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South Sudan heavily depends on export of oil, the reopening of some damaged oil wells following the peace agreement in 2018 pushed up daily oil production (export) by about 20 percent in February 2019. Despite the increase, access of hard currency to importers from banks has not yet started, and therefore traders still depend on the informal market. The oil revenue will be impacted by the collapse of the world oil prices amidst the spread of COVID19 across several important players in the world economy. Plummeting international commodity prices translate into heavy losses in export earnings, this means the trade deficit of over 2 billion SSP will widen. The decrease in oil prices will also trigger currency depreciation and an adjustment in the balance of payments.
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South Sudan is a net cereal importer with an estimated gap of 483,000 mt in 2020, 7 percent lower than last year but still continue to be significant as it is 22% higher than the previous five years average. In 2019, the cereal deficit increased in the persistently deficit and import dependent states of Northern Bahr el Ghazal, Jonglei, Unity, Upper Nile and Warrap, due to flooding that affected crop production. The food gap is met through food aid making over 300,000 mt of mixed commodities and the balance from commercial imports of which in 2019, 215,000 mt was maize from Uganda. Uganda and Sudan are the main source of food commodities for South Sudan, hence COVID19 outbreak resulting in limited commercial activity in both Uganda and Sudan and border closure limiting movement of commodities will negatively impact traded volumes and therefore putting pressure on prices for both cereals and industrial (processed) commodities across all markets in South Sudan.
Prices of commodities generally traces the parallel exchange rate of the SSP to the USD (see Figure 2). The average exchange rate of South Sudanese Pound to United States Dollar in the parallel market of Juba has continued depreciating since the conflict of 2016. The rate depreciated by about 13 percent, relatively at lower rate as compared to 28 percent depreciation in the preceding six months (October 2018 – March 2019). The exchange rate in the parallel market depreciated from SSP 274 per US Dollar in April to SSP 311 in September 2019. Pressure from reduced production in Uganda and the insecurity in Sudan coupled with the reduction in oil revenues as well as the limitation in the free commercial trade movement following the COVID19 resulted in the SSP undergoing a sharp devaluation following an appreciation in value to SSP270/USD following the formation the formation of the Government of National Unity end of February 2020. With border closure between Uganda and South Sudan in the third week of March 2020 as a result of COVID19, the SPP on the parallel market depreciated to previous high levels of end of 2019 from SSP 270/USD to 310/USD. This currency depreciation and likely reduced traded volumes through the border will continue putting pressure on the already very high and above five-year average and above all East African counties’ commodity prices in South Sudan.
From the Global markets, on March 9 all the major stock indices plunged by 5 to 11 percent, due to the combined effect of coronavirus panic and crashing oil prices. When financial markets become spooked by risk, poor countries like South Sudan are put in danger of losing their ability to borrow and spend when they most need it.
Moreover, even though it’s too early to predict, China being the world's biggest trading nation with agriculture and food constituting a significant share of the country's trade portfolio, the impact of the new coronavirus epidemic in the East Africa region could have significant socio-economic repercussions, with significant potential impacts on livelihoods, food security, national economies and global financial and food markets. For South Sudan, a country that rely heavily on imports and has huge supply-chain exposure to China, factory shutdowns in China, import bans, increased shipping and freight costs, suspension of flights and restrictions on the movement of goods and people could potentially disrupt trade and market chains with knock-on effects on imported food prices.
These economic shocks are likely to exacerbate the severity of acute food insecurity in South Sudan, especially considering that the country is approaching the peak of the lean season, when household stocks have generally been exhausted, market prices are at their highest, as are food and nutrition insecurity. According to the recent IPC analysis, conducted in January 2020, even before any news around the spreading of COVID19, a total of 6.5 million people were expected to experience acute food insecurity in the May-July 2020 period.
Diminished expensive earnings and ensuing currency depreciation translate into more expensive imports, including for basic food stuff, representing a major risk for South Sudan, a country with low-production which heavily relies on imported goods even for the most basic of commodities. Increased food prices curtail households’ purchasing power, putting households’ access to food at risk, and forcing them to activate coping mechanisms ranging from switching to cheaper, less nutrition foods, to reducing their consumption and/or going entire days without food.
Distributed by APO Group on behalf of World Food Programme (WFP).