Dollar shortage, tax hikes hurt Sudan telcos

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Sudan's foreign currency shortage and a huge variation in official and de facto exchange rates are delaying equipment purchases and payments by telecoms operators, hitting a key industry for the struggling economy, executives told Reuters.

Higher taxes and mounting competition are also posing challenges for the African country's three major telecoms players as they battle to tap the potential of a relatively underpenetrated market.

Sudan lost three-quarters of its oil output when South Sudan became independent in July, ending its main source of state revenue and foreign currency.

That made the telecoms sector even more critical to the wider economy and it now accounts for about 12 percent of gross domestic product, according to No.1 operator Zain Sudan, a unit of Kuwait's Zain.

Yet operators are struggling to buy hard currency from the government.

“The availability of foreign currency is a big issue for telecoms companies because we depend on imported services and equipment,” Zain Sudan chief executive Elfatih Erwa told Reuters.

He said Zain had sometimes delayed payments to foreign suppliers, but these were still delivering on schedule. Ericsson and Huawei are Zain's main suppliers.

State-owned Sudatel has faced similar problems.

“It (the equipment) is mainly from Asia,” said Mohamed Nasir, Sudatel director for corporate sales. “There are limitations in the use and transfer of US dollars. We are talking about Chinese companies like Huawei mainly. It (deliveries) can be delayed - if something took one month (before), it may take two months now.”

MOUNTING PRESSURE

The dollar shortage is an indicator of the mounting pressure on the Sudanese pound.

Last month, the government allowed licensed dealers to trade the pound at a devalued rate of about 5 to the dollar. This compares with the official rate of 2.7, while there are two other exchange rates - the black market rate of around 5.4 and the commercial bank rate, which is about 4.9.

“We don't work in the black market, we deal with banks and they charge us a premium,” said Erwa. “It's a little bit lower than the parallel (black) market price. The official price is still the same as before.”

Zain Sudan's 2011 local currency earnings rose 9 percent, but these fell 5 percent in dollar terms and its parent firm has been blocked by Sudanese law from repatriating earnings to Kuwait for several years.

These woes, along with mounting competition between Zain Sudan, Sudatel and MTN Sudan, a unit of South Africa's MTN , have taken away some of the sector's lustre, with Zain Sudan's average revenue per user (ARPU) falling by half between 2008 and 2011 to $8.

Higher taxes are adding to the burden. In December, Sudan raised sales taxes on telecoms companies to 30 percent from 20 percent and a profit tax to 30 percent from 15 percent.

Yet the market retains huge potential should Sudan and South Sudan's economic woes ease.

Mobile penetration in Sudan is 67 percent, according to analysts Wireless Intelligence. This compares Northern Africa's 96 percent, while South Sudan penetration is just 18 percent, one of the lowest globally.

ARPU is also higher than the Northern Africa mean of $6.47 - Sudan's is $6.90 and South Sudan's is $10.49.

South Sudan has five mobile operators - Zain, Sudatel and MTN, plus two local firms. - Reuters


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