Opinion| Addressing South Sudan's economic woes
Faced with the country's huge currency depreciation against major foreign currencies, the government of South Sudan has tried to make a pitch to foreign investors to invest in the country in order to alleviate the economic situation being faced by the population. To make matters worse, Sudan's warring parties have placed South Sudan on a tita totter, putting enormous pressure on the country to rethink its options for transporting its crude oil.
The Rapid Support Force (RSF), which is a para-military group of Sudan, had given South Sudan a two-week ultimatum to cease paying Sudan the transit fees for its oil through the territory of Sudan. A situation further complicated by the government of Sudan which could shut down South Sudan's oil anyway if the latter government complies with the RSF's threats.
This paper seeks to provide options that are actually meant to address, for a long term, rather than just a quick fix, the economic predicaments of South Sudan.
To begin with, South Sudan is not the only country in the world to have faced such challenges, especially after winning independence or coming out of brutal wars. This paper argues that there is a glimmer of hope for a country endowed with huge energy potential, mineral resources, huge agricultural land and unique plants that are good for pharmaceutical research programs. If the steps proposed here are followed up closely, like Rwanda, Singapore, and South Sudan will emerge stronger and can be the centre stage for Central Africa's economic hub.
1-FACTS ABOUT THE COUNTRY.
South Sudan is Africa's 54th country and is the last country in the world to have gained independence. It is a landlocked country with a population of slightly 8 million people, occupying a land size of about 6,018 kilometres, heavily dependent on oil for export and the highest dependent on imports and humanitarian assistance. In the East, it borders Kenya which is open to the seaports of Lamu and Mombasa. Likewise, it shares a border with Ethiopia which nears Djibouti, a country open to another coastal line at the Indian Ocean. In the North, South Sudan is neighbour to Sudan which has a sea port at Port Sudan. And in the West, South Sudan shares its border with The Democratic Republic of Congo, which has a seaport open to the Atlantic Ocean.
The country's economic growth is very slim, given a number of challenges, both foreign and domestic. Domestically, 73% of the population is food insecure, with a greater number being illiterate, putting the country in dire need of growth and development in order to offset this situation. There are a few factories in the country and all depend on non-renewable fuel for it’s energy needs. Internal conflict coupled with a high degree of corruption makes the country unattractive for foreign direct investment.
Nonetheless, the country has a considerable potential for rapid growth, given the huge presence of agricultural land, natural resources (minerals), and a big number of workforce to sustain economic growth. Importantly, the country is surrounded by a regional demography of over 400 million people, which is a potentially huge consumer for products from South Sudan if it embarks on industrialization and a diverse economy. In terms of natural resources, South Sudan ranks second to the Democratic Republic of Congo in Africa as a country with the most minerals. Based on the anonymous expert opinion, the size of Eastern Equatoria State’s resources alone can finance 22 African countries. But the capacity, therefore, to add value (mine) and export these minerals is non-existent. Thus, in responding to the challenges daunting to this country, important suggested steps must be taken seriously.
1-THE DEGREE OF THE PROBLEM
- High dependency on imports.
At present, South Sudan imports about 90% of its goods from Kenya, China, USA, India, Dubai, Ethiopia, Sudan, Uganda and Brazil. Southwest Sudan imports about 6.4 million tons through Kenya alone. These include clothing and capital equipment. Though it is rich in livestock, totalling 36 million, South Sudan spends her foreign currency on imported cereals, livestock, poultry, fisheries, eggs and tea from Kenya and Uganda. It is also in agreement now to even import hydroelectricity from Uganda, something not necessary given the immense abundance of water sources that could power the entire country once micro hydro plants are installed along the rivers in South Sudan.
A- Although it has other resources that include hardwood, livestock and fisheries, South Sudan exports only oil through Sudan. Regrettably, this is being threatened by a shutdown from Sudan's warring parties. Sudan's para-military group, the Rapid Support Force (RSF) threatened to shut down the pipeline which delivers South Sudan's oil to Sudan's Port. Being landlocked and without any alternative direction means to deliver its oil to the seaport or a diversified economy, South Sudan's vulnerability is exposed by the Sudanese crises and other shocks such as oil prices dropping and flooding which have filled some oil Wells, making operations quite difficult. RSF has given a three-week deadline for South Sudan not to remit its payment as transit fees to Sudan or face a permanent shutdown of the oil pipeline. Sudan receives about $18 million as a monthly payment for the pipeline. Meanwhile, if South Sudan ignores or adheres to the RSF's warning, the Sudanese current ruling military government will likely prevent South Sudan's oil transit through Port Sudan.
B- In 2009, Sudan and South Sudan went to war over the status of Heiglig, traditionally known as Panthou, an area that has oil. This war brought the shutdown of the pipeline from Heiglig, the crisis that sent the Sudanese pound downstream against the dollar. Any war in Sudan or South Sudan could gravely affect the economy in both countries due to the reliance on oil for revenue. Thus, the implications of these factors put South Sudan in a perilous discourse as the country's market prices are rising on a daily basis, exasperated by the free fall of the South Sudanese pound against the dollar. It is not known as to whether the local currency's depreciation is the government's policy designed to bring, boost the trade deficit or it is a part of a currency war. But the situation offers no hope for South Sudan's currency stability against major currencies as the country heavily relies on imports.
A number of countries with similar beginnings like South Sudan, war-torn or got independence, have demonstrated a remarkable turnaround. Their successful socio-economic history is the anecdote for South Sudan. In this case, their compliance with modern economic theories has propelled their success. Let us take a look at these specific countries. Nonetheless, the government has planned for an economic forum to address the crises.
Right after winning the war against the Kwa Ming Tang (KTM), Mao's socialist regime was faced with severe economic problems. Most of the land in China belonged to the feudal Lords, leaving the bulk population of Chinese to live below the poverty line. The new government began to redistribute the land under a new land policy. With the help from its diaspora community, i.e. the majority of Chinese students who returned home helped in the reconstruction process by giving newly acquired Western ideas.
Along the way, China adopted some new economic principles and systems. It was not easy, however, but after a long time and with criticisms from the West, especially for China’s handling of the human rights of labourers, China began to see the need to abandon its moribund economic principles. And so, after Mao's death in the late 70s, the new Chinese government decided to ease up and depart from communist economic systems, opened up itself to trade and investment with the West.
The government subsidized farmers and also permitted the latter to sell some of their produce to the free market. Up to the mid-90s, my colleagues from North America who worked in China, teaching English as a Second Language, described China as third world. The middle-income households were few. The infrastructure was substandard, too. China’s economy was very poor and stagnant, largely controlled by the state, thus rendering it inefficient.
Chinese products were substandard, for instance, and in retrospect, the Chinese government and its business community turned their attention towards the diaspora community, most of whom studied and worked as migrant workers in North America due to Western high wages.
In the beginning of 2000 AD, the Chinese government, in concert with the private sector, pitched to its diaspora community, offering incentives for workers to take a two-week leave of absence from their employment in North American industries and visit China. In return, the Chinese government, together with the business community, offered these employees two weeks' pay, medical coverage, and lodging with meals for the duration of their two-week stay in China. These workers showed the Chinese industries how efficiency was run and how good management practices were done in the Western industries. To the present, China embarks on a cordial reception of its diaspora community for the service of new challenging, innovative corporate ideas in the private business sector. Thus China is now able to acquire companies and assets in foreign markets, boosting its economic strength.
After a long period of political struggle, the new government faced huge challenges soon after gaining independence. 70% of its population lived below the poverty line and in slums. The economy was very bad as the country had a very high unemployment rate. The new government prioritized the economy. Thus a team of experts from the UN visited the country and provided the new government with advice on how to tackle the economy. I take here a keen note too that a UN expert on the economy said that there were two South Sudanese, the late Hon. George Muras and Adellio Loria wrote the economic paper for Singapore.
Regardless, however, to develop its economy, the UN experts proposed that the industrialization of Singapore would bring the country to rapid growth by absorbing the huge number of unemployed workforce. Hence, the country focused on building the necessary infrastructure in order to support this economic program. The development of human resources, the investment in infrastructure, with the provision of affordable housing for the population took effect. For the unemployed, the government set up technical schools and hired international companies to train the unskilled labour force in information technology, electronics and Petrochemicals. Singapore developed an efficient economic atmosphere, offering better tax benefits for an economic environment. It is touted for the fight against corruption, having greater transparency and accountability with the provision of service delivery. There is an equal treatment of foreign and domestic investors and a very good legal system.
These actions secure a business environment for foreign investors.
Soon after dethroning the ethnic Hootoo ruling government in 1994, the new government under Kagame appealed to the Rwandese diaspora community to return home for the reconstruction of Rwanda under a non-ethnically ruling system. Coupled with that, the new government was supported further by the international donor agencies in the reconstruction effort. Hence Rwanda, which was one of Africa's poorest countries, made spectacular economic growth, thereby decreasing the country’s poverty line and improving the living standard of the country. Literacy and health care have all improved significantly. The country is one of the fastest-growing economies in the Eastern African region.
Other than small exports in agriculture, Rwanda has copied Singapore's economic model. It is making reforms in its institutions in order to achieve political and critically important developmental goals.
To develop its labour force and technical know-how, Rwanda has made sure it purchases only parts for most of the country's electricity mechanical installations, for instance. This is noted in the country's provision of its energy needs. Rwanda relies heavily on her own trained technicians in building micro-hydro electricity which is then built into the country's power grid. What these technicians do is only buy component parts for micro hydro from Germany and do the job themselves. Thus, it is totally self-reliant on its energy needs.
As a country that gained independence just 14 years ago, South Sudan, without a doubt, inherited a lot of problems, including good things such as wealth. The peace settlement also ushered in an enormous presence of the UN and donor agencies. South Sudan is also endowed with a huge energy potential, including natural resources.
After a negotiated peace settlement in 2005, South Sudan received $10 billion in aid for its reconstruction purposes. 14 years along the line, the country's poverty level is beyond concern as most of the population is induced by the country’s dependency on foreign aid and imports. At the backdrop, the country is totally reliant on one commodity which is oil, for export, leaving it to unpredictable shakes both internally and externally. The crises in Sudan, falling oil prices and oil Wells being flooded by the deluge during heavy rains. With the declining conditions, lowest literacy rate and total dependency on imports, the country now seeks foreign direct investment (FDI) in order to offset the precarious socio-economic condition in the country.
The aforementioned conditions have urged the country to adopt an integrated approach to advancing its economic growth. The country needs to diversify the economy, and embark on developing its human resources, and its connectivity both physically and wirelessly by having a good infrastructure and the best educational system, with a focus on trade schools and the IT sector.
To underscore this point, the country has great potential for becoming one of Africa's greatest economies. South Sudan could benefit from the great presence of UN experts in economics, governance and other technical fields. Moreover, most developed countries like the USA, Canada, Germany, France, Norway, China and Japan have great interest in helping the country rebuild itself. Many Western investors are also showing interest in investing in the country but not without meeting certain expectations.
All this requires that South Sudan understands good customer service skills because it is how the world operates now.
In May this year, a couple of us South Sudanese were able to answer a global investors' survey on mining in South Sudan. Typically, the survey tried to gauge the environment for investor prospects in the country's mining sector by asking among many questions, the favorability of the conditions for investment in mining in South Sudan.
Let us put it into Perspective.
- The need for good infrastructure.
For international trade to be successful for landlocked countries like South Sudan, the products and goods destined for foreign markets require that they pass through the boundaries of one or more states to the final destination.
Inadequate infrastructure, which must respond efficiently to demands, therefore, is an obstacle to investment. Hence to be efficient, landlocked South Sudan needs a considerable investment in standardizing its transit system in order to be land-linked to the Eastern, Northern and Western countries with coastal lines. A factor that could attract investors as well as encourage small-scale farmers to transport their goods into the market. It is paramount that to develop its attractiveness for Foreign Direct Investment (FDI), South Sudan must set its economic priorities in the development of its infrastructure. In that, there must be very good all-season roads, railway, electricity (possibly hydropower), telecommunication system (landlines through fibre optic cables) and better housing are huge factors and are indispensable for direct foreign investors to be attracted to invest in South Sudan. Bad roads such as we have can adversely impede transportation during rainy seasons. And this is only a matter that has affected small local farmers. Breakdown of vehicles or their inability to be manned through long ditches for weeks or months affects costs and discourages small farmers who have no stores to keep their produce till the rainy season is over.
In 2012 South Sudan was featured on CNN for one of the major global projects that advances human development. This was in line with LAPSET, a regional transit corridor linking Kenya, Ethiopia and South Sudan to Lamu Port in Kenya. It was a great start but without proper planning, its execution and monitoring came to a natural end on the South Sudanese part.
B. Attractive Mining Laws. For proper strategies that will attract investors, South Sudan needs to change existing mining and exploration laws. Natural resources are good for nothing without value added to them. By added value, we mean all necessary work put into their final production and sales. This means the government, through the involvement of foreign investors, can create jobs for its citizens and enormously alleviate the socio-economic conditions of the country by making regulations that are attractive to investors.
Exploration license is key to the promotion of or exposition of South Sudan’s mineral resources to foreign investors' platforms or trade shows around the world. As a government, there is a need for lawmakers to review the mining laws and make changes in order to attract foreign investment for modern exploration in minerals. To succeed, South Sudan really needs to encourage Western investors to obtain exploration licenses without hustle. It is not exciting for potential foreign investors to offer some cash for facilitation (brokerage) service and then unexpectedly encounter long delays for approval or have things not done at all.
The EL (Exploration License) should be done at no cost, as there won’t be any mining done immediately after issuing. Thus, in Canada, for instance, EL is issued to prospective investors without charge. It is only when the site has confirmation of the presence of minerals and there is a demonstrated interest in developing the site that the government charges fees for the mining license. Hence, permitting an EL for potential small Western investors without cost will attract big corporations. The small companies have the leverage to advertise for investment, using different opportunities, including websites and trade shows to access many sectors for mining as exciting projects in South Sudan.
It has to be noted that what attracts foreign investors are people and companies that are based in and out of South Sudan. These entities are likewise governed by their country's laws. It will be bad for these companies to dish out cash as facilitation without accounting for the money.
Usually, bigger corporations are tactful in venturing into foreign markets because of uncertainties and other variables such as small bribes or other unusual circumstances. Hence, permitting small foreign firms to operate in South Sudan can pay a great dividend as these companies are considered credible for their detailed business model. These small foreign firms have the capacity to provide larger corporations with much more prepared research, data, surveys and the necessary information in order to inspire and boost investor confidence in doing business in South Sudan.
For sure, there are a few domestic investors but they lack the capacity to showcase their businesses, though they need to attend trade shows and conferences in places like Canada, where many investors are interested in mining.
Last but not least, attractive tax rates, good roads or infrastructure and good regulations are greater incentives for a landlocked country like South Sudan.
C. Overhauling Education.
There is a great need to focus on education because we are in a new age where things are managed digitally. So, a well-informed labour force improves efficiency in production and the mobility of goods across borders. Indeed, the quality of our education system is very poor and cannot meet the expected performance required for efficiency in the global market. The greatest challenge in this case would be the improvement of vocational and technical schools in order to meet or adapt to the market needs.
D. Ridding off Corruption.
Corruption refers to dishonest or illicit behaviour by anyone in charge or an institution entrusted with the power to obtain illegal benefits for services. Investors steer clear of corrupt countries or even invest less in highly practised expropriation, the weak rule of law countries. Corruption discourages investment as it further impedes growth. It isdemonstrably justified that only countries that operate with accountability and transparency do attract foreign investment.
The current economic crises In South Sudan are inherently borne of a conglomeration of issues, being heavy dependency on only oil for revenue, near total dependency on foreign aid, absence of critical infrastructure to sustain agriculture and foreign trade, the lack of industries and the long-lasting effect of the past brutal war. Finding solutions to these questions is not like looking for a needle in the haystack. Rather retroactively, there is a need for policymakers to set priorities and follow the road map on these issues in order to address them.
Like Rwanda, a country that emerged from a brutal war, landlocked and without natural resources, South Sudan can rise to the global challenge for the human development success story by emulating the examples of Singapore, Botswana, China and Rwanda.
In seeking foreign direct investment for its abundant blessings on natural resources, South Sudan needs to offer investors attractive tax laws, build a good infrastructure (roads, railway, electricity and telecommunications), improve human security conditions and invest in the development of the human resource by building technical and trades schools.
The author, Charles J. Anteros, is a South Sudanese national living in Canada.
The views expressed in ‘opinion’ articles published by Radio Tamazuj are solely those of the writer. The veracity of any claims made is the responsibility of the author, not Radio Tamazuj.