South Sudan Should Nationalize Critical National Industries to Prevent Forex Flight
6 min readFor South Sudan to prevent Forex flight, it should nationalize vital national industries such as telecommunication, energy, agriculture, and banking
By Mayen D.M.A Ayarbior, Juba, South Sudan
January 4, 2015 (SSB) — In order for South Sudan to be in a strong position to compete in the East African marketplace, the country has to first have a functioning marketplace of its own. Since the EAC is essentially an economic community, its constituent units and country members are treated as markets rather than as sovereign political states, even though the latter is the controller of the former. Hence, it is only natural that the main preoccupation engaging our thinking throughout the coming transitional stage ought to be related to building a competitive economy.
Having already started with nominal devaluation as a means of managing its money markets, South Sudan’s purposeful economic alignment towards the EAC has now started in earnest. Nonetheless, monetary policy alignment could only be one of many more economic actions which had better be taken concurrently as they are symbiotic. For instance, increasing the purchasing power(s) of a segment of buyers (government employees) is one such concurrent step towards improving the country’s domestic economy. But, of course, we all know that it is not enough either.
An important measure which is expected to contribute to creating a competitive domestic market is the eagerly awaited operationalizing of a mini-refinery in the first months of 2016, as per recent statements of senior government officials, including the country’s Vice President. Surely, once production starts, the triple effect of domestically provided cheaper fuels would be felt across the country in terms of a drastic drop in commodity and service costs. That, in turn, will reduce the dollar rate for its significance to the economy will be somewhat curtailed.
Another vital characteristic for every developing economy to thrive is the ability to prevent forex leakages (money flight), which is defined in terms of failure to retain most of the foreign currency produced by activities within domestic markets. Massive income repatriation by foreign direct investments and citizens’ foreign (external) banking are the two main ways of forex leakages.
Unfortunately, South Sudan has been seriously afflicted by massive forex leakages since its gaining autonomy (2005-2011) through its existence as a sovereign state (2011-2015). Throughout the last decade, the country has received billions of dollars from its oil sales, yet nothing has been retained in the country in any meaningful form. There is no single grand physical infrastructural project we can be proud of, such as a hydroelectric dam, inter-state highways, railway links, power or water grids, etc. Almost 90 percent of those billions of dollars leaked out of the country through various ways.
In spite of the current regretfully destructive civil war, which is almost seeing its formal conclusion with the expected formation of the expected Government of National Unity, the country should be in position to stand up, dust off and lick its wounds, then move on with avoiding all the mistakes of the last decade. The future still holds so much potential in terms of natural resources, economic opportunities, but their exploitation must be anchored in policies that promote forex retention.
The first step towards preventing forex flight is identifying which industries are responsible for their occurrence and what steps should be taken. I personally identify four major industries which are responsible for forex flight. These are telecommunication, energy, agriculture, and banking. The most urgent action that South Sudan could take towards preventing forex leakages through these sectors is to nationalize telecommunication and energy sectors, subsidize agriculture, and promote indigenous banks.
In case of telecommunication, this could be the highest forex drainer in the country. Since the time when the Bank of South Sudan and Ministry of Finance announced the policy of managed float, starting from the black market rate of 18 SSP per $1, telecommunication companies have raised their rates almost five folds. I may contend that such exorbitant increase in tariffs by telecommunication firms is incommensurate with the new financial realities. It has been used as a pretext to increase their profit margins far much more than they had been before the decision to devalue the SSP.
Since telecommunication firms can now earn millions of SSP every one hour, they can easily buy dollars from commercial banks through the biweekly tendering process which has been started by the Central Bank. In other words, every minute we spend in talking on internal and external calls translates into sending a big portion of the injected dollars out of South Sudan.
There is no reason why we should not emulate Ethiopia which has a single (government owned) telecommunication firm. It (Ethiopia) retains hundreds of millions of dollars which would otherwise be repatriated out of the country by foreign telecommunication firms. After all, at this stage of economic development, opening up a poor country’s markets for multiple telecommunication firms does not add any meaningful value to the quality of life for citizens.
Surely, there is no economic value in having four or five telecom firms in a country like South Sudan. Like our beloved Land Cruiser V8s, carrying many phones continues to be a symbol of status, even for the unemployed or a parent who cannot send his or her children to school. Furthermore, the cost of compensating the nationalized firms like Zain, Viva Cell, MTN, and Gemtel could be paid in a short time from revenues that would accrue to the new national telecom firm (say: RsTel). In addition, if a country can run a Ministry of Finance, it can surely manage a telecom industry even if with initial support of foreign technicians (from India or anywhere).
In conclusion, a developing country that fails to retain a substantial percentage of foreign reserve will not attract meaningful investment in vital physical and social infrastructure, industries such as internal railway and highway construction, hydropower generation, hospitals, sports complexes, etc. If we fail to create a mechanism for trapping hard currency inside South Sudan, we shall revolve around the same cycle where foreigners know our country as a goldmine, while our citizens remain mired in absolute poverty and lack of opportunities.
Mayen Ayarbior has a Bachelor Degree in Economics and Political Science from Kampala International University (Uganda), Masters in International Security from JKSIS-University of Denver (USA), and Bachelor of Laws (LLB) from the University of London. He is the author of “House of War (Civil War and State Failure in Africa) 2013” and currently the Press Secretary/ Spokesperson in the Office of South Sudan’s Vice President, H.E. James Wani Igga. You can reach him via his email address: mayen.ayarbior@gmail.com.
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