The quality of institutions and policies in South Sudan
By Luka Biong Deng
December 4, 2013 – South Sudan, unlike other countries that are still struggling to get accepted to the UN, was unanimously accepted to the UN. Such acceptance came as a result of the long political struggle of the people of South Sudan for their independence but importantly it came as a result of the commitment of the international community to the Sudan Comprehensive Peace Agreement.
Undoubtedly, the birth of this new state came with optimism that South Sudan will not only be a viable state but it will contribute in promoting peace and stability in the region. This optimism is based on the fact that South Sudan stands better chance to succeed because of the strong will of its people and the commitment of the international community to making South Sudan a success story. The real question is whether South Sudan living up to this optimism and putting itself on a path that would minimize the risk of being prone to the traps of conflict, bad governance and economic policies and resource curse?
There is compelling empirical evidence that came with conclusion that the quality of institutions is decisive in determining whether natural resources endowment is a blessing or a curse. As such, the presence of the resource curse is attributed to policy failure and bad institutions. For example the outstanding performance of Botswana as resource rich country is attributed to the presence of good institutions. Also Norway as one of the Europe’s poorest countries in 1900 is now one of the richest after the discovery of large natural resources because of its successful policies and good institutions. There are also examples of resource rich countries that failed to perform well because of weak and dysfunctional institutions such as Nigeria, Venezuela, and Mexico.
The performance of South Sudan as resource-rich country can only be assessed in the context of its institutions and policies. The Country Policy and Institutional Assessment (CPIA) of the World Bank provides the most reliable and robust tool for assessing the quality of institutions and policies of every country. The overall CPIA score of South Sudan (2.1) in 2012 was not only below the average score of Sub-Sahara (3.2) but the lowest score in Africa. In particular, South Sudan has been less performing in economic management, public sector management and institutions clusters. In particular debt policy, monetary and exchange rate policy, revenue mobilization and fiscal policy are the worst performing clusters.
The real question is why South Sudan is performing so poorly in terms of institutions and policies after its independence? I would like to shed some light on the performance of some institutions and quality of some policies adopted after the independence in 2011. The performance of SPLM as a ruling party is important in explaining the poor performance exhibited by the government of South Sudan. The SPLM as the ruling party has not been able to provide guidance for the policies being adopted by the government of South Sudan.
Most of the policies adopted by the government of South Sudan are policies formulated by individuals in various ministries without any political guidance and direction. Even the current constitution of the country was not internalized within the structures of the SPLM before it was passed by the parliament. The SPLM as a ruling party seems to be focusing more on leadership than providing direction and right policies for the government to meet the aspirations of the people of the South.
It is even not known now whether the SPLM exists as some of its leaders cast doubt with rather conflicting statements on the legitimacy of the current structures of the SPLM. While the SPLM Secretary of Foreign Relations and ironically the Minister of Information confirmed that the structures of the SPLM are null and void as allegedly directed by the Chairman of the SPLM or by an order to be issued, the SPLM Second Deputy Chairperson indicated that the SPLM structures are not dissolved and the long awaited meeting of National Liberation Council will be convened on 9th December. One wonders how such a meeting will take place without the meeting of the SPLM Political Bureau.
Whatever the case, a serious damage has been done to the image of the SPLM as a ruling party that is expected to set a good example in respect of its institutions and constitution. Dissolving the structures of the SPLM will not only be unconstitutional but it will be a political suicide that may create political unrest and instability. With tainted image and the dysfunctional institutions of the SPLM, the people of South Sudan are right to indicate in the opinion poll that their country is not heading to a right direction.
The recent outcry about the devaluation of the currency shows vividly the weak institutions and unstructured decision making process in South Sudan. There is wealth of evidence that suggests the flexible exchange rate policy is the appropriate policy option for the resource-rich countries as that would ameliorate the negative impact of weak fiscal discipline and the volatility of government expenditures that are currently experienced by the economy of the South. It does not require a sophisticated economic reasoning to figure out that the fixed foreign exchange policy adopted by the Central Bank has been hurting the economy. As mentioned earlier, the quality of monetary and exchange rate policy adopted by the Bank is one of the worst performing policies.
In fact this fixed exchange rate system has resulted in well-connected individuals to benefit from the premium between official and market exchange rate and led to a substantial redistribution of oil wealth and rent-seeking. Some reliable sources estimated that what the South is losing from this discrepancy between official and market exchange rates may exceed its aggregate foreign aid and assistance. Although the timing of the decision might have triggered nationalistic concerns, the Bank was right in its much-awaited decision to devalue the currency.
The way the decision of the Bank was reversed raises fundamental question of how institutions function and decisions are made in South Sudan? The Constitution provides for the establishment of the central bank as an independent corporate legal entity responsible for the formulation, conduct and implementation of monetary policy. The Constitution also provides for the establishment of the Board of Directors of the Bank as the highest policy-making body and to be responsible to the President. The wisdom of having central banks as an independent corporate legal entity is to ensure their decisions are guided by rigorous economic analysis and rationale rather than political interests.
Regardless whether the decision of the Bank to devalue the currency was right or wrong, it was unconstitutional to force the Bank to reverse its decision. The Parliament has not only passed the Constitution and the Bank of South Sudan Act that established the Bank but it also approved with two-third majority the appointment of its Governor and two deputy governors. In fact the parliament did not question their competence and expertise when entrusting them to head the Bank. This intervention by the Parliament in the affairs of the Bank raises fundamental question of how will the Bank function in the future as an independent corporate legal entity. The Parliament has almost assumed the role of the Board of Directors of the Bank in formulating monetary policy as mandated by the constitution.
As the issue of exchange rate policy is technical, the parliament would have subjected this issue to an in-depth scrutiny by its specialized committee before taking any decision. It seems the decision making process by the Parliament as provided for in the conduct of business regulations has not been followed. This reminds me the way the current Speaker was overwhelmingly elected by the Parliament but without adherence to the process provided for in the conduct of the business regulations. As parliament represents the will of the people, it is expected more than any other institutions in South Sudan to uphold constitution, protect institutions and respect of rule of law.
With this account, one is afraid that the Country Policy and Institutional Assessment (CPIA) score of South Sudan will deteriorate further in 2013. The optimism about the future of South Sudan is gradually fading away. The leadership of the SPLM, in the name of the selfless sacrifices of its martyrs, has a national obligation to reverse this trend by upholding the structures and constitution of the SPLM as the basis for consolidating unity and nurturing democratic culture within the party. It is then, the SPLM will be able to take the lead in democratic governance, strengthening of institutions and adopting right policies that will put South Sudan on the path of stability, good governance and prosperity.
The author is a Fellow at Harvard Kennedy School, he can be reached at [email protected], [email protected]