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
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