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FOREX Africa: Foreign Businesses Caught Up In South Sudan’s Forex Crunch

FOREX Africa: Foreign Businesses Caught Up In South Sudan’s Forex Crunch

As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.

Luckily, the ups and downs of the African currency markets aren’t one of them if you know where to look. To help with that, AFKInsider has compiled all the news you need to know now in order to slim down your currency risk in the week ahead. Let’s see what’s happening out there.

A Forex Quagmire

Foreign companies and businessmen operating in South Sudan are caught up in foreign exchange quagmire as a political crisis that sunk the East African nation into civil war nearly two years show no signs of relenting.

The Africa’s newest nation, which has experience nothing but strife since its independence from its northern neighbor Sudan in 2011, sunk into civil war in December 2013 after a split emerged between President Salva Kiir and his then deputy Riek Machar.

The war has killed thousands and displaced over two million people into neighboring countries of Kenya, Uganda and Ethiopia.

Companies and businesses that ventured into South Sudan after their new found independence are now stuck in the political deadlock that has caused them to incur huge foreign exchange losses over the last two years.

The new nations dollar reserves have dried up with commercial banks running out of greenbacks to exchange for local currencies and enable them move their earnings out of the country.

South African multinational beer maker and the world’s second largest brewer, SABMiler, has said it is contemplating shutting down its factory in the country unless it is able to access foreign currencies and fuel needed to run its subsidiary.

George Nibet, the financial director at SABMIller’s Southern Sudan Beverage Ltd. (SSBL), told Bloomberg that the company may have to shut its operations “in the near future” if they are not able to ” access to raw materials and the lack of hard currency continues.”

SSBL, which was the first brewery in South Sudan, is already scaling back and has sent some of its staff home.

East African Breweries Ltd. (EABL), a subsidiary of Diageo, said last week that its operations in the country was at one-third of its capacity due to limited access to US dollars.

“In the first half of the year South Sudan performed very well for us but things got a bit tough. We are now probably trading at about a third the level that we could if there was available currency,” Business Daily quoted EABL’s Managing Director Charlse Ireland saying during a corporate briefing in Nairobi last week.

South Sudan, a landlocked African country that largely depend on oil revenue to run the economy, was quickly becoming an attractive investment destination before the civil war broke out. Juba — the nation’s capital — was hosting a well-attended investment conference just days before government soldiers and rebels clashed.

Black Market Rates

Oil fields have been the main target in the fighting and has hurt the country’s output estimated at about 200,000 barrels a day. Oil firms such as China National Petroleum Corp., India’s ONGC Videsh and Malaysia’s Petronas, have had to suspend operation in some fields.

Businesses however complained about difficulty in sourcing dollars and other major currency way before the conflict.

Hard currency scarcity fueled a parallel or black market where the exchange rate before the conflict was 4 to 4.50 South Sudanese pounds to the dollar, compared to the official level of 2.96 pounds, Reuters reported.

The exchange rate between the South Sudanese pound and the US dollar has since dropped over 300 percent to as much as 12 pounds per dollar in the black market, but the central bank has maintained an official exchange rate of 3.16 pounds per dollar.

At Nimule, the border crossing with Uganda, traders said that dollar shortage was so acute that they stopped sourcing them from either commercial banks or foreign exchange bureaus and restored to black market dollar purchase.

“I stopped getting dollars from either commercial banks or forex bureau long time ago because it was not easy getting the dollars from the commercial banks and forex bureau even before the current crisis. (My) source of dollars was from the black market,” a trader from Jonglei doing retail business in Nimule told Radio Tamazuj.