CEM REPORT, AVIATION | Foreign airlines and travel agencies operating in Nigeria have expressed their dissatisfaction with the piecemeal pace of releasing the $751 million trapped fund from ticket sales in the country.
The fund, which represents the amount owed to foreign airlines by the Central Bank of Nigeria (CBN) and various Deposit Money Banks (DMBs), has been trapped due to the foreign exchange (forex) crisis that has plagued the Nigerian economy for years.
While the Central Bank of Nigeria (CBN) recently coughed up $61 million, it’s a mere drop in the bucket compared to the massive backlog. Foreign airlines and travel agencies are pleading for a concrete plan to clear the remaining $751 million, warning that the current piecemeal approach is unsustainable and could force some carriers to abandon Nigerian skies altogether.
Nigeria Tops List
The International Air Transport Association (IATA), the global trade association of airlines, has consistently lamented the forex liquidity crisis that has affected its members operating in Nigeria. According to IATA, Nigeria has the highest amount of blocked funds in Africa, accounting for $812 million out of the $1.68 billion total across the continent. Of this sum, $300 million is legacy debt of the CBN.
The root of the issue lies in Nigeria’s complex foreign exchange (FX) liquidity crisis. Airlines collect ticket sales in naira, but repatriating those earnings into dollars has become a bureaucratic nightmare. This FX crunch isn’t unique to Nigeria – IATA, the International Air Transport Association, reports $1.68 billion in blocked airline funds across Africa. But Nigeria, unfortunately, tops the list.
Trapped Funds Implication
The ripple effects of this financial quagmire are far-reaching. Airlines facing cash flow woes are forced to raise ticket prices, squeezing the pockets of Nigerian travellers already grappling with economic headwinds. The local aviation sector also suffers, with downstream businesses like travel agencies and hospitality providers feeling the pinch as passenger numbers dwindle.
The President of the Association of Foreign Airlines in Nigeria (AFARN), Kingsley Nwokoma, warned that the prolonged crisis could force some foreign airlines to exit the Nigerian market, following the footsteps of Etihad and Emirates Airlines. He also regretted that the federal government violated the Bilateral Air Service Agreement (BASA) arrangements signed with various countries, which could tarnish Nigeria’s image and reputation.
Nwokoma explained that the blocked funds were partly responsible for the high airfares out of Nigeria, which put the local sector at a comparative disadvantage with its West African neighbours. He said that the aviation industry was dependent on the U.S. dollars for most of its operations and expenses, and if the foreign airlines could not access their earnings, they would face difficulties in paying their staff, suppliers and service providers.
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“We are not saying the government should pay all, but the FG should have a plan to pay a chunk of the money every quarter. The fear is that if it continues like this, some of the airlines may go.
“The last conversation we had with Mr Festus Keyamo, the Minister of Aviation and Aerospace Development, seemed good. He sounded serious about the payment, and they have done $61 million thus far. But Nigeria is just a very strange country. Some are still saying that the airlines should not be asking for any money from Nigeria.
“What is BASA? BASA is signed by countries and not airlines. We signed our commitment to the BASA and we are not doing anything about it. If all countries are defaulting like Nigeria, there will not be any airline that comes into the country again,” he said.
He urged the federal government to engage with foreign airlines on the modes of payment and timelines for the release of the blocked funds and to address the underlying causes of the forex crisis that have hampered the growth and development of the aviation sector.
Recommendation
The Group Managing Director of Dees Travels and Tours Limited, Daisi Olotu, also expressed his concern over the negative impact of the forex crisis on the aviation sector. He said that the aviation sector was a revenue cash-cow for any country, but the delay in the release of funds for the repatriation of the earnings of foreign airlines was the undoing of the local aviation sector.
He added that the downstream sector, notably the travel agencies and service and hospitality establishments, also suffered from the high cost of doing business and the low patronage of customers.
He called on the federal government to prioritize the aviation sector as a key driver of the economy and to ensure that foreign airlines and other stakeholders were treated fairly and transparently. He also appealed to the CBN to intervene and provide adequate forex supply to the aviation sector to ease the pressure and facilitate the smooth operation of the industry.
Nigeria’s aviation sector is teetering on the brink. The government must act swiftly and decisively to clear the runway of trapped funds before it’s too late. Failure to do so could have disastrous consequences for the economy, jobs, and Nigeria’s international standing.
