* South Sudan isolated by poor trade links
* Ancient Nile route still key for commerce
* Traders complain of currency obstacles
* Officials see big southern demand in long term
By Ulf Laessing
KOSTI, Sudan, Oct 5 (Reuters) - Standing by his truckful of onions at the bustling Nile port of Kosti, Sudanese trader Omar Sheikh hopes shipping his goods to newly independent South Sudan will justify the bureaucratic hassle.
Nearly three months after the south split from the north after decades of civil war, no comprehensive trade agreement exists between them, hampering the flow of goods to the poor, isolated and underdeveloped south, which has only a little more than 50 kilometres (31 miles) of paved roads.
“In the south there is big demand for all sorts of goods,” Sheikh said as he waited for his customs papers to be cleared. “But we need agreements between the governments to facilitate trade. Without such agreements, there will be no trade.”
Commerce on South Sudan’s southern flank is hindered by tribal violence and the world’s youngest country must rely on one of the oldest trade routes, the Nile, as its main link to foreign markets.
That forces it to deal with the north, but relations have been frosty since they split on July 9, and arguments over oil revenue and their common border have pushed the vital question of trade down the agenda.
Both countries have launched new currencies without any coordination. The south issued its pound in July, forcing the north to launch its own new currency as it feared being swamped with old notes hoarded in the south.
The barges that travel up the White Nile are loaded in Kosti, a dusty, low-rise town on the river’s western bank 300 km south of the North Sudanese capital Khartoum. The rusty boats sag in the Nile’s pungent waters as they fill with food, consumer goods, luggage and equipment for United Nations staff working in the south.
“Trading just resumed. In the south they want many products, such as food, juices, lentils and other items,” said Babiker Alsayer, an export trader in Kosti’s port.
It is around 1,000 km straight overland from Kosti to the southern capital Juba. The Nile bends and twists through the arid landscape as it wends its way south, making for a river trip of up to two weeks.
Trade almost ground to a halt in the run-up to southern independence as violence broke out along stretches of the poorly marked joint border, cutting off food supplies to the south. Southern inflation soared to 57 percent in August as a result.
Northern port officials say bilateral trade has grown since the two states signed a limited agreement last month to facilitate trade and travel. Since then, about ten or more trucks have been arriving every day in Kosti, port officials and traders say.
The lack of roads makes the Nile as vital for the regions either side of its banks as in ancient times. But the traders plying the Nile say they are taking big risks because of the long list of hindrances to commerce, raising the costs for buyers in the south.
“I will ship my goods by barge and then sell on local markets, for which I will get paid in southern pounds,” said a trader who gave his name as Malik.
Since it is almost impossible to change southern pounds in the north, Malik must first change the southern money into dollars -- a difficult task. Both countries have shortages of dollars, which traders say are only available at a bad rate on the black market. Some dealers in the south are demanding 5 pounds or more for 1 dollar, well above the official rate of 3 pounds and above the black market rate in the north, they say.
The northern central bank allows traders to change only small amounts of northern pounds into dollars in Khartoum, making it harder to buy imported goods to ship south.
“I must bring back the dollars I changed at the central bank within 45 days. I had to leave a cheque as a deposit,” said one merchant, showing a letter from the Khartoum-based central bank.
The traders struggle to get their goods to Kosti and down the Nile, sell them, swap the southern pounds for dollars and bring them back to Khartoum to meet the central bank’s deadline.
“We need government coordination on how to trade with the south. There is big business there but we need agreements,” the merchant said.
Reliable data for the size of bilateral trade could not be obtained, but some analysts said the potential size could be gauged from the fact that before the split, Sudan’s non-oil exports were about $1.7 billion annually -- north-south merchandise trade could eventually grow to a significant proportion of that figure. The total population of the north and south is about 41 million, of which 80 percent are in the north.
The Nile trade is also important for Egypt, which exported $274 million of goods to Sudan in the first half of 2011, a figure that may rise as demand grows from the south in the face of food shortages after rain and tribal violence, experts say.
South Sudan will have to rely on the north to export its oil for years, as the only pipeline from the southern fields runs to Port Sudan on the north’s Red Sea coast. The south, which is producing around 300,000 barrels of crude oil a day, made some $500 million in revenue from its first oil shipment exported via Port Sudan, the deputy finance minister said last week.
Diplomats say both the north and the south seem willing to improve economic ties.
“We see a big rise in trade with the south. There is huge demand from merchants here to export to the south,” said Mutasim Matawi, head of the export department at the ministry of foreign trade in Khartoum.
“We know the situation is not perfect yet. We have set up a committee with the south to regulate trade.”
South Sudan will have to significantly increase its food imports in coming months because its own production this year will come in 500,000 tonnes below its needs, according to U.N. estimates. Some food supplies will come on U.N. aid flights but much will be delivered through the Nile trade.
Samson Wassara, an analyst in the southern capital Juba, said South Sudan also wanted to develop trade via Kenya to its southeast, using the Indian Ocean port of Mombasa for trade with Asia. For now, goods from Asia destined for South Sudan arrive at Port Sudan for transfer to the slow Nile barges.
“They are trying to open new trade routes from Juba to Mombasa. The port in Mombasa is relatively near to Juba compared to Port Sudan,” said Wassara.
However, Mombasa is difficult to reach for now because of tribal violence and taxes imposed illegally along roads into Kenya. Officials in Kosti say their port will remain the cheapest, and simplest, option.
“Some of the traders don’t speak decent English so they prefer to deal with us than going via Kenya,” said a port official in Kosti. (Editing by Tom Pfeiffer and Andrew Torchia)