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The East African : May 12th 2014
The EastAfrican BUSINESS MAY 10-16,2014 HIGH COST ENVIRONMENT African airlines post sluggish growth High fa≥es and ≥ising competition f≥om big inte≥national playe≥s a≥e among s By SCOLA KAMAU Special Correspondent T he number of eign passe ferried by Afr nearly stagna quarter of 20 fares and ris from big inter New data national Ai Transport As sociation (IA TA), the glo astAfrican BUSINESS MAY 10-16,2014 HIGH COST ENVIRONMENT African airlines post sluggish growth High fa≥es and ≥ising competition f≥om big inte≥national playe≥s a≥e among s By SCOLA KAMAU Special Correspondent T he number of eign passe ferried by Afr nearly stagna quarter of 20 fares and ris from big inter New data national Ai Transport As sociation (IA TA), the glo shows shows that African airlines posted a per cent grow numbers whi routes among dle East carri Passenger in European carriers rose by 4.7 per cent in the quarter, while North American airlines saw demand rise 0.6 per cent. Middle East carriers had the strongest traffic growth, which shot up 13.8 per cent as they continued to benefit from the strength of regional economies and solid growth in business-related premium travel. The Gulf nations are benefiting from acceleration in the non-oil sectors of their economies and positive developments in sectors such as trade, transport and tourism. Latin America carriers registered a rise of 4.5 per cent in March 2014 compared with last year. The African market is increas- ingly attracting new suitors. Kenya Airways, for example, faces fierce competition, especially in African skies, from Ethiopian Airlines and Middle East carriers like Emirates, Etihad and Qatar — all substantially bankrolled by their governments. KQ derives only five per cent of its revenue from Kenya, 49 per cent from Africa and the rest from Asia and the Middle East. South African Airways and Arik Air of Nigeria have also been going for a bigger slice of the cake, especially within the Southern and West African regions. High taxes and charges are also eroding the industry’s competitiveness in Africa. On average, jet fuel is 21 per cent more expensive in Africa than in the rest of the world. Infrastructure, much of which is below international standards, also contributes to the high-cost environment. “We are under pressure from international airlines; we need stronger local airlines,” said chief executive of Air Uganda, Cornwell Muleya. Experts said the weakness in in- 21pc By HALIMA ABDALLAH Special Correspondent COMMERCIAL banks in Uganda are expected to experience a wave of mergers and acquisitions in coming months, as new industry regulations and rising competition pile pressure on them. Capitalisation regulations require banks to maintain $10 million in their books but only a few can manage to do so. While the sector has grown immensely in recent years — from 14 commercial banks in operation in Uganda five years ago to 26 currently — growth in savings has been slow. Savings as a ratio to GDP has remained at 12 per cent for years, creating stiff competition for customers not only among the banks but also the non-banking sector. While the Finscope report 2013 shows there ternational air travel could be partly as a result of the adverse economic developments in some parts of the continent, like the slowdown in South Africa, insecurity in eastern and Northern Africa and high cost of doing business. Experts said airlines might also be forced to halt aircraft orders as tourists numbers shrink, and as taxes eat into profits. KQ for example, is due to receive five Boeing B787-8 Dreamliners this year. The airline faces an estimated tax bill of over Ksh14 billion ($160 million) for the new acquisitions following the introduction of a new VAT on large aircraft by Kenya’s Parliament. “There will be a huge negative impact since all KQ aircraft, if purchased, are now taxable. Spares and engines are also taxable under this new legal regime,” KQ said in a statement. Such taxes give international air- Percentage by which jet fuel is more costly in Africa than in the rest of the world. lines a chance to operate comfortably, ferrying traffic from Africa to other regions, experts said. Africa accounts for 20 per cent of the total traffic from the continent, as competitors from other regions take the lion share. If these challenges are not ad- dressed, competitors will benefit from a foreseen growth in Africa’s air travel market. According to the AfDB, by 2030, Africa’s new middle class will exceed 300 million and spend around $2.2 trillion in a year, equivalent to about 3 per cent of worldwide consumption. This will trigger big air travel both for business and leisure. Passenger numbers are expected to grow from the current 67.7 million to 150.3 million by 2030. “African aviation may not fully realise a positive outlook unless the industry partners with government to create the right environment and eliminate the challenges of safety, market access, infrastructure constraints, high taxes, charges and fees and human capital development,” said Raphael Kuuchi, IATA vice president for Africa. To boost capacity, M&A deals likely among banks are 16.7 million potential bank clients, only 3.4 million are using the formal banking services, which include banks, microfinance deposit-taking institutions, and credit institutions. As at February 2014, customer deposits in commercial banks stood at $4.70 million while gross loans and advances stood at $3.3 million. The Finscope report also shows that 5.1 mil- lion people use mobile money, forex bureaus, insurance, Saccos and microfinance institutions. . “Poor infrastructure in rural areas and mo- bile money operators are big challenges to the growth of the banking industry,” said Juma Kisaame, the managing director of DFCU Bank. Savings as a ratio to GDP has stayed at 12 per cent for years, creating stiff competition for customers Weaker players face the risk of being edged out by mobile money operators. Commercial banks want the Bank of Uganda to introduce policies that will guide the operations of these institutions, including making them agents of the banks. It is expected that this will help commercial banks raise their capacities. If they fail to do so, commercial banks are likely to miss out on the opportunities that come with planned mega projects like the construction of an oil refinery, pipelines and roads. The 600MW Karuma hydropower dam for example, requires $2 billion which an individual bank may not be able to finance singlehandedly. “We also think that smaller banks will be merged or taken over. This is an issue that the central bank is watching very closely,” said Mr Kisaame. FORECAST The majority on the European Union list of banned airlines are African airlines, and this is said to spoil their reputation in the global market. Rising insecurity in the region could cause the industry to plunge into another $100 million loss as it did last year, according to IATA. In East Africa, explosions have occurred in the cities of Nairobi and Mombasa in Kenya, in the past few weeks as conflict continues in South Sudan and the Democratic Republic of Congo. Increased insecurity in the region threatens investments in the industry and expansion of fleet and routes from 2015. , in b≥ief Sameer eyes tyre exports to Nigeria and Angola Tyre maker Sameer Africa is seeking distributors in Nigeria and Angola to help boost its exports. The Nairobi Securities Exchangelisted company currently sells its tyres in Kenya, Rwanda, Uganda, Tanzania and Burundi. Sameer is, however, keen on entering new markets to boost sales as it faces increasing competition. “We will enter Angola and Nigeria by appointing dealers,” said the CEO, Allan Walmsley. The company said it will also make forays into the Democratic Republic of Congo through its Burundi base. Sameer Africa also plans to set up a depot in Rwanda, and hopes to venture into South Africa in future. Orca’s dilemma over $64m Tanzania debt Orca Exploration Group Inc is finding it difficult to fund its operations due to a $64.9 million debt that the Tanzania Electricity Supply Company (TANESCO) owes it for gas deliveries. Orca is seeking additional funding to raise production of natural gas from its Songo Songo field from 94 million to 190 million standard cubic feet per day by mid 2015. The company is working with the International Finance Corporation to fund its projects. But Orca’s chief executive David Lyons said all development depends on Tanesco’s settlement of its debts and guarantees for future gas deliveries. “Neither Tanesco nor the government has proposed a plan to address arrears and ongoing payments. The company has served notice to Tanesco and is pursuing legal options.” 41 Songo Songo gas plant in Tanzania. Picture: File Business Summit to discuss EA’s potential Mineral wealth, regional labour policies and practices and investing in Africa’s entrepreneurs will be the agenda for East Africa’s executives when they meet next month in Kigali. The EA Business Summit scheduled for June 4-6, will explore ways of tapping trade opportunities in the region. The chairman of the Conveners Committee, Nation Media Group’s CEO Linus Gitahi said executives will explore ways to navigate the numerous opportunities emerging in East Africa and impediments to business growth. “We will harness the competitive advantages of the different nations in order to enable the region to play its rightful role in the global community,” said Mr Gitahi.
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