South Sudan’s $12 billion loan from UAE sparks public debate
April 30, 2024 (JUBA) – South Sudan’s plan to borrow over $12 billion from a Dubai firm has ignited public controversy. Activists question the nation’s ability to repay the loan, given its ongoing struggles to meet basic obligations after years of civil war, including paying civil servant salaries.
The agreement, one of the largest oil-backed deals ever, is the second struck under President Salva Kiir, using oil as collateral for infrastructure projects with Chinese companies.
At a ceremony introducing the new finance minister, Daniel Awow, former minister Barnaba Bak Chol claimed his ministry successfully negotiated deals with various financial institutions and international companies to lessen South Sudan’s dependence on oil revenue.
“To diversify our income and reduce reliance on oil, we need significant efforts to increase non-oil revenue and seek external loans,” Chol announced. “We negotiated with numerous international institutions, including Hamed Bin Khalifa in Dubai, for a long-term facility. We aim to use these loans to pay salaries and fund government operations. I am hopeful that some of these transactions will be finalized soon.”
Chol also highlighted ongoing investment opportunities with Bahraini companies in agriculture, livestock, fisheries, gold mining, and medical services.
However, many criticize the wisdom of the loan agreement, which stretches over 20 years. Signed in December 2023 with the Dubai-based Hamad Bin Khalifa Department of Projects (HBK DOP), Chol committed 70% of the loan to infrastructure.
According to a document obtained by the Sudan Tribune, the lending firm is linked to Sheikh Hamad Bin Khalifa Al Nahyan, a distant member of Abu Dhabi’s royal family. The agreement reportedly offers South Sudan $10 less per barrel of oil than the international benchmark price.
“This enormous loan will burden the country for generations to come,” said Deng Mawien, a Juba-based activist. “With South Sudan’s oil flowing freely, where will the money come from for repayment? There are no known alternative sources of revenue.”
Juma Rombe, a South Sudanese businessman, fears the loan will be extended and become the responsibility of future administrations. “This 20-year loan ties future governments to this obligation,” Rombe observed.
There is no indication of when the first $5 billion instalment will be paid, and attempts to reach HBK DOP and the government for comment have been unsuccessful.
Some argue that the deal needs approval from the Council of Ministers and the reconstituted transitional national legislative assembly. Others believe a specialized parliamentary committee collaborating with select cabinet ministers should review the agreement to avoid public scrutiny.
President Salva Kiir fired Barnaba Bak Chol in March after a surge in consumer prices, a decline in the local currency’s value, and a shortage of supplies.
Economic analysts see the loan as part of Gulf countries’ and regional businesses’ aggressive expansion into new markets. In February, the UAE offered Egypt a $35 billion lifeline and has pledged more investment in Africa than any other region. Oil-backed loans can be attractive for resource-rich developing nations that struggle to secure traditional financing.
However, others doubt the government’s ability to repay the debt, citing past failures that resulted in lawsuits. A UN report in April 2021 revealed that South Sudan lost nearly 25% of potential revenue on a $446 million loan due to fees, interest, and costs. Oil exports account for roughly 90% of the country’s income.
In 2019, South Sudan agreed to forgo new oil-backed deals to secure a $52 million IMF support package. The IMF has called such loans “non-transparent, costly, and encourage misuse.” UAE-based companies have been frequent creditors to South Sudan. UN investigators reported in 2022 that some loan proceeds were deposited into UAE government accounts rather than South Sudan’s designated oil revenue account. Their latest report expresses concern about South Sudan’s continued pursuit of oil-for-cash loans.