Foreign aviators demand tax holiday, operating space
The federal government has planned to end protection over the domestic aviation sector and allow foreign investors to participate, according to the draft document of the second Homegrown Economic Reform (HGER 2.0) seen by The Reporter.
The “domestic airline sector will be liberalized to improve efficiency and access,” states the draft document, which is expected to be implemented soon. The document, which is a continuation of HGER 1.0, will cover the next three years, after which the third HGER will take over.
So far, the domestic aviation sector has been allowed to be operated only by local investors. Ethiopian Airlines has been the leading market player.
Despite the fact that an Ethiopian investment regulation ratified two years ago states that the domestic aviation sector is reserved exclusively for joint investment by foreign and local investors, implementation has yet to occur.
“The investment code already allowed a joint venture for local aviators to hold the majority stake in the partnership. But it is not implemented because further directives are needed to implement the investment code,” Getachew Mengiste, director general of the Ethiopian Civil Aviation Authority, said.
Getachew says interested foreign investors are currently approaching the authority and are in the process of investing in the local aviation industry.
“In the past, there were no interested foreign investors, but that has changed now. But we have to do a lot to promote the new laws and attract foreign investors into the domestic aviation sector. Most of the foreign aviation investors are requesting incentive packages, and we will solve it with the Ethiopian Investment Commission.”
The foreign investors are also asking for loans, using their aircraft as collateral. Tax holidays and access to airports are also among other incentive packages demanded by the foreign investors, according to Getachew.
The authority has held discussions with local private operators about the reforms that are in the works.
However, Solomon Gizaw (Capt.), founder and general manager of Abyssinia Flight, claims that several promises were made but that the government’s legal reforms were not implemented.
“A very encouraging and forward-looking legislation is introduced to reform the domestic aviation sector, but the practical trend on the ground remains challenging for private aviation operators. The sector lacks professional and committed regulators to implement the reform legislation. The sector is facing an existential threat due to the delays in the implementation of the reforms,” Solomon said.
For Solomon, the liberalization idea is encouraging, and he believes that if the necessary supports are provided, the local aviation companies can survive foreign competition.
“Ethiopia has a huge potential for trained manpower in the aviation industry, and we have the capacity to compete with international airlines like Emirates. But we are facing challenges because most of the new aviation legislation has never been practically implemented on the ground,” Solomon said.
Ethiopia’s private aviation sector could generate billions of dollars in hard currency revenue, Solomon said, adding, “We have huge potential for training and exporting manpower. We can also engage in maintenance services, among others.”
Abyssinia has been in the aviation business for the past 23 years. Currently, 13 private, local aviation operators are licensed by the Aviation Authority and operating in the sector. Three new aviators have also acquired licenses since last year, according to Getachew. “But no foreign investor asked to enter under the 49/51 equity ratio allowed under the investment code.”
The government has also lifted the seat limit for domestic aircraft.