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Making sense of the current economic crisis

By Ahmed A. Morgan

 

Many concerned citizens have already elaborately spoken about the dire suffering of people in almost all of the ten states as a result of the soaring economic situation. As we speak, prices of all commodities are at their sky levels with the exception of prices of labor (wages and salaries) that is left behind at their 2005 level. The exchange rate has been increasing at lightning speed in the last few past weeks, a speed style never witnessed anywhere before. In this article, one is trying to add his voice to those voices by trying to answer some of the questions on what caused this crisis, was it expected, and if there are any better ways out of it. Was this crisis situation expected? The answer is both yes and no depending on the level of economic literacy of the individual. At an acceptable literacy level, it is a big yes because indicators from where we started right from 2005 shows that we would end up in this economic stalemate. We made a wrong start from 2005 when our policy men and women came up with the idea of free market economy adopted from the Western world without even understanding well how it functions and as to whether it can be adopted to play in our home situation. Note that traditionally, there are three basic economic systems in the world: the Capitalist system also known as free market economy; the command economy or Socialist system; and the mixed economic system. In the world today, almost every economy is a mixed economy where economic activities are partly run by the state and partly left for the free market forces to determine. When we came from exile, we thought that what is good for USA or Great Britain, Uganda or Kenya could also be good for South Sudan, and our people with this notion started to talk of free market system with full mouth. I for one however, did not buy this idea because it is quite understandable by the literate mind that every economy at its early start is like a baby which must undergo parental care what so ever the case. The child should be taken care of until when it grows and is able to freely interact and play with the adults whereupon the parents remove their care gradually, and not abruptly. The same applies to an economy where in our case, the government at initial stage from 2005 should have been handling the affairs in the economy under tightly controlled setting rather than leaving things completely to the free functioning of the market in a confused situation which had led to massive corruption that have threatened a total collapse of the economy. Let us know that even the current developed nations of USA and others during their earlier stages of Industrialization underwent through controlled economic system, and not free market or competitive market system. I am afraid till now there are still to be found some elements of state interventions in the functioning of their economies. So who are we in South Sudan to think that our economy can completely function in the line of the Smithian’s invisible hand’s orthodox? We need therefore, honestly here to accept our mistake that came about due to our ignorance. We should learn and avoid copying and pasting ideas from other parts of the world blindly without critically screening them and customizing them to our own local settings. Well as said already, the crisis was within our expectation, and then what could be the immediate causes? There are several factors that have led to this crisis to manifest itself at this moment. First, as already mentioned above, a wrong choice of an economic system is one factor. Second, this wrong choice led to a confused environment in the country where very many individuals turned into ghost companies alleged to be procuring supplies of different commodities to the country. This is worsened by the fact that the country is just an importer of almost every product consumed by the population while depending on a single commodity export (Crude Oil). The danger here is that, depending on a single product for export is disastrous when there is a failure or price drop like what had happened with oil prices in the International market today resulting into less income to the country in terms of hard currency (dollars). This has very much helped to trigger the current price hike in our markets. This happens because we need dollars to import all the goods that we get from Uganda or other countries of the world. Our demand for dollars then becomes greater than the available supply of dollars that comes from our oil exports. Hence, the price of dollars continues to rise. It does not end here. The worst is the corrupt environment engulfing the allocation of the dollars through the Letters of Credits (LC) to the very many ghost individuals and companies assumed to be importing commodities into the country as well as those who get the dollars from the Central Bank in the name of treatment abroad. In the end, all these dollars from these corrupt individuals get their ways into the black market at higher exchange rate making imported goods to be highly priced. The root cause of this however, is because we are not producing anything in the country to supply our markets. We import from food to local brooms from outside and the most beneficiaries are those foreign countries. Above all, almost all businesses in South Sudan are owned by foreigners or foreign based and at the end of the day they must repatriate all their profits and capitals to their own countries. This is in form of dollars or foreign currencies which deplete South Sudan of its meager reserves of foreign currencies as earned from only a single source (crude oil). Third, a serious factor that seems to have helped deplete the foreign currency reserves is the current waging war in the Country. Economically, war is the most expensive disservice to live with. Managing a war economy is no simple thing as those involved might think and that is why clever nations would try to avoid war at all costs. In such a war situation, every single bullet fired is some ten dollars gone, and imagine how many bullets are to be fired every day, leave alone Rockets and other war machineries. All these are to be imported from the Super powers with billions of dollars. More and more soldiers are to be recruited and well fed and treated with imported foods and medicines respectively. All these too require millions of dollars. So these three points (Wrong choice of system, Corruption, and War) answers the question of where all the dollars have gone or why there is scarcity of dollars leading to our current situations among other factors. I have also noticed that many of our citizens are puzzled as to why also prices of locally produced goods like mangoes or Nyette are rising and the sellers talk of rise in dollar price as the reason. They claim that there is no relationship here. Let me help them here by saying that there is a strong link here because the producers of the mangoes or Nyette would also want to buy other imported items like sugar or medicines, as such they have to sell their products with prices commensurate with the ruling market situation. Fourthly it had been clear that South Sudan economy was inherited from Khartoum with ready oil money of which the beneficiaries were not able to make proper use of the free gift as usual with anything that is free. This could be seen in how South Sudanese had been carelessly or rather stupidly using the dollars from the oil money in the last ten years, especially before the independence. It is a fact that made some of our neighbors in East Africa to think and believe that dollars are being freely distributed in South Sudan. Fifth, the South Sudanese themselves do not feel that they belong here as most of them are having citizenship of other countries with high standard of living. This led to massive outflow of dollars to feed and educate their families which remained abroad. Most of our children are either studying in East Africa or elsewhere resulting in outflow of dollars to these countries. Sixth, poor governance could also be a strong factor that determines our current mess. The SPLM as strong party was very strong in managing gorilla war and bush governance or management. However, after the CPA, the party could have gone under a serious changes and preparedness to rule a country. This could have demanded a lot of drastic changes and some elements of rigidity and centralization from its high command. A misconception also existed in the minds of the elite as if there was nothing in terms of governance structures in South Sudan, and as such everything should start from ground zero, a fact that open up the hell of corruption. In fact, the new country could have started at whatever existing level and built on them while introducing any new ones which are doomed necessary. For instance there was already in place an excellent National Health Insurance system and a student fund which were two useful service avenues which were dismantled for no good reasons except that they were thought of as being Islamic, which is not true though they are actually true economic ways of settling certain crisis. Although the above points are not the only ones to consider in our current economic crisis, yet it is necessary to try to see whether there are some avenues out of this mess. Now before prescribing any measures, we need to know that one can here describe the situation as serious since the exchange rate crisis could lead to Stagflation if not attended to in a prudent way. Stagflation is an economic situation in which both inflation and unemployment could happen in an economy concurrently. This would simply means that we could likely move from the worse situation to the worst, especially in some states which are not connected with good roads as the rainy season is approaching. It therefore, might call for early preparedness of any existing humanitarian relief bodies as more of us would simply lose their means of livelihoods and might need economic protection in terms of basic needs and medical care in the worst economic scenario, God forbid. We are like a person that has swarm to the middle of a river and is neither able to continue nor to swim back to the other bank of the river. Therefore, such a person would seriously need some leverage from somewhere, or else the worst could happen to him/her. In trying to suggest solutions, we need to know that solutions are always the reverses of the causing factors in most cases. We may have both long term and short term solutions. In the short term, first we need to stop corruption related to the issues of the LCs and not repeat that again. Some heads involved must fly. We should not sit on this issue just like that of the Dura saga and the 75 most corrupt whose cases are now quiet if not dead. There should be seriousness in running a country like in China where corruption is punishable by death immediately. Are we then any better than China? Second, there needs to be a serious way to stop the way by bringing peace in the country by all costs. Both parties to the conflict, especially the rebellion have to reconsider their position if they really care about the people of South Sudan. Peace is the only key to long term economic stability in the country and it is a pre-requisite in this regards. Third, after all these, the crisis should act as an eye opener for us to start local production to substitute for imports. No country is economically supposed to 100% depends on imports like in our case. Dependence on imports would continue to deplete our economy and weaken the nation in all aspects. Fourth, to temporarily relief us from the fire of the current almost hyper inflation, the government have to apply a minimum wage law by making all employers to raise wages according to current costs of living while it works on how to quench the market fire. This will reduce the suffering of the people and repair confidence between the consumers and the business community. Fourth, an import regulatory body charged with managing the use of dollars to import essential and necessities should be formed in order to stop the abuse of dollars as is the case with the LCs. Fifth, impose import ban on certain luxurious commodities which are responsible for depleting the country’s hard currency. Sixth, improve our local schools and discourage sending our children abroad for studies in order to preserve hard currency in the country. Seventh, most medical cases which are not serious should be treated within the country, and not abroad unless otherwise. Eighth, in the worst case scenario should there be no any measure possible, it is time to test our trading partners by temporarily grounding the use of South Sudanese Pounds and reaching bilateral agreement to use a foreign currency. The most prominent one could be to dollarize the economy, though not possible because even if it is done, the dollars would still get their ways out of the country since we are a supper importer. Uganda has currently the biggest one way volume of trade with the Republic of South Sudan. In other words, Uganda exports a larger portion of its output to South Sudan. As such in the worst case scenario, an immediate and useful solution could come by temporarily adopting the use of Ugandan Shillings in South Sudan instead of SSP. This would look like an economic invasion since South Sudan would lose its financial sovereignty, but this is better than complete financial collapse. Uganda on the other hand would benefit much by making the whole South Sudan looks like its domestic market and will increase its total output. Things would work very well for both countries for the time being, and South Sudan could buy back its pounds at later date if its situation improved. This could also be a way forward for future monetary union for East African block and perhaps Africa as a whole in the future.

 

May God save South Sudan and her people. Amen.

The writer is a lecturer of economics at the University of Juba and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.   +211912250567 or +254716147016

 

 

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