Crowded African skies get even busier with Uganda Air’s return

Uganda Airlines, the newly relaunched national carrier, will challenge Ethiopian Airlines for a slice of East Africa’s aviation profits. (Reuters)
Updated 30 August 2019

Crowded African skies get even busier with Uganda Air’s return

  • Continent lacks Dubai-style hub as Emirates and Turkish Airlines dominate routes

NAIROBI: Uganda Airlines has taken to the skies once more after almost two decades out of action, but flies into a crowded aviation market in Africa where carriers have the weakest finances and emptiest planes of any region in the world.
The state carrier launched commercial flights on Wednesday, its first since it was liquidated in 2001, aiming to take a slice of the East African aviation business that is dominated by Ethiopian Airlines, the continent's success story.
Uganda is the latest African government to pour money into national flag carriers; Tanzania and Senegal are also resurrecting their airlines, while the likes of Rwanda, Ivory Coast and Togo are expanding theirs.
But such efforts have been hampered by high business costs as well as protectionism, which has impeded a continental open-skies agreement - something industry experts say is vital for the success of African carriers in a tough market.
The African market is forecast to grow almost 5% a year over the next two decades in terms of passengers, faster than mature markets, according to the International Air Transport Association (IATA). However, this is from a low base and most state-owned flag carriers in the region are losing money.
While the global aviation industry is on track to make a profit of $28 billion, African airlines are projected to make combined losses of $100 million this year, IATA said in June.
Uganda Airlines, like some of its rivals, aims to attract more domestic travellers to help it buck the gloomy continental trend. Around 2 million passengers per year travel through Entebbe, Uganda's main airport. Around 70% are Ugandans, said the carrier's CEO Ephraim Bagenda.
"All those currently travel on foreign airlines," he told Reuters. "We want part of that cake."
Last year, it looked like Africa was making progress on an open-skies agreement - the Single African Air Transport Market - to let airlines decide how frequently they fly between cities and which aircraft they use.
A total of 28 countries have signed up, accounting for 75-80% of African air traffic. Uganda is considering signing, Works and Transport Minister Monica Azuba Ntege said.
However, so far only 10 signatories - including Cape Verde, Ghana, Togo, Ethiopia and Nigeria - have begun changing their own laws to implement the deal and open up their markets, said Raphael Kuuchi, Vice President for Africa at IATA.
The patchy efforts undermine the agreement and hobble direct connections within Africa, say analysts. Some airlines, including from countries that have signed up, oppose the open-skies deal because they fear bigger competitors.
"The most subsidised airlines and the biggest ones are going to take the biggest market share because they (are) able to afford it," Kenya Airways CEO Sebastian Mikosz told an investor briefing on Tuesday. "They are going to kill the smaller national airlines which are just starting because they will have no way to defend themselves."
Ethiopian Airlines, sub-Saharan Africa's only successful large state-owned airline, has bucked the regional trend and has been expanding fast, thanks in part to having secured key traffic rights in two ways.
First, it signed bilateral agreements with nearly all African countries in the 1970s, activating them as needed, said Kuuchi. The airline flew to parts of the continent served by few other carriers and leveraged that goodwill to open up markets.
"Governments were willing to give them additional rights, and travel rights, once you give them out, it's very difficult to retract," he added.
More recently, Ethiopian has been helping other countries launch their own carriers and taking a stake. That has created regional continental hubs in Togo, Malawi and Chad where it can pick up and feed traffic into its main hub in Addis Ababa, cementing its dominance and rivalling Gulf carriers.
Now governments are hoarding travel rights to protect their own airlines, so African carriers are struggling to set up hubs vital to winning international travellers, said Girma Wake, former CEO of Ethiopian Airlines.
"Instead of flying point-to-point everywhere, if they can collect traffic from the low-traffic areas and bring them to major hubs and carry them from those major hubs, you will be in a better position," he told Reuters.
African aviation accounted for only 2.1% of the global market in 2018, with 92 million passenger journeys flown, and non-African airlines including Emirates and Turkish Airlines account for around 80% of traffic in and out of the continent, IATA said.
African airlines are also struggling to improve load factors - percentage of seats filled - from the world's lowest regional level of 71% in 2018, compared with 81.2% globally, according to IATA.
Emirates builds traffic through its global Dubai hub, an advantage most African airlines don't have - except Ethiopian Airlines.
As well as protectionism, high fuel and taxation hurt African carriers.
In Europe, a passenger can travel 1.5 hours for less than $100 all-inclusive. In Africa, passenger taxes alone range from $40 to $150 per passenger, African Airlines Association Secretary General Abderahmane Berthe told Reuters.
"Many governments are levying taxes on aviation and not reinvesting these collected amounts in aviation," he said.
Governments often see air transport as a luxury that can sustain high taxes, said Air Tanzania managing director Ladislaus Matindi.
Fuel is also taxed heavily and must often be trucked in, an expensive operation. Fuel makes up about a quarter of operating costs globally but reaches 30-40% in Africa, Berthe said.
Uganda Airlines, founded by former dictator Idi Amin in 1976, was liquidated in 2001 after years of unprofitability during a push to privatise state firms.
Other African state carriers have been crippled by government interference, such as insisting on routes to unprofitable but politically important destinations.
Ghana Airways, which ceased operations in 2005, used to fly between Accra and Las Palmas, mainly because of the friendship between the leaders of the two countries, IATA's Kuuchi said.
Uganda Airlines CEO Bagenda insisted his company would be free from any political interference.
"Government policy in Uganda is eyes on, hands off," he said.


A female entrepreneur brings crowdlending to Saudi Arabia

(Photo/Shutterstock)
Updated 25 January 2020

A female entrepreneur brings crowdlending to Saudi Arabia

  • Shariah-compliant peer-to-peer lending platform called Forus to be launched this year
  • Founder Nosaibah Alrajhi aims to help businesses and small investors in the Kingdom

RIYADH: It is no secret that small businesses struggle with obtaining funds to expand, with one avenue being particularly tricky in the region: Trying to rely on a national bank for help.
While things are improving, they are not doing so quickly enough. These longstanding problems have inspired Nosaibah Alrajhi, a former investment banker, to launch Forus, a Shariah-compliant peer-to-peer lending platform that she hopes can help bolster Saudi Arabia’s economic growth and enrich both business owners and small investors.
“It’s very straightforward: We bring together investors and SMEs (small and medium enterprises). Crowdlending will provide a steadier and safer return than say, investing in stocks or investment funds,” said Alrajhi, who serves as co-founder and chief executive.
“If you compare it to real estate, for example, you need a lot of cash upfront to invest in property, but with P2P (peer-to-peer) lending it provides almost everyone with the opportunity to invest and get a return.”
Having received a special license in July 2019, Forus will launch its platform in early 2020. For investors, it is quick and easy to register: You just need to complete a standard know-your-customer (KYC) process, and you will then be able to lend SR500 ($133) to SR10,000 to whichever companies you choose.
For would-be borrowers, Forus will undertake a credit and risk analysis that usually takes about 10 days.
“We do all the due diligence, and once companies meet our benchmarks, they’re listed on the platform, giving investors — individual and institutional — the opportunity to lend them money,” said Alrajhi. “We call it income investments — investors get their money back, plus fees.”
Companies listed on the online platform are rated according to risk — the bigger the risk, the larger the return for lenders. Companies can borrow up to a maximum of SR2 million.
“Investors can look at the companies’ financial reports, their strategy, their team, their products, as well as specific financial ratios that will help them make their decision,” said Alrajhi.
A company will request to borrow a certain amount, and once this is fully pledged by investors, it will receive the loan. Forus, in turn, earns a small commission. Loans are for six to 48 months.
“Our marketplace is providing investors with diversified alternative options (for) investing, while businesses are empowered with an opportunity to grow and scale,” said Alrajhi.
“We achieve this by minimizing friction, streamlining the customer experience and providing a seamless, secure and transparent platform.”
Alrajhi holds an MBA from Madrid’s IE Business School, where her research led her to spot a gap in the market for a fintech-based, P2P lender in Saudi Arabia.
“If you look at the market today, there’s only a few banks who are willing to lend to SMEs, which banks see as quite high risk,” said Alrajhi. “In Saudi, there are roughly 16,000 SMEs looking for loans.”
Forus uses a murabaha — cost plus financing — structure for its loans, which are not interest-bearing and so are Shariah-compliant.
In English, Shariah-compliant lending will refer to a profit rate rather than an interest rate, although in Arabic there is no such linguistic distinction.
Nevertheless, Forus’s loans are Islamic. “In Saudi, the biggest market is for Shariah-compliant financial services,” said Alrajhi.
She hopes her platform will provide a win-win for investors and SMEs — investors can earn a bigger return on their money, while SMEs can obtain the funds needed to expand their operations and increase profits.
In the longer term, Forus plans to expand to Egypt and Pakistan, but for now Alrajhi’s focus is firmly on her native Saudi Arabia.
“One of the main impacts we aim to have is transparency, which will then enable financial inclusion and help increase GDP (gross domestic product),” she said.
“We’ve talked to so many SMEs, and we found that almost all are facing challenges when it comes to borrowing.”
She leads a team of 10 staff at Forus, and is a female trailblazer in the Kingdom’s male-dominated financial services sector and more broadly in Saudi Arabia, where women constitute less than 25 percent of the workforce.
“Within the next five years, Saudi’s financial sector will look completely different,” said Alrajhi.


This report is being published by Arab News as a partner of the Middle East Exchange, which was launched by the Mohammed bin Rashid Al Maktoum Global Initiatives and the Bill and Melinda Gates Foundation to reflect the vision of the UAE prime minister and ruler of Dubai to explore the possibility of changing the status of the Arab region.