(Part
II) On The Economic Viability Of The Eritrean Airlines - On The Potential
Market
On the first part of this essay, I focused on
a number of hurdles that the Eritrean Airlines is ignoring or discounting:
the sheer magnitude of the cost of the project, the sorry state of
the airlines industry all over the world, a history of bankruptcy
preceding it, the geopolitical disadvantage of the nation, and the
lack of safety net in times of hardship. On this final part, I will
focus on the Potential Market that the airlines is betting
on for its survival. Is there indeed such a potential market? Captain
Asress Araia claims that there is such a potential growth both in
the non-human and human cargos. As we look at these two sides of the
anticipated areas of expansion, we will also explore the motives behind
the promise of an eventual privatization of the airlines made
by the GoE.
The ghost of cargos:
Captain Asress doesn't stop on the basic essentials only {mentioned
in the first part of this essay]; he goes on further to add a noble
cause that would be cashed in econmic terms, a cause that could be
summed up a s follows: what is good for the customers is good for
the airlines. What is good for the customers is that they get
better or even previously non-existent services. And what is good
for the airlines is that by expanding and improving those services,
it would be able to exploit the Potential Market to its maximum. The
key phrase here is "Potential Market," for if it indeed
exists, that would be one good reason (but just one among many) for
launching the airlines. Here is what the Captain says on the non-human
cargo part of the story:
"The Market has two aspects- one is the Market
as it exists now and the Potential Market that we plan and can develop.
All these past years we have been observing that the Cargo movement
has been from Europe to Africa with very little going to Europe from
Africa. This trend will change as we are preparing exportable Raw
Materials which will support our Cargo carrying capability. We
are already heavily booked to transport considerable amount of Cargo
to Europe and the Middle East." (emphasis mine)
Since none other than PIA himself seconds this view,
it would be important to take a closer look at it. I, for myself,
believe that it doesn't go far enogh to assuaging our doubts. To see
that, let's ask ourselves this question: could anyone of us honestly
mention a single raw material produced in Eritrea that is being
exported to Europe or Middle East that requires the launching of a
brand new national airlines? All of us are aware that Eritrea,
unlike most other African nations, lacks any raw material that dominates
its economy. The only one that has shown some kind of promise is the
fishing industry, and it has a long way to go before it would be able
to make a dent on the economy. Other materials mentioned in the "Eritrean
Airlines Press Release" (Shaebia.com - April 10) include vegetables
and fruits. Yet, we all know that there is not a single commercial
fruit plantation throughout Eritrea worth mentioning. And as for the
vegetable plantation, all that there is to it is confined to Sawa.
What is odd is that throughout these 11 years of GoE's rule, not a
sinle large-scale irrgation system that would have made such endeavors
vaible has been undertaken.
So we are left with these two puzzling questions
to ponder:
An answer to the latter question is a revealing one
in an oblique sense of way, since it inadvertently scratches the underpinnings
that hold together the rationale for launching the Eritrean Airlines.
The charge is that foreign airlines are charging too much for cargo,
thus making it impossible for the merchants - or whoever are producing
these raw materials - to make a decent profit out of their commercial
or industrial endeavors.
The insincerity that lies behind this response becomes
clear if we ask this question: what is it that the Eritrean Airlines
is planning to do to make these endeavors profitable? Is it planning
to charge less on cargoes than the standard costs? To believe
this, we have to equally believe in this impossible scenario: the
GoE/PFDJ (for that is to whom this airlines belongs) subsidizing Eritrean
businessmen - a population group that it has been consistently undermining
since the day of independence - on their cargoes! That would, indeed,
be the day!
But we don't have to undergo through such absurd
imagination, for the few materials that the GoE has in mind - whether
they are incoming or outgoing - are its own! Talk about
the left hand giving to the right hand; it is a classical case of
a government subsidizing itself. So the competition alluded is not
against foreign airlines, but against its own people. Imagine how
many more private endeavors will be negatively affected as a result
of this critical edge the GoE gains - i.e., among the many advantages
it has already awarded itself.
Let's, for instance, look at the fishing industry,
an industry that has the only "raw material" worth mentioning.
And guess what - by now, the fishing industry has been almost totally
monopolized by the government. The same goes for the vegetables; all
that is being produced in Sawa belongs to the GoE. And, when it comes
to incoming merchandise goods, no doubt that it will be the Red Sea
corporation that will be the sole benefactor. This project then is
meant to further consolidate the GoE's monopoly on the economy. So
this control-freak government, not only does it want to reassure itself
of the monopoly of producing, buying and selling any materials that
bring hard currency, but it also wants to monopolize the means of
transporting them - i.e., at whatever cost.
The promise of privatization:
Now we know why the GoE is already becoming defensive
on the ownership issue. While everywhere else in the world, almost
every and each company worth its name is being privatized, why on
earth does the GoE believe that a nationally owned company would make
economic sense? Here is a defensive remark meant to deflect this
anticipated criticism: "The Government also pledged it would
ultimately privatize the endeavor in 'a few years time,' Mebrahtu
told IRIN" ("Eritrea: Eritrean Airlines takes off next months")
What a blatant lie! Why would any nation go to such
a length - using almost half of its budget, and in the process letting
its people starve - just to let it get privatized somewhere in the
near future? Since when has the GoE turned into a charitable organization?
The only reason why government-owned companies are being privatized
is because governments all over the world have an awful record at
managing them. In most cases, they could afford to sustain them only
by subsidizing them; of course, to the detriment of the private sectors
of the economy. But more importantly, in privatizing it, it would
be the GoE's chokehold on the econmy that would be losened, something
that the GoE has no plan to do.
This blatant lie gets even more obvious if we ask
this question: who exactly among the private sector does the GoE
have in mind that would, in "a few years time", be positioned
to buy the airlines? We are talking about either a private company
or a businessman in Eritrea that would be able to muster at least
hundreds of millions of US dollars. I don't think we would find one
even if we search in a broad daylight, with a flahlight in our hand.
And if the GoE responds by saying that it is foreign companies that
it has had in mind all along when it is talking about privartization,
this would turn out to be a self-defeating task, for the primary reason
for launching the Eritrean Airlines, in the first place, is to escape
from the alleged disadvantages the foreign airlines impose on the
nation.
Mebrahtu's remark reeks of insincerity. So are the
remarks of Captain Asress. These insincere remarks though come as
no surprise at all, for by now they have become a trademark of almost
all the remarks given by various GoE officials on different occasions.
What is surprising is that these officials are so confident that they
can get away with whatever they want to say that they usually come
up with some of the crudest reasons, never bothering to cover their
inconsistencies, blunderings and lies, with a veneer of veracity or
rationality. So much so, that one needs only to scrath the surface
for the deviant intentions behind those remarks to effortlessly pop
up.
Serving the people?
We have already found out that the service
of the non-human cargo that Captain Asress mentions to be a ghost
of a service, for it happens to be either redundant - i.e., it is
already being offered by other airlines, in which case it will require
a fierce competition - , self-serving -i.e., for PFDJ's cargos only
- or, worse, nonexistent. This becomes more obvious when the Captain
talks about the human cargo service:
"The fact that we were unable to develop this mode of transport
has had direct negative effect on our economic growth, on our ability
to effectively connect our country to the world, on our ability to
travel to and from markets of our interest, from enabling our business
men to create contacts, and our young men and women from frequently
visiting Home."
The same rationale we have seen before - that of Potential Market
- underlies the optimism above. Eritreans in diaspora will be made
to visit their home more frequently; although they don't necessarily
expect the number of Eritreans visiting their homeland to go up, they
do expect the number of visitations to go up. The same goes with the
businessmen; the increase in number of contacts would translate into
more flights. And when it comes to international markets, this airlines
will make more markets accessible - i.e., markets that haven't been
accesed so far by the existing airlines. If we we add up all the above
- and, perhaps, even more - then we end up with our country getting
more effectively connected with the rest of the world. All of this
will, of course, translate into economic growth. Here is the rub:
all of this explosive market expansion is suddenly going to materialize
through one and one act only - the launching of the Eritrean Airlines!
I would rather believe in the miraculous work of the magic wand! So
we are left with this same puzzling question: what is it that the
Eritrean Airlines is planning to do to bring about this magical transformation;
i.e., a transformation that the other airlines have failed to bring
about? [In the Press Release, there is even a hint of promise
in reduction of fares - "MiTun waga"]
The naivety (or the deception) of the above-quoted statement could
easily be uncovered if we take a closer look at these alluded expansions.
Let me start from the bottom. Has anyone of us been deterred from
visiting home as frequently as we want to because of a problem that
we have with flying in foreign airlines? If there is any problem
at all that constrains us from visiting our homeland as frequently
as we would like it to be, it would be within us - for financial,
relational, work-place or other personal reasons. The same holds true
for all the other population groups mentioned above. For instance,
businessmen are constrained from making contacts (if that is true)
simply because they cannot afford it. This is something that cannot
be changed by simply switching from one airline to another. Again,
we are left with the same puzzling question: what is it that Eritrean
Airlines is trying to offer (or do) that other airlines haven't done
to bring about this explosion in the potential market? What is amusing
is that it is planning to achieve all this with two planes under its
wings!
It is clear then that short of an economic growth both among Eritreans
in Eritrea and in diaspora, there wouldn't be the GoE envisioned expansion
in the travel industry simply because a brand new airline (even if
it is a national one) suddenly shows up in the scene.
How about an expansion that targets customers outside the Eritrean
population group? Well, let's start closer to home. All the neighboring
countries with large populations to serve - Ethiopia, Sudan and Yemen
- are all no-no territories; at least, for any foreseeable future.
And as for the often alluded boom in tourism, with Europeans as the
main population group targeted, it still remains a pipe dream. With
the severe problem of insecurity in the area, the existing de facto
state of war with Ethiopia, the unsettling images of the famine and
the terrible humanitarian record of the Isayas regime, it will now
take a long time for this dream to materialize, if ever.
From the above, one thing has been made crystal clear: there is absolutely
no rationale for a brand new airlines to be launched simply based
on a promise of a potential market, for there is none at all - i.e.,
for both non-human and human cargo. So could there by any other plausible
reason that we haven't explored so far?
Patriotism to the rescue:
There are two things that a service-oriented company looks for to
secure its place in a coveted market place: (1) a potential expansion
in the customers' demand, where it hopes to curve a niche for itself;
(b) a case where no potential expansion is expected, but where it
hopes to lure customers away from companies in a market that is already
saturated. In the latter case, the company's confidence derives from
the better service it is ready to provide.
We have already seen that in the case of Eritrean Airlines, there
is no significant potential market that it could expand to. All that
is left for it is to compete with other major airlines (such as Lufthansa)
for the same customers, a population group mostly consisting of Eritreans
in diaspora. Here, then, is the critical question: What kind of
better service is Eritrean Airlines willing to offer - a service that
the other airlines are not providing - to lure these customers? The
answer that the GoE has in mind is amazing; it is the inverse of what
any business venture would depend on: it is what the customers
have to offer, and not what the Eritrean Airlines has to offer, that
matters on this issue. And what could that possibly be? Good
old Eritrean patriotism! So it is not better service by Eritrean
Airlines, but appeal to patriotism that will be made to save the day!
For many Eritreans, all things being equal, their patriotism may tip
the balance. But all things are never equal on a business venture
that depends on so many variables. One's choice as to which airlines
to take depends on many factors: availability of flight on the time
period one wants to fly, availablity on connections that one prefers,
affordable fares, dependability, safety, security, advertisement,
efficiency and various ohter services.
And besides, given the arcane political atmosphere that exists now,
many Eritreans' "patriotism" ought not be taken for granted;
The idea of patriotism that many Eritreans have might not jive at
all with what the GoE has in mind. A case in point is that many Eritreans
have already stopped paying the extortion money that the GoE have
imposed on them. So, at minimum, many Eritreans might not give a damn
as to which airlines they take, thus leveling off the competitive
edge that the GoE is counting on. So my advice to the GoE: do not
count on patriotism only to save the day; you ought to have more substantive
reasons than that for undertaking such an expensive and risky project.
Yosief Ghebrehiwet.
04/14/03
News.Asmarino.Com