South Sudan's Weak Economy Bears Brunt of Border Clashes
Weeks of brutal conflict with its arch-rival to the north have exacerbated South Sudan's deep economic problems, with fuel shortages worsening and fears rising the country could run out of cash.
After shutting down oil production that accounted for 98 percent of its revenues in January, newly independent South Sudan's import-dependent economy is reeling.
"Being a nation that has not completed one year, everyone is expecting that since we have waged a war against the north and shut down the oil, we run into hell," said the South's Deputy Finance Minister Marial Awou Yol.
South Sudan declared independence from Sudan in July last year after a 2005 peace deal ended one of Africa's longest civil wars.
With independence, landlocked South Sudan took about 75 percent of the formerly united Sudan's oil production, worth billions of dollars.
With its source of foreign currency stalled, the currency is struggling.
While the official exchange rate still stands at 2.96 pounds to the US dollar, the black market rate has shot up to 5, the highest since independence.
"Since December 2011, we have not received transfers on oil sales and we are depending on our reserves, so it is natural that the parallel exchange rate could be affected," Yol added.
Leaked World Bank documents warn a weakening economy would worsen food security and hurt development, but Juba argues the majority of Southerners are insulated from inflation as they live outside the cash economy.
However, even subsistence farmers and livestock herders interact with the cash economy when they trade goods.
Speculation has been rife over whether South Sudan could run out of money within months if it doesn't turn the oil taps back on.
Government reserves could be depleted by July if there is a run on the banks, or could last until December if spending is cut by 77 percent, the leaked Bank documents said. Expensive military commitments on the border will drain the reserve even faster.
"We will not run out of dollars, we have enough reserves to take us up to the end of this year. Possibly," added Yol.
Analysts have cast serious doubt over Juba's plans to truck oil over a thousand kilometres (miles) to ports in either Kenya or Djibouti, while a proposed billion-dollar pipeline could take up to three years to build -- if investors are found.
President Salva Kiir recently returned from major oil-buyer China with $8 billion of loans for development projects, but without pipeline funding.
Traders are struggling, with regional neighbours limiting credit and refusing to take the world's newest currency, the South Sudan pound, not yet recognised outside its borders.
David Chan Thiang, director of Economic Statistics at the National Bureau, says inflation jumped 42 percent to 50 percent between February and March, and 51 percent overall from last year.
He says accessing foreign exchange has long been a problem, and fears that flight of capital is now a reality.
" I don't think the government of South Sudan will be able to relinquish their position, and of course the inflation will still go up as there is no way to stabilize," Thiang added.
Under a UN Security Council resolution Juba and Khartoum must restart African Union-led talks by May 16, and strike a deal on oil and contested borders within three months.
Meanwhile, Thiang expects further inflation, after staples like sugar and maize flour almost doubled in recent months.
"Prices have gone up, so people are buying in small quantities now," said trader Adam Duky at a sprawling market full of food imported from Uganda.
By Hannah McNeish – JUBA, 16/05/2012