South Sudan Central Bank: catering to the rich

Sound banking policies of any country are a driving force for economic growth and currency stability. But when Elijah Malok, outgoing governor of the Central Bank of South Sudan, announced new measures to regulate hard currency, it was a sad day for small businesses struggling for a foothold in Africa’s newest state.

South Sudan’s new currency, displayed at the Central BankUnder the new regulations, anyone who wants to import goods must provide details of their foreign suppliers to a commercial bank, which the importer would be required to pay in local currency. The bank would then send the value of the shipment in dollars to the supplier before its transport to South Sudan.

The same policy applies to citizens seeking medical treatment abroad, as well as students who wish to study outside the country.

South Sudan imports most basic commodities such as salt, cooking oil and sugar from neighbouring countries, so this three-way process involving commercial banks is likely to get bogged down by bureaucracy. Malok denied it would have any negative impact on small-scale business owners or the economy in general.

But something about the Central Bank governor’s performance didn’t sit well with President Salva Kiir, because the day before Malok was scheduled to give a news conference to discuss the new bank regulations, Kiir fired him by decree without explanation. He has been replaced by Kornelio Koryom Mayiik.

One apparent impact of the Central Bank’s new policy is a scarcity of U.S. dollars at commercial banks and a rate hike against the South Sudanese pound. The U.S. dollar had traded steadily at 3.3 pounds, but it now costs about four pounds on the black market.  

If this situation continues, things may turn bad in South Sudan.” Mansuk, a vendor at Jebel MarketMansuk, a clothing vendor who did not want his last name used, said he was unable to pick up a shipment in Kampala as scheduled due to a dearth of dollars. If the situation continues like this for another month, things may turn bad in South Sudan,” he warned.

Our businesses are going to collapse if the government does not rectify the situation,” said Gale, who sells shoes and accessories at the same market.

Elijah Malok’s new measures make sense for more robust economies with large-scale businesses that produce goods locally and import only a few essential commodities. But this hardly applies to South Sudan, where the majority of traders operate on a much smaller scale. They have to be flexible enough to spring for goods in neighbouring countries when scarcity prevails. The new regulations may choke their livelihoods.  

By requiring the intervention of commercial banks, Malok undermines the contribution of small businesses to South Sudan’s fledgling economy since 2005. Traders’ mobility is vital to consumers and the taxes they pay provide revenue to the government.  
 
But given the current shortage of goods, prices have skyrocketed. The cost of oil and sugar has doubled in recent days. That can’t be good for anyone.

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This scenario is exacerbated by the fact that the commercial banks in South Sudan are foreign-owned and driven primarily by profit. Some of their customers are foreign nationals who work in South Sudan’s private sector and regularly send money home in the form of hard currency. Since there is no monitoring by the Central Bank, the flow of dollars sold to commercial banks may dry up.

If you go to the commercial banks, they say there is no hard currency,” said Mansuk, adding U.S. dollars are plentiful on the black market at a higher price. But if you pay it, you will be at loss in Kampala,” he explained.

While some foreign exchange bureaus in Juba have already run out of dollars, they are easily obtainable by young men who display them in large quantities on some Juba streets. But there’s something wrong with this picture: while citizens accuse these men of cheating their customers and stealing openly, authorities appear reluctant to react. Who are these vendors and how did they acquire their hard currency?

Now that Kornelio Koryom has replaced Elija Malok, he may have to review the policies set forth by his predecessor or wait until President Salva Kiir reacts with more decrees. South Sudan needs policies that lead to economic growth and currency stability. This young country is too poor to afford additional financial headaches.

Editor: Alexa Dvorson