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S.Sudan oil shutdown weighs as pound falls, tax hikes loom
Posted on Monday, March 26, 2012 @ 17:03:13 CDT by kwpnews


JUBA,(Reuters) - South Sudan's economy is buckling under the strain of an oil industry shutdown that followed a row with Sudan, hitting its currency and sending officials scrambling for ways to make up for lost revenues.

Some firms granted trade exemptions are suddenly being billed for customs duties, and tax increases are looming, weighing on confidence, executives attending an investment conference in the new African nation's capital Juba said.

Oil production used to account for 98 percent of the budget in South Sudan, which became independent in July under a peace deal with Sudan that ended decades of civil war and opened up a potentially lucrative new frontier market to the international business community.

But the neighbours have been unable to agree how much Juba should pay to export its crude through Khartoum's pipelines and port.
Juba halted oil output in January to stop Khartoum siphoning off part of the supply to make up for what the latter calls unpaid transit and other fees.

Southern officials, who say Juba can live off its foreign exchange reserves, last week sought to assure 180 foreign firms invited to the country's biggest ever business conference that the row will not hurt the climate for badly-needed investments.

"The right policies will be applied...The central bank is very resourceful," Commerce, Industry and Investment Minister Garang Diing Akuong told the event attended by 300 participants.

But executives say signs of strain are visible, with the South Sudanese pound losing ground against the dollar on the key black market.

One dollar now buys between 3.8 and 4 pounds compared to 3.55 before the shutdown, black market traders say. The official rate stands at around 3.1.

"There is a shortage of dollars. It gets noticed since the country totally relies on imports," one banking executive said.

Banking sources said the central bank had sharply cut dollar supplies to commercial banks and foreign exchange bureaus to preserve its foreign reserves.

"We get around 20 percent of what we used to get allocated," another banker said.

Central bank officials could not be reached for comment.
Thanks to oil revenues netting more than $2 billion since independence, the central bank had managed to bring down annual inflation to 42 percent in February from 78 percent in November.

But bankers say inflation is now likely to rise again as imports become more expensive and the government uses its dwindling reserves mainly to pay salaries.

The country's stability hinges on the well-being of its sprawling army, composed largely of former militias.

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