Sun, 4 Nov 2012 13:00 GMT: Duncan Miriri

BUJUMBURA, Nov 4 (Reuters) - The central African nation of Burundi may be winning plaudits for its economic reforms and relative peace after nearly two decades of civil war, but shopowners like Niyonzima Alimasi have little to cheer.

"Purchasing power is low," said Alimasi, 31, who runs a hardware shop on a crowded street in the capital Bujumbura, nestled on the shores of Lake Tanganyika.

"Business is very shaky. There are few buyers," he said, standing in his shop crammed with tins of paint, door locks and nails imported from China.

The tiny country targets economic growth of around 4 percent this year, supported by booming exports of tea and coffee, but high oil prices, drought and lower aid assistance have eroded the Burundi franc's value against the dollar by nearly half in the past three years, driving up consumer prices and causing widespread hardship for its citizens.

Inflation soared to 25 percent in April this year, forcing the government to remove taxes on essential imported commodities such as beans, rice and potatoes, after surging prices prompted many in the capital to stay away from work in protest. Inflation remains high at just above 14 percent.

The tea and coffee producer's Achilles heel is its heavy reliance on external aid to fund a budget that pays for free education and healthcare for pregnant women and children under the age of five.

Export earnings, mainly from coffee and tea, grew 17 percent to $86 million in the first nine months of this year, but they were outpaced by imports which jumped by close to a quarter to $533 million, creating a precarious balance of payments situation.

Foreign donors prop up state spending, expected to provide over 50 percent of the 2012 budget for the country, landlocked between Tanzania, Rwanda and the Democratic Republic of Congo.

While streets in the capital are busy, in shops like Alimasi's there is little sign of the consumerism seen in many fast-growing African economies.

Only 5 percent of the entire population of 8 million has a bank account. Many live from hand to mouth.

The World Bank has ranked Burundi, a member of the five-nation East African Community (EAC) common market, among the most improved economies worldwide for regulatory reforms, highlighting its new tax collection agency set up to help the government self-finance its budget.

Such reforms are leading to a much-needed pick-up in aid, which the government has pledged to plough into roads and energy-generation projects, to create jobs and kick-start the mining sector that could boost exports.

At a donor conference in Geneva last week, Burundi secured critical financial support to fund a rebuilding plan in a bid to rise above the status of a least-developed country and be able to self-finance its budget by 2025.

Donors pledged more than $2 billion over the next five years, well above the $1.5 billion sought by the government, reflecting growing confidence in the country.

Still, further reform is badly needed. Shopkeepers said it takes up to two months to clear a container from the port due to red tape, exposing traders to costs that are compounded by the Burundi franc's rapid depreciation against the dollar.

"The biggest bottleneck is energy," Finance Minister Tabu Abdallah told Reuters in Bujumbura.

The country produces only 32 megawatts of electricity a year, and imports 20 MW from neighbouring Congo but that is still not enough, leading to frequent power blackouts. There are plans to generate an extra 100 MW of electricity an n ually in five years.

Only Kiriri, the leafy, affluent Bujumbura suburb where President Pierre Nkurunziza, foreign diplomats and other top officials live, is guaranteed power supply at all times, residents said.

More electricity could help Burundi plug its trade gap by enabling it to exploit nickel reserves near its border with Tanzania. The government estimates it could produce 50,000 tonnes of nickel a year for 150 years.

It says the economy needs sustained growth of 5-7 percent annually to lift the country out of poverty.

TAX BURDEN

On the eve of the Muslim holiday of Eid Ul Adha, Hakizimana Sonia, a mother of two, huddles on a mattress laid out on the patio of a ward of the Prince Regent Charles Hospital in the capital, sharing a supper of two plates of cooked cassava and beans with members of her extended family.

She is visiting her sister, who is grateful for the free medical care for new mothers.

But families find it hard to get by, she said.

"We have no money and there are no jobs so sometimes you eat and sometimes you go hungry," she said. "Three years ago, 5,000 francs was enough to feed my family of four for a day. It now takes 15,000 francs."

Government officials say progress is being made and more schools and health facilities have been built in the past four years compared to the period since independence from Belgium in 1962 until 2007.

"There is a seachange in the way things are done in Burundi," said Kieran Holmes, commissioner general of the country's revenue authority, at his mansion in Kiriri, which is guarded by armed soldiers.

Set up in 2010 to boost tax collections, the agency expects tax revenues to nearly double this year to almost 600 billion francs ($400 million) and targets they will double again in five years.

But questions over political stability still linger.

Critics accuse President Nkurunziza's ruling party of monopolising power, appointing only members of one ethnic community, the Hutu, into positions of power as well as repressing the opposition, which boycotted elections in 2010.

The International Crisis Group (ICG), which studies conflict and post-conflict states, said this runs against a peace deal that ended the civil war in 2009, and has called for dialogue between the government and the opposition to guarantee political stability.

Bujumbura residents alleged that the recent discovery of corpses floating on the River Rusisi with the bodies' hands tied and their throats slit was evidence that the government was eliminating opponents.

Clotilde Nzigama, the minister for human rights, distanced the government from the killings.

"Those who will be found responsible will be punished in conformity with the laws of this country," Nzigama told Reuters.

But many on the streets of the capital are more worried about economic hardship than politics.

While government reforms have improved tax collection, rates of tax, including a turnover tax on business and an import levy, are still among the highest in the EAC and many businesses and residents are suffering.

"The taxes here are too high making it easier for people to travel across the border and buy goods in neighbouring countries," said Issa Ntwaali, who owns a car spare parts store in the capital, as two workers stand idly by in the absence of any customers. (Editing by James Macharia and Susan Fenton)