<html><head><meta http-equiv="content-type" content="text/html; charset=utf-8"></head><body dir="auto">Patrick and all<div><br></div><div>In relation to KQ your argument is flowed. Let me explain why.</div><div><br></div><div>If country specific scale is the issue here then Emirates and Ethiopian (which..surprise, surprise..is a profitable African Airline that has achieved scale).</div><div><br></div><div>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. </div><div><br></div><div>Did I hear someone say KAA/KQ merger? </div><div><br></div><div>Ditto with Emirates. </div><div><br></div><div>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 (<h3 class="bNg8Rb" style="font-weight: normal; margin: 0px; padding: 0px; clip: rect(1px, 1px, 1px, 1px); height: 1px; overflow: hidden; position: absolute; width: 1px; z-index: -1000;"><font size="3"><span style="background-color: rgba(255, 255, 255, 0);">Description</span></font></h3><span style="background-color: rgba(255, 255, 255, 0);">Dubai National Air Transport Association), the Emirates Group subsidiary, provides aircraft ground handling, cargo, travel, and flight catering services across five continents in 70+ airports. </span></div><div><br></div><div>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.</div><div><br></div><div>Let’s not perpetuate this defeatist attitude. </div><div><br></div><div>My two cents. <br><br><div dir="ltr" id="AppleMailSignature"><div><span style="-webkit-tap-highlight-color: rgba(26, 26, 26, 0.294118); -webkit-composition-fill-color: rgba(175, 192, 227, 0.231373);"><b>Ali Hussein</b></span></div><div><span style="-webkit-tap-highlight-color: rgba(26, 26, 26, 0.294118); -webkit-composition-fill-color: rgba(175, 192, 227, 0.231373);"><b>Principal</b></span></div><div><b style="background-color: rgba(255, 255, 255, 0);">AHK & Associates</b></div><div style="font-family: Helvetica; font-size: medium; -webkit-tap-highlight-color: rgba(26, 26, 26, 0.296875); -webkit-composition-fill-color: rgba(175, 192, 227, 0.230469); -webkit-composition-frame-color: rgba(77, 128, 180, 0.230469); -webkit-text-size-adjust: auto; ">+254 0713 601113 </div><div style="font-family: Helvetica; font-size: medium; -webkit-tap-highlight-color: rgba(26, 26, 26, 0.296875); -webkit-composition-fill-color: rgba(175, 192, 227, 0.230469); -webkit-composition-frame-color: rgba(77, 128, 180, 0.230469); -webkit-text-size-adjust: auto; "><br></div><div><p style="margin: 0in 0in 0pt;"><span style="background-color: rgba(255, 255, 255, 0);">Twitter: @AliHKassim</span></p><span style="background-color: rgba(255, 255, 255, 0);"><font></font></span><p style="margin: 0in 0in 0pt;"><span style="background-color: rgba(255, 255, 255, 0);">Skype: abu-jomo</span></p><p style="margin: 0in 0in 0pt;"><span style="background-color: rgba(255, 255, 255, 0);">LinkedIn: <a href="http://ke.linkedin.com/in/alihkassim" target="_blank">http://ke.linkedin.com/in/alihkassim</a></span></p><font><br></font></div><div><span style="background-color: rgba(255, 255, 255, 0);">"We are what we repeatedly do. Excellence, therefore, is not an act but a habit." ~ Aristotle</span></div><div><br></div><div><span style="-webkit-tap-highlight-color: rgba(26, 26, 26, 0.294118); -webkit-composition-fill-color: rgba(175, 192, 227, 0.231373);"><br></span></div>Sent from my iPad</div><div dir="ltr"><br>On 7 Mar 2019, at 11:48 AM, Victor Kapiyo via kictanet <<a href="mailto:kictanet@lists.kictanet.or.ke">kictanet@lists.kictanet.or.ke</a>> wrote:<br><br></div><blockquote type="cite"><div dir="ltr"><div dir="auto">Interesting thoughts Patrick.<div dir="auto"><br></div><div dir="auto"><div dir="auto">We don't offer these services locally, so how will Kenya get paid, if at all? Does KQ taking over local airports help?</div><div dir="auto"><br></div><div dir="auto">1. International Vendors (Equipment / Systems / Fuel)</div><div dir="auto">2. International Hedge funds (e.g. Price / Currency hedges)</div><div dir="auto">3. International Insurance.</div><div dir="auto">4. Prioritized creditors (most likely international)</div><div dir="auto">5. International Airports.</div></div></div><br><div class="gmail_quote"><div dir="ltr" class="gmail_attr">On Thu, 7 Mar 2019, 11:22 Patrick A. M. Maina via kictanet, <<a href="mailto:kictanet@lists.kictanet.or.ke">kictanet@lists.kictanet.or.ke</a>> wrote:<br></div><blockquote class="gmail_quote" style="margin:0 0 0 .8ex;border-left:1px #ccc solid;padding-left:1ex"><div><div class="m_-7265689786757506831ydp426b56efyahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><div><div><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">Correction: KQ revenues in 2018 were ~50 Billion. <br></div></span></div><div><br></div><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">Dear Listers,</div></span></div><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">Whenever we have a spectacular failure in industry, we rush to attribute it to one or many of the five factors below:</div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span><span>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) </span></span><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span>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.)</span></div></span>3. Corruption / conflicts of interest
(includes nepotism, procurement challenges e.g. unethical vendor
practices or blatant theft) <br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">4. External factors (e.g. global economic / geopolitical dynamics)<br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">5. Force Majeure (sudden unforeseeable calamities - whether natural or man-made)<br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">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 <u>primary reason</u>
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. <br></div><div><div><div><span><span><span></span></span></span><br></div><span><span><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">* Scale is the reason that KQ's economic doom was <u>sealed in 1977</u> when East African Airways was dissolved.</div></span></span></span></div><span><span><br></span><div><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">* Scale (not <span><span><span><span>trust or
delivery infrastructure</span></span></span></span>) is the reason eCommerce <span>simply can't and won't work in Africa (yet works in India) under the current circumstances. </span></div></span></div></span><div><br></div><div><span><div>Certain types of businesses are<u> simply not viable without scale.</u> It doesn't matter what strategy, caliber of management or whatever else is used. W<span>ithout
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.</span><div><span><span><span><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">For
example KQ earns<b> ~Ksh. 50 Billion</b> annually. Where does the money go?
Do you know who really benefits from African Airlines failure to
leverage scale? Here's my list:<br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">1. International Vendors (Equipment / Systems / Fuel)<br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">2. International Hedge funds (e.g. Price / Currency hedges)<span><span><span><span><span><span></span></span></span></span></span></span><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">3. International Insurance<span><span><span><span><span><span>.</span></span></span></span></span></span></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span><span><span><span><span><span>4. Prioritized creditors (most likely international)<br></span></span></span></span></span></span></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">5. International Airports<span><span><span><span><span><span>.</span></span></span></span></span></span></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span><span><span><span><span><span><br></span></span></span></span></span></span></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span><span><span><span><span><span>The only country that doesn't get paid is Kenya. Due to lack of scale, we end up literally <u><b>giving financial aid to rich countries.</b></u> This is not a smart thing for a poor country to do.</span></span></span></span></span></span><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">Scale benefits are (in part) what makes <b>Delta Airlines</b>, for example, operate with <u><b>double digit margins</b></u>, earn <b>Ksh. 4.4 Trillion</b> in a year (enough to run our country for almost 2 years without borrowing) which translates to <b>Ksh. 1.3 Billion DAILY</b> <b>PBT </b>(profits before tax). Yes, a <u>daily profit</u>
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.<br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><span><span><span><span><span><span>eCommerce? <b>USPS </b>(et. al)<b> </b></span></span></span></span></span></span>operation at scale is what made <b>Amazon </b>possible at scale. Prosperity is not just about efficiency - the <b>size of market</b> <b>matters</b>. It matters a lot!<br></div></div></span></span></span></span></div> <br></div></span></div><div><span><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px"><div>Africa combined is the <u><b>8th largest economy in the world</b></u>
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! <br></div><div><br></div><div>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.</div><div><br></div><div>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. <br></div><div><br></div><div><span><span>Pan-Africanism is not a sentimental idea, it is a rational and intelligent <u>economic strategy</u>.</span></span> It is the only way to create a <u>common and unified mindset</u> that will unlock scale in Africa. <br></div><div><br></div><div>Thankfully
a good number of African leaders and technocrats are recognizing these challenges, hence the
<b>AfCFTA </b>(African Continental Free Trade Area) initiative, which requires <span>ratification
of the Single African Air Transport Market (SAATM), the Protocol on the <u>Free Movement of
Persons</u>, and the <u>African Passport,</u> as part of the integration process. </span></div><div><br></div><div class="m_-7265689786757506831ydpe4cbfac5yiv5288174486ydpa3ece89ayahoo-style-wrap" style="font-family:times new roman,new york,times,serif;font-size:16px">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.<br></div></div></span></div></div><div><br></div><div>How does my argument hold, in view of success stories like Equity and/or Safaricom? <span>In science, we disprove arguments by looking for a 'black swan" (just a single instance of contradiction) - a</span>re
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 <u>tiny and fragile</u> operations relative to their scale-leveraged counterparts which <u>earn tens of billions of shillings in revenues daily (and trillions annually)</u>.
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.</div><div><br></div><div>Thanks for reading. I welcome your thoughts on the above.<br></div><div><br></div><div>Good day & Brgds,</div><div><br></div><div>Patrick A. M. Maina</div>[Cross Domain Innovator | Independent Public Policy Analyst - Indigenous Innovations]</span></div></div>_______________________________________________<br>
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</div></blockquote><blockquote type="cite"><div dir="ltr"><span>_______________________________________________</span><br><span>kictanet mailing list</span><br><span><a href="mailto:kictanet@lists.kictanet.or.ke">kictanet@lists.kictanet.or.ke</a></span><br><span><a href="https://lists.kictanet.or.ke/mailman/listinfo/kictanet">https://lists.kictanet.or.ke/mailman/listinfo/kictanet</a></span><br><span>Twitter: <a href="http://twitter.com/kictanet">http://twitter.com/kictanet</a></span><br><span>Facebook: <a href="https://www.facebook.com/KICTANet/">https://www.facebook.com/KICTANet/</a></span><br><span></span><br><span>Unsubscribe or change your options at <a href="https://lists.kictanet.or.ke/mailman/options/kictanet/info%40campusciti.com">https://lists.kictanet.or.ke/mailman/options/kictanet/info%40campusciti.com</a></span><br><span></span><br><span>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.</span><br><span></span><br><span>KICTANetiquette : Adhere to the same standards of acceptable behaviors online that you follow in real life: respect people's times and bandwidth, share knowledge, don't flame or abuse or personalize, respect privacy, do not spam, do not market your wares or qualifications.</span><br></div></blockquote></div></body></html>