THE Centre for Trade Policy and Development has urged newly appointed transport and communication minister Mutotwe Kafwaya to reconsider plans to re-launch the national airline.
In an open letter to Kafwaya, CTPD researcher Bright Chizonde said the decision to re-launch Zambia Airways was not prudent due to Zambia’s current financial and macroeconomic situation.
“We would like to congratulate you on your new appointment as Minister of Transport and Communication and welcome your decision to review the re-launching of Zambia Airways. We agree with you concerning the need to make an informed decision on the matter before pushing forward, modifying or changing the course of this decision,” he stated.
“We at the Centre for Trade Policy and Development (CTPD) have conducted comprehensive research on this matter and have concluded that the decision to re-launch Zambia Airways is not prudent due to Zambia’s current financial and macroeconomic situation. We strongly advise government to put the national airline on hold till the nation is in a better macroeconomic position to launch it as a regional carrier. There is need for IDC to adjust its business model and develop a financing model for Zambia Airways – these should thereafter be made public to address stakeholder concerns regarding operations, private investment synergies and government financing of the national airline.”
He stated that the reasons for advising against the re-launching of the national airline were threefold.
Chizonde stated that firstly, Zambia Airways would face a high risk of failure if it is launched using the proposed business model.
He stated that Zambia had a relatively small population and economy and lacked strategic location for intercontinental flights.
“South African Airways (SAA) has been constrained to a loss making position due to this lack of geographical advantage. Even though Zambia is partnering with Ethiopian Airways, Ethiopian Airways’ success is driven by a number of factors such as strategic location within the horn of Africa and a comprehensive business model, some of which is impossible to replicate in the Zambian context,” he stated.
“Furthermore, our assessment of Ethiopia’s Partnership with Malawian Airlines reveals somewhat disappointing results. Despite the Good Partnership model on paper and technical assistance, Malawi Airlines has dragged to breakeven and remains in a loss making state for over four years now.”
He stated that secondly, the government was currently financially constrained due to debt levels, which means it is unable to absorb either the initial investment or re-capitalisation costs in case of failure.
“While we agree that a national airline has the potential to facilitate economic development by improving tourism and stimulating non-traditional exports, these potential benefits must be weighed against the risks of failure and increased indebtedness. Investing US$55 million into this project has the opportunity cost of using these funds towards government spending on healthcare, education and social protection,” he stated. “A loan to cover this investment would increase debt and interest payments and could further crowd out social spending in the event that the airline requires a future bailout – as we have seen in South Africa. Such reckless spending during difficult economic times sends a negative signal to investors and external partners that Zambia is not willing to make the necessary changes to put the economy back on track.”
Chizonde stated that Zambia had a vibrant domestic aviation industry which was dominated by private players.
He stated that the launching of Zambia Airways using the proposed business model would crowd out the private sector since Zambia Airways was envisaged to have domestic, regional and intercontinental flights.
He stated that the government should instead be seeking to crowd in private sector players, rather than interfering with the market through pursuing investments which could be taken up by the private sector.
“In a period of mounting debt, the capital requirements to establish and the prospect of low-returns in a challenging industry, make the re-launch of Zambia Airways a gamble that the government can ill afford. Instead of currently pursuing a national airline, GRZ could make policy changes to the domestic market that promotes investment into the Zambian aviation sector, which would in turn support economic growth. CPTD would therefore like to urge you to reconsider and halt the plans to re-launch the national airline,” stated Chizonde.
“In light of financial constraints and a struggling economy, now is not the time to press ahead with an ill-conceived business model that crowds out much needed private sector investment. Further consideration is needed to ensure that Zambia benefits from a national airline and citizens are protected from the burden of additional unproductive public debt.”