Africa’s Aviation Industry: Challenges and Opportunities
Nov 20th 2012
The performance of the African aviation industry is still lagging behind those of the rest of the world. Nonetheless, demand for air transport has increased steadily over the past years with passenger numbers and freight traffic growing by 45% and 80%, respectively. Over the period 2010-2015, Africa will be the third fastest growing region in the world in terms of international traffic with an average growth rate of 6.1% compared to the global average of 5.8%, and 7.9% and 6.9% for the Middle East and Asia Pacific, respectively, while Europe, Latin America and North America are projected to record lower international passenger growth of 5.0%, 5.8% and 4.9%, respectively.
This trend is expected to continue in the coming years due to a number of factors, notably robust economic growth, demographic boom, increasing urbanization, and emergence of the middle class. Air transportation plays a vital role in the country’s growth process by accelerating convergence of goods and persons. The contribution of air transport far exceeds that of road transportation sevenfold. Growth in air transportation has directly maps into economic growth due to spillover effects through creation of direct and indirect jobs in the industry and other auxiliary sectors such as tourism and other service sectors. Expansion in air transportation creates market opportunities for local entrepreneurs by creating regional and global economic centers. In 2010, the aviation industry in Africa supported about 7 million jobs (including 257,000 direct jobs) through the impact on travel and tourism which translated into USD67.8 billion of the continent’s GDP. Forecasts indicate that the aviation industry’s impact on African economies is set to grow. Over the next 20 years, implied job creation by the industry is projected at 879,000.
Africa can maintain the growth of its aviation industry if more and more people can afford to pay for the cost of air travel. Currently, only 10% of Africans travel by air but given the current rate of economic growth and emergence of the middle class, there be high demand for services linked to air transportation. In recent years, growing alliances with counterparts in other regions of the world have played an important role in the development of the African aviation industry. These alliances have permitted African companies to gain access to new long haul routes resulting in higher economies of scale and skills exchange.
Challenges to the African aviation industry
The rapid expansion in Africa’s aviation industry is hampered by a number of factors. Poor record of safety and security, lack of adequate resources and infrastructure, distance and limited connectivity, lack of regulation and government actions are among the main constraints the industry is facing. These constraints add to competition and high operating costs resulting from surging oil prices. Addressing these challenges could significantly unlock the industry’s potential for future growth.
Safety and security challenges: Safety is the most pressing challenge facing the aviation industry in Africa. In 2011, the average number of air traffic accidents was nine times higher than the global average. The frequency of accidents stems largely from inconsistency in the implementation and enforcement of internationally accepted safety standards and practices. Increasing the level of safety should be a key priority for the development of the African aviation industry. The African authorities have endorsed an African Union backed plan aimed at addressing deficiencies related to aviation safety and security and strengthening the regulatory framework. Accordingly, the International Air Transport Association jointly with the International Civil Aviation Organization and other organizations have committed to supporting the Africa Strategic Improvement Action Plan of the African Union. The plan encourages African governments to foster regulatory oversight through the adoption of globally accepted safety and security standards.
Inadequate infrastructure: The air transport industry faces various challenges including poor airport infrastructures, lack of physical and human resources, limited connectivity, and lack of transit facilities. Although substantial progress has been made during the past decade, Africa still lags behind other regions in terms of “soft” and “hard” infrastructure. It is therefore critical that African countries invest in the soft as well as hard infrastructure to support the industry.
Lack of regulation and government actions: Despite the growing awareness of the role that the aviation industry could play in the development of the continent, the industry is still not the top priority of African governments. More, despite increased liberalization of the African aviation industry and the growing presence of foreign companies, some African governments are still reluctant to open their skies fearing foreign competition could undercut national airlines, some of which are short of commercial viability besides being just symbols of sovereignty. These challenges require governments to enhance regulation of aerospace management, consumer protection and safety of airlines. Lack of aviation experts and skills, high airport taxes and fees, the weak connectivity and restrictions on transit visas and facilities add to the menu of impediments affecting Africa’s aviation industry.
Opportunities to the African aviation industry
Air travel is essential to the prosperity of Africa as it opens up opportunities that did not exist before. Fostering the African aviation industry may be one of the driving forces of regional integration on the continent. Better connected African countries and regions through a viable air transport industry could be the catalyst that can boost intra-African business, trade, tourism as well as cultural exchange. Developing the aviation industry may also represent an opportunity to mitigate chronic transport problems faced by the 16 landlocked African countries.
Professor Mthuli Ncube is the Chief Economist and Vice President of the African Development Bank, and holds a PhD in Mathematical Finance from Cambridge University, UK, on “Pricing Options under Stochastic Volatility”.