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The East African : Mar 16th 2015
The EastAfrican 36 BUSINESS MARCH 14-20,2015 Flydubai inc≥eases flights to the ≥egion By COPPERFIELD LAGAT Special Correspondent FLYDUBAI HAS increased its flights to East Africa starting in July. From March 29, Flydubai will increase its service from two flights a week to daily flights to the capital of South Sudan, Juba; and three flights a week instead of two to Bujumbura, Burundi. The company said plans are on course to extend flights to Nairobi. Flydubai will operate 78 flights Kitabi tea estate in Rwanda. The region suffered from chronically low prices for major exports like tea, coffee, minerals in the 1980s and 90s. Picture: File A≥e falling global commodity p≥ices a blessing o≥ a cu≥se fo≥ East Af≥ica? COMMENTARY ANDREW MOLD “The answer, like many in modern economics, is not straightforward.” O nce upon a time, the relationship between commodity prices and prospects for development in the South was considered clear-cut. As producers of commodities, high commodity prices were considered to be good for the developing world (and bad for the commodity-importing high-income countries in the North). Conversely, low commodity prices were considered a drag on growth and development in poor commodity-producing countries in the South. Nowadays, however, things may not be so simple. In the 1950s, Argentinean economist Raul Prebisch wrote about how the developing world was threatened with ever-declining commodity prices and hence needed to protect its economies and build up its own industries. There was, in other words, absolutely no future in producing commodities for export. Certainly, from the perspec- tive of East Africa, this theory seemed in consonance with a harsh reality: In the 1980s and ‘90s, the region suffered from chronically low prices for major exports such as coffee, tea, minerals, etc. Prices were so low at the international markets that small- holder farmers could barely afford to pay for food for their families on the income derived from their small plantations of coffee or tea. To put it starkly, low prices were directly responsible for gruelling poverty among many commodity producers in the region. Since the early 2000s, how- ever, things have changed dramatically and Africa has been on the cusp of a veritable commodity boom. It has benefited some regions more than others — particularly the oil-rich countries of Central and West Africa. But, generally speaking, all have benefited. The cause of this shift upwards in commodity prices was complex but basically ascribed to the influence of the emerging markets — particular China and its ferocious demand for all classes of commodities. Some analysts even began to talk of a commodity “supercycle”, whereby commodity prices would remain at structurally high levels rather than suffer cyclical shifts. This was considered as resoundingly good news for commodity producers across the developing world. Suddenly, however, at the tail end of 2014, things started to look less certain — commodity prices started to decline in 2013, but the fall accelerated in the second half of 2014 as international oil prices collapsed. The fundamental question is, what does this mean for development prospects in the East African Community? Will it make the economic situation harder, or is it a blessing in disguise? The answer, like many in mod- ern economics, is not straightforward. On the one hand, it is certain that the region is still heavily dependent on its exports of commodities — and as the prices of those commodities decline, it will make it harder for countries in the region to pay for much-needed imports. However, the EAC is not a re- source-rich region — not yet at least — and has become heavily dependent on the import of other commodities, particularly oil, cereals and other food items. Kenya imports over $2 billion in oil and oil-related products a year. It is also clear that much of the growth surge seen within the EAC since the early 2000s has been driven by domestic factors (particularly higher investment rates and stronger domestic demand) rather than higher commodity prices per se. A fall in commodity prices will also have distributional consequences within countries. Some citizens will gain, but others may well lose. For example, cheaper food would be welcomed by the urban masses dependent on purchased food, but will not help poor farmers. Ultimately, the consequences will depend on which commodities suffer the greatest fall in prices, and which retain their value. In the case of Tanzania, its leading commodity export is now gold and gold prices, until a few weeks ago, had been experiencing a sharp decline, from their peak $1,800 per ounce to about $1,200. But prices are now bouncing back — gold is consid- ered by many investors as a safe haven when there are concerns about conditions in the global economy. People often become under- standably irritated by economists who sit on the fence. Our bottom line would be that a fall in commodity prices should not unduly harm growth prospects for East Africa. However, if it were to become a prolonged slump — reflecting a more serious global crisis — then it would be difficult for East Africa to remain immune. A cautionary tale could il- lustrate this point. In 2008-9, when the global financial crisis hit, commodity prices declined — but only briefly. In a sense, the 2008-9 price decline was a very atypical one. Normally, when Europe and the United States catch a cold, the rest of the world sneezes. This time round, however, the emerging markets — and again China — continued to grow strongly. This acted as a kind of shock absorber for the global economy — and meant that commodity prices recovered very quickly. As a consequence, Africa’s growth performance suffered a blip, but fairly quickly regained momentum. But should the Chinese econ- omy continue to slow down, and the rest of the global economy return to recession, East Africa may not be able to dodge the bullet a second time. And≥ew Mold is a senio≥ economic a≠ai≥s o∞ce≥ at the United Nations Economic Commission fo≥ Af≥ica sub≥egional O∞ce fo≥ Easte≥n Af≥ica, Kigali A Flydubai aeroplane at Dubai airport. The carrier is increasing its flights into East Africa. Picture: File a week to 12 destinations mainly in East Africa. North Africa is also included in the plan. In a statement, Flydubai chief executive officer Ghaith Al Ghaith said: “We were the first UAE carrier to serve Bujumbura, Juba and Zanzibar,” said Ghaith Al Ghaith, CEO of Flydubai.” Excellent results Flights to Zanzibar, launched about six months ago, have registered excellent results, according to Flydubai, and demand keeps increasing. The carrier will increase flights to the Isles from two to four flights a week. Flights to 78 The number of flights the carrier will operate each week to 12 destinations Alexandria in Egypt will be increased from two to three a day starting June this year. In a bid to meet flight demand occasioned by growing trade and tourism in the Middle East, East and North Africa, Flydubai launched six routes to the region in 2014, doubling its network. Djibouti was Flydubai’s first destination in Africa, in September 2009. The airline now has a network of 12 destinations, which include Addis Ababa, Dar es Salaam, Entebbe, Khartoum, Kigali and Port Sudan.
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