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.


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