Brinkmanship policy?

Alsir Sidahmed Is it possible to build a country on nationalist sentiments alone, or a mix of political, economic and social policies need to be carved out as well as the institutions that carry out those policies, supervise implementation and ensure that they are on the track for the principal objective of serving the people?

What is happening in the newly born South Sudan is a case that forces the question above.

A leaked briefing by a World Bank staffer Marcelo Giugale, director of economic policy and poverty reduction programs for Africa. paints a bleak picture of the current and near future situation in South Sudan following its decision to shut down oil production because of a row over transit fees that its neighbor to the north, Sudan, asked for.

The government portrayed the decision taken late January as a move to achieve economic freedom and independence from Khartoum.

Accordingly, the people of Southern Sudan massively supported it and there was hardly any opposition or even questioning of the rationale behind it or its implications and how to deal with them.

In the briefing that was conducted in Juba, capital of South Sudan, on March 11 before major donors like the US, the UK, Norway, the IMF, UNDP and World Bank, Giugale warned that compared to similar economic shocks like what Mexico saw in 1994 or Indonesia 1997, Russia 1998 and Argentina 2001, what is happening in South Sudan is far more serious as it may well end in leading to the collapse of the state.

The reason behind this, Giugale said, is that there is a possibility of a collapse of the country’s GDP, while in the other economic shocks experienced by other countries, the main victim was growth, which could be weakened and the economy contracting, not the GDP itself.

Revenues from oil production constituted 98 percent of the country’s income. This represents 82 percent of the GDP. With the shutdown of oil production, South Sudan was left with few options to close the gap: Develop non-oil exports, which seems farfetched, get some foreign aid, which seems unlikely as donors don’t understand how someone throws out food from his basket and then use the same basket to beg. And in any case donors won’t be in a position to close such a huge gap in the short-term.

The final option was to cut government spending and rely on reserves, which Giugale predicts may go up to July or October at most, even if the government adopted and implemented some draconian austerity measures. Then and at this point, “state collapse becomes a real possibility,” warned Giugale.

One of the key results of the shutdown decision is an expected deepening of the food security problem since locally produced food account for little over half of the domestic consumption needs and with the dwindling hard currency reserves, the ability to import gets weaker and weaker.

And despite what some government officials say about the fact that some 80 percent of the population are outside the cash economy anyway and have been suffering for decades because of the civil war, but according to the briefing that will not be the case given the interrelation between the two sectors.

The way South Sudan separated from Sudan raised hopes that despite the hanging issues, given the interdependence in the oil sector in particular where most of the known reserves lie in South Sudan, the downstream facilities in Sudan may push the two countries to work out in harmony and turn the border areas where one-third of the population of the two countries live on huge natural resources into a good starting point to build on mutual relations based on interest, not conflict of the past.

But failure to settle unresolved issues from border demarcation to oil transit fees and status of citizens of the other country led to tension, proxy wars and more or less open and direct war as happened in Heglig recently.

That could be understood, though regrettable, but what is difficult to understand was the decision to shut down production as a way to punish Sudan and deny it the transit fees. But, in doing so, South Sudan is not punishing itself more, but is heading toward an “economic doomsday.” Analysts say such moves by South Sudan may undermine the very existence of the newly born state by the time it completes one year into being.

That is not good news even to those hard-liners in Khartoum. If South Sudan is to collapse there will be a host of additional humanitarian, economic and political issues forced on Sudan and will push the whole region into a wider conflict.

The cessation of hostilities imposed by the UN recently represents a glimpse of hope that needs to be utilized to step back from the brinkmanship policies and work out a rational one instead.