Transport, travel and CAPEX surge in Africa

By Ekelem Airhihen

There is a recent upsurge in capex (capital expenditure) that is even outpacing the rebound in consumer spending on a global scale and Africa cannot be left out in a world where money seeks the best return across the globe.

Joseph Lupton, economist at JP Morgan Chase in New York is quoted in Global Finance magazine as saying: “I think capex was one of the surprising areas of resilience in the last quarter of 2020, and the latest indicators point to solid capex growth right through the first quarter as well”.

Economist Magazine says forecasters are of the opinion that overall real investment worldwide will soon be a fifth higher than it was before the pandemic. By 2022 companies in the S&P 500 are forecast to be spending over a tenth more on factories, technology, R&D and the like, it states further.

Two things have accounted for the rise in capital spending. First, as economies reopen, the propensity to spend increases. This gives companies an incentive to expand capacity as they are confident of demand for their products. Second, firms are adjusting to shifts induced by the pandemic that are permanent. Working from home and online shopping for instance will require the big technology firms to increase their capital expenditure. Technology and renewable energy stand out in the increasing capital spending, says Global Finance.

This optimism is also playing itself out in aviation in sub-Saharan Africa especially Nigeria. Nairametrics in an interview with the Nigerian Civil Aviation Authority stated that 23 airlines as at April, 2021, were currently seeking to start their operations in the most populous black nation, Nigeria. However safety and security seem to stand out as one of the factors driving the surge in airlines among other factors.

Technology as a driver of the new normal in the transport and travel sector of the economy will require airports, for instance, to replace or upgrade their technology. In thinking through this option the airports must have a plan of how they intend to drive their business leveraging on Information Technology. This will involve thinking through present network and infrastructure facilities and its ability to support the new business models arising from shifts in customer requirements that are not likely to go away soon. Others are downtime needed to implement them as well as training requirements for staff. And finally, the budget must also be considered.

Statista.com estimates that airlines worldwide would lose about 370 billion USD in revenues with Africa accounting for about 14% of the revenue passenger loss in 2020. As things begin to look up and aircraft acquisition increases as a result of increased travel and more airlines, there are certain issues that the aviation industry and especially airlines will need to consider.

The difficulty in assessing US dollar funding will be important. While fares are charged in local currency, maintenance and repairs and lease or outright purchase will be in US dollars. So, industry players should keep an eye on the US Federal Reserve and its pronouncements, the rising inflation in America as a result of the economic stimulus amongst others.

The type of aircraft and the timing of procurement will be crucial as industry players continue to watch the trends in the market especially in Nigeria. The shift towards renewable energy should reduce the demand on fossil fuels. If that happens, fueling costs which significantly affect the costs of airlines, would be lower. But the key here is to watch the trends closely.

Competition cannot be wished away where many airlines are coming into the market. This calls for innovative air service development plans by both airports and airlines. The profitability of an airline flying into any airport is vital for sustainability of airport operations. The talk about code sharing and interlining are attempts at ensuring profitability by maximizing load factor on various routes in Nigeria.

Airport operators, hotels and other players in the transport and travel industry value chain stand to gain from a collaborative approach to the rising capex across the globe. A sustainable air service development plan from a collaborative effort holds some promise for industry growth and profitability.

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•  Ekelem Airhihen is a chartered accountant and airport customer experience specialist. He can be reached on ekyair@yahoo.com