But Mr Vice president, have we tried to save our economy before asking other countries to save it for us?
7 min readBy Agok Takpiny, Melbourne, Australia
May 8, 2015 (SSB) —- Vice president James Wanni asked East African countries to save his country’s deteriorating economy, but have South Sudan try enough to help itself? Since February this year, most people has been speculating that the South Sudanese economy is about to collapse.
However, the South Sudanese government only started to share that view of many in April that the economy is indeed on the free fall. The elite or the policy makers only came to that realization because inflation has reached new heights and the country has faced an increasing shortage of essential consumer goods like bottled water and fuel.
The black market price of the dollar has risen close to 9 SSP and as I write this article, that rate may have gone up. There are many reasons why the dollar is a hot commodity in South Sudan.
Firstly, South Sudan is a country living on imports, there is absolutely nothing produced in South Sudan. Everything from vegetables to construction materials are imported. Secondly, almost all South Sudanese who has regular income have rented houses for their families and put their children in various schools in East African countries.
Thirdly, students whom their parents or guardians cannot afford rents in Uganda or Kenya but can afford to pay their school fees are all studying in boarding schools in East African countries. Fourthly, there are no hospitals in South Sudan, the few that are there are poorly equipped and can hardly treat even little sicknesses like flu or malaria. This means the majority of people who has income travel overseas for treatment.
Finally, a large number of big businesses are owned by foreigners. What this mean is that these foreign nationals exchange a huge amount of South Sudanese pounds into dollars and take the dollars back to their countries.
All the mentioned factors have always been there, however the difference this time is that the oil prices in the international market has dropped dramatically, this coupled with an ongoing civil war, which forced the closure of some oil wells in Unity and Upper Nile states mean that there is a lot less hard currency going into the South Sudanese economy.
As a result, dollars become scarce. Here the law of demand versus supply kick in, as demand increases while the supply dry up, it pushes the black market price up. This pushes up the inflation as well as import prices rise. The long term fear is that as more people want dollars and no enough dollars coming into the economy, inflation will keep rising.
In extreme cases this can cause hyperinflation where the pounds could become useless as was the case with the Zimbabwean dollar in 2009. Another factor why the black market for dollars rising higher and higher is that the government of South Sudan has a system of fixed exchange rate. What the fixed exchange rate does is that it overvalued the pounds, while the demand is in dollars, this swing the exchange price against the pounds in favour of the dollar.
Fixed exchange rates can only be a good thing if the South Sudan central bank has enough dollars in its reserves to maintain the fixed rate. However, this is not the case, the bank of South Sudan as acknowledged by the government itself is running low in hard currency.
The shortage of dollars, which push up the exchange rate means that everything in South Sudanese markets will become more expensive, South Sudanese living in East African countries will not be able to pay their rents and school fees for their children. This prompted the government to send the vice president to Kenya and Uganda to ask those sisterly East African countries to rescue South Sudan economy by accepting the South Sudanese pounds (SSP) inside their countries.
Currently, South Sudan has two different exchange rates. The official rate is about 4 SSP per dollar and the black market rate is 9 SSP. Can you see the potential problem here? The black market differential is too big, what this mean is that it increases the incentive for corruption. Think about it for just a moment.
If you can get access to dollars at the rate of 4 SSP, which is the official exchange rate and then sell those dollars at the rate of 9 SSP (the black market exchange rate), you would be 5 SSP richer. This is corruption at its finest. This is precisely what is going on in South Sudan, the elites with their families and friends are mostly exclusively the ones who get the dollars at the official rate of 4 SSP.
To answer the question I asked earlier, before going to East African countries and ask for help, there are few things which Wanni Igga and his government can do to mitigate the short-term and the long term crisis of the exchange rate.
In the SHORT TERM, the government need to take some hard decisions and devalue the pounds and get rid of fixed exchange rate. Adapting the floating exchange rate where the market forces determine which currency go up or down in value will unify the official and black market exchange rates. By unifying the exchange rates, the issue of discriminatory distribution of dollars will be eliminated.
Consequently, those corrupt officials who used to supply the black market with dollars will see no incentive in that crook business. By taking these measures, the government must have to introduce subsidies for essential goods like basic food items and fuel to cover the price shock which would force those households with no enough income to go without food as they wouldn’t afford it.
The few outlined solutions above for the quick fix are achievable. However, for the long term, the task is huge and it can only be done if the government of South Sudan is serious about fixing the economy. To bring the South Sudan’s economy to a minimum regional standard, the government must embark on constructing 2000 or more residential houses annually in Juba. States governments will also need to do the same.
In addition to housing, there is also a need to uplift the face of education in South Sudan, funding for education must be the same or even more to that of the military. With good education system where teachers are paid based on their qualifications and performance, there will be no need for South Sudanese students to go and study in Kenya or Uganda. Moreover, if there are enough clean and affordable standard houses for rents, all the South Sudanese families in their thousands renting in Uganda and Kenya at the moment will come back to South Sudan.
These will almost half the number of people looking for dollars now in South Sudan, the result will be a healthy economy where investors will find it attractive to invest in South Sudan. Another important project that the government will need to initiate is building cross-country highways. Connecting all major urban areas in the country with tarmac roads will not only reduce transportation costs of goods which will then reduce food prices, it will also ensure even distribution of population (less people in Juba).
Finally, the government will need to look at cash repatriation, in Ethiopia for example, an individual is only allowed to carry a maximum of $3000 if they are leaving the country. Cash repatriation must be capped to whatever amount deem reasonable, this will ensure that foreign nationals are not crowding forex bureaus in search of dollars only to take them back to their countries of origin and invest there.
There are many more the government will need to do to fix the economy for the better, however the above few points are at the core of everything that need to be done in order to have economic growth.
Agok Takpiny is a concern South Sudanese citizen residing in Melbourne Australia, he can be reached at his email: agoktakpiny@ymail.com
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