13 February 2018

Ethiopia: Insights On SAATM


Very recently African Union (AU) has launched The Single African Air Transport Market (SAATM).The Ethiopian Herald ,therefore, conducted an interview with Dr.Degye Goshu ,Associate Professor of Economics at Kotebe Metropolitan University with a view to gaining an insight about SAATM. Hence,here follows the excerpts :

Herald : What is The Single African Air Transport Market (SAATM)?

Dr.Degye Goshu :Free trade is the economic policy avoiding discrimination against imports from and exports to other countries. Buyers and sellers from separate economies may voluntarily trade without domestic policy intervention related to tariffs,quotas, subsidies or other restrictions on their goods and services. In the African aviation industry, high taxes, tariffs and non-tariff restrictions or trade barriers have remained to be common policy instruments implemented by states to protect their airlines. This is mainly driven by fears that national airlines will not be able to compete with larger airlines. To address these challenges, freeing air transport market is one of the priorities in the SAATM agreement for eliminating domestic trade barriers in the aviation industry. Africa has seven overriding aspirations depicted in Agenda 2063 of the African Union (AUC,2015). One of the flagship projects designed to attain such aspirations and goals is establishment of a Single African Air Transport Market (SAATM) which has been launched on 28th of January 2018. The SAATM is an initiative of the African Union to create a single unified air transport market in Africa. It is intended to liberalize civil aviation in Africa and to contribute to the continent's economic integration.

Herald : What is the role of SAATM for overall growth of the African continent? How does it contribute to the overall economic growth and regional integration? What other benefits does it generate to the continent?

Dr.Degye Goshu :Economic integration is an agreement among countries in a geographic region to reduce and ultimately remove, tariff and non-tariff barriers to the free flow of goods or services and factors of production among each other. Economic integration can be classified in five levels: (a) Free trade; (b) Custom union; (c) Common market; (d) Economic union (single market like SAATM); and (e) Political union.One of the vital parts of the Yamoussoukro Decision was air service liberalization, which is meant to develop air services in Africa and stimulate the flow of private capital into the civil aviation industry (AUC, 2018). The SAATM is expected to ensure that aviation plays a major role in connecting Africa for attaining social, economic and political integration and enhancing trade among African countries. Aviation is believed to be a vital tool for development and to transform and improve economic and social welfare benefits across Africa. Improved intra-Africa connectivity facilitates business and trade, enables tourism, connects people, and promotes the exchange of knowledge and ideas.

Herald : How passengers and airlines in Africa benefit from SAATM?

Dr.Degye Goshu:Free trade agreements among countries in general are designed to increase the volume of trade mobilized among them. Air connectivity is vital for exploiting economic potential and opportunity. More air connectivity among countries leads to increased ability to unlock the economic and social benefits expected from air transport. Air connectivity has many dimensions and the SAATM

agreement may lead to increased number of routes, range of destinations, and frequency of services.The SAATM may bring the following specific advantages to member countries and airlines (AUC, 2018a; AUC 2018b; Amadeo, 2017): A. Wider economic benefits of enhanced connectivity: The SAATM is expected to bring economic growth through increased trade and welfare gains arising from increased job opportunities. The SAATM will increase interconnectedness of African countries through

the free air transport market which will significantly contribute to the economic integration of countries. Pilot studies on SAATM suggest that more jobs will be created in aviation,tourism, and the wider economy which will contribute to accelerated GDP growth in Africa. These benefits have also been verified by the effects of the EU's Open Skies agreements launched before 27 years. B. Passenger benefits of enhanced connectivity: Passengers will benefit from increased direct connections, fare savings, greater convenience and significant time savings. C. More dynamic business climate and opportunity for competitive civil aviation industry: The SAATM is expected to lead to development of competitive market environment through lifting trade barriers pursued so far by African countries. The launching of SAATM provides an impetus for the airlines to plan their services under the Single Market paradigm. This promotes competitiveness which tends to lower prices and increase quality services, leading to increased welfare gains for passengers. D. Increased foreign direct investment: The increased air connectivity with quality services and reasonable prices will motivate other sectors of the economy by supporting increased trade, attracting new businesses to the region, encouraging investment and enhancing productivity and competitiveness. E. Other benefits: Free trade improves efficiency and innovation in the civil aviation industry. The SAATM will facilitate technology transfer among partner airlines for further improvement of the aviation industry in Africa. The SAATM may also enable to reduce costs of operation and lower government spending allocated to protect and subsidize local airlines. It may also create an opportunity for expertise, experience sharing and partnership with competitive airlines. The launching of the SAATM is expected to enhance the realization of two other agenda 2063 flagship projects as well: (i) the African Passport & free movement of people and goods; and (ii) the creation of the continental free trade Area (CFTA).

Herald : What threats are expected from SAATM? What actions should be initiated to neutralize such threats?

Dr.Degye Goshu :For safe, secure, efficient, affordable and sustainable air transport industry in Africa, the AU has prepared a regulatory framework for efficient management of the industry. The African Civil Aviation Policy (AFCAP) is the framework document that provides the vision and strategic objectives for African Civil Aviation. Threats expected from the SAATM agreement may be regulated by this framework which includes powers and functions of the executing agency; competition rules; consumer protection regulations and dispute settlement mechanism (AUC, 2015). However, the SAATM may not be implemented without drawbacks. One possible argument against SAATM is the reduction of domestic jobs from the increased air connectivity of countries with weak airlines. Such countries might have been protecting their airlines to increase prices due to their inefficiency of rendering services. This leads to increased job outsourcing because of lifting of trade restrictions where compet itive airlines expand their business in other countries. Without restrictions, it is difficult for weak airlines to compete in such free air market. Currently, many airlines are weak to compete with strong airlines. As a result, unemployment may be aggravated due to crowd out domestic airlines.In addition, strong airlines with better global experiences may outsource jobs to emerging markets without adequate labor protections. When trade barriers are lifted, capital and jobs are free to cross borders. Airlines can shift destinations from high-cost countries where good wages and strong worker protections are prevalent to low-cost countries, where low wages are the rule and other protections are slim. The low-cost airlines base their operation on continuous elimination of non-profitable lines and introduction of new ones.

Herald : The SAATM agreement has been commented by some countries for its intention to boost the

benefit of countries with strong airlines. Which differentiated benefits are expected of SAATM for countries like Ethiopia?

Dr.Degye Goshu :Yes, the SAATM will create a sustainable competitive advantage to countries with strong airlines like Ethiopian (see the discussion under 3). Ethiopian is among the best African airlines with remarkable growth and innovation. Bole International Airport is also one of the top eight busiest

airports in the continent, suggesting the relative competitive advantage Ethiopia will have in the open sky agreement. Currently, the free market covers 23 countries (Benin, Botswana, Burkina Faso, Cabo Verde, Congo, Cote d'Ivoire, Egypt, Ethiopia, Gabon, Ghana, Guinea, Kenya, Liberia,Mali, Mozambique, Niger, Nigeria, Rwanda, Sierra Leone, South Africa, Swaziland, Togo and Zimbabwe), 57% of population and contributes to 65% of GDP of the entire continent. This creates a competitive advantage to increase market share and to unlock new business opportunities in the aviation industry. However, only half of the member states have currently joined the free market agreement. There may be push back in the future and declining interest to the SAATM compared to the motivation

observed at the Yamoussoukro declar ation. Consequently, the fate of SAATM may be determined by the AU's capacity and willingness to increase accountability of member states for continental policies and implementation of the open sky market policy across the entire continent.

Herald : What is the experience of other continents in implementing free air transport market agreements?

Dr.Degye Goshu :There are several global experiences in implementing free air transport market. One of the major breakthrough in free market of air transport is the creation of single aviation market in Europe (since 1992). The Open Skies agreements form the basis of liberalization of aviation between the EU and the rest of the world, opening up markets and promoting fair competition (Christidis, 2016)

It is generally agreed that the libera lization of air transport markets in the EU has promoted greater competition to the benefit of passengers and airlines. It has been evaluated that structure of the aviation

industry in Europe has been signific antly transformed. The effects of liberal ization of air transport market in the EU has brought significant improve ments in terms of key indicators including (a) Industry structure; (b) Outputs; (c) Competition at the route level; and (d) Fares (EU, 2003).The other global experience on free air transport market is the one signed between the EU (with its 27 member states) and United States (US) in March 2007 through the Open Skies policy of the EU. This agreement is expected to have tremendous potential for transforming air travel and trade across the Atlantic.It has opened investment, promoted trade in goods and services, and enabled the mobility of persons. The agreement has brought several benefits for the (a) aviation industry: (b) Consumers/passengers; and (c)

Travel and tourism sector (Alford and Champley, 2007).


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