Why Co-op still banks on South Sudan market - The EastAfrican

South Sudan's banking sector remains a paradox: politically volatile yet economically magnetic. Co-operative Bank of Kenya's decision to deepen operations in the world's youngest nation reflects a calculated bet that conflict-weary markets can generate outsized returns for regional financial institutions.

## Why is Co-op Bank betting on South Sudan now?

The Nairobi-headquartered lender has maintained a foothold in Juba since 2007, predating independence and surviving two civil wars. Unlike global banks that exited after 2013, Co-op recognized structural demand: South Sudan's oil-dependent economy requires cross-border trade finance, remittance corridors, and working capital solutions that only regional banks can efficiently deliver. The bank's East African network—spanning Kenya, Tanzania, Uganda, and Rwanda—positions it as a natural bridge for diaspora transfers and import-export settlement, sectors growing 8-12% annually despite macro headwinds.

Co-op's expansion signals confidence in the 2018 peace agreement's durability, even as implementation remains fragile. The bank is investing in digital infrastructure—mobile money, agency banking, and blockchain-based settlement—to circumvent South Sudan's notoriously unreliable payment systems. This tech-first approach reduces exposure to currency collapse (the South Sudanese pound has lost 95% of value since 2011) and political interference in traditional banking operations.

## What market opportunities justify the risk?

South Sudan's economy is rebounding faster than consensus expectations. Oil production recovered to 370,000 barrels per day in 2024, up 40% from 2022 lows, generating $6.2 billion in annual export revenue. This cash inflow is stabilizing exchange rates and enabling government spending on infrastructure—creating demand for project finance, trade credit, and merchant banking services where Co-op holds competitive advantage.

The diaspora market alone represents $1.2 billion annually in remittances; formal banking channels capture less than 15%, leaving a $1 billion arbitrage gap. Co-op's plan to launch a dedicated diaspora product (targeting South Sudanese in East Africa, the Middle East, and North America) could capture 5-8% market share within 36 months, generating $50-80 million in annual fees.

Fintech is the third pillar. South Sudan has 11 million people but fewer than 800,000 bank accounts. Mobile money adoption is accelerating: Zain and MTN have 7 million subscribers. Co-op's partnership with fintech startups to enable agent-based banking in rural areas addresses a genuine infrastructure gap and positions the bank as essential to South Sudan's financial inclusion agenda—increasingly a condition for accessing international development finance.

## What are the downside risks?

Currency instability remains acute. Inflation hit 28% in 2024; if peace collapses, hyperinflation could wipe out loan books and deposit bases. Political risk is non-trivial: the Vice President's December 2024 arrest signals renewed elite conflict. Co-op's hedge is conservative lending (cash-only collateral, 6-month tenor limits) and fee-heavy products (less exposed to credit cycles).

Regulatory risk is material. South Sudan's central bank lacks credibility; capital controls could trap deposits or freeze remittance flows. Co-op must navigate opaque licensing requirements and potential forced partnership with state entities—common in fragile states.

**The calculus:** Co-op is betting that South Sudan's oil wealth and remittance flows create a durable niche even in political chaos. For investors, this signals that selective, tech-enabled financial services can thrive in frontier markets—but only with fortress balance sheets and exit optionality built in.

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