It is obvious that the global economy is in flux. The world appears to be lurching from one crisis to another. Nothing seems certain.
Nothing is as predictable as it was five years ago. In Africa, nowhere is this reflected more accurately than in the state of foreign exchange (forex) reserves of many countries.
According to a Reuters report, “Nigeria faces severe shortages of foreign currency leading to restrictions on imports and meaning investors cannot convert local currency to repatriate their profits.”
A report from Simpleflying.com says, “across the African continent, various nations are reportedly withholding millions of dollars’ worth of revenue from foreign airlines.” The International Air Transport Association (IATA) reports that “there is over USD 1 billion in revenue waiting to be handed over.” Ethiopia is reported to be near the top of the list of those withholding forex.
Kenya has had its share of forex challenges. Recently the Central Bank of Kenya official foreign exchange reserves dipped below the statutory requirement of four months equivalent of Kenya’s import demand. At USD 7.04 billion, they are the equivalent of 3.94 months of imports and are their lowest in seven years. The government has undertaken mitigation measures to ease the demand on the US dollar. Because copious amounts of forex are needed for Kenya’s oil import needs, the government has entered into a six-month credit period with oil suppliers.
But perhaps new thinking is needed that will shore up Kenya’s forex reserves. Looking at global trends, there is a correlation between forex inflows into a country and the presence of a national carrier. Take Ethiopia for instance. An article from The Reporter mentions that of the USD 27 billion foreign currency inflow into the country last year, USD five billion was generated from Ethiopia Airlines.
Before the Covid-19 pandemic, the aviation sector in Dubai led by Emirates Airlines was expected to contribute USD 53.1 billion to the economy and 37.5 per cent of its GDP. It was also expected to support over 750,000 jobs.
It is not for nothing that Saudi Arabia is launching a new national airline. Media reports say “the new carrier will be called Riyadh Air and aims to improve connectivity between the Kingdom and the three continents it straddles: Asia, Europe, and Africa.” The reports add that “the airline is expected to add USD 20 billion to non-oil GDP growth with more than 200,000 direct and indirect jobs.”
Kenya Airways (KQ) could follow the same path and at once, facilitate much needed forex inflows and at the same time, provide much needed employment opportunities to the country’s youthful population. Already, KQ contributes about 4 per cent of Kenya’s GDP equivalent to USD 3.2 billion or Sh400 billion annually. Of this, an estimated Sh75 billion is in foreign currency. It employs 4,000 people directly with an additional 18,000 dependent jobs.
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Kenya Airways can do so much more given the requisite support. Turkish Airlines, with support from the Turkish government, has become the busiest carrier in Europe. It now sees 66 million passengers passing through Istanbul Airport with the potential of enhancing this figure to 200 million passengers annually.
Following the same trajectory, as Kenya’s hub carrier, KQ can leverage its geographical position to increase its dominance of intra-African routes. But this comes with a rider; the Kenya government must be willing to massively improve on Kenya’s gateways.
Turkish Airlines can move huge numbers of passengers and generate copious amounts of forex only because they have the new Istanbul International Airport. The old Ataturk airport was deemed too small for their expansion drive. The Saudi government has unveiled a masterplan for a major new airport in Riyadh, the King Salman International Airport.
A clearsighted assessment of Kenya’s national carrier reveals it to confer more good than it is given credit for. When it comes to the country’s forex conundrum, it just may present the best way to move the needle.