African sky’s brimming opportunities
Air cargo in Africa still is an untapped sub-sector, which the African airports, airlines and businesses must proactively exploit. The potential is huge because of the rise of middle class in the continent which is estimated to be around 300 million people, resulting in an increase in consumer spending and e-commerce opportunities.
There is no denying the fact that Africa’s economic lions continue to move forward despite the collapse of global commodity prices and political shocks in the region. The continent’s growth story has inspired much optimism about the region's prospects and one of the main drivers that contributed to it is the air cargo sector that has been instrumental in boosting the global as well as intra Africa trade.
“African carriers saw freight demand increase by 12.7 percent in September 2016 compared to the same month last year – the fastest rate in nearly two years. Capacity surged year-on-year by 34 percent on the back of long-haul expansion in particular by Ethiopian Airlines and North African carriers,” says IATA in a report.
Major players, however, suggest air cargo still is an untapped sub-sector in Africa, which the African airports, airlines and businesses should more proactively exploit. The potential is huge because of the rise of middle class in the continent which is estimated to be around 300 million people, resulting in an increase in consumer spending and e-commerce opportunities.
AFRICA’S TOP CARGO CARRIERS IN 2015
- Ethiopian Airlines: 257,718 tonnes
- South African Airways: 150,311 tonnes
- Egypt Air: 122,162 tonnes
- Kenya Airways: 61,923 tonnes
- Air Mauritius: 30,755 tonnes
“Africa continues to be a net-importer. With a population in excess of 1.2 billion people comprising of 40 percent below the age of 15, the future looks very promising,” says Sanjeev Gadhia, CEO, Astral Aviation. Also the lack of adequate infrastructure in certain regions in Africa hampers the movement of goods and thus increases the dependency on air-freight, he adds.
According to Stephen Bishop, general manager, airfreight at CFR Freight, huge investments into infrastructure from carriers and freight forwarders has allowed the air cargo players to continue positive growth. “There is still massive potential within the airfreight market. We still have a number of challenges to deal with as a continent before we can compete with the main hubs around the world but there have been a lot of investments into infrastructure from carriers and freight forwarders alike that should hopefully allow for us to continue our positive growth,” says Bishop.
“Whilst I would not say that airfreight is the most critical aspect of growth on the continent, it will certainly open up markets to the world that previously relied only on their neighbours for growth,” he adds.
Air cargo becomes a crucial enabler for economic progress since it connects distant markets and supply chains in the developing nations of Africa in a speedy and reliable manner.
The most notable case is that of Kenya where the horticulture industry is a huge success and it could vastly be attributed to the air cargo sector that transports over 90 percent of the fresh horticultural produce to other regions.
Kenya’s cut flower industry today provides employment to over 100,000 workers directly and 500,000 indirectly supporting over 1.5 million livelihoods and making a contribution of 1.6 percent to the National Gross Domestic Product (GDP). An estimated 70 percent of the flowers are grown at the rim of Lake Naivasha, northwest of Nairobi, which is linked through roads to Nairobi’s Jomo Kenyatta International Airport. Flowers thus picked from here in the morning reach markets in Amsterdam by evening.
Not just flowers, the flow of perishables from Africa to Europe makes for the third biggest market for air trade after Latin America–North America and Latin America–Europe. Talking about the challenges in the perishable export market, air cargo players point out the significance of proper infrastructure and facilities.
AFRICA’S TOP AIRPORTS BY TOTAL CARGO HANDLED IN 2015
- Cairo International Airport: 318,425 tonnes
- O R Tambo International Airport: 311,576 tonnes
- Jomo Kenyatta International Airport: 243,873 tonnes
- Addis Ababa Bole International Airport: 203,620 tonnes
- Murtala Muhammed International Airport: 169,878 tonnes
“The construction of cooling facilities on an airport site has to be done in such a manner that it is in line with the demands of the user clients – such that each temperature zone can be achieved, and maintained consistently. Similarly, the perishable market relies heavily on prompt and efficient handling. The time-sensitivity of these products implies that the transportation time of the goods has to be kept as short as possible,” says Nina Malherbe, senior specialist, cargo, Airports Company South Africa (ACSA).
“From OR Tambo International Airport, we have found that vast number of connections to all regions within Africa allows carriers to move their goods from all continents and into Africa in the shortest possible time,” she adds.
A promising air cargo market in the continent is of South Africa, which has one of the most sophisticated business environments in sub-Saharan Africa. As member of the BRICS countries, it has gained recognition as a key emerging market along with other members of the group Brazil, Russia, India and China.
The country’s well-developed financial, legal, communications and transport sectors along with an open trade policy and a comparatively strong domestic market awards it the status of a regional economic powerhouse. The country along with Egypt, Kenya, Nigeria and Ethiopia represent two-thirds of the air cargo business of the continent.
“South Africa offers excellent opportunities in air cargo as it offers good connectivity to the neighboring regions of Zambia, Zimbabwe, Mozambique, Namibia and Malawi. Durban Port is the preferred gateway to Southern Africa which also offers good sea-air opportunities which remains to be optimized. Johannesburg is the second busiest airport in Africa after Cairo with 311,576 tonnes handled in 2015 which represents a 9 percent increase over 2014,” says Gadhia of Astral Aviation.
Astral also plans to set-up a cargo hub in Johannesburg in 2018 to serve the Southern African region with a fleet of B737-400F, informs Gadhia.
Airports Company South Africa that currently operates nine of South Africa’s airports sees immense opportunities in the intra Africa trade relations as well.
“The movement of goods intra-Africa is of great importance to Airports Company South Africa, and is a significant portion of our existing volumes and movements through our airports – particularly for OR Tambo International Airport (ORTIA) as our hub. Though we already have such a varied and frequent list of connections to sub-Equatorial destinations, we have several local initiatives in place in collaboration with local government, which will place focus on enhancing trade relationships with African and international companies,” explain Christa Soltau, group manager, cargo, Airports Company South Africa.
Also, according to Durban based Dube TradePort, South Africa is the best country to provide a gateway to the rest of the African continent and would do well to prepare for renewed economic growth in certain key regions across the continent.
The Dube TradePort recently signed a Memorandum of Understanding with Cipla BioTec for building Africa's first fully integrated biopharmaceutical plant within Dube TradePort Special Economic Zone in KwaZulu-Natal that would cost around R 1.3 billion approximately. The biosimilars produced at the new facility is anticipated to be used by the state and private health care centers. In addition to local consumption, the life saving medication will also be exported to the markets in Africa, US, European Union and Asia. Hamish Erskine, CEO, Dube TradePort Corporation, says the facility is set to produce a range of affordable treatments for cancer and other autoimmune diseases for the local, African, and global markets.
“We see the Cipla BioTec investment as particularly significant, as it starts to signal to the rest of the world that there is an immense potential for the development, production and distribution of high-value pharmaceuticals within South Africa and especially at the Dube TradePort Special Economic Zone,” explains Erskine.
The unique position of the new facility will enable seamless pharmaceutical export through the adjacent Dube Cargo Terminal as well as the multitude of connecting flights throughout the continent. These exports are expected to contribute towards South Africa's economic growth.
Another major LATAM Cargo recently launched service to South Africa, becoming the only Latin American airline group to connect the region with Africa. “As per statistics, the total tonnage flown between South Africa and South America has been approximately 2000 tonnes over the past two years. Regular traffic flows from South Africa to South America include automotive and mining spares as major exports. With our new service, we aim to secure a large portion of this traffic on our direct services from Johannesburg and throughout our extensive network within South America. Moreover, both South Africa and Brazil are members of BRICS and we see this as a major advantage for LATAM Cargo in growing trade between the two countries. We started our operations recently and we are already seeing promising signs for the future,” said Sergio Herrera of Latam Cargo.
Nigeria’s air market comes close to South Africa and has seen enormous growth over the past few years, largely due to the rapid expansion of domestic services. Today, Nigeria is well served by air transport, with sufficient competition to offer competitive fares in the domestic market. The country has 22 airports, four of which are international airports.
Meanwhile, in Ethiopian capital Addis Ababa, Ethiopian Airlines has begun a four-fold expansion of its air cargo terminal that is expected to handle 600,000 tonnes yearly, to be expanded much later to handle 1.2 million tonnes per year. The terminal when completed would become the largest cargo terminal in Africa and one of the biggest in the world. The airlines plans to expand its reach to China, Africa and Brazil with new destinations and more frequencies.
“Intra-African trade evolves around the hubs of Nairobi, Addis Ababa, Johannesburg, Cairo and Lagos. While the national carriers of Kenya, Ethiopia, Egypt and South Africa focus on developing their respective cargo-hubs, the private sector needs to play a bigger role in opening up new routes which are not touched by the national carriers,” points out Gadhia.
Not that Africa is just stick to conventional modes of transportation to airlift freight. Drone technology is the latest buzzword in the region as many believe it would be a sustainable answer to Africa’s sparse road networks and would open new opportunities to reach remote and in-accessible regions. Rwanda and Kenya are the first few African countries to see drones fly in its skies in near future.
“Astral has an ambitious plan to become Africa’s largest drone operator with its hub in Kenya and Rwanda, where it has registered its drone-subsidiary, Astral Aerial Solutions. Whereas the drone regulations are pending approval in Kenya, the short-term strategy is to conduct drone tests in Rwanda. Astral will be operating commercial drones for various sectors such as agriculture, humanitarian, oil and gas, medical distribution and small parcel deliveries to name a few. Drones technology will be the next revolution in Africa after mobile telephony,” believes Gadhia. Astral hopes to begin operating cargo drones in 2017, after regulations are put in place by Kenya’s civil aviation authority.
With Africa eventually opening up for global commerce, trade links are bound to quiver a bit with any kind of geopolitical alterations. With the recent withdrawal of the United Kingdom from the European Union, some modification would have to be adopted. Nonetheless African players exude confidence and are eager to see how trade agreements evolve.
“The choice of Great Britain to leave the European Union is a moment in history which may bring with it small but tangible opportunities for African markets. Whilst traditional movement of cargo from Africa has been via mainland Europe or the Middle East, and then connected onward to England possibly via rail or road, it may become necessary for Britain to increase the volumes and freighter frequencies directly between African stations and the main airports within Great Britain. Over the last two seasons, we have seen an increase in the passenger frequencies between Great Britain and South Africa, which could be further enhanced to include dedicated freighter frequencies,” says Soltau.
Although the air freight sector in Africa is developing quickly, offering numerous new opportunities, there are a number of difficult challenges. Safety and security in the aviation sector remains a pressing challenge in the continent. Africa had the highest accident rate among regions in 2015, at 7.88 accidents per million sectors, IATA’s annual review 2016 states.
“This issue needs the involvement of all stakeholders around the continent. Africa is a huge continent and infrastructure in certain regions is lacking. If Africa is to succeed in transforming into a major global competitor, the respective governments have to play the lead role along with the various airport operators. In certain regions the safety and security issues have been addressed and this can be seen in the growth of their respective markets: Ethiopia, Kenya and South Africa, among others. The key to achieve the required results is a collaboration between the government and the private aviation sector,” states LATAM Cargo.
South Africa’s OR Tambo International Airport recently became the first African airport to implement the Smart Security checkpoint that will digitise the security check process, speed up passenger progress through security and further enhance security through use of hi-tech scanners. According to the airport authorities the new Smart Security system complies with the highest global standards for airport security.
Also for the optimal use of the air navigation services, Africa would have to come up with a more liberalised regulatory framework.
“The airfreight market in Africa faces many challenges, deregulating the skies is a must if we as a continent plan to grow and compete with the likes of the Middle Eastern and European carriers,” says Bishop.
With the Yamoussoukro Declaration that is most likely to be implemented by December 2017, it appears that liberalisation of the skies over Africa may finally be within reach. Full liberalisation would mean that airlines based in Africa will be free to fly, without restrictions, to as many other African countries as they wish. The deal would benefit the air freight sector in similar fashion as the Open Skies Agreement benefitted passenger aviation globally.
According to the African Airlines Association (AFRAA), significant progress has been made on cross-border interconnectivity among many African nations, which could have a profound impact on inter-regional air trade. The Yamoussoukro agreement that was passed back in 1999, but was never ratified by all member nations, if implemented, would remove the web of bilateral restrictions on international air trade across the continent and establish a single air market in Africa.
The air transport industry in Africa already supports 6.8 million jobs and generates $72.5 billion of economic activity on the continent but this would more than double few years after the implementation of YD, says IATA. ?