in Features

Nigeria facing a fund of financial problems

Posted 14 June 2016 · Add Comment

Chukwu Emeke looks at the financial issues threatening Nigeria's airline business.

Shortly after taking up office in May 2015, the administration of President Muhammadu Buhari used the Central Bank of Nigeria (CBN) to unveil a fiscal policy restricting access to foreign exchange and funds transfer out of the country.
This policy is now thought by some to have brought a greater burden for businesses and individuals who rely heavily on imports.
The new forex policy has led to a low supply of the dollar – to the extent that it hardly meets demands presented to CBN by banks on behalf of their customers from various sectors of the economy.
This has forced international traders to rely solely on the parallel market for scarce foreign currency, thereby crashing the value of the Naira.
At the end of March 2016, 300 Naira were worth one US dollar on the black market, as against CBN’s official rate of 197 to the dollar.
However, even the black market is currently suffering from dollar scarcity, while foreign airlines are unable to repatriate Naira funds in the dollars they need to pay for fuel, servicing, spares and aircraft renewals.
This is coming amidst the president’s official declaration of unwillingness to succumb to pressures from the International Monetary Fund (IMF), and some other economic experts, to devalue the nation’s currency.
Commenting on the state of the Naira, Bismark Rewane, CEO of Financial Derivatives Company, a Lagos-based financial advisory outfit, said: “The debate whether to devalue the Naira or not is not the real issue. The discourse should be whether we need an exchange rate policy or not.” He added that the absence of a policy was a “recipe for economic anarchy” and a “race to the bottom”.
The Naira has declined against the US dollar for more than two years in the official market. During the period, it also experienced significant pressure in the parallel and bureaux de change market segments, reaching record lows.
The crash of crude oil prices since 2014, which used to represent as much as 90% of foreign exchange receipts, has put enormous strain on the country’ reserves, which declined by 15.1% in 2015. Also, the country’s ability to attract foreign exchange inflows has been constrained by the implementation of the numerous restrictions on foreign transactions by the CBN.
All this is happening in the face of Nigeria’s anti-corruption war, involving anti-illegal fund transfer policies.
The challenge of greater import costs is increasing and has continued to affect various sectors of the economy. The aviation industry is one of the worse hit.
With huge airline revenue in the vaults of the banks, airline operators fear being exposed to risks should the pressure on the Naira lead to a devaluation of the currency. This could erode the value of the funds by as much as 45%.
Based on the difficulty in repatriating earnings from Nigeria, some of the airlines started restricting cheap fares on the Nigerian route in the last quarter of 2015, leading to an indirect hike in fares.
Citing the slowing economy amid for exchange scarcity, some international airlines are considering reducing flights to the country, or operating small capacity aircraft as a short-term measure.
Gabriel Olowo, president of the Aviation Safety Round Table Initiative (ART) and Nigeria’s representative of Sabre Network, which holds inventory of more than 400 airlines, presented a picture of the implications: “The foreign airlines, whose legitimate home remittance is unduly delayed, may be forced to begin to reduce capacity to this market, thus creating overfull demand situations and an increase in prices,” he said.
“Some airlines have had to quit the market in the past (during 1980s and 1990s) for this same reason, thereby creating a vacuum between the two economies they were linking. Of course, this will be justifiable.
“Of what use are funds held down in Nigeria and losing original value while the airlines’ head offices begin to source for credit to fund their operations?”
He said that apart from the impact on fuelling, manpower, maintenance, training, insurance, distribution and schedule integrity, in the event of aircraft on ground (AOG) situations the implications would be enormous.
The International Air Transport Association (IATA) has made a representation to the governor of the CBN to help airlines by making dollars available. As at the time of writing, no response had been received.
The National Union of Air Transport Employees (NUATE) has also called on the government to “grant foreign airlines concessions to repatriate their proceeds to their home countries” alleging that the airlines have plans to sack about 2,000 workers.
In a letter addressed to Minister of State for Aviation, Hadi Sirika, Comrade Olayinka Abioye, the acting general secretary of NUATE, cited this challenge as the reason being offered by the airlines for their plan.
However, Gadshire Travels CEO, Gbenga Adebayo, berated the airlines, describing the excuse of foreign exchange scarcity and multiple taxes given to increase fares as untenable.

He said the arbitrary increment and gap between fares charged in Nigeria and other African countries on the same routes were “due to failure of regulatory authorities to perform their duties.” 

* required field

Post a comment

Other Stories
Advertisement
Latest News

Ethiopia extends E-Visa service MICE participants

Ethiopian Immigration and Nationality Affairs main Department in collaboration with Ethiopian Airlines Group has launched E-Visa service for African and international participants of Meetings, Incentives, Conferences, and

Third H160 prototype joins the flight test campaign

The third H160 prototype (PT3) has performed its maiden flight. With its cabin interior configuration similar to that of a serial aircraft, will contribute to certification activities and flight testing to ensure the aircraft's

Four die as cargo plane crashes into sea off Abidjan

A cargo aircraft has crashed into the sea off Ivory Coast shortly after taking off from Abidjan's international airport.

Inmarsat certified for Jet ConneX inflight Wi-Fi installations on Gulfstream G550 aircraft

Inmarsat has announced that its Jet ConneX business aviation inflight Wi-Fi service has received a Supplement Type Certificate (STC) for the popular Gulfstream G550 aircraft.

SITA technology to drive expansion at Ghana's Kotoka International Airport's Terminal 3

SITA is providing its world-class passenger and baggage processing technology as well as its airport management solutions to Ghana's new Terminal 3 at Kotoka International Airport in Accra, helping cement the airport's position as a

Comair Limited certified as one of the Top Employers South Africa 2018

Comair Limited has announced that it has been officially certified by the Top Employers Institute for its exceptional employee offerings.

Aviation Africa SK18418
See us at
Aviation Africa BT18418ACI Africa BT77181017AfBAC Expo BT2017AIMA Africa 2017Global Aerospace BT28218