Juba government to revive economy in the face of weak currency, low oil prices

 

South Sudan President Salva Kiir (centre) with First Vice President Riek Machar (left) shake hands after the formation of a new Cabinet of the unity government at the the Cabinet Affairs Ministry in Juba on April 29, 2016. Second Vice President James Wani Igga (right) looks on. AFP PHOTO | ALBERT GONZALEZ FARRAN 

By FRED OLUOCH

The incoming South Sudan Transitional Government of National Unity will face a major challenge of reviving the economy as a prerequisite for sustaining the peace process.

Currently, local production is non-existent; the oil sector, which provides 98 per cent of the government’s income, has been hit by a drop in global prices and the civil war; commodity prices have shot through the roof due to the devaluation of the Sudanese pound and the transport sector is suffering from a scarcity of fuel due to hoarding and corruption.

The most affected are importers of food items and general household goods who have to deal with sharply increased prices to bring in goods from neighbouring Uganda, Kenya and Sudan. Many investors have left local and regional businesses collapse, while unemployment has increased.

Daniel Bol, a dealer in cereals at Juba’s main market of Konyo Konyo, is a worried man as he has to pay brokers to get his products across the border from Uganda while the purchasing power of the local currency has gone down significantly.

“We are just enduring hardships in the hope that we will survive the hard times and not lose our loyal customers. Our main customers such as hotels and restaurants have significantly reduced their orders to cope with the high prices,” said Mr Bol.

A kilogramme of sugar, which used to be SSP 10 ($1.6) in January, has now shot up to SSP70 ($11). The transport sector has been hit hard by the scarcity of fuel due to lack of infrastructure, high taxes and corruption.

In Juba, taxi drivers spend nights queuing at petrol stations. The fuel is brought in but not all is transferred to the tanks as the rest is sold on the black market. The irony is that while motorists are queuing at petrol stations, fuel is being sold at a higher price on the streets just next to the petrol stations.

Scenes of motorists chasing oil tankers to their destinations are a common sight in Juba. Fuel costs $4 per litre at the pump but between $8 and $24 per litre in the black market depending on the demand.

Most stakeholders are hoping that the transitional government will appoint new and qualified people to manage the economy as the Central Bank and the Ministry of Finance are accused of lack of sound monetary and fiscal policies and lack of co-ordination.

Onyoti  Adigo, the minority leader in parliament says that all those currently managing the economy should all be sacked because “they are too deformed to reform” and accused the Treasury of misleading the government into devaluing the pound.

In December 2015, the Central Bank devalued the pound by 84 per cent, which led to immediate hikes prices of basic commodities and pushed the Pound to an all-time low of 42 to the dollar. In the past three weeks, the pound has been shifting from 33 to 28 and back in the anticipation of the transitional government.

Dr James Garang, an independent economist with the Ebony Centre for Strategic Studies in Juba, says that it is not yet clear whether the pound will stabilise in the near future as the market responds positively to the pending peace or whether its relative strengthening is due to speculation by currency traders in the black market.

“The Central Bank and the Ministry of Finance must review their policies because regulation is weak, leading to the proliferation of dollar rent seekers, who have adopted the dollar to get profit,” said Dr Garang.

But Aggrey Tisa Sabuni, the presidential adviser on economic affairs, said that the flotation of the pound was necessary because South Sudan could not sustain a currency not backed by revenue, production and good reserves.

Mr Sabuni said that the economy will only recover if the peace agreement is implemented to the letter and the country creates a conducive environment for investments to enable the government to raise revenue locally. Mr Sabuni, said that the pound had been overvalued and in 2012 the Central Bank fixed the rate at 2.3 to the dollar while it ought to have been 4.4 to the dollar.

“From 2005, we caught the Dutch Disease as we started depending on oil and stopped agricultural-based production, which had been our source of survival. But then the civil war came and most of the oil wells were shut down, while the global oil prices dipped drastically,” he said. 

In June 2014, oil prices dipped from $112 to $30 per barrel. South Sudan currently produces 160,000 barrels of crude oil per day, down from 350,000 per day before the war.

There is hope that once the transitional government of national unity is constituted, traditional allies and donors such the US, China, Japan and the European Union are likely to return. But there are measures that South Sudan must undertake such as economic reforms, fighting corruption and improving on human-rights.

Mr Sabuni, however points out that donors have never provided budgetary support because what they termed lack of fiscal disciple and instead prefer humanitarian assistance and infrastructure programmes designed and controlled by them.

“We were about to experiment with the initial budgetary support in the 2014/15 financial year, which involved the EU and the World Bank. But donor confidence in the country was destroyed by the civil war and we now have to start building afresh,” he said. 

The government has invited the IMF to assess the economy and come up with a recovery programme for the incoming transitional government. IMF director Christine Lagarde recently said that South Sudan faces enormous economic challenges and the IMF will do its best to assist the country laying up the foundations for economic growth and stability.