Mr Adeniji
In the last 8 years, the performance needle of Aviation’s barometer has barely moved, mirroring the generally poor conditions and output of our economy.
The recent stakeholders meeting with the Honourable Minister of Aviation and Aerospace Development ( HMA & AD) this past week, threw up many of the same issues already identified at a previous stakeholders meeting in 2015.
The more things change, it seems, the more they remain the same. The initial high expectations of the stakeholders then, painfully descended into failed promises at the end.
The success of the new Minister would depend on his management of expectations and the ability to build trust anchored on the understanding that stakeholders in aviation have been travelling through a long road littered with disappointments, bogus claims, and debatable national interest to the transit point we are today. (Many stakeholders hold the view: First, we try, then we trust!)
Against this backdrop, the President, and Commander-in-Chief’s charge to all Ministers to (perform)produce or get the boot sets the stage for a new agenda.
As our contribution to its success, we identify the lack of adequate economic rigour in decision and policy making and implementation as a major factor that has led to our industry not operating as it should (so called Market or Government failures). We have failed to allocate resources optimally.
We recommend the application of sound economic tools to our decision and policy making and implementation in order to deliver results of our National Vision at all levels or risk the further backsliding and maybe inevitable death of our industry. (The HMA & AD reportedly lamented the failure of 100 Airlines in the last 25 years)
How have we decided or established and implemented policies on allocation of scarce resources to reach our objectives so far? How well have we utilised the Market or exchange mechanism in place of fiat (Political authority) when it was the most efficient means??
How well have we applied the knowledge of how markets work or fail within the various interactions between the various components (including institutions) of the economy to increase productive capacity???.
As a political appointee the Honourable Minister is keenly aware of the potential for disaster intrinsic in the allocation of scarce resources among competing interest groups, since these choices pits the interests (wants and needs) of one group against another.
It is therefore clear why Post holders are prone to making what ideally should be economic decisions based on authority.
We have historically favoured a command-and-control approach despite loudly voicing a promise that the private sector will lead the industry. We see this showed graphically in FGN’s Investment in a Government led but supposedly “private” national carrier though flag carriers could do better.
This is at a difficult time when our private airlines are drowning in losses exacerbated by the difficult operating conditions, while state owned and run enterprises continue to fail all profitability and efficiency tests.
We are building and have built unviable airports based on political whims or consideration while starving the few viable ones of much needed investments for expansion while concurrently draining them of sustenance to subsidize these “’unviables’’ This is yet another sad case of failure to review the opportunity cost of our choices, costing us opportunities.
We are mindful of the counterarguments based on the unsubstantiated speculative point made that unviable airports bring and will continue to bring hidden benefits to their locations (so-called externalities).
Their best response would be to put their money where their mouth is by empirically declaring all the much-vaunted economic benefits that have accrued from all the various giant edifices wasting away in all the regions of our country.
They could even go one step better by ploughing some of those benefits into subsiding airline traffic into those airports (e.g. US essential air services program) and stop killing the few geese that are laying the golden eggs with open and hidden costs!
Our foray into Government led investments to build infrastructure, enhance labour (e.g. NCAT) and promote innovation has ended in resounding failures and colossal losses.
We advocate a different path to success that would entail the reduction of charges and taxes to help businesses and people keep more of what they earn as an incentive to drive the production to grow GDP (and revenue) in the long run.
This FGN tax committee are currently exploring this approach, but if Aviation needs another a hint it should take it from IATA’s recent position on the cost of operation of our two major geese (Lagos and Abuja Airports)and let operators breathe!
How does the Aviation Market work to operate as it should or not?
Market structure here means the different conditions in markets that affect how prices and outputs are determined. The Air Transport market is an Oligopoly while airports are mainly monopolies.
Government’s inability to curtail the inefficiencies inherent in our airport monopolies due to lack of substitutes and their uneconomic charges combined with its abandonment of its role to protect the evolution of Airlines with adequate market barriers, encouragement and policy incentivisation, delivers a fatal double viral dose to an oligopoly patient seeking its remedies to survive and thrive.
We can assert for the sake of simplicity that Market Structure determines Conduct (strategic behaviour) which then determines Performance (in terms of profit and efficiency). Granted the interactions and feedback can be complex.
The structure in aviation is largely determined by Aircraft and Aerospace Technology. Our initial exchange of output usually results in a substantial deficit in balance of payments per transaction because of our import dependency for aircraft for our operators.
The end prize lies in compensating sustainably through export by applying Government policy, infrastructure, geography, and other relevant factors.Otherwise we are figuratively dead on arrival in terms of output
Government’s failure has also occurred in our attempt at regulation. The recent increase in regulatory fees and charges to airlines with no increase in fees for airports exemplified this, the increase in the minimum fleet size for AOC holders escalates it further even as the decades old age limit on aircraft puts a nail on the coffin .
Here again,the authority is taking the place of a market mechanism but delivering an inferior allocation of resources than the marketplace.
We wholly support the positions canvassing autonomy and/or privatization for the various Aviation agencies that will free them from the apron strings of the Ministry so they can function optimally, economically, and sustainably.
This support is however contingent on those agencies having at their helm, officers with the excellent Leadership, managerial and technical competencies operating systems and structures through policies, measures and structures that will mitigate the challenges and deliver on the results envisaged in Prof. Pat Utomi’s position on institutions below.
I had for years told students that the problem with institutional growth in Nigeria was the way Africans relate to being in authority positions. To give a uniform of authority to most in Africa was to make them bullies instantly. Just watch the policeman, soldier, LATSMA person, etc deal with the public.
The problem, I often charged was that stakeholders were often shy before power in Nigeria.
Our institutions are anti-production in their mode, our financial system is designed for trading and economic rent extraction and not production and our infrastructure make producing a nightmare, whether it be power, road or rail transportation.
To begin to seriously produce, you need value chain champions organized as a college of obsessively focused change drivers, on the policy side, and true wealth creators rather than celebrity-wannabe Bankers more interested in siren-escorts than in customers who create wealth.
The Honourable Minister of Aviation and Aerospace Development has a real opportunity to take off with a blast by plucking the low hanging fruits littering Aviation and Aerospace.
These include but are not limited to driving efficiencies in the agencies and unlocking the immense value constrained in several legal disputes or in outdated and misguided security safety and economic directives that not only hinder Aviation’s ability to Produce but may sound its death knell.
Adeniji is an aviation management consultant
