Economic Crisis: Why the government of South Sudan went bankrupt
14 min readThe neglected sources of revenue in South Sudan that led to the government’s bankruptcy: Blaming drop in oil price and war are coincidental
Longar Mathiec Wol, Nairobi, Kenya
August 21, 2017 (SSB) — The American politician and businessman Erskine Bowles once said “I think that if we don’t get these politicians to come together we face the most predictable economic crisis in history”. Inarguably that is the case today in South Sudan. The dispute in two camps hold the country hostage and the economic crisis is taking a toll on the citizens. It is up to us to bring these two camps or these politicians together and open a new chapter of economic recovery or we perish economically.
Though the war is not the only cause of the country’s worst economic crisis, it contribution is undeniable. The youngest nation’s government has been challenged by how to stabilize the country’s economy since the start of a disastrous civil war in 2013. The attempts to reinvigorate the economy went futile. The economic crisis that led the country into hyperinflation and the loss of public confidence in the government due to the rise of cost of living and in the way through which it handles the situation.
Many people traced the crisis back to 2013 but, the truth of the matter is, it was coincidental. Whether the war broke out or not this crisis was on its way and could have happened because the government has overlooked many factors that would have easily contributed toward the economic crisis in future.
When the country got independence, the aid extended by many countries made the government relaxive; It remains without a future plan on how it’s going to operate in the absence of this assistance from the donors. Some of the signs that the government didn’t put in place some of the mechanism on how to generate it revenue apart from hand out from the foreign donation.
The lack of the functioning systems; For instance, there is no proper tax system in place, no proper economic policies, and no other alternative source of revenue besides the oil that the country heavily relies on. It is evidence that when the oil price drop it was felt across the country and the government made it as an excuse to why there was no enough cash to implement projects even paying civil servants in the country.
The reality was that other alternative sources were not exhausted properly. I am not denying oil’s price drop as one factor that has contributed toward the government bankruptcy but, the facticity is that it can only stop certain projects that need billions of pounds but not the civil servants’ wage bill.
When you look at the situation in the country many people are quick to condemn the people at the helm of the finance’s ministry and the administration of the central bank but, truth be told these institutions are part or component of the broad solution but not the solution of the problem alone.
But, their opinion seems true because these institutions plus the agency entrusted with a tax like revenue authority should put in place some rules and regulation on how to collect the revenue from the public. The stabilization of the economy is a very complexed situation that requires a lot of thinking, expertise and reform for the change to be realized.
Country economy to stabilize needs both long and short-term plans. Some of these plans could be ascertained in a period not less than five to ten years. Macro finance is hard to adjust it is not like microfinance. These institutions might have failed in their own way due to the reason that they aren’t able to put in place some of the tangible measures that will relieve the country from this economic headache.
Some of these tangible measures could be strong rules and regulations on monetary and fiscal policies. South Sudan is not the only country that went through austerity measures, many countries have gone through the same but, they came out it because they took right steps toward the right direction. Our problem is that we hadn’t diagnosed the problem properly and exert much effort to resolve the problem.
The questions that we need to ask ourselves with is, what caused this austerity measures or economic crisis? Is it war or drop of oil price? Indisputably both might have contributed. But, where there countermeasures? Maybe but little has been seen by the public. Apart from oil price dropped from an international market.
Are there other possible causes? South Sudan is not the largest oil producing country in Africa, it is position sixth and above largest oil producing country in Africa. So, the question you should ask yourselves is how did these other countries manage their economy after the dropped off the oil price in the international market? The simple answer is that these countries had other sources of revenue-generating activities apart from oil and borrowing.
Hence, does South Sudan neglect other potential sources of revenue in the country? Obviously, yes; if that was not the case we shouldn’t be in this desperate situation whereby we are not able to pay our civil servants. We had reached this flagrant and incorrigible situation because we only think if there is no oil money then a country is left economically paralyzed.
Actually, oil money should only be used for developmental projects not for paying the civil servants simply because the government can easily generate enough revenue a part from the oil money to pay civil servants and organize forces.
There are many other countries in Africa that don’t have oil and they are able to sustain themselves. How they do it should have been the question the government of south Sudan asks itself. These countries manage to sustain themselves through local production and taxes, the fields neglected in South Sudan beyond a reasonable doubt. Taxes and local production can sustain the government regardless the situation.
When it comes to production the common argument by the government is that the government cannot produce enough to the whole country. But, the question is whether it has produced little or not is what each one of us would adjudicate.
The today modern agriculture needs modern machines, modern irrigation system which is not affordable to common citizens with this current economic situation. Unless the government looks for other means of bringing this modern equipment and lend them to the citizens. Otherwise, it will remain a baseless argument and the blaming game continues.
To not bore you with a lot of the information it would be good if we would look at what could be other sources of revenue to the government a part of oil money. The finance taught us that every organization must have sources of revenue otherwise it will not survive. The neglected sources of revenue that led to the government’s bankruptcy and start blaming the drop in oil price and war as Genesis to the economic crisis in South Sudan is a myth and coincidental.
Therefore, there are so many other ways the government would be able to sustain itself and kick out the bankruptcy out of the country.
These include: agriculture, many countries in the world have proven beyond doubt that agriculture can be a vital source of cash to the government. Take for instance Uganda; it has no oil and is able to feed itself and South Sudan simultaneously. South Sudan can easily feed itself if the government open the agriculture schemes in the country and put in place the strong irrigation system.
The irrigation system that will work beyond seasonal agriculture. Rain-fed agriculture is no longer reliable with a lot of stories surrounding climate change. The rain-fed agriculture was able to feed the people that time because many people were living in village life and participated in agricultural activities but, now with present of the so call urban settlement; many people stay in urban setting or towns doing a lot of nothing or jobs that cannot sustain their lives and at the end of the day they expect to have a meal; but the case is not only South Sudan where people live in towns.
It’s all over the world with some countries or cities hosting millions of people in urban areas compare to South Sudan where we talk of hundred of thousand in most of the towns. The endless argument between the government and the people perceive to be idlers is that; the idlers argued there are no jobs and there is no environment for an entrepreneurial while, the government on other hand argued people don’t want to work.
It’s up to you to choose and support and side you think is telling the truth. An argument that would go on and on. But to be truthful government sponsor agriculture with the other few empowered individuals or investors working in agriculture field are the ones to close this gap not only by feeding the population but generating the resources for the government its own survival.
When you look at the pathetic condition of our roads what comes to your mind is whether the government has been honest about encouraging agriculture. For instance, a farmer from the corner of Bahr el Ghazal and Upper cannot access the market with their products and the government has no policies of buying these produce from them.
If we accept that we both failed and start fresh with common objectives and goals then we are destined for another failure. I wonder; why it is taking government ten years plus to construct the roads connecting Bahr el Ghazal and Upper Nile to Juba. That’s a discussion for another day.
Health and education –These institutions help the government to generate revenue. The strong health and education system generate cash to the government. For instance, how many south Sundanese fly out for treatment and education in foreign countries? They are many and this money they are using in the foreign countries with strong government healthcare and education system could be going to the government. The other deceptive scam is the free education, I was once time a primary school teacher but I have never seen free registration.
It is either the state government benefiting out of it or the head teachers of these public schools. The collect many and there is no proper accountability measure that is put in place to make these teachers accountable for the mismanagement and misappropriation of the public funds. There has never been clear fees structure in public schools and if it exists it isn’t respected by the school head teachers, they still continue to over charge the children and the parents struggling to make the end meet.
Higher education has never been priority, the few public universities are getting close instead of opening more. The higher education with standard generates the revenue to the government through undergraduate and postgraduate studies fees. There is also primary school money in the name of school fees that is misappropriated by the head teachers and at the same time, these head teachers eating the schools’ money will come tomorrow and demand for his or her salaries.
Where does he or she think the money come from? The money he is missing is what the government supposed to pay him/her. Let it be clear if the education is free to let it be free but should not be in this bogus status.
Electricity and water – Imagine over three million South Sudanese living in South Sudan towns have no clean drinking water and electricity. Do you know how much the country is losing if these services were available? The country is losing billions of pound every month. Let for instance assume that the average household is consuming 2 units of electricity token and 1.5 million people connected to an electricity pole.
Therefore in a month, it will be thirty days times two units token of electricity that gives us 60 pounds in a month per household. That means the government based on this assumption and doing a bit of math, the government is losing 90 million pounds in a month and 1.1 billion pounds in a year. That’s just electricity if we add the water revenue than the government can meet its basic expenses though it won’t operates smoothly.
The rampant excuses are there is no money to avail these services. I think that is just a mindset these services don’t need government to do them. What the government needs to do is to look for an investor to do them and agree on how to divide the revenue generated. Whether through shareholding or paying the company in the future in installment. The government can’t do everything itself it’s not possible.
Give these projects to the private investor to fund them base on work out the contract detailing on how to divide revenue and manage these facilities. It works well in many countries. The only reason why the government is not able to get funding is that the international financial institutions lost trust in government but, don’t expect that situation to change anytime soon unless the government adopts different approach on how to get money from these institutions.
However, the reason why the private investors might not be willing to sign these contract is the level of greediness within the government and the government agencies. The government officials or people who are supposed to make and sign these contracts are full with avariciousness. They demand high percentage in bribes in order to give these contracts to these companies.
Imagine the situation where the sick person demanding money from a doctor to get treated. It sounds so weird, this person is coming to help you and you are charging him or her. Was that his or her mistake for South Sudan to lack water or electricity? Off course not, it was our failure to do it ourselves so it better we cooperate and give them a conducive environment to deliver these services to the country.
Look at some of the neighboring countries, some of the companies offering these service are not national companies, these are the companies which signed an agreement with them. Why not South Sudan? Why is it hard to prioritize the people needs? Where on earth do you think you can develop a country without power and water?
Where do you think the government can operate effectively without the money from these services? Do you know how expensive it is to run the public institutions with generators? Do you know how much money you are losing on this careless action? The government is actually losing millions of pounds on filling theses generators with fuel every single month.
The money that should be used to pay the civil servants. To build a strong school, public hospitals, and many other public institutions. The self-prioritization is what is killing us. People are using these situations as a business. In South Sudan in every situation there are people making the business out of it.
Taxes – South Sudan government has never utilized the tax system to generate revenue to itself. It has never made a good use of the type of taxes; being impacted, base and rate taxes. These carelessness is causing the government millions if not billions of pounds in a single day. Tax evasion is a big crime that can put someone behind the bar for many years though that is not the case in our country.
There is no proper tax system that is put in place to make sure that every single coin collect in the name of taxes reaches the government. Every induvial that is charged with this responsibility is doing it for his/her personal benefits since there is no accountability. In many countries, taxes are the major source of revenue to the government. Taxes are not bad, it’s an indirect way where the citizens contribute to their government.
For those who did a course about tax know; thank H.E Dr. James Wani Igga who did his Ph.D. in taxation he knows better that tax is a compulsory contribution imposed on the citizens by the government. Without taxes, the government will not function. In South Sudan taxes are neglected, is not considered important because the people who are supposed to make it attractive have frustrated the government to believe that there is not enough money being collected or coming from taxes.
Let for instance take value-added and land rate taxes under the base tax. In first place, South Sudan has no VAT which is in my dubitation that whether there is any other third world country without VAT; even first world countries have VAT. I don’t know why it doesn’t exist or it’s not implemented is a discussion on another day. According to Observatory of Economic Complexity 2015, South Sudan export $12.1 million and import $426 million.
If we imposed taxes let say VAT of 16% the one which is common in East Africa it means the country is losing approximate $68.2 million taxes though it might be less than that because some of the imported are government pieces of stuff, still is a lot of money.
Another one is a land rate tax. Assume that Juba city has three million properties whether private or commercial properties and assume that the city council imposed two thousand pounds on each property. In simple arithmetic, it will be three million times two thousand that equals to six billion pounds monthly. That means in a year the government is losing seventy-two billion.
That is a lot of money. Do you know what the seventy-two billion can do? This will also discourage land grabbing because, there are people with many lands lying without use, but, if someone knows that the land rate will continue to accumulate on his/her property and at the end of the day the city council will end up auctioning his/her land then people will keep what they can’t maintain.
Therefore, without the improvement of the above mentioned, you should not expect any miracles to happen. The government needs to put in place the integrated tax system, make sure it appoint the profession to handle the tax issue. There is also a need for the improvement of education and health care systems that will assist the government with the burden of foreign treatment and generate the revenue to the country.
Some will argue that these will not make any changes but believe me or not the government will not be stuck with wage bill the way it is today. How many big towns in South Sudan, we rely heavily on import and these are all money. Ministry of Finance or any government institution authorize to carry out this should wake up and go after the money.
Don’t expect money to come and knock your door you go and knock the door where money is. It is a time the country wake up and go beyond the comfort zone, let make errors and correct them on the process.
Longar Mathiec Wol has a bachelor of degree Majoring in International Business Administration and minoring in International Relations at United States International University, Africa -Nairobi. He can be reached at longarmaxiech@gmail.com
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