Prolonged conflict takes toll on S. Sudan economy: experts

by Denis Elamu

JUBA, March 20 (Xinhua) — The economic situation in South Sudan seems getting out of hand despite devaluation of the South Sudanese Pound by 84 percent in 2015 under the managed floating exchange rate, experts have said.

Since 2011, the country had been operating under a fixed exchange rate, but the outbreak of conflict in 2013 halted its oil production, distorting macro-economic stability.

Despite attempts by the central bank to rein in soaring prices of goods by auctioning of 70 million U.S. dollars to commercial banks, the economic situation seems to be getting out of control as fuel and food prices continue to rise.

According to Nhial Tiitmamer, Programme Manager for Environmental, Energy and Natural Resources at the Sudd Institute, a Juba-based research organization, despite being locally produced, coupled with drastically plummeting global crude oil prices, fuel costs more in South Sudan than elsewhere in the region.

“The prevailing shortage and high cost of living are a consequence of hard currency shortage, high taxes and duties, absence of refineries and depots, growing demand for oil from electricity producing and consuming sectors, and inefficiency in energy use,” Tiitmamer said early this week.

“These factors are exacerbated by gaps in institutional, regulatory and policy frameworks, lack of fair market restraints, and corruption. Consequently, this has led to fuel hoarding, hikes in transport cost, reduced productivity, amplified social stratification, and the soaring prices of basic commodities,” he added.

According to the UN Development Program (UNDP) national development report 2015, foreign exchange market distortions in South Sudan are a major challenge to redirecting the economy in a positive direction.

“The Ministry of Finance and Bank of South Sudan have agreed that the rationing and allocation of foreign exchange since 2011 have created increasing distortions in the economy. They have reinforced perceptions of poor economic management fostering corruption and rent seeking, altering price signals, and deterring foreign investments,” the report finds.

The report says foreign currency rationing has also led to a parallel market for foreign exchange since 2011. The parallel exchange rate has responded to stimuli and changes in oil flows.

“Severe capacity constraints, corruption and a lack of a legal framework and resources have delayed setting up an efficient system of non-oil revenue administration,” says the report.

South Sudan depends on oil exports to finance 98 percent of its fiscal budget, but oil production has since declined from over 300,000 barrels per day to less than 160,000 bpd. This has been exacerbated by the global fall in oil prices.

The country’s abundant natural resources include oil, teak, gum Arabic, gold and natural mahogany. A large portion, 90 percent, of its land area is deemed suitable for agriculture yet less than five percent is cultivated.

“Outside the oil sector, livelihoods are currently concentrated in low productive, unpaid agriculture and pastoralist work, with this accounting for around 15 percent of GDP,” the UNDP says.

Alic Garang, economist with Ebony Center for Strategic Studies, a South Sudan think tank, said the fundamental thing for the country was to work around increasing non-oil revenue.

“As long as we don’t identify where resources are coming from, you cannot spend without knowing where the money is coming from,” Garang said.

Analysts said South Sudan’s economic fortunes depend on the expeditious formation of the transitional government of national unity as per the signed August 2015 peace deal to end more than 23 months of conflict.

The peace deal leaves Salva Kiir as president and returns rebel leader Riek Machar as the first-vice president.

However, Machar has not returned to Juba, citing delays in transportation of his 1,370 rebel troops to Juba and security concerns for his safety.

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