United Nations investigators on Tuesday unveiled rampant and systemic corruption by South Sudan's ruling class, compounding the country's security challenges and putting the pivotal oil-driven economy at severe risk. The global agency has accused South Sudanese authorities of plundering the country's wealth, including bogus payments totaling $1.7 billion in the 2021-2024 period to companies linked with Vice President Benjamin Bol Mel for road construction contracts that were never delivered. The 101-page report uncovers how South Sudan's government disbursed ~$2.2 billion over a 3-year period through its off-budget "Oil for Roads" programme to companies affiliated with Bol Mel, shell companies, and elite military budgets--while over 90% of promised roads remain unbuilt and nearly two thirds of the country's population of 12 million teeters on the edge of famine.
"The country has been captured by a predatory elite that has institutionalised the systematic looting of the nation's wealth for private gain," said the commission.
The world's youngest nation is also one of the poorest, with grand corruption and never-ending civil strife sinking the economy. South Sudan's gross domestic product (GDP) fell from ~12 billion in 2011 when the country gained independence to just $5.4 billion in 2024. The South Sudanese civil war was a multi-sided civil war in South Sudan fought from 2013 to 2020, between forces of the government and opposition forces, leaving 400,000 people dead. Two years ago, clashes broke out between the Sudanese Armed Forces (SAF) and the Rapid Support Forces (RSF) over demands by the army and pro-democracy groups for RSF to become integrated into the regular armed forces.
South Sudan produces ~150,000 barrels of oil per day, out of which it gives 10,000 barrels to Sudan as transportation fees because the oil has to go through Sudan to reach Port Sudan where it is loaded into cargo ships. In effect, Sudan receives ~$18 million from South Sudan's oil everyday. RSF has been demanding that South Sudan stop providing funds to the SAF, which might see the SAF retaliate by preventing the export of South Sudan's oil through Port Sudan, which it controls. A complete meltdown would not only destabilize the region but also potentially lead to the collapse of the volatile state.
Oil is the dominant contributor to South Sudan's economy, accounting for an overwhelming majority of its GDP, government revenues, and exports--often exceeding 90%. This heavy reliance makes the nation extremely vulnerable to shocks in oil prices or production, and the economy faces collapse if oil exports, which rely on pipelines through neighboring Sudan, are disrupted. South Sudan often touts untapped reserves and invites foreign oil firms to help revive declining output; however, the scathing UN report has pulled the curtain back on a kleptocracy fueled by crude, something that is likely to discourage foreign investments. South Sudan holds substantial proven oil reserves, estimated at approximately 3.5 billion barrels of crude, positioning it as having the third-largest oil reserves in sub-Saharan Africa. Around 90% of these reserves remain untapped, with only about 30% of the country's territory explored for its vast oil potential.
South Sudan is just one of multiple well-documented cases of the [infamous] resource curse that tends to grip resource- rich nations in the poorer corners of the world. The DRC and Mozambique are the other famous cases. Back in 2010, Texas-based Anadarko Corp. - now a subsidiary of Occidental Petroleum Corp. (NYSE:OXY) - and Italian energy giant Eni S.p.A. (NYSE:E) announced the discovery of approximately 180 trillion cubic feet of natural gas reserves, equivalent to ~29 billion barrels of oil, in Mozambique's supergiant offshore basin of Rovuma, immediately catapulting the South African nation to a potential global LNG superpower. As you might expect, there was a stampede by oil and gas majors including ExxonMobil (NYSE: XOM), TotalEnergies (NYSE:TTE), Shell (NYSE: SHEL), Eni and China National Petroleum Corp. (NYSE: SNP)) rushing in to stake their claims. But it was not long before terrorism and the long tail of the "hidden loans" corruption scandal, in which senior officials had formed state-owned companies that borrowed billions of dollars off-the-books, started to cast a pall on the economy and took a heavy toll on investor confidence.
Mozambique eventually was able to get its projects off the ground, with first exports of LNG launched in November 2022 through the offshore Coral Sul FLNG Project, operated by Eni. This marked the country's first LNG shipment to the international market. However, whereas this smaller project is active, larger, land-based LNG projects like TotalEnergies' Mozambique LNG project in Cabo Delgado remain suspended due to security concerns.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
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