AM EDITORIAL: Why Government Must Address Forex Issues
Hyperinflation is currently a feature of Nigeria’s economy. Unfortunately, the aviation industry is an industry that pays most of its bills in dollars and earns almost all its income in Naira and the official exchange rate in recent times has been around N1500 to 1USD, aside the challenge of access to forex.
Agreed that the challenging state of Nigeria’s economy, has amplified the already existing constraints to growth and development of the country’s aviation sector in the form of poor access to forex, singling out the forex challenge for attention will do something significantly positive to the sector.
When airlines and other service providers in the sector talk about high operating costs, inducement is also traceable to the foreign exchange. Modernization of aviation infrastructure in form of acquisition of ground handling facilities, aircraft spares and embrace of modern technology in operations, all require forex access. Of course, aircraft acquisition cannot be done without access to forex. The impediment of forex access in these sub-sectors are discouraging to an intending Nigeria based investor.
High forex rates and access have further heightened the challenges of aircraft maintenance, most of which is carried out abroad. Aircraft maintenance is a dollar based transaction and time-bound requirement. Procuring spares at N1500 to 1USD has put the airlines in permanent auto unnerving mode.
There is hardly a segment of Nigeria’s aviation industry that is free from the running nose of forex challenges. Not even aviation agencies are spared. For instance, the Nigeria Airspace Management Agency (NAMA) muted a recently suspended idea of increasing its charges by 800%. This is because its unit rate of $70 for international flights charge for service provision has become a joke, considering the forex realities. This is coming at a time when service providers are calling for reduction of airport tariffs and charges as a response to the increasing exchange rates to reduce their operating costs. Herein lies the dilemma created by market forces for a revenue sourcing government.
High foreign exchange rate affects ticket pricing. Save for Air Peace that recently offered Nigerian travelers on Lagos-London flights the privilege of paying in Naira, forex determines international flight ticket prices and forex access tells whether or not an international traveller can do so.
For Nigerians who travel by air, it has been an agonizing experience since the Naira started falling freely against major foreign currencies such as the United States Dollar, the Euro, and the British Pound Sterling, among others. This means that the less than 5% of the over 200 million population that travel by air, is most likely going to further diminish because of poor access to forex and high ticket prices. If passengers are not available to fly, airlines cannot survive. Airports will be dormant and aviation industry will gradually exit the economy.
Although the Federal Government of Nigeria has been widely commended for paying the forex backlog that it owed foreign airlines for sometime, more deliberate and desperate measures are required to tackle the monster of forex access and high exchange rate if Nigeria’s aviation industry is expected to survive.
Tackling the forex access and high rate challenge is a major task before government in efforts to create a favourable environment for industry operations.
There is need for the aviation sector to have an input into monetary or fiscal policy as it appears policies related to forex have been made without any involvement or consideration of the sector’s growth. Also, government needs to introduce a consistent business friendly policy on forex access.
The challenges in Nigeria’s aviation industry may be truly multi-faceted but resolving the forex access and exchange rate issues in the sector would amount to reducing a very high volume of constraints to the sector’s growth and development. AM
