21st June 2024
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OPINION: South Sudan’s economic potential beyond oil

Author: By James Alic Garang | Published: Friday, May 31, 2024

Dr. James Alic Garang, the Governor of the Central Bank of South Sudan Juba. December 17, 2023. (Photo: Madrama James/Eye Radio)

South Sudan, the world’s youngest nation, possesses immense potential for diversification, economic growth, and shared prosperity. While oil has been the mainstay of the economy since independence from Sudan on July 9, 2011, the government’s focus on augmenting broader local production, particularly in the agriculture sector, presents exciting opportunities for investors.

The latter singular interest also fosters a more resilient future for South Sudan and the region. What the world does not know is that South Sudan boasts a wealth of natural resources beyond oil. Fertile land, vast water reserves from the Nile, and abundant mineral deposits offer a diversified base for investment, to mention but a few.

The bright future of agriculture

With fertile plains and a long growing season, South Sudan has the potential to still become a breadbasket for the region and beyond. Investment in modern farming techniques, irrigation infrastructure, and storage facilities can unlock this potential, ensuring food security, not only for our people but also, as already stated, for the region and continent, while creating jobs for millions of people.

South Sudan cannot, however, achieve its growth potential in isolation. If anything, South Sudan needs to integrate with the global economy while strengthening collective action, especially the regional and international financial system. This conviction informed our decision to join the East African Community (EAC) in 2016 and the country is now realising some dividends.

Fostering regional integration and global collaboration

While we have made considerable progress, I will admit that it has not been an easy journey. The fact, however, is that I can confidently say today that South Sudan is no longer a ‘baby’ but a fully matured adult, just like others in the region, and is contributing to collective action in many respects.

South Sudan is a country moving towards a positive frontier. To make this point clearer and as the Governor of the Bank of South Sudan, I had the privilege of hosting the EAC Monetary Affairs Committee meetings from April 29-May 3, 2024. Throughout the week-long meetings, the Bank of South Sudan had the opportunity to highlight to our EAC colleagues the immense potential that remains untapped in our country.

In a similar vein, I also noted that the banking sector remains a major reserve for investment from our regional brothers and sisters. Huge opportunities for varied investments exist in the banking sector. Going forward, we promise to sustain a positive investment climate as we seek to attract both regional and global investors to South Sudan.

We also appreciate the support we have received from regional central banks, especially the Central Bank of Kenya and the Bank of Uganda, in the form of technical assistance, especially in areas of market development and transition to a price-based monetary policy framework. The Bank of Tanzania, alongside other Partner States’ central banks, has also provided huge support in terms of focused training courses over the years and continues to provide a knowledge exchange program.

The above narrative is patterned as part of the Bank of South Sudan Modernization Strategy. The primary focus of this strategy is to strengthen monetary policy operations and key performance indicators, underpinning macroeconomic stability. The strategy covers policy areas and addresses key operational gaps in the conduct of the monetary and exchange rate policy.  It emphasizes areas of coordination between fiscal and monetary policy both in containing and anchoring inflation expectations, stimulating inclusive durable growth, and diversifying to cushion the economy against external shocks and adverse terms of trade.

The Strategy also outlines the need to establish an efficient and safe national payment system in South Sudan, which conforms to international standards and best practices, ensuring a sound and efficient financial system by minimizing potential risks. This harmonized approach further supports monetary policy and financial stability in general.

In managing the foreign exchange market, the Bank continues to review the available intervention mechanisms and coordinate efforts with the fiscal authorities to boost reserve buffers and support the balance of payment requirements. It also encourages domestic production through supporting Agricultural Bank of South Sudan. The fiscal authorities and other relevant institutions are now pondering the need to establish an agricultural credit facility, in collaboration with allied domestic stakeholders. This facility will provide credit to farmers, many of whom lack access to finance.

The drive towards reorganizing the foreign exchange market remains a top priority of the Bank. A roadmap to realign foreign exchange trading and revisit the licensing processes to encourage unauthorized dealers to register and operate under the supervision of the Bank has already been accorded maximum support. To this end, rollout under strict supervision, guided by prudential and regulatory framework, is already under implementation.

The strategy also highlights the importance of the degree of autonomy and corporate governance delegated to the Bank, which influences the design of the structure of the governing bodies and the accountability provisions. Strong accountability provisions and autonomy remain critical to ensure that the delegated powers are deployed and monitored as intended.

After abandoning the fixed exchange rate regime in December 2015, the Bank of South Sudan adopted the use of a monetary aggregate targeting framework—the Reserve Money Targeting Framework—as its monetary policy framework. The choice of this framework was due to its ease of implementation or operationalization. Under this framework, the nominal anchor is the broad money, whereas the reserve money is the operational target.

At the beginning of each calendar year, the Bank normally sets targets for the inflation rate, growth in broad money, base money, and credit to the private sector by the commercial banks and then deploys monetary policy instruments to manage the operational target to steer the growth in broad money to a desirable target that should, in turn, keep the target of inflation at the desired level. At the end of each calendar year, the Bank thus evaluates each target against the actual outturn before setting the targets for the subsequent year.

Through buying and selling government securities and other financial instruments, the Bank influences the money supply in the economy. The Term-Deposit Facility (TDF), for instance, is an Open Market Operation tool that allows the Bank to sterilize excess market liquidity.

The money multiplier, as of recent, however, has started to be unstable, which requires the Bank to rethink its monetary policy framework. Further, the EAC protocol in the pursuit of the single currency objective, requires all member states to transition to a “price-based monetary policy.”

Broadly, the MAC meeting, which deliberated on accelerating the process of establishing an EAC Monetary Union, disabused our visitors about what South Sudan is today after years marred by conflict that kept foreign investors at bay. That said, investors are currently hurrying to states with immense potential for gold mining, which were previously no-go zones. Thanks to our liberal or free entry and exit policies, especially around exploration and extraction of other minerals, including iron ore.

The Road to a Prosperous South Sudan

For South Sudan’s economy to prosper and serve its people, building a more resilient economy lies in developing its agricultural sector and attracting investment in non-oil sectors. This will require continued focus on creating a stable and transparent business environment and investment in transportation, irrigation, and reliable power.  Investment opportunities also exist in equipping the workforce with the skills needed for a diversified economy.

The Way Forward

South Sudan stands at a crossroads. Yet, by harnessing its natural resources, fostering a stable environment, and investing in its people, the country can unlock its true growth potential.

From our experience, the journey will be exacting, but the rewards – a prosperous and diversified South Sudan – are well worth the efforts. As international investors turn their attention to emerging markets, South Sudan, with its vast potential and government commitment to diversification, presents a compelling opportunity. After all, investor-friendly policies are in place and what remains underway is the need to ensure improved infrastructure and a stable business environment.

Though over 90 percent of South Sudan is classified as prime agricultural land, only about 5 percent of the land is exploited, which means food insecurity continues to perturb the country. Such a hard reality is an unacceptable situation in the 21st century.

Investors can explore opportunities in agribusiness, for instance, processing, and storage. Similarly, distribution of agricultural produce possesses opportunities for investment by foreign investors while livestock holds promise for development of modern ranching and dairy production.

South Sudan can potentially defeat hunger and famine in Africa through rice production. The Aweil rice scheme project, one of the success stories, however, needs regional and international support to succeed. The signature project started in 1944 but was revived in August 2022 with support from the UN Food and Agriculture Organization (FAO) and the World Bank. It has the potential to feed the entire East Africa and even beyond.

South Sudan officially submitted in July last year a Letter of Intent to join the Coalition for African Rice Development (CARD) during its 9th General Meeting held in Abidjan, Cote D’Ivoire. This is a realization that the country could realize its ambitions to not only become food secure but also meet the needs of Africa by becoming a part of a bigger alliance.

This is because the coalition brings together development partners, research agencies, and South-South Cooperation Partners, offering member countries access to tailored consultations and technical assistance designed to enhance rice production in their respective countries. With the support of partners such as the Japan International Cooperation Agency (JICA), we hope to overcome persistent challenges and build a stable, peaceful, and prosperous nation.

Mulling over the foregoing, South Sudan is prepared and eager to participate in fora such as the Annual Meeting of the African Development Bank (AfDB), which is taking place in Nairobi from May 27-31, 2024.

I note that apart from the constituency and bilateral meetings, which will bring together high-level officials, ministers of finance, central governors, other policymakers, and private sector players, there will be other sessions on the sidelines. These include in-person business opportunities, seminars, and open talks that will provide an avenue for individual consultants and consulting firms, civil contractors, manufacturers, private companies, investors, suppliers, and diplomatic commercial attachés. The above menu of items also avails an opportunity to learn about providing goods and services, and partnership prospects.

Policy Considerations

South Sudan has huge investment opportunities notwithstanding governance challenges, including legacy of wars, underdeveloped infrastructure, and a skilled labor shortage. Going forward, the government is committed to creating stable business environment, investing in human capital, and investing in local production, especially agriculture.

The Bank of South Sudan, on the other hand, remains steadfast in supporting government policies, while ensuring efficient payment system, prudent monetary policy, and financial stability.

On the other hand, we expect investors to conduct their due diligence and manifest in long-term strategies. Collaboration with the government and local communities, for example, is essential to reap investment opportunities, and by extension, support the UN Sustainable Development Goals and South Sudan Development Plan.

In closing, South Sudan is open for business, and huge dividends lie ahead for all parties. We, therefore, urge closer collaboration between the government, local communities, and investors for South Sudan to achieve its development objectives.

Dr James Alic Garang is the Governor of the Bank of South Sudan and the Chairman of the East African Community (EAC) Monetary Affairs Committee.

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