Why African Countries Owe So Much Money to Foreign Airlines

Why African Countries Owe So Much Money to Foreign Airlines


Note: This article was originally published in August, 2022

On August 18, UAE flag carrier Emirates announced its decision to pull out of servicing Nigeria over trapped funds of about $85 million. That same day, IATA revealed via Twitter that as of July, the West African nation was owing $464 million to foreign airlines – 31% higher than it was in May and 200% higher than it was a year ago. The Association also warned that more damage could be done if the Nigerian government fails to release the trapped funds.

However, Nigeria is not the only African country owing money to foreign airlines. In fact, the continent at large is notorious for this, with 67% of airlines’ blocked funds globally being withheld by Africa. In June, IATA said foreign airlines had failed to repatriate funds to the tune of over $1 billion from African countries. Eritrea is owing $79 million, Algeria $96 million, Ethiopia $75 million, and Zimbabwe about $100 million. Emirates is the leading creditor to Zimbabwe, with $51 million of its revenue being held by the southern African nation. 6 other African countries are also withholding foreign airlines’ funds.

Even as far back as 2017, 9 African countries collectively withheld $1.2 billion dollars of foreign airlines’ funds.

Nonetheless, Nigeria is currently chief amongst the debtors – mainly due to its large market size – and the only one whose debt has actually increased. Other African countries have been working to pay off their debts incrementally.

At the IATA 2022 summit in June, Kamal Alawadhi, IATA’s Regional Vice President for Africa and the Middle East, spoke about IATA’s particular difficulty with engaging Nigeria on the matter. “This is sad to see that one country almost contributes about 25% of global funds. Some countries have reasons you can understand for not releasing our cash, political reasons, and economic reasons, but releasing blocked funds has been one of our priorities.”

His statement then begs the question of what valid reasons there could be for refusing to release hundreds of million dollars to their rightful owners.

Here are some of the factors likely affecting the release of these funds:

·         Shortage of dollars:

Passengers pay for airline tickets in the currency of their home country, while the government is meant to repatriate the dollar equivalent of those payments to the foreign airlines. Airlines usually have set regular time periods after which they are supposed to receive the dollar funds, meaning the pay-out is not immediate. For countries where there is a shortage of dollars, they will be unable to dispatch the funds as at when due, so the credit would just keep accumulating.

Of course this shortage of dollars in itself stems from various factors, some of which are inflation, the residual economic effects of the pandemic, trade disruptions caused by the Russia-Ukraine conflict and so on. For example, Nigeria gets about 90% of its forex from oil, so its recent struggles with oil production have resulted in dollar scarcity.

·         A matter of priorities:

Mr Alawadh expressed that the issue of blocked funds was also a question of priorities set by the governments and central banks of these countries. African countries deal with several international transactions, with many of them importing more than they export. Several things need to be paid for in dollars, and if there is scarcity, a serious battle of which foreign payment gets attended to first ensues. Perhaps, Nigeria and other African countries deem certain business relations more important than aviation.

On the other hand, one Nigerian travel expert from Nigeria blames the divided attention on something else. “Unfortunately, repatriation of this huge amount is not the priority of either the finance minister or that of the CBN Governor, politics is on their minds.”  In light of Nigeria’s upcoming 2023 elections, this just might be true.

·         Local currency devaluation:

When the currencies of some of these African countries lose value against the dollar, the issue of which exchange rate to calculate the revenues with arise. Some countries intentionally devalue their currency to reduce the pay-out amount. This was the case with Venezuela in 2014.

The South American country owed a whopping $3.7 billion to foreign airlines, which forced several airlines to back out of servicing the country.

·         Political unrest:

For countries with harsh political climates, the remittances of funds to foreign airlines is definitely not at the forefront of the government’s priorities. This could be the case for countries like Eritrea and Sudan.

 

Whatever the case may be, Nigeria and other African countries need to work towards paying off the debts expeditiously, or risk losing connectivity to the rest of the world.

Sources: Reuters, Simple Flying





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