Saturday, 30 July 2016

South Sudan’s Civil Strife in Perspective

Paul Collier, a professor of economics and public policy in the Blavatnik School of Government at the University of Oxford, documents in his book known as The Bottom Billion that civil war is likely to occur in a country that experiences the following conditions: low income among the citizens, slow economic growth or stagnation or a decline in economic growth and of course outright dependence on primary commodities.

South Sudan has the third largest oil reserves in Sub Saharan Africa. In South Sudan, oil is the largest primary commodity and as a matter of fact, 98% of the country’s revenue stream comes from the oil proceeds. This largely implies that South Sudan’s economy is primarily dependent on oil.

The occasional relapses of South Sudan into civil war, which is now turning out to be a permanent feature of the state, is a function of a series of factors which are endogenous. These factors, however, can be summed up into one; weak institutions. More specifically, such factors include elitism, corruption, unresolved questions about the natural resources (read oil), and negative ethnicity.

Juba began on a wrong footing after its separation from Khartoum following the successful conduction of a plebiscite. South Sudan had not incorporated a strong institutional framework in its system of governance especially in terms of transparency and accountability. Oil was already there even before the creation and formation of the South Sudanese state. Therefore, before its separation from the north, the elites including other power brokers had already begun positioning themselves to illicitly benefit from the oil revenue. The institutional framework of governance that was established after her independence thus seemed to favour the elites; the barons of graft and the barons of ethnicity.

The several factions and rebel groups in South Sudan are motivated by the fact that once you have power, acquisition of wealth through corruption and other voracious means is assured. The fight for the control of the economic resources is the epicenter of the civil strife. In this case, for South Sudan, the main channels for the economic resources is first through the oil revenues and secondly through the foreign aid by donors, the multi-lateral institutions and other governments.

If 98% of the total revenue stream into the country is through the proceeds from oil, then it implies that the remaining 2% is through the financial aid from the mentioned entities. On average, as per the 2015 statistical figures, South Sudan’s net oil income is approximately $1.715 billion. If this represents the 98% then the remaining 2%, which translates to $35 million, comes from other sources. However, these figures only represent the revenue and are exclusive of the Foreign Direct Investment (FDI) by various units like the European Union, the USA, and China among others.

The bottom line as to why Salva Kiir, Riek Machar and other rebel leaders subject the citizens of South Sudan to unending misery and suffering is the perception that the former leads a corrupt administration and that his cronies are responsible for siphoning the resources of the state. This has of course placed the Kiir-led administration on a defensive mode prompting the government to make huge allocations of the national budget towards military spending.

According to a report by the Stockholm International Peace Research Institute released in April 2015, South Sudan spent $1.08 billion on the military. Compare this against the total revenue of the country at that time at approximately $1.75 billion. This translates to 62% of the total revenue. According to the national budget of the Government of South Sudan, 40% of the expenditure caters for the operations and activities of the military. If in 2014 the military spending was $1.08 billion (40% of national budget) it implies that the total budget was $2.7 billion. This makes South Sudan the state with the highest proportion of its revenue directed towards military spending in the world.

If 40% of the budget and more than 60% of the revenue caters for the military expenditure it means that the capitation for development, specifically infrastructural development, is constricted. For instance, a study carried out by Oxfam International revealed that only 5% of the 2013/14 budget was used on healthcare, education and infrastructure combined. This is a hint that a larger proportion of the budget is skewed in favour of the recurrent expenditure; a huge chunk is devoted towards the payment of salaries and wages.

Again, factor in corruption and you’ll realize that the South Sudanese citizens hardly benefit from the government. And of course going by the Corruption Perception Index prepared and released by Transparency International in December 2014, South Sudan ranks at position 171 out of 175 countries. The survival of the rebels in this state is majorly through two ways: one is through proceeds from a black market in the regions which they control and two, through funding from the communities in the diaspora.

Going Forward
To ensure that South Sudan doesn’t fall into the abyss that encumbered Somalia, certain measures need to be taken. Firstly, the demilitarization of Juba has to be given the first priority. The high number of rifles and other war equipments/machineries has to be effectively reduced because going by the recent happenings assassination of the key leaders is imminent.

Concomitant to the above, the African Union and the United Nation’s Organization need to strongly advocate for the prosecution of Salva Kiir, Riek Machar and any other leader found to have committed crimes against humanity. The International Criminal Court should commence its investigations into the atrocities in South Sudan. This is certainly where I find most of the African leaders very dishonest in opposing the ICC. The South Sudanese nationals are suffering and urgent action needs to be taken by prosecuting these despots who have shown no goodwill in actualizing the vision and aspirations of the South Sudanese people.

Thirdly, a three-pronged economic policy approach ought to be implemented. One of the facets of this policy has to focus on addressing the macroeconomic issues including the budgetary structure, the fiscal deficits, inflation, corruption and others. The 2016/17 budget has a deficit of $1.1 billion (25 % of the GDP) which the International Monetary Fund notes that it has to be cut to around $300 million for fiscal sustainability. Another key macroeconomic issue that has to be largely looked at and viable solutions arrived at pertains the distribution of wealth. Institutions and systems have to be established that track the goods and services provided to the public from the resource wealth.

Most importantly, another aspect of the economic policy would be for China to call for better governance in the country by virtue of being the biggest shareholder in the oil industry with 120 oil enterprises. This is the problem with the Chinese developmental policy in Africa; exploration of natural resources without advocating for establishment of efficient governance systems.

The third tenet of the economic policy relates to the admission of expatriates to offer technical services. With a literacy rate of 27% for individuals aged above 15 years, it means that the economy of South Sudan needs a relatively large pool of expatriates. This, however, is a function of the realization of political stability in the state.

South Sudan’s development in reverse can be permanently solved by first addressing the fundamentals; the institutions of governance and consequently issues about resource as well as wealth distribution.

Friday, 22 July 2016

Africa’s Progress Dependent on Strong Intra-African Trade & Efficient Governance

This month, two major conferences took place; the 27th African Union Summit in Kigali and the 14th conference of the United Nations’ Conference on Trade and Development (UNCTAD) in Nairobi. The discussions at these events will undoubtedly shape the development trajectory of Africa. I will not explicitly delve into the specific outcomes of the conferences but outline the fundamentals that need to be wholesomely addressed for Africa to experience significant socio-economic growth and development.

As I have documented before, the progress of Africa largely depends on the willpower and effort of the Africans. However, the input of the developed economies and the emerging economies cannot be ignored. Fast forward, at the 14th edition of the UNCTAD, the developed economies resisted the efforts of the developing countries to strengthen UNCTAD and make it the main international body with the mandate of addressing trade inequalities and other pertinent issues that revolve around international trade. The developed countries cited that already the World Trade Organization has been tasked with that mandate.

The move by the developed economies to block such an initiative is a hegemonic disposition. To set the record straight, the WTO is an amorphous institution and not as solid and definite as other multilateral institutions in terms of their scope of work and operations. The WTO only serves as a platform for trade negotiations for the member states. This is certainly an impediment fronted by the developed nations of the world.

The progress of Africa should not be tied down by the red tapes created by the developed nations in the disguise of promoting trade discussions through the WTO or the UNCTAD. This leads to some of the fundamental issues that are to be tackled efficiently and effectively by the African countries and the respective trading partners.

The level of intra-African trade which currently accounts for 11.3% of the total trade activities of the continent needs to increase. This implies that 88.7% of Africa’s trading activities are with the other regions of the world. One key step in enhancing intra-African trade is to do away with the extant regional blocs. Africa has 8 regional economic blocs with each having its own trade concessions and agreements. According to a policy paper known as “Regional Integration: Uniting to Compete” by the Mo Ibrahim Foundation published in 2014, at least 28 African countries belong to 3 or more regional communities/groupings and 39 countries are members of more than one regional economic community.

The 8 regional blocs were the fruits of the 1991 Abuja Treaty under the auspices of the defunct Organization of African Unity (OAU) that were considered as the foundation for the African Economic Community envisaged to be established by 2028. This African Economic Community will operate on the basis of a customs and monetary union. The realization of the economic integration of the African states is a function of the free border movement across the African countries. A positive development is that during the 27th AU Summit, the visa-free access services were launched though on a piloting phase.

But caution must be taken in relation to the opening up of the borders and the imminent economic integration of the African states. An expected challenge as a result of the economic integration of African economies will centre either on the advent of convergence or the furtherance of divergence; that is, will the integration promote collective development or it will lead to a wider gap between the slightly well-off African countries and those that are less developed? Research shows that the economic integration of economies that are at nearly the same level especially the developing economies leads to more divergence than convergence; stronger economies and weaker economies producing similar commodities within the same region implies that the former has an edge over the latter (competitive advantage).

The enactment of the free border movement will obviously lead to immigration whose consequences are likely to be: brain drain from the failed states such as Somalia and South Sudan, xenophobic attacks, populist and neo-fascist politics in countries with a relatively larger proportion of immigrants, terrorism, drug trafficking among others. The realization of the intra-African trade is however dependent on the degree of spatial inclusion; infrastructural development.

The question of illicit financial flows from Africa needs a viable and almost permanent solution. The 14th edition of the UNCTAD witnessed a number of advocacy groups calling for the multilateral institutions and the developed nations to pay attention to this issue. There have been a number of initiatives and conventions to tackle the stated matter. But conventions entail mere talk and less action. It has been established that Africa loses about $50 billion annually through illicit financial flows. This translates to about 2% of the continent’s Gross Domestic Product (GDP). 

More startling, however, were the revelations by Curtis Research documented in a research paper entitled “Honest Accounts? The True Story of Africa’s Billion Dollar Losses,” published in July 2014. The report reveals that the total financial inflows (aid, foreign direct investments, loans) to Africa amount to an average of $134 billion annually compared to an outflow of $192 billion thus a deficit of $58 billion. This translates to 5.8% of the GDP for the inflows and 8% of the GDP for the outflows. 

This is a bit skewed because Africa seems to lose more than what it gains from the various trade concessions and negotiated pacts with the other regions of the world. There is need, therefore, for the formulation of international treaties, laws and framework that should guide the economic activities between Africa and the other developed economies and emerging markets to significantly cut on this financial haemorrhage. 

But also the respective African governments have a primary role to play in institutionalizing efficient governance systems and structures. One is to weed out corruption especially in the procurement processes because some of the multi-national corporations (MNCs) seem to be bribing the government officials. The cost of corruption definitely increases the operations cost of these MNCs implying that the more flawed the system of governance the higher the amount of the repatriated profits from the continent. Poor governance creates a fertile ground for tax evasion and the prevalence of the black market.

Therefore, in seeking to address the developmental challenges affecting Africa, priority has to be accorded to the facilitation of intra-African trade and the enabling factors such as infrastructure and governance issues in terms of the illicit financial flows from the continent and generally the financial outflows from the continent.