Politics overlaps with banking in South Sudan

Demonstrators in Nairobi protest against alleged looting of funds by prominent leaders and politicians in South Sudan who bank it in Kenyan and Ugandan banks. PHOTO | NMG

What you need to know:

  • Out of the 26 banks operating in South Sudan, 14 are partially owned or controlled by politically exposed persons (PEPs) who exert undue political influence in the banking sector, says a new report by US corruption watchdog, The Sentry.
  • It says the war economy, built on PEPs’ control of banks and capture of oil profits, benefits them alone, even as most South Sudanese suffer the devastating consequences of persistent inflation.

South Sudan’s political elite has been accused of hijacking the banking system for personal gain and locking out local businesses and citizens.

Out of the 26 banks operating in South Sudan, 14 are partially owned or controlled by politically exposed persons (PEPs) who exert undue political influence in the banking sector, says a new report by US corruption watchdog, The Sentry.

The report, “Banking on War: Ending the Abuse of South Sudan’s Banking Sector by Political Elites,” which was released on October 24, alleges that the elite are using banks to transfer ill-gotten gains abroad at the expense of providing capital and facilitating trade for the millions of South Sudanese suffering from five years of war.

It says the war economy, built on PEPs’ control of banks and capture of oil profits, benefits them alone, even as most South Sudanese suffer the devastating consequences of persistent inflation.

“Without reforms, however, there is little chance that international donors, banks, and investors will trust the country’s banking system enough to finance South Sudan’s peace and stability,” the report says.

However, James Morgan, South Sudan’s Permanent Representative to the African Union, dismissed The Sentry report, a publication of the Enough Project controlled by John Prendergast and George Clooney, who he says are the mouthpieces of the Troika out to tarnish the country’s image.

“Africa is suffering a great deal because of such foreigners who frequently interfere in the internal affairs of our continent. The stories they write about South Sudan are just made up,” he told The EastAfrican.

Out of sight

The report, however, does not presume that all PEPs are involved in corruption.

“This research highlights the overlap of PEP involvement in local banks that should be examined because of the potential for political corruption,” the report says.

The report says that by Independence Day on July 9, 2011, South Sudan’s banks were poised to lead the new economy, in close co-operation with Ugandan and Kenyan banks that South Sudanese relied on for financial services during the long war with Sudan.

However, amid the celebration and out of sight from international donors and investors, the report says that some South Sudanese PEPs saw banking as a lucrative opportunity.

Several elite South Sudanese opened banks that far outpaced the demand for typical financial services, such as savings and checking accounts, loans, and investments.

According to the International Monetary Fund, only one per cent of South Sudan’s then nearly 11 million people maintained a bank account in 2012, yet dozens of banks were incorporated at this time.

There are three categories of banks in South Sudan: Politically controlled banks, joint banks and foreign banks. The politically controlled banks are controlled by former central bank officials, military commanders and politicians, who own 58 percent.

Some PEPs exploit their control of local banks to divert state funds for their own benefit. For instance, in 2016, the central bank auctioned off $56 million to South Sudanese commercial banks by drawing on IMF Special Drawing Rights. One-third of the total allocatees were local banks tied to PEPs.

The joint banks are owned by South Sudanese elite and individuals from Kenya, Uganda, Sudan and Ethiopia. There are eight joint banks in South Sudan with a more stable and transparent level of management and operation than fully South Sudanese-owned banks.

The foreign banks are the newest entrants to the banking sector, with wide African and international reach. The six foreign banks that operate in South Sudan provide stability to South Sudan’s economy and needed legitimacy and liquidity to the banking sector.