Economic challenges ahead as South Sudan forms unity government

More than two years of civil war have crippled South Sudan's economy -- a huge challenge to a new unity government formed after rebel leader Riek Machar's return.

Machar was sworn in as first vice president on Tuesday, hours after his return to the capital Juba, starting the formation of the transitional government of national unity to end the civil war.

The war between Machar's rebel force and the government since late 2013 has taken its toll on the economy, marked by a shortage of hard currency and the decline in oil production, which the country is highly dependent on.

Business once boomed when South Sudan gained independence in 2011, with many foreign companies from banking, telecoms and wholesale sectors opening shops in Juba, attracted by "petro-dollars".

"Around December 2013 after the reopening of oil production, South Sudan was making around 300 million U.S. dollars a month that was music in the ears of investors," Aggrey Sabuni, South Sudan's presidential economic advisor, said on Monday.

However, the optimism has vanished since the war broke out with the exit of foreign companies.

South Sudan depends on oil to finance 98 percent of its fiscal budget. The war destroyed some oil infrastructure in oil-rich Unity and Upper Nile states.

Oil production has fallen from 350,000 barrels a day to less than 160,000, coupled with the declining oil price, leaving Juba with less revenue to finance its deficit budget.

"We would like to reduce the importance of oil both in the budget and in our country's output -- that is in the Gross Domestic Product. This means diversifying our sources of revenue and output. The key to this is when we have more and more South Sudanese gainfully employed," Sabuni said.

The war has killed tens of thousands of people and displaced over two million, with about 2.8 million -- nearly a quarter of the country's population -- in urgent need of food assistance.

The country is rich in natural resources including oil, Arabic gum, gold, teak and mahogany. A large portion of its land is deemed suitable for agriculture, yet less than five percent is cultivated.

Ensuring peace and letting the millions of people resume production seems first things first for the unity government.

Alic Garang, a researcher with Ebony Center for Strategic Studies, a South Sudan think tank, told Xinhua that a sizable number of skilled labour force in Unity, Upper Nile and Jonglei states had been displaced in the war.

Meanwhile, the country is seeing high food prices -- in particular the food imported from Uganda, and has suffered fuel scarcity, which cripples the economy.

There are also fears that ethnic conflicts, worsened by the civil war, will harm efforts to revive the country.