[kictanet] [rescuing KQ - an idea..] The real reason why Africa struggles with eCommerce and Airlines

Fri Mar 8 11:10:37 EAT 2019

Patrick

I note with a bit of surprise that you've really not responded to any of
the points I raised. And by the way I never mooted the point of rescuing
KQ. :-)

Let me weigh in one last time on this issue:-

The KQ saga CANNOT be looked at from a purely commercial perspective. The
very competitiveness of the country and the region may well depend on KQ.
We cannot piggy ride (pun intended) on someone else to ship and transfer
critical human resources and goods in and out of our country. I also
recommend that you read the book The Myth of Capitalism
<https://www.amazon.com/Myth-Capitalism-Monopolies-Death-Competition/dp/1119548195>
to understand the consolidation that is going on in the Airline Industry
among others.

Regards

*Ali Hussein*

*Principal*

*AHK & Associates*

Tel: +254 713 601113

Twitter: @AliHKassim

Skype: abu-jomo

LinkedIn: http://ke.linkedin.com/in/alihkassim
<http://ke.linkedin.com/in/alihkassim>

13th Floor , Delta Towers, Oracle Wing,

Chiromo Road, Westlands,

Nairobi, Kenya.

Any information of a personal nature expressed in this email are purely
mine and do not necessarily reflect the official positions of the
organizations that I work with.

On Fri, Mar 8, 2019 at 10:47 AM Patrick A. M. Maina <pmaina2000 at yahoo.com>
wrote:

> Thanks for weighing in Ali.
>
> Personally I support the idea of rescuing KQ because it is a Kenyan
> company, employs thousands of Kenyans, and is an important ecosystem
> component for key sectors like Agriculture, Hospitality and Tourism.
>
> It would have been great if KQ management had generated several options -
> rather than put all eggs in one (politically volatile) basket which, if it
> backfires due to political roadblocks, could lead to major losses for
> investors - including Government - and cause ripples across key sectors
> (e.g. banking).
>
> If I were to advise KQ stakeholders, I'd ask them to consider generating
> additional options (and testing them in parallel) so that they can further
> reduce the overall exposure for their investments.
>
> Here's one idea (not sure if they have already explored it - but it could
> be worth a try):
>
> Right now we have UG and TZ trying to build their own airlines (and
> investing billions in the same - while taking major learning curve risks,
> yet just next door we have KQ, with 41 years of valuable experience, that
> needs a bailout). We also have Rwanda, with a tiny economy (1/8th of Kenya)
> struggling with loss making Rwandair that might never be viable. Then
> there's ET, which claims to have a profitable business model (though enjoys
> government subsidies e.g. tax exemption and super-low gov. mandated wages).
> All these countries are (save for a few random misunderstandings /
> suspicions) friendly neighbors with shared economic and strategic
> interests...
>
> Is it worth trying to revive the idea of "East African Airways" (or
> something similar) by getting these four neighboring countries to work
> together with Kenya for scale benefits? Has that idea been explored?
>
> If it works, KQ would get its bail-out, hopefully with less political
> friction, but could lose its "national flag carrier" status as a trade-off
> (which it will lose anyway if it goes under).
>
> The idea would require engagement and support at head of state levels (the
> advantage of that being speed and clarity in terms establishing feasibility
> / buy-in and moving forward - if there is buy-in).
>
> I think the most important (and pragmatic) goal at this time is to
> stabilize things, protect local investors' interests (including government)
> and avoid shocking the economy. So it is worth trying out different options
> to see what ultimately works best for the country.
>
> Brgds,
> Patrick.
>
> Patrick A. M. Maina
> [Cross Domain Innovator | Independent Public Policy Analyst - Indigenous
> Innovations]
>
>
>
>
>
> On Friday, March 8, 2019, 12:27:14 AM GMT+3, Ali Hussein via kictanet <
> kictanet at lists.kictanet.or.ke> wrote:
>
>
> Patrick and all
>
> In relation to KQ your argument is flowed. Let me explain why.
>
> If country specific scale is the issue here then Emirates and Ethiopian
> (which..surprise, surprise..is a profitable African Airline that has
> achieved scale).
>
> These two Airlines have combined critical air transport infrastructure to
> give themselves unfair advantage. Ethiopian has executed a mini-hub
> strategy and acquired stakes in other African airlines. Great strategy and
> execution, which by the way would not be possible without the Patient
> Capital of the Ethiopian Government.
>
> Did I hear someone say KAA/KQ merger?
>
> Ditto with Emirates.
>
> Emirates has been a loss leader for the Emirate of Dubai until very
> recently. The growth and prosperity of Dubai as a destination was anchored
> around the Emirates Group which controls the airline and other air
> transport infrastructure. The strategy has been so successful that today
> DNATA (DescriptionDubai National Air Transport Association), the
>  Emirates Group subsidiary, provides aircraft ground handling, cargo,
> travel, and flight catering services across five continents in 70+
> airports.
>
> Scale? The only thing that stops us from scaling is that we have been told
> for so long that we can’t manage our own affairs until we have come to
> believe it.
>
> Let’s not perpetuate this defeatist attitude.
>
> My two cents.
>
> *Ali Hussein*
> *Principal*
> *AHK & Associates*
> +254 0713 601113
>
> Twitter: @AliHKassim
>
> Skype: abu-jomo
>
> LinkedIn: http://ke.linkedin.com/in/alihkassim
>
> "We are what we repeatedly do. Excellence, therefore, is not an act but a
> habit."  ~ Aristotle
>
>
> Sent from my iPad
>
> On 7 Mar 2019, at 11:48 AM, Victor Kapiyo via kictanet <
> kictanet at lists.kictanet.or.ke> wrote:
>
> 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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> sector in support of the national aim of ICT enabled growth and development.
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> The Kenya ICT Action Network (KICTANet) is a multi-stakeholder platform
> for people and institutions interested and involved in ICT policy and
> regulation. The network aims to act as a catalyst for reform in the ICT
> sector in support of the national aim of ICT enabled growth and development.
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> KICTANetiquette : Adhere to the same standards of acceptable behaviors
> online that you follow in real life: respect people's times and bandwidth,
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