Analysis: Economic Blackout, South Sudan Economy in Tatters, what should be the quickest remedies in the shortest time possible?
By Juma Kenneth Guidio Ohisa,
Sept 3, 2020(Nyamilepedia) — It is always important for every patient to be informed after diagnosed what his/her sickness is? It is also the right time for South Sudanese to know who or what killed their Economy, as they wait for the Doctors (Economic Crises Committee) to prescribe the medications for them. I would on personal opinion clarify on some facts to be noted by the committee in regards to the cause, signs and symptoms of the sickness, the history of the disease (Economic collapse) and remedies.
Who should be blamed for the “economic crises” (the terminology known by every citizen in South Sudan)? South Sudanese of course don’t need an economist/researcher neither a miracle to answer this question. The causes of Economic collapse of the country originated from the first day we got our independence or before, it springs from the Dura- saga, Heglig war(closure of oil production in 2012), corruption, war and un-researched Monetary practices by the Central Bank of South Sudan (CBOSS) like the devaluation of currency in 2015 and Letters of Credits, mismanagement of the country’s income by the Ministry of Finance and Economic Planning, ineffectiveness of the Ministry of Trade and Industry and generally the lack of Economic model for the country and many more reasons can be link to the current problem.
The truest picture of the country’s economy resurfaced recently in a controversial announcement of the Central Bank Deputy Governor acknowledging complete unavailability of foreign reserves in the central bank to intervene in the foreign exchange of the depreciating local currency against the dollar, and counter announcement by the Governor that they have little, that it was a misinformation by the Deputy governor. Whatever way it is, whether little or no foreign reserves at all in the Central Bank is a sign of an “Economic collapse”. This unfortunate tragedy prompted the president to issue an order on 25/08/2020 forming a committee to manage the Economic crises within three months. But can a completely collapsing economy be fixed in only three (3) months? It is a myth! Some South Sudanese have raised concerns over the composition of the committee with many claiming that the committee members are the same people whose managements of the country’s resources brought us to this end. Others argue that the committee should have comprised of technocrats (economists) to fix the economy in the shortest time possible. However, I hold a different opinion, which is in support of the committee members’ composition. H.E President Salva Kiir might have given the committee members orders to fix what they have caused; an old adage “set a thief to catch a thief” is still true today. It is true that the technocrat may not know and will never be told how much is accrued from oil deposits monthly in dollars and from taxation, how much reserve is actually left in the central bank, financial dealings in the ministry of finance, etc. this may fail the work of the technocrats because of the lack of sufficient data.
What exactly caused our economic collapse?
In a nutshell, the Central Bank of South Sudan (CBOSS) as the custodian to manage monetary policy of the country has a greater share to the collapse of the economy, since it is a bank to the government; all government revenues accrued through taxation, exportation of resources and other miscellaneous income by the government are kept at the Central Bank. Whereas, government spending, debts payments and importations of some valuable commodities are also cleared by the Central Bank of the country, that is normal. The Central Bank is presumed to be independent; thus, it has to limit government borrowings. Unstudied monetary practices and policies of our Central Bank have brought us to this far end. Some monetary policies that our Central Bank implemented while consciously knowing their dangerous negative short term and long term economic effects in the economy includes but not limited to the followings;
The devaluation of the local currency exacerbated the continuous loss of value of the local currency (South Sudanese Pound). Devaluation of local currency means the exchange rates of the local currency against the foreign currency (dollar) is determined by the forces of demand and supply of the currencies in question, i.e. if the central bank has/inject enough foreign currency (dollar) in the economy, the value of the local currency will appreciate against the dollar, as the law vividly states; higher supply leads to lower demand and lower demand leads to lower prices. The reverse is also true if the Central Bank has limited foreign reserves making it (dollar) unavailable in the economy, their demand will increase forcing its exchangeable prices higher, and therefore forcing the local currency to depreciate in value as is the scenario now as lamented by the deputy governor of the central bank. Devaluing currency will make importations of goods and travel expensive, cause inflations while exportations of goods will become cheaper. How would have a country which imports everything and export nothing, and her citizens travel abroad for even malaria treatments devalue its currency? Pathetic! Some of them will argue with the author here that it was not “devaluation of currency” but the adoption of Free Floating Exchange Rates regime (FLER). Devaluation and Floating exchange rates are just one coin of different faces. Floating exchange automatically causes devaluation if we have little foreign reserves. How can a poor country, with no history of capital inflow adopt a floating exchange rate without a forecast of the continuity of income in foreign currency? Did we forecast the continuity of incomes from the oil export? If yes, then we are dead economists, as oil prices and production cannot be stable all the time.
Letters of Credit (L/Cs), the CBOSS has been issuing letters of credits to companies and individuals to import essential commodities with no strict procedures and follow ups. These individuals and companies were given cash dollars contrary to the contemporary procedures used in the operations of letters of credits, where settlements of payments is done between a foreign bank and a domestic bank subject to thorough verifications of vouchers, waybills and evidence of delivery of the commodities. Do we know what these individuals and companies do after receiving the cash dollars from the central bank? Only a quarter of the amount is used to import goods, the three quarters is wired to the black market (the ruling economy). It is natural that the motive of every business is to make profits. Why should the business people waste time to import goods just to get profits if they can get the same profit by the sale of dollar in the black market, which is riskless? After all the CBOSS care-less, whether the goods are truly delivered or not, does the imported volume of goods correspond to the amount disbursed or not. That is why the dollar is “a commodity” in South Sudan rather than a currency. That is also why South Sudan Trade Union requested the CBOSS a couple of months ago to avail them L.Cs to import goods to curb the hiking prices, they just want to maximize their profits. RENT-SEEKING! Nothing else.
Dollarization of the economy, the CBOSS together with the Ministry of Finance and Economic Planning have been encouraging the circulation of the dollar instead of the local currency, the SSP. Evidence is the recent allocation of four (4) million dollars by the Central Bank to purchase Gold deposits mined in South Sudan by South Sudanese citizens. What a shame? Why should you use dollars to buy Gold and perhaps sell Gold later to get the same dollar? Has the CBOSS become an arbitrageur? Keeping Gold deposits in the central bank is mandatory for every central bank of any country, but we should have used our Pounds to buy Gold, because we are buying it from our citizens who will need our Pounds to use within the country. Another dollarized strategy was to pay Members of Parliament more than Forty thousand (>40,000) US dollar each as allowance and more than twenty thousand (>20,000) medical allowance. Why should our own employees be paid in foreign currency? Does it mean we have no pounds to settle their payments? I don’t object giving them that money but they should have been paid an equivalent amount in local currency, I think we would not have run out of foreign reserves now. According to a research, still some State Owned Enterprises like NILEPET, GPOC, DPOC and many others pay salary and allowances to their staffs in dollars. Most financial dealings and contracts in most of our ministries especially ministry of finance are negotiated and written in dollars, regardless whether it is a national or foreign company. It is true that we import most of our materials and equipment from foreign countries. But shall the nationals in those companies be paid in foreign currencies? I think no, their wages and salary must be paid in local currency.
On Fiscal Policy, it is clearer we know we don’t know how much we get from all forms of taxation, the Ministry of Finance and Economic Planning owes the citizen explanation in details. It is time the tax payers need to know where their money has gone. How much revenue is collected from them every month? I guess Mr. Olympio Atipoe, the former commissioner of South Sudan Revenue Authority must be laughing now wherever he is after hearing the tragic news of the collapse of the country’s economy. What about the bankruptcy at the central bank? Who might have depleted the central bank? Of course a rational professional economist will agree with the author and point hand at the Ministry of Finance. It is a simple theory; since the Ministry of Finance is responsible for budgeting government’s spending, borrowing, debts management, etc. it is crystal clear without requiring any factual data that the government through the Ministry of Finance must have been spending and borrowing more than they should have. Let me leave this for the committee to find out.
What should the citizen expect from the economic crises committee in three months?
Since “a collapsing economy is synonymous to a collapsing government”, it is up to the committee members to come with effective but well studied economics policies to fix the economic crises. Not the copy and paste policies, some economic policies used in other countries do not necessary entails that we have to adopt them automatically because they have shown significant effects to improve the economies of those respective countries. We have different determining factors, variables and data, hence, copying monetary policies without regards to our own determinants, variables and data only means we are solving the problem of the country we are copying her monetary policy which consequently is bound to fail. It will not produce the tangible results expected to improve our economy.
Our citizens are finding it hard to purchase essential commodities today, there are even limited commodities in the market in some states, the civil servants might have gone months without salary, our South Sudanese Pound is depreciating in value every minute like a perishable good and we have many arrears to pay to regional bodies like the East African Community and the African Union etc. Can the committee solve all these in three months? It is time the committee should approach the given assignment from a different angle, it should not be business as usual. The effect of economic collapse has now been felt by everybody in this country.
We should all have a role to play as citizens of this country; the economic crises will swallow all of us if we keep silent, and then wait for the committee to feed us with what they will copy from any other countries. Already they have recommended the dismissal of the Director General of Custom Service, it may be good to identify corrupt officials to fight corruption, but would his dismissal bring more dollars to the Central Bank to intervene in the foreign exchange market? Would his dismissal generate more pounds to meet payments of salary to the civil servants? It remains illusive until proven. They may come as usual to paraphrase “using oil money to generate Agriculture”, what is that cash crop that can be grown and exported to generate income in only three months?
I would on my personal research and reference to some countries with relevant history of economic hardships recommend the committee to adopt some of the following policies to fix the economy in the shortest time possible;
Firstly, Foreign Exchange control; the committee should recommend the prohibition of the unnecessary circulation of US dollars in the economy and strictly prohibits nationals from handling and dealing in dollars within the country. Restrict payments of nationals in US Dollars. Prohibit payments of National staffs working with International and National Non-Governmental Organizations’ and International Companies from being paid in US Dollars. The agencies should surrender the Foreign currency (Dollar) meant for national staffs salary or wage to the Central Bank at the Central bank rate. Foreigners and International workers who want to buy South Sudanese pounds can only buy from approved commercial banks at a bank rate. In so doing that the CBOSS would then be in position to assume the absolute role of controlling the foreign exchange market, they would at least know the amount of Dollars in circulation in the economy. We need to close the source that avails foreign currency to the black market, there then would the black market die a natural death. This policy has worked well in Asian countries like China, even Europe in the aftermath of World War ii. Some critics would say “it will derail the motivations of national workers in those agencies”, “it will also lead to the scarcity of dollars and consequently leads to low income, productivity and investment”. It would of course, but has a greater leverage to the CBOSS and the country’s economy. Do we even invest or produce?
Secondly, Re-adopting the Fixed Exchange Rate regime (FER); after getting more dollars in the Central bank through money got from the agencies and other sources, the CBOSS should fix the exchange rate, it would now be easy to control the exchange market as commercial banks and individuals would find it difficult to get the Dollar to float the exchange rate at will, because they would be forced to get the dollar from only approved Central bank’s exchangers at the fixed rate, i.e. a central bank rate. Some theorists will argue that it will make monetary policy ineffective as fixed exchange rate retards growth and investments, which is so fallacious in a developing country.
Thirdly, the committee should immediately recommend the formation of State (National) Trading Corporation (STC); with a mandate to tackle imports of essential commodities to the citizens in all the states instead of giving loans to Trade Union which loan (dollars) will end up in the black market. Human resources can be got from the government employees to set up shops in all the states of the country to enable sale of commodity at controlled prices. This will be easier to control prices since the State Trading Corporation will be able to know the cost of importing the commodity and sell then at minimum set prices to get little profits to the benefit of the citizens. It is the best strategy to control nationwide price hikes through competition with the private business enterprise. Yes it will discourage/ruin private investors and businessmen; it will also lead to decline in government revenues accrued from taxation if State Trading Corporation’s goods are exempted from taxation. What we should do is to carry Cost-Benefit Analysis; are the government revenues and life of the private businessmen more important than the life of majority citizens or not?
Fourthly, the committee should recommend capital control to avoid massive capital flights; there is evidence of capital flight in our country as stated, much amount of currencies are sent outside South Sudan in every working day than the amount coming to the country by more than three times. The fact that we turned our country as a field work station rather than a residential country, we have all our families in foreign countries, we only work in the country to send money for feeding, rent, school fees and even investment in foreign countries. This has caused massive capital flights in form of foreign currency (dollars) to other countries. It is only in our country where you can send thirty thousand US$ through a local money transfer without proper reason and no one cares because it is your money, it is only in our country where after getting salary the civil servants rush to the market to buy dollars, it is only in South Sudan where every citizen dream to be paid in dollars, it is only in our country where when you go to a hotel you are told to pay your bills only in US dollars, etc. why? Because we don’t have the use of the local currency here, as we consume little of our income in the country and send more outside in foreign currency to be used by our families. This is exactly how we are contributing to the development of our neighboring countries; through improving their purchasing power, balance of payments, investments augmentation and so on. We should limit the amount of money to be sent outside the country through strict capital control measures, for example how much of foreign currency should an individual/investor be allowed to send outside in a day, month and year. I know this is hard to control in uncontrolled economies like South Sudan, but it is at least better to regulate it to control our money from going outside the country unnecessarily. How will our families survive in foreign countries? We are humans, conditions will force us to get solutions; like bringing back our families to the country and buying dollars at a bank fixed rate.
Lastly diversification of the economy; we should have multiple streams of income generating activities, Gold mining should be the immediate activity as it is already ongoing, the CBOSS should avail money to purchase machinery for Gold mining than approving dollars to buy Gold. Agriculture for domestic and export, tourism (if there is security, road and communication network). These are the most income generating activities we may have the comparative advantages. Paying civil servants salary should not be neglected as this will increase the purchasing power of the citizens. If the citizens do not have money in their hands, whatever improvement in the economy realized would mean nothing to them.
It is imperative to note that monetary policies of foreign exchange control, fixed exchange rate, state trading and capital control all have the major shortcomings; they all discourage both domestic and foreign investments. But do we have any referenced “investment” or a tendency to encourage some? Absolutely NO, because no risk averse investor can risk investing in an economically unstable country, no investor can invest in an unsecured country like South Sudan. We can only convince investors if we stabilize both the economy and security. Floating exchange rate and encouraging free market economy to attract investors will remain unattainable subject to security and economic stability. We shouldn’t be bullied by other developed Economies to adopt their monetary policies which in reality cannot work in an infant Economy. All if not most of these western Economies adopted the policies I recommended above in their developing stages. South Sudanese should not be force to “walk before crawling” as this process may lead to total collapse.
To sum up, all the above can only materialize if we fight and tangled down CORRUPTION.
The author, Juma Kenneth Guidio Ohisa, is a lecturer at the University of Bahr El- Ghazal, College of Economics and Social Studies, Department of Economics. For more information he can be reached through his email at firstname.lastname@example.org,
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