Items filtered by date: June 2018

Business Day - June 2018

Ethiopian Airlines is not breaking new ground in its strategy to become the African carrier of choice. South African Airways (SAA) has been there before. The big Africa push began in the late 1990s when SAA started spending lavishly to replace old aircraft and stepped up capacity and routes to African destinations. It even sold off a stake in the airline to Swissair, to give it access to Swissair’s then-extensive network within Africa and Europe.

The take-off, however, did not go according to plan. For example, there were massive hedging contract losses in 2002-03 and Swissair went bust not long after the SAA deal, so the South Africans had to buy back the stake. And even though there was little competition in the African marketplace, it proved tough for SAA. Many of its African ventures were unsuccessful.

Driving the strategy was an imported American team including CEO Coleman Andrews. They saw an aviation landscape that was full of opportunity amid little competition.

However, they did not factor in the difficulties of doing business in Africa, where many plans are sabotaged by political agendas or the antipathy from smaller state-owned carriers towards SA, which dominated the local aviation sector at the time, and the suspicions in many quarters about SA’s perceived hegemonic agenda in Africa.

Failures mounted.

They included the demise of regional airline Alliance Air, a joint venture between the governments of SA, Uganda and Tanzania. SAA exited its stake in loss-making Air Tanzania after a few years when it realised no value from the deal.

It lost out on a bid for a stake in Uganda Airlines, and a codeshare arrangement with Nigeria for SAA to use the US routes of the defunct Nigerian national carrier ended in acrimony. It also lost the bid to be a strategic partner to a new Nigerian flag carrier to Virgin Atlantic.

Andrews left SAA with a hefty payout that was particularly controversial, given that SAA had begun the slippery slide to where it is now.

In comparison to SAA, Ethiopian Airlines has been a plodder. It has built its business slowly but carefully. As a state-owned enterprise, it has fought hard to keep the government out of operational issues. I once asked group CEO Tewolde Gebremariam how they did this.

"With difficulty," he conceded. However, he said the politicians eventually understood that management independence was critical for success.

After more than 70 years of steadily building the carrier, Ethiopian Airlines has moved into top gear, swiftly building strategic alliances and entering into equity partnerships and management deals across the continent.

Strategic geographical advantage has been a key driver. In Malawi, the airline has a minority stake in Air Malawi, now called Malawian Airlines, and can use the country as a base for Southern Africa operations.

It has an agreement with the government in Zambia to relaunch the country’s defunct national carrier, which ceased operations two decades ago, taking a 45% equity stake in the revived Zambia Airways. It also has an equity stake in the Democratic Republic of Congo’s state-owned Congo Airways.

In Equatorial Guinea and Guinea (in the capital Conakry), it has technical agreements with existing airlines, and in Mozambique it has secured a licence in the recent liberalisation of the aviation sector. It has a 40% stake in ASKY Airlines, which is run out of Togo, which, although little known here, has an extensive network in the central and western regions.

Ethiopia’s appetite for African expansion has allowed several countries to dust off their dreams of owning a national carrier, with the old long buried in a mire of debt and inefficiency.

Chad is among them. Another is Ghana, which has had two failed attempts at a national airline — Ghana Airways went under in 2004 and its successor, Ghana International Airlines, saw its end six years later.

Ethiopia has expressed interest in the Nigerian government’s plans for a new national airline. Nigeria’s record to date in this regard is patchy. Its first national carrier, Nigeria Airways, had some early success but crumbled in 2003 under a mountain of debt. In 2004, it launched a second national carrier, Virgin Nigeria.

This was a partnership between local institutional investors and Virgin Atlantic, which ended acrimoniously in 2010.

Ethiopian Airlines is now Africa’s biggest, serving nearly 60 destinations in Africa and more than 100 cities on five continents. Gebremariam says the airline’s expansion drive is partly to counter the threat posed to African airlines from foreign carriers, which still account for up to 80% of passenger traffic to and from Africa. Locally, the competition has been floundering.

Like SAA, Kenya Airways suffered from poor management, huge debts and political interference. An ambitious African expansion strategy undertaken a few years ago was a catalyst for many problems experienced over the past few years. The airline, which has Air France-KLM as a stakeholder, is not enjoying the lavish bail-outs SAA has become used to, but it has implemented a new turnaround debt-for-equity strategy involving 10 local banks.

Ironically, Kenya Airways’ CEO recently mooted a tie-up with SAA to give both airlines a shot at taking on Ethiopian. The South African government’s resistance to privatisation, coupled with Kenyans’ suspicions of SA’s corporate aggression, makes this an unlikely solution.

However, both airlines could learn a thing or two from Ethiopian Airlines. Despite its ambitious strategies, the airline has cost containment as a major priority. In its 2016-17 financial year it generated $2.7bn in revenue, up more than 11% from the previous year. Passenger numbers rose by more than 18%. A thriving cargo business and technical training businesses add to a growing bottom line. It opened 12 new routes in 2017 and is expecting to do at least that many in 2018.

The history of aviation in Africa, however, would suggest that its new strategy for the continent is risky. It is in partnerships with countries that have an appetite for costly vanity and political projects. Most have tried, and failed, to keep a carrier in the air. It could be the victim of political agendas which, as a minority shareholder in its partners, it cannot control.

However, by all accounts, Gebremariam believes the best way to build a thriving framework of hubs and networks is with the support of other African airlines, not in competition with them. Unless Africans get more involved in their own aviation sector, there will not be an African carrier of note within the next decade, he predicts.

Better air links and cheaper flights are a critical underpinning of the African Continental Free Trade Area and other AU initiatives. But talk is cheap. The sustainability of African aviation is already undermined by politics and uncompetitive costs resulting from dysfunctional operating environments. For example, most countries rely on high landing and other taxes for easy revenues, not seeing the bigger picture.

Ethiopian’s strategy, however, has put it in pole position in African aviation and it could use its continental relationships to make the playing field easier for other local airlines. The lesson Ethiopian Airlines offers is not necessarily how to run a successful state-owned business; it is that a strategic plan and a vision, supported by good business practice and — importantly — by all stakeholders, become the bedrock of operations.

With little of that evident in SA’s public enterprises, such a notion may just be pie in the sky for SAA.

• Games is CEO of advisory company Africa @ Work

Business Day - May 2018

From a crusading hero feted on the streets of Harare just over six months ago, Zimbabwe’s President Emmerson Mnangagwa is now becoming known as a man of excuses.

His early promises to improve peoples’ lives have not materialised. Boastful announcements about $11bn in investment pledges have been questioned by the trade unions and others while striking nurses, who have worked in deplorable conditions for years, were fired for standing up to government.

Cash-strapped businesses are still shedding jobs as the debilitating liquidity crisis and acute foreign currency shortages from the era of former president Robert Mugabe continue. Meanwhile, election campaigning has gone into full gear for a poll expected to be held before 21 August – less than three months away.

Huge banners of Mnangagwa have appeared around Harare, punting him as Zimbabwe’s next leader. He took a short break from extensive international travel to release the ruling party’s election manifesto at the weekend, promising again to make Zimbabwe great again.

Admittedly, he has not had long to do much of substance. His focus has been on international re-engagement and securing investment, a priority which is a long way from the daily grind experienced by most voters without money, jobs and prospects.

People are sceptical about the ability of his ruling Zanu-PF party, a known refuge for scoundrels, to reform even if the president proves to be genuine about doing so.

The party itself may have lost the two main factions that defined its last few years, headed byu Mnangagwa and Grace Mugabe, but other divisions are beginning to show. One is the growing tensions between the military and civilian factions within the top echelons of both party and state. Soldiers who made the move into government through Mnangagwa are reportedly trying to exercise undue influence over him and other civilians in government.

Under Mugabe, military chiefs enjoyed significant power, patronage and influence and they are now in an even stronger position after helping Mnangagwa rid Zimbabwe of its ageing leader. Many also have large commercial interests that they need to protect. Their appointment to top posts in the interim government is not, as many thought, likely to be just a thank you from the president until the real work begins; they will not go quietly.

But a quasi-military government is not what Zimbabweans envisaged when they celebrated soldiers on the streets in the immediate aftermath of Mugabe’s removal and the ascendancy of soldiers may cost the party votes.

Chiwenga has already shown his style. He was, for example, responsible for the unpopular decision to fire 16 000 striking nurses instead of addressing their grievances. He fired the top brass of the police while the president was outside the country. Both decisions were later reversed by Mnangagwa. 

Mnangagwa’s charm offensive has only taken Zimbabwe so far, for now. The management and outcomes of the 2018 poll, not the removal of Mugabe, are critical for unlocking investment, capital and opportunities and getting remaining sanctions lifted. Key questions are whether it will be free and fair, whether observers will have unfettered access to stations and voters, whether the opposition is allowed to campaign freely and importantly, what happens in the event of a serious electoral challenge to Zanu-PF.

Investors have waited a long time for change in Zimbabwe. Most are prepared to wait a bit longer.

It seems unlikely that Mnangagwa and Zanu-PF will lose this election. The odds are stacked in their favour. The government has been lethargic in implementing promised electoral reforms and much of the existing machinery, which has enabled Zanu-PF to rig previous elections, is in place. Voting in the diaspora, a large repository of opposition voters, is off the table.

There are persistent stories about deployment of soldiers into the rural areas, which previously has been used as a strategy to create fear and get people to vote the “right” way. There are also concerns about the reaction of Zanu-PF should it lose the election and what the fallout would be, given its political stranglehold on the country.

“Cheating” is widely expected to take place – it is a cornerstone of Zanu-PF politics – but it is hard to know in this altered political landscape whether it is needed for the ruling party to get back into power. The president is still enjoying residual goodwill from displacing Mugabe. Many accept that his efforts at reform are sincere.  

He and his economic team have travelled the globe in an attempt to restore Zimbabwe’s tarnished image and attract new investment. There is no shortage of interest in the long-neglected opportunities in Zimbabwe.

Once reduced to a grey blob on the African maps used in investors’ power point presentations across the globe because it was regarded as too risky or difficult to explore under Mugabe, Zimbabwe is now back in full colour.

The opposition may still be fragmented and have lost ground to events of the past months, but broadly speaking, the opposition has a strong case. Mugabe might be gone but the old guard remains and Zanu-PF is unreformed and mostly unrepentant about the damage it has wrought to the country. Voters have had a while to assess their new president and have the space to think about what kind of country they want.  

Promises about the future are flying thick and fast as campaigning begins in earnest. The opposition MDC Alliance has focused its efforts on rebuilding the rural economy and improving livelihoods while Zanu-PF is, ironically, focusing on rebuilding the economy it helped to destroy.

Zanu-PF’s election manifesto, “Unite, Fight Corruption, Develop, Re-engage and Create Jobs”, pledges to transform Zimbabwe into a middle-income economy by 2030 by courting investment in all sectors but particularly in mining, agriculture and manufacturing. “It will be “no longer politics, politics, politics; but politics and economics,” Mnangagwa told thousands of ruling party delegates in Harare.

Over the next five-year term, the president says that if given the mandate, the party will target annual growth rate of six percent per annum over the period as well as $5 billion in annual foreign direct investment inflows and double that in domestic investments. It will raise capacity utilisation in industry to 90 percent from about 50 percent currently. This is ambitious, but not impossible if he manages the politics right.

But voters have heard it all before. In the country’s darkest days of economic collapse, Mugabe, with Mnangagwa at his side, trotted out a regular wish list. New promises were made, old ones revived and the country continued to limp along. No plan was workable without the kind of political change the old guard, including Mnangagwa, found unpalatable.

It is only once the dust has settled on yet another volatile election that the true path for Zimbabwe will be clear and whether the current crop of leaders have been just biding their time and behaving for the cameras during the transition to ensure they regained power or whether a new path forward is really possible.

. Games is CEO of business advisory Africa @ Work

Business Day - April 2018

As the ink was drying on the African Continental Free Trade Area (AfCFTA) agreement signed in Rwanda a few weeks ago, a crisis was developing at Kasumbalesa border post, between the Democratic Republic of Congo and Zambia.

Delays in transit clearance procedures at crossing had resulted in a 70km queue of trucks on the Congolese side of the border, mostly laden with mineral exports destined for vessels to the south. Common Market for Eastern and Southern Africa (Comesa) officials intervened to sort out the mess, blaming the situation on the failure of the two countries to integrate their customs systems.

On a good day Kasumbalesa is a problematic border, characterised by delays and inefficiency. Trucks can get stuck for weeks, particularly on the Congolese side, where roads are poor and few roadside facilities exist. The mining town of Lubumbashi 100km away feels the pinch when its main supply route to the south clogs up. Supermarket shelves start to empty and food prices rise.

A reminder of the embedded problems in intra-African trade is necessary, given the hype about the launch of the continental free trade area. The initiative is certainly symbolic and important in setting targets for countries to improve their trade facilitation, develop industry and broaden markets.

But the enthusiasm for a pan-African success story does not match the reality on the ground across much of Africa. Inefficient bureaucracy and poor infrastructure continue to frustrate the limited trade African countries have among themselves and impose huge costs on African consumers and economies.

Protectionism through the back door undermines the publicly stated commitments to regional integration by leaders. A flagship project of the AU, the AfCFTA aims to fast-track intra-African trade and economic development by creating a market of more than 1-billion people with a combined GDP of over $2-trillion. It contains provisions for countries to reduce tariffs by 90% and address impediments to trade, thus enabling intra-African trade to grow by more than 50% from less than 15% at present.

The spirit of free trade is well represented at public forums across Africa. But policies and actions at a national level tend to paint a different picture, one that is characterised by slow movement towards the very agreements that African leaders sign up to.

Why would the continental initiative be different? It is instructive to ask what has happened to the last bold trade initiative signed up to in Africa, with almost equal fanfare: the Tripartite Free Trade Area.     

Business Day - 2 March 2018

Former president Jacob Zuma was seen by many in Africa as a great leveller. This was not because of any attempt to address inequality among his people but because he aligned SA to the broader African experience of governance. His behaviour, together with that of his ministers and friends, removed any sense that SA is exceptional in Africa, a perception that used to be held by many in the international community but also by South Africans themselves.

Zuma can take responsibility for finally putting that issue to rest.

As SA’s media uncovered the excesses and murky strategies of the Zuma administration, revealing new dirt almost daily, many Africans expressed concern about SA’s trajectory. This was not because their own governments were better, but because they weren’t. They have lived with the continued erosion of value in their institutions, lifestyles, governance and other key areas of life. African countries from west to east have shown at times in their history how easily the rot at the top eats its way down, undermining moral and ethical propriety at all levels of society.

Nigerians maintain that SA is a beginner in the corruption stakes – their leaders and military dictators have siphoned billions from the fiscus for decades. Their lesson has been that self-interested leadership breeds endemic corruption. The longer rotten government is in place, the more moral laxity pervades the social fabric of the nation. It is hard to turn this around.