Zain Sudan sees new taxes hitting 2012 earnings

Mergers, Acquisitions and Financial Results

Zain's Sudan unit expects new taxes to slice into its earnings this year despite the anticipated addition of between 2 to 3 million mobile phone subscribers in the oil-producing African country, a senior executive said on Wednesday.

The nation of about 32 million people is facing a foreign currency shortage and soaring inflation, worsened by the loss of about three-quarters of the country's oil output when South Sudan seceded over the summer.

As a result, mobile users have been tightening their budgets, giving firms little room to pass on higher costs to customers, Zain Sudan's Chief Operation Officer Ibrahim Ahmed Elhassan told Reuters in an interview.

"The resources are limited for the users, so what he (the customer) was paying in the past, he's going to pay this year. He doesn't care whether it's paid to the tax or paid to the company," Elhassan said, speaking after an event celebrating Zain Sudan's 15th year.

Sudan has raised sales and services taxes for telecoms firms to 30 percent from 20 percent and a profit tax to 30 percent from 15 percent in a push to make up for diminished oil revenues.

Zain would have a hard time hiking prices enough to make up for that, Elhassan said.

"We can't raise the prices for the consumer because ... we have to give competitive prices, and then because the pricing sensitivity is not that flexible. People are very sensitive to any increase of prices."

A holiday on the 30 percent corporate profit tax also expired for Zain Sudan last year, Elhassan said. "The profit will drop by 30 percent, definitely," he said.

The company was looking at ways to "optimise costs" like more specifically targeting its advertising, he added.

Zain competes with South Africa's MTN and the local Sudani brand in Sudan's mobile phone market, which has enjoyed a boom in recent years despite years of conflict and U.S. trade sanctions that have dampened investment in other sectors.

The unit pulls in about $1 billion a year in revenues, Elhassan said. Zain Sudan will continue to add subscribers in 2012, despite the fact that the mobile market is starting to become saturated in the bigger cities, Elhassan said.

"Now we have achieved 13 million subscribers," he said. "We expect 15 million, between 15 and 16 (by the end of 2012)."

The unit has also faced other challenges operating in Sudan, like difficulty repatriating its profits, Elhassan said.

"We are working on these difficulties, but still, for example, we did not transfer our profit to Kuwait going back four years," he said. "That's why we reinvest the profit here in Sudan."

Zain Sudan's chief executive said in November the company would spend $280 million improving its infrastructure in 2012.

The company has also finished splitting off its operations in South Sudan, which seceded from Sudan in July under a 2005 peace deal that ended decades of civil war.