What next for South Sudan Economy after the Aborted rate rise?

BY: Malith Alier, B. Com, South Sudan, NOV/17/2013, SSN;

Term it “Manasenomics,”* that is what the economy of South Sudan has become after November the 11th announcement of the exchange rate rise from 2.9623 to 4.50 South Sudanese Pounds per US Dollar.

The reaction, both from the market and every citizen was instantaneously swift. The market prices reactively rose and citizens all of a sudden became gloomy about the future of their country’s economy.

In the heat of the moment, the country’s parliament swiftly summoned the Central Bank Governor together with the Minister of Finance to appear before it to answer questions about the sudden rise of the exchange rate.

Let’s come down to basics. South Sudan economy is a consuming economy reliant on imports from neighbouring countries and farther afield. The country hardly produces anything for domestic consumption leave alone for export.

Further, it is highly reliant on crude oil exports which lack necessary infrastructures. The pipe lines are located in the Sudan and the oil is exported to the nearest coast of Port Sudan.

As we all remembered, a crude oil production shutdown in 2012 led to what was known as austerity measures characterized by reduction of civil servant salaries across the country.

Apparently, this austerity situation is not yet lifted despite resumption of crude production in 2013. Many civil servants have attempted strikes for their pay and allowances to be reinstated.

Being an oil dependent economy, the Central bank has managed to steer the country through difficulties since independence in 2011. It has done so through managing foreign currency rates and allocation of major foreign currencies to foreign exchange Bureaus and commercial banks, something that is unique to south Sudan.

No other country in East and North Africa is doing what the Central Bank of South Sudan, does in this country.

This unique operation (weekly allocation of foreign currencies) of the Central Bank has been taken to mean as the entire economic management possible for this country.

Not surprisingly, there are about ninety Foreign exchange bureaus and close to thirty Commercial banks are now operating in the country. Their work is limited to allocation of Dollars from Central Bank nothing more or less.

This allocation of foreign currencies to financial institutions has clearly been an economic headache to the Board of Directors of the Central Bank.

But not only that, it also has been a headache to all the financial institutions in the country. You find long queues for Dollars in all the financial institutions.

Unfortunately, however, the majority of those looking for dollars are not genuinely seeking it for foreign travel, medical or schooling abroad.

They simply want to further exchange the dollars so as to make an effortless and quick gain in what is known as “black market.”

As a consequence, those who really deserve to have foreign currencies for the above-mentioned genuine reasons have been excluded in the process.

The reforms that have been initiated by the Bank of South Sudan (BSS) were necessary because they are long overdue.

No country in the world has two parallel exchange rates and where money is displayed on streets but it’s assumed to run an effective economy.

No country in the world that spoon feed people through the allocation of foreign currency operates like South Sudan.

With the economy obviously still small, is it realistically necessary to have close to thirty commercial banks in a short span of only two years?

Those people who forced the Central Bank Governor to back down are not seriously honest to themselves and even to the country.

The reaction we saw in parliament tells a lot. The parliamentarians took it personal and they all became emotional without restraint.

Some of them at the same time have interests in Foreign exchange bureaus as well as the commercial banks hence they cannot exercise neutrality.

This was also the view of one economics professor from University of Rumbek during Miraya.fm roundtable debate on the 13th November 2013.

The good professor who is also one of the Board of Directors in the Central Bank argues that allocation of foreign currency to banks and exchange bureaux is “criminal” and will not help this country economically. He added the following reasons:—

1. The rate rise was short term
2. Commodity prices will rise but will gradually come back to normal
or to equilibrium
3. Investors will be attracted as a result of the rise
4. Economic stimulation and growth is expected
5. Foreign currency will be available and accessible to everybody who
needs it
6. Neutrality of currency is lacking but is required
7. The parallel market or black market pays no taxes, something that
should worry the informed parliamentarians
8. Long queues for Dollars will be eliminated.

These points are powerful enough to tell South Sudanese where they are and where they should be economically. The professor further stated that the Central bank was dealing with monetary policies and the Ministry of finance deals with fiscal policies like salaries for civil servants.

The Central Bank action has been rejected but it has done a lot for the country. Lessons have been learned. It will further generate debate about the state of our economy in general.

South Sudan economy will not be the same again, forward it must.

The Central Bank Governor should have stood his ground before the supercharged parliament. No country in this world allows its economic direction to be determined by popular vote.

(*name of Parliament Speaker where the Central Governor was forced to revoke rate rise decision)

Malith Alier is a graduate with a Bachelor of Commerce Degree

17 Comments

  1. M says:

    The problem, Malith, is not devaluation but its rate; another problem is timing problem; economic reforms have coincided with Uganda-South Sudan road breakdown symbolized by long queues on petrol stations on that day; another problem of timing is his announcement. he would have done it before the budget was passed but waiting until budget was passed and then announce the reform measures is unprofessional. He should have first banned black market, devalued the currency and a fixed exchange rate at right time not now…….

  2. Hewn says:

    The result:
    The rich and the foreigners will get richer, the poor and the natives will get poorer. No matter what stew full of jargon and maths you cook, this is the result.

    By the way, government officials across the board have interests in forex bureaus and BOSS (Bank of South Sudan) insiders even had the nerve to auction dollars off to the highest bidders. The forex bureaus try to outbid each other to the delight of our illustrious fathers, grandfathers and uncles who also swiftly brought their own first “bank of liberation,” Nile Commercial Bank (NCB), to its knees.
    Many of the same “wise economists” who argued for the creation of NCB and subsequently helped tank it too, will come out now with their rubbish economic jargon about this latest ploy to **** the people: The only strategic that exists in RSS.

  3. Daniel Juol Nhomngek says:

    When the world becomes a capitalist and money minded entity, the revolution is always at the corner. The Governor of Central must quit the post because has run out of skills and ideas how to manage the economy. I suspect that Mr. Koryom has some hidden interest in dollars and wants to inflate the price of the dollar at the expense of poor South Sudanese who are studying outside the country so that he can benefit.
    Such a policy was done in bad faith; a policy without agenda is dead and blind. Whatever Koryom was planning was a complete coup against the welfare of South Sudanese and Koryom must resign the post because his decision has shown that he is no longer useful in managing central bank and South Sudan is likely to be landed into economic crises.

  4. Magher says:

    Informative piece, Mr Malith!! The parliamentarians over-booed the central bank governor in a manner so kiddish and irrational. What do they know about the role of the central bank anyway?

  5. Daniel Juol Nhomngek says:

    Magher, The MPs do not know the role of Central bank however, the governor of Central bank should not cripple the trade by increasing the rate of dollar. One of the roles of Central Bank is to promote local and international trade. By increasing the rate of the Dollar, the governor is restricting international trade which turns South Sudan into a closed economy contrary to the modern concept of global village. The MPs have role of making laws for development and by that authority they have an implied role of stopping any policy contrary to the development. Any policy like that which can cripple economy must be given the approval of the parliament because those in parliament represent the people of South Sudan. Therefore, when you criticize them you should have a basis of your criticisms otherwise in understanding the MPs are duty bound to protect the interest of the people.

  6. malith Alier says:

    The country has been crippled or deformed and needs a major surgery in form of what the Central Bank Board of Directors has rightly prescribed.
    Mind you the Minister of Finance supports the idea of currency devaluation and so are many informed in this country. The country seems to be an island when it comes to devaluation. Kenya, Uganda, D.R.C, Sudan, Egypt, Ethiopia, CAR have their currencies weaker against US Dollar to attract investment among other benefits. DEVALUATION IS THE ONLY WAY FORWARD FOR SOUTH SUDAN!

  7. Mohd Adam says:

    When you are in Rome, you should know how to behave like a Roman. The so called lawmakers in the South Sudan National Assembly are either primitive or semi primitive, semi means they have educational background up to Primary or Middle School. These types of people have not heard anything called: Economics, leave alone its laws of Supply and Demand.
    The value of the Currency of any country is measured by its total output, where in South Sudan, it is just a consumer without any product. Oil alone cannot measure to the level of what the total output of a country could contribute economically to the other world markets.
    As citizens, we will continue to reap the fruits of this mammoth failure of all Mothers of Failures. Other tribes mainly our brothers from other parts of South Sudan, send people who cannot even write their names to the SSNA! This is absurd. What did you expect from actions of such non-baked empty headed so called, Lawmakers? OR Lawless minded people.

  8. Kidepo says:

    To South Sudan Nation-

    I have posted my article several times requesting Governor Koriom to refund the Govt USD98,000,000 he sucked from the financial markets using his commercial banks and forex bureasu. Can you pliz post my article

    KIDEPO

    • info@southsudannation says:

      hi, kidepo,
      A few days ago I sent you an email requesting some authentication of the figures in dollar terms you allegedly accused Governor Koryom to have stolen. your article is really interesting but I am not sure of those figures and some facts like about his interests in those private banks you mentioned that are allegedly owned by him and his children.
      Your answers will greatly help.
      regards,
      Editor

  9. Nhial Gatkuoth Chung says:

    The role of the central bank is to regulate monetary policy based on high employment, economic growth, price stability, interest rate stability, financial market regulation and stability in foreign exchange market. Devaluing SSP against dollar will exacerbate the current economic hardship in the country.
    Though our country is entirely depending on foreign trade, the govt and the central bank should formulate a normative framework to streamline the monetary policies across the country and ensure viability of SS economy, but the problem is assigning wrong people with little background on banking and monetary system is causing a lot of problems.
    this will still cripple the economy of South Sudan for sometime. unless a new remedy is introduced to curb and regulate irregularities of financial aspects, ordinary citizens will still suffer due to poor management and policy.

  10. Lubajo says:

    Well I have always told colleagues that the reaction from the Parliamentarians and the general public (whom i can forgive for being short of economics) was driven by emotions than reality.
    At first i criticized the decision but after 2-3 days of reading various issues of devaluation, i became convinced. It was unfortunate that the Governor could not articulate that eloquently in a 5-6 pages. What could be the major issues he could point out? LOSERS and WINNERS.
    Firstly, everyone will be a loser for a short time and people will struggle to settle while the balancing act is working.

    Below are the losers from bigger to list:

    1. The rich: Ministers, Parliamentarians and other high ranking individuals because their families are abroad. No wonder Parliament reacted very fast to this than even passing budgets over the years.
    2. the middle class: The working class with government or NGOs whom the above can use misguide the lower society.
    3. The poor: peasant farmers, domestic workers and several others.

    In short, these Forex bureaus and numerous commercial banks (which are flocking South Sudan due to the dollar will definitely fall by the side and genuine ones are left.
    When the Minister of Finance said we are losing millions of dollars, others are quick to say “so the government has been making profit.”
    That is what i call economic poverty of the highest order if graduates can’t distinguish that CBSS sells dollar at 2.9… and expect these banks to sell at 3.1… to make a realistic and not ABNORMAL profits. To make profit, you should be a buyer, where is the government buying?
    Banks need to respect government directives. When sold at 4.5 per dollar the Banks make too huge a profit; no wonder some Banks brag about profits they make in South Sudan compared to their branches in other countries. This day light robbery of our hard earned oil dollars. This is looting of the highest order.

  11. Isaac Deng says:

    I couldn’t agree more with Malith Alier that devaluation is only way out of the country’s stagnate economy. China depresses the price of its export goods forcing local manufactures in America and elsewhere out of business. The reason why the Chinese manipulate its currency which is the yuan against the US dollar because it will enable the Chinese to flood the U.S. market and other industrialized countries with cheap exports products, a move seen by many economists as unfair trade practices which is likely to give Chinese unfair advantage and take heavy toll on other advanced world’s economies.
    In fact the flow of cheap Chinese investment has already cost American workers their jobs and killed local manufacturers elsewhere in Africa. We in Africa have become victims and mere consumers of useless Chinese counterfeits products and goods at expense of local economy.

    Therefore, if some advanced economies like China, Japan, Singapore and South Korea can depress the value of their currencies in order to attract foreign investment into their countries, why are we in South Sudan still keeping the South Sudanese Pound (SSP) exchange rates strong against the US dollar? What are we gaining in terms of economics?
    I am very much sure that if the BOSS devalues the SSP today the foreign imported goods will become cheaper relative to the current inflated high goods prices in market.

  12. Kei says:

    Devaluation is a natural process in the history of financial markets. All currencies witness their currency rates falling and rising and if Ten (10) South Sudanese pounds were able to buy, say, 15 U.S. dollars a year ago, today the pound could be devalued and its purchasing power would only be enough to buy only 10 dollars. In contrast to market devaluation, governments around the world sometimes resort to devaluation as a tool to protect their trade balances. Thus, the local currency is forcedly devalued and its currency rate against other major currencies is reduced while restrictions are often imposed preventing the home currency from being exchanged at higher rates.

    These types of government intervention in the foreign exchange market are a perfect example of official devaluation while the natural market devaluation is often referred to as depreciation, a process when the currency rates fluctuate downwards. In both cases, the country whose currency is devaluated could benefit from the lower cost of its export of goods, which now are cheaper to buy by customers in countries whose currencies are stronger. The history of trade recalls many examples of intentional devaluation with the purpose of conquering new markets through the lower currency rates of the devalued currency.

    One of the biggest devaluation waves in history was in the 1930s when at least nine of the leading world economies devalued their national currencies, including Australia, France, Italy, Japan and the United States. During the Great Depression, all these nations decided to abandon the gold standard and to devalue their currencies by up to 40%, which helped revive their economies and stabilised currency rates.

    Meanwhile, Germany, which lost the Great War a decade earlier, was burdened to pay strenuous war reparations and intentionally provoked a process of hyperinflation in the country. Thus, the Germans witnessed the biggest ever devaluation of their national currency and the currency rates hit rock bottom. At that time, the currency rate of the German mark to the U.S. dollar stood at several million or billion marks per dollar. On the other hand, this devaluation helped the German government in covering its debts to the war winners although the average Germans paid a disastrous price for this government policy.

    The governments around the world are often tempted to lower unnaturally the currency rates in order to benefit from the lower value of the national currency. The lower currency value encourages exports and discourages imports improving the country’s trade deficit and imbalances. However, the average citizen of a country with a recently devalued currency could suffer from higher prices of imported goods and overseas holiday costs.

    Based on the above short highlight, the governor of Central Bank of South Sudan would have asked himself: What is objective of devaluing the currency (i.e. what is the policy of devaluing the currency trying to accomplished)? South Sudan, as I know export only one iterm, oil. Oil prices are regulated by OPEC not by single country which produces oil. Devaluing South Sudan pound cannot help her economy in this area. South Suan imports a huge number of goods abroad (e.g. food, gas, medicial items, building materals, etc). By devaluing the pound, SS hurt itself so bad leave alone Joe on the streets of SS. The problem of selling dollars on the streets like tomatos and long lining up at banks cannot be addressed by devaling currency. I think we need people who know how banks and economics works in real world to be given opportunity to run the affairs of central bank of South Sudan.

    Kei

  13. Machien Luoi says:

    Believe it or not, raising the dollar value will not attract foreign investment, if any, it will be too little to support our prosperity. Instead, it will come in expense of the citizens.
    Raising the exchange rate may in theory attract foreign investment but in reality it won’t. Sudan has raised its money value to dollar, but nothing has helped them. They are running short of bread, wheat and other commercial goods.
    Foreign investment in South Sudan is not up to raising the exchange rate. If there is anything preventing international investors in South Sudan, it is insecurity and lack of proper physical infrastructures, particularly roads. Construct good roads and manage internal security, you will see foreign investors coming to South Sudan regardless of the money exchange rate.

    • Eastern says:

      I couldn’t agree more with you Machien. The problems of low international investment in the country are some of those you have mentioned in addition to absence of a firm rule of law and governance that will protect investment.

      The only group heavily investing in the country are the Ethiopians, Eritreans and the Somalis. This group members are accustomed risks and dangers. For now, let’s work with them until such a time when we can apply those economic principles such devaluation. Such sensitive undertakings must not be rushed at all!

  14. GatCharwearbol says:

    Dear Machien Luoi,

    You have hit the nail precisely on the head. The bigger problem in South Sudan isn’t the exchange rate. It is rather the insecurity issue and lack of reliable infrastructures. I totally concur with you on this. Exchange rate has nothing to do with our poor economic mismanagement. Those who are blaming the anemic economic of South Sudan on exchange rate are living in a different world.

  15. malith Alier says:

    JFK once said, “ask not what your country can do for you but ask what you can do for your country.”
    South Sudanese should instead ask for what they can do for this country but not the other way round. It is the small portion of the population in Juba that benefits from this exchange rate mess. The vast majority in the rural areas languish in poverty because of wrong economic policies perpetuated by parliament and others.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.