South Sudan: anti-money laundering and financial reform in the second-most corrupt country on Earth
04 Sep 2017

By many measures, South Sudan is the world’s youngest country, emerging from the wreckage of the second Sudanese civil war in 2011. It is also among the most corrupt. Transparency International gave it the second-lowest ranking in the world in its 2016 Corruption Perceptions Index, just above Somalia and just below North Korea. Like Somalia, South Sudan is still gripped by war, after two peace agreements failed to halt fighting between government and opposition forces. Meanwhile, the war caused a collapse in oil production, the source of perhaps as much as 98% of the country’s budget (estimates vary). South Sudan’s foreign reserves and currency supply have steadily dwindled, and both hyperinflation and famine have set in. South Sudan is not just a young state, but an almost uniquely parlous one as well.

Much of this is traceable to patterns of corruption, ethnic violence and expropriation which sowed a lethal crop in South Sudan, even before its independence. The current civil war roughly, though not exclusively, follows ethnic lines, with the largest ethnic group, the Dinka, largely in support of the government against a diverse collection of smaller peoples, who likewise are often in conflict with each other. The war has a bitter irony: the Dinka were at the forefront of the guerilla war against the northern government in Khartoum that, after decades of bloody fighting, led to South Sudan’s uneasy independence from Sudan in 2011. This ethnic strife gives the groups licence and cover to loot one another, using state resources as a system of pervasive patronage to dispense oil money and favours, as The Sentry (a branch of the Washington NGO the Enough Project) detailed in a 2016 report. John Prendergast of the Enough Project argues that the “ultimate prize” in the war is “control of a kleptocratic, winner-take-all state … Corruption isn’t an anomaly within the system; it is the system itself, the very purpose of the state.”

In the midst of this, the recent efforts by the Bank of South Sudan to reduce corruption and reform South Sudanese finances may seem a little out of character. After all, an earlier commitment in the 2015 peace agreement to “establish effective leadership and commitment in the fight against corruption” saw as little lasting impact as the armistice itself. Yet 2017 has seen a raft of reforming measures from the financial institutions after a ‘changing of the guard’ at the Bank of South Sudan and the Ministry of Finance in January. The new Governor of the Bank, Othom Rago Ajak, and his deputy Dier Tong have – in partnership with the IMF and regional central banks – adopted tougher financial regulations across the board, including financial sector regulation and anti-money laundering policies. Similar efforts in Angola and, most strikingly, Sudan itself have met with some success recently: they were removed from the FATF blacklist in 2016 and 2015 respectively. Although South Sudan is not even a member of the FATF, the reforms bear enough similarities to the Angolan and northern Sudanese efforts to be encouraging.

So why the change of heart now? In his report at the Sudd Institute, Augustino Ting Mayai muses that “the changes possibly signify the emergence of political will from the top”, citing the contributions of Lual Deng, an experienced, American-trained economist and member of the National Legislative Assembly. Dr Deng’s work on governance details many of the problems at the root of South Sudan’s institutional weakness. He was also a major influence on his fellow development economist John Garang de Mabior, usually regarded as the father of South Sudan, who died in a helicopter crash in 2005. President Kiir, who took over leadership of the ruling Sudan People’s Liberation Movement, was Garang’s deputy during the insurgency.

Combined with the turn to governance reform, though, is the growing, discreet influence of China. The International Crisis Group (“ICG”) notes that South Sudan appears to be the “test case” for Beijing’s experimentations with peace-making and interventionist foreign policy. China’s distaste for sanctions and early investment in 2011 make it a popular source of finance in South Sudan. This has all the more salience because, in pursuit of financial prudence, Western banks take an increasingly cautious approach to risky jurisdictions: in other words, the West worries about losing its money to corruption, leaving a vacuum for Chinese investment to fill. Meanwhile, Beijing gradually exports its economic model, organising workshops for ruling party cadres to explain Chinese governance practices to South Sudanese officials, urging that the system produce more rigour while dropping Western insistence on strictly democratic means of state formation. The ICG terms this, rather snappily, “engagement with Chinese characteristics”, and it is not hard to see Beijing’s subtle push for stability across East Africa, with South Sudan as the most critical test.

What matters, though, is that prospects for financial stabilisation and monetary reform appear more serious now than at any point since the difficult birth of the South Sudanese state. Bringing an end to the war will be hard, presenting major challenges for both China and the regional actors through whom it prefers to exert influence. However, if South Sudan can be brought up to even the limited governance standards of its northern neighbour, opportunities for capital flow rapidly expand, potentially allowing South Sudan to diversify its economy and avoid a Venezuela-style oil crash in the future. The situation is fragile, but the bitter harvest has some green shoots as well.

 

 

 

 

Richard Nicholl (@rtrnicholl) is a Master’s student at the University of St Andrews, specialising in legal history. He also works as a freelance journalist and legal researcher.

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