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Unlocking Africa’s duty free potential requires dedicated focus on liberalisation

Africa has long been touted as a future growth driver for the duty free and travel retail channel. But that future has not materialised. Today Africa’s share of the global $63.5bn DF&TR market remains tiny at just over 1% (2016 | Generation Research).

Despite the continent having the fastest population growth rates in recent times, Africa’s airports saw a decrease in passenger numbers of -0.4% in 2016, versus a worldwide rise of +6.5% to almost 7.7 billion (source: ACI World). ACI said this was due to a -1.7% decrease in international passengers in the region – largely the result of safety concerns to tourist markets like Egypt and Tunisia. African airports processed just 182m passengers last year.

So what is holding the continent back?

Traffic liberalisation is a key factor as is the need for better infrastructure and investment. At Counter Intelligence Retail, exclusive analysis from Business Lounge shows that Africa currently accounts for only 4% of global international seats (FY 2017) even though it has 15% of the world’s population.

Growth this year of +4.7% is ahead of the Middle East – but mainly due to the market instability that the Qatar boycott has caused. The dispute has seen a huge reduction of intra-regional traffic between the UAE, Saudi Arabia, Bahrain and Egypt and Qatar. The +4.7% growth is an improvement on 2016 but remains significantly below the global average (+6.8%), continuing a trend seen since 2013. 

Historical lack of will

Demand for African air travel – particularly within the continent – is being curtailed by restrictions on intra-African air markets. Liberalised air policies began in Africa in the late 1980s, and culminated in the adoption of the Yamoussoukro Decision in 1999 (named after the Ivorian city in which it was agreed).

At the time, 44 countries agreed to the “full liberalisation of intra-African air transport services in terms of access, capacity, frequency, and tariffs”. This followed an earlier Declaration in 1988, when many of the same countries first agreed to air services liberalisation on the continent.

However, liberalisation has been slow. Reasons cited by IATA include:

- Protectionist policies favouring national carriers

- Discriminatory practices in favour of other continents’ carriers

- Restrictions on African carriers by predominantly EU safety regulators

- Non-physical barriers such as complicated and often expensive visa requirements

A model to follow?

Europe is an example of how more liberal air services agreements can boost the market. According to the World Economic Forum, between 1992 and 2000, the number of direct flights between European countries increased by nearly +75%, and passengers enjoyed 88% more flight options and double the number of seats – with the benefit of more accessible air fares.

The lack of bilateral agreements between African states means that often the best connection between two cities on the continent is via Europe or the Gulf, resulting in longer travel times and higher fares.

IATA estimates that a potential five million passengers a year are being denied the opportunity to “travel, trade and spread economic and social development”. Furthermore, a heavily-regulated – in other words expensive – market, stifles growth and profits of African airlines, although a few such as Ethiopian Airlines have flourished. The carrier has developed a hub model that is has made it a powerful force in African aviation.

In 2017, most of Africa’s carriers still do not have sufficient levels of investment to keep pace with their nearby Middle East competitors. While those carriers are looking to almost double their fleet sizes with current orders (+90%), and APAC carriers similarly looking to add around +50%, or 4,566 planes, Africa is lagging with a paltry 152 aircraft on order, or an additional +10%.

The lack of bilateral agreements between African states means that, in the past few years, traffic between Africa and neighbouring regions has grown at a faster rate than intra-Africa. Capacity to and from the Middle East has grown at a compound annual growth rate of +7.1% since 2013, and APAC has experienced similar growth (+6.1%), while international seats between African countries have risen by +1.6%.

Renewed hope

A possible game-changer is that implementation of the Yamoussoukro Decision might finally happen. The Single African Air Transport Market (SAATM), one of the flagship policies of the African Union (AU), will be a big step forward in the liberalisation of African air travel, if there is movement on it in 2018, as proposed.

So far, around 20 African countries have subscribed to SAATM, with signatories expected to top 40 by January. The AU’s launch of a pan-African biometric passport – a document that could grant visa-free access to all 54 African states – would also make a big difference. Currently, just 13 countries are open to African citizens without advance visas. The AU is optimistically planning is to make them available to all Africans by 2020.

These changes – together – can have a transformative effect. And what a difference that could make to airport DF&TR sales.

The outlook for African aviation has always been very positive on paper. The lack of good rail and road infrastructure and a growing middle class means that demand for air travel is there – and growing. Taking full advantage of this scenario should be a priority for leaders in the region.

Airbus predicts that traffic in Africa will grow at a CAGR of +5.3% over the next 20 years, with only the Middle East and APAC rising at a faster rate over the period. Boeing has predicted similar growth at +5.9% to 2036, although in its estimation Latin America (+6.1%) will grow faster.

Whilst caution should b exercised in relying on forecasts a decade ahead, the conditions look better for African aviation than they have in some time. Apart from the promising macro-economic considerations, the AU’s drive for liberalisation and removal of travel barriers looks to be a very hopeful sign. Let’s hope that the good start that has been made can be implemented quickly.  

For further information, please contact Simon Best, Business Lounge Director: Simon@counterintelligenceretail.com