South Sudan

South Sudan is a fragile, post-conflict country that gained independence only recently on July 9, 2011. The attainment of independence fulfils a major component of the Comprehensive Peace Agreement (CPA), which was signed in 2005, between the Government of Sudan and the Sudan People’s Liberation Army. The signing of the CPA and subsequently the adequate implementation of some of its provisions has played a great role in bringing to an end decades of conflict (1955-1972 and 1983-2005), between the North and the South.

The effects of the conflict on South Sudan have been severe and profound, to both the social and economic status of the country. Over the two decades 1983 to 2005 infrastructure development has been badly neglected, which has among other things, discouraged the expansion and growth of key sectors of the economy. The institutional capacity of the public sector has literally been non-existent; standards compliance capacity is minimal and non-existent in several states; firm-level productivity is below acceptable regional and international standards, and further undermined by shortages of skilled labour.

Still, South Sudan achieved a key milestone in its

Still, South Sudan achieved a key milestone in its first five months of independence: the development of the Sudan Growth Development Plan 2011– 2013. This provides a roadmap for institutionalising capacities that will be essential for achieving the country’s development goals during the period 2011-2013. Key priorities include:

Extending public security and the rule of law throughout the country by transforming, professionalising and expanding key security and judicial institutions;
Enabling economic growth and investment by establishing essential legal and regulatory frameworks, and expanding vital transport, communications and energy infrastructure;
Improving social welfare by expanding the population’s access to basic education, health, water and sanitation services co-ordinated, regulated and provided by local institutions;
Building public administration that efficiently provides public goods and services to the population through the development and management of a qualified and professional public service, and establishing mechanisms to attract qualified South Sudanese, including from the diaspora; and
Establishing an accountable and transparent system of governance at national and local levels to effectively articulate national priorities and manage national resources in an equitable and effective manner.

Adequate and successful realisation of these five priorities will greatly depend on good political and economic governance, based on transparency and a common vision of national unity.

South Sudan’s economy is one of the weakest in the world. The economy is still fragile, and underdeveloped. Worse still, experience in macroeconomic management within the country is limited, mainly because this responsibility was retained by the Government of Sudan, in Khartoum, as per the CPA provisions. The South Sudan government does not have full autonomy when it comes to macroeconomic policies. Southern Sudan’s macroeconomic situation is linked closely to, and dependent on, Sudan’s overall macroeconomic developments and Khartoum policies. For example, the South Sudan government does not have control over the growth of money supply and credit, the change in monetary reserve requirements, or other monetary policy instruments.

Since independence, substantial efforts have been undertaken that will, in the short to medium term, allow for robust economic growth, and the establishment of adequate financial infrastructure. Among these has been the setting up of the Bank of South Sudan, which will be responsible for the formulation, conduct and implementation of the country’s monetary policy.

South Sudan has experienced uneven GDP growth during the past three years. Between 2008 and 2009, GDP growth receded by 14 percent, from SSP28.505 billion (US$ 10.6 billion) to SSP24.95 billion (US$9.3 billion). In 2010, there was a substantial recovery. GDP was estimated at SSP30.5 billion ($ 11.4 billion), representing 25 percent growth increase from 2009.

The oil sector is the largest contributor to GDP, both in direct value-added to the economy as well as the associated investment boom and boost to the services industry. Oil exports accounted for 71 percent of the total GDP in 2010. The high reliance on oil has created volatile revenues and, due to the lack of buffer savings through the CPA period, government expenditure has been relatively unstable. Current forecasts point to a peak in oil sector production; however, there is a strong likelihood that oil export revenues will decline over time. According to the IMF, by 2018, known oil reserves in South Sudan will be close to exhaustion.

The economic policy dialogue is turning to the need for balanced growth and strengthening the non-oil sectors, which are key to sustainable growth and addressing inequalities. Agricultural development is viewed as the engine of growth, which will allow South Sudan to diversify its economy away from oil dependence in the medium term, and will also allow it to directly reduce poverty and food insecurity.

Access to finance

Eight banks operate in the country. The largest is Kenya Commercial Bank (KCB), which intends to double its presence to 30 branches, covering 100 000 people by 2015. Nile Commercial Bank, Buffalo Commercial Bank, Ivory Bank, Equity Bank, Commercial Bank of Ethiopia, Agricultural Bank of Sudan, and Mountains Trade and Development Bank also operate within the country.

The commercial banks’ lending portfolio is small, covering only a small percentage of the estimated market in the country (seven percent of about 6 000 registered firms and less than one percent of gross revenue). Generally, lending in the country is inadequate, and can neither address the demand for large-scale loans for agricultural finance and investment in the manufacturing and real estate sectors, nor for start-up capital by local South Sudanese firms. In 2008, most of the loans (70 percent) were advanced to large firms in commerce, trade and service sectors, as working capital. Only 30 percent of the loans issued in that year were to individuals, drawn to finance the purchase of vehicles and home improvement developments. This lending trend continued through 2009 and 2010.

Commercial banks are generally reluctant to lend, largely because of the structure of their deposits. The majority of the deposits are short-term, less than a month, and drawn on regularly. Savings account deposits remain low. Some banks have instituted measures to encourage customers to save more, by offering an interest rate of up to 1.75 percent on saving accounts. This rate is low by regional standards, and reflects the nascence of the banking industry in the country.

The saving culture in the country is poor, and the country has been labelled by several authors as a primordially cash economy, due to the high ratio of costs to salary levels and a preference for informal or traditional saving methods.

Loan tenures are short term (three to six months), and at high interest rates (15 to 18 percent per annum). Collateral for loans is in most cases not available, though some banks have innovatively sought other forms of guarantees as security for the loan such as leasing (keeping the purchased asset in the name of the bank until complete repayment), direct payment by the employer or final purchaser of the good (arrangements where an external party pays the bank directly such as is the case for government procurements or salary loans).

According to the World Bank’s Doing Business 2010 report, the only criterion used by banks in Juba to appraise their clients is the Know Your Customer (KYC) rule. Generally, the lack of credit history is a major constraint to access to finance in South Sudan. Most companies were established recently, in the post-CPA period, and few have a past credit record. Banks rely on other customers who know the community to give information about prospective debtors. Loans are advanced based on personal connections, and not necessarily on the likelihood of repayment.

As a result, non-performing loans (NPLs) are a common feature on several banks portfolios; and worse still, the banks do not have adequate methods of enforcing repayment. The judiciary system, which would play a key role in such scenarios, is severely constrained in capacity and resources and is untested in the dispute resolution of loan defaults.

In the World Bank’s Doing Business in Juba report, Juba scores 0 out of 6 on the depth of credit information index because South Sudan has no public credit registry or private credit bureau.

Housing supply

Until recently, South Sudan has not had a well managed scheme to supply housing. Housing supplies are basic, of dismal quality and unique to a post-conflict country, which has not had well functioning institutions for a relatively long time. Most houses – 84 percent – are mud and stick, known as Tukul/gottya. Five percent of dwellings are made from straw mats, three percent are constructed of wood and two percent are made from brick or concrete.

While the government is committed to addressing the dismal state of housing in the country, there are more urgent and competing concerns such as maintaining peace and security at this crucial time of transition. For the 2010/2011 budget, the government allocated SSP23 million (US$8.5 million) to undertake a pilot affordable housing scheme. In the same budget, the government allocated SSP5 million (US$ 1.8 million) for the Juba Town sewage and sanitation project.

The Central Equatorial State, one of the ten states in the country, has also embarked on a relatively large-scale housing project, which is intended, in the short to medium term at least, to ease on the need for decent housing. The project was launched in 2008, in partnership with Abu Malek Companies & Agencies Ltd, the mandated project promoters for the South Sudan government. The project is estimated to cost US$650 million, and will set up a master plan community project in the Juba city and Kajo Keji. The project will cover 16 square kilometres and includes the initial delivery of 9 000 housing units, commercial and industrial areas, as well as agricultural projects to guarantee local food supply for domestic and export marketing.

Four types of houses are planned in the project. Type A and B houses will be 150-200m2 over two storeys. These houses will be sold for US$200 000-US$300 000. The Nile Commercial Bank has secured the rights to pre-sell the units. Terms will include 15-year tenure (balance amortised equally for 180 months plus interest), 20 percent down payment, and a monthly payment of US$ 1600-US$2 500. The interest rate is fixed. Type C houses will be built for middle income households and will sell for US$96 000. A total of 2 500 units, 120m² each over two storeys will be built initially. The Nile Commercial Bank has also secured the rights to pre-sell these units, on the same terms as types A and B, for a monthly payment of US$750.

Type D houses, flats of five stories each with 10 flats, will be built for low income households and sold at a cost of US$45 000. A total of 5 000, 75m² flats will be built initially. The monthly payment to Nile Commercial Bank will be US$350.

In another development, KCB Group’s mortgage subsidiary, Savings & Loans (S&L), has signed a US$452 million housing deal with the government to fund construction of 1 750 housing units for civil servants.

Property markets

The property markets in South Sudan are still underdeveloped, unsophisticated and hard to estimate both in qualitative and quantitative terms. It is envisaged that the completion of the housing projects underway will contribute immensely to developing the property markets in the country.

Affordability

GDP per capita in 2010 was SSP3 654 (US$1 363) down from SSP3 541 (US$1 321) in 2008. South Sudan’s GDP per capita is higher than in its neighbours in the East African Region – mainly due to oil production. Still, South Sudan has worse outcomes on other development indicators such as education and health. With 87 percent of the population living in rural areas, the main source of livelihood for 71 percent of the population is crop farming, Seven percent source their livelihood through animal husbandry, 11 percent through wages and salaries, three percent own business enterprises, one percent through property income, and seven percent through others sources. Only 10 percent of the workforce is formally employed; of this, government employees constitute the biggest portion, more than 50 percent. Of those employed by government, 54 percent are low income earners, with monthly income ranging between SSP300 (US$112) and SSP999 (US$372). Just over half of the population, 50.6 percent, live below the poverty line, with a gnawing gap in poverty levels between classes and within states. This means that one out of two South Sudanese do not have the necessary means to purchase a minimum food and non-food bundle.

The present consumption per person per month in urban and rural areas is estimated at about SSP100 (about US$37.3), and of this amount, housing (materials for maintenance of dwellings and repair of household appliances, among others) constitutes only SSP4 (about, or less, than US$1.5).

Lower to middle income households can be categorised in two groups: those that earn between SSP1 000 (US$373) and SSP 1 999 (US$745), and those that earn between SSP2 000 (US$746) and SSP4 000 (US$1 492). The middle income class earns between SSP4 001 (US$1 493) and SSP7 999 (US$2 984). Only about 1.4 percent of the population fall into the highest income earning bracket, with monthly incomes of between SSP8 000 (US$ 2 985) and SGD15 000 (US$5 597).

This data suggests that there is limited effective demand for the housing projects that will be undertaken in the country, including the one that has already been started in the Central Equatorial State. At US$45 000, the planned flats are unaffordable to the target market of low income households, and will only be affordable to the middle income segment.

Policy and regulation

There is no evidence of a South Sudan housing policy. Nonetheless, the country has a Ministry of Housing in place, and one of its ongoing projects is to design and implement a legal and regulatory framework that will enable the government to mobilise public and private sector resources to rehabilitate the existing, war-ravaged, public buildings and utilities, with a special emphasis on urban areas. Expanding the population’s access to basic education, health, water and sanitation services is also a priority of the growth development plan.

According to a Land Act, approved in 2009, there are three systems of tenure: customary, freehold, and leasehold. Land is classified as public (held by government), community (held by communities) or private land (leaseholds of up 99 years and freeholds). The Land Act effectively details:

Ownership rights proven by legal title for all short-term leases
A decentralised system of land registry maintained by the Ministry of Housing, Physical Planning and Environment
The right for title holders to use the land as a surety to secure debt (where mortgage contracts are to be registered in the land registry), and
The right for creditors to foreclose on land title in case of default. It should, however, be noted that while the Land Act allows creditor’s to foreclose on land as collateral, no laws currently detail the creditor’s rights and appropriate registry for other types of collateral. It is important that such legal frameworks (the equivalent of the Mortgage Act) are established as well as an associated system of standardised collateral evaluation and registry, to better facilitate the provision of fixed asset based lending.

Although legislation details the institutions and mechanisms for titling, registry, and the right to use land as collateral, the institutions in place are still at a nascent stage of development, and have not yet been tested adequately. For instance, the institutions that register titles have low capacity and lack appropriate IT Systems, procedures and support, especially at the decentralised level. Other structures will also need to be developed to deal with compensation for expropriation and the application of customary practices/law (described in the Land Act).

In the past, because of the absence of a clear system for land titling and registry, some banks have been reluctant to accept land as collateral, while other banks accept “British Leasehold” with 30 remaining years as collateral, while other banks accept land titles for Juba-based property only.

Opportunities

A new country with a strong oil revenue, South Sudan has become a focus of interest for many players in the region. The housing sector remains small, however, and there is substantial opportunity for growth, especially targeting very low income earners. The number of commercial banks need to be scaled up, to allow for more competition and dynamism within the banking industry. Further, there is need to institute long-term finance schemes within the banking system, if the lending culture of banks is to appreciate. There is need to attract more organised real estate developers, both local and foreign, if the country is to address the shortage of housing, and the price of housing must be decreased to a level affordable to a wider segment of the population. In part, this has to do with minimum stand and house size, and the introduction of innovative, entry-level units that envision expansion over time while maintaining affordabiity in the short term. There is a need to guide and build the technical capacity of NGOs and other donor funded organisations to start initiatives in which they fund microfinance institutions to start issuing housing microfinance products such as home improvement loans. Further, the establishment and growth of housing co-operatives could also support the development of affordable housing.

Source: Housing Finance Yearbook 2012

Sources

Atil, M (2011): Access to Finance in South Sudan.
Government of South Sudan (GOSS) (2010). South Sudan Growth Development Plan (2011-2013).
GOSS (2011). Statistical Yearbook for Southern Sudan.
GOSS (2009). Poverty in Southern Sudan; Estimates from National Baseline Household Survey.
International Monetary Fund (2011); Regional Economic Outlook for Middle East, North Africa, Afghanistan and Pakistan (MENAP)
6. Kameir, E (2011): The political economy of South Sudan: a scoping analytical study
Southern Sudan Centre for Census Statistics and Evaluation (2009). Annual Report.
The New Vision (2009) Aticle from June 2nd.
USAID (2009). South Sudan: Post Conflict Economic Recovery and Growth.
US Chamber of Commerce (2011). African Business Initiative.
World Bank (2010). World Development Indicators.
World Bank (2011): Doing Business in Juba 2011.