Investing in Africa
Franck Mereyde (Reprint)
Executive board member and chairman of the executive committee, Franck Mereyde, explains why ever expanding TAV Airports is eyeing new opportunities in Africa. Africa arguably offers the greatest development potential of any aviation market as its growth, which started with services in the 1920s by European operators Air France, Imperial Airways and Deutsche Lufthansa before the launch of early air services in countries such as Egypt and South Africa, has been slow and steady rather than spectacular. Like other regions, African aviation only began to grow significantly after WWII, when airlines such as Ethiopian and Liberian National Airways joined already established carriers such as Egyptair (then operating as Misrair) and South African Airways (then known as Union Airways), which commenced operations in the 1930s.
In recent years, there has been a growing trend towards the establishment of low-cost carriers, which has proven to be hugely popular, with many of them experiencing rapid growth and attracting large numbers of passengers. Indeed, the demand for air transportation in Africa is expected to continue to grow, driven by the increasing economic prosperity of the continent, the growth of the tourism industry, and the increasing number of business travelers. And with so few Africans actually traveling by air today compared to the size of the continent – only around 100 million of Africa’s huge population of 1.4 billion people fly each year – there is plenty of room for growth. To meet this demand, many African countries are expected to invest in modernizing their aviation infrastructure, including the construction of new airports and air traffic control systems. The trend towards the establishment of low-cost carriers is also expected to continue, with many of these airlines expected to expand their operations and offer more destinations in Africa and beyond. TAV Airports has been following African aviation closely for the past decade. With its promising potential and proximity, Africa is now one of the focus regions of TAV for future investments.
Growth potential
Like almost everywhere else in the world, the last three years have been difficult for Africa with air traffic negatively affected by the impact of the COVID pandemic. Nonetheless, we are witnessing a solid recovery and the long-term outlook looks positive. A recent report by the African Development Bank (AfDB) notes that Africa is set to outperform the rest of the world in economic growth over the next two years, with GDP averaging around 4% in 2023 and 2024. Despite the significant challenges of the pandemic and the global economic impact of the Russia-Ukraine conflict, 53 of Africa’s 54 countries posted positive growth in 2021 and 2022. All the five regions of the continent remain resilient with a steady outlook for the medium-term.
This is well reflected in the forecasts for the aviation industry. Oxford Economics predicts that the aviation industry in Africa will generate over $150 billion in annual economic activity by 2040, creating up to seven million jobs and contributing to the growth of the wider economy. While Boeing predicts that Africa will require over 1,300 new aircraft by 2038, valued at over $200 billion, as the demand for air transportation continues to grow. From a global perspective, both IATA and ACI forecast that air traffic is set to double by the 2040s, and in order to meet this demand, ACI World estimates that $2.4 trillion will be needed in airport investments. In Africa, 40% of investments are thought to be greenfield airport projects. While there is a huge potential for growth, global risks such as economic downturn, political instability, pandemics or climate change could well impact the industry in Africa.
A first in Maghreb: Tunisia PPP
Infrastructure development is key to achieve sustained growth. Transportation infrastructure is critical as it enables direct and indirect contributions to the economy by connecting people and transferring goods. Nonetheless, governments in developing countries may be hesitant to allocate resources to major projects like airports. In this sense, public-private-partnerships (PPPs) present a viable model. TAV Airports was one of the first companies to invest in airport projects in Africa. In 2007, for instance, we won the tender to build Enfidah-Hammamet International Airport and operate it together with Monastir Airport. The deal represented one of the earliest examples of a PPP infrastructure development project in Tunisia and of an airport concession in the Maghreb region. Located 100 kilometres south of the capital Tunis, Enfidah-Hammamet stands out because of its proximity to a number of tourism destinations in the country. TAV Airports holds the concession rights for Enfidah and Monastir airports until May 2047.
We view them both as long-term projects, and traffic impacting events such as the Arab Spring and most recently the COVID pandemic, have only served to endorse this strategy as we have no doubt that Tunisia has great potential to develop as a major touristic hub in North Africa. In fact, I want to confirm that TAV Airports still has the utmost confidence in Tunisia’s potential and we continue to promote the tourism potential of the country at global travel and tourism events. As an aside, Enfidah became the first airport in the African continent to participate in ACI’s Airport Carbon Accreditation (ACA) programme. The decision for Enfidah to join the ACA initiative is in line with our global strategy of focusing on enhancing the customer experience and managing the sustainable growth of our airports. It is an ambition we share with our biggest stakeholder, fellow global airport operator, Groupe ADP, with whom we make up one of the world’s largest airport groups. When it comes to sustainability, TAV Airports has an especially strong focus on mitigating the carbon impact of operations across our global airport portfiolio, with carbon neutrality the ultimate aim for all our airports. I’m proud to say that three of our airports are already carbon neutral and going forward we will do everything we can to reduce the carbon footprint of our other airports. These efforts will include embracing new CO2 reducing technologies and sources of renewable energy. From a wider perspective, we strongly support the development and implementation of Sustainable Aviation Fuel (SAF) for all flights.
Nigeria in focus
In October 2022, a consortium formed by TAV Airports, Nahco Management Services and Planet Projects Limited was selected as the “preferred bidder” by the Federal Airports Authority of Nigeria (FAAN) to operate and develop the international passenger and cargo terminals of Murtala Muhammed International Airport (LOS) in Lagos, Nigeria, for a period of 20 years. We are currently in negotiations with the government in a bid to finalize the deal and official approvals are expected to follow in due course. Nigeria has a population of 206 million and is the leading economy in the African continent, factors that give Lagos the potential to become a key aviation hub in West Africa. The opportunity for growth becomes even clearer if you consider that only around 17 million passengers passed through the country’s airports in 2019 – 7.6 million of them through LOS. TAV Airports has pledged to invest more than $200 million on developing Lagos Airport.
Always looking for new opportunities
As a member of Groupe ADP, we have a global network that serves 280 million passengers annually. Drawing on this know-how, the integrated business model of TAV Airports enables us to design and provide a mix of services tailored to the needs of different airport projects and stakeholders. One of the pillars of our strategy rests upon expanding the global footprint of our service companies. In this sense, we are following opportunities in Africa mainly through our subsidiaries TAV Technologies, focusing on airport IT solutions and TAV OS, which focuses on hospitality services. Apart from its Tunisia operations, TAV OS has operated the Star Alliance lounge at Jomo Kenyatta Airport in Nairobi since 2016. Likewise, TAV Technologies already has a footprint in Africa, providing services in Benin and Somalia while pursuing other new opportunities in the continent.