By Ulf Laessing and Alexander Dziadosz
KHARTOUM (Reuters) - A few weeks ago, a leading opposition activist sat down in a downtown Khartoum office to talk to a journalist. The young man immediately removed the battery from his cellphone.
"It's so they can't trace you," he said, placing the battery and the phone on the table. "Any one of the security agencies spread throughout the country can arrest you."
Despite that danger, the activist, from an underground group called "Change Now", said he was convinced Sudan is on the brink of its own Arab Spring uprising.
Hard times and growing frustration with the two-decades-old government of President Omar Hassan al-Bashir have sparked small protests in Khartoum and other university cities in the Arab-African state.
The demonstrations are still tiny compared with those that shook Egypt and Libya. Sometimes about 30 people show up, hold banners denouncing the government for a couple of minutes, and then melt away before security agents arrive. But the demonstrations have become more frequent in the past few months and the question is, could they lead to something bigger?
The main economic challenge is plain. When South Sudan seceded from the north last year, Khartoum lost about three-quarters of its oil, the main source of state revenues and hard currency. The Sudanese pound has slumped by as much as 70 percent below the official rate. Annual inflation is at 18 percent as the cost of food imports has shot up. Wars against insurgencies in different parts of the still-vast country have also soaked up government funds.
In 1985, protests against food inflation toppled President Jaafar Nimeiri in some 10 days. But the government in Khartoum today says the economy is not nearly as bad as it was in the 1980s, when people had to queue for days to get rationed petrol or food. Sudan, it says, will not follow Egypt or Tunisia.
Rabie Abdelati, a senior official in the information ministry and Bashir's National Congress Party (NCP), said that the economy was much better than in 1989 when Bashir came to power.
"The situation at that time was very terrible," he said. "The government has the ability to overcome all obstacles."
A relaxed-looking Bashir, who is wanted by the International Criminal Court for war crimes, spoke on state television for almost two hours last week to assure the population that the economic situation was under control.
"We have a 3-year economic program (but) this year will be the most difficult," the president said.
"IT WAS LIKE ANGER ERUPTED"
On the surface, life in the capital looks normal. Construction cranes loom on the banks of the Nile, working on new buildings and roads. The city bustles with foreign workers, maids and hotel staff.
But there are sporadic signs that public anger is rising.
In the last week of December, authorities temporarily closed the University of Khartoum after villagers displaced by a huge hydro-electric dam staged a protest, inspiring a week of some of the biggest student demonstrations in years. Weeks later, the spray-painted graffiti calling for "revolution" still covered a few walls near the university.
"Most people didn't care about the first demonstration as we were all in exams mode," said a female computer technology student who took part.
But when police came to the dormitories one night to detain some students, "it turned into a protest not just against the dam but against poverty, inflation and the bad situation for students," said the woman, playing with her blue head scarf.
"It was like anger erupted," she added. "Now they want to punish us by closing the university, but it will make things worse. We don't get jobs after graduation. Life is so expensive, people are very angry."
Abdelati, the information ministry official, said the protests were small and the university would reopen shortly.
OIL AND CONFLICTS
Sitting in front of a small metal workshop in downtown Khartoum, Sudanese construction worker Fateh Totu takes his time to recall when he last worked for longer than a week. At the moment he gets jobs for a couple of days, with sometimes a week in between.
"Three, four years ago life was much better. The country was in good shape. Construction work was good," Totu said, drawing nods from fellow workers sitting on small plastic chairs along a dusty road.
South Sudan's independence deprived Sudan - a country of 32 million people - of around 350,000 barrels per day (bpd) of the roughly 500,000 it pumped. Since then, oil exports, which made up 90 percent of Sudan's total exports, have fallen to zero.
The remaining output in the north of around 115,000 bpd serves only domestic consumption.
Industry insiders doubt significant new reserves will be found. But Azhari Abdallah, a senior oil official, said production would rise this year to 180,000 bpd, helped by more efficient technology and recovery rates.
Other officials are less optimistic. Central bank governor Mohamed Kheir al-Zubeir has asked fellow Arab countries to deposit $4 billion with the central bank and commercial lenders to stabilize the economy. Finance Minister Ali Mahmoud said in September Sudan might need $1.5 billion in foreign aid annually.
"The state spends a vast proportion of available resources on the security services. With three conflicts ongoing, the military's claim on the national treasury is only growing," said Aly Verjee, an analyst at the Rift Valley Institute. "While some austerity measures have been implemented, there is a general unwillingness in the government to take any step that might lead to popular discontent."
Landlocked South Sudan must pump its oil through Sudan to the Red Sea. Northern officials hope the transit fees they charges will help. But a deal has been elusive - oil analysts say Khartoum has demanded a transit fee more than 10 times the international standard - and the breakaway state has so far refused to pay.
Khartoum has seized oil awaiting shipment to compensate for what it argues are unpaid fees. Industry sources say the north has sold at least one shipment of southern oil. In protest, South Sudan has shut down production.
How to find new revenues? Khartoum expects to have exported $3 billion of gold in 2011 plus another $1 billion of other minerals. Mining workers say the real figures are less than a third of that.
"Only 7 of the 70 projected tonnes of gold output for 2011 come from regular mines," said a foreign mining executive who declined to be named. "The rest is produced by gold seekers whose output is very hard to verify, and often ends up being smuggled abroad."
The government predicts 2 percent growth in 2012 but the International Monetary Fund (IMF) thinks the economy will contract. A senior Sudanese analyst with ties to the government says food inflation is much higher than the official figure. Prices for meat, sugar, vegetable oil and other staples are doubling every year, according to the analyst, who asked not to be named.
Customs officials at Khartoum airport now search almost every piece of luggage brought into the country, hoping to find a laptop or other electric device on which they can charge duties.
Khartoum had long known the South would secede, but did little to diversify its economy away from oil, bankers say. Just days after South Sudan became independent last July, Sudan's parliament, which is controlled by Bashir's National Congress Party (NCP), passed a budget predicting stable oil revenues.
"They just thought it would continue like that," said a senior banker in Khartoum who declined to be named. "That's why I doubt they now have a plan to turn the economy around."
Harry Verhoeven, a researcher at the University of Oxford who has studied Sudan extensively, said Khartoum had used its oil revenues for large, expensive projects such as the Merowe dam that sparked December's protest.
Since the united States imposed a trade embargo on Sudan in 1997, most Western firms have shunned the country. The ongoing domestic insurgencies and the International Criminal Court's indictment of Bashir mean that's unlikely to end any time soon.
That leaves Khartoum reliant on China, its biggest trading partner, and Gulf Arab states. But no substantial aid or loans have been announced yet apart from small development programs.
At an Arab investment conference in December, prominent Saudi businessman Sheikh Saleh Kamal slammed Sudan's taxation, investment, land and work laws.
"I said it already in the '90s but I repeat it again since nothing has changed," said Kamal, head of Islamic lender Al-Baraka Banking Group and the Islamic Chamber of Commerce and Industry. "The investment climate in Sudan does not help to attract any investments."
Despite the growing problems, organizing protests isn't easy. Power cuts, unreliable cell phone networks and low internet usage make it hard to mobilize people through Facebook or Twitter as happened in Egypt.
Activists are trying to link up with groups such as the people displaced by the Merowe dam, or poor farmers.
Many are frustrated with the inconsistent and ineffectual opposition parties, most of which are run by former rulers in their 70s. Activists say the main opposition party, the Umma Party, is unwilling to call for mass protests. The party's veteran chairman Sadeq al-Mahdi recently said he wanted the president to go. But his son just became a presidential assistant in Bashir's office. The leaders of another big opposition party have decided to join the government.
For the female computer technology student, the only way is out.
"I'm just tired of Sudanese politics. I think there will be a revolution, but nothing will change. We will have the same people," she said.
"I just want to leave Sudan. I don't see any job prospects here. I think 90 percent of students want to leave Sudan."
(Writing by Ulf Laessing; additional reporting by Khalid Abdelaziz; Editing by Simon Robinson and Sara Ledwith)