Services and infrastructure in Africa struggle to keep pace with its economic growth, reports Bob Papworth, and that challenge means TMCs have to up their game
ASK PAULO CORREIA, Wings Travel Management’s man in Angola, for his views on sub-Saharan Africa’s corporate travel potential, and a theme quickly emerges. Mentioned more than a dozen times in his response, the buzzword down in Angola’s capital, Luanda, is clearly “challenge”.
Intra-African air travel remains “a major challenge”, inconsistent water and power supplies are “challenges”, governmental protectionism is “challenging”, corruption is a “major challenge” – the list goes on.
That said, it’s only fair to point out that the other most frequently-used word in Correia’s answers to Buying Business Travel’s questions is “opportunity”: there may be challenges around every sub-Saharan corner, but their very existence creates opportunities for TMCs to prove their worth by overcoming them.
And Correia is not alone in his state-of-the-nations assessment. The Africa Competitiveness Report 2013, published in Cape Town in May to coincide with the World Economic Forum on Africa, highlights a string of “challenges” to continuing economic growth. Co-produced by the Forum, the World Bank and the African Development Bank, the report warns that sub-Saharan Africa’s current boom is over-dependent on commodities – primarily oil, gas and minerals – and that intra-African trade is limited. The report says border controls are often “cumbersome and non-transparent”, use of information technology is “limited”, and the region suffers from a “persistent infrastructure deficit”.
“Africa has been enjoying an economic transformation, with growth rates of more than 5 per cent annually over the past decade,” according to Gaiv Tata, the World Bank’s director of financial inclusion and infrastructure practice for the Africa Region. “To turn its economic gains into sustainable growth and shared prosperity, Africa’s public and private sectors must work together to connect the continent’s markets, deepen regional integration, and adopt reforms that enhance national competitiveness.”
SERVICE SECTOR GROWTH
Back in Luanda, Wings Travel area manager Correia paints a sunnier picture. The arrival of major multinationals eager to tap into Africa’s mineral wealth has sparked a growth in smaller service sector companies – including TMCs. “This trend will no doubt continue on a continent that is increasingly becoming more politically stable,” he says. “We also see various foreign travel agents starting to establish or partner with local travel companies to provide on-the-ground support for the corporate travel sector.”
Providing that support isn’t always easy, however. “The local agencies are still faced with major challenges in terms of meeting the international standards that corporates demand from their TMCs,” says Correia, citing a skills shortage and a lack of technology. “In many cases, there is a lack of basic services – same-day turnaround, travel management reports, data security, and account management – that TMCs in more mature markets have been providing for decades.”
Ciaran Kelly, FCM Travel’s general manager for the Middle East and Africa, disputes the World Economic Forum’s findings. “Corporate travel in and out of sub-Saharan Africa is on the increase from multinational companies, but the bulk of business travel – around 75 per cent – is within the region, between African countries,” he says. And that in itself is far from being a simple matter. “Road and rail are currently not viable options for corporate travellers, except for very short journeys,” Kelly says. “Road and rail networks are being developed, but on the whole developments are at a very slow pace.”
Even in major cities, the persistent infrastructure deficit causes problems. Traffic jams in Luanda, says Correia, mean that he has to allow 90 minutes to travel less than 15km. Outside the cities, rural roads are deemed to be less of a priority, not least because landmines left over from past conflicts have to be cleared before improvement work can begin.
Intra-African air travel presents other challenges, not least because many smaller African airlines do not meet IATA safety standards and are consequently blacklisted by corporates concerned for their travellers’ well-being.
The flight from Luanda to the Congolese port city of Pointe-Noire should take one hour, but it is deemed to be safer to take the 3.5-hour flight south to Johannesburg, overnight there, and then fly 4.5 hours north.
The safety issue is a real problem. According to IATA, the world’s airlines averaged one hull loss for every five million flights on Western-built jet aircraft in 2012 – Africa’s hull-loss average was one for every 270,000 flights. Only 25 sub-Saharan carriers are deemed to meet IATA’s safety standards.
Speaking at the Aviation Day Africa conference in the Ethiopian capital Addis Ababa earlier this year, IATA director-general Tony Tyler said punitive tax regimes in parts of Africa were preventing expansion and deterring start-up airlines.
He said the cost of aviation fuel in Africa is 21 per cent higher than the world average, simply because taxes are so high, but he did acknowledge improvements in Angola, Uganda and Ghana. “Africa also suffers from onerous direct taxes on tickets. We see a combination of ‘solidarity’ taxes, tourism taxes, VAT and infrastructure development fees, each of which reduces the ability of aviation to drive economic benefits and generate jobs,” Tyler complained. “Governments must carefully weigh the income generated against lost economic opportunities. There should be a joined-up policy framework that is focused on the benefits of connectivity, which would grow in a more favourable tax environment.”
Tyler told the conference: “Aviation is a key driver of Africa’s economy. Some 6.7 million African jobs and nearly US$68 billion in African GDP are supported by air transport. But the benefits of aviation connectivity go far beyond these figures.
“With a few kilometres of runway the most remote region can be connected to the global community. And that could mean access to vital sources of healthcare and emergency assistance; jobs selling products in global markets or welcoming tourists; or opportunities for education, exploring the world, or creating business.” He cited connectivity as a key issue.
Nevertheless, FCM’s Ciaran Kelly remains doggedly optimistic. “Intra-Africa air travel is definitely changing,” he says. “More airlines are establishing new, previously uncharted routes and creating better connections across the region. Traveller security issues are also being addressed, and it is becoming increasingly easier to facilitate visa processes.”
A COMPLEX BUSINESS
Other business barriers may take longer to overcome. “Corruption still remains a major issue in sub-Saharan Africa,” says Correia. “Changes are happening, but this will take a major paradigm shift. Corruption happens at all levels of society, and poses a major challenge for companies wanting to do business in the region.” It also poses a major challenge for TMCs – the Wings Travel manager cites the case of travel bookers being bribed to make off-policy reservations through rival TMCs.
Correia’s list of challenges doesn’t stop there. An irregular power supply and inconsistent phone service, along with patchy internet technology make communications difficult. “In our environment, companies don’t use internet booking tools because of the inherent complexities of travel in sub-Saharan Africa – the availability of routes, visa restrictions, travel restrictions for security purposes and health challenges,” he says. “BSP [Billing and Settlement Plan] is non-existent in many countries and travel agencies often have to purchase ticket stock up front. Banking and payment solutions remain a challenge, and cash is king. Credit cards are not widely accepted, and stringent exchange control regulations make it very challenging to operate seamlessly.”
Challenge does, however, bring change. Later this year, the Johannesburg-based Africa Business Travel Association (ABTA) plans to launch an East African educational campaign from Kenyan capital Nairobi. “Within the business travel sector, the concept of managed business travel through the use of a company travel policy is still fairly new, especially for the local and regional corporations that do not have global policy mandates,” a spokesman says. “The importance of transparency in fee structures, cost and supplier consolidation, and improved traveller productivity are key areas requiring educational focus in the region, especially given the rapid growth of the economy and influx of international businesses opening their doors in Kenya.”
ABTA’s Nairobi venture is designed to help local travel professionals deal with industry challenges – that word again – and get to grips with local and global trends impacting the market place. Reassuringly, the organisation is also very keen on “embracing opportunities”.
ON JULY 1, Ethiopian Airlines, which claims to be the fastest-growing carrier in Africa, was due to launch a new service to Sao Paulo and Rio de Janeiro. The planned three Boeing 787 Dreamliner flights a week, operated through Ethiopian’s second hub in the Togolese capital Lomé, take the airline’s roster of destinations to 74.
Note the pre-event comments by Ethiopian’s chief executive, Tewolde Gebremariam: “We are very pleased to announce to our customers that Ethiopian will soon spread its wings to South America,” he said, adding: “The China-India-Africa-Brazil trade lane is the fastest growing in the world.”
No mention of London, Paris, Frankfurt or Rome. Not a peep about Washington or Toronto. “Our new Brazil flights will provide efficient connections with 28 weekly flights to four destinations in China, 14 weekly flights to the two major cities in India, daily flights to Lebanon, five weekly flights to Tel Aviv and almost daily flights to 45 cities across Africa.” he added, studiously ignoring his airline’s entire European network.
The axis of world trade – and, as a consequence, of air transport – is shifting from the old northern hemisphere transatlantic and transpacific runs to a new diagonal. The massive and increasingly wealthy populations of China and India in the east and Brazil in the west are demanding more and better living standards, which drives demand for raw materials. And those raw materials are to be found in Africa.
It’s not just Ethiopian Airlines capitalising on the new trade routes. Announcing a new ten-year strategy, Kenya Airways has pledged to launch seven new routes into China, six in the Indian subcontinent and three across north and southeast Asia. Europe and North America do get a mention, but only in passing.
Earlier this year, South African Airways (SAA) forged a partnership with Etihad Airways, which initially involves codesharing on 12 of the Abu Dhabi-based carrier’s routes.
The fact that IATA held its annual general meeting in Cape Town in June this year is an indication of Africa’s growing importance to the world of civil aviation. SAA’s acting chairman Dudu Myeni said last month: “With growing world interest in Africa’s rich mineral and agricultural resources as well as increased stability in the region, the stage is set for a giant leap forward in development and upliftment of the continent. Aviation will play an integral role as a socio-economic enabler during this process.”
She said that the SAA Group alone will create “downstream economic enablement benefits” worth around ZAR1 trillion (roughly £63.3 billion) over the next 20 years.
There is a way to go. Latest performance forecasts from IATA indicate that African airlines continue to be the weakest performers, with passenger load factors below 70 per cent, operating margins averaging less than 1 per cent and projected profits in 2013 of just US$100 million. That is, however, a substantial improvement on 2012’s US$100m loss, and while the region’s airline capacity is expected to grow 6.7 per cent this year, that will be outstripped by a 7.5 per cent increase in demand, so load factors will improve.
“The region’s airlines continue to face high operating costs, especially for fuel, which is on average 21 per cent more costly than in other parts of the world,” IATA says. “Long-haul services face stiff competition from carriers outside the region, while significant aero-political barriers still stand in the way of enhanced regional connectivity.”
External competition and internal politics may be holding back some carriers, but others are making the most of the expansionist opportunities. Kenya Airways' ten-year growth plan includes almost trebling its fleet, to 119, and increasing its destinations from 58 to 115 routes in 77 countries by 2021. To date, the airline has firm orders for nine B787s (with a further 20 on option) and three B777-300ERs, with deliveries due to start early next year. In addition, the company plans to expand its narrow-bodied fleet “which will facilitate expansion across Africa”.
That will almost certainly bring it into direct competition with Arik Air. Founded as recently as 2006, the Nigerian carrier now serves more than 30 destinations – including London and New York – and is rapidly building its pan-African network, having added Angolan capital Luanda, Douala (Cameroon) and Kinshasa, capital of the Democratic Republic of the Congo, in the past year alone. The expansion, according to Arik’s managing director Chris Ndulue “underscores the airline’s commitment to linking the African markets for proper integration of the continent”.
Proper integration is a worthy ambition and would be welcomed by corporate travellers and their employers alike. However, the dream may not be realised for a while yet.
In 1988, in Yamoussoukro, Cote d’Ivoire, leaders of most (but not all) African states agreed in principle to the idea of “open skies” liberalisation. It was not until 1999 that 44 countries actually signed what became known as the Yamoussoukro Decision. It became fully binding in 2002. But 11 years on, little has been achieved. Many African governments remain fiercely protective of their national airlines and put up barriers to market entry. According to the World Bank, Africa is home to 12 per cent of the world’s people, but it accounts for less than 1 per cent of the global air service market.
African Airlines Association director Raphael Kuuchi says governments should speed up partnership and regional cooperation deals or risk losing control of their skies. “Africa is the least liberalised market in the world, with traffic rights governed by bilateral service agreements based on reciprocity,” he says. “This situation is grounded in false national pride in flag carriers and suspicion of neighbours. It is counter-productive.”
Within Africa, a handful of countries do appear to be moving in the right direction but, in the interim, the continent’s major players are moving in their own direction – east to India and China, and west to Brazil.