Flowers have been planted and official buildings given a lick of paint. But the celebrations held all over South Sudan to mark the first anniversary of independence will, by necessity, be a slightly muted affair.

Insecurity, a violent divorce with Sudan, rampant corruption and a debilitating economic crisis are underlining the difficulties of constructing a state.

But even faced with this imposing list of setbacks and challenges, it is hard to find anyone who regrets South Sudan's independence. "If you measure the difficulties we used to face when we were one country, it is better to remain separate," Donato Ochan, head of South Sudan Older People's Association, says. "During the one Sudan we had no voice at all – we were second-class citizens."

At his country's first speech to the United Nations, President Salva Kiir – a rebel leader pushed into politics, who is almost never seen in public without a black cowboy hat – wanted the world to know the size of his task. "Even before the ravages of war could set in, our country never had anything worth rebuilding," he said.

Abraham Ayiik would agree. As deputy headmaster of a primary school in Kuajok, he and his 40 teachers have nearly 2,000 pupils to look after. The school is a collection of hastily built thatched huts scattered round a patch of empty land. There is no electricity, and not many books. "The pupils do not have much food, and most of the teachers do not have a salary," he says.

The lack of schools, health facilities, roads and jobs is a direct result of years of conflict and underdevelopment. The absence of opportunities for young people, combined with the ready availability of guns, another damaging legacy of the war years, has fuelled a series of deadly inter-ethnic clashes.

In August several hundred people from the Lou Nuer ethnic group were killed in Jonglei state. Over December and January the Lou Nuer, in the guise of the White Army – several thousand men strong and armed with AK-47s and even RPGs – took a terrible revenge on their Murle adversaries. The UN says over 800 people were killed, while a Murle official, Joseph Konyi, says the real figure was more than 3,000.

In theory, South Sudan has the resources to pull itself out of this mess; at independence it took with it three-quarters of Sudan's daily oil production. But in January officials took the drastic step of shutting down the oil industry in a row with Khartoum. South Sudan had been exporting its oil through Sudan's pipelines, but there was no agreement on how much this should cost, and the Sudanese began confiscating oil in kind – stealing it, from Juba's perspective. The shutdown deprived the government of 98% of its revenues, and its only chance to obtain foreign currency, vital as food and other necessities are imported. Inflation has soared past 80%.

"The food prices are so high now, it is difficult for ordinary people to survive in Juba," says Ochan. "I think the government took an emotional decision, and we are now paying the consequences." The government plans to build an alternative pipeline, though this would take years and cost billions of dollars. Austerity measures have been introduced. A regional strongman, the Unity state governor Taban Deng, who now has to cope without oil revenues, says people will need to redouble their efforts. "My most important message is they have to be hard-working, self-reliant, and produce the food we need," Deng said.

The relationship with Sudan has also provided stiff challenges. Juba regularly accuses Khartoum of launching bombing raids on its territory, and of supporting rebel groups. More than 170,000 Sudanese have fled into South Sudan from civil wars across the border, adding to the new country's humanitarian burden. In April South Sudan briefly seized control of the Heglig oilfields, one of Sudan's biggest sources of revenue, sparking days of direct clashes. The border is disputed. But the condemnation of the act – the African Union called it an "illegal occupation" – made it clear South Sudan had lost considerable international support. The UN has threatened sanctions against both Sudans if negotiations on the border, oil and other issues are not resolved by the beginning of August.

There has been growing criticism of the South Sudan government too, from press freedom and human rights groups, and foreign governments. A leaked letter apparently from the president's office, asking 75 current and former officials to return at least $4bn in "stolen" money, was embarrassing, and revealed the extent of corruption.

But Peter Biar Ajak, director of the Centre for Strategic Analysis and Research, a Juba thinktank, believes the corruption is a distraction. "We can't possibly prosecute everyone – and in our history, look how much the northerners looted, the British, the Turks," he says. "Maybe these guys stole $4bn but they brought a nation. We need to look a bit longer term, we need a generational change. We need the liberation generation to give way to a developmental generation."