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Forum urges for enhanced cooperation among African airlines
By: Kaleyesus Bekele
The 29th African Aviation Forum held this week in Addis Ababa urged African airlines to enhance collaboration and partnership in a bid to withstand the stiff competition coming from mega international carriers.
Opening the African MRO (Maintenance Repair and Overhaul) and Aviation Training conference held from February 4-6, 2020 at Ethiopian Skylight Hotel, Nick Fadugba, CEO of the African Aviation Services Limited, said that air transport is the most efficient means of transport in Africa where rail and road transport is not well developed. Fadugba said in order to thrive African airlines must forge sincere collaboration, partnership and joint ventures. “We must look at Ethiopian Airlines as a leading example which is connecting Africa and establishing partnerships with several African airlines,” he said. “I am talking about sincere partnerships and joint ventures,” he added.
With a population of 1.2 billion people and fast economic GDP growth and burgeoning middle class the air transport industry in Africa has been growing steadily. Africa is attracting foreign direct investment and the GDP will continue to grow in the coming years. The International Air Transport Association (IATA) forecasts air transport industry in Africa will continue to grow at a rate of 4.6 percent, the second fastest growth next to the Middle East.
“We all must be ready to accommodate this fast growth,” Tewolde Gebremriam Ethiopian Airlines Group CEO told delegates. The African MRO market alone is worth 2.6 billion dollars. However, despite the presence of modern MRO centers in Ethiopia, South Africa, Egypt and Morocco, the majority of this market goes out of the continent. African aircraft and engines are repaired elsewhere with a higher transport cost.
“There is enough market for all of us. What we need is collaboration,” Tewolde said. According to Tewolde, Ethiopian Airlines has invested more than 300 million dollars on its MRO center building maintenance hangars, maintenance capability in the engine and components shops. The airline has invested more than 100 million USD to expand its aviation academy which is the largest aviation training institute in Africa. With flight simulators and 36 trainer aircraft Ethiopian Aviation Academy is training 300 pilots a year and the plan is to train 1000 pilots a year.
Tewolde Gebremariam highlighted the challenges facing the African aviation industry. “African countries are not well connected. If you want to go from Algiers to Cape Town you have to go to Europe first,” he said.
Ethiopian has been playing a significant role in connecting Africa for over seven decades. Ethiopian has been connecting African countries and with the rest of the world. “We have been serving African countries since independence. Ethiopian played a vital role in the socio-economic development of the continent particularly in nation building process of many African countries. Ethiopian today operates to 60 destinations in Africa, 125 international and 22 domestic destinations. It has a modern fleet of 130 aircraft with an average age of five generating 4.5 billion dollars.
“Collaboration in today’s globalised highly connected small global village is very important. The I phone is designed in the US and manufactured in China. Collaboration- that is the area that we are lagging behind,” Tewolde said.
Tewolde recounts that when he joined Ethiopian Airlines 35 years ago the aircraft technicians supporting Zambia Airways and Angola Airlines. He said Ethiopian Airlines has been doing its share to contribute in terms of collaboration. Unfortunately after 30 years fast forward Africa still lags behind in in terms of collaboration.
“From our side we are still maintain the collaboration attitude,” he said. Today Ethiopian provides maintenance support to RwandAir, Air Tanzania, Malawi Airline, Ethiopian Mozambique, Chad Airline (a start-up airline a joint venture between Ethiopian and the government of Chad), Congo Airways, Cam Air (Cameroon) TAAG Angola, Ceiba Airline (Equatorial Guinea) Arik Air and others in Nigeria and ASKY in West Africa.
“These joint ventures though they are at initial stage we have a dream that they will be large airlines in a very short time because there is an opportunity to grow,” Tewolde said.
While there exists a vast untapped opportunity, African home-grown airlines are facing myriads of challenges. The market share is highly skewed. Eighty percent of the market share between Africa and the rest of the world is controlled by non-African carriers. Twenty years ago, African indigenous carriers had 60 percent market share. This has been declining alarmingly and reached 20 percent.
“Who knows if we do not work together that can shrink further to zero. And then we will not be able to see indigenous truly African airlines,” Tewolde said. “We believe that the market share has to be at least it has to be 50-50. Fair share. But it is up to us to change the market share. It is a competitive world and instead of having unhealthy competition among ourselves in the continent we have to cooperate more. I call up on African governments to open up liberalise so that African airlines can revolutionise as South West Airline has revolutionised the American air transport industry 30 years ago.”
The growth of African aviation industry is thwarted by higher operation costs. Aircraft fuel is 35 percent more expensive than the world average. Airfares are expensive as governments impose exorbitant taxes. “Air tickets are equally taxed with cigarettes and alcoholic beverages,” Tewolde said.
Tewolde stressed the need to liberalise African skies for African airlines. “Indigenous African airlines should freely fly in Africa without any restriction like European carriers fly any point in Europe without restriction.”
Girma Wake, former CEO of Ethiopian Airlines and former board chairman of RwandAir, echoed the need to liberalise African sky. Girma said though African states decided to open up the air transport market in 1989 they are not able to fully implement the decision to date.
Girma said 33 countries representing 89 percent of the air traffic have ratified the new initiative Single African Air Transport Market (SAATM) launched by the African Union in January 2018. “Eighteen of them have signed memorandum of implementation with countries. This is not a bad achievement and the others will follow suit,” Girma said.
Girma went on to say that SAATM is good for African carriers. “I believe that SAATM will save many of the carriers from losing. Today 80 -90 pc of the airlines are losing. 50 percent of the total profit of Africa comes from one airline.”
Lack of understanding is blocking SAATM. “The fear that if we open up the big carriers will eat us alive is not valid. The big carriers can do without SAATM. It is the small carriers that benefit. The small and big carriers should work together,” he concluded.
Africa is the last frontier for global growth
By: Colin Coleman
Africa today accounts for around 17 percent of the world’s population, but only about three percent of global GDP. These statistics not only attest to a failure to tap the continent’s developmental potential, but also highlight the tremendous opportunities and risks ahead. As long as Africa continues to lag economically, it will be a source of global instability and extremism. But if it rises, it could be one of the major sources of growth for the world.
Africa is no stranger to suffering. The continent has been ravaged by slavers, plundered by colonizers, exploited by world powers during the Cold War, and ravaged by the post-colonial conflicts leaving a legacy of relentless volatility, horrific violence, and widespread poverty.
Consider the atrocities committed by King Leopold II of Belgium in the so-called Congo Free State (today the Democratic Republic of the Congo, DRC) in the late 1890s, as he looted the country’s ivory and rubber. As Adam Hochschild recounts in his book King Leopold’s Ghost, a young Edmund Morel, who witnessed Leopold’s plunder for profit, described the forced labor, “directed by the [king’s] closest associates,” as “terrible and continuous.”
Women were abducted and raped. Men were enslaved and worked to death. Resisters risked death, and their hands would be severed – while they were still alive – as proof of punishment. And with nobody left to cultivate or find food, millions suffered near-famine and died of diseases that they might have survived otherwise. “It must be bad enough to stumble upon a murder,” recalled Morel. “I had stumbled upon a secret society of murderers with a King for a croniman.”
Well over a century later, the DRC still struggles to maintain peace and stability, let alone secure growth and development. Indeed, all of Central Africa has suffered from seemingly unremitting conflicts – a dynamic that, since the end of the Cold War, “developed into an avalanche of killing and destruction,” as the regional analyst and advocate Kris Berwouts put it a decade ago. Approximately six million people died as a direct or indirect consequence of the two wars in the DRC – in 1996-1997 and 1998-2002 – which followed the brutal genocide in Rwanda.
Yet, in spite of this history, Africa has managed to make important gains in recent decades. In Sub-Saharan Africa, GDP growth has averaged percent per year since 2000. For the entire continent, the rate is only slightly lower.
Moreover, according to a 2019 World Bank report, poverty in Africa (defined as income of less than USD 1.90 per day) declined from 54 percent in 1990 to just over 41 percent – affecting around 400 million people – in 2015. If the economy continues to grow at today’s rate through 2030, the continent’s poverty rate will decline to 23 percent. Given rates of poverty reduction elsewhere in the world, however, this would still represent a rising share of global poverty.
Africa has the potential to go much further. The world’s youngest and fastest-urbanizing continent, Africa will have 24 million more people, on average, living in its cities each year between 2015 and 2045 – more than India and China combined – according to a 2016 McKinsey & Company estimate.
This implies major increases in consumption. Already, spending by consumers and businesses in Africa totals USD four trillion. Household consumption is expected to grow by 3.8 percent annually until 2025, reaching USD 2.1 trillion, and business spending should grow from USD 2.6 trillion in 2015 to USD 3.5 trillion in 2025. Altogether, the McKinsey report predicts USD 5.6 trillion in African business opportunities by 2025.
Some of these opportunities lie in agriculture: if Africa, which possesses 60 percent of the world’s uncultivated arable land, intensified its agricultural productivity, it could produce 2-3 times more cereals and grains, with similar increases in horticulture crops and livestock. Other opportunities lie in infrastructure: as of 2010, Africa still needed at least USD 46 billion in additional spending each year to upgrade its energy, water, and transportation networks.
Of course, some valuable investment opportunities also involve Africa’s abundant natural resources, which include 10 percent of the world’s oil reserves, 40 percent of its gold, and 80 percent of its platinum. But the importance of such resources to Africa’s future prosperity shouldn’t be overestimated. According to a 2019 Goldman Sachs economic research report, commodities have accounted for only around 30 percent of Africa’s GDP growth since 2000.
In fact, the report concludes, the drivers of Africa’s “secular acceleration” appear to be “deep and structural.” This reflects success, which needs to be reinforced from now on by continuing to strengthen institutions, support political stability, promote democratization, enhance policy coordination, improve ease of doing business, reduce debt, open financial markets, attract foreign direct investment, facilitate technology transfers, and nurture human capital (such as through education and health care).
Some countries – particularly the smaller economies of East Africa – are already demonstrating how powerful such reforms can be. If the entire continent took this approach, sustaining and accelerating the needed reforms over the next half-century, some believe that Africa could emulate China’s rapid rise of the last 50 years.
But not everyone is optimistic about Africa’s ability to fulfill its promise. Some doubt that the continent will manage to overcome its legacy of slavery, colonialism, and great-power competition.
There are also concerns about the global economic landscape, especially trade tensions between the United States and China, and the attendant effects on growth and commodity prices. Much will hinge on the performance of Africa’s largest economies – Egypt, Nigeria, and South Africa – and progress on making the African Continental Free Trade Area a functioning regional economic bloc.
If Africa succeeds, it could lift millions of its own out of poverty, while serving as a stable and prosperous economic partner for the rest of the world. Otherwise, the continent will remain constrained by poverty, institutional lethargy, and corruption, which will feed instability, and possibly spill over to the rest of the world. Africa will soon to be home to one-fifth of the global population. The world would sleep easier if the continent could put itself on the road to growth and prosperity.
How to successfully seize Africa’s many opportunities
By: Jordan Rittenberry
Opportunities abound on the African continent. It’s home to six of the world’s fastest-growing economies; and has an average annual GDP that has consistently outpaced the global average. In addition, the African Continental Free Trade Area (AfCFTA) — ratified in July 2019 — holds the promise of greater economic development, job creation and poverty reduction, as well as a healthy return on investment for those looking to expand into developing nations.
It is clear that these factors, and others, have encouraged global investors to sit up and take a closer look at Africa as an opportunity for growth. The UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2019 stated that Africa has not only defied the previous year’s global slump in foreign direct investment (FDI) but it actually saw an 11 percent increase in investment up to June 2019.
In order to achieve meaningful growth by harnessing the opportunities the continent has on offer, companies need to take calculated risks, and expand their footprint and their capabilities. It’s important to understand which countries are appealing to investors, and why. Ideally you want to focus on strong markets, with a large pool of potential customers. Countries that are making it easier to do business there, by offering rebates, or shortening the length of time it takes to register a business, are also attracting investment. Countries that can act as hubs, potentially opening supply chains into different regions, are equally as important.
Apart from regulatory compliance, one of the biggest challenges you’ll face as you move into the continent is understanding how to identify and speak to local stakeholders, and connect with local audiences. The ability to address them — not in a homogenised, global voice — but rather one that is localised, authentic, and relevant will prove a critical step in your expansion journey.
Where the opportunities lie
There are 54 countries on the African continent, each one as diverse as the next, and each one offering different opportunities, in different sectors. If you’re planning on expanding your company’s footprint across the continent you need to confront this diversity and work towards understanding the accompanying nuances, and the regulatory environments that can affect your ease of doing business.
As we’ve worked towards our own expansion into Africa, we’ve made a point to consider markets that are consistently growing, that are attracting sizeable international investment, that offer us the opportunity to connect with the different regions from a logical and strong base, and very importantly – growth in sectors in which we are well-experienced in servicing.
According to UNCTAD’s report, much of the continent’s FDI comes from France, the Netherlands, the United States, the United Kingdom, and China, and it is interesting to see which regions, and specific countries and sectors are drawing the bulk of inbound investment.
FDI in North Africa rose by seven percent to $14 billion spurred on by investment into Morocco which increased by 36 percent. In Sub-Saharan and Southern Africa FDI rose by 13 percent to $32 billion. FDI held steady at $9 billion in East Africa — the fastest-growing region of the continent. West Africa’s overall inflow of FDI, dropped by 15 percent to $9.6 billion
Notable countries included Kenya, and Nigeria. Kenya’s FDI grew by an impressive 27 percent during the reported period, with investors favouring the manufacturing, hospitality, chemicals and oil and gas sectors. Their progress in facilitating private enterprise and foreign investment has improved the country’s Ease of Doing Business ranking, and its export processing zones (EPZs) are also proving appealing to investors.
Nigeria experienced a 43 percent drop in FDI, with most investment going to extractive sectors including oil, gas and minerals, however it was among one of the world’s top improvers in The World Bank Group’s latest Doing Business Study, having conducted reforms that impacted six indicators in the study. Kenya also carried out six reforms including improving the reliability of its electricity supply and introducing an online system for social security contributions, positioning it third-highest in the regional rankings.
Expanding your footprint and capabilities
One of the most important lessons to learn when you’re thinking of expanding into Africa, is that it’s not a one-size-fits all scenario. You are not simply expanding into Africa, more specifically you are expanding into Ethiopia, Ghana, Kenya, Mauritius, Nigeria, or Rwanda, etc. Each country has its own set of rules and regulations, culture and traditions, legacies that need to be embraced or enhanced, and most definitely its own ways of communicating. Each market is different. Each audience is unique. Your strategy for expansion will need to be well-researched, and appropriately focused, and communications strategies will need to be created with each specific market and industry in mind.
Expansion is always a risk — no matter who you are — and when you do decide to take the plunge and invest in new operations in a new country, realise that you will need to give it time to gain traction, sometimes years. Growth is about the long-term view. You will need to be prepared to weather any temporary storms that might result in a subdued income, such as an election, or a sudden rush for your product or service that could cause problems on the production side of your business, requiring you to suddenly scale to answer demand – which may not be possible. At such times, you’ll need to quickly manage the risk and protect your brand’s reputation too, to ensure the sustainability of your business, not just in that region, but in your home market too.
You will need to stay current with local market trends and consumer behaviours, as well as regulatory developments, all of which can have a huge impact on your bottom line. This is something that you can achieve by developing deep local connections and partnerships that can not only give you solid insights into your market and but also help you connect with customers.
By having the right partners in place at the start of your journey or acquiring local assets, expert talent and localised business models, you can gain a more solid foothold as you begin your journey, and can increase your organisation’s skillset, abilities and offering across a diverse geography. Building relationships and partnering with trusted local advisors who are able to assist you by providing context into local culture, regulations, working practices, and insights into your customer-base is hugely valuable.
Working closely with partners and affiliates across the continent will bring localised insights that really make a difference, enabling you to take bigger risks with your business solutions and create truly unique and carefully targeted communications. Having insights into infrastructural and regulatory challenges in the countries that you’re operating in will enable you to build comprehensive risk profiles, and craft specific and strategic reputation management plans. Fostering these important relationships allows an otherwise impossible level of oversight, and the ability to talk authentically to your audiences in their own language could be lost and your overall success impaired.
Growth is brought about by change, by taking risks, and by giving your business the best possible chance to succeed, and it all starts with confidently taking that first step. Let 2020 be the year you take that risk, that you set your business on a path to growth. Allow yourself to try something new — especially because you can’t be entirely sure of the outcome — and see where it takes you. You’ll certainly learn something new, and who knows, you might discover strengths and capabilities you didn’t know existed within your business — and that’s growth.