Ethiopia set on building Africa's Largest Airport

Ethiopia's infrastructure binge shows no signs of slowing down, with plans being made to build a $4 billion second international airport in the Addis Ababa area, one that could serve as many as 120 million passengers per year when it opens in about a decade’s time. 

But a new report by risk analysts PGI Intelligence warns that the airport mega-project is at risk of delays due to challenges securing finance, while the huge costs entailed threaten to worsen foreign exchange shortages in the coming years.

The planned airport would make it Africa’s biggest airport by far, and even larger than London’s Heathrow, which handled 73.4 million passengers last year, with a capacity of 90 million.

Africa’s busiest airport is O.R. Tambo International Airport near Johannesburg, South Africa; about 18 million passengers passed through its terminals last year and ongoing expansion work will raise capacity to 28 million.

The planned giant airport in Ethiopia is set to be one of the country’s most ambitious projects, surpassed only by the $4.8 billion Grand Ethiopian Renaissance Dam and demonstrates the government’s ongoing commitment to state-led development through investment in huge infrastructure projects.

Already, Ethiopian Airlines is the only major African carrier that is reporting healthy profits, in the region of $175 million in 2014/15, while the other big three – South African Airways, Kenya Airways and Royal Air Maroc – are facing financial headwinds, bleeding cash badly and/ or reporting virtually no growth as reported earlier by Mail & Guardian Africa.

The project reflects the scale of Ethiopia’s economic ambitions and will form an important component in developing the country’s tourism and light manufacturing sectors, as well as putting Ethiopian Airlines in pole position to consolidate its market share and comprehensively overtake Nairobi as East Africa’s aviation hub.

Separate from Bole

The new project is separate from the ongoing $350 million expansion of the current Bole International Airport in Addis Ababa, illustrating the importance the government has attributed to planned aviation sector growth. The current airport expansion is set to increase capacity from 6 million passengers annually to 22 million by 2018.

The two developments combined aim to transform Addis Ababa into one of the largest aviation hubs in Africa, with the new airport consisting of four runways, several passenger terminals and an airport city on the outskirts of the capital.

But it also raises the question whether Ethiopia can command those kind of passenger numbers to make the investment worthwhile.

A decade ago, Bole handled fewer than a million passengers a year, by last year that had risen to 7 million. Passenger numbers are expected to continue increasing by about 10% a year – which means it could take more than two decades for the airport to reach full capacity.

But Ethiopia’s state-driven capitalist model aims to line up all the ducks in a neat row, looking to deliver passenger numbers not just through bolstering Ethiopian Airlines’ position as an aviation leader in Africa, but also through growth in tourism and light manufacturing sectors, as part of the country’s second Growth and Transformation Plan (GTP-II).

The GTP-II will cover the period 2015-2020, and is set to be launched officially in the next few weeks with the airport as its flagship project. It is also expected to include the $1.8 billion Gilgel Gibe 3 dam, a raft of geothermal, solar and wind projects, and a vast house building programme.

Tourism currently generates $2.9 billion for the economy and several international hotel chains have set up operations in the country in recent years; in August the culture and tourism ministry announced it planned to triple Ethiopia’s annual foreign visitors to 2.5 million by 2020.

Increases to freight capacity will likewise support the light manufacturing sector, for which the government has already attracted several global brands and Unilever, General Electric and GlaxoSmithKline are all planning investments that will supply international markets.

Industrial parks

Ethiopia is targeting $1 billion of annual investment in industrial parks over the next decade to boost exports and make it Africa’s top manufacturer. The government may invest half of the $10 billion needed for zones across the country that will house textile, leather, agro-processing and other labour-intensive factories, a special advisor to Prime Minister Hailemariam Desalegn said in May.

But analysts are warning that Ethiopia’s mega-infrastructure binge will put enormous pressure on Ethiopia’s public finances, which are already strained following the first growth and infrastructure plan that expires this year (GTP I 2010-2015).

In September, the IMF reported Ethiopia’s public debt-to-GDP ratio was already at 50%, and GTP II would see this increase further.

Concerns around the sustainability of these debts could create challenges in securing finance for the new airport; without an immediate demand for its services, Ethiopian officials could struggle to secure finance from foreign lenders at concessional rates, the PGI Intelligence report states.

As with GTP I, both the new airport and GTP II are likely to depend heavily on domestic funds to finance projects. The absorption of funds by large infrastructure projects has created huge liquidity problems in Ethiopia over the past five years, resulting in delays to imports and difficulties for the private sector to access finance.

These restraints have been compounded by banking regulations that require banks to pay an additional 27% of each loan to private companies into state bonds that fund the government’s growth plans, a requirement that “frequently deters banks from lending to the private sector,” PGI Intelligence says.

With little sign the government is willing to ease restrictions on the banking sector, access to finance and liquidity will remain among the major barriers to success as the government presses ahead with its growth plans over the next five years, the analysts warn.

Crumbs

Not to be deterred, however, regional banks are all lurking on the streets of Addis Ababa, looking to set themselves up for even the crumbs of Ethiopia’s still very tightly regulated banking sector.

Foreign lenders are not allowed to own banks in Ethiopia, and the financial sector is dominated by the state-owned Commercial Bank of Ethiopia.

But last month, South Africa’s Standard Bank opened an office in Ethiopia, “to gain a foothold in one of Africa’s fastest growing economies”, it said in a statement, and this week, Kenya Commercial Bank (KCB) announced it had received a licence to open a representative office in Ethiopia.

Other banking institutions with representative offices in Addis Ababa include the European Investment Bank, Germany’s Commerzbank, pan-African lender Ecobank, Export-Import Bank of India, National Bank of Egypt and Bank of Africa.

Starbow and AWA receive IATA - IOSA Certification

Starbow Airline

Africa World Airline

The two operational domestic airlines in the country, Starbow and Africa World Airliners (AWA), have received the International Air Transport Association (IATA) Operational Safety Audit (IOSA) certificate -- a measure of the sound safety, management and quality control systems of the two operators.

The IOSA is the benchmark for global safety management in airlines. All IATA members are registered and must remain registered in order to maintain IATA membership.

About 24 airlines operate within the West African sub-region with a relatively young population of about 300 million. However, though operational efficiency and safety is high among various airlines in Ghana and the sub-region, just five airlines are IATA-certified.

Aside from the two Ghanaian carriers, Nigerian airlines Arik and Aero, and Lomé-based Asky Airlines are the other IOSA certified airlines.

According to the International Air Transport Association (IATA) — the global trade association for the airline industry with over 250 member-airlines which comprise 84% of total air transport — the IOSA programme is an internationally recognised and accepted evaluation system designed to assess the operational management and control systems of an airline.

The attainment of IOSA certification means that indigenous carriers can now compete favourably with their peers in the sub-region for big-ticket international-organisation clients.

It will also make it possible for them — Starbow and AWA — to enter into commercial agreements with foreign carriers like KLM, Lufthansa, BA, Tap Portugal, Emirates and others to handle passengers travelling on itineraries that require multiple airlines.

For instance, passengers travelling from Frankfurt in Germany to Kumasi via Accra or from London to Takoradi through Accra. Domestic carriers can partner foreign airlines to operate the domestic end of such travellers’ itineraries.

“We intend to deepen our partnership with South African Airways (SAA) given the attainment of IOSA certification. One of the things that was preventing us from doing the code share was getting this IOSA certificate. So once we have it, we are working at deepening it so we have a better code share,” said Samuel Thompson, Chief Operations Officer of AWA.

“Our current fleet is not very suitable for the regional flights so we are looking at getting something bigger, like a medium-haul aircraft with a seat range of about 120-160, then we will start doing Lagos, Abuja, Monrovia and Freetown. We will still do what we are doing and improve on our safety, management systems, and our quality management systems,” he added.

Mr. Eric Antwi, the Chief Executive Officer of Starbow — whose company received its IOSA certificate in September 2015, noted that: “When this is through it will increase our business with other airline service providers who will give us passengers and vice versa.

“We are happy to be among the listed airlines which include major intercontinental and regional carriers that have successfully gone through this rigorous auditing process.”

The IOSA certification audit is an internationally recognised and accepted evaluation system designed to assess the operational management and control systems of an airline, with emphasis on universally accepted best practices in the Airline industry.

IOSA uses internationally recognised audit principles and is designed to conduct audits in a standardised and consistent manner.

Source:Business and Financial Times

South Africa: Aviation Cannot Thrive Without Tourism - Minister

It is regrettable that about 80% of air traffic in Africa comes from non-African airlines, according to Minister of Tourism Derek Hanekom.

Just like Minister of Transport Dipuo Peters, Hanekom was due to speak at the 45th annual general assembly of the Airlines Association of Southern Africa (Aasa) taking place in George this week. Both were, however, unable to attend as they had to be present at the ANC's National General Council.

In a pre-recorded message to the Aasa assembly, Hanekom said aviation is an essential catalyst for the tourism industry as well as trade.

"Tourism cannot survive without aviation and aviation cannot thrive without tourism," said Hanekom.

That is why he expressed the hope that further progress will be made with the managed liberalisation of the airways in Africa.

"We need more competitive air fares for links to South Africa. That is why it is good that Air China has confirmed a direct flight to and from SA, because China remains a very important market for us."

He also expressed the hope that new airlines which have entered the SA airline industry will remain viable despite the tough operating environment, so that more people in the country will be able to travel.

"We invested an additional R300m for marketing of tourism until 2018. It is in all of our interest to grow the tourism market in the southern African region," he said.

"It is very important to ensure that SA benefits from safe and dependable air services."

* Carin Smith is the guest of Aasa at its annual general assembly.

-All Africa

African Continent to Open up for Trade and Tourism

Opening up the Continent For Trade and Tourism in Africa

Excerpts from the Conference

Mr. Chris Diaz, the Marketing Director of Kenya Airways, says African airlines have a critical role to play in opening up the continent for trade and tourism.

He said this would call for increased cooperation among African states and airlines to boost intra-African trade and overcome the challenges of Africa’s aviation industry.

Speaking in an interview with the GNA on the sidelines of a meeting with Chartered Institute of Marketers (CIM) Ghana, during the United Nations World Tourism Organization (UNWTO) Conference in Accra, Mr. Diaz said currently, about 60 million tourists come into Africa.

This number, he said, was expected to grow in the coming years, with important opportunities in the aviation industry.

He stressed the importance of encouraging travel and tourism within Africa.

“African airlines like Kenya Airways, Ethiopian, Air Maroc, South African Airlines; it is important that every one flies. The middle class is growing strongly in Africa and we are encouraged to give very competitive rates so that everyone can connect intra-Africa to see each other’s countries, to learn about and to experience the beautiful opportunities we have,” he stated.

Mr. Diaz said African airlines like Kenya Airways could do this by offering competitive flight experiences and high quality services through their hubs, while also connecting Africa into the world.

He noted that Kenya Airways was integrated in a way to draw investors into Africa, adding that it is the only African member of the SkyTeam Global Alliance, and is able to bring about 1000 destinations into Africa and had won some global awards as a result.

“Ghana is a very important market for Kenya Airways and as the West African sub-region continues to develop, a lot of its citizens travel across countries to buy goods and products in China, Dubai, Bangkok, Far East, Hong Kong and these are brought into Africa very regularly on Kenya airways aircraft,” he said, adding” we are thus able to develop trade and to promote economic development for the African economy.”

Mr. Diaz said Ghana was a very special market because a lot of investors were coming into Ghana via Kenya Airways. The airline currently flies daily into Accra with a Boeing 737-800. It was however considering increasing capacity on the route according to growth in the market.

This, he said, would be done not only by increasing frequencies of the flight but also bringing the bigger B787 Dreamliner aircraft, which would provide more seats and cargo space.

“Kenya Airways has invested heavily in new aircraft and has the youngest fleet of aircraft in Africa. We are also expanding customer service and customer care with our new airport and new lounges,” he said.

He challenged African states to work together and support each other, predicting that intra-Africa trade would be the biggest opportunity for success and growth.

He said in order to better brand and market Africa, it was important to build partnerships based on the many opportunities that were presented by its diversity and because of the cultural connection between Africa and the rest of the world.

He said: “The world would like to come to Africa for its music, fashion, fantastic icons and attractions in Africa. We have fantastic mountains, beautiful beaches, islands and wildlife, fantastic people who are very hospitable and who welcome visitors very warmly and are truly African in terms of welcoming our guests.”

He noted however that the most important was to have a very solid marketing plan, and very strong partnerships between the Tourism Boards of African countries, with UNWTO and with the African Union, to be able to have synergy and strategic strength in terms of investments, marketing Africa.

He suggested the organization of an Africa event or presentation where Africa would be showcased as one, with the different countries all representing one brand, adding “this will mean actually showing the world that we are united”.

In order to address the challenges facing African countries, especially security challenges, Mr. Diaz said “we need to really strengthen our security through inter-governmental cooperation, with authorities supporting each other with intelligence, robust security measures, and most important for airlines is to cooperate and work together as partners to address the challenges.”

Source : GNA