Source: Foreign airlines hit hard by currency crisis | The Financial Gazette March 16, 2017
INTERNATIONAL airlines have been caught up in Zimbabwe’s foreign payments gridlock and are failing to repatriate close to US$30 million locked in domestic banks, the Financial Gazette’s Companies & Markets (C&M) can report.
The crisis has forced the International Air Transport Association (IATA) to dispatch its top executives into the country for make or break meetings with authorities to craft “possible measures to make the funds available”.
Regional airways, Ethiopian Airlines, South African Airways (SAA), Kenya Airways, British Airways’ ComAir, Emirates, Taag Angolan, Namibian Airways and Malawian Airways are among the foreign carriers that have been affected by the foreign currency shortages in the country.
The airlines have scheduled flights into Harare, Victoria Falls and Bulawayo.
Restrictions in the allocation of foreign currency for external payments were introduced by the Reserve Bank of Zimbabwe (RBZ) last year, as government grappled with its worst economic crisis in decades triggered by the collapse of key productive sectors, including manufacturing, tourism and construction.
Airlines last year were informed that they would be prioritised in the allocation of foreign currency by the central bank.
However, bankers told C&M that payment backlogs to airlines stood at US$27 million two week ago, when IATA’s southern Africa manager, Janaurieu D’sa and his aviation solutions manager, Sandile Chipunza, hastily flew into Harare for a series of meetings with authorities, including central bank chief, John Mangudya.
They also met Ministry of Tourism officials, Transport and Infrastructure Development Minister, Joram Gumbo, Civil Aviation Authority of Zimbabwe boss, David Chaota and Air Zimbabwe (AirZim) representatives.
This week, D’sa declined to comment on the meetings, demanding to know what the newspaper “wants to achieve”.
But while making a presentation during the launch of SAA’s Airbus A330’s inaugural flight into Victoria Falls early this month, Zimbabwe Tourism Authority chief operating officer, Givemore Chidzidzi, said the regional carrier was among the airlines that met authorities.
Chidzidzi said foreign airlines were led by SAA country manager, Winnie Muchanyuka.
SAA controls the lion’s share of the Zimbabwean market with over 50 percent share.
It operates close to 30 flights per week into Harare, Victoria Falls and Bulawayo.
“She led foreign airlines for a meeting with the Reserve Bank of Zimbabwe,” said Chidzidzi, referring to Muchanyuka.
Tourism and Hospitality Industry Minister, Walter Mzembi, this week said the allocation of foreign currency resources must consider the plight of sensitive sectors such as airlines, warning that the country risked “killing the goose that lays the golden egg”.
“Airlines and subsequently IATA are asking no more than what they have earned and must be paid timeously to keep our birds in the air,” he told C&M.
About 18,8 percent of foreign tourists into Zimbabwe use air transport, according to the Zimbabwe Visitor Exit Survey report for 2015 and 2016 released by the Ministry of Tourism two weeks ago.
“We have just recently commissioned Victoria Falls Airport with the national objective of increasing arrivals through signing up new airline agreements… Aligned to this is the increasing significance of tourism as an economic pillar, now the third global export earner after fuels and chemicals. Our national budget planning and priorities including the disbursement of foreign currency must reflect this,” said Mzembi.
C&M understands that foreign airlines have plunged into a predicament, which could force them to withdraw from the country.
This will be at a time when Zimbabwe has been drumming up support from international airlines by encouraging them to introduce flights into the country following the completion of the US$150 million expansion of the Victoria Falls International Airport.
The expansion stretched the airport’s runway to four kilometres, from about one and half kilometres, giving it capacity to handle long haul aircraft and trebling its passenger capacity to 1,5 million per annum.
Ethiopian Airlines will begin flying into Victoria Falls later this month, while Kenya Airways will in May launch a direct flight between Nairobi and Victoria Falls which will also link with Cape Town, South Africa.
Turkish Airlines has also indicated its intention to operate flights into the resort town.
The move by three of Africa’s largest airlines to fly to Victoria Falls will bring an additional 80 000 tourists into the resort town annually, according to one of Zimbabwe’s largest leisure groups, Africa Albida Tourism.
But all these plans could be affected by the foreign currency crisis.
An aviation industry executive who is well informed about the IATA delegation’s meetings in Zimbabwe said a crisis was brewing.
“Chief among issues raised by foreign airlines was the issue of the unavailability of foreign currency,” said the executive.
“Most foreign airlines have failed to remit their sales back to their countries because of this and there are real concerns that some of the airlines may withdraw from Zimbabwe if a solution is not found urgently. There is not enough foreign currency. People are no longer banking hard currency but only bond notes. It is a real problem and it may not be long before you start seeing airlines scaling down or pulling out, hence the meeting between the IATA regional office and RBZ governor John Mangudya among other key stakeholders. So far, there is a backlog of US$27 million, which the airlines are failing to repatriate,” the executive told C&M.
He said travel agencies also attended some of the meetings.
Domestic airlines were not part of the delegation of foreign carriers that met authorities but AirZim held separate meetings with IATA.
At IATA, an official told C&M that airlines were discussing the matter with Zimbabwean authorities, adding that both sides were “seeking possible measures to make the funds available”.
In private interviews, foreign airline executives were frustrated by their failure to repatriate their sales.
“We understand that the country is facing problems but we need money in order to operate on the route profitably. We are not saying the central bank should make airlines the top priority but we need to run these businesses without interruptions,” an airline executive said, referring to a priority list for foreign payments allocations introduced by the central bank last year.
The foreign currency shortages appear to be worsening, and are threatening to cripple the entire economy.
Imported raw materials are among goods that have been affected by the crisis, raising the spectre of more company closures and job losses.
The worst hit is the manufacturing industry and the mining sector, which contributes about 40 percent of the country’s export receipts.
There have been fears that gold mining companies could mothball operations due to failure to secure foreign currency for raw material imports, with dire consequences on the entire economy. The situation is likely to be compounded by forecasts of a slump in international gold prices this year.
A drop in volumes in the resource sector could worsen the foreign currency situation.
Overall, the country’s economy has been projected to register a growth of 3,7 percent this year, predicated on growth in mining and agriculture.
That forecast now appears unlikely owing to the turmoil in industries that should be driving growth, including the armyworm invasion and floods that are threatening to lower yields in agriculture.
In January, miners said they had their telegraphic transfers to foreign suppliers held up in the queue for as long as four months.
Suppliers cannot release their orders until outstanding payments have been made.
Foreign suppliers discontinued credit facilities to Zimbabwean customers following the emergence of payment problems late last year.