analysis
By
Astrid R.n. Haas, London School of Economics and Political Science
South Sudan's accession to the East African Community could prove a major step forward in
the economic development of the world's newest nation.
On March 2, the East African Community Heads of State
Summit admitted South Sudan as its newest member. Accession negotiations had commenced in November 2014. The relatively accelerated
timeline to its conclusion is a strong indication of the willingness of all
sides to admit South Sudan to the community.
To date, oil revenues have financed more than 90% of South Sudan's budget. Such
singular reliance on commodity and resource revenues is generally a risky and
unsustainable approach to development.
This is true of South Sudan. The civil war that broke out in 2013 disrupted oil production.
This was compounded by the drop in oil prices from more than $100 per barrel in 2013 to $35
per barrel currently. These two factors mean that South Sudan can no longer
rely on this source of revenue. Hence, regional integration will be an important
route to diversifying its economy.
Hindrances
to economic development
One of the major hindrances facing South Sudan in
participating actively in regional and world trade has been high transport
costs. South Sudan is a landlocked country with poor domestic infrastructure.
Most of its road network is unpaved.
Studies of informal, cross-border trade between Uganda
and South Sudan show substantial mark-ups on goods once they enter Juba market.
The largest portion of the increase in price is attributed to transport costs as well as other stamps and
duties along the way. This is particularly challenging for a country like South
Sudan that relies primarily on imports.
As part of the East African Community, South Sudan will
be able to benefit from ongoing and future regional infrastructure projects.
These include the port that is being constructed in Lamu, Kenya, and the EASSy cable, a 10,000km
submarine fibre-optic cable along the coast of eastern and southern Africa.
As infrastructure development is an expensive undertaking, regional collaboration will be vital for improving South Sudan's connectivity. Improved connectivity will, in turn, lower transport costs and thus the price of consumer goods in the country. At the same time, it will also improve access and competitiveness in regional markets for South Sudanese exports.
In terms of economic diversification, agriculture is one
potential area South Sudan could capitalise on. According to some estimates,
70% of land in South Sudan is suitable for agriculture, but less than 4% is currently
being cultivated.
If South Sudan can move towards mechanised agriculture,
it not only has the opportunity to increase in-country production, but also to
potentially export to the region. For example, the extensive flood plains of
the Greater Bahr-el-Ghazal and Upper Nile areas may be suitable for rice
production. To ensure its products are competitive, investments in
infrastructure and connectivity will be essential.
In the short term,
there will be some costs to accession. However, many of these costs can be mitigated
with appropriate negotiations and domestic reforms. In particular, there is the
potential that the cost of living may increase for consumers, as in some cases
the current customs tariff bands in South Sudan are lower than
the common external tariff it will have to adopt.
Rwanda is an example of a country that faced a similar
challenge and managed to mitigate the effects by negotiating various flexible
arrangements, including longer transition periods for implementation. South
Sudan has the opportunity to learn from and follow on Rwanda's lead.
Labour costs in South Sudan are among the highest in the
region. Years of conflict have left the population with low levels of education and skills. In the short run, this
may present another barrier for South Sudan in attracting foreign direct
investment flows.
Rather than investing in South Sudan, firms may locate in
other community countries and export their products to South Sudan, benefiting
from the favourable tariff structure.
As South Sudan undertakes domestic reforms and investment
in infrastructure to lower the costs of production, firms will increasingly
look to locate there. Additionally the Common Market Protocol also provides for
the free movement of labour.
Although this is a politically sensitive topic, it would
be advantageous for the government to embrace it. Foreign labour could lower
domestic costs of production while filling the skills gap. Furthermore, there
are very likely to be spill-over effects in terms of skills for the domestic
labour force.
Opportune moment
It is an opportune moment for South Sudan to accede to
the regional bloc. As the world's newest country, it is still in the phase of
developing many domestic laws, policies and regulations.
Rather
than having to retrofit laws and regulations at a later stage, South Sudan can
benefit from learning and adopting those that reflect best practice. This will
not only facilitate smoother integration, it will bring about transparency and
conformity into its national laws. This will act as a strong signal for the
private sector and others that South Sudan is pursuing growth-enhancing
economic reforms.
Despite costs in the short run, significant benefits from South Sudan's accession are
expected to accrue in the medium to long run. As successful examples like
Rwanda have shown, regional integration can enhance growth and thus support
poverty reduction.
South Sudan can learn from the history of existing East
African Community members. It also then has a place at the negotiating table,
which it can use to advocate for future policies that are advantageous for its
domestic growth. But the key to unlocking and maximising the benefits of
regional integration will lie in domestic reforms targeted at creating a stable
and competitive macroeconomic environment.
Disclosure statement
Astrid R.N. Haas is affiliated with the International
Growth Centre.
Read the original article
on The Conversation Africa.
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