Hopes dashed for new South Sudan economy as war grinds on and famine looms
Wed Sep 24, 2014 11:07am GMT
* Corruption, conflict saps government resources
* Poor South Sudanese see hopes of change dashed
* Shortage of foreign exchange hurts importers
* Oil exports shrunk by a third due to conflict
By Carl Odera and Denis Dumo
JUBA, Sept 24 (Reuters) - When South Sudan was born, the world's youngest
country had generous Western allies and sturdy oil exports, a formula that
offered a chance to build a modern economy and drag its people out of their
daily struggle to feed themselves.
Three years on, ethnic-fuelled conflict has flared, oil money has been
spirited away through corruption or squandered on war and a nation that sits
on Sub-Saharan Africa's third biggest reserves of crude is sliding towards
famine.
In the capital Juba, a muddy Nile trading post where new office blocks had
begun rising, trading firms and banks that had sprung up now struggle to
survive after nine months of fighting between government forces and rebels.
In the rural hinterland, where most of the country's 11 million people till
tiny plots of land or herd cattle on traditional pastures, hopes of
development entertained when South Sudan split from Sudan in 2011 have been
dashed.
"We are just living as you can see, with no job, no money. We thought our
independence from Sudan would mean our children would go to school and see
no war," said Simon Koul, a 47-year-old father of five in a Juba camp, one
of an estimated 1.3 million people who have fled their homes due to
fighting.
By year end, a third of the nation could face the threat of starvation.
Already, almost 180,000 children between 6 months old and five years are
being treated for severe acute malnutrition. Mothers are more likely to die
in childbirth than anywhere else in the world, according to U.N. statistics.
"There was no country on earth that had a larger score of goodwill than
South Sudan," Thomas Shannon, a U.S. State Department envoy for Africa, told
Reuters. "But beginning in December it has been spending that goodwill at
record speed."
The United States had heralded South Sudan's independence as a foreign
policy success and, with other Western donors such as Britain and Norway,
poured in aid, helping spur a mini-boom in the capital that was meant to
spread to the rest of the nation.
Now Western and regional African diplomats talk of mounting frustration at
President Salva Kiir and the deputy he sacked last year, Riek Machar, as
they continue to command rival forces in battle. Nascent businesses that
might have brought a modern economy are buckling under the pressure.
"There is fear. People don't want to expand their businesses, and those who
are operating in the crisis areas, they lost a lot," said Bruna Siricio,
deputy managing director of locally-owned Ivory Bank.
The bank moved its headquarters from Sudan's capital Khartoum to the south's
capital Juba in 2009 to take advantage of the opportunities that
independence would bring, but now faces a stark reality.
In a country where only a tiny fraction of the population had ever had a
bank account, Ivory Bank set up branches in remote locations. Government
employees could be paid their salaries directly into their accounts, which
could be used as guarantees for loans.
DEFAULT
Now, its branches in war-torn towns of Malakal, Bentiu and Bor, north of
Juba, have shut. The government has stopped transferring salaries to
customer accounts to avoid paying workers who rebelled, so many loans are
not being serviced.
This month the bank advertised in newspapers telling defaulters to report to
the bank or face legal action. Siricio said the bank had stopped all lending
for the next three months.
"We are concentrating on collection," Siricio said at the bank's
headquarters, which like other firms relies on a private generator for power
in a nation where experts say just 1 percent of the population are connected
to the grid.
One of the biggest challenges for banks and businesses is securing foreign
exchange to pay for purchases abroad. Scarcity has a swift impact on the
land-locked economy that relies heavily on imports from neighbours such as
Kenya and Uganda.
The central bank initially reduced dollar sales to banks to fund letters of
credit, and has now stopped such sales completely, bankers say. That makes
it harder for importers to buy goods. While the official exchange rate is
2.95 pounds to the dollar, the cost of a dollar on the black market has
risen from 3.50 pounds before the fighting to around 5 pounds now.
Central bank officials were not available for comment.
"I have South Sudanese pounds but it's harder for us to get dollars from the
bank," said Abjata Abdi Abdullah, a Kenyan trader who needs hard currency to
import clothes for his shop.
SAVINGS PLUNDERED
The currency shortage has led to rising prices and decreased availability of
imported food, pushing the country further towards hunger.
John Semolina, a Ugandan grains store owner in Juba's Konyo Konyo market,
said the dollar shortage means he has cut back on imports of maize and
sugar, having a knock on effect on prices and availability down the supply
chain.
"Sometimes it takes so long to find money to pay suppliers in Uganda," he
said.
Bishar Oman, who sells electronics, said the steady pound weakening had
pushed up the price of his laptops, mobile phones and other devices, so now
even fewer customers can afford them.
South Sudan should be flush with cash from oil exports. But its savings have
been plundered, after about $5 billion of reserves was taken by officials in
the years shortly before and after independence. Diplomats said efforts to
recover the funds retrieved little of the missing cash.
Oil income has fallen. Crude production now runs at 160,000 barrels per day,
a third lower than it was in December before fighting erupted and roughly
half the 300,000 barrels per day or so it exported at the time of
independence.
Officials suggest a large chunk of the income that still flows now goes on
the war effort, halting development projects in a country the size of France
with almost no tarmac roads and barely any public services.
Officials do not offer full details on spending, but parliamentary deputy
Onyoti Agigo Nyikwac said about four fifths of a supplementary budget worth
$700 million went on "security".
One member of parliament said the government had to buy more guns after
rebels emptied armouries when they deserted. Officials deny the government
has bought weapons since fighting began but acknowledge priorities have
changed.
"During this crisis, the demand for foreign currency has shifted from normal
trade to other activities," said Ukuni Paul Omseon, a project officer for a
Finance Ministry department that helps private business. He cited funding
for "emergencies".
The government said in July it planned to borrow about $1 billion from oil
firms to help it balance the budget.
Some of the dollars that do make it into the market come via U.N. and other
aid agency workers, as the aid groups ramp up activities to avert a
deepening humanitarian disaster.
Mabior Deng, 29-year-old South Sudanese exchange dealer, makes a tidy income
buying dollars from workers at the United Nations at a rate of 4.65 pounds
and then selling them on for more. "I get my profit from there," he said.
(Writing and additional reporting by Edmund Blair in Nairobi; Editing by
Peter Graff)