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
Latest News

Tiger wants the Russians to roar

Tiger Aviation Services (TAS) started its ground-handling services with just four staff in a small office at Cairo International Airport nearly three decades ago.

Bombardier sees increasing demand for pre-owned aircraft in Africa

At the African Aviation Finance conference in Johannesburg, South Africa, Bombardier Commercial Aircraft reflected on the development of the African Regional Aircraft market, stating that it was seeing a surge in demand in Africa for

Embraer Phenom to make impact with debuts at EBACE

Embraer will debut the Phenom 100EV business jet at the European Business Aviation Conference and Exhibition (EBACE) in Geneva, Switzerland, from May 29 to May 31.

Ethiopian marks African aviation history with 100th aircraft in active service

Ethiopian Airlines and SKYTRAX have announced that it will take delivery on June 5 2018 of its 100th aircraft, a Boeing 787-900, making it the first African airline to operate a 100 aircraft fleet in the history of the continent.

Kenya turns to crop dusters to turbo charge its forces

Kenya’s requirement for new light attack/armed intelligence, surveillance, and reconnaissance (ISR) aircraft has been dogged by controversy. Jon Lake attempts to unravel a complicated situation.

Air BP expands its network with six new locations in Africa

Air BP has collaborated with Vivo Energy to grow its network in Africa, adding six new locations: Sir Seewoosagur Ramgoolam International Airport, Abidjan-Felix-Houphouet-Boigny International Airport, Nelson Mandela

Routes African SK1505180718
See us at
GroundHandling BT2205130918AAD2018 BTAirCargoAFA_BT220318210219