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Wednesday, 3 October 2007

Aviation is crucial for growth....

A recent paper finds a significant link between between aviation connectivity and productivity, especially for transition economies.

The model shows that connectivity has a statistically significant relationship with labour productivity levels. It shows that a 10% rise in connectivity, relative to a country’s GDP, will boost labour productivity levels by 0.07%. The relationship between connectivity and productivity is logarithmic (i.e. based on percentage changes in both values), rather than linear. This suggests that investments in air transport capacity in developing or transition countries, where connectivity is currently relatively low, will have a much larger impact on their productivity and economic success than a similar level of investment in a relatively developed country.

The key for Zambia is to consider 'air transport capacity' in a dynamic way. Its not just a question of physical infrastructure but much more. With South Africa 2010 on the horizon, we have a window of opportunity to take important steps to grow in this area.

There's a lot that Zambia can do without spending much money. Liberalisation for example can achieve wonders at minimal cost. As a land locked nation it is extremely important that we have good air connecting services and appropriate investment in airport infrastructure. We need to fully liberalise entry into the air transport sector and grant Fifth Freedom rights when requested by third countries as set out in the Yamoussoukro Decision (YD). We cannot continue to let South Africa influence us negatively into denying rights to foreign carriers requesting to pass through Zambia contrary to our economic needs and the YD.

Another area we must certainly address is that of jet fuel pricing. According to
ZEGA, jet fuel is 55% more expensive in Lusaka than in Jo'Burg. British Airways last year noted that their fuel costs were more than 40% more in Lusaka than in Jo'Burg. In June 2005 IATA examined the Zambia's high fuel cost prices and compared them to airports in the region, it concluded that Zambia's prices were between 12 and 40% higher. With that came the recommendation that Zambia should try and reduce the jet fuel prices by 20% as an initial step towards achieving a more reasonable and sustainable price structure - no progress has been made in taking this recommendation forward. To make it worse, Zambia also imposes VAT tax of 17% and 5% import duties. There's a case for reducing these for airlines if we are really serious about encouraging growth in the aviation and tourism sectors through cheaper travel.

6 comments:

  1. Cho,

    Something is better than nothing, but at the same time, air travel/transportation will always be inherently expensive.

    How about more low cost transport, like rail and even roads?

    Also, what is the cost structure for aviation fuel in Zambia - why is it so much more expensive than in South Africa?

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  2. Mrk

    "Something is better than nothing, but at the same time, air travel/transportation will always be inherently expensive".

    The key is to distiguish between international access and 'intra' access.

    You are right that province to province travel in Zambia would be too expensive. That must wait for rising incomes to create demand. So I am not saying we need infrastructure to get people from Nchelenge to Lusaka. Rail and Road travel can do the job there...for now.

    My concern is more international access. International access to Zambia is severely limited. Why should it not be possible to fly directly from Libya to Lusaka? Or Nairobi to Livingstone? We need to have an open policy. We should say that if anyone wants to have a route to any of the destinations in Zambia from abroad, and the infrastructure is there, they should be able to do so.

    Zambia bizarrely does not adopt that approach. South Africa has repeatedly blocked Zambia signing bilateral air service agreements with other nations. The recent example was a request by Kenya to fly Nairobi-Lusaka-Harare which was refused by the Government. Apparently the South African did not want to Kenya airways getting a foot hold.

    In terms of European access to Lusaka. The real hindrance is aviation fuel prices. And the reason for that lies at the door of the Energy Regulation BOard. Until that board is fixed and Government takes measures to encourage air travel the tourism sector will not grow at the pace it needs.

    Yes, we are doing well building hotels, but we can do even better by making air travel cheap to Zambia. That way we have more tourists. The Government actually has recently dropped visa charges for tourists I think. Well thats just pointless. The visa charges are small. Why not increase the visa charges and reduce the aviation fuel cost. That way you get more airlines who are more cost sensitive. The tourists are less cost sensitive. These are people who save all year round just to come to Zambia.

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  3. Cho,

    In terms of European access to Lusaka. The real hindrance is aviation fuel prices. And the reason for that lies at the door of the Energy Regulation BOard.

    What is your view on boards (marketing boards) in general?

    And what is going on at the ERB?

    http://maravi.blogspot.com/2007/08/energy-board-lacks-professionalism.html

    ReplyDelete
  4. Market boards are generally pointless. Good thing we abolished those horrible Agriculture marketing boards.

    The key is to replace marketing boards with strong regulators.

    The ERB is just incompetent. What we need is a clear policy from Government on fuel and to ensure that Indeni is fully commercialised. The current approach appears somewhat slow.

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  5. The zambian government apparently imposes excise duty on petroleum products. The jokers regard petroleum products as luxuries!

    ReplyDelete
  6. Not so luxurious now!

    With a poor public transport system, it should be obvious to everyone...

    ReplyDelete

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