31 October 2018

Kenya: Direct Flight to New York Will Open Floodgates of Investment

opinion

Let's all celebrate the first direct flight to New York by Kenya Airways. When you cut the round trip to the world's pre-eminent financial centre by 10 hours, you have opened new opportunities for tourism and investment.

From my corner, I see major opportunities, especially for our horticultural industry, where the journey of a flower to this lucrative market has now been cut to almost one working day.

FACTORIES

What are the implications for commercial relations with the United States?

The Kenya-US trade and commercial relations are dominated by African Growth and Opportunity Act (Agoa) exports -- mainly textiles and apparel. Unfortunately, the garments used by factories to make that textiles and apparel are not made in Kenya.

LINKAGES

Indeed, Agoa exports have had limited linkages to domestic supply chains. The typical manufacturer under Agoa is a footloose fellow of no fixed abode, hopping from one African country to another looking for the place with the best preferential access arrangement to US markets.

BEYOND

Despite Agoa giving us preferential access on almost 6,500 items, we have hardly gone beyond textiles and apparel. With the direct KQ flight, we have an opportunity to push the exports to America to beyond what Agoa permits.

BANKING

I see the non-stop connection carrying even brighter prospects and opportunities between Kenya and the US in the field of financial services and investment. As we all know, we already have tight connections and links with New York: Our first Eurobond was issued there, our foreign exchange reserves sit at the New York Fed while linkages and correspondent banking relationships are deep.

PROFESSIONALS

When, as an African country, you have managed to cut the round trip to New York by 10 hours, prospects can only be bright because you will have reduced travel time for skilled professionals and top executives by almost a whole day.

The international consultancy Ernst and Young (EY) has just published a report ranking Kenya third in Africa in terms of attractiveness to private equity. KQ's direct US flight is, undoubtedly, going to make a difference in this space.

FINANCIAL CENTRE

I'd like to see the government display more ambition in taking advantage of the non-stop connection. For instance, I see a new opportunity to hasten plans to establish an international financial centre in Nairobi.

A direct connection between an international financial centre in Nairobi -- basically, a cluster of financial institutions operating in a special economic zone -- to Lower Manhattan will be a major boost in terms of attracting investors to the proposed Nairobi International Financial Centre.

ADMINISTRATION

We have been talking about the centre since 2012. There was even a time when the government negotiated a technical services agreement with the Qatar International Financial Centre to support us. But nothing has moved.

Now that KQ has achieved that feat, what is this administration going to do improve the national carrier's financial health?

SERVICES SECTOR

The first thing the government must do is stop looking at KQ as just another company it has invested in. It is part of our strategic national aviation sector assets and economic growth instruments whose health is critical to the health of other parts of the economy such as tourism, agriculture and the financial services sectors.

The ambition must go beyond merely sorting out KQ's balance sheet. KQ has only recently gone through a financial restructuring, with strong support from the government, in the form of a sovereign guarantee to key creditors for $750 million.

COMPETITORS

We must now address the national mandate of both KQ and Kenya Airports Authority.

The airline must be made to operate on the same keel as its main competitors. It should be given the same development and national strategic mandate as has been given to its main competitors -- Qatar, Emirates, RwandAir and Ethiopian airlines.

KQ finds itself at a competitive disadvantage because in Qatar, the Emirates, Rwanda and Ethiopia, employees of national airlines are barred from going on strike.

CONSOLIDATION

You don't have trade unions in those countries. The model followed by those countries is of an integrated airline centred on consolidation of all aviation assets with the airline owning airports and airline-related services. All the main competitors of KQ are fully owned by their governments.

Is it not time we started debating whether the company's listing on the Nairobi Securities Exchange makes sense? And how much value are we getting from the relationship with KLM, especially after they reduced their stake from 20 to 10 percent?

Why do I get the impression that the brilliant proposal to merge Kenya Airways with JKIA is beginning to lose traction?

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