Ambitious banking plan
Matthias Muindi
Published: 01-SEP-02

Southern Sudan has an ambitious new strategy to launch both a new currency and a new commercial bank which will be independent of Khartoum.

Top financial officials of the rebel group, the Sudan Peoples' Liberation Army (SPLA) said in an interview that the New Sudan Pound will be introduced in August to replace the various local and foreign currencies currently being traded in southern Sudan. The currency will be independent of Khartoum.

The newly formed Nile Commercial Bank (NCB) aims to encourage the running and expansion of businesses in southern Sudan, according to Dr Lual Deng, a former senior economist with the World Bank in Washington and the African Development Bank who is now in charge of the Banking and Currency Committee in the SPLA's Ministry of Finance.

"The aim of the bank is to facilitate business transactions in the liberated areas (rebel-held) since the banking sys- tem collapsed years ago. Local business people are being forced to rely on financial institutions in Uganda and Kenya." Deng said that the bank is expected to be operational by mid-year.

The idea to set up the bank has been in the pipeline since 1997 when a group of southern Sudanese economists called for the creation of economic structures to lure investors to do business in secure rebel-held areas and also to create avenues for credit for enterprising local business people.

The NCB has a capital base of $ 1 million split into 50,000 shares valued at $20 a share. The shares will be offered to interest- ed individuals, families, and institutions.

A minimum of five shares per investor is required and no single share- holder can hold more than 25 percent of the bank's total shares. Such a requirement stalled efforts by SPLA authorities to acquire majority shares. The rebels now hold 20 percent of the total shares.

The bank will be housed in premises previously occupied by the Unity Bank - a defunct former government bank - in Yambio, a town located near the border of Central African Republic (CAR). Deng says Yambio was chosen due to its immense agricultural potential, and its links with important trade routes in the CAR, the Democratic Republic of Congo, and Uganda. It is also safe from attacks by government forces, which were routed from the area in 1990.

Yambio has another advantage: inter- net access. Together with Rumbek in central Bahr el Ghazal, the towns are the only ones in southern Sudan with reliable 24-hour internet connections which have become an important communication tool in a region cut off from the rest of the world by war and lack of telecommunication and transport infrastructure.

Nile Credit Management Ltd, a private company registered in Kenya in February, which has Kenyan and Sudanese directors, will own the bank. As of April, there were 100 individuals who had purchased shares worth $100,000, while two institutional share- holders, Yambio County and the Yambio-based Institute of Development, Environment and Agricultural Studies (IDEAS), have indicated they want to acquire shares. The county, which owns the designated headquarters, intends to exchange these premises for shares in the bank.

Deng says the Sudanese Diaspora and a number of local Sudanese and foreign NGOs have also expressed interest. He says they are also looking for insurers to safe- guard an investment, which according to him is being keenly watched by the SPLA as a model for future financial institutions in southern Sudan.

The bank's founders claim it will offer the usual banking services: savings and current accounts, foreign exchange transactions, and credit facilities. But financial analysts argue that this is overly ambitious, as the institution will be located in an area considered a war zone by the outside world.

Further, data indicate that the area's economic activities are not sophisticated enough to warrant a commercial bank.

Cliff Muluku, the Kenyan financial consultant contracted to oversee the setting up of the bank, is cautious. "A lot remains to be done." He suggests setting up a micro-finance institution before establishing a fully pledged commercial bank.

"The market situation down there (Yambio) cannot sustain a modern bank," says Muluku. "There is a lot that is lacking to ensure the sustainability of such an institution." He further argues that the idea will work only if investors get appropriate support from organisations working in southern Sudan. "This is a commercial investment. It is not a donor or social project that will survive on subsidies. The people concerned need to get returns."

Close to one billion dollars is spent annually in southern Sudan by the various relief agencies. However, most of these organisations prefer to manage their finances in either Kenya or Uganda.

The fact that there is no central bank to regulate and supervise financial deals does not augur well for the NCB. But Deng downplays this saying that the institutional framework for the establishment of a central bank has already been completed. Obsolete local currencies, and foreign currencies that local people use for their transactions, have further muddied the waters.

In Yambio and its environs, the Uganda Shilling and the Old Sudanese Pound, which the Sudanese government replaced a few years ago with the Dinar, are the preferred currencies. And in areas bordering Kenya and Ethiopia in the south-east and east respectively, the Kenya Shilling and the Ethiopian Birr are used.

Elsewhere, in areas around Rumbek, the headquarters of the aid community in southern Sudan, it is the US Dollar, the Kenya Shilling, and the Old Sudan Pound that hold sway. Northern Bahr el Ghazal, like most other areas bordering government-controlled territory, uses the Dinar.

Deng says the bank will deal with such monetary confusion by "seeking to harmonise these currencies until we have one of our own". The SPLA's economic mandarins are confident that the rebels have the economic resources and political credibility to establish their own currency, but Muluku disagrees. "Under what legal political entity will such a currency operate?

He says a legally accepted currency can only be established by an internationally recognised political entity such as a state. "Southern Sudan as an independent political entity is only recognised by its inhabitants. And even though Khartoum has no control over it, the rest of the world still views it as part of Sudan."

Kenyan businessman Richard Kiplagat, one of the bank's investors, is upbeat. "People have cash there but they just move around with it, as there are no banks. I am confident we will succeed as our investment is the first of its kind in southern Sudan."

Deng suggests that NCB could operate as the central bank until other banks are established in the area. "The SPLA can then set up a real central bank." But at the moment, he says, NCB will operate under the SPLA's Ministry of Finance, which is headed by Arthur Akuien.

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