Risk Report: South Sudan

Damon Aitken

May 30th, 2018



Born out of decades of conflict, in 2011 South Sudan split to become the world’s newest country. Although founded with high hopes of economic and social recovery, its first few years as an independent country have instead been a continuation of turmoil at many levels. Drought has made malnutrition and famine commonplace while civil conflict continues to rage throughout the country. Emblematic of the country’s issues is the fact that independence celebrations in 2016 were canceled due to a lack of public funds, just one of the many problems the country now faces.



The most effective approach to understanding many of South Sudan’s current conflicts is through analysis of its complex history. Its incorporation into the British colonial structure as a part of Sudan was stymied by persistent rebellion. As is the case in Sub-Saharan Africa, colonial institutions sowed the seeds of instability and conflict existent today. The cultural divide between an animist and Christian South and a Muslim Sudan oriented towards Arab culture vexed colonial officials. Their decision to give preference to the North led to continued resentment and alienation in the South. This resentment continued well past sovereign independence and has contributed to persistent civil conflict. British colonial officials did not attempt to integrate the North and South until 1946. This integration was done at the behest of northern elites and was clearly favorable to the North; implementing Arabic as the language of administration. A distinct preference for the North was continued in preparations for independence.

The Sudan People's Liberation Army (SPLA), founded in 1983, fought a guerilla war against the Sudanese government. The Sudan People's Liberation Movement (SPLM) was founded as a political party representing the movement. John Garang is often considered South Sudan’s founding father for his work in propelling the rebel movement from 1983 to 2005. 



Political Climate and International Relations

The two leading politicians and opposing faction leaders, President Salva Kiir and Vice-President Riek Machar, come from different ethnic groups. President Kiir was the leader of the SPLM/A coalition after the death of John Garang in 2005 and won the Presidency of South Sudan in 2010. Kiir is a member of the Dinka group (35.8% of the population) and Machar is part of the Nuer group (15.6% of the population).  There has been historical conflict between these two groups over pastures and wells for cattle. The Sudanese government, in trying to preserve its position of strength during the civil war, exacerbated ethnic tensions in order to undermine the SPLM.


South Sudan & Region; Source: Google Maps

South Sudan & Region; Source: Google Maps

Civil war again broke out in December 2013, just two and a half years after independence. President Kiir attempted to limit Vice-President Machar’s power in July 2013 by dismissing him and the entire cabinet. This war is ongoing and has displaced over 4 million people to date. In response to mounting political pressures, the US government placed sanctions on key government figures. However, these have so far proved ineffective. In 2016, a peace agreement was signed under pressure from regional and international groups but was only a short respite. Negotiations are currently ongoing but few believe a full de-escalation of violence is likely.


South Sudan enjoyed the support of the United States pre-independence but is recently facing criticism from the White House. Withdrawal of support from the US, the largest humanitarian donor to South Sudan, has the potential to plunge the country into deeper chaos. In a further continuation of shifting international ties, China is also bulking up its presence in the country, giving over $49 million in foreign aid between 2013 and 2017. From a regional perspective, players including Ethiopia and Egypt also retain vested interests in South Sudan centering on access to the Nile River. Surrounding nations such as Uganda are wary of refugee flows from the ongoing conflict and have an incentive to promote peace in order to stem the flow. To the north, South Sudan’s relations with Sudan remain rocky with the Sudanese government currently trying to crack down on separatist movements in the South-leaning South Kordofan and Blue Nile regions.


With presidential elections scheduled for later this year, there exists the potential for a significant change in the current risk picture.


Economic Structure


South Sudan is rich in mineral deposits as well as oil reserves estimated to be the third largest in Sub-Saharan Africa. The country is thus rich in oil and other natural resources, but as has been shown in countless other resource-rich countries suffering from endemic corruption and elite rent capture, resources can be more of a curse than a blessing. A significant challenge South Sudan faces is getting its oil to market. The country emerged from independence with the vast majority of former Greater Sudan’s oil within its borders, but the only pipeline connecting to export opportunities runs north through Sudan to Port Sudan. Sudan has cut off this vital source of revenue due to armed conflict. Numerous abductions of workers in the oil industry have also disrupted production. Since oil revenues make up roughly 98% of the economy, the conflict over oil production has had disastrous effects on the economy.


Worse still, the government is running a fiscal deficit that amounted to 14% of GDP in the 2016/17 fiscal year. Rent-seeking behavior by political elites has also meant that much of public money has been misappropriated. The state oil company, Nilepet, is owned by President Salva Kiir and has little transparency.


South Sudan ranks 187th out of 190 countries in ease of doing business by the World Bank. In order to set up a business in South Sudan, it takes 13 procedures compared to the SSA average of 7.8 days. However, it only takes 14 days to set up a business as opposed to the SSA average of 27.3 days.


Despite the presence of significant natural resource wealth; economic opportunities available to the vast majority of the population are in agriculture. Agriculture is accomplished by small-scale farms and its output is highly dependent on the weather. A current drought means that at least 1.1 million children under the age of five are expected to be malnourished. However, the land is fertile; nourished by the Nile River and its tributaries. The service sector is undeveloped and the population remains largely rural. The education system is inadequately funded and USAID estimates the overall literacy rate at 27%; limiting the expansion of a formal service sector.

Sources: World Bank Databank; CIA World Factbook

Sources: World Bank Databank; CIA World Factbook


Expropriation Risk

South Sudan inherited its regulatory structure from Sudan. Although Sudanese law states that “there shall be no expropriation of any enterprise”, it makes frequent exceptions for expropriation being in the “national interest”. This is ambiguous and the definition can be stretched to include almost any reason.

Risks & Mitigation.png


Investment Potential

All of this talk about risk should not scare off investors. There remains incredible potential in South Sudan and investment can boost the economy and improve living standards for the South Sudanese. Impact investors can find opportunities throughout the country as well-structured investments have the ability to improve living standards in tangible ways. If the government is serious about diversifying the economy away from oil into other sectors, there is great potential for firms who can benefit from a first-mover advantage. Additionally, since South Sudan is now a member of the African Trade Insurance Agency (ATI), there are more opportunities for investment insurance guarantees that help to mitigate risk.


Potential future infrastructure projects of interest are the mooted plan to build a planned capital city at Ramciel. Ramciel was chosen because it is in the geographical center of the country and is located on flat terrain. These are similar conditions that led to other planned capitals such as Brasilia in Brazil and Abuja in Nigeria. The Moroccan government is funding a 5 million USD feasibility study and the South Sudanese government is targeting a shift of power in 2022.


South Sudan also had the highest population growth rate in 2018 at 3.83%. In order to fully take advantage of this demographic expansion, the government and invested external actors must invest to make sure that the future youthful population will have economic and educational opportunities. Green field foreign investment that builds up distinct branches in South Sudan also can provide numerous employment opportunities in a country with a 48% formal unemployment rate and a government more interested in internecine conflict than economic development. Investments in agriculture that pay attention to the needs of local farmers can further boost food security and help build a sustainable future.


Investing involves risk, including possible loss of principal. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Opinions reflect the market conditions when written.