Parallel market premiums as retail pricing determinants: Empirical evidence from South Sudan's dual exchange rate economy

Abstract

This study investigates the relationship between parallel market exchange rate premiums and retail pricing strategies in Juba, South Sudan, over the period 2014 to 2019, a context defined by severe foreign exchange scarcity, civil conflict, and import dependence. Employing a cross-sectional mixed-methods design, a stratified sample of 132 respondents was drawn from retail owners, trade union staff, ministry officers, and academics using the Krejcie and Morgan (1970) formula and simple random probability sampling. Data were gathered through structured questionnaires and semi-structured interviews, with quantitative analysis conducted via SPSS (version 19) and qualitative data processed through thematic analysis. A response rate of 97% (n = 128) was achieved. Descriptive findings show that 90% of respondents confirmed that exchange rate changes powerfully affect import costs, while 91% agreed that rapid depreciation of the South Sudanese Pound fuels inflationary expectations. Pearson correlation analysis reveals a strong positive relationship between the parallel market premium and wholesale import costs (r = .876, p < 0.01). Multiple regression analysis indicates that parallel market dynamics explain 70.2% of the variance in retail pricing strategies (Adjusted R² = 0.702; F = 100.72; p < 0.001), with the parallel market premium emerging as the dominant predictor (β = .435). These findings establish that the unofficial exchange rate has displaced the official rate as the operative pricing reference, generating a dual-price economy that distorts market signals, amplifies inflationary expectations through preemptive price adjustments, and disproportionately burdens small retailers and low-income consumers. The study recommends exchange rate unification, adoption of a managed depreciation pathway, transparent monetary policy communication, and the development of formal foreign exchange platforms to reduce structural reliance on the parallel market.