US dollars shortage cripples South Sudan industries

Juba, South Sudan - If you follow the road west from Juba until the tarmac ends, cross a dry river bed and bear left down a dirt track, after about 20 kilometres you'll reach what both economists and politicians say South Sudan badly needs: A farm. 

"Freedom Farms" is one of the country's few commercial farms.

Nestled between the Luri Mountain and a seasonal river are rows of low-slung farm buildings and fields of crops. In the fastidiously clean farrowing house, piglets squeal as they compete for milk, while the sows bask in the late afternoon heat.

Here, imported and local breeds are reared under the watchful eye of Daniel Matueny, the manager of Freedom Farms. He keeps a detailed record of which feed formula the animals receive, which vaccinations they've been given, and makes sure that everyone entering the building dips their shoes in a footbath before they cross the threshold. 

Until last year, Freedom Farms operated on a "farm to table" system of rearing and slaughtering pigs in Juba and selling the meat locally through their restaurant and shop.

The products were so popular that the farm couldn't keep up with demand. But even so, last year they were forced to close the retail side of the business because they were running at a loss. 

Rotting in the field

For domestic South Sudanese producers like Freedom Farms, the existence of a parallel exchange rate helped to turn successful enterprises into loss-generating businesses.

In theory, US dollars could be purchased from the banks at a rate of around 3 South Sudan pounds (SSP) to $1. In reality though, there weren't enough dollars to go around, and many businesses were left with no choice but to buy dollars on the black market at a much higher rate.

Producers, as opposed to traders, were in a particularly difficult position because South Sudan is an import economy, which means that they require hard currency to make their purchases abroad. At the farm, for example, animal feed, diesel, pesticides and all the other essentials must be imported.

In December, the government of South Sudan took the decision to change from a fixed to a floating exchange rate, changing the price of $1 from 3 SSP to 18.5 SSP.

In theory, the adjustment ought to have made life for producers like Freedom Farm easier. 

But a visit to Freedom Farms one month after the devaluation tells a different story. Aubergines that until a few weeks ago were ripening in the sun are now withering in the fields. Rows of tomato plants have turned to a dry yellow, unable to yield fruit from the parched ground.

"Even in the difficult times last year," Matueny said, "the aubergines used to fund the whole farm. We could cover our costs from selling just them."

But after the devaluation of the SSP, dollars became even scarcer, making imported diesel practically impossible to find at any price.

"We need diesel to run the generators which power the irrigation system for the fields. We ration the diesel and irrigate once a day instead of twice, but it's not enough, and our aubergines, cabbages and tomatoes have all died," said Matueny. 

Despite the need for domestic production and a chance at food security, Freedom Farms hasn't received any support from the government. 

Shortage of dollars

At South Sudan Beverages Limited, a brewery on an artery road outside Juba, the scene is just as grim. 

After $100m of investment and 10 years in business, the operation is expected to close down at the end of March, not because of a lack of demand for its products, but because of the US dollar shortage.

The brewery was the largest capital investment in South Sudan outside of the oil industry and in terms of sales has been a huge success. In June last year, production reached a peak with record sales of the signature beer, White Bull. 

Like Freedom Farms, the brewery is a producer that depends on imports but sells the finished product in the country, in SSP.

To give an idea of how successful the brewery was in terms of sales, Managing Director Carlos Gomez references the company's tax bill: "In the month of June, our excise tax payment to the government was the SSP equivalent of $1 million for just one month.That's the sort of contribution we were making to the economy, not including our import duties and all the other taxes."

Now, the yard which used to bustle with labourers loading crates of beer into trucks for onward sale is empty.

The beeping of the forklifts and the smell of malt drifting across the neighbourhood have both disappeared. 

South Sudan Beverages Limited has the same problem with hard currency as Freedom Farms, but it has an additional problem, too: Because US dollars have been in short supply for such a long time, the company was holding over 100 million South Sudanese Pounds in the bank when the currency was devalued. 

As a London Stock Exchange-listed company, changing money on the black market wasn't an option available to them, and besides - there wouldn't have been enough.

"The money we had in the bank became worth 15 percent of what it was. We ended up losing tens of millions of dollars overnight," said Gomez.

Floating exchange rate

Economists hoped that by allowing the exchange rate to float, the government would create a more favourable climate for producers.

Astrid Haas from the International Growth Centre, which worked with the Bank of South Sudan on its exchange rate regime, explained this reasoning.

"The floating exchange rate gives the manufacturing sector the chance to become more competitive," she said. "Essentially, having an overvalued exchange rate meant that you wouldn't find much competitive production or see much growth in the manufacturing sector." 

But Jeff Campbell, one of the owners of Freedom Farms, says they haven't seen a benefit from devaluation - because there still aren't enough dollars in circulation.

"The crisis of the dollar began when the war started in 2013, and the rate kept going up and up.Things got really bad in January this year since devaluation dollars have become even harder to get."

MORE on South Sudan business: Coffee and food production ^[1]

Devaluation was a strategy which should have improved the climate for domestic producers, but the reality is that the banks still can't meet the demand for US dollars.

The Central Bank's reserves are believed to have run dry, and oil revenues are seriously depleted, if not nonexistent. In these circumstances, another black market rate is likely to appear, putting producers back in the same position they were in before devaluation - but this time, without savings in the bank.

Source: Al Jazeera

References

1. ^{^} MORE on South Sudan business: Coffee and food production (www.aljazeera.com)