KHARTOUM (Reuters) - Staring at the small handful of change she got back from a merchant after buying spices and beans in a market in central Khartoum, Nadia Ahmed realizes just how badly inflation is hurting her family.
“The market is generally expensive,” she said. “Food commodities are very, very expensive.”
With the Muslim holy month of Ramadan starting next week, Sudanese like Nadia are stocking up with meat, vegetables, fruit and sweets so they can prepare lavish evening meals for their families, who fast from sunrise to sunset.
Prices usually shoot up in the run-up to Ramadan, but this year the increases come on top of an inflation rate that has almost doubled since November.
“We’ll buy just a quarter of the amount we usually buy for Ramadan compared to previous years,” she said.
Oil lies at the heart of the problem.
With the independence of South Sudan three weeks ago as part of the 2005 peace deal that ended decades of civil war, the North has lost 75 percent of the country’s oil production of 500,000 barrels a day.
Oil is the lifeline of both economies and the main source of foreign currency, so the north will be hit hard as its share of oil revenues dwindles.
Both sides have so far failed to work out how to share oil revenues. The South needs the north’s pipelines, refineries and Sudan’s only Red Sea port to sell the oil, but wants to pay less than the 50 percent split agreed so far.
In an indication on how fiercely this argument will play out, South Sudan on Monday accused Khartoum of “daylight robbery” and an “economic war” by demanding a pipeline fee that would take 20 percent of the value of its oil exports, based on Reuters calculations.
The north has not yet responded to the accusations but its parliament last week passed a revised budget for 2011 that assumes stable oil revenues -- suggesting Khartoum will play hardball in the negotiations.
The central bank has pumped $500 million into the financial system this month to support the Sudanese pound, which has been falling for weeks on the black market in Khartoum.
The black market rate has now bottomed out, with one dollar buying around 3.4 pounds, but this is well below the official rate of around 3. Only a few months ago the dollar fetched 2.8 pounds or less.
The central bank will be able to pump more money into the system thanks to strong gold exports as world prices soar, but black market traders say demand for dollars from import firms and travelers remains strong.
With many food items imported and fertilizers also needed from abroad to cultivate farm land, Ramadan shoppers are feeling the price increases.
“Ramadan will pass but prices are very high and people are trying with the blessing of God,” said Akram al-Baqir, who was buying vegetables.
“Stabilizing the economy is one of the most important goals in the current phase,” the central bank said in its latest outlook for the rest of the year.
In the new budget the tax on telephone calls was increased to generate more state revenue. The country also wants to increase gold production, and develop the agriculture sector to attract Gulf Arab investors looking for secure food supplies.
While the government blames much on a U.S. trade embargo, analysts point to mismanagement, corruption and a failure to diversify the economy. Many regions outside the capital have never seen much investment.
Sudan watchers say the situation is still manageable for the government, which cut fuel subsidies and raised sugar prices earlier this year without triggering serious protests.
Khartoum and other parts in the north have seen some small protests organized by young activists emboldened by the “Arab Spring” but these were quickly ended by security forces.
Based on official figures, annual inflation actually eased to 15 percent in June from 16.8 percent in May, but many ordinary Sudanese say they are not feeling any benefit.
Inflation has gone up from around 9.8 percent in November when the central bank sought to erase the black market by offering an exchange rate incentive that effectively devalued the pound. But the black market in the dusty streets of Khartoum is still thriving.
But farmer Ahmed al-Tirifi, who sells his produce at one of the food markets, expects the situation to improve for shoppers like Nadia next year, when bigger crops are expected.
“This year, nut and sesame production were low so the prices of the cooking oil made from nuts and sesame are high. But next year’s production will be high so the prices next year will go down,” he said.
Editing by Giles Elgood