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By Bernard Wainaina
CEO,Profarms Consultants®

Africa must learn to trade with itself to lift its people from economic poverty.

While a lot of emphasis is put on Africa’s relations with the rest of the world, little attention is paid to
the internal barriers to trade and growth within the continent.

There is much public debate about access to foreign markets by African firms and countries, but little
discussion about access to African markets by Africans themselves.

Where such access exists, it is often mired in bureaucracy, incompetence, protectionism, or sheer lack of common sense.

Before we even look at how Africa can open up its Agribusiness sector across its international borders within the continent,let’s look at how other business sectors have dealt with trade and physical barriers within Africa
.
The telecoms and the airlines sectors offer very important insights into some of these barriers; they show where there has been progress as well as areas for regulators and policy makers to break down barriers and catalyse growth within the continent.

To telephone Kinshasa, the capital of the Democratic Republic of Congo, residents of Brazzaville, the
capital of the Congo Republic, for many years had to pay international call rates.

The calls would be routed via satellite link to Paris,Brussels, and then back across the River Congo to
either capital.

In 2002, officials of MSI telephone
company, which had operations in both countries, decided to shorten the route.

They installed a microwave link across the 7km stretch of the River Congo that separates the two
capitals.

Overnight, international calls became local calls.

The cost of a telephone call dropped by 80 per cent.

Two years later, the service was rolled out to pre-paid customers, too.

More than a century after the partition of Africa, the telephone company officials had succeeded in
building a virtual bridge over the river.

In 2006, it launched its One Network campaign, starting in East Africa and eventually across 17 countries, eliminating roaming charges for its
customers and allowing them to receive calls for free and pay local rates when they travelled to these
countries.

“Zain — itself a marginal operator in all three original East African Community jurisdictions prior to its
disruption of the market — achieved, with regard to roaming, in weeks what most African regulators had
barely contemplated and European regulators had struggled with for nearly a decade,” Alison Gillwald
and Muriuki Mureithi noted in a paper published by Research ICT Africa.

“With the high price of communications in East Africa
and the premium charges placed on international mobile roaming, the effect of this move was to
compel other regional operators to follow suit, and further, to institute various other pricing strategies in
an attempt to retain or recover their dominant positions.

As a result, not only did roaming charges disappear across all networks, but the prices of
various other mobile services also fell as subscriber numbers soared,” the paper stated.

Africa’s telecoms sector remains expensive.

It still costs five times more to call Tanzania or Rwanda from Kenya than to call faraway India or China.

Part of the problem is the way calls are routed, as the case of the DRC and Congo Republic showed.

However, taxation and competition policies are a major factor, too.

A 2011 report by Deloitte for the
GSM Association, which represents the interests of mobile operators worldwide, noted that taxation, as a
proportion of the cost of mobile phone ownership and use in Africa, is comparatively high.

Mobile taxation in 17 African countries, including Kenya, Uganda, Rwanda and Tanzania, was found to
be higher than the global average.

The more the telecommunications sector grows across the continent, the more governments raise taxes on it and the more expensive telephone calls become.

When Kenya, Rwanda, Tanzania and Burundi imposed a new levy on incoming international calls in
2013, averaging $0.12, this cost was passed on to consumers.

In Congo Brazzaville, the imposition of a new surtax on incoming international calls more than wiped out the earlier gains, with Deloitte finding that costs had risen by 111 per cent between May 2009, when it
was introduced, and May 2011.

Inbound traffic also dropped by 36 per cent.

In Uganda, the One Network initiative allowed Zain to grow from fourth to second largest operator, and
sparked a response from Safaricom in Kenya, MTN in Uganda and Rwanda and Vodacom in Tanzania.

However, although many operators now allow pre-paid customers to roam, many of the benefits have
been rolled back as the dominant players recovered their market share; roaming prices have inched back upwards on many networks.

Strong regulation can also reduce prices.

The reduction in mobile termination rates in Kenya in August 2010 led
to an immediate reduction of retail prices, allowing smaller operators to compete favourably.

According to a study by Christoph Stork of Research ICT Africa, in Namibia, lower retail prices led to an
expansion of the market, which in turn led to higher investment and profits for the dominant operator.

Namibian operator MTC had opposed the liberalisation of the sector and the capping of termination rates, arguing that its EBITDA (earnings
before interest, tax, depreciation and amortisation) margin would drop to 36.8 per cent, and that it would
have to reduce investments, increase retail prices and pay less in dividends and taxes to government.

Instead, the research shows, the margins rose as did dividends, tax payments, investments and
subscriber base.

Competition and strong regulation
had allowed a win-win situation for consumers and the telco alike.

Closed skies

The lack of competition and effective regulation is also notable in the air transport industry.

Although Africa has 12 per cent of the world’s population, only one per cent of global air traffic takes place on the vast continent.

This can be attributed to lack of availability, high costs, high taxation, and poor regulation.

Take the case of the Entebbe–Nairobi route.

A 55-minute flight over 521km, economy class ticket on Kenya Airways costs an average of $295, but can rise to more than $390.

In comparison, flights from Nairobi to Dubai are on average twice as expensive, at an average of $600,
although the distance is almost seven times longer than to Entebbe.

This can be attributed to taxation,
fuel costs, and protectionism.

Taxes are easier to see.

A typical economy class return ticket from Nairobi to Entebbe costs $322.

Of this, the base fare is only $100.

The rest includes a security charge of $10, a passenger service charge
levied by the Ugandan government for the use of Entebbe Airport of $47.2, a similar fee levied by the
Kenyan government of $40,insurance of $4 and a fuel surcharge levied by the airline of $100.

Taxes thus comprise 62 per cent of the total cost of the air ticket; the percentage is generally the same
for Air Uganda, which also flies on the same route but charges $30 less for its fuel surcharge.

On a typical Kenya Airways ticket from Nairobi to Dubai, taxes are only 41 per cent of the total cost.

This helps explain why the cost-per-mile of flying between Entebbe and Nairobi is much higher.

“We consider three key factors when pricing — cost, competition and value. Each route is completely
independent from the other,” a spokesperson for Kenya Airways told Profarms Consultants® in response to a question about the relatively high fare on the Nairobi–Entebbe route.

Protectionism is more insidious.

In the early 2000s,Ethiopian Airlines introduced a stopover in Nairobi on
its Entebbe – Addis Ababa route and started selling return tickets from Entebbe to Nairobi.

Prices plunged by about 50 per cent and Kenya Airways,which had hitherto enjoyed a monopoly on the route,had to slash its own prices in response.

A few weeks later, however, Ethiopian Airlines quietly stopped the Nairobi stopover and service, and prices
returned to their previous highs.

It later transpired that Ethiopian Airlines had failed to secure rights
from Kenyan aviation authorities for the stopover.

This knocked them out of the skies, and, whether deliberately or by coincidence, helped protect a
lucrative route for Kenya Airways.

Such protectionism is not uncommon. RwandAir flies into Entebbe and Juba, among other routes, out of
Kigali.

When the airline asked for rights to fly from Entebbe to Juba (and therefore sell that sector), it
failed to get approvals from Ugandan aviation authorities, allowing Air Uganda to retain its lucrative
route to the South Sudan capital.

The problem of protectionism is historical.

It goes back to the early 1960s, when many newly independent African states set up national airlines,
mainly out of pride rather than economic considerations.

Domestic markets were often ring-fenced for the national carriers, which also received other forms of
regulatory protection from competition, but this lack
of competition led to poor air safety records, high airfares, and stifled the growth of the air transport industry across Africa.

In 1999, some 44 African governments adopted the Yamoussoukro Declaration, named after the city in Ivory Coast where it had been agreed a decade earlier; it was adopted by the Organisation of African Unity, the precursor to the African Union, in 2002.

Under its “open skies” ethos, the pact requires the countries to deregulate air services and open up the air industry to transnational competition.

Privatisation and the collapse of many national airlines has seen a correction in the industry that has
left a few major transnational airlines — in particular Kenya Airways, Ethiopian Airlines, EgyptAir, and
South African Airways — to compete with international carriers operating on the continent.

However, the letter and spirit of open skies has often been ignored in favour of protectionism.

“A historic opportunity is being missed,” Charles Schlumberger, a World Bank expert who has studied
the implementation of the Yamoussoukro Declaration and is the author of Open Skies for Africa, said.

“Ten countries have not signed on to or completed proper ratification of this decision, and many others
that are signatories have not implemented it.

Meantime, most countries in Africa that have abandoned their ailing carriers and opened up to
foreign operators now have air services, both passenger and freight, that are more efficient, safer,and with more competitive prices.”

Got visa, won’t travel?

In West Africa, where countries have liberalised their air spaces more than elsewhere on the continent, the
collapse of national airlines, including the iconic Air Afrique, has created opportunities for the emergence
of new, smaller, airlines, as well as the entry of transnational ones, particularly Kenya Airways and
Ethiopian Airways.

Flight connections remain difficult in many places in Africa, but the emergence of regional hubs in Nairobi, Addis Ababa, Johannesburg, Lagos, Accra and Dakar, as well as stronger continental airlines, has put paid to the days, not so long ago, when one had to fly via Paris or Brussels in order to go from Tanzania to Ghana, for instance.

The impact of this has been increasing air safety and traffic, coupled with lower prices and stiffer
competition.

The Schlumberger study found that competitive air carriers with more frequent flights and lower fares
can open the door to trade in perishables and high-tech manufactures.

“Reliable, safe and competitively priced air services are essential to better integrating Africa with the
global economy,” noted Jamal Saghir, the World Bank director for sustainable development in Africa.

Ironically, the countries whose airlines have benefited from the open skies across the continent have often been reluctant to liberalise their national operators or open up their own skies to full competition.

Africa’s air space still remains relatively unsafe.

Drawing on statistics from the International Air Transport Association, Schlumberger found that the accident rate on the continent was six times higher than that of Asia and Latin America, and more than
12 times higher than in Europe and North America.

Stronger competition would not only reduce prices, it would save lives.

A lot is made of African emigration
to the West and the often frustrating search for visas.

Less discussed are restrictions Africans find when travelling within the continent.

“The African Story as told by Africans”.©African News Digest®

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