By Marcel Langeslag, Director Aviation Africa at NACO
Aviation is a multi-faceted industry supporting employment and economic development both directly (through airports, airlines and other aviation-businesses for example) and indirectly through economic spill overs or, catalytic economic impacts. Air transport facilitates tourism, investment and has even been shown to impact productivity. One other equally important area of catalytic impact is in the trade of goods and services.
The way aviation and the economy are intertwined has been highlighted recently by the COVID-19 pandemic. While essential cargo traffic was allowed to continue, passenger traffic ground to a halt leading to severe impacts on a wide variety of economic activities.
In this short article, we take a look at some of the key developments and the economic impacts that are shaping both air traffic and trade in Africa.
Trade and propensity to fly
The direct and indirect effects of trade are linked closely to passenger air transport services, as sales and delivery are often facilitated by face-to-face meetings. Air transport connects businesses to markets worldwide, providing access not only to an international customer base but also to international labour pools. This is of particular importance for high-tech and knowledge-based sectors, as well as suppliers of time-sensitive and valuable goods.
Research in the UK has shown that a 10% increase in airline seat capacity results in a 3.3% increase in exports of goods, and a 1.7% increase in imports (see PWC, 2013, “Econometric Analysis to Develop Evidence on the Links Between Aviation and the Economy”, Report for the UK Airports Commission, December 2013). Data drawn from the 16 countries in our Propensity to Fly sample also shows a positive correlation between propensity to fly and both imports and exports as a share of the economy (Figure 1).
PTF vs Trade
Intra-regional and international perspectives
According to the World Bank, the Sub-Saharan Africa average of exports of goods and services as a percentage of GDP is 25.4% while for imports the figure is 28.3%. Analysis of trade statistics reveal major differences in trade patterns between regional economic clusters such as the East African Community (EAC) and the Economic Community of West African States (ECOWAS), and between individual countries.
While China, India, the EU and the US remain the continent’s top trading partners internationally, intra-Africa exports account for 15% of the total. South Africa represents the largest share of both intra-Africa exports and imports, with 35% and 20% of the total respectively, followed by Nigeria and Egypt (Trade Law Centre, 2019, “AfCFTA: a tralac guide”, 6th edition, November 2019).
Table 1 shows the top trading partners by value for the 16 countries in our sample, together with the top air transport destination markets by seat capacity that are served by direct routes. What stands out clearly in these lists is the lack of direct flights to China and India, both of which are major trading partners. This may be explained by the large seat capacity into hub airports in Dubai and Abu Dhabi (i.e., the United Arab Emirates), Istanbul (Turkey) and, to a lesser extent, Addis Ababa (Ethiopia) and Nairobi (Kenya).
Trade, air connectivity and air cargo
By analysing the trade linkages for a particular country, opportunities for improved air connectivity may be identified. The importance of airport infrastructure is underlined by research by the World Trade Organisation (WTO), which found that country-pairs with good airport infrastructure trade more than twice as much, everything else being equal (Nordas, H. K. and Piermartini, R., “Infrastructure and Trade”, WTO Staff Working Paper ERSD 2004-04).
Worldwide, air cargo accounts for only a fraction of trade by volume, but for more than a third of all global trade by value. When looking at the trade of goods however, it is important to note that while certain products may not be suitable for air transport, others – such as time-sensitive goods and those with high value-to-weight ratios – may be more dependent on this mode of transport. Many African countries for instance have resource-intensive economies which export and import goods that are not particularly suitable for air cargo. Indeed, Africa’s top 5 export products are all natural resources, including fossil fuels and precious minerals (Table 2). In terms of imports however, the goods most commonly imported besides fuel, are equipment, machinery and pharmaceuticals.
The African Continental Free Trade Agreement (AfCFTA), currently ratified by 29 countries, has the potential to boost intra-Africa trade by more than 50% according to some estimates. This is important as countries seek to [re]industrialise in an effort to increase economic growth. Research by the Trade Law Centre further identified agro-processing as an area of potential growth in intra-Africa trade in the near term. With air cargo particularly well-suited for the transport of perishable goods, this offers opportunities for air freight on the continent.
Developments in African air-freight
The African air freight market has performed relatively well over the past few years. In fact, since 2010, cargo tonnages have grown faster than passenger numbers, with compound annual growth of 4.6% and 3.2% respectively (based on data from the ACI World Annual Traffic Report, 2019) for the 16 countries in our sample. In 13 of these countries, cargo and passenger traffic both showed positive growth over this period, the exceptions being Tunisia, Tanzania and Cape Verde.
Where to from here…?
Growth in intra-Africa trade will require governments, airports and airlines to create an enabling environment for both passenger and cargo traffic. This means improved connectivity to the target markets for the type of goods and services that are being traded. Optimisation of customs procedures and the integration of supply chains are also key areas for improvement.
From safe airside movement areas and modern first and second tier cargo facilities, to efficient ground transportation links to the airport and the wider airport city, the provision of high-quality infrastructure on and off the airport will be absolutely crucial to realising intra-Africa growth potential.
Recent comments in light of the current crisis, suggest that it would be to the benefit of the aviation industry and all travellers if the COVID-19 pandemic would lead to increased collaboration and more open skies, rather than more protectionism. The Institute for Security Studies (ISS) argues for instance that “Today, more than ever before, African leaders need to revive momentum for deeper regional integration”. This sentiment is shared by Muhammad Ali Albakri, IATA’s Regional Vice President for Africa and the Middle East, who has stated that “Cooperation and harmonisation across borders will be essential to restart aviation”.
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