BY Sade Williams/Business a.m.
Nigeria’s embarrassing foreign exchange challenges which have seen the country’s domestic currency, the naira, plunge to an all-time low of at least N600 to the dollar in the street, has reared its ugly head on the radar of the International Air Transport Association (IATA), which last week disclosed that airlines flying in and out of Nigeria have as much as $450 million held up in unrepatriated funds in the country.
Foreign exchange management has posed a major challenge to the Nigerian economy as earnings have plummeted as the country’s major FX earner, crude oil, has witnessed a fall in production on account of oil theft and low production levels; and foreign direct investments have been in decline while the country has been hit by a global economic crisis that has not been to her favour.
The Central Bank of Nigeria (CBN), suffering from huge foreign exchange scarcity, has a backlog of FX remittance requests that are up to $2 billion, which it continues to struggle to clear as FX scarcity hits hard at its vaults. With IATA alone saying airlines have $450 million trapped in Nigeria, there are a raft of other operators in the economy, including oil companies, portfolio investors looking to export their dividends earnings, that now find it difficult to do so, a situation which directly affects the decision of investors to invest in the economy.
The International Air Transport Association (IATA) showed its concern last week at its 78th annual general assembly in Doha, Qatar over the huge amount of funds belonging to airlines trapped in Africa that was put at around $1 billion, with $450 million of the trapped funds in Nigeria alone.
This has led Kamil Alawadhi, IATA’s regional vice president for Africa and Middle East, to call on African states to expedite the release of the airlines’ funds still trapped in their jurisdictions.
Alawadhi lamented that “blocked funds remain an issue in Africa,” as he revealed that Nigeria has the highest amount of blocked funds at $450 million, calling on the country to take action to address this challenge. Nigeria has many airlines flying to it from within and outside Africa.
“Nigeria alone is holding back $450 million. It is the most amount blocked by any single African country, and the amount is rising every week,” Alawadhi lamented.
He added that the top countries in Africa with blocked funds as of May 2022 also include Zimbabwe, which has $100 million blocked funds; Algeria with $96 million blocked funds; Eritrea, which has blocked $79 million, and Ethiopia with $75 million of airlines’ funds trapped.
Whereas globally, there is a total of $1.6 billion in funds blocked by 20 countries as of April, he noted that 67 percent of blocked funds are trapped in 12 countries in Africa.
Alawadhi explained that “cash flow is key for airlines’ business sustainability,” adding that “when airlines are unable to repatriate their funds, it severely impedes their operations and limits the number of markets they can serve.”
The challenge of blocked funds is a strong discouragement for foreign airlines doing business in Africa. The disturbing issue of blocked funds has been adduced to a number of reasons, including mismanagement and other economic challenges.
Alawadhi further emphasised the need to enhance air connectivity in Africa. According to him, “a financially viable air transport sector supports jobs and must be a driving force for Africa and the Middle East economic recovery from COVID-19.”
He said reduced air connectivity erodes a country’s competitiveness, and diminishes investor confidence, as he called on governments “to prioritise aviation in the access to foreign exchange on the basis that air connectivity is a vital key economic catalyst for the country.”
Alawadhi, who commended safety improvements in Africa, noted that maintaining safety improvements in Africa achieved pre-pandemic is essential during restart. He stressed the importance of the IATA Operational Safety Audit (IOSA) to safety performance, as well as the need to uphold the Abuja Safety Declaration of 2012 adopted by African states, which has boosted safety in Africa so far.
“In 2021, Airlines based in sub-Saharan Africa experienced four accidents; however they were all with turboprop aircraft, and none of the operators was on the IOSA registry. There were no jet hull loss accidents in 2021 or 2020,” he highlighted.
As aviation industry activities resume after two years of COVID-19 challenges, the industry must build back safer, he submitted, as he called for effectiveness in driving a harmonised regional agenda for air transport which would enable the Middle East and Africa to address crises such as the covid-19, as well as taxes and charges.
He also called for a stronger regional regulatory body and better coordination and harmonisation in the Middle East region to drive the aviation agenda and benefits to the region.
For Africa, he explained that “harmonisation is institutionalised through the AU and AFCAC,” adding that both have demonstrated effective regional coordination and harmonisation in many areas, for example, safety, security, covid response, and SAATM, the latter having a clear framework for the liberalisation of air transport despite the challenge we are facing now with implementation.”
Alawadhy called on governments to work closely with industry and with each other to drive a harmonised agenda for air transport in the region.
