When South Sudan seceded from Sudan in July 2011 investors were upbeat about the economic potential of the world’s newest state. Many thought it would close the chapter of South Sudan’s dark history: two rounds of civil war spanning nearly 40 years. The second, lasting 22 years, killed over 1.5 million people and displaced 4 million others.

In addition to its potential in agriculture, South Sudan took with it a large chunk of the former Sudan’s oil wealth, which was expected to help transform the country’s almost non-existent infrastructure. It was an appealing prospect for investors. Banks, airlines, educational institutions, transport companies and traders from neighbouring countries and globally entered South Sudan with high hopes. But just seven months later oil production was halted due to disagreements with Sudan over sharing oil revenues, robbing South Sudan of 98% of its total income and forcing austerity measures.

On 15 December 2013 South Sudan’s capital Juba descended into chaos after president Salva Kiir accused former vice president Riek Machar of attempting a coup. Intense fighting ensued between supporters of the two leaders as hostility spread to other towns in the country. The civil war, which threatens to make South Sudan a ‘failed state’, is estimated to so far have killed at least 50,000 people and displaced millions.

Statistics show about 180 health facilities have been destroyed or are no longer functioning at a time about 235,000 children suffer from acute malnutrition. Human rights organisations warn the country is on the verge of genocide, accusing forces aligned to both Kiir and Machar of multiple atrocities such as gang rapes, massacres, and recruitment of child soldiers.

Over three years since independence, and facing a conflict that has lasted more than a year, South Sudan’s economic appeal has faded. International Monetary Fund (IMF) statistics estimate the economy contracted by at least 15% last year. The civil war has slashed oil production by a third to 160,000 barrels a day and made it harder for citizens to access food and basic needs. The United Nations (UN) has warned about 6.4 million people in South Sudan will be facing food insecurity between January and March, noting nearly $1.81bn will be needed to combat the crisis during 2015.

But the ravages of war are not being felt by South Sudan’s 12 million population only. Research now shows South Sudan is becoming an economic burden to its neighbours in East Africa and other global economies.

In a report titled South Sudan: The cost of war, London-based consultancy group Frontier Economics says continued conflict over five years would cost Kenya, Ethiopia, Sudan, Tanzania and Uganda up to $53bn. And these neighbours will continue to deal with increasing numbers of refugees, security concerns and other spillover effects.

For example, according to the UN’s refugee agency, over 194,000 South Sudanese refugees have entered Ethiopia since December 2013. The agency estimates this year’s financial requirements for refugee response in Ethiopia at about $345m.

Long-term and escalated conflict in South Sudan would make it the second ‘failed state’ in East Africa worsening the negative effects the region has faced since civil war broke out in Somalia in the 1990s. The fall of Somalia has cost Kenya and Uganda hundreds of millions of dollars in military spending, for instance, as well as lost revenues in trade and increased insecurity from terrorist group al-Shabaab.

The report warns if conflict persists for one to five more years, South Sudan, one of the most impoverished countries in the world, would forego up to $28bn and have to increase its spending on security by $2.2bn. The international community would also have to spend nearly $30bn on peacekeeping and humanitarian assistance.

“The human costs of conflict – death, hunger and disease – also have significant longer-term impacts. Just taking the effects of hunger on labour productivity could mean a further $6bn in lost GDP (in South Sudan) if the conflict were to last another five years,” the report reads in part.

To address the economic impacts of war, the report calls for transparency and accountability in the management of oil and mineral resources, and all government expenditure. The government should break with tradition and not repeat past behaviour when it borrowed substantial monies from oil companies operating in the country without disclosing the terms of the loans.

When peace is restored, Frontier Economics advises South Sudan to distribute public resources equitably, boost economic growth, prioritise infrastructure development and agriculture, and promote private sector development.