Prospects of South Sudan Joining East Africa Community – Highlighting Risks and Policy Options
By Garang Atem Ayiik, Juba
Immediately after independence, South Sudan lodged an application to join the East African Community (EAC). In April 2013, the community secretariat sent a committee to verify if South Sudan meets the community’s admission criteria. The findings of the committee were that South Sudan met many criteria.
In November 2013, South Sudan was asked to form negotiation structures by the community in preparedness for admission into the community. In March 2014, His Excellency Salva Kiir Mayardit, the President of the Republic of South Sudan, forms a committee primarily made up of the government ministers to lead the negotiation.
The priority attached to joining the community by the government can be interpreted from three different viewpoints: economic incentives, political considerations and security concerns. During the war, SPLM and South Sudanese received and continue to receive assistance from East Africa countries; this together with economics sense could form the basis for analysing prospects and importance of joining the community.
From South Sudan perspective, His Excellency Aggrey Tisa Sabuni, South Sudan’s Minister for Finance, Commerce and Economic Planning, in his presentation during the Investment Conference in Juba in December 2013, outlined the economic gains that are likely to accrue to South Sudan resulting from joining the community, namely: increase exports; institutional, legal and business environment improvement, capacity development and security improvement.
As the wind of globalization blows, it is understood that nations are obliged to accept best practices and liberalizing economies today is a necessity for a better ‘world and regions’. However, countries in the region had in the last 50 years created institutions that are the bedrock of managing their economies, an advantage an infant South Sudan doesn’t have yet.
The EAC countries have common economic structures, namely market driven exchange rate, high literacy rate, diversified economies, functioning fiscal systems, sustainable public debts and inflation rate. These economic indicators show economic convergence of these nations.
It is possible that EAC economic priorities could be the same given the convergence of their economic indicators. However, this is not absolute, the simmering heard between Tanzania and Democratic Republic of Congo on one side against other members point to underlying differences on economic priorities. South Sudan needs to understand the causes of this tension – it origins and economic arguments.
South Sudan sees access to about 140 million markets as a road to increase exports. This is a fallacy because it is not true that South Sudan’s exports are not increasing now because she is not a member of EAC. In reality, South Sudan only exports are natural resources whose markets are not and might not necessary be within EAC soon.
In the short term, joining the community will not in any way enhance the country’s export. If anything, it will inhibit the ability for the government to groom it local goods and services. South Sudan agriculture production needs live-breathing in form of subsidies and other pro-poor programs. Tools that are likely to be lose if she joins the community.
Increasing exports is largely a function of improving structural impediments to production like access to technology, access to capital, entrepreneurship training, infrastructure improvement and security. Incentives can be created internally, and any increase in production can be consumed locally.
My view is that South Sudan needs to focus on imports reduction strategies for now and thereafter, if local production increases to exceed local consumption, South Sudan can switch her strategies to export enhancement. This in my view will take years, and that is why prioritization of exports now is a wrong economic dose prescriptions.
There is also a possibility that health and safety standards are likely to curtail any progress to export non – natural resources exports whether to EAC or elsewhere. Lack of certification for professionals like lawyers, engineers, accountants, dentists and doctors will reduce their competitiveness in the community and hence services exports is not a dream in a short term. All these points to a fallacy to say exports will increase when South Sudan join EAC. In essence, it is clear South Sudan balance of payment will NOT improve in a short term.
The other benefits that South Sudan expects to get are security improvement and capacity building. South Sudan can still gain these issues from a bilateral approach. Nothing more or less is South Sudan likely to enjoy after joining the community. From theoretical analysis, South Sudan will lose more than its gain from a short term perspective. There are going to be serious institutional shocks.
As a country that depends on oil transported in unreliable and sometimes unsecured gateway, South Sudan admission to the community possesses serious challenges to herself and to the community. As an importing country, the local prices depend of exchange rate, though currently fixed, long halt to oil production will affect the ability of Central Bank to defend a fixed rate.
The above scenario has deadly economic implications. First, fixed rate goes against the principle of market driven and hence against the spirit of EAC treaty. Second, if South Sudan liberate its exchange rate, inflation rate is likely to increase causing misery to her citizens.
Third, if South Sudan does not liberate her economy, any modification for preferential treatment of South Sudan will complicate the implementation of the community’s protocols. With all these implications why would South Sudan rush and why will the community accept a country with such huge risks? South Sudan should be left alone with the arts of economic war to fight it challenges in good faith.
South Sudan as a one-resource economy is at a risk should anything affect oil production. In such time, a fiscal space to borrow and fiscal policy to mobilize local revenue is critical for economic survival. But in accordance with the customs union, and common market protocols, South Sudan will lose such economic crucial economics tools.
If admitted, preferential treatment that will be given to South Sudan will create complexities of administering the protocols, and more importantly, the experience of Eurozone where weak economies caused financial stress is a warning to any attempt to turn a blind eye to the inherent risks.
For now, South Sudan should be given an observer status till such times it has created institutions that will help the community achieve its objectives. This will create a relationship between South Sudan and the community in readiness for full admission.
Secondly, such status will protect the region from associated risks of admitting South Sudan fully; thirdly, it will allows South Sudan to retain its monetary and fiscal policies to lay a foundation for a stable economy in readiness to join the community and fourthly, it will give South Sudan first-hand experience in navigating joint economic policies. South Sudan and community can’t ignore the immense macroeconomic divergence between them; it is an economic suicide especially for South Sudan.
In the interim, key priorities for South Sudan should be to establish strong economic team to support her economic integration positions sectors-wise, and engage its citizens; secondly, to start mainstreaming the integration into her economic policies and in the short term, adopts a bilateral approach with its neighbours and an observatory status with the community.
Now, the dice is cast; it is up-to South Sudan to refuse the old wisdom that state that you can’t test the deep of the water with all your feet and equally, it is up-to the community to ignore due diligence mechanisms put in place by its treaty. As for South Sudanese, they are waiting to participate-if it is going to be a politicians driver process, it will be a true economic and political coup against the citizens of South Sudan.
Garang Atem Ayiik is an independent economic commentator on South Sudan economic and Policies. He can be reached at garangatemayiik@gmail.com
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Good article. But I think you mean: ‘it is clear South Sudan balance of payments will NOT improve in the short term’…?
Thanks Medley, corrected!!!