By Baak Chan Yak Deng, Juba, South Sudan
February 9, 2017 (SSB) — The South Sudan economy faces twin challenges of high inflation and low growth. Most of the short term policy instruments at our disposal trade off one for the other. For example, the RBI has raised interest rates to combat inflation. This may lower inflation, but hurts growth because it increases the cost of funds for companies.
Nearly all short term fixes are going to face this problem that they can’t solve both inflation and growth together. But in the long term, there is a way we can reduce inflation and increase growth simultaneously. The way to we do this is by investing heavily in infrastructure. This includes both creating new infrastructure and improving existing infrastructure.
The three areas where we need to tackle inflation are housing, transportation, and food. House prices are much too high relative to average incomes, and increased construction will make housing more affordable. When it comes to transport, poor roads and poor public transport make transportation expensive and slow. This affects both the movement of individuals, and of goods. Better transport infrastructure will reduce the cost of transportation, and thus lower inflation.
Food costs are perhaps the biggest inflation issue, because they hit the poor the hardest. Food Inflation is caused largely by excessive dependence on weather for crops, and high transportation costs due to poor infrastructure. There is a lot we can do in modernizing agricultural processes to improve food production and reduce volatility. Improvements in financial and insurance markets also help reduce price volatility.
When it comes to investing in infrastructure, the benefits to inflation are clear. But the best part of infrastructure spending is that it also improves economic growth. It does this in two ways. The first is the infrastructure building itself that creates jobs. The second is the benefit to all of society from better infrastructure.
Better infrastructure reduces costs for companies. This makes it easier for them to expand and create new jobs. It also makes easier for new companies to enter the market, again improving output and increasing competition and quality in the marketplace.
The richest countries today went through periods of heavy infrastructure spending in the 20th century to get where they are today. We need to do the same to become successful. The long term benefits to increased infrastructure really cannot be overstated.
The author, Baak Chan Yak Deng, is a graduate in Bachelor of Science in Accounting and Finance at Star International University of South Sudan Affiliate to Busoga University of Uganda and can be reached me at email@example.com or 0954020202
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