A few days ago, Harold Demuren, a former Director General of the Nigerian Civil Aviation Authority (NCAA) in an interview with a national newspaper had suggested that the issue of trapped funds of foreign airlines can only be resolved by allowing them to sell tickets in dollars.
Demuren’s suggestion has since sparked mixed reactions from economists and industry stakeholders with many highlighting that allowing foreign airlines to charge fares in foreign currency will not only deepen Nigeria’s economic crisis but will fail to work in the overall interest of the Nigerian economy.
What Economists are saying
Professor Uche Uwaleke, a financial Economist and former Commissioner for Finance, Imo State told Nairametrics that on one side, the sale of air tickets in US dollars will serve foreign Airlines better as it will reduce their exchange rate exposure as well as eliminate the delays in the repatriation of sale proceeds. On the other hand, it will not augur well in the best interest of Nigeria.
According to Prof. Uwaleke, it will not be in the interest of the Nigerian economy if foreign airlines are allowed to charge in dollars.
He said “But where does that leave Nigerian Airlines that operate international routes such as Air Peace? Will they also charge airfares in US dollars or local currency?
News continues after this ad
“On balance, I think allowing Foreign Airlines to charge fares in foreign currency, for whatever it is worth, will not be in the overall interest of the Nigerian economy.
Speaking further he said, “It will promote dollarization of the economy. Before you know it, other sectors such as international hotels, banks, schools and Multinationals operating in Nigeria will start charging fees and pricing in US dollars. This will only aggravate the low confidence in the Naira with attendant further depreciation.
News continues after this ad
He advised that foreign Airlines should continue to recognize the Naira as the only legal tender in Nigeria.
He said, “In addition to Naira-denominated working capital needs, these Airlines employ a few Nigerians at the Airports and back offices who are paid in Naira.”
He, therefore, called on CBN to ensure that genuine claims by these Airlines are met as the country’s external reserves position is relatively healthy. He also advised foreign airlines not to engage in round tripping.
“To this end, the CBN should ensure that genuine claims by these Airlines are met and on time since the country’s external reserves position is relatively healthy.
“On their own part and in order to facilitate the repatriation of ticket sales proceeds, the foreign Airlines should not be engaged in round tripping.
“A situation where they bill their customers and sell tickets using the parallel market rate only to revert to the official window of the CBN to claim Forex equivalent tantamounts to round tripping and is a major factor that contributes to the delay in meeting their claims.
“Much as Nigeria is working to create multiple streams of Forex outside crude oil- a panacea to narrowing the parallel market premium, foreign Airlines’ operations in the country, while being encouraged, should not be to the detriment of the local economy,” Prof Uwaleke said.
Another Economist, Dr. Emeka Okengwu in his own view says he doesn’t see any effect that selling tickets in dollars will have on the Nigerian economy apart from the risk of Naira being transferred to the people who are buying the tickets.
“Why they are selling tickets in dollars is for them to be able to get their money directly in a currency that has value. If you sell in Naira and you need to convert, you don’t even know what is going to happen the next day and this is about your foreign airlines and not even your local travels.
“How many people actually do these international travels that we are talking about?
“Foreign airlines charging in dollars means they are taking their money directly…. So even if the Naira depreciates the dollar is stable and they are sure they will be able to get the full value of their ticket.
He noted that “What we should be focusing on, is how this will impact our local airlines and not the foreign ones. What they will owe you is your landing cost and they will take all their money out.
When asked what will be the impact on our Forex reserves, he said, “What will be the impact? The government doesn’t pay for passenger flights to travel and how many people make these travels?
“People are buying their Forex and Forex has become some kind of commodity that people can trade and as long as you have money, you can get it. The whole gain is for the foreign airlines who are now insisting that they should be paid in a currency that is stable.
“So, if your own currency is depreciating, it does not affect their gains. So, I do not see any impact it has directly on our local economy apart from the fact that our people who are traveling will be spending more naira to get the dollar. So, all the risk of Naira will be transferred to the people who are buying the tickets and for me I see nothing wrong in that. “
What stakeholders are saying
The president of the National Association of Nigeria Travel Agencies (NANTA), Mrs Susan Akporiaye in an interview with Nairametrics said selling tickets in dollars will be double jeopardy for Nigeria as the dollar is not readily available even at the black markets.
She said, “If they are truly experts then they should know that is not the best way to go. We have a challenge and let’s not compound the challenge that is on the ground by selling tickets in dollars.
“Assuming the Nigerian government listens and they allow it, we’ve just compounded and tripled our problem as a nation. That is not our local currency and selling in a currency that is not yours is very dangerous to the economy.
“Right now, there is an Economic crisis and we are trying to manage that.
She noted that selling tickets in dollars will further deepen the crisis that the country is going through.
“If truly they are experts like you call them, then they should know better not to canvas for sales of tickets in foreign currency. As we speak, someone was even telling me that for her to even get a mallam to bring her some amount of dollars, took him the whole day.
“So even in the black market, this dollar is getting scarce so it’s going to be double jeopardy if we do that.
Speaking on the impact of the sales of dollars to agents she said, “We really do not gain anything as agents. How many people can afford to pay for these tickets in dollars? Except you are saying only for the Elites and this Elites, the dollars are not coming from our central bank. We don’t mint and print dollars so even if the elites have it stacked up somewhere, it’s just a matter of time before it’s going to finish.
“So right now, if you ask for dollars on the black market, it takes the whole day to be able to bring it for you so what is going to happen if we allow these sales of tickets in foreign currency?
“It will become scarce even in the primary market which is the official rate and the black market will not be available, so now have we not put ourselves in double jeopardy?
“We are going to plunge ourselves into a crisis that we did not imagine. It brings immediate comfort no doubt, but we always need to look at the bigger picture. We need to look beyond our noses and look at the implication of what we do. It will bring temporary solutions, comfort and happiness but once the crisis starts, what we are running away from becomes double.
“That is never the way out, I will not support sales of tickets in foreign currency in Nigeria because that is not our currency, it’s just going to put us in a more economic crisis than what we are facing. Am just going to preach patience, I am a travel agent and I know how much it’s affecting me not being able to service my clients or issue tickets, but then again, patience is always a virtue.
“If we are all patient about this thing and we are able to hold up, it will soon be over before you know it. Trusting that with the release that CBN has done, it will soon be over. The experts should know better, allowing it officially, is not the answer to this problem, it might be a temporary solution but it’s going to make us worse. “
She said that IATA commending the Federal Government for the release and using Nigeria as an example to other African countries has shown that Nigeria is not the only country that foreign airlines are unable to repatriate their funds.
Akporiaye said, “IATA has commended the Nigerian government for releasing funds and now they are using Nigeria as an example to other African countries telling them to do the same.
“Meaning that we are not the only ones owing airlines their money, we are not the only ones that the airlines couldn’t repatriate their funds. Other countries are involved. Now that Nigeria has done 50% of their own, IATA is applauding the Nigerian government.
“Meaning this thing is a global crisis and if it is a global crisis why do we want to put ourselves into more mess by officially allowing tickets to be sold in dollars?
“It will make the foreign airlines happy no doubt, but what will it do to us as Nigerians, what will it do to our economy? It’s not going to be good, so we shouldn’t be seen to officially applaud that.
“I know unofficially it’s happening but if it becomes official, there will be a higher demand for this same dollar that is even scarce.
“So, by the time you can’t even get the dollar again, what happens? Let’s not forget that there are legitimate businesses being done. For instance, Paying of school fees and importation. so, if we cannot afford to pay fees and import goods it will go beyond aviation to the entire economy of Nigeria.”Mrs Akporiaye said.
What you should know
- Last week the Central Bank of Nigeria (CBN) released the sum of $ 265 million to partly assuage the situation of foreign airlines broken down into $ 230 million to tackle FX intervention while another sum of $ 35 million in ticket sales.
- Before the move by the CBN, Emirates Airlines had announced it will stop servicing the Nigerian market from September 1.