Zambia’s fiscal position doesn’t allow for experiment in aviation industry – CTPD

ZAMBIA needs to consider whether it wants to end up increasing its current stock of public debt all in the name of having a national airline, says the Centre for Trade Policy and Development.

CTPD researcher Bright Chizonde says Zambia should also consider whether the so-called economic benefits of re-launching the airline would outweigh the likely costs.

“There are those who believe that Zambia just needs a national airline for national and economic pride. Well, the current fiscal position of the nation does not allow for a massive experiment in the risky aviation industry at the expense of taxpayers. Zambia is grappling with rapidly increasing debt, now about US$16 billion, and is currently implementing austerity measures,” Chizonde stated. “Furthermore, it is extremely difficult to make profits in the aviation sector with African airlines expected to make a combined loss of about US$100 million in 2018, and slow economic growth in Southern Africa limiting passenger demand increases to 2-3 per cent per year, below the 5 per cent threshold needed to support a new entrant such as Zambia Airways. CTPD therefore considers the move towards re-launching Zambia Airways at this present time a gamble that the country can ill afford.”

The centre conducted a study focusing on Zambia’s plans to re-launch a national airline and unveiled a number of lessons from other countries like South Africa, Malawi and Ethiopia on the potential risks and success prospects of running a national airline.

Chizonde stated that since Zambia, through the Industrial Development Corporation and the Ministry of Transport and Communication, had proceeded to establish a Board of Directors, appointed a chief executive officer, and yet again postponing the launch of Zambia Airways to the third-quarter of 2019, it was important to consider how aviation industries of other African countries have fared.

“South African Airways (SAA) is one of the largest airlines in Africa with about 50 aircrafts, including the Airbus A319, A320, A340 and Boeing 737 airplanes. SAA was established in 1934 and in terms of operations, the airline has been making losses since 2011, with losses amounting to US$127 million in 2016 and US$475 million in 2017,” he stated. “Consequently, SAA has been bailed out by its government to the tune of US$1.2 billion in 2018 alone and it has been estimated that the airline will need a further US$1.8 billion to remain operational till 2021 when it is expected to breakeven. Would this be a path Zambia would want to take? What are the reasons behind these losses and what can Zambia learn from them?”

Chizonde stated that South African Airways operates in the southern African hub but lacks strategic location in terms of long haul flights.

“Therefore, SAA’s hub in South Africa is distant from most international business, trade and tourism destinations. This notwithstanding, South Africa has a huge population size (56.7 million people) and large economy (with GDP of about US$349 billion) translating into a large middle class which demands for air travel. Zambia, in contrast, has a relatively small middle class since the population is smaller (about 16 million people) and the GDP is less than US$30 billion. In terms of regional location, Zambia is also disadvantaged when it comes to intercontinental air travel,” he stated.

Chizonde stated that SAA operates in a highly competitive regional and domestic industry, which squeezes profits.

He noted that SAA competed with British Airways (operated by Comair) regionally, as well as other five international airlines: Ethiopian Airlines, Emirates, Kenya Airways, TAAG of Angola and Air Namibia.

In the domestic market, SAA has sister carriers; Airlink and South African Express, which compete with Fastjet, FlySafair and Kulula.com, a division of British Airways.

“Like most national airlines, SAA has been financed through government investment and bailouts. This places a huge burden on government tax revenue, which would otherwise be used for service delivery. In setting-up a national airline, Zambia exposes the already constrained fiscal position to additional risks and funding needs,” Chizonde stated.

He stated that the South African government did not only bailout its national airline but also exerted considerable interference in its operations.

Chizonde recalled that in 2012, the entire board of directors resigned in protest against interference from government.

He stated that it was imperative that the Zambian government takes “this to heart and avoids interfering in the operations of Zambia Airways” in order to increase prospects for success.

“SAA has also been cited for poor management. The 2007 Auditor general’s report revealed that SAA had failed to properly record financial information and the value of its assets. It was also said to have employed too many workers and had a pay scale for top management which was way above industry norms,” Chizonde stated.

He stated that questions that beg answers in the Zambian case also speak to revelations contained in the Auditor General’s reports and Financial Trends Report, regarding the extent of accountability.

“What measures have we put in place that assure that there will be prudent use of resources that are channelled towards the airline? What is informing our conviction on the perceived returns and benefits?” Chizonde stated.

He stated that it must not be forgotten that Zambia Airways previously went under due to some of “these reasons shared above, particularly a lack of regional demand and financial mismanagement, and one wonders whether we have really learnt from the past.”

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