War pushes South Sudan's economy to the brink

Soaring inflation and a likely currency collapse are adding to South Sudan's woes after 17 months of civil war characterised by brutal attacks on civilians.

The latest battles between government and rebel forces have centred on the country's last remaining functional oil fields.

Oil dollars once accounted for over 90 percent of government revenue in the four-year old nation, which contains sub-Saharan Africa's third largest reserves -- making it one of the world's most oil-dependent economies.

Now, with the UN reporting over half of the country's 12 million people needing assistance and some areas on the brink of famine, South Sudan is also one of the most aid-dependent states.

Fighting broke out in December 2013 when President Salva Kiir accused former deputy Riek Machar of attempting a coup, setting off a cycle of retaliatory killings across the country.

Amid reports of massacres, rape and the systematic destruction of towns, international sanctions have been repeatedly threatened.

Government forces last month attacked rebel positions in the northern state of Unity, where oil production halted last year, as well as in the eastern state of Jonglei.

Last week rebels launched a major counter-attack, including an assault on Malakal, capital of northeastern Upper Nile state and the gateway to the country's last operating oil fields.

Now rebels say they are trying to capture Palouch, the processing point for all remaining oil production where crude is pumped northwards to Sudan. Its loss would be a crippling blow to an already struggling economy.

- Fear of 'regional war' -

"Palouch is the chokepoint of South Sudan's entire economy," said Luke Patey, author of "The New Kings of Crude," a book on oil in Sudan and South Sudan.

"If it was taken and production shut down, the rebels would be emboldened to either seek an outright military victory or use oil as leverage to negotiate a larger role in a future government."

State television this week broadcast footage of fighting in Melut, some 35 kilometres (20 miles) west of Palouch, showing intense battles as tanks backed by helicopter gunships -- believed to be from Uganda, which is a staunch ally of Kiir -- pounded rebels in the town.

Oil production has slumped by some 40 percent from around 240,000 barrels per day (bpd) before fighting began.

Officially, production is 165,000 bpd, although analysts suggest it could be as low as 130,000 bpd, although it continues to the main source of foreign income -- either as direct revenue or from loans based on future production.

Without the fields, South Sudan would lose its only significant source of income to fund its war.

Patey, who also works for the Danish Institute for International Studies, warned that the fall of Palouch could "escalate a wider regional war" drawing in Sudan -- which relies on pipeline transfer fees charged on southern oil for foreign exchange -- and Uganda, which has already sent troops to back Kiir.

Even ordinary South Sudanese living far from the frontlines are suffering from the war.

Lauren Odeil, who heads a family of eight, says a 50-kilogram (110-lb) bag of flour has more than tripled in price this year, along with staples like beans, rice and cooking oil.

"If the situation continues like this there are many people who will not eat," said Odeil, who works for an international aid organisation.

As food prices soar, queues at stores are growing, with fuel shortages creating long lines of vehicles at filling stations. Public transport is limited.

"The rise in prices is pushing our people to the edge," opposition leader Lam Akol said. "People cannot anymore afford to buy the most basic food items and other daily needs."

On the black market South Sudan's pound is worth less than a fifth of the official government rate of three pounds to the dollar. Black marketeers trade it at 16 to one.

"People have doubled their prices, there is no control system as the dollar rate increases," said Wani Saki Michael, 27, who said he now eats just one meal a day.

- 'Runaway inflation' -

"We are now suffering from runaway inflation... this wide gap between the two exchange rates has turned the dollar from means of exchange into a commodity," Akol said, claiming that some officials were exploiting the contrasting rates to pocket the difference.

Ateny Wek Ateny, a presidential spokesman, said criticism of the government spending 40 percent of the budget on defence was "uncalled for," and rejected Akol's warning.

"They should realise that the country is in war, and it has coincided with the global drop in the price of the oil," he said.

"The economy is not collapsing. These are the wishes of a hyena -- if Lam Akol is wishing for the collapse of South Sudan economy he will have to wait for very long time," said Ateny.

Certainly, not everyone is suffering. The war economy in Juba has seen some actors reap healthy earnings.

"There is always a need for certain goods," said a Lebanese businessman specialising in "logistics" who declined to be named.

Sitting at a rooftop bar in an upmarket Juba hotel sipping a cocktail made with imported vodka, the businessman looked out over the city, a mix of tower blocks and thatch huts. "Profits are good," he said.

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