By Peter Biar Ajak*

November 13, 2013

Any intelligent economist of sound training who have worked in or studied South Sudan between the birth of GOSS and the oil shutdown must have felt frustrated with the region’s economic policies.  It seemed then that South Sudanese decision-makers were forever glued to making wrong or badly thought-out economic decisions.  In arrays of actions we have witnessed –nepotism of unprecedented scale, virtual spending of all revenues received, extreme overspending outside of approved budget, procurement of dura we are yet to see, allocation of resources to luxury items and travel, virtual abandonment of education, health and agriculture to donor aid, and the perpetual overvaluing of the domestic currency at the expense of the poor and producers, etc. – GOSS has continued to amaze us by its sheer ignorance of the fundamentals of economics.  These policies in aggregate demonstrate that our decision-makers were placing much value to the short-term gains at the expense of our future and long-term fundamentals.

But as of recent, two actions executed by our government: the mostly diligent execution of 2012/2013 budget by the Ministry of Finance and the prudent management of monetary variables by the Central Bank through a period of exogenous shocks have gone a long way towards easing some of the frustrations once felt by this author.  This week, the decision by the Central Bank to adjust the exchange rate to the devalued rate of 4.55 SSP/1USD (and more general move towards crawling-peg regime) is perhaps the most significant leap that our country has taken this year towards sound management of the economy.

I am aware of the uproar that this decision has caused in our republic.  It has become the most contentious issue overnight to the extent it is being linked to national security.  Serious emotions have already been sparked by the debate and the consequences associated with the decision.  One may wonder why is Peter Biar Ajak indulging himself in this emotive debate?  Well, it is an economic discourse, which has also become a moral crisis, and as the Italian poet Dante tells us, “The hottest places in hell are reserved for those who, in a time of great moral crisis, maintain their neutrality.”  Not only do the chance of landing in one of those “hottest places in hell” weigh heavily on me, but also do my responsibility as a trained economist in this debate grounded entirely in economics.  These are the grounds for which I break my silence; I am obliged.

I begin by posing, how did the two (official and black market) exchange rates function before recent devaluation?  What were the consequences of having two rates and who was gaining?

The official exchange rate, which has been pegged to a dollar at 2.96 SSP/1USD for a long time, was the rate at which the Central Bank did business with its clients.  These clients included government agencies, commercial banks, forex bureaus, and occasionally individuals who were able to purchase US dollars at 2.96 SSP per 1US dollar.  The commercial banks and the forex bureaus (middlemen) were then required to sell these dollars to the public at the rate of 3.16 SSP/1USD, while the government agencies and individuals were supposed to use the dollars to demand goods and services for which their requests were granted.  The dollars released by the Central Bank through the middlemen were supposed to meet the public demand of hard currency.  However, towards the end of 2009, the black market started to emerge quite seriously, and at the dawn of our independence, the gap between the black market rate and the bank rate (3.16) was so wide that black marketeering in the form of currency arbitrage was perhaps the most profitable activity in the country.  What explain the breakdown of the system and the age of black marketeering?

While there are many theories, I will limit myself to three possible explanations:

1). Shortage. One possible theory could have been that the Central Bank was not releasing enough dollars to the middlemen for realization of equilibrium at the bank rate (3.16).  While the reserves situation of the Central Bank was good till the end of 2011, the oil shutdown reduced the supply of foreign exchanges to nearly zero, and seriously undermined the reserve holdings of the Central Bank.  Following the oil shutdown, we saw a marked jump in the black market exchange rate from 3.60 to over 4.00 and peaking around 5.5 SSP/1USD before stabilizing between 4.1 and 4.3.  We learned also in the period prior to the oil shutdown that a lot of dollars were being injected into the market through the middlemen, and when the shutdown occurred, the reserve balance was already poor since the hard currency were largely spent to maintain artificially overpriced currency.

2). Hoarding. Another possible theory is that the middlemen were not releasing to the public the full amount of dollars that they were required by the Central Bank to sell to the public at the bank rate (3.16).  The commercials banks and the forex bureaus were only selling to the public a small proportion of the whole.  What then were they doing with the rest? Well, I suppose you can take a guess.  It is not unreasonable to assume that they were taking the rest of the money to the black market, or diverting it to the purchase of goods that generated higher profits for them in the retail market.

3). Conflict of interest. A third possible theory is the emergence of opportunistic behavior (corruption) on the part of the officials at the Central Bank in collusion with the middlemen and point men. This simply mean that many officials at the Central Bank have personal stakes in the forex bureau and the commercial banks, and were, therefore, complicity engaged in black marketeering.

It is not unreasonable to assume that the reality perhaps mirrors an interaction of the above three possibilities.  In any case, the gap between the official exchange rate and the black market exchange rate became even wider.  The exogenous shocks of the oil shutdown and the closure of the border with the Sudan led to the fall in the overall output of the country by over 48 percent, leading to massive unemployment.  The government closed down its hiring as part of the austerity measures, and private companies were unable to obtain their payments from government on a timely basis, as government had to think hard on who to allocate its greatly reduced revenues.  At the same time, the population was growing at over 5 percent annually, meaning that new and younger people were entering the workforce amidst economic hardship.

What happened to this labor? Did it go to productive sectors such as agriculture?  Well, it did, but not enough due to dismal growth of the sector caused by a number of issues such as insecurity in many parts of the country, poor roads, and bad weather, particularly floods that affect large parts of our country, and poor structure of incentives.  After all, you can work very hard for months taking great risks to your life, and at the end of the day when you sell your produce, the profit margins you would obtain may not exceed 10-20 percent; worse still, you can produce like the citizens of Magwi County, but your produce would rot as you have no road to take them to a market; whereas if you have connections in the avenues of foreign exchange, you can make 40-50 percent on your “investment” within a few hours!  People do respond to incentives and they did!

So, where did this large amount of labor find work?  Well, a significant portion of it – those with connections to avenues of foreign exchange – went into black marketeering!

This absolutely makes sense for them.  What didn’t make sense was to do anything else other than black marketeering when one had connections!  Why wouldn’t anyone enter the black market? If you had connections where you could buy dollars at 2.96 or 3.16 and sell it literally within minutes at 4.5 or higher, why wouldn’t anyone do it, and again, and again, throughout the day?  Not doing it, especially if one is unemployed, would have been completely irrational!  In our case, black marketeering became the “it” business in Juba, and those with connections, those with access, were widely engaged in it.  It became the system by which the patronage system rewards its ardent supporters.  My point here is not to judge or criticize people for engaging in the black market, but to underscore that the incentives were such that if you had connections, then it makes sense to engage in it.  Also, there was nothing else happening.  SPLA was not paying on its contracts; even those who delivered were not paid for lack of revenues.

So, then how did this large-scale black-marketeering affected economic activity in our country?  Those with access to connections to the avenues of foreign exchange became very rich.  These people, although many in Juba, are a tiny miniscule (extremely small, even less than 0.1 percent) minority of our populace.  They were able to get rich through currency arbitrage or through purchase of imports at favorable prices, which gave them substantial profit margins in the retail market.  Consumers of luxurious goods (vacation, medical trips abroad, those with families abroad, cars, iPhones, iPads, etc.) were able to benefit from indirect subsidies of the government.  Likewise, sophisticated dinners at foreign restaurants and consumers of fine wine and other luxuries were able to benefit from government subsidies.

The producers on the other hand saw no incentive in actual producing.  It was cheaper after all to buy produce from Uganda than to demand them from Yambio.  It encouraged imports – the dumping in many cases of poor-quality and expired foreign goods into our market–, and discouraged active production for export.  We became an oil-consumption economy.

What about the average consumer? Wasn’t he also able to benefit from omnipresent black-marketeering?  Sure he did, but not as much.  His main benefit were the low diesel and petrol prices, which made it possible for him to still afford a matatu or a boda boda.  I have seen people argue that the average consumer has benefited from relatively cheaper prices of imported goods, which I think is misleading.  I do not doubt that the prices of imported goods were not lower when the official market exchange rate was 2.96, but one needs to think first of the basket of the average consumer.  Our average consumer, as measured by Consumer’s Price Index (CPI), does not consume a lot of sophisticated goods.  He shops mostly in the Konyokonyo market.  The traders in Konyokonyo market did not have connections to access foreign exchange at the official or the bank rates.  They get their foreign exchange in the black market.  This is why the CPI data has closely tracked the black market data.  Any large jumps in the black market exchange rate correspond to proportional jumps in the CPI.  So, our average junubi was unfortunately not benefiting that much from the craze of black marketeering!

So, how have the recent decision changed all of this?  Is it a big deal as people think it is?  The decision by the Central Bank to devalue the pound to 4.55 does a number of things.  It is aimed at eliminating the black market and will almost instantaneously reduce the gap between the black market rate and the official rate.  It also eliminates the middlemen (commercial banks and forex bureaus) and introduces a system of auctioning.   It is indeed a big deal with severe consequences for the economy, particularly in the short run.  The Central Bank is finally able to exercise its legitimate role in our economy.

Theoretically speaking from Mundall-Flemming model and /or Swan Diagram, when a Central Bank devalues an exchange rate, it amounts to an increase in the money supply.  An increase in the money supply is an expansionary economic policy, which in the short-run will lead to increased output and lower interest rates.  This rise in output is supposed to occur from increased investment of private sector, as commercial banks increase their lending to private sector, creating employment and leading to higher levels of output.  The export sector then flourishes from the weakened exchange rate, while imports suffer, which also leads to higher levels of GDP [GDP = Y + C + I + G + (X-M)].  The rate at which an increase in the money supply translates to increase in output depends on two key variables: money multiplier and velocity, the rate at which money change hands.  The commercial banks are a key part of this network, particularly the assumption that they will make new lending.  The money supply is also associated with increase in the price levels in the short-term.

However, in practice, we may expect to see something much different than what the model predicts.  Indeed, output (GDP) will increase since the first casualty of the devalued currency would be imports.  Thus, the output will improve as well as the trade balance and the balance of payment, which have been quite miserable, especially for the last year in the absence of oil. And even in the case we don’t see a big increase in the exports, the output will still increase due to fall in import demands, the trade balance and the balance of payment will still improve.

The devaluation also sets positive incentives for the producers.  This may not seem meaningful for South Sudan at this time since we are largely a consumer economy and our only produce is oil.  However, the decision is significant in shaping incentives in regards to long-term fundamentals that are critical for growth.  Production is unlikely to emerge in a great way if the incentives are set against entry into productive sectors!

The devaluation of exchange rate increases the demand of South Sudan’s products.  The coffee from Yei River, and to some extent, the Toposa bulls, should begin to appear attractively to those living abroad.  Instead of South Sudan continuing as a dumping ground it has been for the last years, we can actually begin to see the reverse, especially if the Central Bank continues these measures and the devaluation of the nominal exchange rate translates to improvement in the terms of trade.  South Sudanese will find better prices for their products abroad and our neighbors will see our goods much cheaper.  Tourists will see greater purchasing power for their money if they come for a vacation to South Sudan.  All of these would lead to production-led employment, diversification of the base of the economy, as well as the diversification of the sources of foreign exchange.  Our country will appear attractive to investors from abroad who are interested in setting up companies and factories to sell in the region since we are located in the center of Africa.

It is important to note that a small open economy like South Sudan cannot expect to develop and pull its people out of poverty without thinking about long-term fundamentals.  Only through selling to the rest of the world would we accumulate wealth and achieve the potential worthy of the quality of our land and of our endowments.

But if this is good, then why are people complaining and fuming? Why are Somalis closing down the fuel stations?  Indeed, the decision is excellent, but in any such decision there are always winners and losers.  In addition, the adjustment process often manifests itself in marked volatility that could potentially scare consumer’s confidence in the short run.  In our case, the losers happen to be a very tiny group, but one that is extremely vocal, well equipped with resources and political connections.  Let me shed some light on these losers and winners before moving to the adjustment mechanisms.

The biggest loser is what Frantz Fanon calls the national bourgeoisie.  This national bourgeoisie is “not engaged in production, nor in invention, nor building, nor labor; it is completely canalized into activities of intermediary type. Its innermost vacation seems to be to keep in the running and to be part of the racket.”  The soul of this national bourgeoisie is driven by greed manifested in ephemeral deal making, but not by drive for innovation and the discipline to become captains of industries.  So, things like black marketeering are ideal for them.  This group consists mainly of most forex bureaus, most national banks, and those benefiting from trade arbitrage (large importers).

Many forex bureaus are likely to cease to exist.  They will try to hang on in the short term and even likely engage in speculative activities, but once the market stabilizes, many will close doors, allowing for the entry of innovators that can prevail in a truly competitive capital market.  Many banks will also suffer, with several likely to be confined to the footnotes of history books.  If you look at the balance sheet of some of these banks, they don’t have significant deposits in their banks and have not been able to make loans.  They were set up primarily as tools to engage in the black market.  The way commercial banks make money is by providing loans at interests to the private sector.  The interest accruing from the loan becomes the largest part of their income.  Banks also invest in monetary instruments from the Central Banks such as treasury bills.  In our case, many national banks were thriving from the allocation of dollars they were receiving on a weekly basis.  One should reasonably expect several of them to die in the near future.  The participants in the goods arbitrage are also likely to die out.  Foreign goods are likely to appear extremely expensive to South Sudanese.  Therefore, the aggregate demands for foreign and sophisticated products will reduce.  This group is also likely to die out, unless if they reverse their roles and become promoters of South Sudanese products abroad.  We should not feel sorry for this national bourgeoisie, for their mission had nothing to do with transforming the nation, but prosaically to serve as middlemen in pursuit of quick returns – profits which are never reinvested, while polluting our ill-disciplined political class in the form of patronage politics, who are also being driven by their own opportunistic tendencies.

Indeed, good people who work for these institutions will lose their jobs and their families will suffer.  Those who were able to put food on the table through black market activities will also be negatively affected.  There is no doubt that structural unemployment will result from our recent devaluation.  However, this labor was not productive in the first place.  It was not producing anything besides making quick profits in the arbitrage business.  There is now an opportunity to integrate this labor to productive sectors of our economy, and it becomes the role of the Ministry of Finance to complement this move to long-term fundamentals through targeted investment in productive sectors.

Other losers will be bureaucrats, particularly those with families living abroad.  Their salaries will still be in the South Sudanese Pounds, which will now translate to substantially much less in foreign exchange because of the devaluation.  This will definitely affect a lot of students studying abroad, the author included.  However, it has been mentioned over and over again that Government employees should repatriate their families back to South Sudan.  If our Members of Parliament, Ministers, Generals, etc. are keeping their children abroad, who then are they governing in South Sudan?  Their reduced purchasing power should make them think twice of how they intend to maintain those families abroad.  As for the students, while the effects will be significant, they should understand the need to move towards productive economy.  In the end, it comes down to preferences and budget constraints.  Nature has it that people should only consume whatever they like, so long they can afford it!

The consumers of imported goods will also lose the subsidy they have become accustomed to.  If prices for goods that satisfy their taste become too expensive, they will adjust to local substitutes, or develop new preferences; otherwise they will have to increase their earnings to maintain the same lifestyle.

One thing that will cut across the board is the likely increase in the fuel prices.  Why should fuel prices increase? The devaluation substantially reduces the profit margins for fuel retailers since fuel is largely an imported good that is bought through hard currency.  Depending on the rate at which the fuel prices increase, it could feeds into the adjustment volatility in the short term, putting a further upward pressure on the prices across the board.  However, once the market stabilizes and the expectations are set, things should by and large settle.  Complementary strategies for keeping the prices of fuel low should be developed and executed soon.

Who are the winners then?  The biggest winner is the republic!  Sound economic policies that target long-term fundamentals are beginning to emerge.  Whether we are producing now or not, the focus will shift from consumption to production.  People will now have incentives to engage in production as avenues to make quick bucks close.  Local producers in the villages should begin to see their real income increase, especially if they engage in production; they now have positive incentives to engage in productive activities.  GOSS is another big winner, particularly the Ministry of Finance.  If the Ministry had USD 100 million in the past, it could only translate to SSP 296 million, but since devaluation, it can now cash in at SSP 455 million.  This means the total amount of revenue available to Finance will substantially increase, creating greater room in the budget to finance real investment and debt servicing.

The merger of two rates (official and black market) will also make life much easier for the Minister of Finance who has been tasked to negotiate with the East African Community (EAC) once the market settles down.  He is now free of the dubious honor of being the Finance Minister from the only country in the region with two exchange rates.  The Central Bank is also a big winner.  It has done consistently well throughout our recent crisis of oil shutdown, and the merger of the two rates will continue to allow it to focus on the macroeconomic variable that have real implication for our economy instead of the dubious role it has exercised as the arbiter of the black market.

Let’s now return to adjustment mechanism.  What should we expect to see immediately?  The most forward answer is that we must brace ourselves.  The adjustment mechanisms for these kinds of decisions are often volatile and could easily degenerate to other complications.

In the first place, fuel prices will almost immediately increase by up to 40 percent or a rate similar to the percentage of devaluation.  This is because fuel is entirely imported from abroad.  The retailers of fuel had expectations of profit margins in the business, and they are likely to increase their prices to continue to reap those margins. Other businesses in a similar situation with fuel retailers will rationally respond by increasing prices as well, while others who may not essentially have the same underpinnings may “bandwagon” on the price hike.  An average South Sudanese should expect to see these things, and possibly even worse than this in the short run.  It should be obvious that after a soul is debased and too familiarized with sin, the redemption comes as a shock.

The most likely casualties will also respond with speculative behaviors.  This means that another black market rate is likely to emerge.  While sheer speculation is likely to drive this phenomenon, expectations will also play a major part.  Speculation because financial regulations are nascent and enforcement is weak, which makes it completely rational for those seeking to engage in speculation, especially our biggest losers; expectations because up till now, there has always been a black market, so why shouldn’t one exist, so the logic goes.  The combined effect of opportunistic behavior in the form of speculation and expectation are likely to result in the emergence of new black market rate.

But how large would the gap be between the new black market and the official market rates?  Well, that depends on how Central Bank continues with the execution of this policy and the spending patterns of the government.  If the Central Bank pumps in enough foreign exchange (and given its near monopoly of foreign exchange holding), it can wither the upcoming volatility within a very short time.  However, if the Central Bank wavers or become complicit in speculation, and does not engender market clearance at the new price it has set, not only will the credibility of the Central Bank be affected, but black marketeering will return.

Since the oil resumed flowing, the reserves position of the Central Bank has greatly improved and it should easily defend the new rate and place our recent experience of black marketeering permanently in the history books.  Moreover, it has been preparing itself for this very decision for nearly two years now; it has conducted number of studies that informed this decision and it should have a clear and coherent strategy.  It would be a total nightmare if the Central Bank took this brave decision without a clear strategy informed by its likely consequences!

The politics is also likely to become even sillier.  Some members of our political class are likely to make this a campaign issue, forgetting the fact that the Central Bank is independent from the government.  The NLA is scheduling “hearings” to question the Governor of the Central Bank and the Minister of Finance.  Well, that is absolutely fine for them, but they should be conscious of their limits in the area of monetary policy, both constitutionally and technically.

An average reader will soon be told that the boogey-man is the IMF – that this was not our idea in the first place.  It should not matter who suggested the policy, but its merits. While the IMF offers its technical services to all its members (and we are a member of the IMF), this decision has been boiling for a long time, and it is entirely the best decision for South Sudan.  We did not pay the steep price of liberation to become lazy black marketeers! Obviously, South Sudan should welcome the support of partners who are willing to assist us in this great transition.  The reader will soon hear our current devaluation linked to “structural adjustment,” a term that has become commonplace in colloquial language, but largely misunderstood and inappropriately used.  All such noises should, by and large, be seen as the last kicks of a dying horse – the purification of a truly sinful soul.

So, what’s next? Something should be done about the recently liberated manpower from black marketeering.  Indeed, black market was employing a large number of people, who are all now unemployed.  It is now the responsibility of the Ministry of Finance to complement the move of the Central Bank towards long-term fundamentals.  Investment in the real economy – aimed at assisting producers, creating public works, investment in infrastructure, etc. – should be greatly augmented in our next budget to reintegrate the labor from the black market to actual production.  This phase is absolutely critical.  Real production is the only way we can build a viable nation!

Could the devaluation possibly go wrong? Absolutely!  As mentioned, the shocks in short run are likely to have severe repercussions on a segment of our population.  Stability may not come soon enough.  Does this mean we shouldn’t have done it?  Absolutely not!  The idea that we should continue to use oil reserves for the benefit of a few black marketeers and/or subsidize the consumption of Juba elite is absolutely rubbish.  This is not something that can be put off forever.  It had to be done and the sooner we did the better for all of us, including those who may lose in the short term.  For me, it is something like our Referendum of 2011.  It had to happen.

Without adjustment of exchange rate to reflect the market (or even pegged it below the market), we cannot possibly think of lifting large segments of our population out of poverty.  Investment will, by and large, flow to non-tradable sectors that will not improve incomes in the long run if we had continued our yesteryears policies.  The death of our current national bourgeoisie will allow for emergence of true capitalist class, who as Fanon rightly puts it has “sufficient economic and technical strengths to build up a [productive] society, to create conditions necessary for the development of large-scale proletariat, to mechanize agriculture, and finally to make possible the [emergence] and sustenance of an authentic national culture.”  A culture that is grounded in hard work, self-discipline and patriotism, not laziness and black marketeering!

I am hopeful that our politicians will also find time to engage in productive politics with the public and pay attention to things that matters for the majority of our people in the countryside.  Most African state have in their histories paid too much attention to the needs of urban population, and economic policies have generally been shaped for the benefit of the urban population to the detriment of hinterlands.  This is because the urban population is loud and could sabotage the government through rallies, riots, or whatever.  But gone are the days when a country was accorded legitimacy simply because it controls the capital city.  I encourage them to travel to their constituencies and inform people of how our current policies will make them better off.  We are a democracy and over 90 percent of voters do not live in Juba!

*Peter Biar Ajak is the Executive Director of the Center for Strategic Analyses and Research and the Resident Country Director of the International Growth Centre, and currently pursuing PhD at Trinity College, University of Cambridge.  He can be reached at peter.ajak@csar-rss.org

 

 

C-SAR Building the Returnee State – final copy

BUILDING THE RETURNEE STATE: RETURNEE INTEGRATION IN SOUTH SUDAN

BY PETER BIAR AJAK, ZECHARIAH MANYOK BIAR AND GREG LARSON

NOVEMBER 2012

Release date: 13 February 2013

Centre for Strategic Analyses and Research

Hamza Inn
Juba Town,
Juba, South Sudan

www.csar-rss.org

© Copyright 2013. Centre for Strategic Analyses and Research. All rights reserved.

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As the world’s newest country, South Sudan faces countless challenges for development and post-conflict reconstruction. Among these challenges is the daunting effort to repatriate and reintegrate a large portion of its citizenry that was displaced during decades of war. Since peace came to the region, refugees and internally displaced persons (IDPs) who left South Sudan during conflict have been returning home. The new nation is, in a sense, a returnee state. The successful reintegration of returnees is a critical pillar of South Sudan’s state building, and a crucial component in the transformation of this war-torn country into a viable economic and political entity.

While complete data is unavailable, the first South Sudanese census reflected that 1.8 million returnees repatriated to South Sudan between 2004 and 2008. More recent data reflects that a half million additional returnees repatriated between late 2010 and early 2012. Many have yet to return; every day, members of the South Sudanese diaspora travel from all over the world to return to their home country. The return of such a large number of people poses many challenges to both the government and development partners. However, there is also enormous potential in South Sudan, and the influx of returnees—many with advanced skills and high levels of education—presents a distinct development opportunity.

The aim of this study is to better understand the reintegration process and the challenges faced by returnees, and the policies employed by the South Sudanese government and its development partners to facilitate smooth reintegration. The study employs both quantitative and qualitative data; 445 returnees and 274 host community members were surveyed during the course of research, primarily in Northern and Western Bahr El Ghazal states, and focus groups with key stakeholders were conducted.

Reintegration is explored within the larger context of South Sudan’s post-conflict reconstruction; as such, the level of analysis is both micro-level (within returnee communities) and macro-level (issues and challenges affecting the entire nation). The report provides recommendations to policymakers on broad strategies to facilitate reintegration and help returnees get back to productive lives as positive contributors to South Sudan’s reconstruction.

Framework for Analyzing Reintegration

C-SAR’s assessment employs three main instruments to assess the success of reintegration: access to employment and economic opportunity; ability to set up permanent resettlement; and access to social services. Each individual returnee arrives in South Sudan with a set of initial conditions—such as education, previous work experience, and the holding of assets. These initial conditions comprise an individual’s “returnee capital,” which is both valuable to the host community and essential in determining the success of that returnee’s reintegration. Also important to consider are the “prevailing conditions” of the environment to which the returnee comes back— such as security, economic opportunities, availability of natural resources, the level of government regulation of markets, and the extent and quality of government service delivery. This report analyzes the ability of returnees to obtain jobs, to put up permanent settlements, and to receive social services through the interaction of “returnee capital” and the “prevailing conditions” in South Sudan.

Key Findings

Returnee Capital:

The study came to the conclusion that the current population of South Sudanese returnees holds only minimal returnee capital. There were three observable features of returnee capital that were analyzed:

  • Education: Overall average education levels between returnees and host community members is quite small and is not even statistically significant.
  • Work experience: A substantial portion of returnees had access to jobs in their locations of exile. However, the work experience possessed by returnees is not necessarily the type of experience currently demanded in South Sudan’s labor market.
  • Physical assets: Some returnees brought physical assets upon their return, but the overwhelming majority came with very little. Some returnees have had to sell their assets since returning, in order to supplement family income.

    Prevailing Conditions:

    Aweil and Wau are both small-holder agro-based societies with limited industry and service sectors. Over three-quarters of households in Northern Bahr El Ghazal and nearly two-thirds of households in Western Bahr El Ghazal are engaged in crop farming and animal husbandry. The data shows that returnees do not particularly hold a comparative advantage in farming compared to host community members, perhaps due to the fact that they do not have experience.

    In addition to difficult prevailing conditions, the private sector in Greater Bahr El Ghazal has been hit by a host of exogenous constraints over the last few years, such as: shortages of dollars; border closure; introduction of new currencies in Sudan and South Sudan; poor infrastructure; and increased fuel costs. The researchers also observed endogenous constraints to private sector activity, which include: limited access to finance; conflicts of interest among government officials; unmotivated and unskilled employees; and lack of regulation in the market.

    Access to Employment and Economic Opportunity:

    Returnees have experienced less access to employment and economic opportunity compared to members of the host community. These findings are somewhat counterintuitive, because one would expect returnees from more developed regions to fare well, since they gained experience and skills. Perceptions among returnees suggest that employers discriminate against them when hiring for paid positions.

Ability to Set up Permanent Settlement:

A vast majority of returnees have been unable to return to their ancestral homes and have instead remained in the urban centers under poor settlement conditions. The most salient impediments to resettlement are complications regarding land distribution and the issuance of land title deeds. Moreover, the size of land allocated by the government is often only sufficient for housing alone and does not afford space for cultivation.

Access to Social Services:

Most returnees who remained within urban areas did so to be near services; however, most have had dismal experiences in accessing services. The poor delivery of services that returnees are experiencing in Northern and Western Bahr El Ghazal is a phenomenon occurring across South Sudan; the majority of expenditures in health, education, and agriculture are actually funded and implemented by donors.

Policy Recommendations

The reintegration process in Northern and Western Bahr El Ghazal has not been highly successful. While this analysis does not suggest the process has been a total failure, it does underscore that reintegration is riddled with constraints and complex challenges. The paper concludes with key micro- and macro-level policy recommendations.

Relaxing constraints in South Sudan’s “prevailing conditions” will require addressing market failures and government policy shortcomings, as well as the adoption of a whole array of pro- growth policies; unless South Sudan’s private sector grows, jobs will not be created. Meanwhile, the data suggests that several micro-level interventions would be effective in helping returnees more quickly transition to productive lives. These include: distribution of agriculture and fishery inputs such as seeds, farming tools, fishing nets, and other inputs to promote cultivation; skills training in relevant trades such as farming, carpentry, and basic business skills; and microfinance and SME lending through banks to provide access to capital for entrepreneurs and small business owners.

Several macro-level policy reforms can address larger systemic issues affecting the returnee reintegration process. These center on building the capacity of the government, at both national and state levels. Quality of government policy will improve only as capacity improves; this is true for improving economic management, service delivery, the reintegration process, or any number of crucial challenges facing the new country.

At the state level, governments should attempt to create more efficient markets and remove the most binding constraints to effective returnee reintegration. These include: formulating and implementing clear land policies; improving service delivery; providing targeted subsidies to the private sector; protecting indigenous companies; regulating public officials’ entry into private sector; and public works programs to spur job creation.

To achieve the micro-level policy recommendations, the report suggests centralizing efforts and resources for returnee reintegration, in order to achieve greater coordination and improved targeting by donors and government. The report endorses the creation of a pooled fund to allocate resources directly to local communities, to fund income-generating activities that are proposed, initiated, and executed by and through the local returnee and host communities. Such a process would empower communities—providing them with opportunities to “learn-by-doing” and to gain experience running their own affairs. Implementing macro-level policy reform is substantially more precarious, requiring the government to address its core challenges. The section and the report concludes with a detailed analysis of the feasibility of C-SAR’s major macro-level policy recommendations.

A freshly independent post-conflict state, South Sudan has a long list of challenges to confront. This report argues that returnee reintegration should be chief among this list—primarily because it is an issue that underscores many of the most pressing public policy challenges facing the nascent country. Moreover, returnee reintegration is a core component to the state-building project. The manner and efficacy with which South Sudan handles its reintegration problem will, in many ways, profoundly shape the future course of this modern returnee state.

Click to read the entire Report here

The next talk is on the “Internal and Regional Political Implications of the Oil Shutdown: Regional Securit, Migration, and Economic integration” in April. Date to be confirmed.

By Peter Biar Ajak, Director

Prior to the historic decision by the Council of Ministers to completely shut down the country’s oil production, oil revenues accounted for over 98% of the Republic South Sudan expenditures, 99% of foreign exchange earnings, and over 70% of South Sudan GDP.  The 10 states of South Sudan depended on transfers from the Central Government for the bulk of their own expenditures.  This post outlines macroeconomic impact of the shutdown and possible scenarios that may emerge.

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