Why Kenyan traders can’t ignore South Sudan

South Sudan became the sixth member of the East African Community (EAC) on April 16.

President Salva Kiir Mayardit signed an accession treaty and the requisite protocols in Dar es Salaam at an event witnessed by the current EAC chair, Tanzania’s President John Pombe Magufuli.

This event was poignant in history and meaning for the region.

South Sudan has had a chequered, albeit conflict-prone, history prior to gaining independence in July 2011. Its independence has been wracked by a war that started in December 2013, and that has killed at least 50,000 and displaced two million people.

However, there is a silver lining, as a cessation of hostilities brokered last year gets traction, and a transitional unity government, sworn in last week, gets down to work.

The stakes are high, but regional leaders are optimistic that the two main protagonists in South Sudan — President Kiir and former-rebel-chief-turned-vice-president Riek Machar — will respect the terms of the 2015 agreement.

They are also expected to work together to bring the benefits of the ideals of the EAC, and the benefits of regional integration, to the long-suffering people of South Sudan.

The benefits

What are the benefits of South Sudan joining the EAC?

These are many and varied, and whereas its parliament has to ratify the EAC treaty and protocols, which may take time, there are quick gains and low-hanging fruit. These are what the nation, Kenya and the region should capitalise on, especially as regards tariff and non-tariff barriers to trade.

Since 2011, Uganda has emerged as South Sudan’s biggest trading partner in the region, exporting goods worth $280 million (Sh28.3 billion at current exchange rates) at the peak of trade ties in 2013. This fell to $260 million (Sh26.3 billion) in 2014 on the back of conflict.

Kenya, despite having a played a key role in brokering peace talks and the transition in South Sudan, has lagged behind Uganda. This is despite Kenyan firms having a major presence in South Sudan.

Kenyan traders and skilled workers had, prior to the break out of war in December 2013, invested millions of shillings in the country, and have incurred losses running into billions in the hiatus. Four Kenyan banks — KCB, Equity, Co-op and CfC Stanbic made a combined loss of Sh14.5 billion in 2015 alone from their South Sudan subsidiaries.

These new developments should provide impetus to a return to normalcy in the country. And its entry into the EAC common market should lift the trade and labour barriers hitherto encountered — from long visa application processes to expensive duty levied on imports from Kenya.

Like has been done with Uganda, Rwanda and Tanzania, one-stop border posts and trade facilitation should hasten the clearance of goods at border points and bring down costs for traders. These benefits are expected to be passed on to consumers, and lower costs should drive up volumes.

Business reforms

Through the ongoing business reform measures being undertaken by the Government of South Sudan, the registration and operations of firms and businesses will be harmonised with other EAC countries.

They will also be benchmarked to global standards, significantly lowering business set-up and transaction costs, easing business processes, protecting private property, providing fair arbitration and settlement processes, and increasing the diversity of the private sector.

It is also envisaged that an easily administered tax administration system will be established, and budgetary processes aligned to the EAC framework, eliminating double taxation and rent-seeking.

Following these, and learning from the huge losses Kenyan firms and traders experienced last year when South Sudan’s central bank devalued the pound by 84 per cent, the foreign currency access and convertibility ban will be lifted.

A business-friendly free floating rate will be adopted, which will shield against foreign exchange losses and ease the capital controls that barred firms from repatriating their profits back home. This has been a huge disincentive for investors and traders.

The other big win for businesses and traders is that the EAC framework envisages the free movement of labour and capital.

With South Sudan in dire need of both human and physical infrastructure, this should open up the market to skilled Kenyan workers and private firms to contribute towards building the nation’s capacity without the threat of expatriation.

The other gain will be on the infrastructure front. The $24 billion (Sh2.4 trillion) Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset) programme has a new lease of life after a lull over the feasibility of project, in part because of the conflict in South Sudan.

Common currency

With South Sudan now in the EAC fold, it is all systems go for Northern Corridor infrastructure programmes to open up investment opportunities.

In an increasingly competitive global economy, no single country is able to compete on it own. Hence, South Sudan’s liberalisation of foreign exchange controls, to enhance in-country and cross-border transactions, trade finance and tap global banking opportunities through increased regional integration, is the right way to go.

Further reforms needed in bringing down barriers include improving market and physical infrastructure to reduce transaction costs and drive up volumes, rule of law, security and property rights.

There is also need for an anti-money laundering law to curb illicit capital movements, establishment of a primary and secondary securities market, and integrating these with the mooted EAC securities exchange. Ultimately, there is need to make tangible moves towards a common currency and a political federation.

We will be on the right side of history.

A deeper and broader EAC market, underpinned by matching skills, world-class goods, products and services in our key investment sectors — such as agriculture, infrastructure, extractives, ICT and financial services — will deliver the EAC promise of lifting millions out of poverty.

However, there is a caveat.

Apart from diversifying from an over-reliance on oil exports, the warring factions in South Sudan and their supporters mus temper their words and actions.

They must tame belligerent elements that have tarnished the nation’s image and consigned it to a perennial state of war and penury.

In this day and age, when nations are aspiring to deliver on democracy and economy, we trust that EAC leaders will lead by example on the prerequisites of trade and development. These are peace, a stable macro-economic environment, and inclusive governance. Only then can South Sudan, and the region, reap the dividends.

The writer is East African MD and co-founder, KEAMSCO, a New York, Bremen and Nairobi-based consultancy. hezron@keamsco.com