Hi there, Justin here. I had quite an adventure traveling back to South Africa from New York. A medical emergency on our flight as we were about to take off led to 15 hours of waiting in the airport in advance of a 15-hour flight. That experience has compelled me to dig into a topic I've been wanting to explore further for quite some time - and one that is important to the ever-present expansion discourse - intra-African airline travel.
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We explored logistics value chains in episode four our most recent season of The Flip podcast. As we were producing that episode, we realized we needed to dig further into an important part of the story: infrastructure. While tech-focused companies are undoubtedly having an impact, the cost of imported goods, as an example, is still largely a function of deficient port infrastructure. And the solution to that problem requires an investment in infrastructure that is significantly outside of the scope of the startup and venture capital ecosystem.
Ecosystem. We use that term a lot. An ecosystem requires symbiosis and coordination and interconnectivity amongst a set of disparate parts. The cost of a good sold at the last mile is impacted by logistics costs, which are impacted by infrastructure and import regulation. Cross-border trade relies on regional cooperation via initiatives like AfCFTA.
And regional business relies further on physical connectivity - air travel. As Bloomberg CityLab writes, “if people can get a direct flight from their city to yours, they’re likely to increase business relationships. If they can’t, they won’t.”
One of the largest intra-Africa cross-border payments corridors, according to the World Bank bilateral remittance matrix, is Nigeria to Cameroon. Yet there are just 2 direct flights per week between Lagos and Douala, the two countries’ business centers. And the cost of that flight - a 1.5-hour trip - is roughly $700. Two-thirds of the cost is taxes and fees.
Worse still, Lagos and Kinshasha are West Africa’s two largest megacities, separated by 1,100 miles, or just over a three-hour flight. There are no direct flights between these two cities.
The expensive and circuitous nature of pan-African travel is not just an inconvenience and frustration for travelers, it’s a severe constraint on the continent’s economic development. Which raises the obvious question - why is it so bad?
Waiting on Yamoussoukro
Blame a combination of protectionist legal barriers and regulatory hurdles, mixed with inadequate infrastructure, high taxes, and stubborn nationalism… Countries across the continent have displayed protectionist tendencies to limit others’ access to their own airspace. Those instincts began a generation ago, when newly independent nations sought to assert themselves by creating national airlines, and continue today... The problem is compounded by the generally poor state of Africa’s transportation infrastructure… Various fees and tax schemes also contribute to big-ticket prices.
The region’s endeavor to liberalize intra-continental air transport service and create a single market in Africa has been long coming and slow going. In 1988, African states agreed to principles of air services liberalization, in the Yamoussoukro Declaration. In 1999, in the Yamoussoukro Decision, 44 members of the African Union signed their commitment to “deregulate air services, and promote regional air markets open to transnational competition.” In 2018, the Single African Air Transport Market (SAATM) was launched, with participation from 33 African states, laying the framework for the implementation of the Yamoussoukro Decision.
But as a quick Google Flight search will affirm, there has been little implementation.
Some African nations and smaller airlines express concern that air services liberalization will stifle competition, for the benefit of a few big airlines. But recent history and research tell a different story.
“When European countries banded together to create a single aviation zone in 1993, annual traffic grew by twice as much over the next decade than in previous years.” When South Africa and Zambia reached a bilateral open-skies agreement in 2013, fares between the two countries fell by nearly 40 percent, and air traffic increased 38 percent.
Likewise, "on intra-African routes with more liberal bilateral arrangements, Ethiopian Airline passengers benefit from 10-21% lower fares and 35-38% higher frequencies (compared to restricted intra-Africa routes)."
Research shows that “a 10 percent increase in airplane passengers increases the local service sector by 1 percent, and that a 10 percent boost in international flights causes a 4 percent growth in the number of large firm headquarters nearby”. Further,
Adopting open-skies policies would help encourage competition, which grows traffic by as much as double, according to a study backed by the International Air Transport Association, an industry group. Other analysis by the organization found that 12 leading African nations could boost their collective GDP by $1.3 billion and attract 4.9 million new travelers by implementing bilateral agreements. Ticket prices would go down by as much as 35 percent and trade would grow by $430 million.
In short, the easier and more affordable it is to travel, the more people will travel. The more readily people can travel, the more people will do business between the cities in question, and the more said cities will benefit economically, as well.
The Chicken and Egg
A contributing factor is low demand, which drives the price up, as well. Yes, high tariffs drive up prices, which drives down demand (which drives the price up further), but demand could also be a function of the local nature of most businesses in African markets.
A few years ago, the data visualization publication The Pudding looked at the relationship between air traffic and the world’s megacities. Both Paris and Kinshasha are cities with roughly 13 million people. At the time of that article's writing, Paris had 927 departing flights per day. Kinshasa had 13.
While the recent history of urbanization of megacities in other regions has come with growing economies, rising incomes, and a rising volume of departing flights, African cities are seeing mass population growth without a commensurate rise in economic growth.
The supposed norm has been urbanization as a signal of economic prosperity - people moving to the city for opportunity. In contrast, African urbanization is in part a function of unsustainable rural living conditions - people moving out of necessity.
As the population of Africa’s cities grows without economic growth and commensurate infrastructure, city services struggle to keep pace, leading to the rise of informal settlements, which in turn leads to the rise of an informal sector to service informal settlements. This is the story of why African markets look like they do, and why the majority of economic activity is necessarily local.
We've talked in past content about infrastructure, e.g., payments infrastructure, as a means to target nonconsumption and to create new markets. With the obvious caveat that air travel requires considerably more invested capital and operational complexities than a payments gateway, I can't help but wonder about the extent to which certain data indicate latent demand for flights.
We mentioned Nigeria-Cameroon earlier - a leading cross-border payments corridor in terms of volume. In a prior podcast episode with MFS Africa's Dare Okoudjou, we learned that while much of the payments activity they're seeing on their network looks like remittances - in terms of the utilization of consumer tools - when they've drilled down deeper they've learned that it's actually small businesses using consumer payments tools for cross-border trade. He shared,
We started thinking we were going after a $15 billion intra-Africa remittance market that was being priced at 17, 20%. That was 2014, 15 when the hub started getting traction. What we found now is actually the cross-border trade market that we are servicing. 60% of the users in East Africa told us that they use the service for trade reasons, even if they’re using the P2P that is offered by the M-Pesa in Kenya, MTN in Uganda, Orange in Burkina Faso. It’s trade.
If there is more cross-border trade across the continent than previously realized, does it follow that there is more demand for business-related travel across the same routes?
Another counter-narrative is migration. While other countries outside of the continent (and within Europe, in particular) may be particularly concerned with the degree of migration from south to north, in reality, the majority of African migration is within the continent. From The Economist,
Sub-Saharans with get-up-and-go have long been migrating closer to home. Only 18% of those living abroad are in Europe. About 70% are in other African countries. Between 2010 and 2020 the UN says the number of sub-Saharan migrants within Africa rose by more than 40% to 19m (a figure many experts call an underestimate).
Côte d'Ivoire, in particular, is a shining example of intra-African migration made possible by liberalized policies. Pre-COVID numbers indicate that Côte d'Ivoire received the second-highest number of immigrants behind South Africa (whose population is twice as large), though both countries received roughly the same amount from within Africa. 2.2 million Africans migrated to the country in 2017, which is nearly 10 percent of the country's total population; its foreign-born population now accounts for 20 percent of the country's economy.
And for its largest city, Abidjan, with a population of over 4 million people, there are currently 32 departing flights from Félix-Houphouët-Boigny International Airport, of which 20 are to other African countries.
If there is a steeply rising population coupled with rising regional migration, does it follow that there is more demand for regional travel across migration routes, as well?
All of that's to say that there might be increasing indicators of increased demand for air travel within the continent, and demand that will undoubtedly be driven further by the implementation of open-skies policies.
And from a tech ecosystem perspective, geographic expansion benefits not just from direct initiatives like AfCFTA or PAPSS or financial services regulation, but from indirect policies concerning things like air travel, as well.