How foreign airlines lost over 50% trapped funds to Africa’s currency devaluation
….Continent’s carriers worst hit, says IATA
Nigeria and other African countries may have been given a clean bill of health over the payment of foreign airlines’ trapped fund, but the International Air Transport Association (IATA) said only about 50% per cent of the entire value of its fund was lost to the devaluation of currencies of most African nations since 2022 when these funds started piling up.
IATA’s Regional Vice-President of Africa and Middle East, Kamil Al-Awadhi while briefing journalists from Africa on the sidelines of the association’s 80th Annual General Meeting (AGM) and World Air Transport Summit in Dubai, United Arab Emirates (UAE), lamented that the ones that have suffered the most are the African carriers because when they close their year, they get $1 million and not $10 million from the blocked funds in different countries.
He further lamented that blocked funds and issues around the devaluation of currencies are harming African carriers more than their European, American and Middle-East airlines, describing it as strange and how they have continued to bleed as a result of that.
Going by Al-Awadhi’s disclosure, there are indications that foreign carriers may have lost half of their entire $850 million trapped in Nigeria before the Central Bank of Nigeria (CBN) and their commercial Banks decided to release the funds.
Since January 2022, Naira has declined by more than 55 per cent against the US dollar. And Nigeria is not alone. Other African countries have had a rough go over the past two years. The Ghanaian cedi, Kenyan shilling and South African rand are all down over the same period.
The IATA chief however said there is no penalty for countries defaulting in its obligation as regards blocked funds despite the effects, especially African airlines.
His words, “There is not a penalty. If I bought something from you and you are in Nigeria and you did not pay me for two years, in my book, most airlines deal in dollar values in their PNR, so, when I close my 2023 year, I say my revenues this much whether I have it in the Bank or not, my revenue is $100 million.”
$20 million came out of Nigeria but I did not get my money in 2022, 2023. When I finally get it in dollars, it is not $20 million, it is $10 million because of the depreciation of the currency.
This has happened in several countries in Africa. The ones that have suffered the most are the African carriers because when they close their year, they get $1 million and not $10 million from the blocked funds in different countries.
“It is strange for the African countries and it is harming the African carriers the most. You need to calculate every month, the depreciation it has on your blocked funds. For one airline, there was a 60 per cent depreciation in the value of its funds blocked over that period. It is a huge amount.
Just on Monday, the clearing house for over 300 global airlines confirmed that Nigeria had cleared 98 per cent of foreign airlines’ blocked funds, disclosing that the remaining two per cent of funds amounting to $19 million yet to be cleared is due to the Central Bank’s ongoing verification of outstanding forward claims filed by the commercial banks. It noted that as of April 2024, 98% of these funds have been cleared.
Director-General of IATA, Willie Walsh said, “We commend the new Nigerian government and the Central Bank of Nigeria for their efforts to resolve this issue. Individual Nigerians and the economy will all benefit from reliable air connectivity for which access to revenues is critical. We are on the right path and urge the government to clear the residual $19 million and continue prioritizing aviation.”
Eight countries account for 87% of the total blocked funds, amounting to $1.6 billion. The situation he said had become severe in Pakistan and Bangladesh with airlines unable to repatriate $731 million ($411 million in Pakistan and $320 million in Bangladesh) of revenues earned in these markets.
“Pakistan and Bangladesh must release the $731 million in blocked funds immediately to ensure airlines can continue providing essential air connectivity. In Bangladesh, the solution is in the hands of the Central Bank, which must prioritize aviation’s access to foreign exchange in line with international treaty obligations. The solution in Pakistan is finding efficient alternatives to the system of audit and tax exemption certificates, which cause long processing delays,” said Walsh.
