Business struggle in South Sudan "war economy"
Since the outbreak of the conflict in 2013 between the South Sudanese government and rebel forces, the business sector has been one of the most affected. Businesses are struggling to stay afloat in what is considered a “war economy.”
Savvy companies would flee, fearful of what might happen next. In an area devastated by conflict, stories of looted businesses or kidnapped owners are not taboo. They really do happen. However, there remain some business owners who are brave enough to continue their business, even establish new ones.
The number is expected to increase after the signing of the peace agreement last Wednesday. Of course, there is still nervousness about it since the last seven peace agreements have failed. South Sudanese President Salva Kiir says that while the conflict has killed thousands and displaced more, there are still willing businessmen who have put themselves on the line to help the economy regain balance.
Let’s take a look at some of the issues facing these brave entrepreneurs in South Sudan.
Business is not stable if there is conflict, so you can expect prices to increase. In fact, prices have skyrocketed so much that entrepreneurs decide to outsource their services. For example, a printing company would choose to print their products abroad and then ship them to the location instead of printing locally.
You can attribute such high prices to the scarcity of hard currencies like the US dollar. The South Sudan pound cannot be trusted either because it has already fallen enough. The official exchange rate is 2.96 South Sudanese pounds to the dollar.
But even the prices of the usual products have increased significantly. These days, you will have to pay almost double for the same menu del dia and public transport. That’s a lot of adjustment not only for business people but also for ordinary citizens.
What happened to all the oil?
It must be remembered that before the war broke out, South Sudan earned 98% of the government’s revenue from the sale of oil. But when the war broke out, production was cut in half when rebel forces seized some of the oil fields. Some even destroyed the infrastructure there, making oil collection impossible. And while an average of 160,000 barrels are being produced, they won’t do much good given falling world oil prices.
Worse still, part of the agreement reached dictates that the South Sudanese government must pay for the oil transported through its pipelines. That’s an additional expense with no income in return. There is still hope, it seems, because officials will address this part of the deal when talks resume this month.
The apparent “resistance” to banks
Another problem in South Sudan’s war economy is that the central bank does not have sufficient access to dollars. This is because many of the foreign workers and companies prefer to send their remittances through centers, not commercial banks. In fact, it is justifiable because the black market exchange rate is 14 South Sudanese pounds to the dollar, 11.04 more than the official exchange rate.
But why are the big companies staying?
Well, with so many other companies fearful of the war economy in South Sudan, competition is weakening. But of course the government can’t celebrate for long. Some big companies are already threatening to shut down because the government has spent too much of their revenue fighting rebels than protecting the companies. Meanwhile, much of the government’s money has become terribly corrupt.
The signed peace agreement is a requirement of the IMF and the World Bank to obtain financial aid. With that, help could arrive and be felt soon.