Addis Ababa — The critical need to invest in Africa’s transport and tourism sectors was the focus of a high-level meeting convened this week in Addis Ababa by the United Nations Economic Commission for Africa (ECA).
The gathering of senior business leaders, executives and head of governments - the fifth edition of the African Business Forum - took place on the margins of the African Union summit to spotlight transport infrastructure with an emphasis on air transport and tourism.
Vera Songwe, United Nations Under-Secretary-General and ECA Executive Secretary, told the Forum that prioritization of regional infrastructure projects is essential to “significantly increase traffic flows on all transport modes - road, rail, maritime, and air.” These increases are required for the success of the newly launched the African Continental Free Area (AfCFTA). she said.
According to an ECA study released before the Forum, the free trade agreement has potential to boost intra-African trade by more than 50 percent through elimination of import duties and reduction of non-tariff barriers. Estimates regarding the impact the AfCFTA can have on African economic progress indicate that more than 25 percent of intra-African trade gains would go to transport and nearly 40 percent of the increase would be in transport.
Songwe told the Forum that investment in the tourism and the transport sectors, though often overlooked, is essential for African economic growth. Implementation of AfCFTA will require $411 billion to develop transport infrastructure, according to the UNECA.
“The estimated cost of trucks needed for AfCFTA is $345 billion,” Songwe said – almost equal to the size of one of the continent’s largest economies, South Africa. The commission’s data indicates that 2.2 million trucks, 169,339 rail wagons, 135 vessels and 243 aircraft will be needed to implement the free trade agreement.
There is also a critical need to diversify transport infrastructure so that goods can move efficiently from one country to another. “We are only moving three percent of our goods by rail,” Songwe said. “With a $36 billion dollar investment, we could boost that to 6.8 percent” - still lower than Europe’s 16 percent, said Songwe. For road transport, a doubling of freight is needed.
Infrastructure upgrade will not only improve connectivity of states but also help drive down transport costs and thereby increase private sector productivity. High transport costs in Africa are partly due to a shortage of affordable and reliable transport along with vital logistics services, according to Amani Abou-Zeid, the African Union Commission commissioner for Infrastructure and Energy.
“Transport cost in African is 63 percent higher than in developed countries,” representing 30 to 50 percent of the continent’s total exports, Amani said. Costs are higher for land-locked countries like Ethiopia.
Aviation is a sector with tremendous growth potential. “Implementing AfCFTA would double the number of tonnes transported by air from 2.3 to 4.5 million,” ECA estimates. Air transport contributes $70 billion to Africa’s economy of Africa and provides income for over seven million people. The sector was averaging 76 million passengers every year before the coronavirus spread shut down travel, and that figure is projected to reach 303 million in the post-pandemic period.
“Air transport is essential in facilitating free movement as it can provide better connectivity than other modes of transport, particularly for international and longer lanes,” said Amani. To make this happen, however, there are issues that must be addressed going beyond the infrastructural gap, according to speakers who addressed the Forum.
A flagship project of the African Union’s Agenda 2063 is creation of a unified air transport market and liberalization of civil aviation across the continent. Adopted in 2015 and formally launched three years later, this initiative has been adopted by 35 African states with a total population of more than 800 million people, accounting for 61 percent of the population and 90 percent of the intra-African air transport market, according to Amani.
“This will surely encourage the remaining 20 African countries to also join,” said Amani, citing a recent continental study undertaken by the International Air Transport Association (IATA), which concluded that air transport liberalization will result in an additional four million tourist visits and 600,000 jobs yearly and add $4 billion dollars to the continent’s GDP.
“Sierra Leone is committed to the liberalization of the air transport market” and open the rural economy, President Julius Maada Bio said in his address to the Forum.
Aviation companies also support reforms of the aviation market. Kenyan Airways CEO Allan Kilavuka told the forum that liberalizing the African aviation market should go beyond creating a single aviation market and include market consolidation, a recommendation shared by the African Aviation Association (AFRAA). The trade organisation, whose members include airlines across the continent, has recommended various models of consolidation, including equity partnerships and partnerships.
“We have to consolidate the very fragmented African aviation industry and market to be formidable under AfCFTA,” said Kilavuka, whose airline with a fleet size of 39 aircrafts is one of Africa’s major carriers.
The CEO sees consolidation as critical for profit maximization of existing companies. “The profit margin in aviation is very thin and skilled manpower is expensive but can be shared and optimized across a more consolidated African aviation industry.”
Abderahmane Berthe, secretary-general of AFRAA, who agrees that the industry would benefit from market consolidation, pointed to another pressing problem for airlines. “The need for financing is very high,” Berthe told the Forum, underscoring that financing is essential for purchasing aircraft and building human resources capacity.
“Traditional financing is very slow in terms of considering an application and making sure that it is delivered on time,” said Selim Bora, president of the Turkish-owned aviation infrastructure developer Summa, which was involved in construction of the new airport in Senegal. “We found that incredibly challenging,” said Selim. “Banks that know the reality on the continent should start looking at tokenization of the infrastructure projects through their platforms,” he added.
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The African Development Bank (AfDB) is leading the push for infrastructural investment financing across the continent. “We have been involved in the improving of infrastructure in the air transport sector in several regions of the continent, adding to institutional support for aviation safety and modernizing air transport equipment and infrastructure,” said Yacine Fal, acting Bank vice president of the Bank. He told the Forum that AfDB is keen to introduce financial solutions to address the demand in the aviation market.
The African Export Import Bank, already the largest aircraft financier on the continent, is stepping up support for the sector. “We are literally everywhere,” said Afreximbank President Dr. Benedict Okey Oramah. He said he expects the Pan-African Payment and Settlement System, which his bank launched at the beginning of this year, will help airlines manage the challenges they face repatriating funds.
To spur faster expansion of intra-African tourism, Forum panelists called for policy reforms in the travel and tourism sectors. Walter Mzembi, who chairs the Africa Chapter of the World Tourism Network, recommended relaunching the Brand Africa Project as well as stepped-up moves towards implementation visa openness, more route sharing and market consolidation.
“The issue around the institutionalization of tourism in the African Union is fundamental. We need to resuscitate the project we started to consummate the formation of African Tourism Organization,” he said.
