July 19: A man from South Sudan displays new currency notes outside the Central Bank of South Sudan in Juba. REUTERS/Benedicte Desrus
July 19: A man from South Sudan displays new currency notes outside the Central Bank of South Sudan in Juba. REUTERS/Benedicte Desrus

BOR - South Sudaneswe merchants claim they are being denied access to letters of credit (LCs), which allow businesses to buy U.S. dollars at the official exchange rate of around 3.2 South Sudanese pounds to the dollar, instead of the much higher black market rate.

LCs are meant to be disbursed to merchants, who are supposed to use the dollars they receive to import basic items such as food, fuel and medicines.

If the LC program worked the way it is intended to, the items would be sold at affordable prices because they would have been bought at a favorable exchange rate, and prices would remain stable in South Sudan.

But the LC program hasn't worked out that way, and the prices of everything, from flour to sugar to cooking oil and fuel, have risen sharply -- sometimes by as much as 50 percent compared to a few months ago.

Plummeting pound

Part of the reason behind the price rises is that the South Sudanese pound has tumbled in value against the dollar since South Sudan erupted in conflict in December 2013.

As recently as last month - before President Salva Kiir and rebel leader Riek Machar signed a deal to end the conflict - the dollar fetched up to five times the official exchange rate on the black market. That meant that buying dollars at the official rate, through an LC, and then reselling them on the black market could reap a quick and healthy profit. 

Some merchants, like Jonglei state businessman Majok Kuur Kuer, say that's the problem: the LC program is tainted by corruption and cronyism.

“Let’s say a government official says he has a company. The company does not have a physical shop front, but the official still receives money through the LC program. The government should be giving LCs only to merchants who can prove they have a shop," Kuur says.

"And the government should verify that the merchant actually buys and sells goods. If not, they should question if the recipient of the LCs is running a business that is eligible to receive LCs in the first place," he says.

'LCs don't reach us'

In a report published in December last year, the International Monetary Fund said the government of South Sudan is rationing foreign exchange by using "a hidden transfer of resources from the government to those with privileged access to foreign exchange at the official rate."

Wholesaler Jok Muoch says that in the seven years he's been in business in the Jonglei state capital, Bor, he has never received any funds through the letters of credit program. 

"LCs don’t reach us," Muoch says. "The government has to identify those who are working, the real traders, and not those who take money freely and fail to bring in goods.”

A state committee that investigates how LCs are used has found anomalies in the way LCs are disbursed in Jonglei state, committee secretary Philip Thon Nyok says.

Nyok says his committee's research showed that only eight traders in Bor received foreign currency through the LC program. The rest of the funds from the LCs went to "different people," some of whom were identified as government officials, Nyok said.

Minister:  merchants are getting LCs

But the head of the ministry of finance in Jonglei state, John Wuol Deng, insists local traders have received LCs.

Wuol says he handed out $10-million-worth of LCs to 41 companies in Jonglei state when he was head of a state committee that handled letters of credit. The remaining $20 million was disbursed to 44 companies before Wuol was appointed chair of the LC committee, he says.

Wuol blames soaring prices in South Sudan on traders who have not used LCs the way they are supposed to be used. Instead of buying goods for import, business owners are selling the dollars they get from the LCs to foreigners to make a quick profit, Wuol alleges. 

Meanwhile, Nyok says the national government is putting the LC program in Jonglei state on hold because it suspects LCs are being misappropriated.

He says the government in Juba has come up with a new way to ensure essential items are affordable and prices are brought down, but he did not provide any details.