AfCFTA: The African Airlines' hanging fruit
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Africa must eliminate import taxes and Prioritize of Air transport to actualize the Continental Free Trade Area, AfCFTA, born just slightly over a month ago. Both decisions, say, experts, can result in rapid growth in intra-Africa trade.
Intra-Africa trade is hardly 15 percent of total trade in Africa. This means that dependence on taxes from the Intra-Africa trade to support fragile budgets is not significant. And with the US$1 billion compensation fund set by Afrexim Bank, the decision can be made immediately.
According to the UN Economic Commission for Africa, UNECA, removal of import duties will increase intra-Africa trade by 52.3 percent, and double it if non-tariff barriers are removed. In other words, removing import taxes will raise intra-Africa trade to 23 percent in the short run. In the same breath, UNECA says that removal of nontariff barriers will double intra-Africa trade to 30 percent in the short run.https://au.int/en/document/36085-doc-qacftaenrev15marchpdf
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AfCFTA has created the largest free trade area in the world, after the WTO, experts say. With a total population of 1.2 billion, a total GDP of $2.5 trillion, and total business and consumer spending in excess of $4 trillion a year .https://www.imf.org/external/pubs/ft/fandd/2018/12/afcfta-economic-integration-in-africa-fofack.htm
This is a mouthwatering prospect for the Small manufacturing enterprises in the Continent who are constrained by small domestic markets and poor transport infrastructure.
The major nontariff barrier is transport; for Africa suffers a dearth of transnational transport infrastructures such as roads and railway lines. Overland infrastructure is expensive and takes longer to develop.
According to Africa Development Bank, AfDB, Africa needs to invest anything up to US$160 billion a year on hard Infrastructure- Roads, Railroads, power generation, and Water supplies- for nearly a decade in order to meet all infrastructure needs.
Of this, the continent can raise only US$50 billion a year internally, leaving a yawning gap of US$107 billion a year. This means that for every year’s worth of investment in infrastructure, Africa is two years behind the ideal.
The major immediate solution to this handicap is air transport, say, experts.
Without reliable overland transport, African Airlines must step in and fill the gap to actualize this dream. According to International Air Transport Association, IATA, there are 349 commercial Airports in Africa, giving an average of six Airports for each country. https://www.icao.int/
This suggests that Airports are underutilized.
This suggests that Airports are underutilized.
The same presentation shows that there are 161 airlines that do 1.13 million flights a year, transporting 98 million passengers. These numbers give the following averages; each flight carries 87 passengers. Further, each of the 161 airlines ships an average of 609,000 passengers per year. No wonder African airlines are the most expensive in the world because of low- load factor.
In January last year, Africa liberalized Air transport by launching the Single Africa Air Transport Market, SAATM. This means that an “eligible” aircraft or airliner from one African country can fly over another African country’s airspace and land on its territory by using a simple prior notification procedure, says IATA.
According to IATA, the liberalized Airspace creates opportunities for African Airlines to increase its frequencies and traffic in the continent. And since air travel is faster, it will raise the efficiency of delivery leading to improved economic efficiency and lower costs. Since Air transport is an enabler, its growth will lead to growth in other sectors of the economy dependent on it.
The 161 airlines, according to IATA, generate US$55 billion a year. All are in the red, posting losses of up to one percent of the revenue in 2018. This was a major improvement from losses of up to six percent in 2015. But liberalization will see air transport’s contribution to the GDP rise.
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large footprint Africa to turn round
It is, therefore, time the airlines moved fast to fill this gap, increase business for themselves and their customers, and pad up their bottom lines. They have a lifeline, let them grab it. Since a large proportion of the airlines are state-owned, plunging into driving intra-Africa trade will save the taxpayers the burden of keeping them afloat.
There is no shortage of business in Africa. According to Bloomberg, African economies are growing faster than elsewhere including the developed West, second only to Asia.
This growth was driven in large part, by Africa’s growing middle class which was estimated at 355 million people in 2013. The robust economic growth, says Bloomberg, pulls an estimated 90 million people a year out of poverty which suggests that nearly half of Africa’s population is middle class. That is five times what the airlines transport in a year.
If African Airlines double the passenger traffic to just 200 million, experts say, their contribution to Africa’s GDP will rise to $110 billion in the short run. That will mean more jobs, larger profits, and more taxes. This is a hanging fruit.
Over to you! aviation sector.