South Sudan Economy: Exposed with Nowhere to Hide
By Garang Atem Ayiik, Juba, South Sudan
Introduction
April 13, 2015 (SSB) — Since 15 December 2013, guns have been unleashed terminating and threatening lives of many. Unarmed enemy which is economic has been too unleashed, but the sound and impact has been hidden.
But economic indicators have now reared its bad head to the citizens, government, private sector or/and even armed opposition. Whether in town or in the bush, economic challenges are real bullet that majority will feel.
In urban centers, dollar is now selling about 160% above the official rate; exchange rate driven inflation rate has surged as South Sudan is an import nation; business has slowed down; firms are laying off staffs and no new jobs opening; government coffers are drying, forcing government to run around with a begging bowl or/and loan request forms.
In rural areas, pictures of women harvesting water lilies for food is already in circulation. UN agencies have announced imminent hunger as war has interrupted subsistence farming in rural areas.
It seems to me every economic actor is expose, with nowhere to hide. This is like great depression of 1929, though South Sudan case is man-induced depression and can be resolved by man. If no actions is taken, the consequences might be very ugly.
South Sudan deteriorating economic environment has been magnify by undiversified economy that relies on oil, whose price has dived by half since late last year in the world market; second, inefficient public resources mobilization and allocation; and third, war that broke out in December 2013 that led to stoppage of production in Tharjath and Unity oilfields reducing production volume and revenue by nearly half.
In this article, I tried to identify key economic challenges; impact on various economic agents; and finally I tried to explore possible policy options for the government.
Economic actors, challenges and possible options
In discussing challenges facing South Sudan economy, the question was no longer about how did South Sudan got itself into an economic pit but what challenges South Sudan economic actors are likely to face in navigating this economic down turn; and what policy options and lessons can South Sudan learn from these challenges.
I think there are three possible policy options from an economic perspective that the government can pursue in living within current economic realities.
One, find ways to compensate loss revenue due to shutdown of production in Unity and Tharjath, and due dive in oil prices in the world market. Second, pursue cost reduction strategies; and finally institutional reforms to minimize leakages and wastage in the public sector.
Increasing revenue is the most preferable option. There are many approaches that government can adopt in pursuing this option.
Firstly, the government can explore local revenue mobilization options. This entails possible increase in taxes – personal and corporate taxes, this is an attractive option as South Sudan tax rates are below East Africa Countries’ rates and hence easily justifiable to increase tax rates, fees, customs, tariffs and other government’s revenue streams.
However, this option become untenable on three accounts: namely non-oil revenue contribution to government coffers is insignificant and any effort to increase revenue is not a game change with regards to revenue increase; second, firms and individuals are already facing grave economic challenges resulting from exchange rate driven inflation.
To increase taxes is to add salt to firms and households injuries’; and finally, with a lot of inefficiencies in public revenues collection, overall, this might not lead to huge financial impact to government but maybe to few rogue public officers. But again will increase misery to the masses.
The other easy option is to take loans from private sector mostly from oil companies and banks as soft target. But again, the oil companies are hit hard by diving oil prices, and shutdown of Unity and Tharjath oilfields.
The government has not honored payments of loans it took from banks in local market in previous years. Maybe, now the government is not in good books of the banks. From these accounts it is difficult to get local loans from oil companies and banks and hence this is not an easy option.
In pursuing revenue increase, government can continue with its public debt push in international markets. This option is likely to complicate future economic management. It is like selling oil underground very cheaply. Considering despair, rigor around their acquisitions and cost of servicing them. But only viable in short run but a true mortgaging of the future.
It is importance to note that East Africa Community has ceiling of public debt as percentage of GDP. With ongoing acquisition of loans, government got to monitor it as this might affect South Sudan’s admission into the community. EAC might not continue to turn a blind eye to underlying risks in admitting South Sudan into the community.
Another possible source of increasing revenues are from NGOs, development partners and friendly nations though development and humanitarian budget but it seem their assistance are peg on attaining peace, again this sound like black-mailing South Sudan but again what better option does South Sudan has?
With withering revenues, government needs to create a working relationship with NGOs and development partners with an eye on supporting the misery masses in the camps, IDPs and rural areas. There is no time for chest-thumping and imaginary unsustainable African man-hood, economic challenges will be dehorning, and South Sudan better know this early.
In very desperate time, government can print money. This is the highest level of economic management bankruptcy. Because printing money means putting a lot of money in circulation that is not supported by any assets. With already exchange rate induced-inflation, if government print money, inflation rate will surge to level beyond imagination, it is not a path responsible government can contemplate.
The second policy option is to reduce cost. This can be achieved by tirelessly and faithfully pursuing peace option. Even before war, government has always allocated huge budget to security sector and this increased with rebellion in December 2013. If peace is achieved, the security budget can come down, but this is not absolute due to expected increase of army from rebel numbers. But the sure thing is that government can put back oil in pipelines in shutdown oilfields hence increasing its revenues if peace is signed.
Other ways government can reduce its cost is implementing austerity measures. This must consider priority and necessity. This is an area where government can save money by reducing ministries, allowances for constitutional office holders, other expenses like business trips and even at high level, including executives taking pay cut.
Though this make sense economically, it might not be politically correct and only courageous government can choose this path.
Again, if peace is achieved, those agencies, countries and individuals that peg their assistance on peace will be willing to help South Sudan. It is importance to stress that government as the care-taker of the people and regulator of private sector has constitutional mandate for thriving and cohesive nation. This is why government actions must and should differ with those of the rebels in pursuing peace.
Finally, the last option for the government is to reform its institutions to reduce wastage and linkages. Taking into consideration the fact that these institutions are taking long to improve, it is a wishful thinking to believe these institutions can be reform within short time to help in public revenue generation and management to curb already threatening economic collapse.
The President in his recent Speech on SPLM public rally, called for improvement in local revenues generation. Though the President didn’t mentioned any specific reforms, he further caution the public that fixing the economic will not happen overnight. Probably a confirmation of long walk in reforming public sector and the reason why this is not the easy fix option for the current crisis.
From the foregoing analysis, first, revenue increase is not attainable, except when peace is signed, and oil is put back in the pipelines in Unity and Tharjath; second, cost reduction can only happen when peace is signed but this is not absolute as rebels are expected to come with huge army but again, there are gains that can offset this cost.
Signing peace restore oil production and goodwill of development partners and international community, a benefit that might offset with additional cost from expected huge rebel army; and, finally institution reforms to stamp out wastages and leakages, is not attainable with current public service cadres but again, even if it was achievable, it will not assist in address this crisis in the short run.
As care-taker of the people and regulator of private sector, government got to support firms and households from live-threatening inflation, pound depreciation and hunger. It seems to me with its current revenues envelop, the government is helpless and that is why peace is the only viable option to insulate from imminent economic collapse.
Many analysts and advisors look at devaluation of pound as an option to merge black market with official rate but this is big nonsense as this will not address key issue of supply which is always less than demand at official rate.
Dollars access at official rate are not enough, many businessmen have now increased their prices to reflect black market prices. What option does the government, nothing more than peace.
Firms are in declining economy, their expected rational behavior is to cut back on investment, and lay off staffs all these reduces money in the pockets of individual and government. This accelerate contraction in the economy and increase misery to public.
As it stands now, South Sudan is facing dangerous economic outlook. It is high time South Sudanese academic, civil society, media and professional citizens take responsibility by highlighting the dangerous a head, encourage both sides to the conflict to compromise for the sake of the people and the nation.
The Vulnerability is not only internal, already Sudan is taking advantage in Abyei and bombing South Sudan territories, Kenya is eyeing Ilemi triangle. Uganda is thinking on encroaching on part of Central Equatoria and Sudan is doing something similar with South Sudan’s undefined borders. Exposure is not only in economic but in so many aspects which is going to affect South Sudan negatively. No wonder they say unity is strength.
Conclusion and recommendations
The government has tough choices make, resolving challenges ahead require unusual wisdom and courage. Government with mandate to take care of the people and private sector, got to think beyond constitutionality but about human concern. Both government and rebel must put the interests of their subjects above their interest.
With all the wisdom and witty human brain, South Sudan options are not many. Only limited to peace or a military win within a blink of an eye but again with world holding Cessation of Hostilities (CoH) before the eyes of warring parties and crime against humanity behind CoH, war is not without exposure too.
So we know the road, peace, military win or economic collapse. The citizens can watch as both parties take decisions.
Garang Atem Ayiik is an independent economic commentator and can be reached garangatemayiik@gmail.com.
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