Over the years, growth in the African aviation sector has been somewhat stunted. When placed side by side with the industry norms, on a global scale, the African sector has been left playing catch-up, several steps behind the pace.
The sector has operated in a fragmented airspace, making it difficult for the ease and fluidity of intra-continental connectivity. This fragmentation has been greatly influenced by the slow process of negotiating air service agreements on a country-by-country basis. However, this cannot be considered the sole source of concern for the continents aviation industry. Ill-managed airline resources, and persistent government and political intervention in the commercial decision-making process and the airlines’ operations, have also been significant handicaps across the entire sector. This ‘shackling’ has often resulted in a dependency on state aid and bailouts; a process which was accelerated by the adverse effects of the coronavirus earlier in the year 2020.
For decades, connectivity and ease of trade and travel between countries have been the underlying factors stimulating growth and development across every sector of the aviation industry. However, these factors stretch their influence beyond passenger traffic activity, and are also important considerations in the logistics industry; as are presently being demonstrated in the now lucrative appeal of the airfreight market, and its fringe environments.
But, in Africa, practices appear to be changing. Already, significant shifts are occurring in industries right across the continent – including the aviation sector – which seems to be preparing for a reboot and a burgeoning cycle of growth and innovation.
Policy Reforms
One response we have already seen from the African Union (AU), is the establishment of the ‘African Continental Free Trade Area’ (AfCFTA). The AfCFTA is designed to create the largest free trade area in the world – measured by the number of countries participating – and potentially reshaping the sector’s markets and economies, by combining its fragmented elements into a single market place for services, goods, business, trade, and investment.
The agreement – which favours opportunities to fill in the projected airfreight demand and capacity of the sector’s export-import and cargo markets – came into effect on 1st of January 2021.
Ethiopian Airlines-DHL, along with the African Electronic Trade (AeTrade) Group have already aligned to this new market after announcing their partnership to transport historical cargo under the AfCFTA market regulations. Additionally, with signatures from 54 African Union members, intra-Africa trade is expected to benefit from a 52% boost by 2022.
The AfCFTA agreement reduces all trade costs and tariffs in the region, thus, boosting the sector’s exports and output in services, manufacturing, and natural resources. Backed by trade facilitation, simplified customs procedures, and tariff liberalisation, the continent’s income has been forecast to grow by 7% by 2035 – adding $450 billion across the continent, along with $75 billion globally.
With less red tape and trade restrictions, exports are expected to increase by $560 billion. This can be taken as an indicator to the coming increase in the African continent’s international integration, via global supply and logistics chains, and an uptick to freight services and the capacity to fulfil that growth sector. With a free flow of goods, the agreement will create a competitive business environment, and strengthen both intra- and international trade, by connecting over 1.3 Billion people across 55 countries with a combined GDP value estimated at US$3.4 trillion.
Another monumental and long-awaited agreement in the pipeline is the ‘Single Africa Air Transport Market’ (SAATM). Currently signed by 34 countries, the SAATM is a flagship project of the AU and is a vital component of an initiative designed to create a single and unified air transport market in Africa. Thus, liberalising civil aviation across the entire region.
Initiated in 2015, and intended to be established in 2017, the SAATM aims to accelerate connectivity and amplify intra-African passenger activity, tourism, and trade. This process will be pivotal in stimulating African passenger traffic, along with ramping up manufacturing and production in key sector activities, such as the logistics of fresh produce from the continent’s agricultural communities to global markets. Despite the agreement having been delayed by almost four years, the momentum of the continent’s ambition to integrate with global economies, accelerate economic recovery from Covid-19, as well as the IATA’s efforts in urging the continent to ramp up its implementation of the SAATM and the now implemented AfCFTA agreement, will all act as the momentum designed to ensure its eventual materialisation.
Consider the global coffee bean market. In 2019 the market was valued at US$24.39 billion; a figure that is forecast to grow to $30.22 billion by 2025. This demand and expansion are driven by the growing popularity of coffee consumption in younger populations, along with the perceived and associated health benefits in massive economies such as India, China, and Europe.
Today, Ethiopia (5th) and Uganda(8th) are among the top 10 largest coffee-producing countries in the world, at 384,000 and 288,000 metric tons respectively. Together, the East-African countries export their products largely to Europe, Japan and the United States, while consistently paying close attention to the process of targeting new and expanding markets.
In 2017, Ugandan coffee producers reported a 36% growth in production and a 15% growth in exports. This increase in their share of the global coffee market directly resulted in new global regions gaining access to their product. The free trade and market policies from the implementation of the AfCFTA and SAATM will not only expand activity in Africa’s produce, trade and export sectors, but will allow its markets to maintain, and potentially expand their shares in global supply chains.
Already there is a buzz of excitement among African business sectors, such as Ethiopia’s and Uganda’s coffee bean market, along with the Kenyan flower-production and export market; a sector that is projected to become a multi-billion-dollar global industry. All of these positive developments lay the solid foundations for an entirely new economic environment with exponential opportunities right across the aviation sector.
Enhancing connectivity through normalising partnerships and bilateral agreements
In order to help foster liquidity, and create a stable financial operating environment to boost commercial revenue, 2020 has seen an increase in partnerships and bilateral airline-to-airline, and airline-to-institution agreements. The industry is also prepping for new carriers and start-ups hoping to ramp up international and domestic routes.
Green Africa Airways – a Nigerian start-up – formed a strategic partnership with First City Monument Bank allowing the airline access to up to $31 million through the combination of a standby letter of credit and rolling working capital. Additionally, both the bank and airline, will develop a proprietary educational loan product for a proactive human capital development platform. This fund will be used to train pilots, engineers, cabin crew members, safety professionals, and other technical personnel involved in commercial, operational, and aviation finance functions.
Nigeria has also set in place a strong foundation for the development of its aviation footprint internationally by ratifying Bilateral Air Service Agreements (BASA) with the US and India, along with Morocco, and Rwanda locally. This process will open up its skies to more international carriers, while also strengthening local carrier activity.
In late 2020, The Algerian Government revealed its intent to launch a new domestic carrier, allowing its legacy carrier – Air Algerie – to focus more intently on international routes. This move by the government is aimed at stimulating private sector activity and involvement in the country’s transport industries. With the assistance of EgyptAir, the Ghanaian government has also been visibly active in establishing a new airline. Negotiations were concluded in December 2020 and the deal – pending parliament approval – is expected to place EgyptAir as the majority stakeholder.
In Southern Africa, between late October and mid-November, Emirates announced separate interlining agreements with both Airlink and FlySafair. Both agreements give Emirates travellers, on routes such as Dubai – Cape Town/Johannesburg, greater access and connectivity to over 45 South African destinations, allowing customers to purchase a single itinerary with the airlines, including combined luggage tagging. For the South African carriers, this is strong and reliable traffic source which in turn will generate much-needed revenue.
Another carrier making shapes in the market is ‘Lift’ – a low-cost South African start-up airline. The airline is comprised of an Airbus A320 fleet that debuted in early December 2020. Founded by former Uber Africa executive, Jonathan Ayache, and former joint CEO of Comair and founder of Kulula.com, Gidon Novick, the airline is a partnership with South African outfit Global Airways, – an operator of Airbus A320 aircraft – and is betting its success on low operating costs and low oil prices; a phenomenon experienced across the aviation industry throughout 2020.
Technology and Infrastructure Development
Technology, and its implementation, will play a massive role in transforming the African sector and establishing deeper global integration and competitiveness. During 2020, the airfreight market has recorded a phenomenal year in shipment volumes across all economies, with revenues expanding fourfold in comparison to 2019 prices. African ports in central-eastern (Nairobi, Kenya) and central-western (Accra, Ghana & Lagos, Nigeria) regions of the continent, have also recorded a dramatic increase in E-commerce shipment volumes throughout the year – this is in strong correlation to the increase in cargo activity world-wide, the rapid expansion of the global E-commerce market and its capabilities, and these particular African regions openly embracing online shopping activities.
Due to the emergence of direct sales via e-commerce platforms, the global floriculture industry is seeing multi-billion-dollar potential, particularly from Kenya’s flower production and export market. In 2017 the combined revenue generated from 160,000+ tons of Kenyan flower exports was over US$800 million. This included exports to customers in 60 countries worldwide, including the European market which holds a 40% share of all flower imports from Kenya. Europeans spend upwards of €20 billion per annum on flowers, with destinations such as Aalsmeer, Netherlands – the home of the world’s largest flower auction – receiving 42 floral cargo flights from Kenya per week.
It is widely acknowledged, that flower exports are heavily dependent on auctions which take place offline. However, one sea change in the industry is the emergence of direct sales via e-commerce platforms and innovations from start-ups attempting to create platforms hosting auctions. In Kenya, this innovation could potentially enable Kenyan flower growers to disrupt the global floriculture industry by bypassing auctions and sourcing their own markets. With demand rising in the US and Russia, direct sales of flowers in 2019 rose to €2.3 billion while auction sales stood at €2.1 billion. Kenyan exporters are also focusing on markets in the Far East, such as China and India, and with advancements in cold chain logistics, these markets are now within reach.
Drones are predicted to be the future of logistics; laws for their commercial use have already been set in place. Drone delivery implementation is expected to be adopted in more and more African countries, in both urban, and remote locations. Countries such as Rwanda, the DRC, and Kenya have been piloting the use of drones for the supply of healthcare supplies, goods, and medical information to hard-to-reach areas, helping ensure that cold chains and vaccine quality is maintained.
It is estimated that every year, from a humanitarian point of view, there are 100 million people served on the continent who can, and are reached by airdrops, whereas 20 million people remain out of access – a market whose infrastructure is developing rapidly at increased levels, right across the continent.
Ethiopian Airlines, as the leading carrier in passenger capacity operating in sub-Saharan Africa, and with the youngest and most modern fleet on the African continent, has been, and continues to be a polished gem, dominating the industry. Despite being a state-owned company, its independence from government intervention in operations, and a sound business model hinged on a heavy cost reduction program – that targets 10% to 20% of yearly savings – have combined to allow the carrier to thrive and withstand the effects of 2020. This success has come with no financial aid or bailouts and zero defaults in payments to date, despite losing half a billion dollars to the pandemic.
Its graceful navigation of 2020 can be attributed to firmly establishing its operations in the airfreight market, along with its flexibility in increasing cargo capacity, through the conversion of 25 of its B777 passenger aircraft.
The airline has already positioned itself to reap not just the benefits of the cargo market boom, but also from the benefits associated with the move towards digitalisation. The growing list of the airline’s innovations are highly impressive; the completion of a new airport terminal at its hub in Bole International Airport, Addis Ababa, complete with 60 check-in counters, 30 self-check-in kiosks, ten self-bag drops/SBD/, 16 immigration counters, with more e-gate provisions, 16 central security screening areas, and 3 contact gates for wide-body aircraft, along with 10 remote contact gates. All of this innovation strongly highlights its capabilities in adopting biosecurity and biosafety measures in a world veering towards contactless interaction.
These are all integral parts of realising its 2035 vision plan to develop Africa’s largest airport, estimated to have a construction cost of $5 billion, and poised to handle 100 million passengers per year. Ethiopian Airlines continues to consolidate its position as one of the top international airlines anywhere in the world, and prove that a sound business model can thrive within the African airspace.
However, looking at the sector as a whole, one underlying factor to its future success is the continent’s infrastructure, and the resources being channelled towards its development. Many of the sector’s leaders and global institutions, such as the International Air Transport Association (IATA), Airports Council International – Africa (ACI Africa), and the International Civil Aviation Organization (ICAO), unanimously share a common sentiment. They are firm in their belief that opening up African economies and reforming their policies – enabling an environment which allows for ease of investment that is conducive to attracting private sector involvement – is paramount as a means to address and meet the emerging demand. The current pandemic, and its sweeping wave of changes, should be taken as a wakeup call, illustrating the fact that sound investment into infrastructure, increased capacity, and human resources are unavoidable going forward.
What is left now, is the ability for carriers in the sector to align their models, infrastructure, and resources in preparation for what looks to be, a bright new era for the African aviation sector.