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Why rushing South Sudan into the EAC is a reckless idea

 

JUBA, South Sudan - Why is the Republic of South Sudan (RSS) so eager to join the East African Community (EAC) at this point? Is it worth it, and do we know what we are getting ourselves into knowing how far so much behind we are as a country? Are we joining the East African Community for the right reason (economic) or for political gesture (wrong reason)? I would claim, it has something to do with security concerns given our sour relationship with North Sudan (Sudan) than anything else. Common sense would have you think that once South Sudan becomes part of the EAC, then any aggression on her borders by our northern neighbor would more or less be the responsibility of the trading block to yell out loud. This is not to say, “An attack on one member is an attack on the East African Community as a whole”, because there’s no such pledge of sort so far in the EAC Constitution, but rather that any interruption of trade from an outside member will likely initiate a collective response probably harsh in rhetoric than actions. That’s the first and the most viable benefit to reap out of this merger for now.

Secondly, many EAC members already have some sort of bad to lukewarm relationships with the Islamic Republic of Sudan, and admitting South Sudan to the trading block would send a clear signal to our northern, neighbor that the “African South Sudan” has ganged up with her fellow sons and daughters of soil, and that you can’t mess with her anymore. This political point has many upsides, most of which are not highlighted here, and South Sudan will have to seriously weigh both pros and cons of what it specifically wants to achieve with respect to joining the East African Community. So far, I have been told that the reasons are pure economical which I unfortunately don’t understand, and that brings me to my short-term ardent opposition to the admission of the Republic of South Sudan to the East African Community.

For the records, I don’t see any meaningful economic benefits at this time. If there are any out there, then I haven’t seen anyone passionately argue for why EAC is that important for this country at this time. If the elephant in the room is the need to have our brothers in the EAC have our back; then it generates more questions than answers. Are we really scared of Sudan and since when? Haven’t we fought them to a complete draw after more than 20 years of civil war despite our possession of inferior weapons? Didn’t we just vote for our right to be first-class citizens in our own country? Didn’t we just kick their backs in Jau and Panthou early this year when our resolve and character as a country was put to test? If our responses to these questions are affirmative, then why are we urgently dragging ourselves into being the lesser of equals in the East African Community? Doesn’t Kiswahili proverb, “Haraka haraka haina baraka” holds some water for our case here? What are we desperate for?

While there is no denying that we will eventually join the EAC (hopefully in 10 years), we need time to develop our own institutions, and infant industries and bring them to par with our neighbors. We need to fully develop and exploit our own resources to strengthen our private institutions if we want to compete with the well funded and experienced corporations of Tanzania, Kenya and Uganda. We need well-educated government watchdogs that will watch and monitor cases of unfair competition here and there because there surely will be some. But are we really ready for the cut-throat type of competition in the EAC? If so, in which sectors do we think we are primed to prevail? Are we even going to bother this time putting the right people with the right skills to crucial exports and imports sectors to prevent national embarrassments? Didn’t we just discover with the shutdown of oil that there were secret pipelines attached to our main oil lines for stealing our oil? Wasn’t that a sheer measure of incompetency on our part as a country to let that happen in the first place? Are we going to be good in producing anything of real market value when admitted to the EAC at this point in time? If so, what will it be? Arabic language? Tall people? Flowers? Maize? Fish? Cows? Potatoes? Sugar? What?

Put it this way; we are just an oil producing country at this time and we will continue to be at least for the next two decades (my estimates), for I truly believe there are more oil wells to be discovered. That means as a country, our oil money (reserves) will be kept at our central bank in form of USD, and we will continue to have more hard currency at our disposal. Unfortunately, oversupply of dollars or call it low dollar demands in local markets will results in strong pound and low exports in non oil sectors. Like any oil producing country, transactions of oil exports are conducted in U.S. dollars in the international markets, and those willing to invest in South Sudan would want to sell dollars for local currency. That by itself will always keep and make South Sudanese Pound (SSP) one of the strongest currencies on the continent because there will be high demand for local currency here at home. This is only true with the assumption that our Central Bank is independent enough to withstand political pressures to print more money in order to pay for government debts and patronages. With strong SSP, our non oil exports to the EAC will mostly likely be expensive and we will have trade deficits here and there. For example, an average price of a goat based on the Konyokonyo market prices, here in Juba is about 600 ssp. Suppose that we wanted to export and sell some of our goats to Kenya at that price assuming zero cost of transportation and all sorts of export taxes. Based on my rough currency calculations since SSP is not yet fully convertible, and therefore, not officially listed among the world currencies, one ssp would be equivalent to 30 Kenyan shillings. If you do that math, you would realize that our goat will would be priced at 18,000 Kenyan shillings, while the most expensive goat you can buy in Nairobi cost about 10,000 Kenyan shillings.

Given that price disparity which can hypothetically be applied to other South Sudanese products across the board, our exporters will have hard times selling anything to our neighbors. In economics, they called this type of situation “Dutch Disease “or the “curse of oil”. Should we be concerned about the fact that we are naturally endowed with oil? The answer is a mixed bag of yes and no. If we don’t use our oil money to develop other resources, then we will be a sorry country once oil is maxed out. But if we use this particular resource to enhance productivity of our human capital, agriculture, forestry, wildlife, roads, education, etc., then, it will be a blessing. Dutch disease can be a good problem to have if our government knows how to deal with it. One plausible way of correcting this anomaly is through exports subsidies or giving tax incentives to our exporters and that’s one of the reasons why we should hold out from rushing the country into the East African Community. Our hands will be tied behind us once we are part of a trading block such as EAC because our government won’t be able to exercise those special considerations on its traders. One of the fewest ways in which an entrepreneurial South Sudan could successfully establish a competitive and viable bank/corporation which this country can be proud of someday would involve initiating some form of government support. That was how major South Korea’s, Taiwan’s, India’s, China’s, and Indonesia’s global multinational corporations came into being. Well, let South Sudan try it under the EAC mandate and somebody will rightly call it unfair competition with threats of expensive lawsuits.

 Joining the East African Community right now is the surest way of saying; the citizens of this country have decided to own nothing in the next 3 decades or so. Take a look at the financial industry, and one thing will come to mind; the dominant banks in this country are all foreign-owned, and the situation can only get worse when this country joins the EAC. I am not preaching protectionism or isolationism in any shape or form because I have been trained to love free market system and so I do believe in it, but with exceptions. It has be guided when it can’t allocate resources efficiently, and, Adam Smith knew it back then. Yes, free trade/trade liberalization despite what people are told every now and then has winners and losers. But the extreme on either situation is better mitigated when the two or more countries involved in free trade have clear comparative advantages to exploit, have very little gap in terms of infrastructure development, and are at near or equal level with respect to human capital. But out of these basic cores, South Sudan as a country lacks so much behind and we don’t intent to blame anybody for why we have the least educated population, why our institutions are weak, why our infrastructure and roads are this bad, why we aren’t producers of anything yet, why our best talents are in foreign countries or why our own primary and secondary school students are still being tested on foreign national examinations in their own country. We just got out of a long and justified civil war, and it will take us a while as a country to fully stand on our feet and eat on the same table with the rest without putting too much food in our mouth and ending up choking.

There can only be one way in which joining the EAC would work for South Sudan if we intend to do so soon: doing it the Rwanda’s way. Unlike most African leaders who are only good at bashing their former colonial countries to defend their mediocre domestic leadership records and their inability to lead by example and deliver, President Paul Kagame of Rwanda knew what his country needed when he took over in 2000. He understood the daunting challenges of leading a very poor, landlocked country with 90% of its population engaged in subsistence farming. President, Kagame and his administration understood that succumbing to corruption like many African Heads of states and making members of his cabinet rich so he can rule for ever was not one of them. He knew that refusing conditions set forth by the IMF in order to receive loans and grants was not one of them, and neither was diverting aids funds to personal projects or playing victim cards when his country needed him to deliver. In collaboration with Rwanda’s national parliament, they sped up on gender issues, and women were granted property rights and their representations in the parliament was increased to 39%, which has exceeded 50% today (one of the best in the world). The Rwandan government knew a real economic development must involve women as stakeholders and they made good on that promise. Because the 1994 genocide was tribally motivated, Kagame’s government abolished tribal identity cards (Belgian legacy), which greatly helped its people mix freely. As a follow up on that pledge, the government made it a crime to identify or ask Rwandans about their tribal affiliations. The Rwandan government initiated and enacted tax reforms, and attractive tax incentives were formulated to attract foreign direct invest (FDI) into Rwanda. Rwanda delayed the rush to join the East African Community until 2007, and it was intentional. Today, Rwanda is not only one of the countries with the fastest growing GDP per capita, but is also the leading FDI destination in Eastern Africa. They deserved it!

Sometimes, we don’t need to think when we know there are no penalties attached to copy and paste in certain situations, and I think South Sudan should emulate Rwanda for our economic wellbeing because they followed a working model. Let’s try to copy what made them one of the best performing economies in the world for the last 6 years. Let’s try to learn what makes them one of the few countries on the African continent to send more graduate students to the United States and Europe for the last 7 years. South Sudan has been receiving so much donor goodwill just Rwanda did after 1994 genocide. Rwanda had nothing but donor goodwill and good laws to make it work. South Sudan has natural wealth in enormous oil reserves and donor goodwill, and we are practically starting on a better ground than Rwanda was after 1994. For us, the question is not whether or not our powerful friends will stick by us just like they did with Rwanda. Instead, it will be on whether we make the right choices to warrant their continued support, and rushing into the East African Community for the sake of it, is one bold reckless step. For the moment, I think an observer status will be great for us short-terms because we will still have the options of giving tax breaks or subsidies or tax exemption to our exports and infant industries when we deem them fit.

 *Chiengkuach Mabil Majok holds an MA in International Economics and Finance from Brandeis University in the United States. He works for Deloitte Consulting LLP, as Financial Advisor to the state Ministries of Finance in South Sudan. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.


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