence, in 2009. Post- independence, the World Bank, through the UK Department for International Development funding, conducted four rounds of high-frequency surveys between 2015 and 2017. The 2016 data have been extensively used, along with other secondary data sources (spatial and otherwise) to impute poverty at the subnational level in South Sudan. However, these poverty numbers can only provide a ranking of counties in terms of welfare levels. They cannot estimate the exact number of poor people, or the poverty headcount in each county in South Sudan. While various socioeconomic information (food prices, WASH, humanitarian needs, cereal production) is being collected by various agencies to monitor humanitarian conditions, it is usually neither harmonized nor geographically representative. 12 1.3 Economy During a Fragile Peace Transition (2018-2021) Multiple shocks have derailed economic recovery. Following the signing of the peace agreement in 2018, However, this nascent economic recovery has been supported by developments in the oil and agricultural disrupted by the COVID-19 pandemic, localized conflict, sectors, the economy started showing signs of recovery. and climate shocks. South Sudan faced significant After many years of conflict, the relative calm that followed economic headwinds in FY2020/21, with the pandemic, the signing of the 2018 peace deal have contributed to floods, and flareups of violence all affecting economic greater levels of confidence in the economy. The optimism activities. Consequently, the economy is estimated to have is anchored around expected investment in the oil sector, contracted by 5.1 percent in FY2020/21. The oil sector the resumption of oil production, and spin-off economic contracted by 0.3 percent as the COVID-19 pandemic activity in the oil supply sectors. Oil production has increased delayed new investments, and there was a decline in oil following rehabilitation of some of the oil fields damaged production due to floods as well as aging oil wells and lack during the conflict, but it is not expected to reach precrisis of maintenance investments. In the agriculture sector, cereal levels in the short term. However, with these developments, production declined by 4 percent as flooding led to estimated real GDP growth did rebound to 3.2 percent in FY2018/19, losses of 38,000 tons of cereals and 800,000 livestock in and rose to 9.5 percent in FY2019/20. Trade with the region 2021 (FAO 2021). These developments significantly reduced rebounded strongly, with imports from Uganda growing by household welfare, since income from farming had already an average of 15 percent over a two-year period during fallen for 38 percent of households and had stopped entirely FY2018 and FY2019 compared to an average contraction of for 11 percent during the COVID-19 pandemic in 2020 (World 11 percent for FY2016 and FY2017. In the agriculture sector, Bank 2020a). cropped land area has increased as the relative peace has allowed farming households to work their land. Table 4: Key Macroeconomic Indicators 2018-2021 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Real GDP Growth -3.5 3.2 9.5 -5.1 Oil 27.9 10.7 27.5 -0.3 Non-Oil -12.8 0.0 0.8 -8.0 Revenue (% GDP) 34.1 31.8 29.5 30.9 o/w oil 29.2 27.9 25.5 26.0 Expenditure (% GDP) 37.5 32.8 39.3 37.7 o/w salaries 5.6 3.4 4.6 7.8 General Government Balance % GDP -3.4 -1.0 -9.8 -6.9 Current Account Balance %GDP -9.8 -6.3 -20.3 -5.5 Gross foreign reserves in $ millions 33 31 48 173 Inflation, annual average 121.6 63.6 33.3 43.1 Nominal Exchange rate (official) 128 152 161 191 Nominal Exchange rate (market) 220 251 308 523 Nominal GDP SSP millions 446,115 711,063 789,041 946,569 Source: World Bank staff estimates 13 Inflation has been declining since 2018, but nevertheless about 1 percent in August 2021 (Figure 16), as the exchange remains high owing to structural drivers and exchange rate policy has moved toward exchange rate unification. rate pass-through to domestic prices. The overall rate of The Bank of South Sudan (BSS) has revamped the foreign inflation declined to 11.3 percent in August 2021, from 123 exchange auction system through weekly auctions of IMF’s percent in July 2018 (Figure 15). The decline in inflation has rapid credit facilities (RCFs) to commercial banks and forex been supported by a significant decline in money growth (FX) bureaus, at a new auction rate that is much closer to the showing the close link between monetary financing and prevailing market rate than the controlled and overvalued inflation. While food price inflation has been declining since official rate. The official rate now applies only to transactions the 2018 peace deal, intermittent shocks related to localized between the BSS and the government, whereas transactions insecurity and supply bottlenecks are continuing to create involving the private sector and donors now occur at a periodic food inflation spikes. At the same time, past events freely determined exchange rate. Not only has the BSS have shown a very high correlation between inflation and been auctioning FX for both banks and FX bureaus, but parallel exchange rate depreciation. the reference rate for banks (a weighted average of banks’ transactions with their customers) is now aligned with the Unification of the exchange rate has contributed to rates prevailing at the FX auctions. declining inflation. The gap between the market and official exchange rates declined from 250 percent in January 2021 to Figure 11: Inflation Developments Figure 12: Exchange Rate Developments Fiscal policy has been procyclical and is undermined by than what was budgeted (World Bank 2020b). In addition, a lack of budgetary discipline and transparency. South budgets are opaque, with significant off-budget revenue and Sudan’s fiscal policy is procyclical, with expenditures in expenditure practices. Extra-budgetary expenditures and the national budget almost entirely funded by oil revenue financing shortfalls due to unaccounted-for advance oil sales receipts. Therefore, budget expansions and contractions have precipitated a continuous accumulation arrears and closely follow oil revenue receipts. Budget allocations have complicated budget and debt management. Such difficulties been only loosely related to actual spending, with recent undermine budget credibility: in the past this has impeded budget execution reports indicating large discrepancies efforts to reorient spending toward investment, and is putting between budgets and actual spending. For instance, the government’s current plans at risk. while security forces had been allocated 19 percent in the Despite greater optimism about the business environment, FY2018/19 budget, actual expenditure exceeded 40 percent the private sector continues to face a multitude of of total resources in the first nine months of the fiscal year, constraints. Greater security is the single most important while spending on health and education was significantly less 14 condition for increased business activity in South Sudan. In audit, and budget management. In addition, the reforms aim addition to closing many businesses, conflict has affected to strengthen the country’s macro-fiscal frameworks. The virtually all of the businesses that still survive in South Sudan, authorities have also committed to discontinuing the use through the loss of customers (80 percent), loss of assets (50 of off-budget oil advances, which is expected to improve percent), periodic business closure (43 percent), and inability to budget transparency and the management of oil resources. invest (37 percent) (Finn and von der Goltz 2020). The relative The government’s reform program is anchored by an peace enjoyed after September 2018 has increased business IMF staff-monitored program (SMP). The approval of the optimism despite the continued existence of numerous program in March 2021 aims to provide a strong basis for constraints. In a 2019 Integrated Business Establishments the macroeconomic reform agenda of the government by Survey (IBES), four constraints emerged with unusual clarity facilitating the conditions for strong, inclusive growth through and consistency as being important, among a broad range restoring fiscal discipline; implementing a rules-based of other obstacles. Insecurity was still the leading issue cited monetary policy framework; and addressing distortions in in 2019 as a “serious” or “very serious” problem (40 percent), the foreign exchange market (Box 3). The SMP focuses on in line with the nearly universal experience of how conflict four critical areas: (i) restoring fiscal discipline; (ii) monetary impacts businesses. Nearly as many firms complain about and exchange rate reform; (iii) debt management; and (iv) a lack of market access (39 percent), and there are similar strengthening governance. In addition, it establishes a numbers affected by poor access to finance (37 percent) and credible PFM reform monitoring and review process. electricity (36 percent). These factors are followed by a set of concerns related to infrastructure (roads, transport facilities, Transmission of the impacts of the war in Ukraine have working space, water) that are important to many firms, but dampened the global economic outlook and have on mentioned substantially less frequently (15-20 percent). balance affected South Sudan adversely. The Russia/ Businesses continue to be burdened by informal and multiple Ukraine crisis is impacting South Sudan through four major taxation at checkpoints along major trade routes (Schouten transmission channels: (i) food security; (ii) budget revenue; et al. 2021). The cost of such payments is huge and has been (iii) trade balance; and (iv) growth. The war in Ukraine has estimated to be as high as 8 percent of the value of goods affected global recovery from Covid-19, and has elevated (Pape et al. 2017). global inflation and supply chain risks, with the latter leading to persistent shortages of key items. Ukraine and Russia Several basic public financial management (PFM) are major exporters of agricultural, energy, and mineral reforms have been initiated. The authorities have taken commodities, and the initial global impact of the war is advantage of the economic fallout from the COVID-19 primarily through higher prices of these commodities. In pandemic to undertake critical macroeconomic and fiscal South Sudan, higher oil prices have improved budget reforms, building on key milestones that have already been revenues and strengthened its external position, but stronger achieved as part of the peace process. The authorities mechanisms will be required in order to improve accountability have approved the Public Financial Management Reform and reduce the misuse of oil revenues. As elsewhere in the Strategy and taken steps to operationalize the PFM Reform region, South Sudan has started experiencing rising prices of Governance Structure and PFM Oversight Committee, to food and basic household commodities, with high-frequency provide coordination, direction, and oversight to accelerate data indicating that in Juba, market food prices of selected the implementation and effectiveness of PFM reforms. cereals rose by 10-25 percent from December 2021 to The authorities have identified a number of PFM priorities March 2022. These rising food prices also reflect the decline and are working with a wide range of stakeholders from in domestic cereal production due to significant climate and the government, development partners, and civil society to conflict events in 2021; this has led to a 4 percent reduction implement the targeted reforms. With this reform process, the in cereal production, resulting in a 16 percent increase in authorities have committed to a macroeconomic and fiscal the domestic cereal deficit to 540,000 MT in 2022. With reform program that is intended to facilitate macroeconomic more than 60 percent of the population (7.7 million) facing stabilization and improved public financial management. severe acute food insecurity in 2022, rising food prices will More broadly, these reforms have sought to modernize the exacerbate an already dire food insecurity situation. country’s systems for debt, arrears, procurement, payroll, 15 The post-conflict economic recovery did not the country reported that food prices had risen (World Bank improve living standards. 2020a). Among those affected by the crisis, most took action to try to mitigate the shocks, usually through new Even during the post-conflict economic recovery, income-generating activities, or by getting help from friends improvements in living standards were limited, since and family. However, despite these efforts, food insecurity oil revenues were not used to improve service delivery. remains very high. While it is at worrisome levels even While the formal oil-dependent economy recovered in the among those households that reported no losses due to the two years following the signing of the 2018 peace agreement, pandemic, it is even more pronounced among those who people’s living standards lagged, and in some instances have suffered adverse effects. even deteriorated, since relatively little oil revenue was spent on basic service delivery. In 2021, more than two-thirds of In South Sudan, conflict has significantly affected the the population, some 8.3 million people, were estimated to food production and distribution systems, and thereby be in dire need of humanitarian assistance and protection. the nutritional status of most households. Analysis Despite increased agricultural production, crisis-level food based on the 2020 Food Security and Nutrition Monitoring insecurity persists, with exceptionally high food prices Survey (FSNMS) data shows that only about 30 percent of constraining access to food for large segments of population. households in South Sudan rank in the highest category A resurgence in internal conflict and climate-related shocks of the household dietary diversity score (HDDS), indicating during 2020-21 disrupted humanitarian activities on that almost 70 percent of the households have access to the ground and exacerbated already impoverished living less than five food groups, and hence are consuming a standards, with nearly half of the total population (about 5.8 suboptimal diversity of food. The states with the lowest food million people) facing severe food insecurity in the period from consumption score (FCS) also perform poorly in HDDS in December 2020 to March 2021. terms of the Integrated Food Security Phase Classifications (IPC). For instance, Central Equatorial State (CES) had the With the economic decline in FY2020/21, living conditions second-lowest FCS and also has the lowest HDDS ranking deteriorated further, with many of South Sudan’s people (Phase 4+), with 46 percent of households in the state urgently requiring humanitarian assistance. The effects consuming less than three (0-2) food categories. Other of the COVID-19 pandemic have been exacerbated by states, such as Jonglei, Unity, and Upper Nile, also have concurrent shocks, leading to a deterioration in the living more than 30 percent of their households in the Phase 4+ standards of a large proportion of the population. Despite HDDS category. It should be noted that food intake in terms improvements to the security situation, severe flooding in of food security indicators (FCS and HDDS) is relatively parts of South Sudan exacerbated already high levels of poor in the states that were most affected by the civil war poverty and food insecurity, leading to a further deterioration (including Unity, Jonglei, and Upper Nile State), suggesting in living standards. The floods, which killed livestock, that the conflict has significantly affected food production destroyed food stocks, and damaged crops ahead of the and distribution systems in these states. main harvest season, have aggravated an already dire humanitarian situation. More than 6 million people are facing crisis-level food insecurity, with almost 1.4 million children under the age of 5 years expected to experience acute malnutrition in 2022 (OCHA 2022). Many households experienced the COVID-19 and other concurrent shocks have taken a pandemic as a series of shocks that toll on households’ coping strategies, which are already stretched very thin. Many households experienced the affected health, business activities, pandemic as a series of shocks that affected health, business jobs, and prices. Floods, crime, and activities, jobs, and prices. Floods, crime, and violence have added additional challenges for households struggling to violence have added additional maintain a livelihood. The most frequently reported shocks challenges for households struggling were food price increases and the loss of income-generating activities, both in line with the economic impact of the COVID- to maintain a livelihood. 19 pandemic. Around half of the households throughout 16 Box 3:The IMF Staff-Monitored Program The IMF approved a nine-month Staff Monitored Program (SMP) on March 30, 2021. The SMP was combined with a disbursement under the Rapid Credit Facility (RCF) of $174 million (50 percent of quota) to address urgent balance of payments (BOP) challenges and build a track record toward an upper credit tranche financial arrangement. This followed a disbursement under the RCF in November 2020 of $52 million (15 percent of quota), the first-ever financial disbursement from IMF to the Republic of South Sudan. The SMP supports implementation of the government’s current reform program. The authorities are committed to a reform program that prioritizes modernization of the country’s economic and public financial management (PFM) systems. It aims to foster greater transparency within government operations; strengthen governance; and reduce vulnerabilities. Specifically, the SMP includes a package of measures with a focus on strengthening governance and helping to create the conditions for strong and inclusive growth by restoring fiscal discipline, reducing debt vulnerabilities, implementing a rules-based monetary policy framework, and eliminating distortions in the foreign exchange market. Performance under the SMP has been broadly satisfactory. IMF completed and approved the first review of the SMP on October 18, 2021. The review focused on reforms aimed at sustaining recent gains in macroeconomic stability and exchange rate unification, and continuing governance reforms. The economic reforms implemented under the SMP, supported by RCF disbursements and the strong recovery of oil prices, have helped to ease the adverse impact of the pandemic and address a history of weak macroeconomic governance: the exchange rate has stabilized, price levels have started to decline, and the government has substantially reduced salary arrears. The authorities had implemented the reforms targeted under the structural benchmarks. However, two quantitative targets were missed: the ceiling on the cash deficit of the central government, and the ceiling on contracting or guaranteeing non-concessional borrowing. The economic reforms supported by the SMP are laying the groundwork for a potential extended credit facility (ECF ) request at the end of the SMP. The SMP’s strong track record so far—especially in stabilizing the economy, reducing distortions in the FX market, and initiating governance reforms—is promising. Nevertheless, significant steps still need to be taken. These include (i) sustaining fiscal and monetary discipline to consolidate gains in macroeconomic stabilization; (ii) consolidating FX market liberalization reforms by bolstering reserves and expanding the set of available monetary instruments; (iii) strengthening debt management and oversight; (iv) deepening PFM reforms; and (v) strengthening the anticorruption and AML/ CFT frameworks. Continued implementation of reforms in these areas will help build credibility with donors and unlock concessional financing. Source: IMF 2021 Rapid household surveys show that food insecurity without eating for whole days, around 7 percentage points remains high among rural and poor households. More higher than the figure for the non-poor group. The rural poor than nine out of ten (90.5 percent) households from the experienced more severe food insecurity situation than the poor group reported having to skip meals due to lack of urban poor: for all eight food insecurity indicators, their rates money or resources, and around 83 percent of households were higher (see Table 5). For five out of the eight indicators, from the non-poor group also reported having to do so (see these indicators were in excess of 90 percent among the Table 5). At the same time, close to four in five households rural poor. (78.6 percent) from the poor group reported having gone 17 Table 5: Food Insecurity: Comparison by Poverty Status October 2020 June 2020 Non-Poor Poor Non-Poor Poor (%) (%) (%) (%) Worried about not having enough food to eat 86.5 89.4 81.8 84.3 Unable to eat healthy and nutritious/preferred foods 87.4 92.1 86.9 89.4 Ate only a few kinds of foods 89.8 93.4 87.7 90.6 Had to skip a meal 83.1 90.5 87.3 89.2 Ate less than you thought you should 84.9 90.6 88.8 90.5 Ran out of food 77.5 83.3 80.9 84.6 Were hungry but did not eat 79.8 86.2 79.3 83.5 Went without eating for a whole day 71.4 78.6 74.7 79.1 Source: Finn et al. 2020 Table 6: Food Insecurity: Comparison of Urban Poor and Rural Poor October 2020 Urban Poor (%) Rural Poor (%) Worried about not having enough food to eat 87.8 90.2 Unable to eat healthy and nutritious/preferred foods 89.5 93.3 Ate only a few kinds of foods 90.0 95.1 Had to skip a meal 88.7 91.4 Ate less than you thought you should 87.2 92.3 Ran out of food 79.2 85.3 Were hungry but did not eat 83.9 87.3 Went without eating for a whole day 77.6 79.0 Source: Finn et al. 2020 Widespread poverty and limited investment in households experienced these shocks. The most common the delivery of social services have compounded shock experienced by households in all of the states related substandard living standards, with many households to unusually high food prices and reduced income, with more facing a combination of covariate and idiosyncratic than one third (34 percent) and nearly two-fifths (18 percent) shocks. According to analysis based on the November of households in the country reporting these two types of 2020 FAO/WFP Food Security and Nutrition Monitoring shocks. Other shocks experienced by households across Survey (FSNMS) data, around two out of three households the states related to high fuel prices, illness of household (65 percent) experienced a series of events that affected members, drought and irregular rains, floods in some states, their health, business activities, jobs, and/or prices. In the crop pests and diseases, and insecurity. context of the COVID-19 pandemic, floods, crime, and Most households have adopted unsustainable violence created additional challenges for households emergency coping strategies in response to these already struggling to maintain a livelihood. Almost four in shocks. Households are increasingly resorting to measures five of the households in the states of Warrap and Lakes outside of the household to cope with their lack of resources experienced such shocks, as did nearly two in three (65 to buy food. At the national level, more than 50 percent of percent) of the households in other states, with the exception households have adopted emergency and crisis coping of Unity and Upper Nile, where less than 50 percent of the strategies such as reducing essential nonfood expenditure 18 and accepting high-risk jobs.3 In some states, more than increase in temperature in the eastern and southern parts 50 percent of households have adopted such emergency of the country could reduce water availability for agriculture strategies.4 The strategies adopted indicate high levels of and impact crop production. In addition, land degradation vulnerability across the country. To cope with increases in is jeopardizing the productivity of the most cropped areas food prices, 25 percent of the households that were affected of the country. These climate risks require farmers to adapt have engaged in additional income-generating activities, to changing conditions, which in turn requires the provision which could be part of the reason for the increase in the of support for water management and crop adaptation employment rate. Reducing food consumption is another initiatives. strategy commonly adopted by households to cope with food Climate change impacts on agriculture, infrastructure, price increases, with 24.5 percent of households reporting and assets are substantial. The adverse climate events have doing so. More than one in five households (21.3 percent) taken a significant toll on South Sudan. Recent estimates by were not able to take reasonable action to cushion shocks the World Bank showed that the flooding events across the (World Bank 2021b). country in 2021 resulted in total losses of $671 million (13 Climate change has increased the natural risks related percent of GDP), of which $125.4 million (19 percent of the to floods, droughts, and land degradation. According to total) was estimated infrastructure losses, $233.5 million the Climate Change Vulnerability Index, South Sudan was (35 percent of the total) were agricultural losses, and $312 ranked among the five most affected countries in the world in million (46 percent of the total) was estimated losses due 2017. Climate change has increased the natural risks related to damaged buildings (World Bank 2022). The oil sector to floods, droughts, and land degradation (Figure 13). In was also impacted, with flooding leading to a 7.4 percent 2021, the country experienced the worst flooding events contraction in oil production. With losses of such magnitudes, recorded in more than half a century (Box 4), which led to the given South Sudan’s immense development needs, the cost loss of 38,000 tons of cereals (4 percent of 2020 production) of inaction is very high and would be borne disproportionately and 800,000 livestock, and affected 835,000 people (Figure by the most vulnerable populations. 14). At the same time, decreasing rainfall combined with an Figure 13: Natural Risks: Floods, Drought, and Land Figure 14: Flood-Related Displacement Degradation Source: World Bank and FAO (2022) Source: Authors, based on OCHA (2021) 3. Stress coping mechanisms include measures such as spending savings, buying food on credit, and selling household goods. Crisis coping strategies include reducing essential non-food expenditure, and sale of productive assets; while emergency coping strategies include accepting high risky jobs, sending adults to beg, and sending children to beg (UNHCR, 2019). 4. For example Jonglei, Upper Nile, Unity, and Lakes, these being the states with relatively high levels of food insecurity. 19 Box 4: Toward a Climate Change Adaptation Agenda for South Sudan Seasonal climate patterns have become increasingly erratic in recent years. As a result, flooding is a regular occurrence and droughts have become more intense. South Sudan has been affected by three consecutive years of severe flooding starting in 2019, with devasting impacts on physical assets, agriculture, and on peoples’ lives and livelihoods. In some areas, the extent of the population affected and the destruction and damage experienced is reportedly the worst since 1962. In 2021, nine out of ten states in the country were affected by floods, with the greatest impacts recorded in Jonglei, Unity, Northern Bahr el Ghazal, and Upper Nile. At the same time, decreasing rainfall combined with temperature increases in the Greater Equatorial regions have increased the risk of hunger and displacement in affected areas (Wote 2022). Trend analysis suggests that in coming years, growing seasons across South Sudan will start earlier, last longer, and have more days with more than 5 millimeters (mm) of rain. In South Sudan, climate change is negatively impacting environmental health, food security, and human habitat and shelter. While climate change may bring longer and more intense rainfall, the impacts on agriculture will be negative as farmers may struggle to adjust and adapt to changing conditions. Climate adaptation will require institutional resources including water management support (for example, building water storage facilities and providing pumping and irrigation equipment) and crop adaptation (through research and the provision of seeds for crops that best fit the changing ecology of the country). Increased climate risks have sustained a dire humanitarian situation, reflecting evolving displacement and food insecurity dynamics. Climate change continues to impact living standards, with an estimated 835,000 people affected by flooding in 2021. Natural disasters were the main causes for displacement in 2020, with floods accounting for the largest share (54 percent), followed by communal violence (32 percent), and conflict (13 percent) (IOM 2022). At the same time, climate risks have affected crop production, with the 2021 flooding leading to a 4 percent reduction of cereal production, widening the food deficit by 16 percent, and sustaining a dire food insecurity outlook. Climate change is also associated with higher risks of conflict (Tiitmamer et al. 2018), compounding the existing challenges for South Sudan. The Republic of South Sudan published its first National Adaptation Plan (NAP) for climate change and its second Nationally Determined Contribution (NDC) in 2021. The NAP takes a first step toward establishing a coherent and effective process for South Sudan, providing a comprehensive framework for mainstreaming climate adaptation within the country’s development planning processes. NAP consists of three priority pillars: i) building climate resilient communities; ii) building a climate resilient economy; and iii) building climate-resilient ecosystems. Similarly, the NDC identifies key sectors, climate actions (mitigation and adaptation), strategies, and plans that are aimed at contributing to ambitious international long-term goals of limiting global warming and building resilience to climate impacts. To improve effectiveness in implementation, NAP and NDC have been closely linked to existing planning frameworks, including Vision 2040 (the Country’s long term development strategy), the National Development Strategy (NDS), and the Comprehensive Agriculture Masterplan (CAMP), among others. However, achieving the objectives of both the NAP and NDC will require a coordinated approach, and the commitment of both state and non-state actors. 20 Chapter 2 REPOSITIONING THE OIL SECTOR 21 2.1 Overview of South Sudan’s Oil Sector The history of oil exploration and production in South Prior to the country’s secession from Sudan, oil Sudan is directly linked to the development of the oil revenue sharing was governed by the CPA, much to the sector in Sudan. The development of South Sudan’s disadvantage of South Sudan. With respect to revenues production, transport, and processing, as well as its export from producing fields in Southern Sudan, the agreement infrastructure has naturally been linked to the development required that, after 2 percent of the government share of of the oil infrastructure in Sudan. Oil exploration in Sudan production was paid to the producing states, the remainder began in the early 1970s, with substantial reserves confirmed was split on a 50/50 basis between Sudan and Southern in the early 1980s. However, the production of commercial Sudan, and Sudan controlled the processing and export quantities only began in 1995 (from Unity State), and in 2004 facilities. Tensions and feelings of mistrust arose when from Upper Nile State. Commercial exports of crude oil Southern Sudan could not verify that the oil figures published began in 1999 following completion of a 1610 kilometer (km) by the Khartoum government were correct. Escalation of pipeline from Heglig in Unity State to Port Sudan. Figure 15 these tensions later led to a total shutdown of oil production provides an overview of South Sudan’s oil concession blocks. by South Sudan in 2012. Except for the pipeline linking the fields in Thar Jath (Block As a result of secession, 70 percent of the commercial 5A) with those in Heglig (Blocks 1 & 4), the rest of the major reserves and 80 percent of the pre-independence infrastructure was planned and implemented prior to 2005. production were transferred to South Sudan. Until the Key to the exports of oil from South Sudan are two export time of independence the exploration and production- pipelines: the Greater Nile Petroleum Operating Company sharing agreements (EPSAs) for the oil producing areas (GNPOC) pipeline from Heglig to Port Sudan (1610 km); and in South Sudan were between the government of Sudan the Petrodar pipeline from Paloich to Port Sudan (1367 km). and the contractors. The contractors consisted of foreign South Sudan’s unexploited oil reserves have the potential stakeholders and the state-owned oil company of Sudan, to make the country one of the largest oil producers in Sudapet. Each EPSA provided for a Sudanese Joint Sub-Saharan Africa. 2014 estimates in the Oil and Gas Operating Company (JOC) that was designated as the Journal put South Sudan’s oil resources at 3.5 billion operator. The Sudanese JOCs continued to operate the barrels, which could potentially make it the third largest oil fields in South Sudan until the government of South Sudan producer in Sub-Saharan Africa. However, according to entered into new agreements with respect to those fields and the Ministry of Petroleum, 90 percent of the country’s oil had the contractors incorporate new JOCs for operating the and gas reserves remain unexplored. The crude oil that is fields in South Sudan. produced in Unity is called “Nile blend” and that from Upper Nile is called “Dar blend.” While both sell at a discount from world “Brent” oil prices due to their quality, most of the Nile blend is of a better quality than the Dar blend. However, the quantities of Nile blend produced have been much smaller than those of Dar Blend. Between 2013 and 2019, nearly all Estimates in the Oil and Gas Journal the oil produced and exported from South Sudan was Dar put South Sudan’s oil resources at Blend. More recently, lower sulfur cap regulations for global maritime shipping fuels pushed South Sudan’s oil, which 3.5 billion barrels in 2014, which could has low sulfur content and high fuel-oil yield, into premium potentially make it the third largest category. Consequently, price differentials for South Sudan’s oil producer in Sub-Saharan Africa. Dar Blend crude grade flipped into premiums starting in the first half of 2020. 22 Figure 15: South Sudan’s Oil Blocks Source: Ministry of Petroleum, Government of South Sudan, 2021 Table 7: Shareholders of Operating Companies in South Sudan Operator Shareholder Percent Blocks GPOC CNPC 40 1, 2, 4 PETRONAS 30 - ONGC VIDESH 25 - NILEPET 5 - SPOC PETRONAS 67.8 5A ONGC VIDESH 24.2 - NILEPET 8 - DPOC CNPC 41 3D, 3E, 7E PETRONAS 40 - NILEPET 8 - SINOPEC 6 - TRIOCEAN 5 - Notes: CNPC and SINOPEC are both state-owned companies of China; PETRONAS is the state-owned oil company of Malaysia; ONGC is the state-owned oil company of India; NILEPET is the state-owned oil company of South Sudan; and Triocean is Egyptian in origin. Source: Authors using information from the Ministry of Petroleum, Republic of South Sudan, 2021 23 South Sudan’s share of oil revenue is determined by sectors. Nilepet’s commercial operations are opaque, and EPSAs with the operating companies. EPSAs define the company has repeatedly resisted calls to complete the cost and profit-sharing arrangement between the audits of its financial records (Global Witness 2018). In 2020, government of South Sudan and the shareholders in the the company announced plans to take full control of the operating company. This is commonly referred to as “cost oil” Greater Pioneer Oil Company (DPOC) oil fields when the and “profit oil,” with “cost oil” being the share of production EPSAs expire in 2027,5 in a move that is intended to enable that is used to meet operating costs, while “profit oil” is the South Sudan to “maximize revenue” according to the South share of production that accrues to the government. By way Sudan authorities (Okot 2020). While these developments of example, the SPOC EPSA was signed in February 1997 may negate South Sudan’s quest to scale up investment and transitioned into an agreement with the independent and production, since international oil companies may scale Government of South Sudan in 2012; a revised and extended down investment in preparation for exiting the country, EPSA was signed in 2017. However, when South Sudan Nilepet will have to mobilize the resources and expertise became independent, the operating companies restructured necessary to assume full control of the DPOC oil fields, which the EPSAs by replacing the Sudanese Government’s currently account for about two-thirds of oil production in parastatal (Sudapet) with that of the government of South South Sudan. Sudan (Nilepet). Under the EPSAs, the Nile Petroleum South Sudan started refining oil on a small scale. Company (Nilepet) receives a fixed percentage of the crude Construction of two refineries, one in Bentiu, Unity State oil that is exported, which corresponds to the percentage (by the Russian company Safinat) and another in Upper Nile shareholding in each consortium, as shown in Table 7. At State (by the US Frontiers Resources Group) were delayed current production levels, South Sudan’s share of oil revenue due to the recent conflict in these areas. The Bentiu oil is estimated at about 42 percent of the total. refinery in Unity State started producing refined oil products After independence, the government of South Sudan – understood to be diesel and heavy fuel oil--in March entered into new transitional agreements (TAs) in January 2021. According to the authorities, the refinery is currently 2012. These agreements incorporated all the terms and producing 3,000 barrels of refined oil a day, with the aim conditions of the previous EPSAs, except where amended. of scaling up capacity to 10,000 barrels per day over the The new contractors were comprised of the same foreign medium term. However, their plans and timelines for scaling stakeholders that were in the EPSAs with Sudan prior to the up refinery capacity are unclear. The Bentiu refinery is a joint secession, and their interest in the agreements remained the venture between Russia’s Safinat and Nilepet. The refinery, same. In November 2011, the Nilepet Decree transferred which was reportedly built at a cost of $100 million, is the the Sudapet interest in the EPSAs to Nilepet by presidential first of the five planned facilities, with a plan to reach a total order. The Nilepet interest in the TAs consists of 8 percent in capacity of 127,000 barrels per day. It is understood that blocks 3 and 7; 5 percent in blocks 1, 2, and 4; and 8 percent the refined products will initially be used to satisfy domestic in block 5A. Although the TAs were signed on January 13, demand for the heavy fuel oil (HFO) that is used to generate 2012 and new JOCs were incorporated in April 2012, the TAs electricity. are, according to the agreements, “deemed to have effect from the date of secession.” Nilepet manages the commercial and operational The Bentiu oil refinery in Unity aspects of petroleum activities on behalf of the state. Nilepet was established through Section 13 of the Petroleum State started producing refined oil Act 2012 and the Nilepet Act 2019. As a fully operational products – understood to be diesel national oil company (NOC), Nilepet participates in the upstream, midstream, and downstream activities on behalf and heavy fuel oil--in March 2021. of the government of the Republic of South Sudan. Currently According to the authorities, the under the Office of the President, Nilepet has a share in refinery is currently producing 3,000 each of the three operating companies (see Table 7), and a significant presence in the midstream and downstream barrels of refined oil a day. 5. The current GPOC and SPOC EPSAs will expire in 2033 and 2037 respectively. 24 2.2 Estimates of Oil production and Revenues Oil production peaked in 2009, two years before bpd. To sustain high levels of production and extend the independence; it has since declined due to lack of life of the mature oil wells, oil companies need to invest in investment. Peak production in 2010 (by a combination of new producing and injection wells to maintain the reservoir Sudan and South Sudan) was 500,000+ barrels/day, while pressure; ultimately, they will also have to consider costly and peak production in South Sudan was in 2009 (381,000 challenging EOR techniques. barrels/day). Unilateral stoppage of oil production in South Oil revenues declined substantially during the post- Sudan took place in January 2012; it was resumed in April independence period, reflecting unfavorable production 2013, but only in Upper Nile. Conflict in the oil fields further and price dynamics. During the period immediately reduced oil production in 2014 and 2015. Oil production following independence, South Sudan oil revenues benefitted from GPOC resumed in late 2018, but production from SPOC from high oil prices, which averaged $97.3 per barrel from (Block 5A) did not restart until mid-2021. However, exports FY2012-FY2014. The government’s share of oil exports from SPOC Block 5A are constrained by its poor quality; amounted to $3.4 billion in FY2011, but dropped to just over Sudan is only able to accept 5,000 barrels a day from Block $0.2 billion in FY2013 as a result of the almost total shutdown 5A to be mixed with its own oil production. of production during that year. Oil revenues did not recover South Sudan’s oil production has fluctuated since in subsequent years: prices crashed in 2014, and did not independence, reflecting the impact of conflict and regain their previous highs. Moreover, the intensification of policy decisions over time. Oil production capacity is low conflict affected both production and new investments, and compared to the sizable unexploited oil reserves already the maturing/aging of the oil wells meant that production discovered in the country. Since 2012, the performance of could not quickly recover. In addition to changing global the oil sector has been buffeted by political and security dynamics, these circumstances affected oil production and challenges and low oil prices in international markets. new investments in the subsequent years. Consequently, Disagreements with Sudan in 2012, and the outbreak of the government’s share of oil exports has averaged only $1.3 the civil war in 2013 led to the closure of oil production in billion in the three years following the signing of the 2018 the states of Upper Nile and Unity. These problems caused peace deal (FY2019-FY2021), barely two-fifths of its value a precipitous decline in oil production, from about 350,000 at independence in 2011. barrels per day (bpd) in 2011 to about 110,000 in 2017. While the shareholders of the operating companies have Figure 16: Oil Production Estimates rehabilitated and relaunched oil production in some of the fields that were damaged during conflict, current oil production, estimated at about 170,000 bpd in FY2020/21 is still less than half of its pre-conflict level. Increasing oil production to prewar levels will require new investments, and possibly the use of enhanced oil recovery (EOR) techniques in the existing oil wells, as well as new oil discoveries. Oil production has peaked in some blocks, requiring new investment to ramp up production. Consequently, it is estimated that total oil production in FY2021/22 will decline to about 156,000 bpd, with the output from Blocks 3 and 7 being reduced from 120,000 to 103,000 bpd; Blocks 1, 2, and 4 decreasing from 53,000 to 48,000 bpd; and Block 5A producing an additional 5,000 Source: South Sudan authorities; World Bank 25 Figure 17: South Sudan’s Oil Export Revenues for roads” arrangement will absorb about 31 percent of gross oil revenue ($460 million). With these arrangements, very little oil revenue entering the budget will be used to finance the delivery of basic services and to maintain government functions (Table 8). Insecurity in oil producing areas and regulatory uncertainty have affected South Sudan’s ability to attract new investment in the sector. The authorities are seeking new investments, and the Ministry of Petroleum recently launched its first oil licensing round in 2021, placing up to 14 blocks up for exploration. In addition, there are three blocks that have been awarded for exploration as follows: Block B3 (Oranto Petroleum); Block 5B (Ascom); and Block B2 (Strategic Fuel Fund), with Nilepet holding a 10 percent stake Source: South Sudan authorities; World Bank in each. However, investors need to be confident that the state can provide the necessary security for the private sector Large portions of oil revenues are absorbed through to work in the contract area without disruption. Furthermore, compensation agreements, external oil-backed investors still face risks arising from changes in the regulatory prefinancing loans, oil-backed public investments, and and legal framework. transfers and subsidies to public institutions. While Another disincentive to investment is that the only the transitional Financial Arrangement (TFA) with Sudan available export infrastructure is under monopolistic put significant pressure on South Sudan’s budget, the control, requiring new alternative routes for exportation. agreement ended in 2022, opening considerable fiscal In addition to moderately high oil prices, discoveries of oil space. Financial transfers to Sudan are estimated to absorb must be large enough to justify the construction of alternative about 11 percent of South Sudan’s share of oil revenue export routes. However, recent discoveries and development ($160 million) in the FY2021/22 budget. At the same time, decisions made in the north of Uganda, not far from the new pressures from oil collateralized loans and subsidies, and exploration licenses granted in South Sudan now open the transfers to public enterprises are putting additional pressure way for starting to consider alternative export routes toward on the budget and complicating fiscal management. Debt the Indian Ocean. Since Sudan needs to continue receiving service, including repayments, is budgeted to absorb 24 the tariffs paid for the exportation of South Sudan’s oil in order percent of the gross oil revenue ($358 million) in FY2021/22, to maintain its export facilities toward the Red Sea, these while the authorities are allocating 10,000 barrels per day opportunistic new routes should help authorities negotiate and toward the financing of an infrastructure program that is not agree on a balanced transport, processing, and lifting service part of the sector’s budget ceiling. It is estimated that this “oil agreement with the Sudanese authorities over the long term. Table 8: Distribution of the Government’s Oil Revenue SSP Billions (budget) USD Millions (Budget) % of GDP Gross Oil Revenue 589.1 1,473 26.3 Less Direct/Mandatory Transfers Financial transfer to Sudan 63.8 159.5 2.8 Transfer to Ministry of Petroleum (3%) 15.8 39.5 0.7 Oil for Roads 184.0 460 8.2 Debt service (including repayment of oil advances) 143.2 358 6.4 Net Oil Revenue to the Treasury 182.3 456 8.1 Source: Ministry of Finance, FY2021/22 National Budget 26 2.3 Oil Sector Regulation and Oversight At independence, the authorities in South Sudan South Sudan’s legal frameworks for oil and gas developed a robust legal and regulatory framework to management are poorly implemented and partially govern the oil sector. The government of South Sudan absent. The absence of a permanent constitution leads to inherited an oil industry with a preexisting infrastructure and uncertainty with respect to the legal framework related to the production sharing agreements (PSAs) with international oil and gas sector. Currently, the management of petroleum oil companies. The authorities embarked on a process of is based on two legal frameworks. The National Petroleum enacting legal frameworks for regulating oil activities and Act (PA) governs the management of petroleum resources providing a transparent, equitable, and sustainable industry. while the Petroleum Revenue Management Act (PRMA) The Transitional Constitution (2011) provided the guiding governs the allocation and accounting for the proceeds principles for the development and management of petroleum of the government’s share of production (Box 5). Although and gas, including in relation to the requisite institutions. these frameworks exist, implementation is very limited. The Petroleum Act (2012) was enacted for the purpose of Furthermore, the downstream sector (refining, exporting, providing a regulatory framework for the development and and product pricing) is currently not regulated. But of course it would be useful to establish the principles that will apply management of activities related to the petroleum sector. to investment in the sector before contracts are signed. The This Act also provides for the establishment of a National ongoing process for the drafting of a permanent constitution Petroleum and Gas Commission. The Petroleum Revenue will provide opportunities to strengthen legal frameworks in Management Act (2013) established a formalized structure South Sudan’s oil sector. for the distribution of petroleum revenues for immediate budgetary needs, savings and revenue stabilization, and Operationalization of the PRMA has been faced with direct transfers to petroleum- producing states and affected challenges that limit its application in streamlining communities. Within this legal framework, the National revenue management. Petroleum revenues are insufficiently Petroleum and Gas Commission approves exploration monitored. The last publicly released audit (in 2008) pointed licenses and sets policy; the Ministry of Petroleum and to serious deficiencies in the accounting and documentation Mining negotiates contracts and regulates the sector; and of transactions. Furthermore, oil revenue documents, which the Ministry of Finance and Planning collects oil revenues and made up almost 98 percent of the total revenue were transfers them to the Treasury. inaccessible. Institutions such as the National Audit Chamber will require major capacity-building efforts in order to improve The Ministry of Petroleum is responsible for the overall national accounting. Better-managed revenues could then policy framework, strategies, and development of be channeled into social protection programs that target the petroleum sector. It is mandated to provide policy marginalized and vulnerable groups. Such measures would guidance in the development of the oil sector. Specifically, add to the legitimacy of the government and help to create it is responsible for the overall policy framework, strategies, a favorable consensus concerning oil production. In general, and development of the petroleum sector – and is authorized the country’s public financial management (PFM) requires a “to act on behalf of the Government of the Republic of stronger transparency component in sector reforms. This will South Sudan to formulate policy and set strategies, plans involve introducing and strengthening accountability measures and programs for the development and management of within government systems, while introducing more public the petroleum sector, and propose legislations and develop scrutiny of oil revenues. Information dissemination initiatives regulations.” The management of petroleum and gas is by the government concerning oil wealth distribution to the based on two legal frameworks: The National Petroleum Act state and local communities will generate public support for (2012), and the Petroleum Revenue Management Act (2013). government efforts to further develop the sector. 27 Box 5: South Sudan’s Oil Sector Governance Frameworks The National Petroleum Act (NPA) provides for the governance and management of petroleum resources. It provides a regulatory framework for the development and management of petroleum activities and other ancillary matters in South Sudan, and for the establishment of a National Petroleum and Gas Commission. This Act provides the legal framework for regulation of the sector in relation to granting exploration rights, production, and the fiscal terms that govern production sharing between the contractor and the government. It also includes the subsequent sale of the government’s share of the operating companies and the government. Importantly, the Petroleum Act requires Nilepet to conduct its business with the highest degree of transparency “in accordance with international standards”, including making available to the public its audited annual accounts, production share, marketing procedures, sales price, fees paid or received for petroleum activity and transportation, and petroleum agreements and sub-contracts. The Petroleum Revenue Management Act (PRMA) establishes the distribution of petroleum revenues after the petroleum-producing states and communities are paid. Two percent of net revenues must be transferred to the petroleum-producing states to be allocated to state development programs, as approved by the State Legislative Assembly. Three percent of net revenues must be transferred to the local communities in the petroleum-producing states, with specific rules regarding the allocation of funds between the producing and nonproducing counties. The Consolidated Funds receive 75 percent, the Petroleum Stabilization Account 15 percent, and the Future Generation Fund 10 percent. PRMA requires the minister who is responsible for finance and economic planning to establish a Petroleum Revenue Stabilization Account and the Future Generation Fund. Specific rules are provided for the management of these funds, and the purposes for which transfers out of the Savings Funds may be made. The PRMA requires the minister to submit quarterly reports to the national legislature on investment performance related to the funds. The use of the funds, or of unexploited petroleum reserves as collateral is expressly prohibited except in cases of national emergency, and even then only with the consent of the national legislature. The legal framework requires the minister responsible for finance and economic planning to publish records of petroleum revenues. According to the PRMA, the publication of records shall happen no later than six weeks after the end of each quarter, and the records published shall include transfers to the savings funds as well as the producing states and communities. The minister is also required to submit to the national legislature an annual report that includes audited financial statements for the Petroleum Revenue Account and the Petroleum Revenue Savings Funds, as well as transfers to the petroleum-producing states and communities, no later than six months after the end of the year. The annual report is then required to be published within 15 days of submission to the legislature. In addition, the PRMA places an obligation on contractors and subcontractors to annually disclose information on all payments to the government. The PRMA also places an obligation on the National Audit Chamber to conduct the necessary audits by contracting with an external audit firm. 28 While the Petroleum Act provides the framework for and could thus contribute to stability and peace in South world-class management of the exploration and Sudan, and eventually attract foreign petroleum investors to production components of the oil and gas sector, explore, develop their discoveries, and stabilize the country’s implementation has been limited, with adverse impacts revenues over the long term. on investment decisions. To date, the National Petroleum South Sudan’s oil production has been associated and Gas Corporation (NPGC) has not developed policies and with breaches of environmental safeguards, leading to guidelines regarding the development and management of pollution, health risks, and the destruction of ecosystems. the petroleum and gas sector, despite having a mandate Oil operations in South Sudan have resulted in soil and water to do so. This has caused difficulties for the professionals being polluted with toxic chemicals and heavy metals that who are responsible for implementing the Petroleum Act to have serious consequences on the health of residents in consistently deal with the conflicting priorities they face (for oil-rich regions. Significant environmental damage results example, maximizing production vs. maximizing ultimate from inadequate treatment of water stored in evaporation recovery; or maximizing production vs. ensuring the proper ponds that periodically overflow their banks and are not disposal of produced water). Furthermore, establishing such adequately lined. Inadequate facilities for processing policies and guidelines would also be a first step in estimating water are a bottleneck that limits production, and there is reasonable long-term fees for transportation and processing inadequate investment in injection facilities to dispose of the using alternative export routes as a reference. This would water into underground reservoirs. Policy decisions regarding strengthen the government’s position in negotiating export remediation and how the associated costs will be treated facilities and the associated fees. Successful negotiation (recoverable, or sole costs) and the extent to which the for reasonable and long-term transit fees would increase Ministry of Petroleum and Mining will tolerate the disposing certainty around moving products to tidewater, making long- of produced water into evaporation ponds that overflow in the term investment more attractive. rainy season will have an effect on the production costs of the Limited transparency and accountability in the oil sector contractors. While no environmental audits of oilfields have undermines public confidence. The Ministry of Petroleum been completed to date, significant environmental damages in does not disclose data on oil production, bidding, or tender the oil-producing areas have negatively impacted livelihoods, information, although it is mandated to do so by law. The 2005 and in some instances have led to localized social unrest. CPA, as well as the Transitional Constitution (2011) and the Petroleum Revenue Management Act (2013) stipulated that 2 percent of oil revenue should be allocated to the oil-producing states/regions, and 3 percent to the local communities. To date, limited data is available on the implementation of the South Sudan’s legal frameworks revenue sharing arrangement (Reng and Tiitmamer 2018). Systematic corruption has been documented in every for oil and gas management Auditor General report issued since 2006, and billions of are poorly implemented. The dollars of oil revenue cannot be traced at all. The R-ARCSS ongoing process for the drafting has called for the government’s full implementation of the revenue-sharing arrangement. However, for the public to of a permanent constitution able to participate in the discussion related to the use of oil will provide opportunities to resource revenues, they would also need to have access to information regarding the amount of revenues received strengthen legal frameworks in and their current distribution. A transparent, fair, and public South Sudan’s oil sector. use of funds would add to the credibility of the government, 29 2.4 Oil Revenue Investment Options Oil revenues could significantly improve living standards discussions related to the use of resource revenues, they and support economic growth if invested prudently. would also need to have access to information regarding the South Sudan has proven oil reserves that will provide the amount of revenues received and their current distribution. government with considerable revenues; if they are used A transparent, fair, and public use of funds would add to the prudently, these revenues could help to improve living credibility of the government, and thus could contribute to standards for the people. However, they should be seen as stability and peace in South Sudan. only a temporary stream of flows into the national treasury, Scaling up public investment in agriculture, basic which can be used as a catalyst or springboard for creating infrastructure, and human capital development provides permanent wealth. Considering South Sudan’s need to the best investment scenario. The ideal allocation of oil bounce back from years of conflict and economic stagnation, revenues requires that a significant part of the oil proceeds oil revenues can be repositioned to support growth and is invested domestically. Agriculture is the main source of diversification. Various investment options for oil revenues livelihoods and employment, with more than two thirds of the under different scenarios are presented in Box 6. South Sudanese people dependent on this sector. Yet, the South Sudan’s legal framework provides the necessary sector faces numerous production bottlenecks that precipitate fiscal rules that would underpin a prudent oil revenue recurring cycles of food insecurity. The investments needed investment strategy. The Petroleum Revenue Management to improve agricultural sector outcomes are discussed in Act provides for the establishment of mechanisms to ensure the following section. Such investments would have to go stabilization and intergenerational equity in the use of oil hand in hand with a renewed focus on basic infrastructure, resources. Specifically, the Oil Revenue Stabilization Account including transport and energy infrastructure, and human (ORSA) could help cushion budget revenue volatility and capital development. With South Sudan’s low capital finance any unexpected shortfall in petroleum revenue during base and large infrastructural and human capital deficits, a given financial year. The Future Generation Fund (FGF) will domestic investment will generate higher returns compared ensure savings for the long term and support the welfare of to investments abroad, and can help to alleviate “Dutch future generations. These provisions provide the basis for the disease”6 effects, and promote macroeconomic stability. development of robust fiscal rules to support the country’s stabilization, investment, and savings objectives. However, both ORSA and FGF remain unimplemented at this time. Reforms in the oil sector should be accompanied by The optimal Investing rule the transparent use of funds to benefit the people of South Sudan. An important aspect in the management would guide a significant of South Sudan’s resources is ensuring that oil revenues portion of oil revenues toward are consistently used to improve the living standards of the South Sudanese, as required by the Transitional Constitution. public capital, and the As a step in this direction, the authorities could create a remainder would be saved in the social protection program using oil funds to make periodic country’s sovereign oil fund. payments to specific categories of vulnerable citizens. However, in order for the public to be able to participate in 6 Dutch Disease is a condition in which a sudden increase of resource wealth from an extractive sector (such as oil, gas, coal, or mining) undermines other areas of the economy (such as agriculture, manufacturing, or tradeable services), shrinking them while spurring an appreciation in the real exchange rate. 30 Box 6: Investment Options for Oil Revenues Under Various Scenarios Simulations of consumption, investment, and savings from oil revenues under various scenarios can help to assess the sustainable use of the country’s limited remaining oil resources.1 A Dynamic Stochastic General Equilibrium (DSGE) model was used to generate the simulation for a small open oil-producing economy framework, and study the resulting impact on macroeconomic indicators. Four options were considered for optimal allocation of the oil windfall: the “all investing” rule; the “all consumption” rule; the “full savings” rule; and the “optimal investing” rule. The model also introduced a temporary 5 percent increase in the oil price in the economy as a “positive oil shock,” with the price eventually returning to its normal level and trajectory over the long term. Investing oil windfalls entirely on public capital (the all-investing rule) would yield the highest response in GDP growth, but also result in more pronounced Dutch disease effects and macroeconomic instability. This scenario boosts the non-tradable production more than the other scenarios, given the high share of nontraded goods in public spending (consumption and investment), which increases more under this scenario. The non-tradable sector expands as public investment results in a higher public capital stock. However, the private consumption, labor, wage and non-oil revenues, as well as the real interest rate are higher, and more volatile, under this rule than under the others (particularly under the full saving rule). In the medium term, the channeling of the entire oil windfall into public spending would result in a more pronounced Dutch disease effect than in the other scenarios. This would be caused by the reallocation of resources from the tradable to the non-tradable sector - which would then expand considerably. A relative decrease in the tradable sector would restrict trade balance expansion, and this in turn would limit the real exchange rate appreciation. Therefore, under this scenario, there would be economic growth in the short run, but the conditions would also generate macroeconomic instability. Government transfers of oil revenues directly to households, who would then spend the money on consumption would increase the purchasing power of agents regarding the consumption and investment of imported goods. This would have the effect of boosting the real exchange rate appreciation due to the increased demand for non-traded goods. The tradable sector would experience a decline, as it would be affected by Dutch disease. The total GDP itself would increase, since the decrease in the tradable sector would be insufficient to balance the increase in both oil and non-tradable sectors. Private investment would fall as private consumption rose, and there would also be a rise in real interest rates. The Consumer Price Index (CPI) inflation would also increase in response to a high consumer demand for goods. The optimal Investing rule would guide a significant portion of oil revenues toward infrastructure, and the remainder would be saved in the country’s sovereign oil fund. The “optimal” investment scenario would provide the maximum welfare to the country. This scenario is a combination of the “all investing” and “full saving” rules. Under the optimal investment decision, the government would place a share of oil windfalls in a wealth fund for the nation, while the rest would be spent on public infrastructure. In this scenario, both medium and long-term benefits would be gained, since the disadvantages of public investment are limited, while private spending benefits would be facilitated through transfers to households from the sovereign fund. 31 32 Chapter 3 BUILDING RESILIENCE FOR FOOD SECURITY 33 3.1 Food Production and Consumption Dynamics Despite the country’s significant potential for agricultural for a heightened risk of famine. The cereal production deficit production, South Sudan’s food security has consistently remained at 36 percent of consumption needs in 2020. worsened since independence. Cereals, primarily The food deficit has widened significantly in recent sorghum, maize, millet, and rice are the dominant staple years, reflecting higher food requirements amidst crops. Underinvestment in agriculture, the economic and stagnant productivity in the sector. Disrupted by flooding market impacts of conflict, population displacement, low and conflict, cereal production declined by 4 percent in crop yields, climate shocks, and lack of access to inputs 2021, and the cereal gap (which measures the difference are some of the key factors for worsening food insecurity in between domestic cereal production and needs) widened by South Sudan. As a result, the country’s need for food imports 16 percent to 540,000 MT in 2022. An estimated 8.3 million has grown. As the conflict receded in intensity, pre-pandemic people (more than 60 percent of the population) are expected data suggested that recovery in net cereal production was to experience severe food insecurity in 2022, an increase of underway, with a 9.9 percent growth in 2019 (818,500 MT) 7 percent from 2021. Recent shocks have had detrimental followed by an estimated 7 percent growth (874,400 MT) effects on household welfare, since income from farming in 2020 (Figure 22). However, when the pandemic hit, the was already reduced for 38 percent of households and had country had not yet recovered its pre-conflict production stopped entirely for 11 percent of them during the COVID- levels. More recently, cereal production has been affected 19 pandemic in 2020. Consequently, only about 30 percent by climate shocks and a resurgence of subnational conflict, of the households in South Sudan ranked in the highest with total production falling by 4 percent in 2021. category of the household dietary diversity score (HDDS)7 in Years of conflict have significantly affected the 2020, indicating that almost 70 percent of the households agricultural production and distribution systems. With have access to less than five food groups and hence are the intensification of conflict, agricultural production further consuming a suboptimal diversity of food. The states with the collapsed as many farmers fled their villages for towns, where lowest food consumption scores (FCS) also perform poorly they gave up farming, or had to compete for scarce land in HDDS in terms of the Integrated Food Security Phase in safe areas around the towns. Among those who have Classifications (IPC).8 For instance, Central Equatorial State stayed in rural areas, many have been unable to access (CES) had the second-lowest FCS, and also has the lowest enough land to go much beyond subsistence farming, and HDDS ranking (Phase 4+), with 46 percent of households in because of conflict, they are afraid to travel to town for inputs the state consuming less than three food categories. Other and sales. Consequently, net cereal production declined states, such as Jonglei, Unity, and Upper Nile State, also from an estimated 1,022 MT in 2014 to about 745 MT in have more than 30 percent of their households in the Phase 2018. While some of this effect has begun to reverse since 4+ HDDS category. It should be noted that food intake in 2019, following the signing of the latest peace agreement in terms of food security indicators (FCS and HDDS) is relatively September 2018, conflict remains a potent force in reducing poor in those states that were most affected by the civil war farmers from being market-linked producers to subsistence (including Unity, Jonglei, and Upper Nile State), suggesting farmers, exposing them to greater climate risk as they farm that the conflict has significantly affected food production more marginal land, and ultimately creating the conditions and distribution systems in these states. 7. Household dietary diversity can be described as the number of food groups consumed by a household over a given reference period; it is an important indicator of food security. 8. IPC is a set of standardized tools that aim to provide a common measure for classifying the severity and magnitude of food insecurity. 34 Figure 18: Cereal Production, in thousands of MTs integration means that the deficit markets cannot be supplied through internal trade, because there is no connectivity infrastructure (Figure 19). In the areas hardest hit by the conflict, South Sudan’s food deficit is being met through humanitarian provisions, and to some extent through trade from neighboring countries. In 2019, South Sudan imported 89.6 million MT of unmilled cereals, making it the tenth largest importer globally. At the same time, it was the third largest recipient of humanitarian aid, after Yemen and Syria. The country received $1.6 billion in gross official development aid (ODA) in 2018, with the United States accounting for 41 percent of the total amount. Most of the support (71 percent) took the form of food aid and other forms of humanitarian assistance. Among the largest humanitarian initiatives, in 2020, the World Food Programme (WFP) assisted 5 million Source: CLIMIS and FAO people in South Sudan through food assistance, cash transfers, school meals, and nutritional outreach (WFP South Sudan’s food deficit is partly met through 2021). Food assistance comprises about 13 percent of the humanitarian provisions and food imported from cereals and roots consumed nationally during lean seasons, neighboring countries. While some regions of the country and is the main source of staples for about 13 percent of are reported to have surplus production, weak market households (7-8 percent around harvest time). Figure 19: Crop Production, Settlements, and Infrastructure Source: World Bank & FAO 2022 35 The return of relative peace in parts of the country since farmers often have no option other than to sell their produce 2018 has supported recovery of the cultivated areas when prices are low. To put these challenges in perspective, and productivity, albeit starting from a low base. In eliminating the cereal losses in 2020 would reduce the 2019, cultivated area increased by 5.3 percent to 929,000 cereal deficit by as much as 45 percent. Efforts to develop hectares, and an additional 6.3 percent, to 987,497 in 2020. a warehouse receipt system and an associated warehouse Despite this, land under cultivation is still below the 2016 receipt policy need to be pursued, along with interventions level. Agricultural productivity, defined as yield per hectare, to facilitate low-cost storage options at the individual farmer increased by more than 4 percent as the country benefitted and farmer group levels. from favorable rainfall conditions that aided better yields In the long term, sustaining food production will require per unit of cultivated land area. The use of modern inputs is the end of conflict as well as the provision of basic farm still very low, but the importance of using animal manure for inputs and extension services. A multifaceted approach fertilizer is increasing, with its application largely performed is necessary in order to address South Sudan’s large food by keeping large herds of cattle for a certain number of days production gaps. Stabilization of smallholder agriculture over crop fields. Productivity per hectare of cultivated area will benefit greatly from stability arising out of the cessation increased from 0.84 metric tons of cereals in 2018 to 0.88 of all forms of conflict, which would enable the voluntary in 2019. Yet despite this increase, productivity has still been return of IDPs and refugees. However, subnational conflict lower than average for the past five years, at 0.9 metric tons is still hampering farm production, even as the country is per hectare. making progress with the peace agreement. In addition, South Sudan loses substantial quantities of agricultural interventions must start gradually implementing a shift away produce due to gaps in post-harvest handling, storage, from humanitarian assistance to self-reliance by promoting and limited opportunity for value addition. Production knowledge, skills, access to inputs, post-harvest handling, and consumption have been affected by a lack of post- and solutions for enhancing production and resilience at the harvest handling, storage, and agro-processing facilities. farm level. Finally, interventions in agriculture should seek to The FAO estimates that more than 20 percent of the country’s reduce farmers’ climate vulnerability, enhance their resilience, agricultural produce is lost due to the absence of storage and ensure that smallholder farming becomes and remains facilities, contributing to food insecurity. Consequently, a financially viable economic activity. 3.2 South Sudan’s Agricultural Potential and Constraints South Sudan’s agricultural potential is high, but it is region of the country has plentiful water resources, the main also at risk of remaining unexploited for the foreseeable crops being cultivated are sorghum (70 percent of the future. The diversity of the agroclimatic zones, fertile soil, cereal-cultivated area in 2019), maize (22 percent of the area and plentiful rainwater create ideal conditions for meeting planted in cereals), cassava, groundnuts, sesame, pearl and the nation’s dietary needs, plus a surplus for the market. finger millets, beans, peas, sweet potatoes, and rice. While South Sudan has about five times the area of agricultural vegetables, peas, beans, and fruits are grown primarily for land per capita compared to Ethiopia, Kenya, and Uganda; home consumption, most of the marketable fresh vegetables it should be able to feed itself and several other countries. are imported from Kenya, Sudan, and Uganda (Government Agriculture plays a central role in the lives of the South of South Sudan 2016). Sudanese people: in 2018 it accounted for over 69 percent Agricultural productivity and production in South of female employment and more than one-third of male Sudan remain low. Agriculture is rainfed; most farmers are employment. Out of the total land area of approximately smallholders in subsistence agriculture, but there is significant 64 million hectares, 50 percent is prime agricultural land; potential for raising production in a diverse range of crops. the remaining 50 percent includes marginal arable land, In 2018, the average cereal yield (in kilograms per hectare) forests, mountains, rivers, and wetlands. However, only a was about 18 percent that of South Africa, and about a third small proportion of the land is cultivated. While the southern 36 (31-41 percent) that of Ethiopia, Kenya, or Uganda.. Most is an important strategy for post- conflict stabilization and farmers are operating at a subsistence level with an average recovery, and also a key pathway for overall job creation farm size of 1.8 hectares (FAO and WFP 2015). Cultivation in South Sudan. As in most conflicts, large numbers of the is mostly by hand, and is often carried out by women, which people have been displaced and have had their agricultural limits the size of the area households can cultivate. Farmers livelihoods disrupted in recent years. Agriculture is well suited usually do not use any synthetic fertilizers, quality seeds, to improving livelihoods in the rural areas and strengthening herbicides, or pesticides, nor do they use improved soil and overall food security and reducing poverty. Improved food water management practices: this in part accounts for the security is also necessary in order to increase resilience to low yields. Other challenges include knowledge erosion, loss conflict (FAO 2016). of diversification, poor production practices, destruction Trend analysis of the 2006-2019 historical rainfall data of tree crops, the high cost of production (particularly for finds that rainy seasons are becoming longer and more labor and inputs), and an underdeveloped infrastructure for intense, and contributing to flooding. Farmers have found transportation, irrigation, storage, and processing. According it challenging to adjust and adapt to the changing conditions to FAO and WFP data, only 2.6 percent of the country’s given the lack of institutional resources for water management agricultural land was under cereal production in 2017, and (for example, building water storage facilities and providing the cereal-producing area has not exceeded 3.6 percent of pumping and irrigation equipment); crop adaptation (for agricultural area since 2010. research, and for the provision of seeds for the crops that In the medium term, a stronger agricultural sector will are most suitable in the context of the changing ecology be necessary for South Sudan’s transformation to a of South Sudan’s regions); and food storage facilities. This diversified and food-secure economy. Agriculture already has caused disruptions due to the increased likelihood of constitutes a substantial share of South Sudan’s economy: it flooding, potentially further exacerbating the risk of food is the largest source of employment in the country, with two insecurity outcomes. out of three households reliant on agriculture as the main South Sudan’s agroclimatic diversity allows for a wide source of their livelihood. Of the more than 12 million South range of crop and livestock production systems. The Sudanese, about 23 percent of households are classified as widely diverse climatic zones, fertile soil, and plentiful urban, and about 5 percent are in the rural animal husbandry rainwater create the ideal conditions for raising a vast diversity area. Although South Sudan has tremendous potential for of food products. South Sudan’s tropical climate, with its wet agricultural production, which could provide resilience-critical and dry seasons, ensures that most of the country receives livelihood opportunities, it remains underdeveloped as the 750-1,000 millimeters (mm) of rain annually.9 Seven broad country remains heavily reliant on oil. Agricultural production, agroecological zones are recognized (Figure 27). There may food processing, and support services in logistics, finance, also be opportunities for a broad range of other potential manufacturing, and technology have great potential for value chains, including high-value commodities such as expansion. Despite the abundance of natural resources pulses, nuts and seeds (sesame, sunflower); horticultural and the enormous agricultural potential, with 70 percent products (bananas, mangoes, lemons, pineapples, onions, of the land area suitable for crop production, only less than okra, tomatoes, eggplants, sweet potatoes, cabbage); 4 percent (about 2.7 million hectares) is under cultivation. coffee, tea, sugar, gum Arabic, shea butter, etc. Beekeeping Outside of the crop and animal segments, fishing is a and the honey value chains are thriving with potential for primary source of livelihood for about 12 to 15 percent of expanding production and improving quality. Most livestock the population. production, especially cattle, is undertaken in the more arid Investing in the agricultural productivity of smallholder and semiarid zones such as East Equatoria and Northern farmers will have a direct impact on jobs, poverty Bahr El Gazal within either nomadic pastoralist or mixed reduction, and post-conflict recovery. Reviving agriculture crop/livestock systems. 9. The south and west receive slightly more rain (1,000-1,500 mm); areas of the northern and southeastern regions less (500- 750 mm); it is less than 500 mm in the extreme southeast 37 Figure 20: Agricultural potential (14-year mean P/PET Figure 21: Length of the rainy season in days during the rainy season, May-Sept, 2006-2019 The livestock subsector plays an important role, but is productivity. This could also provide a significant amount of poorly understood, and is a source of local violence. animal manure that could help increase crop yields. Significant Cattle, goats, sheep, and poultry play a central role economic benefits could be gained from addressing the in subsistence livelihoods and trade. Despite a lack of challenges facing the livestock subsector: inadequate access recent field data, FAO estimates the livestock population to pasture and water (sometimes as a result of the violent of South Sudan at 36.2 million animals (three times the conflict, such as cattle raiding); widespread animal diseases number of human inhabitants). Cattle-based pastoralism (including transboundary ones); and the consequences of is the customary livelihood of many groups in the targeted the increasing frequency and scale of floods. areas. Cattle are central to the country’s economy and to the The fisheries subsector has unexplored potential. South sociocultural life of many communities. Pastoralism, which is Sudan has abundant fishery resources, with an estimated based on seasonal migration in pursuit of pasture and water, total area of 80,000 square kilometers of fishing ground is usually combined with small-scale rainfed cultivation of that is centered along the White Nile river system, which staple crops, including sorghum. The 2013 and 2016 crises encompasses the largest permanent wetland in Africa. It have taken a toll on pastoral communities, and cattle raiding is one of the few countries in Sub-Saharan Africa without is becoming a large source of local conflict. evidence of overfishing. The current per capita consumption Provided that the “no-harm” principle is carefully followed offers potential for growth given its nutritional value. The main so as not to further ignite conflict, investing in the livestock bottleneck for the development of this subsector is lack of value chain and better integration between the raising of post-harvest processing facilities and difficult transportation crops and livestock could bring important benefits. With to consumption centers. Yet, fishing is considered to be a the large number of cattle in the country, there is enormous relatively more resilient source of livelihoods: unlike livestock it potential for animal traction that could be harnessed to is not subject to looting, nor is it sensitive to flooding, locusts, achieve an increased area under crop production and and other pests. 38 Figure 22: Main Agricultural Production Zones and Their Contexts in South Sudan Source: World Bank 2022 Agriculture and food security in South Sudan are disaster risk screening indicates that a combination of warmer extremely vulnerable to climate shocks. According to the and drier weather may exacerbate evapotranspiration and Climate Change Vulnerability Index, South Sudan was ranked droughts, while projected increases in rainfall intensity may among the five most affected countries in the world in 2017. increase the risk of floods in South Sudan. Key climate change factors include unpredictable rainfall Changes in climate will also affect pest infestation patterns, and recurrent droughts, floods, and excessive heat patterns, damage crops and infrastructure, and increase resulting in crop failures, causing the loss of livelihoods, food disease vectors. The impact of climate change on food insecurity, and famine. Rainfall is one of the main climatic production is already being felt and is predicted to worsen. determinants of food production in South Sudan; some analyses suggest that due to climate change there has been The country was hit by three large flood events in 2019, a shift in the starting and cessation of rainfall, leading to 2020, and 2021, with the extent of seasonally flooded areas more erratic and unpredictable rainfall patterns. Climate and hitting record levels. In 2021 alone, the FAO estimates the 39 loss at 37,600 tons of cereals, with about 65,100 hectares and tractor operators, spare parts and service centers, of cultivated land damaged in affected regions. At the same and associated equipment and implements. While use of time about 10 million livestock were affected, with a threefold animal traction has been on the increase, limited supplies of increase in livestock diseases and limited availability of forage, plows, spare parts, and technical skill, in addition to cultural leading to decreased livestock productivity and the death of perceptions about the use of cattle for animal traction 800,000 cattle. Ongoing flooding in 2021 is estimated to have hindered wide adaption and use across the country. have displaced close to one million people in the affected The primary objective of the Agricultural Mechanization areas and is estimated to be the worst on record. Policy Framework (2012-17) was to improve the efficiency and effectiveness of agricultural production and related Farm production is hampered by the limited availability operations in order to sustainably increase crop production of and access to quality seeds and planting materials. and productivity, household incomes, food security, and rural A recent assessment showed that the informal seed sector economic development. contributed almost 85 percent of the overall seed sources used by farmers in 2018, including seeds saved by farmers Current food production remains significantly below (51 percent), local market (21 percent), and social network pre-conflict levels as the lingering impact of the prolonged (13 percent). Despite the existence of about 13 local seed conflict and flooding continue to affect agricultural companies and a few agro-input dealers, their direct supply activities. Decades of conflict and displacement of the people of seed to farm households is insignificant. Local production have had a large toll on agricultural activities: both the number by seed companies could only meet about 15 percent of of farming households and the amount of area harvested the demand for quality seeds of adapted varieties in 2018. have declined. At the same time, recent flood events have In general, seed aid remains the primary supply channel constrained the pace of the recovery of food production in of quality seeds to farmers, and it contributes to about 14 affected states. The country is now a significant net food percent of seed source use. importer and it is dependent upon massive humanitarian food aid. Recent improvements in the security situation in Agricultural mechanization remains low in South some parts of the country, and the ongoing peace process Sudan. Limited mechanization has resulted in the absence give hope that South Sudan will be able to gradually improve of production at scale, and poor yields of the country’s main crops. Large-scale agricultural mechanization is its food security and nutrition situation. But this will require predominantly limited to some areas of the upper Nile continued support for the government’s efforts to move from states, with production of sorghum and sesame the major humanitarian aid dependency toward development-oriented crops grown for export to Sudan and other countries. Over agricultural growth. Although South Sudan will continue to the years, the government has provided over 400 tractors need humanitarian aid for the foreseeable future, the shift across the country to mechanize agriculture for increased from a humanitarian to a more development-oriented focus food production and productivity (African Development Bank recognizes that gains are possible even in the areas that 2013). This, however, has not significantly changed traditional are affected by conflict if implementation strategies are farming practices due to a lack of well-trained technicians customized to fit the specific contexts. 3.3 South Sudan’s Food Insecurity Trap Food insecurity has steadily increased in recent years, in the northeast and east. For example Jonglei (particularly leading to South Sudan becoming one of the most food- the counties of Akobo, Duk, and Ayod) is currently affected insecure countries in the world. As a consequence, several by violence worsened by floods, as well as extremely low geographical areas are regularly at high risk of famine (Figure levels of rural accessibility in some counties. Food insecurity 26). The number of people living in the crisis, emergency, and appears to be mostly driven by the economic impact of catastrophe phases of food insecurity has tripled between conflict, as well as displacement of the population, low crop 2014 and 2020, reaching an estimated 6.5 million (55 percent yields, climatic shocks, and the difficulty of humanitarian of the population). The level of food insecurity varies in access, rather than the violence itself (World Bank 2021b). different parts of the country, with the highest concentration Displacement and insecurity have disrupted all elements 40 of the markets that the South Sudanese rely on for their While there is widespread regional and seasonal variation, livelihoods, from agricultural production to the transformation South Sudanese households depend on markets for most of of produce, trade networks, and demand (von der Goltz and the grains they consume. The shift from subsistence farming Harborne 2021). to market dependence has happened because of the long conflicts that have distorted many aspects of everyday life for The factors influencing food insecurity have shifted most South Sudanese. More than one third (35 percent) of dramatically since pre-independence, and are becoming household food consumption in 2020 was linked to market structural. South Sudan’s food security situation has been purchases, while less than one half (about 45 percent) was deeply affected by the impacts of war; at the same time, from farmers’ own production (WFP, FAO, and UNICEF the impact of the conflict on the economy and on markets 2020). The states that had high levels of market dependence, has turned market disruptions into a major driver of food such as Northern Bahr al-Ghazal (51 percent) and Upper Nile insecurity. Conflict-induced instability affects the ability of (49 percent), also had high levels of food insecurity, while people to grow, buy, and sell food, ensuring a persistent in conflict-affected, highly food-insecure states, such as cycle of food insecurity. Millions have been displaced from Jonglei and Unity, food aid had become the most important their homes due to conflict, further constraining access to food source. According to Thomas (2019), one possible food. Before the COVID-19 crisis, critical aspects of market explanation for the correlation between hunger and markets dynamics as well as weather and climate patterns already is displacement. When people are displaced, they lose many played important but often overlooked or underestimated of their assets, and are pushed towards markets to survive. roles in this situation. Indeed, the influence of market prices Another possible explanation is that markets have developed on modeled food insecurity has skyrocketed since late 2015, in areas with a historical grain gap, such as Jonglei, in order coinciding with the outbreak of conflict and politically induced to complement local production. economic collapse (Figure 25). Decades of war have resulted in a shift toward market dependence that is now closely tied to food insecurity. Figure 23: Evolution of Food Insecurity 2014-2021 Figure 24: Most Frequent Food Insecurity Phase Per County 2017-2020 Source: World Bank and FAO 2022 41 Figure 25: Decomposition of Estimated Populations in Areas Experiencing Critical Food Insecurity Sudanese pound (SSP) in December 2015 and the subsequent spike in inflation. Before that time, market prices were a relatively insignificant factor in explaining food insecurity. Instead, conflict was the most prominent explanatory factor (see Figure 30). The FAO and the World Food Programme (WFP) found that during the 2018 lean season, more than 40 percent of cereals and roots consumed by households nationally were acquired from markets. However, this market dependence varies considerably from region to region. The FAO and WFP note that the 2018 figures, which indicated a decrease in market dependence relative to 2017, are unlikely to signal increased crop At the national level, market prices are the most significant factor driving production. Rather, they suggest excessive the recent food security situation in South Sudan. Market influences difficulty in obtaining market goods due to on food security appear relatively independent of local agricultural supply; inadequate market supplies and/or extreme this became especially evident following the depreciation of the South prices (FAO & World Food Programme 2019). Figure 26: Factors Influencing Food Insecurity Food security has become more dependent on An agricultural shock of similar magnitude may have more environmental factors in recent years, during which destructive impacts on livelihoods when the economic period an increase in rainfall and longer growing seasons system is weak, so the overall impact of agricultural have been recorded across the country. Environmental shocks on food insecurity can increase despite positive variables related to rainfall and agricultural stress shift environmental developments. Moreover, increases in rainfall cyclically, coinciding with growing seasons and the varying do not guarantee greater crop output. In fact, increased supply of food available during harvest and lean times. volatility and a lack of water management capacity can These influences have grown during times of greater levels threaten farmers’ livelihoods. The 2021 floods, for example, of violence and market shocks, despite violence and market are estimated to have caused a loss of 38,000 tons of cereals disruptions being attributed to nonenvironmental causes. and 800,000 livestock in the affected areas (FAO 2021). 42 Chapter 4 DIRECTIONS FOR REFORM 43 4.1 Getting the Basics Right: Peace, Stabilization, and Institutions Addressing the underlying causes of the conflict, and mobilize violent activity to advance personal interests. In this restoring peace and stability in line with the provisions in regard, graduation of a professionalized and unified military the Revitalized Agreement for the Resolution of Conflict force, and fast-tracking the DDR program and the transitional in South Sudan (R-ARCSS) is an absolute prerequisite for justice, accountability, reconciliation, and healing provisions recovery, resilience, and long-term growth. The protracted outlined in Chapter 5 of R-ARCSS should be prioritized. conflict has had a devastating effect on the economy; it Reforms envisioned in the R-ARCSS provide the has undermined the capacity of institutions to deliver basic foundational blueprint for South Sudan’s institutional services, and compromised self-reliance, leading to a building and economic reform agenda. South Sudan’s debilitating humanitarian crisis. The toll of conflict on South peace agreement provides a layout of the economic and Sudan’s economy has been huge, with estimates indicating public financial management (PFM) architecture necessary a 65 percent contraction in real per capita GDP between to ensure that the requisite economic, governance, 2013 and 2018, driving poverty to unprecedented levels. At legal, institutional, and policy frameworks are functional. the same time, conflict has affected virtually all sectors of the Consequently, the authorities have commenced a reform economy, consistent with the nearly universal experience of process that prioritizes modernization of the country’s PFM impacts on businesses. While rebuilding the economy in a systems. With this process, they have committed to a way that provides inclusive economic opportunities will be a macroeconomic and fiscal reform program that is intended slow process, what is important at this stage is to make every to facilitate macroeconomic stabilization and improve public effort to break the cycle of conflict and to usher in a new era financial management. While recognizing that the reform of sustained stability. process is likely to be long, these steps are commendable, Addressing the drivers of fragility, ending all forms of and need to be built upon. conflict, and preserving the gains already achieved will Restoring basic institutional functionality will require require a renewed political will to implement critical closing critical technical capacity gaps as a pre-requisite aspects of the peace deal. At the national level, political for building effectiveness and efficiency in policy tensions within the government and among signatories to preparation and implementation. State capacity is R-ARCSS raise concerns about the continued commitment historically low in South Sudan, and has been further eroded to the agreement and its sustainability. At the community by years of conflict. While the country has commenced this level, localized incidents have been on the rise due to factors process with its nascent reform program, these efforts will including militarized cattle raiding and contestation over have to be complemented with improving public service natural resources. While R-ARCSS has largely held, the capacities at the national and state levels. Recognizing risk of political instability and localized incidents of violence these challenges, the authorities have requested technical continue to pose threats to the stability of the country. At assistance, and are working with a wide range of stakeholders the same time, the highly sensitive security arrangements from development partners and civil society to implement the of the accord remain largely unimplemented. Cantonment targeted reforms. Such an agenda may benefit from in-depth and training sites for combatants are underfunded and lack assessments of institutional and capacity gaps to inform food and shelter; unified forces have yet to graduate; and capacity- building priorities in the medium and long run. the disarmament, demobilization, and reintegration (DDR) program pledged by R-ARCSS has stalled. Violence across Deepening macroeconomic stabilization is critical for the country remains high and is worsening as political and a sustainable and inclusive economic recovery. The military elites have instrumentalized long-simmering ethnic ongoing PFM reform process and commitments under the tensions at the local level to weaken social cohesion and IMF Staff Monitored Program (SMP) have yielded some 44 initial positive results that may lead to inflation and exchange introduction of short-term notes for cashflow management stabilization. In addition, these reforms provide opportunities purposes. Efforts to improve the government’s audit and anti- and building blocks for a stronger, inclusive, and resilient corruption functions, as well as streamlining procurement recovery. However, more will need to be done, and it is and the payroll--including management of the wage bill critical that the authorities stay the course on this path as and arrears--will be necessary in order to safeguard public the country tries to take advantage of the peace dividend resources. Over the longer term, fiscal policy management to rebuild a diversified economy capable of creating jobs could be strengthened by the adoption of an indicative and reducing poverty. In this respect, the authorities are reference multiyear expenditure framework, consistent with encouraged to build on the key milestones already achieved the national development plan/strategy. in taming inflation and unifying the exchange rate. In the Over the medium term, South Sudan needs to diversify longer term, however, the control of inflation is complicated its economy in order to achieve sustainable and by the inadequacy of the central bank’s capacity to influence inclusive growth. South Sudan’s reliance on oil has often the transmission mechanism. This should be strengthened acted to stifle rather than facilitate economic transformation. as the financial sector develops and the treasury bills market Going forward, the authorities should take advantage of becomes fully operational. On the supply side, greater peace the peace dividend and an improved oil price outlook to and stability would help a resurgence in food production and diversify the economy by prioritizing an investment strategy allow for a gradual return of confidence in future economic that will unlock key growth constraints and unleash the prospects, and hence less pressure on the exchange rate, vast untapped economic potential in non-oil sectors such and the prospect of lower inflation. as commercial agriculture, fisheries, and livestock; natural Taking steps to improve budgetary transparency resource extraction; and light manufacturing. To fully harness and accountability are important in order to restore the potential of these sectors, there is a need to foster human credibility and the effectiveness of fiscal policy. In capital development and close the infrastructure gap, which the past, nontransparent oil advances, oil-backed loans, is a key constraint to production and trade. Improving the and off-budget transactions have often undermined the business environment and deepening regional integration, country’s fiscal discipline and budgetary integrity, and have including through participation in the African Continental Free led to extensive corruption, and to loss of credibility with the Trade Area (ACTFA), the East African Community (EAC), and international community. In the short term, restoring fiscal the Horn of Africa Initiative offer South Sudan opportunities discipline and strengthening the management of expenditures for diversification and growth (Box 7). would benefit from improving cash management and the Deepening regional initiatives, including with the EAC, the Horn of Africa Initiative, and ACFTA, would support the achievement of greater diversification, job creation, and improved resilience, thus sustaining future growth. 45 Box 7: The African Continental Free Trade Area (ACFTA) and Other Regional Initiatives: Opportunities for Diversification and Growth The African Continental Free Trade Area (ACFTA) was launched in May 2019, with a corresponding agreement providing a framework for the liberalization of trade in goods and services. Once it is fully implemented, it is expected to cover all 55 African countries, which together account for a GDP of an estimated $3.4 trillion, and a population of more than 1.3 billion. In terms of the population it serves, ACFTA will be the largest free-trade area in the world. Trade under ACFTA commenced on January 1, 2021. The scope of ACFTA is large, and it offers the potential to lift 30 million people out of extreme poverty (World Bank 2020c). The agreement will reduce tariffs between member countries and cover policy areas such as trade facilitation and services, as well as regulatory measures regarding Sanitary and phytosanitary (SPS) standards and technical barriers to trade. The full implementation of ACFTA will reshape markets and economies across the region and boost output in the services, manufacturing, and natural resource sectors. Increased intraregional trade will add about $60 billion to African exports and will support ongoing diversification efforts (IMF 2020). With the disruptions to the global economy resulting from the COVID-19 pandemic, the creation of this regional market is a major opportunity for African countries to diversify their exports, attract foreign direct investment, and accelerate economic growth. As of June 2022, South Sudan is one of a few African countries that have not yet ratified the protocol for the establishment of ACFTA; this could result in the country missing out on some of the expected benefits of increased trade liberalization. While South Sudan is already a member of the East African Community (EAC), ratifying ACFTA would facilitate its access to larger, more diversified, and more sophisticated markets, thereby promoting its own diversification efforts and increasing its resilience to terms of trade and global supply-chain shocks. Outside the oil sector, South Sudan has a limited range of readily-exploitable assets that could enable it to achieve greater diversification. A reconstruction of the country’s trade data shows that in 2019 the total estimated value of its exports stood at $1.6 billion, with oil accounting for 96 percent of this value. Consequently, it is one of the least diversified and most oil-dependent countries in the world. However, among South Sudan’s official non-oil exports, a number of commodities and products stand out as having the potential to play a strong role in the achievement of diversification, particularly live animals, meats, hides, edible vegetables and fruit, oil seeds, wood and wood products, cotton, and non-oil minerals. In 2019, South Sudan exported live animals worth $107,000; oil seeds ($294,000); and wood products ($9.6 million). Other exports include meats, fish, dairy, and articles of apparel and textiles. The government could promote these products to build a more diversified and competitive export sector. Deepening regional initiatives, including with the EAC, the Horn of Africa Initiative, and ACFTA, would support the achievement of greater diversification, job creation, and improved resilience, thus sustaining future growth. However, to realize these benefits, reforms are needed to improve the business environment, reduce bureaucratic barriers, and strengthen regulations in key sectors. 46 4.2 Improving Oil Sector Governance Harnessing South Sudan’s oil resources requires Stabilization Fund was envisioned to perform the duties of strengthening institutional and policy frameworks for financing the budget and cushioning the budget from short oil revenue management. While the oil sector accounts term volatility. However, payments into the Stabilization Fund for a sizeable part of the economy, it has so far failed to have not been realized because a large proportion of revenue provide the spark needed for economic transformation of the from the government share has been spent off-budget. Going country. Getting more from oil and repositioning the sector forward, the authorities should start making payments into for development impact will require, first and foremost, the Stabilization Fund since oil production is now ramped up improving transparency around oil revenue management. and financial transfer to Sudan has been completed, freeing The oil sector is shrouded in secrecy, and there are key significant resources. At the same time, it is important that challenges in its governance and accountability. While the management of the Stabilization Fund be strictly subjected authorities are committed to reforming PFM systems in the to effective oversight in order to minimize embezzlement, country, complete and credible data on production and malfeasance, and corruption. export volumes are not publicly available. At the same time, Implementation of existing policy and regulatory the current practice of contracting oil-backed advances or frameworks needs to be strengthened, along with the prepayments is nontransparent; this encourages misuse, and enactment of new regulations to maximize benefits complicates accounting and monitoring. Contract terms are from the sector. Although basic frameworks for oil often unknown and in-kind repayments are unpredictable; this revenue management exist, their implementation is weak. makes the management of expenditures difficult. Moreover, Furthermore, the downstream sector (refining, exporting, and the advances are costly (interest costs and fees amounted product pricing) is currently not regulated. Thus, it would be to $11 million in 2017/18); they have affected transfers to the useful to establish the principles that will apply to investment oil revenue stabilization account; and they serve no good in the sector before contracts are signed. To ensure that the purpose in most cases. Improving transparency will need country’s oil wealth is contributing to national development, to go hand in hand with PFM reforms, completing a long- it is critical that these resources are managed in a way that overdue audit of Nilepet transactions and functions; quarterly maximizes benefits to both present and future generations. sector performance reports; and taking steps to join the While the absence of a permanent constitution has led to Extractive Industries Transparency Initiative (EITI). regulatory uncertainty, the ongoing process for the drafting Strong PFM systems are an important part of revenue one provides the opportunity to strengthen legal frameworks management in resource-rich countries. Oil revenue is in South Sudan’s oil sector. Over the medium term, the usually associated with volatility arising from short-term authorities may consider the possibility of investing funds in movements in prices and volumes. The government will a sovereign wealth fund as more technical capacity is built be expected to formulate a long-term fiscal strategy that and domestic structural constraints are addressed. adequately addresses expenditure and savings options. It Oil sector governance and oversight frameworks must is crucial that controlled, smoothed expenditure patterns are be strengthened. The Petroleum Act does not govern strictly followed in order to avoid excessive public spending the “downstream” of the oil trade (that is, refining, export that could result in distortions in the form of Dutch disease pipelines, and product pricing). This area is bound to become effects and rent-seeking. It is therefore imperative to strengthen more important with time as the country seeks to develop the country’s PFM procedures to ensure that resources are not alternative oil trade routes, and legal principles will be required being misappropriated by the accounting authorities. in crucial areas such as refining. The Petroleum Act has also Operationalization of an oil revenue stabilization laid down rules regarding transparency and public access fund can ensure budget predictability, while avoiding to information. These laws require disclosure of information procyclicality of fiscal policy. Consistent with international linked to contractor and subcontractor payments. The practice, South Sudan’s Petroleum Revenue Management Ministry of Petroleum and Mining (MPM) is also required Policy (PRMP) provides for the creation of a Stabilization Fund to disclose all key oil sector production, revenue, and at the Bank of South Sudan, under the control of the Ministry expenditure data, as well as petroleum agreements and of Finance and Planning. In theory, such funds play a triple licenses. Modest steps are being taken in this regard; for role of fiscal smoothing, macroeconomic stabilization, and example, an annual marketing report summarizing oil sale saving for future generations. In the case of South Sudan, the revenues received by the government is now being prepared. 47 Developments in the oil sector should consider the likely treasury, which can be used as a catalyst or springboard environmental impacts that would require strengthening for strategic investments that can unlock constraints to relevant institutional capacities as well as quality accelerating growth and permanent wealth creation. In standards for environmental protection. Oil and gas this regard, fiscal policy (that is, public spending) should activities have significant implications for environmental be mindful of any potential Dutch disease consequences. sustainability and land productivity. First, there is the land With prudent fiscal and macroeconomic policies, such degradation challenge that is associated with excavation consequences may be offset by ameliorating South Sudan’s activities; second, there is a waste management challenge. huge infrastructural and human capital deficits and structural South Sudan’s oil sector poses grave long-term environmental constraints in the productive sectors, while ensuring that the risks, since serious environmental damage could result from remainder is saved in the country’s sovereign oil fund. any of the activities along the entire oil and gas value chain— Prospects for increasing oil production to prewar levels from exploration, extraction, and processing to marketing will require new investments and the possible use of and distribution. South Sudan’s endorsement of the Zero- enhanced oil recovery (EOR) techniques in the existing Routine-Flaring-by-2030 World Bank initiative confirms oil wells, as well as new oil discoveries. The 2013 the authorities’ willingness to provide a legal, regulatory, conflict had a large impact on the oil sector; consequently, investment, and operating environment that is conducive large new investments are needed to return production to to upstream investments and to the development of viable pre-conflict levels. While the shareholders of the operating markets for the use of gas, including the infrastructure companies have rehabilitated and relaunched oil production necessary to safely deliver gas to these markets. While the in some of the fields that were damaged during conflict, oil authorities are planning a comprehensive environmental production, estimated at about 156,000 barrels per day audit of all of South Sudan’s active oilfields, the required air, (bpd) in FY2021/21 is still less than half of its pre-conflict water, and soil quality standards do not yet exist. Given these level. A peaceful environment is necessary in order to attract constraints, it is unlikely that environmental audits and impact investment: to sustain high levels of production and extend assessments can meet the expected high standards. the life of the mature oil wells, oil companies will need to invest Ensuring that the oil sector delivers development to the in new wells and in injection wells to maintain the reservoir people of South Sudan will require an investment rule pressure; and ultimately they will need to consider costly that guides a significant portion of oil revenues toward and challenging EOR techniques. However, reaping the full closing the substantial human capital and infrastructure peace dividend, where new exploration opens for new oil deficits in the country. Oil revenues should be seen as flows, production could reach a peak of 350,000 barrels/ a temporary stream of resources flowing into the national day in about 10 years. 4.3 Escaping the Food Insecurity Trap Ending all forms of conflict and violence is necessary in for improved agricultural productivity and food security. order to end the food crisis, and provide the basis for Market failures (essentially due to high inflation) have improved agricultural production and livelihoods. While increasingly played a central role in the agricultural and agricultural activity has shown signs of improvement following food security outcomes across South Sudan as the country the signing of R-ARCSS in 2018, the range of crops has transitioned through conflict situations that distorted most remained limited since the risk of insecurity remains high. aspects of the economy. To date, market failures attributed Conflict-related displacement continues to force farmers from to excessive inflation have had the greatest direct impact their fields during key times in the cropping season, and many on food insecurity since late 2015, surpassing previously farms remain abandoned, which has led to a breakdown dominant conflict-related factors. Since 2013, while South in agricultural supply chains. Agricultural markets and Sudan’s food security situation has been deeply affected value chains have disintegrated due to protracted conflict by the impacts of war, it is the impact of the conflict on the and violence, insecurity, looting, loss of assets and tools, economy and markets that has become the most significant a significant decline in production, and depressed market driver of food insecurity, rather than the violence itself. At the demand. same time, inflation and exchange rate misalignments have ravaged production by increasing the cost of critical inputs, Stabilizing the macroeconomic environment will be including seeds, fertilizer, and basic farm implements. necessary in order to provide an enabling environment 48 Resolving issues around land governance and building water storage facilities and providing pumping and control would facilitate returns, improve incentives irrigation equipment); crop adaptation (for research, and for for agricultural production, and support the resilience the provision of seeds for the crops that are most suitable of farmers. Land disputes arising out of contested user in the context of the changing ecology of South Sudan’s rights are a critical bottleneck for South Sudan’s stability and regions); and food storage facilities. Consequently, these agricultural transformation. These usually involve allegations changes will likely cause disruptions due to the increased of land grabbing by security personnel; competing claims over likelihood of flooding, potentially increasing the risks for poor ownership; double allotment of plots during the formalization agricultural and food security outcomes. Thus, a renewed process; and contestations involving IDPs and returnees. focus on building resilience, including through measures to While R-ARCSS provides a concrete mechanism for land support better water management, climate-smart farming reform, including reviews of the Land Act (2009) and the practices, and the use of more resilient seed varieties, is draft National Land Policy (2013), these should be expedited vitally necessary. following formation of the Transitional National Legislative In the longer term, investing in farmer access to quality Assembly (TNLA), which had slowed down government inputs as well as supportive post-harvest handling and business. Stabilizing smallholder agriculture will require storage infrastructure will be critical for agriculture a greater degree of public safety in order to allow for the sector development and food security in South Sudan. voluntary return of IDPs and refugees. Part of the challenge of The intensification and diversification of agriculture requires voluntary returns will involve land claims, and land ownership better access to quality inputs and equipment as a means and tenure issues will require support as returnees reclaim for enhancing the productivity and resilience of family farms, previously occupied or held property. Land issues related which remain largely manual. Two areas that warrant urgent to conflict—for example, between the cattle-owning Dinka attention are access to seeds and the basic means of and sedentary farmers--will likely pose additional challenges production. Limited storage and agro-processing facilities if Equatorian farmers return from Ugandan Protection of have affected food security in the country, especially in the Civilian (PoC) camps. Conflict avoidance measures may Green Belt, which is exclusively dependent on agriculture. be necessary, and could require formal agreements by Between 15 and 50 percent of crop harvests of cereals and community leaders. Women account for 60.2 percent of pulses are lost due to inappropriate storage and a lack of agricultural labor and play an important role in farming, but processing facilities. In this case, the lack of power is cited their access to productive assets is limited. Because of their as a major barrier to agribusiness development. low literacy rates and the lack of female agricultural extension workers, women also have limited opportunities to benefit Fostering resilience in the agricultural sector will from extension services. Furthermore, traditional laws that require a multisector approach that recognizes that do not recognize women’s rights to land ownership and developments in other sectors are critical for creating inheritance make it hard for them to access productive assets the right conditions for increased productivity. Given the and knowledge. Landholding reform, including allowing complexity of the political economy considerations and the women to own land individually, could increase shared fragility and vulnerability of South Sudan’s developmental prosperity and social inclusion. trajectory, the challenges faced by agricultural production and agribusinesses are multisectoral in nature. At the same In the medium term, managing the increasingly volatile time, the low levels of infrastructural development, including climate shocks and facilitating the achievement of a in the transport, energy, digital, and water sectors, are year-round agricultural cycle could improve agricultural placing large constraints on the economy. Therefore, the production and productivity. As recent events have path towards development-oriented agricultural growth in highlighted, South Sudan’s agriculture is particularly South Sudan is not only embedded in productivity, but also vulnerable to weather-related shocks. Trend analysis in social and human capital, conflict resolution, community suggests that in the coming years, growing seasons across development, capacity building, financial services, road, South Sudan will commence earlier, last longer, and have energy and telecommunication network developments, as more days with more than 5 mm of rain. This could be well as regulations, institutions and state-building. Thus, positive for agricultural production on the whole if farmers are investing in alleviating these constraints, reconnecting as able to adjust and adapt to changing conditions. However, many producers and aggregators as possible with markets, this adaptation will be difficult given the lack of institutional and facilitating processing and value addition is a priority for resources, including water management support (such as early recovery of agricultural productivity in South Sudan. 49 BIBLIOGRAPHY African Development Bank (ADB). 2013. “South Sudan: An Infrastructure Action Plan: A Program for Sustained Strong Economic Growth.” Tunis: ADB. Reng, A.D. and N. Tiitmamer. 2018. “The Petroleum Revenue Sharing Arrangement in South Sudan.” Special Report. Juba: Sudd Institute. Food and Agricultural Organization of the U.N. 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Accessed: April 30, 2022. 51 For more information about the World Bank’s work in South Sudan visit: www.worldbank.org/en/country/southsudan For more information about IDA, please visit: www.worldbank.org/ida Facebook: http://www.facebook.com/worldbankafrica Twitter: https://twitter.com/WorldBankAfrica YouTube: http://www.worldbank.org/africa/youtube Afronomics Podcasts: https://www.worldbank.org/en/news/video/2020/04/03/afronomics-a-podcast-series