Ethiopia's infrastructure binge shows no signs of slowing down, with plans being made to build a $4 billion second international airport in the Addis Ababa area, one that could serve as many as 120 million passengers per year when it opens in about a decade’s time.
But a new report by risk analysts PGI Intelligence warns that the airport mega-project is at risk of delays due to challenges securing finance, while the huge costs entailed threaten to worsen foreign exchange shortages in the coming years.
The planned airport would make it Africa’s biggest airport by far, and even larger than London’s Heathrow, which handled 73.4 million passengers last year, with a capacity of 90 million.
Africa’s busiest airport is O.R. Tambo International Airport near Johannesburg, South Africa; about 18 million passengers passed through its terminals last year and ongoing expansion work will raise capacity to 28 million.
The planned giant airport in Ethiopia is set to be one of the country’s most ambitious projects, surpassed only by the $4.8 billion Grand Ethiopian Renaissance Dam and demonstrates the government’s ongoing commitment to state-led development through investment in huge infrastructure projects.
Already, Ethiopian Airlines is the only major African carrier that is reporting healthy profits, in the region of $175 million in 2014/15, while the other big three – South African Airways, Kenya Airways and Royal Air Maroc – are facing financial headwinds, bleeding cash badly and/ or reporting virtually no growth as reported earlier by Mail & Guardian Africa.
The project reflects the scale of Ethiopia’s economic ambitions and will form an important component in developing the country’s tourism and light manufacturing sectors, as well as putting Ethiopian Airlines in pole position to consolidate its market share and comprehensively overtake Nairobi as East Africa’s aviation hub.
Separate from Bole
The new project is separate from the ongoing $350 million expansion of the current Bole International Airport in Addis Ababa, illustrating the importance the government has attributed to planned aviation sector growth. The current airport expansion is set to increase capacity from 6 million passengers annually to 22 million by 2018.
The two developments combined aim to transform Addis Ababa into one of the largest aviation hubs in Africa, with the new airport consisting of four runways, several passenger terminals and an airport city on the outskirts of the capital.
But it also raises the question whether Ethiopia can command those kind of passenger numbers to make the investment worthwhile.
A decade ago, Bole handled fewer than a million passengers a year, by last year that had risen to 7 million. Passenger numbers are expected to continue increasing by about 10% a year – which means it could take more than two decades for the airport to reach full capacity.
But Ethiopia’s state-driven capitalist model aims to line up all the ducks in a neat row, looking to deliver passenger numbers not just through bolstering Ethiopian Airlines’ position as an aviation leader in Africa, but also through growth in tourism and light manufacturing sectors, as part of the country’s second Growth and Transformation Plan (GTP-II).
The GTP-II will cover the period 2015-2020, and is set to be launched officially in the next few weeks with the airport as its flagship project. It is also expected to include the $1.8 billion Gilgel Gibe 3 dam, a raft of geothermal, solar and wind projects, and a vast house building programme.
Tourism currently generates $2.9 billion for the economy and several international hotel chains have set up operations in the country in recent years; in August the culture and tourism ministry announced it planned to triple Ethiopia’s annual foreign visitors to 2.5 million by 2020.
Increases to freight capacity will likewise support the light manufacturing sector, for which the government has already attracted several global brands and Unilever, General Electric and GlaxoSmithKline are all planning investments that will supply international markets.
Industrial parks
Ethiopia is targeting $1 billion of annual investment in industrial parks over the next decade to boost exports and make it Africa’s top manufacturer. The government may invest half of the $10 billion needed for zones across the country that will house textile, leather, agro-processing and other labour-intensive factories, a special advisor to Prime Minister Hailemariam Desalegn said in May.
But analysts are warning that Ethiopia’s mega-infrastructure binge will put enormous pressure on Ethiopia’s public finances, which are already strained following the first growth and infrastructure plan that expires this year (GTP I 2010-2015).
In September, the IMF reported Ethiopia’s public debt-to-GDP ratio was already at 50%, and GTP II would see this increase further.
Concerns around the sustainability of these debts could create challenges in securing finance for the new airport; without an immediate demand for its services, Ethiopian officials could struggle to secure finance from foreign lenders at concessional rates, the PGI Intelligence report states.
As with GTP I, both the new airport and GTP II are likely to depend heavily on domestic funds to finance projects. The absorption of funds by large infrastructure projects has created huge liquidity problems in Ethiopia over the past five years, resulting in delays to imports and difficulties for the private sector to access finance.
These restraints have been compounded by banking regulations that require banks to pay an additional 27% of each loan to private companies into state bonds that fund the government’s growth plans, a requirement that “frequently deters banks from lending to the private sector,” PGI Intelligence says.
With little sign the government is willing to ease restrictions on the banking sector, access to finance and liquidity will remain among the major barriers to success as the government presses ahead with its growth plans over the next five years, the analysts warn.
Crumbs
Not to be deterred, however, regional banks are all lurking on the streets of Addis Ababa, looking to set themselves up for even the crumbs of Ethiopia’s still very tightly regulated banking sector.
Foreign lenders are not allowed to own banks in Ethiopia, and the financial sector is dominated by the state-owned Commercial Bank of Ethiopia.
But last month, South Africa’s Standard Bank opened an office in Ethiopia, “to gain a foothold in one of Africa’s fastest growing economies”, it said in a statement, and this week, Kenya Commercial Bank (KCB) announced it had received a licence to open a representative office in Ethiopia.
Other banking institutions with representative offices in Addis Ababa include the European Investment Bank, Germany’s Commerzbank, pan-African lender Ecobank, Export-Import Bank of India, National Bank of Egypt and Bank of Africa.
Source: ghanaweb.com
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