At the peak of the economic recession in Nigeria, the federal government held back about $600 million of revenues earned by foreign airlines in the country. Nigeria was not the only country hit by low prices of oil. Other countries that depend on oil revenues for the mainstay of economy suffered similar woes as Nigeria.
By the middle of last year, Venezuela, which was the most hit owed the airlines $3, 780 billion, Sudan, $360 million, Egypt $291 million and Angola, $237 million.
However, the good news is that Nigeria has continued to release the trapped funds to the airlines although, as at two weeks ago, the amount still trapped in the coffers of the federal government was about $175 million, which accrued from ticket sales.
In a recent media briefing with the officials of the International Air Transport Association (IATA) in Lagos the body said the Central Bank of Nigeria (CBN) started offloading the trapped funds to the airlines at the beginning of this year when revenues from oil sales received a boost due to increase in crude oil prices.
However, IATA said slow remittance of such funds was having negative impact on the operations of the affected carriers, as the blocked funds constitute operating costs for the airlines.
Cutting Down Operations
It was the inability to repatriate their earnings that forced Iberia and United Airlines to stop their operations to Nigeria and forced other international operations to cut down their capacity in their service to Nigerian destinations.
The IATA Area Manager, South West Africa, Samson Fatokun, urged CBN to accelerate the process that could enable the affected airlines access the blocked funds to ease their business.
Fatokun said though the CBN has tried to bring the blocked funds from about $ 600 million last June to about $175 million as at June 2017, a lot could still be done to clean out the entire sum.
He said Nigeria could accelerate the release of the funds as done by some African countries, including Egypt where the entire blocked funds had been released, noting that the negative impact of withholding airlines funds could have ripple effects on the entire aviation value chain.
Fatokun also noted that Iberia and United Airlines pulled out of Nigeria last year because of issues bordering on blocked funds.
Boycott
Despite the fact that Nigeria and other countries affected are paying back these trapped funds to the foreign carriers, IATA had threatened that airlines might withdraw services in the countries where their revenues were trapped unless they urgently released the monies put at about $5.1 billion last year
The former Director General and CEO of IATA, Tony Tyler had called on the five concerned governments to urgently address airline blocked funds because the operators face repatriation problems.
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IATA urged the governments to respect international agreements obliging them to ensure airlines were able to repatriate their revenues. “Air connectivity is vital to all economies. The airline industry is a competitive business operating on thin margins. So the efficient repatriation of revenues is critical for airlines to be able to play their role as a catalyst for economic activity. It is not reasonable to expect airlines to invest and operate in nations where they cannot efficiently collect payment for their services,” said Tyler. IATA said it monitors blocked funds globally, the sum of which exceeds $5 billion. “The top two countries blocking the repatriation of airline funds are Venezuela and Nigeria. Airline funds blocked from repatriation in Venezuela is totaled at $3.8 billion. Currency controls implemented in 2003 necessitate government approval to repatriate funds. By 2013, approvals were not keeping pace with the amount of funds requiring repatriation and significant airline revenue accumulated in Venezuela. The situation became critical in 2015 when only one request to repatriate funds was approved. So far in 2016 only one request to repatriate funds has been granted,” Tyler said. In Nigeria, IATA said the total airline funds blocked from repatriation in the country are about $600 million. According to Tyler, repatriation issues arose in the second half of 2015 when demand for foreign currency in the country outpaced supply and the country’s banks were not able to service currency repatriations. Nigerian authorities are engaged with the airlines and are, together with the industry, seeking possible measures to make the funds available. “Blocked funds are a problem in a diverse group of countries, some of them undergoing significant economic challenges particularly with a fall-off in oil revenues. But one thing all five nations have in common is the urgent need for robust air connectivity that is being hampered by airlines’ difficulty in repatriating funds. Strong connectivity is an economic enabler and generates considerable economic and social benefits–something that struggling economies need more than ever. It is in everybody’s interest to ensure that airlines are paid on-time, at fair exchange rates and in full,” Tyler said. Job Creation |
At the meeting in Lagos a forth night ago, IATA said Nigeria could not have faced the forex challenge that gave rise to the trap of airlines’ funds and dependence on oil as major source of revenue if it had developed the aviation industry to its full potential.
The global body said thousands of jobs could be created in Nigeria if the country could take the advantages offered by the aviation industry, which has recorded improvement in the last few months.
IATA’s Regional Vice-President for Africa and Middle East, Muhammad Ali Albakris said, “Air transport in Nigeria supports more than 650,800 jobs including tourism-related employment, while contributing $8.2 billion to the country‘s GDP. Over the next ten years passenger volumes are forecast to grow more than 7 percent annually, exceeding the global average by a healthy margin. For Nigeria this means an additional 7.9 million passengers will take to the sky every year, creating significant opportunity to accelerate economic growth, boost prosperity and support development.”
Poor Infrastructure
IATA however noted that despite significant investment in Nigeria’s aviation sector, the country’s air transport infrastructure still ranks low among African states.
“IATA recognises and supports the positive developments by the government on infrastructure and aviation processes, urging continued adherence to international best practices and an optimal regulatory environment. Now that the country is emerging from recession, aviation can unlock the enormous economic potential that exists within Nigeria. We encourage the government to continue to promote aviation for its role as a catalyst and socioeconomic enabler for the country, and to promote stronger connectivity within Nigeria and its neighbouring African countries. In addition, now is the time to continue to invest in modern and efficient infrastructure to accommodate the future traffic growth that will occur,” he said.
It is believed that if Nigeria has taken advantage of its economic position in West and Central Africa and established successful airlines that effectively service destinations in these sub-regions and airlift about 70 percent of its raveling public to international destinations; it could generate huge revenues from the aviation industry that would free it from the present heavy dependence on oil revenues.
Industry experts are of the view that the reason why Nigeria’s economic destiny is tied to oil is because over the years it has failed to galvanise and take advantage of its huge potential in the aviation industry, its advantageous location in Africa and in the world and its huge travelling population, which is said to be the highest among nations in the continent.
Releasing Trapped Funds
Foreign airlines that spoke to THISDAY acknowledged that the federal government had paid substantial part of the trapped funds but complained that the delay in the completion of the payment was affecting their operations.
As stated earlier, the economic recession in Nigeria forced Iberia and United Airlines to abort their operations to the country and forced others like Emirates, British Airways, Delta Air Lines and others to scale down their operations. While Emirates reduced its three flights a day to Nigeria to one, airlines like BA, Delta and others changed the aircraft type to that of lower capacity, as the economic crunch inflicted hardship on Nigerians and many were no more travelling overseas.
So with limited passenger traffic, crash in the value of the Naira and uncertainty about Nigeria’s economic recovery, many of these mega carriers became obsessed with how to recover their trapped funds and also on how to stop more of their revenues from being trapped. They used different strategies to directly sell their tickets in dollars, against the policy that passengers that wish to buy tickets in the local currency must be attended to. Sometimes they went as far as declaring a flight fully booked to those who wished to pay in the local currency. For whatever reasons, there was a time Emirates refunded passengers billed to travel to Brazil with the airline and cancelled their tickets because they bought the tickets with local currency.
But as the airlines battle the federal government through IATA to fully recover the revenues earned from ticket sales, the federal government has shown the inclination to release all the trapped funds; but when the payment would be fully completed is what keeps the airlines unease.
However, some industry critics are of the view that when Nigeria’s economy was hit by recession some of these airlines that have been making huge revenues literally scampered out of town, leaving others, mainly African carriers to buffet through the challenges.
“These airlines that left or reduced their capacity and increased their fares when we entered recession will surely come back. Haven’t you seen the press statement of Emirates; that it is increasing flights because of Hajj operations? From increasing flights because of Hajj operations it will surreptitiously come back to operate its Abuja-Dubai service and in near future add the second flight from Lagos to Dubai. So these airlines are here purely for profit,” an industry observer noted.
THISDAY
