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South Sudan faces economic collapse

South Sudan's decision to halt oil production in a bitter row with old enemies Khartoum has left the fledgling nation's economy at risk of collapse, as it prepares to mark its first year of independence.

Landlocked South Sudan, which relies on the infrastructure of the North to export its oil, decided to stop pumping crude barely six months after becoming a state despite it almost being its only source of revenue.

A man from South Sudan displays new currency notes outside the Central Bank of South Sudan in Juba July 18, 2011. Credit: REUTERS

Juba, still reeling from over half a century of civil war, was angered to see Khartoum siphoning off its crude after a row over pipeline fees.

Yet as early as March, confidential World Bank memos were painting a bleak picture of the future of South Sudan's economy, predicting it would collapse in the short- or medium-term unless oil production resumes.

However, the ex-rebel army commanders-turned-government remain defiant.

“We're not going to collapse, we're going to survive until the problem of oil is resolved,” said Atem Yaak Atem, a government spokesman, claiming that money is still coming in, but without saying where from.

However, talks with the rump state of Sudan over oil pipeline export fees Ä that would allow production to resume Ä have made little progress since the rivals fought bitter border battles in March and April.

Donors estimate inflation to be 80% year-on-year in May, but in the absence of reliable and public statistics, it is difficult to get an accurate idea of the state of the economy, said Samson Wassara, Dean of Social and Economic Sciences at the University of Juba.

Go to a market in the capital however and the problems are clear.

“Since January things have slowed down ... there is no more money coming in,” said Manot Gop, a businessman with a general store in Juba.

“Most things that used to be cheap for everybody are now expensive,” said Khamis Matata Safi, a civil servant. “Things like fruit are now a luxury... most prices have risen by 100%” over the past several months.

“Such a sharp rise is very worrying,” said Wassara.

“Customers no longer have money to buy anything,” said Kakoza, a Ugandan trader, standing in front of her fruit and vegetable stall.

“Prices for the things are too high but we get things at a high price and customers want to buy at a cheap price,” she added, estimating business is down 40% to 45%.

Even basic goods are imported and need hard currency: Kakoza imports her apples and oranges from Egypt, while her bananas, avocados, pineapples, aubergines and peppers come in from Uganda.

The hard currency that crude oil used to bring in is now scarce, and that has sent the value of the South Sudanese pound plummeting, both against the dollar and against regional currencies.

Since Khartoum closed its border last year, goods from Sudan reduced to a trickle, pushing prices up further.

South Sudan's land is fertile, but the agricultural sector was destroyed by the war. The absence of infrastructure, in a region that Khartoum never wanted to develop, means only subsistence farming is viable for most.

South Sudan “imports 70% of its food, although it should be exporting,” said a Western diplomat.

“No country should rely on importing its food,” said Alfred Lokuji, Dean of Rural Development at the University of Juba, saying the government's priority should be improving the road network, inexistent in most of the country.

The lack of infrastructure, and a legal framework that is at best embryonic, also discourages potential investors.

“The key thing... is to build road infrastructure. Second, to encourage business investment, you need power,” said Wassara, noting that even in the capital anyone who requires electricity needs a generator.

For the time being, South Sudan attracts only very small-scale investment, mainly from east Africa, and centred on the hospitality sector where returns on investment are swift.

So far there has not been one single large-scale private investment, Wassara said.

Foreign observers are worried, and have little idea for how much longer Juba and Khartoum will continue to try to stifle each other's economy.

The outside world has no idea of what the central bank has in terms of reserves, the Western diplomat noted, before asking: “What will happen when those reserves run out?” -Sapa-AFP

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