Opinion

Money Talks South Sudan Black Market needs to be recognized and renamed (part 2)

Dr. Bak Barnaba Chol

Definition of Black Market: In these troubling economic times, knowing that the second-biggest economy in the world is booming should come as a comfort. But what if that economy is the black market?

The black market — or, as it is more tastefully known, System D — is more than just weapon deals and drug trafficking. If System D were a country, it would trail only the United States in GDP. All transactions that take place off the books feed into this shadow market. And while it provides a way of life for half of the people in the world, it has an obvious dark side: illicit, dangerous, harmful practices that can kill the environment and ourselves.

The black market is the ‘market’ where goods and services are sold in a way that is illegal or for goods and services that are illegal. Obviously, it isn’t a market in the physical sense of the word, but rather, a market meaning the collective transactions that take place between buyers and sellers.

There are some obvious goods and services that flow through their own black market: guns, drugs, some antiques and human organs, animal products like Ivory etc. But, there are also black markets for things that are legal to own, but buyers and sellers just want to avoid either high taxes or any record of them buying something. We shall focus in this discussion on currency black market.

Causes of the black market

There are several reasons why currency black market exists. I may not be able to cover all the causes at this point; I may only share some important point that I think suits our context in South Sudan. First, we live under a weak economy evident by the high rates of inflation, unemployment, abject poverty, mortality and low production. This has led to proliferation of black market particularly after the current exchange rate (float) was introduce in the last quarter of 2015. Lack of adequate reserve (foreign currency) at the central bank has deteriorated the already bad financial conditions we lived and continue to struggle in. Another evident cause is lack of confidence among citizenry in the value of South Sudanese Pound. In addition to that, black market has proven to be a lucrative business even when the dollar was cheap. It was obvious that traders and banks after getting dollars from the central bank via allocation or letter of credit (LC) would rush to get a quick return in the black market, that encouraged youth at different economic levels to embark on black market as a source of survival or employment.

Pros and Cons of the black market

People may thing that black market is all a bad thing, but let me highlight some of the advantages that can be gain by having it.

First, it helps people make money. See how many people are employed in this market even illiterates from rural areas are now dollar-masters! Before them our mums and disabled were also involved. Commodities in the black are cheaper price except dollars in my country. Take for example those who buy guns, it is never at the face value. For sure so many people solely depend on black markets to make the ends meet. In other countries where human organs are sold in black market, it helps patients get organs to survive. So it helps them regain normal life again. Besides that, Underground economy can bring a competitive power to the economy, it increases the employment, and provide resources to official/formal economy. Those are some positive side of black market. on the other hand, these disadvantages are immense, you can’t imagine the economic cost of this market. In brief, it leads to shrinkage of formal economy and it causes tax losses because it creates unfair competition and causes unreliable statistical data i.e. it leads to reduction of Nation’s revenue. In addition to that, devaluation of South Sudanese Pound. When the government introduced the float exchange system it didn’t intent to measure the forces of supply and demand via the black market rats. It was supposed to be via the formal market (forex bureau and commercial banks). Now it seems surrendered to the black market rates to determine it official daily rate! Very unfortunate. Moreover, chances of cheating are high. How many times did people including government officials got cheated in this market? That is so obvious in South Sudan.

We must know that foreign investors are influence by our currency fluctuation and value. This is because all assets are valuated in monetary value, future and current value of company’s capital for example NPV and FV are calculated in the present investments option. For starters, Net Present Value (NPV) is the net present value worth that represent a series of cash value occurring at different times. It accounts for the time value of money. Future Value (FV) is the value of an asset at a specific date. It measures the nominal future sum of money that a given sum of money is worth at a specific time in the future assuming a certain interest rate, or more generally, rate of return. It is the present value multiplied by the accumulation function. So, how do you expect these foreign investors to be attracted to South Sudan? We can conclude that accretion of the black market has certainly been one of the main factors that led to deteriorating of our economy. In summary, the presence of the black market is the worst thing we can imagine because it leads to less revenue to the governmentand underestimation of the national income, it creates losses to legitimate industriesand misguides or leads to underestimation of employment data. It is adeliberate creation of shortages and worsening of economic indicators. In the next article we shall look at an overview of South Sudan currency exchange and what can be done to fix the so called black market.

About the Author.

Bak Barnaba Chol holds a doctorate in Finance from United States International University. He is an Adjunct Assistant Professor at the University of Juba. His areas of research interest are Banking, economics, entrepreneurship and finance. You can reach him via Email: alukchan@gmail.com  Phone: 0929001008.

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