The economic benefits of the Paloch – Pagak highway

In June 2024, the South Sudan Transitional National Legislative Assembly ratified the Ethiopia—South Sudan financial agreement to build a 220 km cross-border highway connecting Ethiopia and South Sudan, which will cost $738 million United States dollars. [1]

The road will connect Paloch, South Sudan's largest oilfields, to Ethiopia’s border areas, marking a significant step in enhancing connectivity and bolstering economic ties. This article will analyze the strategic economic benefits of the Paloch-Pagak highway for South Sudan, underlining its importance.

Oil and Gas

The oil industry is the heart and soul of the South Sudan economy. South Sudan has over 3.5 billion crude oil reserves, the third largest in Sub-Sahara Africa, behind Nigeria and Angola. The South Sudan oil and gas industry is crucial in the young nation's political and economic environment. Oil revenue accounts for 90% of Government revenue and over 70% of gross domestic product (GDP).

South Sudan exports all its crude oil through a pipeline to Port Sudan, which relies on Port Sudan to import oilfield supplies and equipment. However, South Sudan halted oil production in February 2024 due to the Sudan conflict, abrogating economic progress. South Sudan has no refinery or an alternative pipeline, so Sudan relies on Sudan for crude oil exports.

Through the Paloch—Pagak highway, South Sudan will import essential oilfield equipment through the Port of Djibouti, much closer than the Port of Sudan. This will reduce the production cost of oil, saving the country millions of dollars.

The road will encourage the sisterly nations to build a refinery and ensure energy security in the Horn of Africa. Ethiopia, after Nigeria, has the second-largest population in Africa. [1] and a market for refined petroleum products. In 2022, Ethiopia imported USD 872 million in refined petroleum products. [2]

Agriculture

South Sudan has vast agricultural potential and could become the region’s breadbasket. However, the lack of access to outputs, infrastructure, and market institutions impedes agricultural development in South Sudan.

South Sudanese farmers lack access to critical inputs (seeds, pesticides, herbicides) and fuel. The Sudan – South Sudan border is officially closed, forcing farmers to rely on smuggled goods such as inputs and fuel to continue their agriculture projects. The highway will create an alternative route to import inputs and fuel, helping farmers improve agricultural yields and production to ensure food security.

The Upper Nile region is considered one of the most fertile areas in Africa, with fifty of its arable land being prime for agricultural land. [3] The lack of markets discourages cultivation. The highway will create markets for subsistence farmers and encourage them to increase production. It will also give farmers access to local and international markets.

Sudan smuggles Gum Arabic from cultivators in Renk to international markets. In 2021, Sudan exported $111M in Gum Arabic, making it the world's second-largest exporter of Gum Arabic. Most of Sudan’s Gum Arabic originates from South Sudan. The highway creates an alternative export route for gum Arabic producers to international markets. South Sudan Revenue Authority is increasing non-oil revenue and reducing reliance on oil revenue. The highway will increase non-oil revenue through increased economic activity through customs, taxes, and tariffs.

The Paloch-Pagak highway will improve Ethiopia and South Sudan's political and economic relations. Ethiopia is the second largest population in Africa and can import surplus agricultural products from South Sudanese farmers. This road will enhance bilateral trade, rejuvenate the South Sudan economy, and develop Upper Nile, a state affected by the South Sudan conflict. South Sudan’s economy is concentrated in the capital, and this road will expand socio-economic development in rural areas.

ABOUT THE AUTHOR

Akol Dok is the Founder of Orus Consulting Limited, a business advisory and public relations firm based in East Africa. He is a writer and analyst featured on CNBC Africa, CGTN Africa, Radio Miraya, RT International, Yahoo News, Semafor, and The Nation. He hosts the South Sudan and the World podcast.

*The views expressed in this article are those of the authors and do not represent the editorial stance of South Sudan Mining Journal.*