This paper discusses the challenges foreign airlines face when accessing blocked funds (normally foreign currency) or transferring funds earned from the proceeds of airline product sales. Without sounding like I am giving a ‘history’ lesson on this subject, setting the scene, and bringing some context would be beneficial to my readers. Blocked funds are defined as money or capital realized when a foreign operation involving the transfer of funds is blocked because of regulations imposed by the government of the country where the money was generated (businessprofessor.com).
This definition has been broadened to include the economic challenges of some countries face that are so severe, that often-national reserves are depleted to the extent that there is a shortage of foreign currency in these countries.
Despite the substantial increase in capital flows to the African continent, African Countries remain marginalized in financial globalization and are highly dependent on Foreign Direct Investment (FDI). Some parts of Africa have been plagued by deteriorating economic pressures which
are inextricably interwoven with political issues. This in turn has caused significant challenges that have resulted in several African countries sanctioning debt management controls that have limited the export of foreign currency to keep their economies afloat.
In general, therefore, it seems that whether scholars conceptualize leaders in Africa as “managerial bourgeoisie,” or “organizational bourgeoisie”, African Countries are well known for their centralized bureaucratic frameworks.
It is worth pointing out that there is an economic and moral argument that supports halting the export of foreign currency in support of preserving the financial stability and welfare of future generations of these countries. Nevertheless, the controversy of these strategies has not escaped criticism from academics, agencies, and observers who argue that the implementation of the African Continental Free Trade Area (ACFTA) and the Single African Air Transport Market (SAATM) is a better way to achieve social and economic sustainability in Africa rather than sanctioning these penalizing debt controls.
Some in the aviation industry support initiatives such as SAATAM and believe that such initiatives can be used as vehicles for achieving air liberalization and economic sustainability. For reference, I have written about SAATM in one of my previous articles (The Future of the Single African Air Transport Market
Agreement) and this can be accessed on my LinkedIn profile (https://www.linkedin.com/pulse/future-single-african-air-transport-market-
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adiel-mambara-ba-msc/). The issue of blocked funds is growing and a source of increasing concern for airlines that operate in some parts of Africa. According to the International Air Transport Association (IATA), it is estimated that a total of USD 1.3 billion of airline funds is being blocked in 12 African countries as of June 2022, and this has increased by 40% in the last 6 months. Globally Africa accounts for 67% of airlines’ blocked funds.
There is some evidence to suggest that the increase in blocked funds has been caused by an increase in sales in all markets as we come out of the Covid-19 pandemic and Nigeria has the highest amount of blocked funds (currently standing at USD 282 million) of any African country. The issues in Nigeria stem from a high percentage (approximately 90%) of foreign exchange earnings coming from oil
exports and in the past few months production fell below its daily Opec quota. This has mainly been caused by oil pipeline vandalism and a lack of infrastructure. Several other countries restrict airlines from accessing/repatriating foreign funds from the sale of their airline products namely Zimbabwe holds USD 100 million (as of April 2019), Algeria USD 80 million (as of
15 April 2019), Eritrea USD 79 million (as of June 2022), and Ethiopia USD 59 million (as of August 2021) of blocked funds. In these countries, foreign airlines have been facing issues for many years. Procedures for repatriation of funds are cumbersome, restrictive, and erratic, and there are ever-changing fiscal policies that affect foreign currency exchange rates.
As a result, some airlines have been left with no choice but to threaten the suspension of operations. A recent case that is well documented is the case of Emirates which announced plans to suspend all flights to and from Nigeria. It was reported this announcement was made after many months of negotiations with the Nigerian Government to move
USD 85 million out of the west African country. The matter was resolved temporarily when it was reported that the Central Bank of Nigeria released USD 265 million out of the total of USD 464 million of blocked funds to foreign airlines. However, the issue has not ‘gone gently into that good night, it is reported that the Nigerian Government has committed to pushing their laws that make it mandatory for foreign airlines to sell air tickets in their local currency (Naira) as opposed to US dollars.
Winding the clock back to late 2017 the situation resembles previous crises of blocked funds between Air France, Lufthansa, and other carriers with Venezuela in 2012 and Emirates and Angola in 2017. The total blocked funds in both countries amounted to an eye-watering amount of approximately USD 4.1 Billion. It has not been all doom and gloom, because engagement by credible organizations such as IATA, African Airlines Associations (AFRAA), and
Airlines Association of Southern Africa (AASA) in association with other stakeholders have been engaging with governments to find meaningful solutions Some progress has been made but that progress does not go far enough. Some examples of some progress include:
Angola (as of 15 April 2019): The country was on the verge of clearing over USD 500 million in 2018.IATA observed that most airlines at the time were receiving a regular allocation of blocked funds.
Sudan (as of 15 April 2019): An embargo was lifted to allow airlines to sell their tickets in foreign currency to foreign residents, foreign non- residents, and Sudanese non-residents. IATA was also allowed to open a bank account in USD but at the time IATA was waiting for some IT enhancements.
Zimbabwe (as of 15 April 2019): IATA and the Airlines operating in Zimbabwe were able to get a written commitment from the Reserve Bank of Zimbabwe to protect the value of USD 192 million. This in essence protects the value of the outstanding backlog of blocked funds against any possible devaluation of the currency, which would have meant a potential loss of USD 130 million.
A full discussion of airline blocked funds in the countries mentioned above lies beyond the scope of this paper and further updated information is needed to expand this subject.
Aviation demand (in terms of revenue passenger kilometres) in Africa is forecasted to reach 72% of the pre-Covid crisis (2019) levels with capacity reaching 75.2% (IATA,2022). These findings have several implications for how governments create confidence and improve their understanding of how aviation operates and work closely with airlines and airports. After all, it is in the interest of all stakeholders to ensure airlines are paid on time and in full at a fair exchange rate.
With airline confidence, aviation can better support jobs and trade. Mr. Mambara is a Zimbabwean, who has demonstrable working senior management and board experience within the Airline industry. He holds a BA (Hons) Degree in Business with Marketing from the University of West London and an MSC in Travel Business Leadership from Leeds Beckett University in the United Kingdom. He writes in a personal capacity.