By Luka Biong Deng

June 24 2012 - South Sudan and Sudan have now resumed the second round of the talks in Addis Ababa in their efforts to implement the African Union Roadmap, aimed at finding solutions for the pending issues and normalizing their relations.

This round will be critical as the people of the two states attach high hopes and expect positive signals as the consequences of strained relations are painfully unfolding. Since the first round of talks did not produce results except diplomatic achievement by the South, the parties are becoming worried about the outcomes of the Roadmap and the role of African Union High-Level Implementation Panel.

While the South promptly accepted the Roadmap only within four days of its adoption, Sudan reluctantly accepted it; raising concerns over the involvement of United Nations Security Council. Despite this acceptance, the parties seem to have either misread or underestimated the role of the Panel.

With the time bound for concluding the talks in three months is now approaching, the parties started to question the credibility and neutrality of the Panel. While President Omar el Bashir in his address to the NCP leadership doubted the credibility of the Panel over the proposed map for the demilitarization zone, President Salva Kiir in his address to Parliament expressed that the South would go for arbitration over the contested border areas and would not accept any solution that might temper with its territory.

Despite such doubts, the parties have paradoxically accepted the Panel to be their final arbitrator on the issues that they might fail to agree within three months. Even the option of arbitration over the contested border areas will only be a possibility if the parties agree on it as a solution or if the Panel proposed it as a solution in case the parties fail to agree within three months.

I suspect that the Panel will be reluctant to defer any issue beyond the four months and it may come up with solutions that would minimize further tensions in the strained relations of the two states. Rather than wasting efforts in doubting the credibility of the Panel, the parties should be sensitive to the expectations of their people and to take these talks seriously so as to find win-win solutions that would improve their strained relations.

Since the unilateral decision of the South to stop its oil production and not to use oil infrastructure in Sudan and the decision of Sudan to close its border with a ‘shoot-to-kill’ policy for any smugglers of goods to the South, the relations between the two countries deteriorated.

Such strained relations reached the climax when the two countries fought over the contested area of Panthou. The humiliating defeat of Sudan in Panthou exposed the racist attitude of President Bashir when he described the people of the South as insects and slaves. Each party has been calculating that these decisions will weaken the other party so that they will be more reasonable during the negotiations. The real question is who is paying the price of the strained relations of the two countries?

Generally, the economies of the two countries have been badly affected by their strained relations. While the South has temporary lost oil revenue that constituted 98% of its budget, Sudan has lost more than 30% of its revenue from oil-related fees from the South, and almost more than 80% of its foreign exchange earnings. With the closure of its border with the South, Sudan is losing huge foreign earnings from trade; which are now flowing to East African countries, as well as Ethiopia and Eritrea.

The monthly inflation rate, which used to be one digit, has reached more than 30% in Sudan and around 25% in the South. The exchange rate, which was less than 3 Sudanese Pounds and 3 South Sudanese Pounds per dollar, has reached almost 6 Sudanese Pounds and 5 South Sudanese Pounds in the parallel market. Even the new South Sudanese pound that was at parity with Sudanese pound has now appreciated to about 1.25 Sudanese pounds.

In fact the strained relations between the two countries may turn out to be a blessing in disguise, particularly for the South. The two countries have been suffering from the “Resource Curse” and “Dutch Disease” with their symptoms clearly revealed by their strained relations. With strained relations, the leaders in the two states are seriously looking now of how to manage their economies without oil windfall.

While Sudan has embarked on serious austerity measures of lifting subsidies on fuels and reducing the size of the public sector, the South has been focusing on mobilizing non-oil revenues, public sector reforms, fighting corruption and more investment in agriculture. The collection of non-oil revenue by the Ministry of Finance in the South has substantially increased for the first time. Also the efforts of the Anti-Corruption in the South to retrieve stolen funds have been yielding good results. Equally the government in the South is looking at its old books to recover the stolen funds from “sorghum saga”.

Sudan faces a deficit of $10 billion as a result of the secession of the South. It has a total debt of $40 billion, with annual debt and interest payments consuming most of its scarce foreign earnings. Before relations strained, the South was ready not only to mobilise Sudan’s creditors for debt relief but also to assist financially and use its diplomatic relations to solicit financial assistance for Sudan. Given the bad image of Sudan and its low creditworthiness, the South would be in a better position to convince creditors, particularly in the Arab and Islamic countries.

In fact, the people of the two countries are the ones who suffer most from the strained relations. Although the South may transform this situation into new opportunities, Sudan will remain a strategic neighbour. Managing relations with Sudan will be critical for economic, social and political stability of the South considering that more than half of its population lives in states bordering Sudan and more than half of its international borders are with Sudan. In addition, the two countries share the natural link of the River Nile and a wealth of social relations.

Luka Biong is a senior member of South Sudan’s governing Sudan People’s Liberation Movement (SPLM). He is currently the Chief Representative of South Sudan President in Abyei Joint Oversight Committee. He can be reached via lukabiong@kushworld.org