Monday, May 31, 2010

South Sudan: Circumventing the curse of petro-wealth (Part 2) - The Norwegian Experience

By John A. Akec

In the first installment of this article (The Citizen, Tuesday May 25, 2010, Vol. 5, Issue 144), the author contended that wealth generated through the extraction and export of petroleum resources is a double edged sword. On the one hand, it provides those countries with guaranteed income to use to fund vital infrastructural projects and other services such as provision of health and education services, and development of sources of clean drinking water. One the other hand, it has the potential of harming the long-term economic sustainability of the country that depends on oil revenues entirely to fund everything. It does so by killing innovation, creating a nation of wealth consumers as opposed to a nation of wealth and technology producers.

And because of usual rise in government expenditure that comes about as a result of unrealistic expectations, the government of an oil exporting country will be tempted to borrow heavily using its oil reserves as collateral. When things don’t work out as predicted, as they usually do when oil prices fall and the interest rates rise at the same time, the leadership (or rather the government) of the heavily indebted country finds itself unable to service the debt and hence falls prey to the whims of the powerful global lending institutions of the last resort such the IMF and the World Bank, and eventually looses control of its economic decision-making as they are forced by the lending institutions to cut back on public spending in order to service their debt as a condition for debt relief or condition for approval of further borrowing.

As a consequence of imposed conditions for borrowing, the countries concerned get impoverished and their economies begin to decline, thereby setting the scene for social and political upheavals. The list of countries that suffered this fate includes Ecuador, Indonesia, and Nigeria (where 80% of oil wealth currently benefits only 1% of the population) (refer to presentation by Kristine Kendel: Should Timor-Leste Go into Debt? Lessons from Oil-Export Dependent Countries; La'o Hamutuk Public Meeting, April 2010).

Enough of grandfather's scary bed-side fairy tales; tell us more about success stories; I can hear some of my readers say…

Fair enough. Here are some good stories - the experiences of Norway and those of a number of countries in MENA region (namely, Middle East and North Africa).

June 12th, 1968 was a landmark date for Norway and the world. On that day, a promising oil well was struck by Philips in the North Sea on the shores of Norway. More discoveries followed and shortly after, Norway made it into the list of oil exporting countries, where it currently ranks as world's top seventh oil exporting nation, with production rate hovering around 2.5 million barrel per day. While oil exports make up 50 percent of Norwegian exports, the income from oil forms just a little over 30 percent of the GDP. With a total GDP of $ 280 billion, Norway exports goods worth $ 122 billion, and imports goods worth $ 64 billion. This is a healthy balance of trade. Moreover, Norway's current account surplus stands at $ 54 billion (that is the net income that remains in the country). Unemployment was at 3.2 percent in 2009 during the global economic downturn.

Beside oil, Norway exports natural gas, electricity, wheat, potatoes, pork, barley, fish, beef, milk, metals, chemicals, textiles, pulp and paper products, and ship-building equipment, among others.

This is all well, but how Norway does it? All this is exposed in a book by Farouk Al-Kasim entitled " Managing Petroleum Resources: The Norwegian Model in a Broad Perspective", Oxford Institute for Energy Studies, UK, 2006.

The writer is an oil expert of Iraqi origin who was an insider, having spent 4 decades working for companies and government institutions involved with the development and management of oil resources in Norway. From what Al-Kasim wrote, it is apparent that there was no one single solution which could be seen as a panacea for all the challenges posed by sustainable exploitation of petroleum resources. Yet, most prominent in the Norwegian government strategy was the exercise of good governance in the management of petroleum resources throughout the three main stages of oil resource development: upstream and downstream operations, and utilization of oil windfalls (revenues).

Broadly speaking, the Norwegian government had set specific goals to be achieved through the pursuit of good governance at each of the three stages. In upstream stage (exploration, drilling, and transportation of crude oil), the goals included the establishment of policies that are in line with national economic and developmental plans and devising of the optimal policies for development of oil infrastructure, protection of environment and improving the operating efficiency in oil fields.

Second, the goals of downstream or value adding stage (refining of crude oil to produce fuel and other by-products), include identification of local and international markets and adoption of best approaches to marketing of petroleum products; formation of institutions responsible for supervision and marketing of the oil and its byproducts, use of oil and gas products for local consumption, creation of local industries that use oil products as raw materials, and creation of employment opportunities for Norwegians in oil sector and associated industries.

Finally, the goals of utilization of windfall include collection of data and carrying out of detailed and most truthful analysis of all the components of oil accounts to ensure that Norway is getting its legal entitlement of the income in order to safeguard the national interests (let us be reminded of the unsettling findings of Global Witness in regards to Sudan oil accounts); putting in place development plans that encompass all the economic and social sectors and utilization of parts of revenue to create industries and innovation companies that would benefit future generations; formation of special fund for implementation of sustainable development initiatives; and formation of a bigger reserve fund whose aim is to protect national economy against fluctuations in oil prices, or for use in emergencies and serving future generations.

Four decades on, the results are there for all to see. There are no records that anyone in Norway lives below poverty line and the country runs a mixed of free market economy and social welfare capitalism where the gaps between the rich and the poor are narrow. Today, almost all the income from oil is invested in external accounts where it generates interest.

Another bright example of what good management of oil resources can do is that a number of MENA (Middle East and North African) oil-exporting countries were able to use their reserve fund to absorb the shocks of global economic crisis of 2008-2009. These countries include Saudi Arabia, Kuwait, Bahrain, United Arab Emirates, Qatar, and Oman, Libya, Algeria, Iraq, Iran, and Syria. All with exception of Dubai were able to weather the world economic downturn successfully.

Overall, good management of petroleum resources in South Sudan would demand learning all the above lessons and avoiding bad ones. In particular, South Sudan must try to live within its means while making most of what it got and avoid the temptation of borrowing against untapped reserves as a means to speeding up the wheel of economic development. The enactment of necessary legislation is also a must.

And finally, let us be reminded that good intentions or good policies alone will not see the light of day by the way of implementation unless very capable cadres are recruited and trained in order to faithfully carry out this extreme national duty on our behalf.

Monday, May 24, 2010

South Sudan: Circumventing the curse of petro-wealth (Part 1)

By John A. Akec

South Sudan already enjoys substantial autonomy in its decision-making even before the conduct of referendum scheduled for January 2011. And should its citizen opt for complete independence from the North, more responsibility will fall on its government to think of best ways to create a prosperous and stable new country.

In fact, it takes more proactive energy and creative planning to prepare for an independent South Sudan than it would require for existence within a united Sudan. A new nation may choose to begin where others had started; or start where others have ended. The advantage of the latter over the former is that successful modi operandi can be emulated, and bad ones avoided.

As any politician worth his salt would tell you, the goals of any national political system are to have a stable and peaceful country; where the citizens can easily access education and training opportunities; where clean drinking water is easily available and health services within reach; where great majority of the citizens can engage in rewarding and meaningful employment that is capable of providing their families with essential needs in terms of accommodation, food, and clothing; where people are free to do business, move from one place to another without any impediments, live in freedom from fear of persecution, enjoy freedom of thought, worship, and self-expression; where values of hard work and innovation are cultivated, cherished, and rewarded.

As is apparent, the goals of a political system are myriad and varied, so are the means and the strategies to attaining them. At the centre of strategies at disposal of any government are its economic policies. The economic policies of a nation attempt to answer some very fundamental questions: how to create wealth and how to distribute and spend it?

Countries with natural resources such diamond or oil are fortunate enough to have access to sources of easy money. At the face of it, it would seem like a huge economic advantage for these countries as their governments can utilize such income to build vital economic infrastructure, hire foreign labour, and buy know-how. Oil in particular is known as a lucrative income generator for the countries that have it.

However, oil is also known to harm long term sustainability of the economies that depend on it. It kills innovation at home, provides no incentive to collect taxes, ties government’s spending to fluctuating global prices of petroleum products, creates national parasitic industries that depend solely on governments hand out in form of subsidies or government orders at non-competitive prices in order to survive, turn the beneficiaries into consumers of wealth and know-how, as opposed to being producers of wealth and technology. It distorts rural economy that depends on agriculture, animal production, and husbandry.

Petro-wealth also creates unrealistic expectations while sharpening the urge to spend money without putting anything aside for the rainy day. Way back in 1960s, an Abu Dhabi’s shiekh, Shakhbut ibn Sultan, was concerned about the influence of new petro-wealth on the way of life of his people. Rather than allowed it to be spent, he decided to hide the money from oil proceeds under his bed and later relocated it to the bank when moth began to eat it, saying: "I am a Bedou (nomad). All my people are Bedou. We are accustomed to living with a camel or a goat in the desert. If we spend the money, it is going to ruin my people, and they are not going to like it." However, all the forces of vested interests ganged up against him, and he was consequently overthrown in 1966 (please refer to Daniel Pipes's article: The Curse of Oil Wealth, Middle East Forum, July 1981).

Modern-day political analysts view the action of Shikh Ibn Sultan, as progressive and far sighted. Unfortunately, he was up against the forces of short-sightedness and get-rich-quick that were far beyond his capability.

Today, the chances of an enlightened policy-making have never been so greater so that the nations led by the wise can do without gravitating towards the black-hole of dependency on petro-wealth from which it is going to be hard to emerge once suck into its bosom.

South Sudan is a living proof of what high dependency on oil revenues can do to an economy. In the last five years, establishing a system to collect taxes has been slow. Development of other means of income has not started. We imported everything from chicken, to tomato, to razor, to toilet rolls from Uganda and Kenya; and exported nothing to them. We sent our children to Uganda and Kenya for their education, and rushed there ourselves when not feeling well to buy the medical services from these countries or travel further afield in quest for medical treatment. 70% of South Sudan income was paid out as salaries in the public sector, while getting nothing back by the of way economic output.

We have become perfect consumers with immense talent to sink billions of dollars on intangible goods. Many of our folks, including one-time hard-working entrepreneurs, have abandoned their erstwhile vacations and flocked to Juba where they queued up at Ministry of Finance to gain access to free-money that is guaranteed once a paper-contract has been signed by the minister. The values of hard work and risk taking which is the core of any sustainable business and entrepreneurship have been binned.

For the last five years, great majority of government officials and top civil servants have taken expensive hotels as their permanent abode, paying a bill of $200 per night. There is almost a total dependence on foreigners in vital economic sectors that requires skills that can be easily acquired nationally yet remained beyond our reach. Easy money, easy goes.

In North Sudan, the deterioration of Gezira Scheme which once formed the backbone of Sudan economy is a living testimony to high dependence on oil revenue. Agriculture as a whole has been neglected since petro-dollars began to flow into the coffin of our central government. Central Sudan which used to be the high ground of development and progress is now falling behind the new areas in extreme North that have benefited from white elephant projects built by money borrowed against future oil income.

No doubt, we all recognise that we are digging a deep grave for our economy and our future as a viable nation by relying on oil which now forms more than 90% of our national income. That figure has to change by developing alternative sources such as agriculture and animal resources, and development of light manufacturing industries, communications and ICT sectors, and service and retail sectors. This should be in such a way as to increase government revenue in terms of corporation tax and personal income tax.

In order to promote and develop the above economic sectors, investment in education and training should be pursued with more vigor than it currently is. Doing so will cut down on the addictive dependency on imported labour, skills, and know-how. This will imply opening up vocational training centres across South Sudan, strengthening universities by pumping more money into the sector to improve living standards of the faculty and staff and to halt the increasing trends to leave education and migrate to NGOs and governmental sectors where pay is more lucrative; building laboratories, libraries, lecture halls, and funding research that will have direct socio-economic impact.

Part two of this article (next week) will look at how a minority of oil-producing countries have managed to successfully tame the evil of petro-wealth away from impacting their economies and their way of life.

To be continued.

Tuesday, May 11, 2010

Doleib Hill Crisis: The House of Celebrations and House of Funerals Cannot Live Next to Each Other

By John A. Akec

“We must go back [in history] in order to go forward [to the future]” – Dr. John Garang de Mabior, Naivash, Kenya, 2005.

Big fires start small. Mishandling a disused match can create an inferno in a dry bush that goes on to engulf thousands of acres of land in deadly flames. This eventually puts many lives and property at risk some hundreds of miles away from the scene of the original incident. The history of our world is awash with countless examples from which the wise should learn priceless lessons so as to avoid creating perilous situations, needlessly out of teacup storms.

For instance, on 28 July 1914, Archduke Frank Ferdinand, heir to Austrian-Hungarian throne (composed by then of Slovenia, Croatia, and Bosnia), and his wife Sophie Ferdinand were driving in their car from a town hall reception while on a formal visit to Sarajevo (in the modern day Yugoslavia); when a Serb nationalist, Gavrilo Princip, shot them dead at point blank range. Ferdinand assassination in Sarajevo set Europe on the road of diplomatic crisis that eventually let to the outbreak of World War I by the end of July of same year. The war lasted four years from 1914 to 1918 and claimed over 16 million lives and wounded 21 others across the world. A year later on (1919), the Treaty of Versailles was concluded that laid the blueprints for free Europe and peaceful world. And because some of signatories did not wholeheartedly embrace the resolutions of Treaty of Versailles, lessons of WW I were lost, and another deadly war, the World War II, had to be fought one more time from 1932 to 1945; leading to another 50 million civilian and 25 million soldiers' deaths.

In fact, we do not need to look farther afield than having a glance at our own backyard for lessons in history. On 17th August 1955, Satarino Oliu, Emilio Tafeng, Ali Ghabtala and others from Equatorian Cop, rebelled in Torit in Southern Sudan and let to the killing of 261 northern Sudanese (including women and children), and 75 Southerners. The rebellion was sparked by an order to move the Equatorian Cop to the North in an atmosphere of great mistrust, a few months before Sudan declared its independence on first January 1956. The rebellion was considered by Sudan’s rulers as a mere security issue and believed they had crashed it at the bud.

However, the Torit mutiny, as we can all testify, was the real mother of all other mutinies that followed in the South afterwards. The small fires (call them the off springs of Torit if you like) along the way included Akobo mutiny in 1974 led by surgeon Bol Kur; Wau Mutiny led by Captain Aguet in Feb 1976, and Bor Mutiny led by Major Kerybino Kuanyin Bol. These were small fires with that eventually let to catastrophic long term consequences to the nation and people caught in them.

Looking back in retrospect, these mutinies represented the tip of an iceberg, and the keys that turned the lock of the floodgate.

This is a rather windy introduction to the incident on 30th April 2010 in Doleib Hill military barrack in Upper Nile State, close to border with Jonglei State in Southern Sudan. It involved the exchange of gun fire between of SPLA forces, some of whom were said to be loyal to George Athor. A score of people were killed and others wounded. Implicated in the incident was the well regarded former SPLA high ranking officer, Maj. General George Athor Deng who was contesting gubernatorial seat for Jonglei State as an independent candidate, but was declared a loser by the National Election Commission. The military spoke person stated that the attack was unprovoked, and that it was instigated by Major General George Athor. On his part, General Athor denied direct involvement, but admitted that those involved were SPLA officers and soldiers who had resisted orders to arrest him. Claims and counter claims. What version should we believe?

Worryingly still, initial announcements to resolve the unfortunate conflict peacefully and amicably between George Athor and his supporters on one the hand, and the South Sudan government had come to a dead end. The conflict has escalated, and claimed more lives in recent days, while the diplomatic tone has begun to give way to hawkish language that will do nothing to alley our fears that we are being driven into the old beaten path from which we had emerged after concluding of Naivasha agreement in 2005. The spirit of Naivasha agreement ought to rebuke us by reminding us that war and violence are futile ways of settling any difference, large or small. The spirit of Naivash should guide us all, as individuals and as authorities.

Yes, the election conduct has left much to be desired. The playing field was not that leveled to all. Some parties had better resources than others. But regarding where we came from, it is a great achievement. And so, like many before me, I would like to warmly congratulate General Kiir Mayardit for his re-election. Congratulations also go to those who won. And for those who lost, let them remember that they will sill have another chance in future to win and to shine. Those who are not satisfied with the results should follow peaceful means to redress their complaints. Yet we must not tolerate the house of celebration to live side by side with the house of mourning. We would like all to celebrate in their own way.

Therefore, we cannot stand idle while this conflict spirals out of control. We must use peaceful means to resolve it. We must also address the root causes of the problem. The government of the day thought they crashed Torit Mutiny only to be proven wrong by the events of history. Major Aguet who rebelled in Wau after killing colleagues including General Emmanuel Abor Nhial was eventually tracked down in Central African Republic, brought back and executed. But did his executioners ask why he did it what he did? Or was Aguet’s mutiny the last? Of course, it was not the last. Numeri thought he crashed Bor Mutiny. Again the events that followed Bor Mutiny recounted a different tale.

The parties involved in this conflict (GOSS and General Athor and his colleagues) should resort to third parties to mediate and to uncover all facts behind this unfortunate incident. AU, friends of Sudan, Sudan peace partners, men and women of good will should intervene. Church leaders and leaders of civil society should raise their voices in respect to this developing situation for the good of the country. Let truth, justice, human rights, freedom for all, and reconciliation be our guide and our sole motivator while we seek acceptable resolution for Doleib Hill crisis.

We have a very rich experience by the way of what violence can bring on a nation. We have lost more than 2 million lives in civil conflict to fight for our freedom. The lessons and mistakes of the past (whether committed by us or by others) are for us to learn from in order to craft a brighter future for ourselves and for our children.

These invaluable lessons of history must not be thrown away.

Tuesday, May 04, 2010

Sudan Election Outcomes: Pointing Towards a de facto Two-Party State

By John A. Akec
Source of Photograph: EL Sahafa Daliy

Some things are predictable, others are not. Sudan elections results had defied our earlier analysis, irrespective of whether or not they were rigged or fair. For instance, we expected NCP to continue to dominate our political scene, albeit with a reduced majority (refer to my article: A Chink of Light for Democracy? Published by the Institute of War and Peace Reporting, 10 April, 2010; UK;

Instead, NCP got close to 90% of votes in the North. On the other hand, SPLM was expected to win elections in the South with a comfortable majority of between 70 and 75%. However, SPLM got over 80% of votes in the South.

What’s more, analysts expected both president Omer Al Bashir and vice president and president of Government of South Sudan, Salva Kiir Mayardit, to win their seats. Overall, President Al Bashir got 68% (90% of which were obtained from the North), while GOSS President Salva Kiir got 93% of the votes in the South. This is not surprising, especially in regards to attaining win votes.

To sum up, the elections have seen both the Naivasha partners tighten their grip on power by increasing their mechanical majorities substantially.

Writing in the Citizen last week, the venerable Sudanese journalist and writer, Mahajoub Mohamed Saleh, wondered as to why many of the Sudan presidential candidates, apart from Omer Al Bashir and a few others, have failed to attain at least 15,000 votes which would be equivalent to the number of those who endorsed their candidacy. He asked if the presidential candidates’ endorsees have had a last minute change of mind when the real voting took place. Unconvinced by such a scenario, Majoub Saleh described the inconsistencies as puzzling. Many of us would be inclined to agree with this observation.

We also expected a number of independent candidates for gubernatorial positions to make it through. However, many of them failed, except one in Western Equatoria.

Initial counting showed a great threat being posed by SPLM independent candidates in Central Equatoria, Northern Bhal El Ghazal, Western Equatoria, and Unity Sates. It was noted that the independent candidate in Western Equatoria was involved in a neck to neck competition in which the incumbent Jemma Nunu was trailing behind the winning candidate, Jopseph Bokosoro, by just 6 percentage points. Many election watchers were taken by surprise when the results were announced and to see Nunu loose, while her counterparts in other states won in the 11th hour.

The architects of Nivasha agreement were wise in the way in which they rationed the power: 70% of positions in South Sudan for SPLM, 20% for NCP, and 10% for Southern parties; while at national level, 52% of positions in Federal government (both in the executive and legislative branches) went to NCP, 28% to SPLM, and 14% to other parties. That kind of balanced/rationed approach created a more democratic governance and oversight. It gave opposition a voice.

In order to find some answers to these election outcomes that gave the lion share to the two Naivasha partners, we need to turn to ‘science of election.’

Our understanding of elections is based on assumption that this is a kind of fair random dice. The truth is, it is more of a biased coin (two-faced, two-party duel), as opposed to six-faced dice, multiparty competition.

In fact, we may recall what Professor Hassan Maki, the well known Sudan political analyst, once described in El Sahafa newspaper, that what a political manifesto means in Sudan, saying it is really composed of 20% candidate’s charisma, 20% candidate’s tribal weight, 20% candidate’s financial muscle, and 15% due to the weight of the political party behind the candidate. This is now confirmed by these elections in which the most influential political parties (by the virtue of control of state apparatus, and large active membership) won by a wide margin. In other, words, what is in party’s manifesto is of no great consequence but is only a small proportion amongst many factors that voters depend on when choosing whom to vote into office.

Add to this, political theorists, like the French political scientist Maurice Duverger, argue that a first-past-the-post voting system ends up strengthening the top most powerful parties on the expense of other smaller parties. This is a system of voting in which the candidate that gets more votes in a constituency is declared a winner. This is the voting system that was followed in Sudan’s April elections. It is the same system being followed in US, Britain, Australia, and India. It is also called majoritarian system. Unlike the proportional voting system, which leads to a diversified multiparty government, Duverger’s Law maintains that experienced citizens regard smaller parties as unlikely to make significant difference in transforming their daily political reality, and therefore, bet on a stronger horse.

Interestingly still, the pollsters, especially in the Southern Sudan, were able to vote tactically. For example, one voter in Central Equatoria declared that her voting ‘mix’ was going to be composed of Salva Kiir (SPLM) for presidency of GOSS, Wani Iga (SPLM) for Southern Legislative Assembly, and Ladu Gore (Independent) for seat of the governor. This is a sort of intelligent voting in which they would like their vote to effective in terms of imparting bargaining power to one party with a reasonable weight.

It is also believed that a two-party state does strengthen the democratic practice by speeding up the democratic decision-making and increasing the bargaining power of the dominant party, which will otherwise would not be possible in a multiparty democracy in which no single party commands a significant majority.

It is also worth pointing out that in the event of Southern secession, two new single-party states will emerge from the ashes of Sudan’s fourth democratic era.

In the light of all this, the evolution of a true multiparty system in Sudan will have to wait longer than was initially advocated or hoped for.