Ethiopian air transport market set to grow by 226 percent
The International Air Transport Association (IATA) this week announced that foreign airlines operating to Ethiopia have USD 70 million blocked funds in the country.
The trade association on Wednesday released the value of aviation report on Ethiopia. The report indicated that airline funds blocked from repatriation in Ethiopia stand at USD 70 million. “The government should continue working with the industry on ways to make these withheld funds available. Airlines need to have confidence that they will be able to repatriate their revenues to allow the full benefits of aviation to be realized,” IATA said in a statement.
The value of aviation report was launched in Addis Ababa in the sidelines of the Aviation Africa Conference and Exhibition held on March 4-5, 2020 at Ethiopian Skylight Hotel. Presenting the report Raphael Kuuchi, IATA’s especial envoy to Africa, said that there is an issue of blocked funds in Ethiopia in connection with the country’s foreign currency policy.
“Some of it is not directly the government’s fault but some of it is because of the policy and regulations around foreign currency in the country. Currently, we have around USD 70 million airline funds that they cannot move out of the country because of various restrictions and limitations,” Kuuchi said.
The central bank, National Bank of Ethiopia (NBE), has stringent foreign currency regulations on foreign currency repatriation. Foreign airlines operating to the country and selling tickets through travel agents have to present their monthly sales report to the central bank.
The central bank’s regulation requires non-citizens buying tickets in foreign currency provide some documentations. At the end of every month the travel agents and the airlines are supposed to submit returns to the central bank. After receiving the monthly report of all foreign currency transactions the airline would be allowed to remit 90 percent of the sales for that month. But ten percent is withheld pending an audit of sales returns that have been submitted to the central bank.
“Once the central bank audits all the documentations rightly submitted and is okay they clear for you to remit the remaining ten percent. However, the audit process is not efficient,” Kuuchi said.
The central bank does not have a dedicated team who works on the audit. “And because of that it could take about six month until the documents are audited and the ten percent would be accumulated,” Kuuchi said. “You cannot remit your sales 100 percent every month. You can remit only 90 percent. In other countries you can remit 100 percent of your sales at the end of the month,” he added.
Kuuchi said the airlines would eventually get their money. However, he said, they do not get it as early as they want to get it considering that cash flow is becoming a critical element for airlines. “We know that eventually the fund would be released. We are working with government to try to improve the regulatory frame work around foreign currency repatriation so that airlines can freely move their money. If airlines can move their money quickly I am sure many more airlines would want to come in and do business here and that would grow the traffic significantly.”
The central bank’s policy is not new. It has been there since time in memorial. Technically it is a blocked funds because it has not been released with the period it is supposed to be realised. If airlines are not able to repatriate a fund within 90 days after concluding the sales it considered as a blocked fund.
IATA’s economic report identified air transport and tourism as significant economic enablers. Air transport and foreign tourists arriving by air currently support 5.7 percent of the nation’s GDP valued at USD 4.2 billion and about 1.1 million jobs. “If the current trends persist, Ethiopia’s air transport market will expand by 226 percent over the next 20 years with an annual passenger journeys increasing from 7.2 million in 2017 to 23.5 million a year by 2037,” IATA said.
The 20 year forecast illustrates that the GDP contribution would be 13.5 billion USD and the aviation sector would be employing 2 million people. IATA believes that the Ethiopian air transport sector can perform even better with market liberalization. The association says with the implementation of the Single African Air Transport Market (SAATM) the number passenger could surge to 25.9 million and the GDP contribution to 14.9 billion and number of jobs supported by aviation to 2.2 million.
In Africa air transport employs 6.2 million people and contributes 55.28 billion USD to the continent’s GDP.
Raphael Kuuchi said that the Ethiopian government is supporting the development of air transport sector. “Ethiopia is doing so well in air transport. Ethiopia as a country supported its air transport industry very well. I am sure all of us can be a testimony to that,” he said.
By looking at the World Economic Forum competitiveness index Kuuchi said that there are some areas where Ethiopia has made significant progress but there are other areas where still require improvements.
The World Economic Forum competitiveness index indicates ranked 44th out of 136 countries in visa access. “This is not current. This depends on the 2017 data before Ethiopia launched visa on arrival and e visa. If we are doing the report today I am sure Ethiopia would be in a much better position,” Kuuchi said.
In cost competitiveness (By cost labor, cost of resources) Ethiopia ranked 55 out of 136 countries. “This is quite impressive. In terms of cost Ethiopia is much more competitive compared to many other countries around the world,” Kuuchi said.
“But if you look at cargo facilitation Ethiopia is 86 out of 124 countries. Ethiopia is a major cargo hub for the continent but its ranking here shows that there is a lot that still needs to be done if Ethiopia is to assume its rightful place as the most competitive cargo hub in the continent,” he added.
Trade facilitation is the other area that Ethiopia has not done so well. In enabling trade facilitation Ethiopia raked 117 out of 136 countries. “This ranking indicates that Ethiopia is not pro trade facilitation. It does not facilitate trade as a government or as a country. The essence of this report is to see where we have done well and where we need to improve so that we can get things right,” Kuuchi said.
The association believes that there are a lot of things that Ethiopia can do to further boost the growth of air transport. It urges the government to continue pushing for the implementation of SAATM, improve cargo facilitation and consider infrastructure development.
IATA is the trade association for the world’s airlines, representing some 290 airlines representing 82 percent of global air traffic.