Last December, amid two days of fanfare, a new long-haul 787 passenger route was launched from Durban, South Africa. The four-times-per-week service was hailed by local provincial officials as a triumph for the region and would begin “opening up new markets for our goods around the world,” as well as delivering tourists and tourist money, to the continent. And which carrier is now facilitating this foreign trade boom? Qatar Airways, based not in Africa, but in the Middle Eastern city of Doha. It says much about the state of the African airfreight industry that a new Doha-Durban route, with ample bellyfreight capacity, is owned by a foreign carrier – especially one from the Middle East. Qatar now has 21 flights a week to South Africa from its Doha hub. Nowthat’s an open market. For most of the last decade, the surge in cargo traffic that has made Africa one of the world’s fastest-growing airfreight markets has been dominated by carriers based in the Gulf Region, China and Europe. One of the few exceptions is Ethiopian Airlines, a rare African carrier that has a substantial cargo division modeled on the global airfreight networks of its foreign rivals.

“Foreign carriers account for 85 percent of the traffic moved to and from the continent and have far significant advantages compared to African carriers,” said Sanjeev Gadhia, CEO of Kenyan all-cargo carrier Astral Aviation. The reason, Gadhia said, is a lack of liberalization in the aviation policies of most African nations. While foreign-operated international routes have been a boon for forwarders and international shippers near the major hubs of Cairo, Addis Ababa, Johannesburg and Nairobi, most of the profits end up in the accounts of the foreign carriers, and very little is invested in improving air cargo infrastructure elsewhere. Currently, intra-African cross-border trade only makes up about 10 to 12 percent of the continent’s economy. Last year, however, after years of hard-fought negotiations among African nations, a new free-trade bloc has been formed that is aimed at addressing Africa’s lack of interconnectivity.

Called the Tripartite Free Trade Area (TFTA), the new zone was formally established in June 2015, comprising 26 nations, with a combined population of 632 million people, or 57 percent of Africa’s population. Altogether, the TFTA bloc has a combined GDP of US$ 1.3 trillion, representing 58 percent of Africa’s total GDP. The vast size of the area represented – about 17 million square kilometers – is roughly equal to that of Russia, making it one of the largest free-trade zones in the world, forming an unbroken corridor from Cairo to Capetown. The TFTA gives Gadhia hope that the continent will finally begin opening up its borders for trade with neighboring countries. “Africa remains the most unconnected continent in the world, with several constraints between East and West Africa, East and South Africa, South and West Africa,” he said. “[TFTA] poses an excellent opportunity for freighter operators to open new markets, which have been disconnected not only in Africa but the rest of the world.”

How will it affect forwarders?
The exploitation of Africa by foreign companies can be traced back to its hundreds of years as a stomping ground for imperial powers. But even though the 54 countries that make up Africa today won their independence decades ago, the echoes remain in the form of closed borders and protectionist attitudes, which continue to hamper forwarders. “African nations have been overprotective of their airspace in an effort to support their national airline, hence many countries remain closed,” Gadhia explained. “Currently, forwarder in Kenya has an urgent airfreight shipment to Lagos, they will have to consider routing it via Dubai. Likewise if a forwarder in Cairo has an urgent airfreight shipment for Johannesburg, they will have to consider options via Frankfurt.” According to a recent IATA study, the absence of liberalization policies has pushed shippers toward reliance on larger foreign-owned carriers that have negotiated 4th and 5th freedom air rights between African countries.

These carriers rely on connectivity through a few specific, well-established hubs in places like Ethiopia, Egypt, South Africa and Kenya. Of the top 10 African airlines, the study found that the four largest carriers operate with connecting structures only from their own respective hubs. Also, no major hubs have yet emerged in West or Central Africa. As a dedicated cargo carrier, Astral Aviation has been able to operate scheduled freighter services from its hub in Nairobi to the U.K., Belgium, Tanzania, Uganda, Mozambique, Comoros, Somalia, South Sudan and South Africa. However, there were no free-trade agreements to facilitate these arrangements, so Gadhia had to painstakingly negotiate all of the above traffic rights on his own, which he said was a lengthy and exhausting process. “Every country on the continent has its own aviation policy based on their Bilateral Aviation Safety Agreements,” he added. “It’s obvious that better interconnectivity will reduce cost and improve transit times for the freight forwarders and logistics community.”

How TFTA should work
The name of the Tripartite bloc comes from the merging together of three smaller, overlapping trade blocs in Africa – the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern Africa Development Community (SADC) (see map below). Once TFTA is ratified by the 26 member countries, the members will be able to establish trade routes across a wide market, increase investment flows, enhance competitiveness and encourage regional infrastructure development. Astral Aviation expects long-term benefits from the TFTA, with greater intraregional trade improving airfreight volumes. Gadhia said the agreement should help free up funding for badly needed infrastructure development, including airport expansion. Based at Jomo Kenyatta International Airport in Nairobi, Astral operates a fleet of seven freighters, including 727 and DC-9 freighters, plus a 747-400F wet-leased from Atlas Air.

The 15-yearold carrier lifts more than 15,000 tons of cargo every year on scheduled flights to 10 destinations, and also runs a charter network with 50 destinations. Gadhia described Astral as one of the most successful privately owned all-cargo operations in Africa, but its fortunes could truly take off if more barriers come down under TFTA. He cited a study by InterVISTAS Consulting, which analyzed the liberalization of intra-African air markets between 12 African countries. The results of the study found that the open borders would improve connectivity, with 75 percent of country pairs having direct service. For TFTA to take effect, two-thirds of the affected countries must ratify the agreement. So far, about 16 countries have pledged to sign the agreement, which is just short of the threshold. If the agreement is ratified, there are also plans to expand the agreement to cover all 54 African countries, which would represent the continent’s entire population of 1.1 billion.

Will it be enough?
Even if the best-case scenario happens and all 26 countries sign the TFTA, there is still no guarantee the accord will make much of a difference in the African air cargo market. “TFTA will increase regional trade and should benefit African carriers,” said Astral’s Gadhia. “But the sad reality is that there are only a handful of African carriers who operate dedicated freighter services.” Alessandro Saponaro, chairman of the Europe-based Africa Logistics Network, created his organization on the principle that a common market will eventually form across Africa, but he remains pessimistic. “The African continent is suffering for a lot of problems that prevent a regular development of its economies,” he said. “Certainly, the TFTA signed last June will help partially and could become very important, but, in my opinion, it will not be sufficient.” It also doesn’t help that the world’s financial markets are being uncooperative right before the rest of the TFTA nations are considering ratification.

By mid-January, with the Dow and China’s stock market fluctuating wildly, South Africa’s rand had fallen by 30 percent over the previous six months to a record low and Nigeria, the largest economy on the continent, saw its currency stabilize, but only because of the government’s effort to prop up its value. The slowdown in the growth of the economy in China, one of the largest importers of minerals and oil from Africa, has deflated markets is several countries, such as Angola, Nigeria and Zambia, that rely on this trade. As a result, some investors have been fleeing from assets in many developing African nations, due to China’s strong influence in the region. Of all the stumbling points that the TFTA must avoid, the most nagging one remains the fact that the African airfreight community has almost reached this goal before, but came away disappointed. About 17 years ago, a group of 44 African countries banded together and agreed on a plan to gradually liberalize all intra-Africa air transport services under a strict timetable.

Despite this pledge to untangle the web of air restrictions, known as the Yamoussoukro Decision of 1999, the document languished amid arguments over implementations, and was never ratified. To jump-start those moribund talks again, another meeting between delegates from 11 African countries met in January 2015 to commit to the establishment of a single African Air Transport Market by 2017. The pledge calls for the “immediate implementation of the Yamoussoukro Decision,” and a regulatory framework to implement the single market via the African Union. Another significant barrier to intra-African trade has been the stiff tariffs many countries impose on their neighbors. The problem has become especially acute in Nigeria, where Segun Musa, the chairman of Nigeria’s National Association of Government Freight Forwarders (NAGAFF), has warned that the high tariffs charges by the Nigerian Customs Service may cause the airfreight business to collapse in that country by the end of this year.

The high tariffs, Musa said in the local press, are driving away imports and causing air cargo traffic to become unprofitable. Customs officers, he said, “have not brought to table any meaningful policy that will actually drive the industry. Because they are saddled with the responsibility of checking revenue being collected by the freight forwarders, they actually mismanaged the ports.” The loss of revenue due to the high tariffs will turn Nigeria’s freight terminals “into football fields, where there will be no activities going on in the shed,” Musa added. “So, you can imagine how the labor market will look like when about 3 million people will be thrown out of the market.” Still, Gadhia remains hopeful that the TFTA will not find the same dead ends. He currently has an “ambitious, yet cautious,” five-year strategy that will include the purchase of six 737 freighters, which will enable the carrier to fly to more than 25 scheduled destinations within Africa.

This process, he said, began in 2015, so the first 737-300F may arrive later this year, “along with the opening of several key routes in Africa,” he added. By 2021,Gadhia also plans on operating out of three hubs, adding Lagos and Johannesburg to his current base in Nairobi. If all goes well on the regulatory front, he said he may even experiment with unmanned aerial vehicles by operating a support service for drone manufacturers and service providers. But to make these exciting plans work, Africa must make TFTA work. “This will require the political goodwill and co-operation between all 26 member states,” Gadhia said. Other smaller African FTA’s, such as COMESA, EAC and SADC, he added, have “had their fair share of implementation challenges, but they have been successful in promoting regional trade.”

Source: Air Cargo World

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.