South Sudan Economy: Exposed with nowhere to hide

BY: Garang Atem Ayiik, South Sudan, APR-13-2015,SSN;

Introduction
Since 15 December 2013, guns have been unleashed terminating and threatening lives of many. Unarmed enemy which is economic has been also 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 bullets 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 exposed, 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 are taken, the consequences might be very ugly.

South Sudan deteriorating economic environment has been magnified 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 base 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 get 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 lost revenue due to shutdown of production in Unity and Tharjath, and due to dive in oil prices in the world market. Second, pursue cost reduction strategies; and finally institutionalize 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 few rogue public officers. But again will increase misery to the masses.

The other easy option is to take loan 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 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 but true mortgaging of the future.

It is important to note that East Africa Community has ceiling on 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 to the community.

Another possible source of increasing revenues are from NGOs, development partners and friendly nations but it seems their assistance are pegged on attaining peace, again this sounds like black-mailing South Sudan but again what better option does South Sudan has?

With withering revenues, government needs to create a working relation with NGO and development partners with an eye on supporting the misery of 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 an already exchange rate induced-inflation, if government prints money, inflation rate will surge to a level beyond imagination, it is not a path a responsible government can contemplate.

The second policy option is to reduce cost. This can be achieved by tirelessly and faithfully pursuing peace options. Even before war, government had 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 executive can take pay cut.

Though this makes sense economically, it might not be politically correct and only the courageous 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 important to stress that government as the care-taker of the people and regulator of private sector has constitutional mandate for a 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 leakages. Taking into consideration the fact that these institutions are taking long to improve, it is a wishful thinking to believe these institutions can be reformed 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 cautioned the public that fixing the economy 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 restores 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 addressing 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 life-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 the 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 is not enough, many businessmen have now increased their prices to reflect black market prices. What option does the government have, 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 accelerates contraction in the economy and increases 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 parts 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 to make, resolving challenges ahead requires 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.

10 Comments

  1. False Millionaire says:

    Mr Garang,
    Your name is Garang and you are the son of Atem Ayiik.No.I don’t mean any harm but I hope many people appreciate your great article with conviction.Me I am down to earth with it.I am not emotional but I hope not to appear irrational.Why do I say so?becouse you have abandoned the place of economic commentator and have firmly assumed the practical role of a business actor.Harsh lessons of life have taught us that economy is business and business is like a football game.But as in football wining and losing are both acceptable.One must say very precisely that,losing a game is acceptable but not losing one’s team.That’s exactly the unfortunate scenario that is playing it’s self in RSS.That is to say an unavoidable economic collapse and the country with it.

    I appreciate the fact that you call spade a spade but I understand why you refuse to acknowledge that milking the cow one doesn’t feed kills the cow.There are many examples of foul play by Juba elites to incite.Only some days back the Sudan Tribune published an article about huge money reserves in SSP bank notes that was a provision for five years but had disappeared in the national bank in Juba.Now who is responsible for that theft?But instead of answering this question,they are now printing new bank notes.That is a grave economic management foul number one.But you speak of reforms and austerity measures.The problem is,I don’t believe it.Though I believe you are more an insider than me.But permit me to tell you why.I was in Juba in February and due to delays on my working timetable,I was obliged to stay in a hotel paying fifty dollars a day.I had stayed in the same hotel briefly in 2012 and 2013.There I got to know some government officials housed there.In fact they are housed there with their families permanently.At the rate of 50 dollars a night,it’s 18000 US dollars a year per official.Add the cost of other expenses that could be three folds superior to the housing costs and it’s the government that is paying all that.Those officials are in their thousands and are the ones keeping Kiir in power.I hope you have the courage to see that Kiir is firmly their hostage before thinking that they could be laid off.So reforms and austerity are mire wishful thinking.

    Questions of investment and calculated risk taking are economic components and there can be nothing called economy on earth with out them.But apart from rare thinkers like you,I don’t see any one at all in Juba.Did you know that there are many import and export fantom companies registered in Juba which bosses come up with fantom provisional envoices and apply to obtain hard currency from the central bank with their internal collaborators approving their demands on the pretext that they will buy foreign goods to import into RSS markets?The truth is,once they recieve the hard currency,they turn around and sell them in black market in Juba.This has been going on for too long and exports and imports business that should be well regulated by the state has long fallen in a deep pit.Any question why imported goods are too expensive?But how would you dare to speak of the repair of oil exploitation facilities when the prevailing tendency among the elites in Juba is grabbing money in dirty or clean ways,getting married with it with as many women as possible and just living coolly to be as fat as the circumstances should permit?

    In brief my brother,I hope fate should never show good citizens like you the unfortunate end of brother Abraham.But the carrots are cooked for our beloved RSS.The RSS will collapse and the rubbish none sense by Kiir and company will never save it.I know they will never hesitate to do you harm if you ever dare to show them the reality.So it’s best to dash off and let the elephant hit the ground without touching your toe!!!

  2. masmino says:

    congratulations, you educate me. THANK YOU GOD be with you

  3. masmino says:

    congratulations, you educate me. THANK YOU. GOD be with you

  4. Choromke Jas says:

    Your article is based on wrong premise. You talk of policy options? These are stuff of the World Bank and civilized economies. Didn’t you read somewhere that there was never a country in South Sudan? What we see in “South Sudan” is a voodoo economy run by gangster who have taken hold of the banks. The gang was encouraged by the West to loot with impunity. In the words of Alex de Waal (Executive Director of World peace Foundation) “the leadership of the South got accustomed to being indulged, to being treated with kid gloves, and even to getting away with murder”. The judgment day is nigh and the voodoo economy will come crushing down. The practitioners of this type of economy have no clue what has hit and brought them to this crunching point. We always told them that employing illiterate officials (from president to the last person) has its limit. Your excellent analysis belongs to another planet, brother.

    • info@southsudannation says:

      Choromke Jas,
      You have succinctly described the ‘GhOSSt’ government of Kiir, if one might err here to call it even as a government.
      One reality which has to be pointed out is that very many of the SPLM/A top members have stolen and banked millions of dollars in neighboring countries and the Gulf states; this massive kleptocracy has severely impacted and distorted the economy in South Sudan.
      Furthermore, the deliberate policy of Kiir to maintain the official exchange of the dollar at 3.18 SSP only serves to perpetuate the looting of the country by these same top SPLM/A thieves by their indulgence in the black market of dollar selling.
      Can anyone logically explain how the entire government of Central Equatoria State, for instance, under alleged billionaire Konga go and buy dollars in the ‘black market’ if this is not another clear symptomatology of the rottenness of the entire Kiir’s SPLM/A governance?
      How sure are those poor Central Equatorians that those black market dollars won’t go to private accounts of the officials from the top? Of course, this is not only Central Equatoria, the other states are equally complicit in this financial scam, thanks to the stupidity of the nation’s president Kiir.
      Editor

  5. Aguer Aguer says:

    The solution to this crisis is to bring peace , both warring parties have no options but stop the war , Mr.Dictator Kiir can now enjoy the fruits of his labour

  6. moses magok says:

    I really appreciate, some citizens of south sudanese are aware of the bad economic situation in the country and are bold enough to talk about it the social media without fear of reprisal. we the citizens ought to do something about it.

  7. cos says:

    Breaking News:The rate of Doller is now 10.5 SSP.thats to say 100USD =1005 SSP.
    Can you imagine how much do u get for a month.

  8. Bol says:

    Garang,
    Change of Guard top the list….when a private company under performs for whatever reasons, the CEO leaves his post to let another one take charge. The new one will identify and rectify the company’s problems…. The wisdom behind CEO’s sacking is simple (not suitable for the task)….Maladministration, Rebellion and Economic meltdown all happened because of things our current CEO did or failed to do. Our hard job is to convince the CEO to quit and take his well deserved retirement in South Africa before it’s too late….Believe me he is a liability in wartime and peace time. We are fighting the world because of his leadership style…. Sacking him or convincing to retire will improve our worsening relationship with West, enhance public sector reforms, and push rebellion to an end through peace door or military action. Lastly, think twice before you expose yourself to enemies of knowledge.

  9. False Millionaire says:

    Bol,
    Your idea is exactly what must happen.Dinka citizens of good conscience are encouraged to lead sensiblisation work deep inside the red zone but without compromising measures of safety and security!!!

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