Investing in South Sudan oil could add fuel to the flames

Foreign investors should conduct enhanced due diligence before any investment in South Sudan’s oil sector, say the writers. (Photo: Pxhere)

A major oil and power conference kicks off in Cape Town this week with South Sudan expected to actively seek companies and announce exploration licences to boost its domestic oil production. Investors interested in South Sudan’s oil need to confront a stark reality: oil has fuelled a horrific war for the last five years and counting.^[1][2]

Competition for control of natural resource revenues between politicians plunged the country into a devastating civil war in December 2013, just two years after South Sudan’s independence. A 2015 African Union report on the root causes of the conflict and reports by the UN panel of experts, identified oil as a major driver of conflict in the country. At the height of the civil war, government and rebel forces engaged in a series of military offensives to control the oilfields.

Oil proceeds are significant for South Sudan, constituting nearly 98% of its total revenue. They could be a major source of development for South Sudan, helping better the lives of millions of South Sudanese. However, ruling elites, enabled by their network of facilitators, have captured the sector for personal gain and used it to unleash violence and misery on civilians.

Oil is extracted in an environment of extreme corruption and violence. The entire domestic production process, from extraction to export to the global markets, lacks adequate checks and balances. As reports by The Sentry and others have shown, opaque deals and directives mark oil sector operations, with proceeds profiting politicians, their family members, associates, and military officials. Oil entities have also supported militias, providing them with food, fuel, and funds, as they committed horrific acts of violence against civilians.

Oil extraction is causing untold environmental damage, harming people and livestock. Babies born with deformities are now reportedly a regular occurrence. As documented in The Sentry’s recent report, rather than tackle the environmental damage caused by oilfields, authorities engaged in a cover-up. The government says it will announce tenders for an environmental audit for the country’s oil-producing areas later this month. However, it is not lost on keen observers of the oil sector that the action is too late.^[3]

The country’s institutions of accountability, which could provide oversight to the oil sector, are stymied. South Sudan’s Anti-Corruption Commission, for instance, has never held anyone accountable, despite the evidence of egregious corruption exposed in the country’s auditor-general’s reports. These reports were so shocking the government banned their public release, an act directly contravening the country’s constitution. The peace agreement signed in 2018 that established a fragile peace includes a key stipulation calling for profound reforms of the country’s institutions of accountability. However, this aspect of the agreement has yet to be implemented.

The current state of South Sudan’s peace agreement is precarious, the risk of a renewed war looms, the government has not implemented fundamental governance and accountability reforms, and the looting continues. Any investment in South Sudan’s oil sector, without adequate transparency and accountability measures in place, will only feed and further entrench existing corrupt structures, exacerbating the conflict, and worsening environmental conditions. Foreign investors should, therefore, conduct enhanced due diligence before any investment in South Sudan’s oil sector, focusing in particular on whether sufficient reforms are in place that enable a transparent, accountable oil sector with profits benefiting the South Sudanese people and not just the corrupt elites. DM

Brian Adeba is deputy director of policy at the Enough Project, and Megha Swamyis deputy director of policy and analysis at The Sentry.^[4][5]

References

1. ^{^} conference (africaoilandpower.com)
2. ^{^} actively seek (africaoilandpower.com)
3. ^{^} report (thesentry.org)
4. ^{^} Enough Project (www.enoughproject.org)
5. ^{^} The Sentry (www.thesentry.org)
6. ^{^} Maverick Insider (www.bing.com)
7. ^{^} Sign up here (www.bing.com)