[kictanet] [corrected version] [connecting the dots] The real reason why Africa struggles with eCommerce and Airlines

[Victor Kapiyo]

Interesting thoughts Patrick.

We don't offer these services locally, so how will Kenya get paid, if at
all? Does KQ taking over local airports help?

1. International Vendors (Equipment / Systems / Fuel)
2. International Hedge funds (e.g. Price / Currency hedges)
3. International Insurance.
4. Prioritized creditors (most likely international)
5. International Airports.

On Thu, 7 Mar 2019, 11:22 Patrick A. M. Maina via kictanet, <
kictanet at lists.kictanet.or.ke> wrote:

> Correction: KQ revenues in 2018 were ~50 Billion.
>
> Dear Listers,
>
> Whenever we have a spectacular failure in industry, we rush to attribute
> it to one or many of the five factors below:
>
> 1. Management competence (e.g. manifests through "culture" and/or lack of
> responsiveness to new/non-standard challenges; lack of awareness that
> competence is situational)
> 2. Failed Strategy (e.g. markets respond better to competitors or are
> already locked-in. Strategy can fail even where the management is highly
> competent.)
> 3. Corruption / conflicts of interest (includes nepotism, procurement
> challenges e.g. unethical vendor practices or blatant theft)
> 4. External factors (e.g. global economic / geopolitical dynamics)
> 5. Force Majeure (sudden unforeseeable calamities - whether natural or
> man-made)
>
> I'd like to put forward one reason, unique to Africa, that is seldom
> raised or addressed, yet it in many cases could be the *primary reason*
> why many African businesses struggle to remain viable despite adopting
> business models that succeed in other countries: The biggest obstacle for
> most African businesses is the structural operating environment. Simply
> put, Africa doesn't scale.
>
> * Scale is the reason that KQ's economic doom was *sealed in 1977* when
> East African Airways was dissolved.
>
> * Scale (not trust or delivery infrastructure) is the reason eCommerce simply
> can't and won't work in Africa (yet works in India) under the current
> circumstances.
>
> Certain types of businesses are* simply not viable without scale.* It
> doesn't matter what strategy, caliber of management or whatever else is
> used. Without scale, you have to swim upstream and perform miracles. No
> wonder we tell tourists that Kenya / Africa is "Magical". Only a magician
> can do certain businesses in Africa - under current circumstances.
>
> For example KQ earns* ~Ksh. 50 Billion* annually. Where does the money
> go? Do you know who really benefits from African Airlines failure to
> leverage scale? Here's my list:
> 1. International Vendors (Equipment / Systems / Fuel)
> 2. International Hedge funds (e.g. Price / Currency hedges)
> 3. International Insurance.
> 4. Prioritized creditors (most likely international)
> 5. International Airports.
>
> The only country that doesn't get paid is Kenya. Due to lack of scale, we
> end up literally *giving financial aid to rich countries.* This is not a
> smart thing for a poor country to do.
>
> Scale benefits are (in part) what makes *Delta Airlines*, for example,
> operate with *double digit margins*, earn *Ksh. 4.4 Trillion* in a year
> (enough to run our country for almost 2 years without borrowing) which
> translates to *Ksh. 1.3 Billion DAILY* *PBT *(profits before tax). Yes, a *daily
> profit* of Ksh. 1.3 Billion. That kind of performance is not magical -
> it's just smart application of basic economics and intelligent
> (strategically meaningful) politics + policies.
>
> eCommerce? *USPS *(et. al) operation at scale is what made *Amazon *possible
> at scale. Prosperity is not just about efficiency - the *size of market*
> *matters*. It matters a lot!
>
> Africa combined is the *8th largest economy in the world* yet as
> individual countries we barely register on the global radar. Individual
> African countries are simply not viable. No amount of aid or borrowing will
> fix scale deficiencies - in fact, the lack of scale is what makes our
> current national debts worrisome and risky!
>
> The idea of "national pride" carriers is ancient and obsolete. We need
> Pan-African Champion Airlines (where countries buy shares in not more than
> three Pan-African Airlines - North, Central and South). This would
> immediately dissolve the perceived (delusional) national advantage of
> self-imposed barriers to open skies and regional trade.
>
> The current heavy reliance on international markets is not smart at all
> (we are highly exposed to global shocks and geopolitics); it should be
> supplemented by sensible and massive intra-Africa trade.
>
> Pan-Africanism is not a sentimental idea, it is a rational and intelligent *economic
> strategy*. It is the only way to create a *common and unified mindset*
> that will unlock scale in Africa.
>
> Thankfully a good number of African leaders and technocrats are
> recognizing these challenges, hence the *AfCFTA *(African Continental
> Free Trade Area) initiative, which requires ratification of the Single
> African Air Transport Market (SAATM), the Protocol on the *Free Movement
> of Persons*, and the *African Passport,* as part of the integration
> process.
>
> As business people it is in our interest to support these initiatives as
> much as we can - but also to be vigilant of powerful (foreign state-backed)
> resource-extraction MNCs that would want to hijack or sabotage Africa's
> integration because it spoils their centuries-long plunder party.
>
> How does my argument hold, in view of success stories like Equity and/or
> Safaricom? In science, we disprove arguments by looking for a 'black
> swan" (just a single instance of contradiction) - are they not the Black
> Swans? Nope! Equity and Safaricom have certain common business model
> aspects which allow them to operate "successfully" with limited scale. The
> most obvious being network effects - but there are other non-obvious
> factors which are out of scope of this article. Still these are still *tiny
> and fragile* operations relative to their scale-leveraged counterparts
> which *earn tens of billions of shillings in revenues daily (and
> trillions annually)*. Our culture of mediocrity is what makes us
> celebrate our (relative) minions. Failure to think in terms of scale is
> dangerous.. it leads to (or encourages) predatory corporate behavior,
> comfort zones, mediocrity and other mental barriers.
>
> Thanks for reading. I welcome your thoughts on the above.
>
> Good day & Brgds,
>
> Patrick A. M. Maina
> [Cross Domain Innovator | Independent Public Policy Analyst - Indigenous
> Innovations]
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