South Sudan prepares for tough times without oil

Workers at the Petrodar oil concession flush out the remaining oil prior to a shutdown on oil production by South Sudan, in a January 29, 2012 file photo. A row with Sudan has led to a looming shutdown of South Sudan's oil production. 

South Sudan will raise funds from local banks, boost tax collection and consider borrowing outside the country to offset the impact of a looming shutdown of its oil exports, Finance Minister-designate Aggrey Tisa Sabuni has said.

While the government is seeking to negotiate a solution to Sudan’s threat to halt the country’s crude shipments, its strategy toward the neighbouring state is to "hope for the best and prepare for the worst," Mr Sabuni said last week.

South Sudan has borrowed "heavily" from domestic private companies since the country became an independent state in July 2011 and "I don’t think we’ve completely exhausted that," he said. "That would be a source to tap into, but we’re also not ruling out foreign borrowing."

A dispute last year between the two countries over exports cut the size of South Sudan’s economy by half to $9.34 billion, according to World Bank data.

"We’re talking of a very dire situation" if the current impasse isn’t resolved and oil shipments are stopped, said Mr Sabuni.

"If we have a choice, we would want to go for foreign- government-guaranteed credit. When the situation becomes very dire, we will not hesitate to go to open-market borrowing."

South Sudan became a member of the International Monetary Fund last year and is eligible for concessional lending.

"South Sudan could probably collateralise future oil shipments to secure a bridge loan, but the terms would not be very favourable," Philippe de Pontet, Africa director at Eurasia Group, said in an e-mailed response to questions.

"The creditor would probably demand a premium to offset the risks. Foreign aid will not ride to the rescue and Western donors are losing patience with Juba."

Weather impact

South Sudan seceded from Sudan in July 2011 and took three-quarters of the formerly united country’s oil output of 490,000 barrels a day. Its low-sulphur crude, which is prized by Japanese buyers for use as clean-burning power-generation fuel, is pumped mainly by China National Petroleum Corp, Malaysia’s Petroliam Nasional Bhd and India’s Oil & Natural Gas Corp.

South Sudan will weather the impact of a shutdown "by diversifying the economy as a whole and by particularly deepening the collection of non-oil revenue," Mr Sabuni said.

The country is targeting tax revenue of 1.5 billion South Sudanese pounds ($469 million) in the year through June 2014, more than double the 700 million pounds received last year, former acting finance minister Marial Awuou Yol said last month.

About 80 per cent of South Sudan’s 10.3 million people rely on agriculture, mostly subsistence farming, for a living. The government will invest in farming, fisheries and animal resources, improve seed distribution for farmers and build access roads to transport produce to town centres for export, Mr Sabuni said.

The country also plans to expand its tourism industry to generate foreign currency, he said.

Can Kiir deliver on his promise of peace and stability in South Sudan?

Read Story:Can Kiir deliver on his promise of peace and stability in South Sudan?