Friday, January 01, 2016

South Sudan: Choosing Peace and Prosperity in 2016

By John A. Akec
Rumbek Community Reconciliation - Lakes State 

Whether or not the fortunes or misfortunes that come our way as peoples and nations are a predetermined work of fate for which we cannot take credit nor do anything about, is a perennial question that has engaged philosophers and thinkers for millennia to this day. Yet, there are very persuasive arguments out there that say it is indeed up to individuals and nations to alter future possibilities through the exercise of the power of free will.

And we as people of South Sudan are proud to have waged one of longest and most brutal civil wars on modern African continent in order to have a dignified country which we would call our own. But unfortunately for our newborn country, and especially if you have been reading the New York Times, or has been listening to the latest US Congressional hearings on South Sudan, or have watched Al Jazeera or BBC World Service; or have been browsing World rankings of every ill imaginable in the last two years; you will come to conclusion that our demonization as a member of World’s community has been complete and thorough.

Like this author, you will come to a conclusion that we as a nation-state have become the very personification of the old Ebenezer Scrooge character in Charles Dickens’ novel, A Christmas Carol. So bad and heartless was Scrooge had become in the eyes of those who knew him that he had to be visited by the Ghost of the Christmas Yet to Come; shown soon-to-be his “corpse” in waiting which appeared “plundered, bereft, unwatched, unwept, uncared for” ready to be buried in a church graveyard “overrun by grass and weeds.” All the bad publicity received by our new nation was because no sooner after clutching our independence in 2011 than we began to engage in war over political power that in turn has destroyed our social fabric and ruined our economy. A war that has won us nothing but scorn and contempt from friends and foes alike. A war that caused death of thousands and brought displacement and destitution to millions others amongst our fellow citizens. A war that totally eclipsed the best in us as dignified people; and portrayed us in the worst light possible as a nation of clueless bunch who have no ideas how to build and run a country, although nothing could be farther from the truth.

That was the picture until November 2015. However, judging from the joyous Christmas of 2015 celebrations that were sweetened up by the creation of 28 states and subsequent appointment of governors on Christmas eve; the adoption of floating exchange rate; the prospect for increased government tax revenue through an improved tax administration and widening of tax bases; the arrival of the opposition figures back in Juba in December as first step towards the implementation of peace agreement signed in August 2015; the call for forgiveness and reconciliation from our President and our religious and political leaders; the expressed commitment by the opposition leaders to peaceful dialogue and peaceful transfer of power; there is every reason to believe that South Sudan has resolved to make 2016  a year of great hope and optimism, by choice and not by fate (just as Ebenezer Scrooge in Dickens’ Book (A Christmas Carol) subsequently did when he began to mend his miserly ways that  very same Christmas that was supposed to spell his doom.  That mending of ways landed him a different, far less grim prospects but happier endings).

Hence, year 2016 will be a turning point for the better in our short and troubled history as a sovereign nation. Like rest of humanity, we have recognized what is best for us and have elected to pursue the path of peace over the path of war. To embrace peaceful dialogue and coexistence and shun violence as a means of settling political differences and transfer of power. That we will use or God given ingenuity to bring about the badly needed development and social services to our impoverished citizens.

In 2016, we are going to work hard to steer clear of our heavily oil-dependent economy by quickly establishing National Revenue Authority; reviewing the tax rates; identifying more taxable entities; and set up a working pension fund which will allow us to retire those well beyond retirement age.

Guided by the roadmap in Agreement for Conflict Resolution in South Sudan (ACRISS), we must also reactivate and implement South Sudan Vision 2040 whose objectives are (by 2040) South Sudan will be: educated and informed nation;prosperous, productive and innovative nation; free, just and peaceful nation; democratic and accountable nation;safe and secure nation;united and proud nation; andcompassionate and tolerant nation.
And as a Pan-Africanist state that we are, while executing South Sudan’s Vision 2040, we must be bear in mind, and indeed mirror at national level, the Africa’s Agenda 2063: The Africa We Want whose aspirations are: a prosperous Africa based on inclusive growth and sustainable development; an integrated continent, politically united and based on the ideals of Pan Africanism and the vision of Africa’s Renaissance; an Africa of good governance, democracy, respect for human rights, justice and the rule of law; a peaceful and secure Africa; an Africa with a strong cultural identity, common heritage, values and ethics; an Africa where development is people-driven, unleashing the potential of its women and youth; an Africa as a strong, united and influential global player and partner.

Some of reforms that need to happen in 2016 include establishment of professionally staffed civil service; move to a centralized economic development and planning; centralized monitoring and evaluation; investment in education, research, technology and innovation; widening access to quality higher education through improved funding; widening the provision of technical vocational education, empowering women and youth;  enactment of laws that ban early girls marriages; speeding up the electrification of urban and countryside; investment in ICT, communication, and roads infrastructure; raising 80 percent of government revenue through tax that excludes no one, among others.

Finally, and more pertinently, in 2016, the President of our Republic will not only be seen as Commander-In- Chief of our armies, important as it is, but more importantly still and in the new context and reality of South Sudan, he needs to be seen and felt in real life as the Chief Finance Minister, the Supervisor of the Central Bank of South Sudan, the Chancellor of Public Universities; The Minister of Ministers; the Champion of Agriculture, Innovation, Science and Technology; the Defender of Women Social, Economic, and Cultural Rights; the Coach of Youth; the Father of the Nation and Its Guiding Star. The Defender of Democracy and Good Governance; a President surrounded by able, wise, and patriotic advisors; a listening and responsive President who is anxious for results and less tolerant of the incompetent and the underperforming. A President of one united people, prosperous, and proud nation. A President who is all these in equal measures.

By our free will and conscious choice, year 2016 could be the year when South Sudan will begin to take off. 

Monday, November 16, 2015

South Sudan Economy: The Best and Worst Case Scenarios

By John Apuruot Akec
All economies, large and small, experience periods of boom and bust. Like us humans, all
economies get sick; and from time to time, require fixing to bring them in line with respective national economic policy objectives: namely, maintaining low inflation, sustaining economic growth, and achieving full employment. Causes of economic crisis may differ from one country to another. Each demands appropriate diagnosis and right prescription in order to recover. And we all agree that South Sudan’s economy has been experiencing challenges for sometimes. Notable among these challenges has been the continuous hikes in prices of consumer goods. In economists’ jargon, we are experiencing serious inflation (due to rise in cost of buying dollar for imports, and aggravated by increase supply of national currency in circulation month after month). This inflation is so severe that it qualifies the description of ‘a crisis’ as prices of food and durable goods have tripled or quadrupled over the last few months. It is also seen in the disappearance of fuel from the market and the sights of long queues of vehicles and boda-bodas at petrol stations in nation’s capital, Juba.

The causes of this economic crisis are well understood. Briefly summarized, the drop in the global prices of oil has meant that very little revenue is accruing to the Ministry of Finance and Economic Planning. War has also led to shutting down of production of oil in Unity State resulting in reduction of total oil output by 30 percent. All factors combined have created a large deficit (or shortfall) in the government public finances. The shortfall which amounts to SSP 600 million a month or SSP 7.2 billion a year is being funded through central bank’s borrowing. Central bank borrowing, also known as deficit financing, is believed to be responsible for massive increase in the amount of national currency notes circulating in the economy, whereas the supply of hard currency (dollar) available for exchange remained fixed or somewhat reduced. In other words, deficit financing has resulted in “too many South Sudanese pounds chasing too few dollars.” Consequently, our national currency has fallen in value by almost 300 percent against dollar (from SSP 5.5 to a dollar in January 2015; to SSP 18.5 to a dollar by the end of October 2015). And since we are import-oriented economy, prices of imported goods have subsequently tripled. Some traders have shifted to US dollar as the preferred medium of exchange and better store of monetary value, first sign that our economy is about to dollarise.

The Best Way to Destroy a Nation
And to be sure, instability in value of national currency is a matter that deserves an utmost attention. It is no lesser critical than deciding to go to war; or declaring a state of emergency. History has it that Vladimir Lenin, the first leader of Communist Russia, once shrewdly observed that the best weapon for destroying a nation is to destroy its currency. Later on, history tells us, Adolf Hitler, having independently come to the same conclusion as Lenin, planned to fly airplanes over England not to drop bombs, but to unload tones after tones of counterfeited notes of British currency! No one is sure if those plans ever materialized. However, its mention here doe help to drive this point home –stability of national currency is a matter of life and death.
As a nation, we face two scenarios: the first is to absolutely to do nothing but sit back and watch our currency decent into insignificance, just as we have been doing so far, and be ready to pay the ultimate price for inaction. The second scenario is to wake up and take some corrective measures in order to restore confidence in our national currency.

The Best Case Scenario: Floating the Exchange Rate Irrespective of our Financial Standing
The best case scenario is to abolish the fixed exchange rate as soon as possible, irrespective of our financial standing. It is to be recalled that an economic workshop was organized by the government in May 2015. Many economists who attended agreed that the problem stems from deficit financing; and that the best remedy is to move away from the fixed exchange rate policy to a market-determined rate.  However, economists could not agree on pre-conditions for such measures nor the best timing. The result has been stagnation, and continuous decline of South Sudan in currency market. However, there are strong arguments against inaction.

For example, the pro-alignment camp argues that at the current parallel exchange rate against dollar of SSP 18.5 to dollar (as of Sunday 8 November 2015), the Ministry of Finance will fetch SSP 1.11 billion for USD 60 million, the estimated monthly oil revenue accruing to the government of South Sudan, or an estimated annual income of SSP 13.320 billion per year (on flexible exchange rate policy). That is, at the stroke of a pen, it does away with the huge deficit.
Add to it the tax revenue of SSP 1.44 billion annual tax revenue, and we have total income of SSP 14.76 billion of government annual income. That is, 4.75 billion additional funds that can be used on development and partly on increasing the salaries of workers on low income in order to reduce income disparities. This is better when compared to estimated SSP 3 billion annual government revenue at current fixed exchange rate of 2.96 to a dollar and a deficit of SSP 7 billion in the approved budget of SSP 10 billion for 2015/2016. It is important to note that these reforms can be implemented with or without foreign currency cushioning. Furthermore, reform of income tax (to include constitutional post holders) could raise additional SSP 2.4 billion per year, taking the total estimated revenue for this financial year to about SSP 17.16 billion.

Furthermore, additional measures include removing fuel subsidies. Currently, Nile Petroleum Corporation spends about USD 18 million per month on fuel or USD 216 million per year (SSP 4 billon) in real term at parallel market rate. A liter of petrol or diesel sells at SSP 6 or USD 2 at fixed exchange. In real terms and based on parallel exchange rate, it should sell at SSP 37 a liter.

Hence there is subsidy of SSP 31 per litter which works out to 83% fuel subsidies paid by  Nile Pet on our behalf. Still below the black market price of SSP 60 per liter which many are ready to pay.
Hence, removing the subsidies fully (for argument’s sake), the government can get back an estimated amount of SSP 3.3 billion (USD 179.3 million) a year. All in all, the government revenue can rise to SSP 20 billion without increasing the taxes. With these measures, it is possible to recalibrate and stabilize the South Sudanese pound.

The Worst Case Scenario: Doing Nothing
This is the favoured scenario by the majority of our economists and members of legislative assembly. They argue that we do nothing until our financial standing improves (a buffer to defend the pound when demand for dollar at market price increases. This is in complete defiance of inverse relation between demand and prices.  And doing nothing, fortunately, does not require lengthy explanation to understand. It means our Minister of Finance will continue to run a budget with large shortfall of SSP 7 billion a year; funded through central bank’s borrowing which means pumping more currency notes into circulation every month. The South Sudan pound will continue its free fall by an average of SSP 2 per month; and by February 2016, the exchange rate of our currency against dollar will hit or exceed SSP 25 mark. Millions of low-waged individuals will be squeezed out of the market as they will no longer afford to feed their families. Salaries (even for the best paid) will come to mean nothing. Fuel prices will continue to rise. Life will be unbearable for most with the exception of few. The successful implementation of peace agreement will only bring in additional USD 30 million per month (SSP 90 million per month at fixed exchange rate of SSP 2.96 to a dollar). That is, if production in Unity State resumes by December 2015, which is unlikely. Even that addition to government revenue will not make huge difference as long as the exchange rate remains fixed at SSP 2.96 to a dollar, the deficit will fall by SSP 90 to SSP 510 million per month (SSP 6.1 billion annually); and the fall of South Sudanese pound will continue unabated.

In the final analysis, serious political and social upheavals will ensue as a result of unresolved economic crisis. And most probably days and weeks around January or February in the new year (2016) could be troublesome to our stability. And if that happens, many of us will find ourselves agreeing with the economist John Maynard Keynes who expressed his frustration with the classical economists who would not advise their governments to intervene with stimulus in order to speed up economic recovery after the Great Depression which happened between 1920 and 1929.
To Keynes’ dismay, the established classical economists occupying White Hall in Britain and beyond, insisted that governments in Britain, Europe, and United States do nothing but allow their economies to self-correct (in the long run). Against which John Maynard Keynes argued that the long run argument is a misleading guide to current affairs as they existed then. And that in the long run all will be dead. Keynes also lampooned classical economists’ influence on political decision-makers to do nothing saying: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist[s].”

And if our defunct economists could have their way, Keynes, Lenin, and Hitler would be shaking their heads in their resting abode, amazed that someone in the enlightened twenty-first century would still choose to ignore their wise insights.