BY RICHARD LI
While Africa has one of the biggest populations in the world, its aviation industry is still small, representing only 2% of the global market. Despite all the major challenges ahead, this is an industry that has very big potential for future growth in Africa. One of the reasons why African countries seem unable to attract a large amount of foreign investments, is that there is no direct airline connection to reach them. As a result, business travel and costs of doing business become prohibitive. Foreign investors are less likely to travel to distant and not easily accessible places, even if there are great opportunities. As a result, aviation in Africa should be considered a priority sector by the respective African governments so that it can boost the economic development of their countries.
Aviation as a pillar for economic growth
Being the biggest pan-African airline, Ethiopian Airlines has greatly contributed in making the Addis Ababa Bole Airport an aviation hub and a gateway to Africa. Similarly, for Kenya Airways, the Jomo Kenyatta International Airport in Nairobi is a springboard to access not only the east African region, but also the central and western part of Africa. As for South African Airways, from its Johannesburg base at OR Tambo International Airport, it covers most of the southern African region. Except for South Africa, where its economic growth stagnated in 2016 and eventually fell into recession in the first quarter of 2017, Ethiopia and Kenya grew at a very fast rate of 7.5% and 5.8% in 2016
respectively. In the north, Casablanca, Algiers and Tunis are the major gateways for Europe to access both the Maghreb region and the western African region.
As for the Middle East countries, Cairo is the major gateway to access the major African cities in the northern, eastern and western regions. All these aviation hubs in Morocco, Algeria, Tunisia and Egypt have contributed to the high growth rate of passenger traffic, increasing by 94%, 95%, 75% and 108% respectively from 2005 until 2015, according to data from the World Bank. Aviation is the critical link that not only connects Africa to the world, but also builds bridges among the various African countries. It is only when there are better airline connections, enabling the movement of goods and people, that business activities can flourish. With lower business travel costs, countries can then better attract foreign investors and create better business opportunities.
According to the United Nations Conference on Trade and Development (UNCTAD), the top-five African countries that had the biggest stock of foreign direct investment (FDI) in 2016, are South Africa, Egypt, Nigeria, Morocco and Angola, with US$136.8bn, $102.3bn, $94.2bn, $54.8bn and $49.5bn respectively. Of the five countries, only South Africa, Egypt and Morocco have a major national carrier.
From the 2016 World Bank statistics, among the top-10 fastest-growing economies in the world, there are three African countries – Ivory Coast, Ethiopia and Tanzania, at third, fourth and 10th position respectively. Moreover, the top-10 fastest-growing African countries grew by at least 5% in 2016, with Ivory Coast the highest at 7.8%. Among these 10 countries, only Ethiopia and Kenya have a major national carrier, while Ivory Coast, Senegal, Djibouti, Mali, Burkina Faso and Togo have mainly small regional and domestic carriers.
As for Rwanda and Tanzania, they are investing massively to build their national carriers and support their economic growth. In 2016, RwandAir took delivery of two new Airbus A330s, enabling it to reach London and other major European cities in the future, whereas Air Tanzania is investing in a new Boeing B787-8 Dreamliner, as well as two Bombardier CS300 aircraft. For 2016, those fast-growing countries – Ethiopia, Kenya, Rwanda and Tanzania – that have or are in the process of further developing their national carriers, have been able to attract significant FDI of $3.2bn, $1.4bn, $410m and $394m respectively.
As for the others without a major national carrier connecting them globally – Ivory Coast, Senegal, Burkina Faso, Togo, Djibouti, and Mali – they attracted significantly less FDI with $481m, $393m, $309m, $255m, $160m and $126m received respectively. Hence, if these countries are able to boost their national carrier and aviation sector, there may be a greater possibility of attracting bigger FDI.
Besides developing the aviation industry, the increasing passenger traffic not only helps to support its growth with increasing connectivity, but it also brings about economic spillovers like the creation of jobs in hospitality, tourism, logistics and other industries. According to the Air Transport Action Group (ATAG), the aviation sector supports about 6.8 million jobs and generated $72.5bn to the African economies in 2014.
Potential opportunities from aviation
There are tremendous opportunities that Africa can tap into in the aviation industry. At the moment, the passenger traffic is mainly from 10 African countries, representing a population of about 600 million. If there is a 1% traffic increase from the other half of the African population, there will be an increase of about six to seven million passengers every year. Besides, with the rising middle class in Africa, there will be higher demand for travel. As a result, the increasing passenger traffic will easily justify the heavy investments needed in airlines and airport infrastructure.
According to 2014 data from ATAG, the spill-over effect from aviation can be enormous for African economies. For instance, a vibrant aviation industry can eventually support the development of the tourism industry, as well as other related industries like freight and logistics. For every dollar invested and contributed by aviation to the local economy, there is a multiplier effect of six times more on the wider economy.
In addition, for every job directly created by the airlines, another 50 jobs are created in other industries. The tourism sector is the greatest beneficiary with 44 potential jobs created. This means that if the African governments, including those in the 29 African countries where aviation is practically non-existent, invest in their own airlines and airports, the benefits can be significant for the continent as a whole.
While 44 African countries have endorsed the Yamoussoukro Decision in November 1999, the progress made on opening the African skies for air transport has been indeed negligible. The inability to have greater transnational air access has hampered the development of aviation, hence the low intra-African air connectivity. As a result, this creates a big dilemma. On the one hand, African countries want to protect their own aviation industry, but on the other hand, without reciprocal air access to connect with bigger markets from other countries, they are unable to attract foreign investors to develop this sector.
Consequently, it seems that Africa is evolving within two paradoxes. First, some African countries are restricting their own air access, while they may not even have a proper national carrier or aviation industry. Second, while the African carriers face market restrictions within Africa, the global carriers are provided with greater access. As a result, they are slowly but surely penetrating and entrenching themselves deeply within the African markets. For instance, European carriers like Air France-KLM and Lufthansa, as well as Emirates from Dubai, are extending their reach to more and more African destinations.
It’s better late than never for the African governments to act on the Yamoussoukro Decision. Greater access to the African skies means a bigger potential market to tap into. Since aviation is a very capital-intensive industry, a bigger market will then be more attractive for potential investors to bring capital and expertise. As a result, more national carriers and low-cost carriers can be created, thereby increasing the intra-African air connectivity between major cities. In the end, this will bring about greater economic benefits and spillovers to the broader economies within Africa.
African governments need to rectify the situation in the aviation industry, by gradually opening their skies to other African carriers. While they can still focus on building their own national carriers, they can slowly liberalise this sector. Not only can aviation then be an economic catalyst by providing a strong impetus to the overall economy, but it will also build the links and strengthen the bonds among African countries.
Source: How we made it in Africa