Why Nigeria has not benefitted from AfDB air travel business support grants’
The president of the African Development Bank (AfDB) Akinwumi Adesina
President of the African Development Bank (AfDB), Dr. Akinwunmi Adesina, in this interaction with reporters on the sideline of the recent International Civil Aviation Organisation’s (ICAO) forum in Abuja, gives the institution’s perspective on the sector in Nigeria and other African countries. He also how the bank has been assisting Africa and other grant opportunities from the multilateral institution. WOLE OYEBADE was there. Excerpts:
What is your impression about Nigeria hosting this forum?
Let me congratulate President Muhammadu Buhari for Nigeria being chosen to host this third ICAO World Aviation Forum. This is the first time they are hosting outside of the ICAO headquarters in Canada. It is a mark of honour and recognition of the importance of Nigeria both in terms of its economy and the potential that Nigeria also has in the aviation industry. So, it is a great thing to be here and with great pleasure I came back home to give my support to the president and to the government in this particular area.
How important is aviation to your activities at AfDB?
Talking about aviation, absolutely, when you look at the economic growth, you need to have a lot of mobility, greater trade and investment, you need to be able to move a lot of goods and services all across the continent. Obviously, infrastructure becomes an important thing. And there are different types of infrastructure that one will invests in. You need infrastructure to connect the landlocked countries to the coastal countries so that you can have a lot of work in terms of regional integration. You also need to have a lot of transnational highways; you need roads, rail, ports and most importantly for you that are in the room today, you need to look at air travel. Air travel is very important for Africa. I like to always think that it is a lot easier sometimes for people to move by road than travel by air.
But having said that, there is no doubt in my mind about the importance of the aviation sector for the continent. If you look at it in terms of the Gross Domestic Product (GDP) of Africa, this is the sector that accounts for $73 billion a year. And this is very significant for the sector because of the multiple linkages that it has to other sectors like tourism, so it contributes about seven million jobs. Everyone in Africa today needs to create jobs. So, everywhere that you can support sectors to help create jobs is all better for the continent. The seven million jobs over 54 countries is like 130,000 jobs per country. Think of what that means; it is a lot of jobs down there.
But how many people are still flying in Africa today. Not as many people as we need to have. If you look back in 2015, the total number of passengers travelling was 120 million people. But it is going to grow very fast because by 2035 that figure will be 300 million passengers. When you have 300 million passengers, hopefully they are not going to develop wings and fly by themselves; they need to have the infrastructure that will allow them to move. And so, the critical think one should think about is how do we support aviation infrastructure?
Aviation infrastructure has a number of components. First obviously is to be sure that you have the runways that you need. Also the taxiways, aprons, and others, talk of providing facilities for planes to land. You need a lot more facilities like terminals, safety of the airlines, right capacity for pilots, engineers and navigational staff to ensure that the air is not just a convenient place to travel but also a safe place to travel.
To what extent does AfDB invest in aviation infrastructure on the continent?
When you talk of infrastructure at AfDB, it is a top priority for us. In the last 10 years, we have invested $10 billion on infrastructure. In the case of aviation, we have invested $1 billion. But as we see the growth of aviation in Africa, we have to figure out how we are going to finance a number of things that I consider very important. First, the air is for you to fly in but if there are no aircraft, why do you have airways? Unfortunately, we don’t have enough planes flying today in Africa. Intra-regional flight is a very serious problem that we have to address.
For instance, if I want to travel from Abidjan to Congo, it could easily take me four days to do that. Sometimes to travel from Lagos to Mali, it can take between three or four days. So, lack of regional travel or weak one means lots of labour loss and competitiveness. It makes it very difficult for investors to invest in places they cannot get to. I think that the development of the regional market must be at the top of the priorities. And for that, we need to have some hubs. Today, if you take all the regions in Africa, West Africa is the least in terms of having the infrastructure in terms of the hub, connectivity and the aircraft to be able to support regional travel. It is only one, which is Asky that is right there in Togo. For us at the AfDB, we think that the development of the regional aviation hubs is very important to drive regional integration.
Second area that drives the cost of air travel is the cost of jet fuel. When I say jet fuel, I mean fuel with bad infrastructure. If you don’t have the pipeline to supply fuel to airport facility, areas that are very remote to get access to jet fuel, poor roads and lack of rails means that customers and passengers get delayed, inefficiency in coming and cost also goes up. So, jet fuel is very important to how you improve economic efficiencies in the aviation industry.
The third area that we think is also important has to do with air navigation. If you have actually flown some aircraft in Africa, you pray before getting in, you pray while you are in, when they say there is turbulence you really wonder what is going to happen. And that is just because we have too many old inefficient planes that are flying here. Africa needs to make the skies safe. You must have newer and better maintained planes that fly the air in Africa.
The challenge is actually the cost of financing them. If you look at the trajectory of what will happen in the aviation industry, in terms of the need that Africa has in the next 20 years, Africa need to mobilise $150 billion just to finance aircraft over the next 20 years. And that will involve how you finance about 970 jets and over 700 turboprops. The issue is, the financing isn’t there because the export credit agencies that makes it easy for countries to buy aircraft aren’t easy for countries and airlines to actually access. Second is the fact that the commercial banks themselves don’t lend to aviation sector because of the long tenure of the loans and the size of the loan required. And when they lend at all, they lend at very high rate that makes it unprofitable for airlines to actually buy planes at that kind of cost. Essentially, there is a missing financial market for the financing of aircraft in Africa.
African airlines have to buy planes outside through arrangements that are very expensive and, obviously, pass the cost down to the customer. One area that we see a big gap is that there is not even aircraft leasing market in Africa. Those that have to lease aircraft go outside and lease it a cost of over 200 per cent more than the ones in the global market because they price Africa as a risky, small and therefore the insurance cost that you pay and the restrictions are more stringent that anyone else leasing aircraft from around the world. So, for us we think it is important to address what is missing market of aircraft leasing market in Africa.
The other area that we think is very important is navigation infrastructure. Unfortunately, we don’t have symmetry of this facility across the region. You might fly out of a francophone country into Anglophone and found that terms are different and often not talking to each other as they should. So, there is no point flying if you cannot guarantee air safety. In Africa today, truth be told, we account for only three per cent of global traffic, but nine per cent of all the crashes that happen and 37 per cent of all the air fatalities. Therefore, it is about we keeping our skies really safe. To do that, not only do we need good planes, we also ned to have good navigation facility and infrastructure to do that.
What is it that AfDB has been financing in these areas vis-à-vis Nigeria?
Our areas of investment have largely been helping countries to build good infrastructure. For example, Sharm el sheikh in Egypt has an airport extension there, financing the extension of Kotoka International Airport facility, helping to build the airport in Marrakesh and Casablanca, Blaise Diagne Airport in Senegal, we are financing the Nelson Mandela Airport in Cape Verde as we speak, we are also financing navigational facility in DR Congo. Just two weeks ago, the AfDB also financed Air Cote d’Ivoire’s aircraft expansion programme with the loan of $110 million. We have also financed fleet expansion for Ethiopian Airline.
If you take the two countries that have invested heavily in aviation infrastructure, particularly in aircraft and how they are performing in agric export competitiveness on the continent, you will be amazed. So, you take Ethiopian Airlines and Kenya Airways, those two countries lead the continent in terms of export produce because they have flights that can go frequently. The point is that African countries that are looking to diversify their economy must invest in the aviation sector to make their market entry faster, more competitive especially in the high-value market of horticulture and floriculture. That is why we believe that there is a link in investment in aviation infrastructure and performance of the agriculture sector. So, the issue of investing in the cargo terminal is very important.
We are very interested in the Nigerian government’s development plan on many sectors not just aviation. We are investing in energy, transport, agriculture, water and sanitation, financial and the private sector. But when it comes to aviation, I know that Nigeria is developing a new aviation investment roadmap. We will provide technical advice services for the government because their efforts go into a number of areas like setting up national carrier, being a hub to help interconnectivity, Maintenance Repair and Overhaul facility and they have asked us to support them in the area of air navigational facility. I think they are all great areas and we look forward to support them once they are well developed and looking at their viability.
How much will AfDB be supporting Nigeria with to take care of critical aviation infrastructure?
At this point, we don’t even know what the strategy is for Nigerian government. They are going to develop what that is. They are in early conversations with us about what they will like to do. But once they flesh that out, I think we and others can play some roles but we will have to see exactly what the total package is, because it really has not been worked out. But in general, the government is thinking in direction of improving the aviation sector and it is a very good thing. Once that is developed, then we will see what role our multilateral bank, insurance and commercial banks can play.
The infrastructure need in Nigeria is huge. Are you worried that the lifespan of airlines is less than 10 years in Nigeria?
The issue is that a lot of people go into the business without really understanding the economics if the industry. The grass always looks greener on the other side. Part of it is that people go into the industry buying the wrong types of plane. A plane for long-haul is bought for short-haul and so while you are mounting costs, the returns are very low and at the end of the day, you pack up. But what you need are just some turboprops instead of having jets. So, there are a lot of problems with that.
Part of the problem is poor management, coupled with the air service agreement that restricts the routes that you can go to. The highly restrictive nature of the market also precludes airlines from being able to operate freely in many locations within Africa. Also, the ability of the customers to pay the costs is also important. So, I think good business economics, investing in the right aircraft, getting the right kind of financing structure are all key.
What template will you be adopting to support Nigeria’s national carrier?
First, we don’t run countries but can only advise them. But based on best practices, if we look at how airlines have been run, they have just been run very badly. We used to have Nigeria Airways and one of the things that was so shocking to me was that the logo of the airline was an elephant. How do you fly an elephant in the air? And the fact that it was government run; it was very poorly managed, inefficient, couldn’t pay back its financing and eventual because its economics was very wrong, it collapsed.
Not only in Nigeria. You have national carrier in Ghana. Air Afrique is the same. The point is that the airline industry needs heavy involvement of the private sector. Government should be in airline industry with the private sector. You need to have policy instrument that allow people to have access to financing to serve those market. We really need to connect the global best practice with what is been developed locally. So, if the focus of any country is just to show national might, then that will be the wrong way of looking at that industry. We have to look at the best configuration of private sector investment and the role of government to make it work. It is not just about having an airline but you must have a sustainable business model for that airline to thrive.
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