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Will domestic airlines benefit from Single African market?


By Muyiwa Lucas

It was the gathering of African leaders in Addis Ababa, Ethiopia for the 30th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU). Among the burning issues determined at the meeting, which held early last January, was the inauguration of the Single African Air Transport Market (SAATM).
 
With one voice, the gathering launched the liberalisation of the continent’s airspace for airlines registered in Africa, thereby liberalising aviation rules and regulations among the member countries. The policy, which literarily translates to open skies operation for African airlines within the continent, was aimed at creating a free market environment for airlines registered in the continent.
 
Under the AU Agenda 2063, SAATM is a flagship project targeted at establishing a single unified and liberalised air transport market on the continent. It was adopted by the AU Assembly in 2015 as a way of implementing the Yamoussoukro Decision of 1999 that provides for full liberalisation in terms of market access between African states, the free exercise of traffic rights, the elimination of restrictions on ownership and the full liberalisation of frequencies, fares and capacities.
 
According to the AU, the commencement of SAATM will create opportunities among countries on the continent to promote trade and cross-border investments both in the production and service industries, tourism inclusive. By extension, it would lead to the creation of more 300,000 direct and two million indirect jobs.
 
Eleven AU member-states, including Nigeria, championed the Declaration by signing the Solemn Commitment to actualise the Yamoussoukro Decision creating the single market. Signatories to the agreement have increased to 23 countries.
 
In May 2016, the AU also sought a further commitment of signatories and wrote to states that had signed the commitment to highlight a number of measures they should take as soon as possible to initiate operationalisation of the single air transport market on the continent. Among the measures was that each country should officially publish in accordance with its national regulations or gazette that they are committed to the immediate implementation of the Yamoussoukro Decision under the terms of the Declaration of Solemn Commitment in line with the AU Agenda 2063. Nigeria was a signatory to this.
 
As at the last count, 22 other member-nations have penned the document. They include Benin, Burkina Faso, Botswana, Cape Verde, Republic of Congo, Cote d’Ivoire, Egypt, Ethiopia, and Gabon. Others are Ghana, Guinea, Kenya, Liberia, Mali, Mozambique, Niger, Rwanda, Sierra Leone, South Africa, Swaziland, Togo, and Zimbabwe.
 
A simple analysis of the signed up countries that have ratified the policy had a combined population of about 670 million. Besides, as at 2015, this figure amounted to a combined Gross Domestic Product (GDP) of $15 billion, which was over 65 per cent of the continent’s average $1888 per capita.
 
Euphoria
 
For the international community and critical stakeholders in the aviation industry, this presents a new dawn for air transport business in the continent. According to “Flying Doctors Nigeria,”a member of the British Safety Council that specialises in providing medical solutions such as air ambulance and medical evacuation, among others, Africa is home to 12 per cent of the world’s population, but it accounts for less than one per cent of the global air service market.
 
The body, citing a World Bank study, argued that part of the reasons for Africa’s under-served status is that many African countries restrict their air services markets to protect local, state-owned air carriers. However, many of these state-owned airlines lack efficiency resulting in inflated fares, sub-optimal service and poor safety. It noted further that Air travel choices in Africa remains constrained by sub-optimal travel conditions such as long layovers, high fares, safety issues, uncertain flight schedules and poor quality of services, underscoring the challenges facing air carriers trying to attract passengers and at the same time make profits.
 
For instance, Flying Doctors noted that Cape Verde is just four hours away from Lagos and holds massive potential as a destination for Nigerian holiday makers. However, in order to get to Sal, Cape Verde, a passenger must first fly to Morocco which is four to five hours from Lagos. Then, after a stopover of up to 12 hours in Casablanca, the traveller will proceed on another three hours flight to Cape Verde. But with SAATM, the cumbersomeness of trips like this will be eradicated.
 
Such positivity remains the driving force for other bodies like the International Air Transport Association (IATA), whose belief in the initiative is buoyed by the multiplier effect the enhanced connectivity would stimulate. The global body is convinced that SAATM will enhance travel demand, improve the competitiveness of the African airline industry, and make air travel more accessible. In turn, IATA is hopeful that it would enable higher volumes of trade, expanded tourism and growing commerce between African nations and with the rest of the world.
 
”The SAATM has the potential for remarkable transformation that will build prosperity while connecting the African continent. Every open air service arrangement has boosted traffic, lifted economies and created jobs. And we expect no less in Africa on the back of the SAATM agreement. An IATA survey suggests that if just 12 key African countries opened their markets and increased connectivity, an extra 155,000 jobs and $1.3 billion in yearly GDP would be created in those countries. It is an important step forward. But the benefits of a connected continent will only be realised through effective implementation of SAATM—firstly, by the countries already committed, and also by the remaining 32 AUmember-nations still to come on board,”  IATA’s Vice President for Africa, Raphael Kuuchi, said.
 
While Kuuchi sees SAATM as a decisive step towards greater intra-African connectivity, as greater connectivity will lead to greater prosperity of both operators and government, there is palpable fear and discontent in the domestic industry. Among many industry players, the belief is that SAATM would make it difficult for member-countries that have adopted the policy to resist the temptation to protect their own airlines, accept uniform tariff for aviation charges, and open their airspace benevolently to other airlines in Africa.
 
 
Short-comings 
For airline operators in the country, the signing up of SAATM may be noble on paper, but there is a need for the government to thread with caution, especially because of the dangers of the direct impact of the decision on the local industry, the airlines and the economy as a whole.
 
Airline Operators of Nigeria (AON) Chairman, Captain Nogie Meggison, said the domestic airlines are aversed to this policy because of the timing, which it says is not right. This is because there are numerous unresolved issues and challenges being faced by Nigerian aviation that will, ultimately, undermine the perceived gains of this treaty.
 
Meggison highlighted some of the problems that has put the country at a disadvantage of competing favourably in the open skies treaty to include the requirement of visas to 34 African countries from Nigerians who are supposed to be travelling within Africa under the open sky treaty require as a prerequisite; for now, only travels within West Africa are Nigerians allowed free movements with visa issued at entry points.
 
Besides, he said other African airlines that would be in competition with Nigerian carriers are largely government-owned and heavily subsidised. For instance, the AON boss explained that South African Airways got, on the average, about $350 million yearly in the past decade; Kenya Airways got about $600 million in 2016, while RwandAir has never published its financial results for over a decade.
 
“Nigerian airlines have a high bank interest rates of 28 per cent compared to access to cheap funds provided and guaranteed by the government of most African carriers at a maximum of two per cent,” Meggison lamented. He added that while domestic airlines pay VAT to the government, most African carriers do not pay VAT both in their various countries as well as here in Nigeria. This, he explained, was already a deficit of five per cent on a small margin industry from the start for the airlines.
 
Other challenges, he noted, to include that the taxes/charges around Africa are not uniform across board. “African governments should first ensure all the taxes are uniform among countries before the implementation of the open skies treaty. For instance, when  airlines fly to some African countries they charge the operators heavy landing fees in excess of $5,000 – $6,000, whereas the same African countries subsidise their local operators who pay $200 for the same service. But when they fly into Nigeria, they pay a mere $500, the same as our local carriers,” Meggison noted.
 
He warned that a full implementation of SAATM would lead to massive capital flight, huge loss of jobs for youths and a mortgaging of their future, as well as a further collapse of the already failing aviation system.
 
“Nigeria is simply not ready to handle the level of unfair competition the full implementation of SAATM will bring upon the country,” Meggison submitted.
 
A step in the right direction
 
But while the AON holds this position, the policy has gained support from other stakeholders. The Managing Partner, Belujane Konzult, Mr. Chris Aligbe, said rather than the AON complaining, they should have been proactive and keyed into the policy. He revealed that the SAATM  was signed in 2014, and only being implemented this year. “Our domestic operators did not react positively to this policy. They (AON) had four years to prepare and key into it. You cannot stop a moving train,” Aligbe said.
 
He advised AON to do the right thing instead of blaming the government for their misfortune. He is convinced that if domestic carriers got their acts together, SAATM can be exploited to Nigeria’s advantage. “AON should be proactive. They are kicking against everything including the planned Nigeria Air. They should act fast because it is not Nigeria Air that will fight them but airlines like Ethiopian Airline, which flies into five destinations in the country; Ghana Air, among others. Other domestic carriers should be happy that the policy benefits of Nigeria Air will rub off on them,” he said.
 
Aligbe, a former Public Relations manager in the defunct Nigeria Airways, explained that SAATM will be extremely beneficial to the country and her domestic industry if “we wake up and key into it.” He said the birthing of Nigeria Air was appropriate because that is the only way Nigeria can benefit from SAATM. “If Nigeria Air is properly run as being touted, then we will benefit alot from SAATM,” he said.
 
Aligbe, however, cautioned on the choice of partner for the Nigeria Air, warning that on no account should it be made to partner with Ethiopian Airline (ET). His reasons: “Look at what ET has done. In 2017, ET carried 203, 000 passengers out of Nigeria, well ahead of British Airways that lifted 123, 000 passengers and Emirates’ 103, 000. Besides, ET’s subsidiary, A-Sky operates six to seven flights into Nigeria weekly; ET has invested in Rwanda Air and Air Namibia. Very soon, ET will become an octopus taking over the market. That is why Nigeria Air must not be made to partner with the East African carrier,” Aligbe warned.
 
Already, Overland Airways, a Nigerian carrier, is taking advantage of the policy. The airline recently began flight operations into Lome, Togo. Other airlines, such as Aero contractors and Medview, are expected to spread their wings to more African countries in the coming days.
 
African Civil Aviation Commission (AFCAC) Secretary-General, Mrs. Iyabo Sosina, also admonished Nigerian airlines to prepare themselves to compete; otherwise, they would be overtaken by the new policy, which is projected to boost the economy of the continent. However, she said AFCAC was talking to those countries to review downwards their charges and open up their processes to allow the single market policy to work.
 
Nigerian Civil Aviation Authority (NCAA) Director-General, Captain Muhtar Usman, said SAATM would create more jobs in the aviation and tourism sectors of the continent, increase member states’ yearly GDP and revolutionise interconnectivity within the continent, among others.
 
The Minister of State for Aviation, Senator Hadi Sirika, speaking in an earlier interview with reporters, said Nigeria, with a market of over 173 million people, half of the size of West Africa, will be the greatest beneficiary of this treaty. He explained that at the time the country was pushing for this, Nigeria Airways was in existence, hence the country would have taken advantage of it.
 
“So, I believe that we are on the right course. I believe that the national carrier, which would be driven by the private sector, once established, will become a dominant carrier in Africa. This is because Nigeria is the market. Nigeria’s centrality to Africa by its location is equidistant from the farthest point in Africa and with the population of 173 million people, we have the market in the continent, and this is coupled with the fact that Nigerians are very mobile. We are great travellers. We almost travel for nothing. So, Nigeria is in a very vantage position to benefit hugely from SAATM,” Sirika said.
 
The minister revealed that the Nigerian carriers were at the forefront of the campaign to respect and to implement the Yamoussoukro Decision at the time they felt the treaty would be to their advantage.  According to him, “Nigerian airlines have refused to grow and their challenges are not caused by government. They are responsible for those challenges. I boldly invite them to come and very soon there will be stakeholders meeting where the airlines will be present. We will dialogue about their situations. My advice to them is to get their acts together to focus, to reorganise, to re-engineer and take advantage of this opportunity offered by SAATM and be futuristic rather than to sit here while the train is moving and begin to whine’’.