JUBA (HAN) February 16, 2016 – Public Diplomacy and Regional Stability Initiatives News. The operations of KCB Group in South Sudan Monday ground to a halt after the lender’s staff went on strike demanding higher pay to compensate for a currency devaluation that shaved off workers’ take home packages.
The Nairobi Securities Exchange-listed firm says the higher pay demand came after South Sudan abandoned its fixed exchange rate system in December, causing a major weakening of its currency.
“The strike is on the basis of employees demanding an astronomical salary increase following South Sudan currency devaluation in December 2015,” said the KCB South Sudan managing director Harun Kibogong in a statement.
“KCB has been in engagement with staff since the devaluation and considers the strike illegal and is engaging with relevant authorities on the strike.”
The South Sudan pound was trading at an official fixed rate or 2.96 units to the dollar when the government decided to let the rate float in line with supply and demand.
The currency is currently trading at about 6.4 units to the dollar, representing a devaluation of more than 100 per cent.
The move, meant to allow the country embark on structural reforms and deal with the drop in oil revenues, has hurt citizens who are grappling with hyperinflation.
The year-on-year rate of inflation in the country stood at 165 per cent last month, according to the South Sudan National Bureau of Statistics.
The rising cost of living is expected to force employers, including the government and private firms, to raise salaries in a move expected to significantly raise their operating costs.
South Sudan’s Finance minister David Deng in December announced that the government would increase the salaries of civil servants to help them absorb the impact of the currency devaluation, according to media reports.
Staff of Equity Group in that market also went on strike last month arguing that they should be paid amounts that would protect them from the impact of the currency’s devaluation.
South Sudan is the most important market for KCB outside Kenya, holding Ksh71.7 billion of its Kshh490.3 billion total assets as of December 2014.
The lender was the first local bank to venture into South Sudan in 2006, where it now has about 20 branches spread across 10 states in the country.
The bank did not say what would be the cost implications of raising the salaries of staff at the subsidiary.
Economic challenges in South Sudan threaten to dampen prospects in the country that has been one of the most profitable markets outside Kenya for local banking multinationals.
Fees, commissions from forex trading and other non-lending activities have been a major driver of profitability for banks in South Sudan.
The country relies heavily on imports, creating a huge demand for forex dealers led by the banks.
South Sudan let its currency float after finding it difficult to support the fixed exchange system, owing to inadequate foreign exchange reserves.
The global oil price crash and civil war has hurt the inflow of dollars, with the country recording net oil revenues of $1.7 billion last year.
While the devaluation is causing labour unrest, the decision is expected to improve South Sudan’s economy in the long term by boosting oil revenues and aid inflows in local currency terms.
A flexible exchange rate system is also expected to boost trade by reducing dollar shortages that previously helped black market currency exchanges to thrive.