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Celebrations began at midnight as crowds took to the streets of the capital Juba, with people crammed into cars driving around the city and honking horns to mark the first anniversary since separating from former civil war foes Sudan.
"We have fought for our right to be counted among the community of the free nations and we have earned it," South Sudanese President Salva Kiir told a crowd of several thousand, gathered in the baking sun for hours at a military parade.
Grossly impoverished South Sudan has spent the past year wracked by border wars with the rump state of Sudan, as well as internal violence and the shutdown of its vital oil production in a bitter dispute with Khartoum.
But Kiir, speaking at the grave of the late rebel leader John Garang, said the fledgling nation must do more to cut corruption, and learn to step away from the massive donor support that props up the war-ravaged country.
"To the extent that we still depend on others, our liberty today is incomplete," Kiir told the flag-waving crowd. "We must be more than liberated, we have to be independent economically."
Crowds cheered as dancers and military bands played music.
"It is a good day because it is the first birthday of my country," said Rachel Adau, a nurse, one of thousands crammed into the crowd at the official ceremony.
"Today is the day we celebrate when the people came out from the Arabs and liberated themselves," said Michael Kenyi Benjamin, a student, as a dancing man dressed as a white dove of peace raised cheers from the flag-waving crowd.
While massive steps forward have been made, South Sudan remains one of the world's poorest countries, where even the most basic infrastructure, such as roads, electricity and water distribution networks, is lacking.
The early euphoria of independence on July 9 2011, has since given way to a harsh reality.
Khartoum's Deputy Foreign Affairs Minister Salahudin Wanasy Mohammed attended the celebrations, congratulating the South on its independence in a speech that was received with muted response.
Kiir said Sudanese President Omar al-Bashir – the first to recognise the nation last year – had turned down his invitation to attend the military march past.
Tension remains high with Khartoum after heavy border fighting in March and April along oil-rich disputed frontier regions, and officials held out collection boxes at the ceremony to raise funds for frontline troops.
"We have lost many of our comrades and today we are thinking of them," said James Hoth, chief of staff of the South's army, recalling both those who died in the decades of civil war with Khartoum, as well as clashes earlier this year.
Ugandan President Yoweri Museveni told the crowd he understood the struggle with "the short man from Khartoum" and that South Sudan's "sisters and brothers" in Uganda would support them.
Other guests included former South African president Thabo Mbeki, who is mediating slow-moving AU-led talks between Sudan and South Sudan.
African Union commission chairperson Jean Ping noted the "tremendous difficulties" the South has faced, adding that he urged both Juba and Khartoum to stick to AU and UN Security Council resolutions to broker peace between them.
European Union foreign policy chief Catherine Ashton echoed those concerns, warning in a statement that "peace and development … will only be possible once South Sudan and Sudan live side by side as good neighbours respecting each other's sovereignty."
The US also congratulated the South but secretary of state Hillary Clinton warned in a statement that conflict, unresolved issues with Sudan and internal violence threaten to "compromise the very foundation on which South Sudan's future will be built".
UN chief Ban Ki-moon, who Juba said had been scheduled to attend, said in speech read out by officials that "South Sudan can now proudly walk the world stage as a country" but warned much more needed to be done.
"A lot has been achieved since independence, but a lot also needs to be done," Ban said. "The road ahead will not be without challenges, but I am confident… South Sudan will overcome any obstacles and succeed in becoming a prosperous nation." – Sapa-AFP