South Sudan

Excerpt from Africa Housing Finance Yearbook 2014

Overview

The relative peace built between South Sudan and North Sudan that had enabled the country to gradually institute a generally stable political and socio-economic environment, since it attained independence in 2011, deteriorated in December 2013, following the escalation of sectarian violence and later a civil war. The civil war was orchestrated by a power struggle between the President and his deputy, whom he had fired.

Previous efforts that had been embarked upon by the Government, with support from development partners that focused on investing more in development-oriented programmes in health, education and infrastructure, were put on hold to address the humanitarian crisis caused by the civil war. Joint infrastructure projects such as the Lamu Port South Sudan-Ethiopia Transport Corridor and the construction of several major roads linking the country to the East African Region all await implementation.

It is estimated that over 800 000 people fled their homes, because of the war. The Crisis Response Plan, developed by the United Nations in January 2014, to enable humanitarian agencies to meet the essential needs of

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Excerpt from Africa Housing Finance Yearbook 2014

Overview

The relative peace built between South Sudan and North Sudan that had enabled the country to gradually institute a generally stable political and socio-economic environment, since it attained independence in 2011, deteriorated in December 2013, following the escalation of sectarian violence and later a civil war. The civil war was orchestrated by a power struggle between the President and his deputy, whom he had fired.

Previous efforts that had been embarked upon by the Government, with support from development partners that focused on investing more in development-oriented programmes in health, education and infrastructure, were put on hold to address the humanitarian crisis caused by the civil war. Joint infrastructure projects such as the Lamu Port South Sudan-Ethiopia Transport Corridor and the construction of several major roads linking the country to the East African Region all await implementation.

It is estimated that over 800 000 people fled their homes, because of the war. The Crisis Response Plan, developed by the United Nations in January 2014, to enable humanitarian agencies to meet the essential needs of the affected population, is regrettably less than 50 percent funded.

Currently, the country is not in a position to pay its debts, amounting to hundreds of billions of dollars borrowed from Chinese oil companies. And yet the country plans to borrow another US$1 billion to fund the budget for 2014/15. The current oil output, which has been funding 98 percent of the government budget, and contributes 60 percent to country’s GDP in terms of direct exports, was estimated at about half what the country was producing before it escalated into the civil war. The reduction in oil output was also a consequence of the shut down in production in 2012, as part of efforts to resolve post-secession issues with North Sudan. Revenues from oil production have dropped by more than 60 percent, to about US$200 million, annually. Further, because of the current economic crisis, the government is unable to pay about 40 percent of its civil servants.

The over-reliance on oil has had an uneven impact on GDP growth rates. According to the World Bank, South Sudan’s GDP receded from US$19.2 billion in 2011 to $9.2 billion in 2012. In 2013, GDP recovered to US$13.8 billion, though the target was US$14.2 billion. The increase in GDP was due to the implementation of a number of monetary and fiscal policies to deal with the void created by the oil shutdown in 2012. Notable policies embarked upon included (i) a focus on increasing non-oil revenues; (ii) improving public financial management, through the implementation of an austerity budget; and (iii) managing inflation. However, it is unlikely that the target for 2014, which was forecast at US$17.6 billion, will be met, because of the ongoing humanitarian crisis.

The GDP per capita was last recorded at US$2 134 in 2011. South Sudan’s current GDP per capita is the highest in the East African region, and it is equivalent to 10 percent of the world’s average, largely due to its oil revenues. On other development indicators such as education and health, however, South Sudan performs worse than its neighbours in the region, with just over half (50.6 percent) of its population living below the poverty line.

Towards the end of 2013, inflation had receded, following government’s decision to devalue its pound currency against the US Dollar, such that it is at par with the black market. Foreign currency scarcity contributed significantly to the exceptionally high inflation rates – there was a huge imbalance between the demand for, and supply of, foreign currency. The inflation rate averaged 18.6 percent from 2008 until 2014, reaching an all time high of 79.50 percent in May of 2012, because of a scarcity in foreign exchange. In November 2013, however, after the pound currency was devalued against the US Dollar, inflation dropped to a record low of -14 percent. By June 2014, it had gradually appreciated, but at acceptable levels of -0.60 percent.

 

Access to finance

Between 2012 and late 2013, South Sudan’s positive and pro-business investment environment, which includes, among others, guarantees against expropriation and tax incentives, attracted an additional 13 banks into the financial sector, to bring the total number of banks operating within the country to 29[1]. Kenya Commercial Bank (KCB) is the largest with 15 local branches. KCB intends to double its presence to 30 branches, covering 100 000 people by 2015.

Despite the increase in the number of commercial banks, dynamism within the financial sector is still low, and the products offered by commercial banks are mainly concentrated in urban areas. The main products include basic deposits, foreign exchange, and money transfer and remittances.

The above notwithstanding, eight out of the 29 commercial banks (KCB, Mountains Trade and Development Bank, Nile Commercial Bank, Buffalo Commercial Bank, Equity Bank, Commercial Bank of Ethiopia, ECO Bank, and ECO Bank) provide loans, trade finance and/or saving products. The above eight commercial banks offer loans in the following economic sectors: manufacturing; building and construction; real estate; domestic trade, restaurants and hotels; foreign trade and household services.

Loans to the building and construction sector averaged US$76.5 million a month in 2013, or 0.5 percent of GDP. Loans to the real estate sector, in the same year, averaged US$61 million or 0.4 percent of GDP, while loans to households averaged US$97 billion or 0.7 percent of GDP. The loan to deposit ratio for all the commercial banks, in 2013, ranged between 0.1 percent and 0.14 percent. This shows that the commercial banks’ lending portfolio is small, and covers a very small percentage of the market.

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 upon regularly. In 2013, the ratio of deposits to GDP ranged between 0.05 percent and 0.09 percent. Some banks have instituted measures to encourage customers to save more by offering an interest rate of up to 1.75 percent on savings accounts. This rate is low by regional standards and reflects the nascence of the banking industry in the country.

Generally, the formal savings 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 savings methods. Less than three percent of South Sudan’s population has access to financial services, compared to Kenya (42 percent) and Uganda (20 percent).

Loan tenures are short term (three to six months) and at high interest rates (15 to 23 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), or direct payment by the employer or final purchaser of the good (arrangements where an external party pays the bank directly such as in the case of government procurements or salary loans).

The major criterion used by banks in the capital city of Juba to appraise their clients is the ‘KYC’ rule: know your customer. 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. Generally the lack of credit history is a major constraint to access to finance in South Sudan. Most companies were established since independence and few have a past credit record. In the World Bank’s 2011, 2012, 2013 and 2014 Doing Business Reports, Juba scores 0 out of 6 on the depth of credit information index.

Non-performing loans are a common feature on several banks’ portfolios, and 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 terms of both capacity and resources, and is untested in the dispute resolution of loan defaults. In the World Bank’s 2014 Doing Business Report, South Sudan scored three out of 10 in the index that measures the strength of Legal Rights. The Legal Rights’ Index measures rights of borrowers and lenders through collateral laws, and protection of secured creditors’ rights through bankruptcy laws. A higher score means stronger Legal Rights.

In early 2013, the government of South Sudan approved the establishment of a US$200 million mortgage lender, the Housing Finance Bank, through a public private partnership to help address the shortages of housing in the country. 40 percent of the Housing Finance Bank will be owned or financed by foreign investors (two foreign venture capital companies have expressed interest in investing in the bank), 31 percent will be owned or financed by domestic financial institutions and 29 percent will be owned or financed by the government. The enabling law for the establishment of the bank is still in the pipeline; though it is envisaged the Bank will be fully operational in 2015/16.

It is envisaged that the Housing Finance Bank will offer mortgages at an interest rate of 10 to 15 percent. The bank will enter into agreements with private developers to construct various classes of houses in all 10 states for purchase by government employees and the general public.

 

Housing supply

South Sudan’s current 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 period of time. About 90 percent of houses are made from mud or sticks (known as Tukul/gottya), five percent are made from straw mats, three percent from wood and only about two percent of houses are made of brick or concrete. About a third of the population (31 percent) live in houses with only one room, 64 percent live in houses with two to four rooms, and five percent of the population live in houses with five to nine rooms. Only 12 percent of South Sudanese population live in serviced housing (installed with water and sanitation services).

The present housing types and supplies are also a reflection of low income levels and the use of personal savings to build homes incrementally over time. The vast majority of the population (93.3 percent) live in houses they own, 2.7 percent in rented houses, 0.6 percent in houses provided as part of work and 3.4 percent in houses provided free of charge. Household consumption remains very low; the average consumption per person per month, whether in urban or rural areas, is estimated at about SSP100 (US$37.30), and of this amount, housing materials for maintenance of the dwelling and repair of household appliances constitute only SSP4 (less than US$1.50).

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 2012/13 budget, the government slashed the budget for housing construction projects planned under the Ministry of Housing and Physical Planning from SSP23 million (US$8.5 million) in 2010/11 to SSP12.5 million (US$2.8 million). For the 2014/15 financial year, the budget allocation for housing construction projects that will be embarked upon by the Ministry of Housing and Physical Planning is slightly higher than the amount that was allocated in 2010/11 – SSP12.8 million.

Private sector housing delivery has also slowed due to the nascent investment climate and elements of insecurity, both within and along the border with North Sudan. For example, a relatively large-scale housing project launched in 2008 in the Central Equatorial State, in partnership with Abu Malek Companies & Agencies Limited (the mandated project promoters for the government of South Sudan), has not yet kicked off. The project was estimated to cost US$650 million to set up a master plan community project in the cities of Juba and Kajo Keji. The project was estimated to cover 16km2 and would have featured an initial 9 000 housing units (more were anticipated), commercial areas that would facilitate marketing and trading activities, industrial areas that would products manufacturing, and agricultural projects that would guarantee local food supply for domestic and export marketing.

Other private housing projects have also stalled. The Rock City Development Project and the Buluk Premier Housing Project, both in Juba, were planned to deliver just under 350 units of various sizes and a shopping mall of about 23 000m2 in 2010, but have not happened. A US$452 million housing deal between the government and Kenya Commercial Bank Group’s mortgage subsidiary, S&L, to fund construction of 1 750 housing units for civil servants has also not gotten off the ground.

South Africa’s Pretoria Portland Cement Company Limited (PPC Cement), with eight manufacturing facilities and three milling depots in South Africa, Botswana and Zimbabwe and Ethiopia, entered the South Sudanese real estate market in 2013 to tap into the growing demand for concrete (cement and lime, among others) products. It is hoped that this will reduce the very high cement prices in the country.

Nonetheless, development partners have demonstrated a commitment to address the acute housing shortage in the country. Under the “Housing and Livelihood Support for Returnees in South Sudan”, the Government of Japan allocated US$3.2 million in 2014 to UN-Habitat to support returnee families in Juba (Central Equatorial State), Aweli (Northern Bahr El Ghazal State) and Wau (Western Bahr El Ghazal State) to build 600 houses and also provide minimum urban services.

 

Property markets

The residential property markets in South Sudan are still under-developed, unsophisticated and hard to estimate, both in qualitative and quantitative terms. On the other hand, the commercial property markets have gained momentum, driven mainly by immigrants from Eritrea, Ethiopia, Somalia, China and North Sudan, and international companies such as UAP Insurance. The latter, through its South Sudan Property Company, UAP Properties Limited, signed a US$5 million loan financing agreement with the International Finance Corporation to develop Equatoria Tower, a 12-storey ultra-modern, landmark commercial office development, in Juba. The Tower should be ready to let out office space by 2014.

Commercial properties are built on leased land (up to 99 years). In a typical leasing agreement, ownership of the development will revert to the landlord upon expiry. However, because of low capacity to supervise and enforce building standards, there are fears that tenants may hand over worthless structures upon expiry of leasing agreements.

 

Affordability

The majority of the people of South Sudan (about 90 percent) live in rural areas and are employed informally in mainly the agriculture sector (smallholder agriculture, farming, livestock and fishing). Only 10 percent of the workforce is formally employed, and half of them are employed by government. The majority of public servants (54 percent) are low income earners, with monthly incomes ranging between SSP300 (US$112) and SSP999 (US$372).

Housing affordability is consequently very limited, and the housing developments planned misunderstand the constraints. The following calculations are based on prices of houses that would have been constructed under the Abu Malek Project.

Households earning between SSP8 000 and SSP15 000 (US$2 985 and US$5 597) include members of parliament, presidential advisors, ministers, the President of the Supreme Court, under-secretaries and legal counsels. There are 346 such individuals in the government workforce. Individuals that earn above SSP10 720 (US$4 000) would comfortably afford houses of US$$200 000, which were targeted for middle income earners. However, none of them would afford houses of US$300 000, which were targeted for their income levels.

Households earning between SSP4 001- SSP7 999 (US$1 493 – US$2 984) include the Justice of the Court of Appeal, High Court judges, and the first, second and third legal counsels. There are 434 such individuals in the government workforce. Individuals that earn above SSP5 025 (US$1 875) would comfortably afford houses of US$96 000. However, none of them would afford houses of US$200 000, which were targeted for their income levels.

Households earning between SSP2 000 and SSP4 000 (US$746 and US$1 492) include first lieutenant generals, lieutenant generals, major generals, brigadiers, assistant legal counsel and public servants in grades one to six. There are 2 031 such individuals in the government workforce. Individuals in this income class would comfortably afford houses of US$45 000, which were targeted for low income earners. However, none of them would afford houses of US$96 000, which were targeted for their income levels.

Households earning between SSP300 and SSP1 999 (US$112 and US$745) include colonels, lieutenant colonels, majors and captains, lieutenants, sergeants, corporals, privates and public servants in grades 7 to 17. There are 22 781 such individuals in the government workforce. Individuals in this income class would not be able to afford houses of US$45 000, which were targeted for low income earners.

 

Policy and regulation

Since its establishment, the Ministry of Housing and Physical Planning has been working to design and implement a legal and regulatory framework that will enable the government to mobilise public and private sector resources to build affordable and decent houses for the population, and rehabilitate the existing war-ravaged public buildings and utilities, with a special emphasis on urban areas.

To guide its operations during the next five years, the Ministry of Housing and Physical Planning prepared a Strategic Plan (2013 – 2018). The Strategic Plan outlines several interventions that will help address the housing shortage in the country. Notable objectives in the Strategic Plan include; (i) building 1.3 million affordable houses in the 10 States of the country, in a period of ten years. The houses will be built by the Central Government, with support from the States, and (ii) Upgrading slums in towns and cities in the 10 States. To achieve the above objectives, the Government has to institute measures that help address ideological differences among the different ethnic groups, such that more efforts (technical and financial) are committed towards the socio-economic development of the country.

In mid-2013, Parliament passed the national housing policy, which seeks to attract direct foreign investments in the country’s housing industry. Currently, banks in South Sudan do not provide long-term loans for housing, making investments in housing projects an expensive venture.

A Land Act was enacted and approved in 2009. The Land Act espouses 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. While the Land Act allows creditors to foreclose on land as collateral, no laws currently detail the creditor’s rights, nor is there an appropriate registry for other types of collateral. The availability of fixed asset based lending will depend on the establishment of such legal frameworks (the equivalent of a Mortgage Act), as well as an associated system of standardised collateral evaluation and registry.

Although the Land Act delineates the institutions and mechanisms for titling, registry and the right to use land as collateral, the institutions in place are still at an early stage of development, and have not yet been tested adequately. For instance; the institutions which currently register titles have low capacity and lack appropriate IT systems, procedures and support (especially at state level). Other structures will also need to be developed for compensation for expropriation and the application of customary practices/laws as 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 the so-called ‘British leasehold’ with 30 remaining years as collateral. Some other banks accept land titles for Juba-based property only.

In February 2013, the Government adopted a new Land Policy (2013) to address issues pertaining to land acquisition and its management. The new Land Policy will also address post-war conflict land rights, informal settlements in cities and towns, as well as conflicts over access to land with pasture and water. The grabbing of land, i.e. the acquisition of land without regard to the interests of existing land right holders and disagreements between Counties and Payams (Districts), will also be addressed by the new Policy.

 

Opportunities

South Sudan offers green field opportunities for all housing sector players, and those who first enter the market will realise the most significant rewards. The number of commercial banks need to be scaled up to allow for more competition and dynamism within the banking industry. Further, there is a need to institute long-term finance schemes within the banking system if the lending culture of banks is to appreciate. Clearly, the housing sector offers substantial opportunities, if affordability constraints are understood.

Given the affordability constraints, opportunities to grow the housing microfinance market are also suggested. There is a need to facilitate and support the establishment of housing co-operatives in which individuals would obtain houses under conditions that suit their incomes. The insurance, capital markets and social security sectors have not been tapped into. These sectors are key in the provision of long-term funds to the mortgage industry.

Other opportunities include domestic manufacturing and supply of building materials (cement, iron, wood) and building urban sanitation services (solid and liquid waste management and sewer network system).

 

Sources

Africa Business Initiative, US Chamber of Commerce (2011).

African Development Bank (2013). South Sudan Economic Outlook.

African Development Bank (2012). A Study on South Sudan’s Competitiveness and an Assessment of the Country’s Cross-border Trade with Neighboring Countries .

Atil, M. (2011). Access to Finance in South Sudan.

Government of South Sudan (2009). Poverty in Southern Sudan: Estimates from National Baseline Household Survey.

Government of South Sudan (2010). South Sudan Growth Development Plan (2011-2013).

Government of South Sudan (2011). Statistical Yearbook for Southern Sudan.

Government of South Sudan (2013). 2012/13 Budget Speech.

Kameir, E. (2011). The Political Economy of South Sudan: a Scoping Analytical Study.

Kasende, L. (2013).Speech on Uganda’s Financial Sector at 50 – Achievements, Challenges and Expectations for the Future.

New Vision Newspaper. 2 June 2009.

Southern Sudan Centre for Census Statistics and Evaluation (2009).

South Sudan National Bureau of Statistics (2011).

The East African Newspaper. 20-26 July 2013.

USAID (2009). South Sudan: Post Conflict Economic Recovery and Growth.

World Bank (2011). Doing Business in Juba.

World Bank (2014). Doing Business in Juba.

World Bank (2010). World Development Indicators.

World Bank (2012). South Sudan Economic Brief: Inflation in South Sudan.

 

Websites

www.africareview.com

www.allafrica.com

www.fas.imf.org

www.gurtong.net

www.migrationheritage.nsw.gov.au

www.newsouthsudan.com

www.newvision.co.ug

www.sudantribune.com

www.unsudanig.org

www.worldbank.org

www.wvafrica.org

www.tradingeconomics.com

[1] The Banks are (1) Nile Commercial Bank, (2) Buffalo Commercial Bank, (3) Ivory Bank, (4) Equity Bank, (5) Commercial Bank of Ethiopia, (6) Agricultural Bank of Sudan, (7) Mountains Trade and Development Bank, (8) Bank of Khartoum Juba, (9) CFC Stanbic Bank, (10) Diamond Trust Bank (South Sudan), (11) Ramciel National Bank, (12) United Bank (South Sudan), (13) Cooperative Bank of South Sudan, (14) Family Bank (South Sudan), (15) Qatar National Bank, (16) Kenya Commercial Bank, (17) Liberty Commercial Bank, (18) Eden Commercial Bank, (19) African National Bank, (20) Royal Express Bank, (21) People’s Bank, (22) Afriland First Bank, (23) ECO Bank, (24) Charter (I) Bank, (25) National Bank of Abu Dhabi, (26) Orbit Bank, (27) Phoenix Commercial Bank, (28) REGENT Commercial Bank, and (29) Opportunity Bank.