Nigeria has recently dissolved its agreement with Ethiopian Airlines for the proposed Nigeria Air joint venture. The Nigeria Air project, initially projected to incur $8.8 million in preliminary costs and $300 million in take-off costs, was officially launched in May 2023 with its first Boeing 737-800 aircraft under the previous administration. While the partnership between Nigeria Air and Ethiopian Airlines may have promised certain benefits, the Nigerian government’s decision to cancel the joint venture highlights the significant economic risks associated with ceding majority control of a national asset to a foreign entity.
The original deal would have given Ethiopian Airlines a 49% stake in Nigeria Air, while the Nigerian government would have held only a 5% stake. This lopsided ownership structure would have severely limited Nigeria’s ability to make strategic decisions and exert control over its national carrier. With a majority stake, Ethiopian Airlines could have engaged in monopolistic practices, such as limiting competition on certain routes, setting unfair prices, and prioritising its interests over those of Nigerian consumers and the local aviation industry. This risk of monopolistic behaviour is not unique to the Nigeria Air-Ethiopian Airlines partnership.
With the global economy becoming more interconnected, ownership rules have faced scrutiny. According to some proponents, more foreign investment can boost competition, access to capital, and operational expertise. Increased foreign investment could help smaller airlines like Dana Air or Azman Air compete against dominant alliances and joint ventures. A diverse investor base, including foreign investors, could offer more stability and enable airlines to focus on long-term strategies rather than short-term stock market reactions. However, some opponents fear job losses, profit repatriation, and loss of national sovereignty. Concerns also exist that more foreign investment could lead to “flags of convenience” models, with airlines registering in countries with lax regulations. Moreover, the nationality rule is akin to the rule of origin in trade agreements, preventing investors from more restrictive countries from exploiting liberalised air services agreements. Despite these concerns, airlines have increasingly circumvented ownership rules through joint ventures, alliances, and other arrangements, with global alliances and antitrust-immunized joint ventures controlling a significant portion of international air traffic.
As the majority shareholder, Ethiopian Airlines would have been able to repatriate a larger share of the profits out of Nigeria, depriving the local economy of potential reinvestment and economic benefits. This issue of profit repatriation is a common concern with foreign majority ownership, as seen in other industries and countries. For example, in 2013, Delta Air Lines acquired a 49% stake in the Mexican national carrier Aeroméxico, raising concerns about Delta’s potential influence over the Mexican aviation market and the repatriation of profits. Similarly, the Italian government’s attempts to privatise the national carrier Alitalia have been challenging, with foreign investors often seeking majority ownership, which has been a point of contention for the government. Additionally, in 2022, the Indian government sold a majority 100% stake in Air India to Tata Group, a private Indian conglomerate. Some criticised this move for potentially reducing the government’s control over the national carrier.
Taking a cue from the past, Nigeria’s aviation industry has a history of failed attempts to establish a successful national carrier. The country’s first national airline, Nigeria Airways, was once a leading carrier in Africa but was liquidated in 2003 due to a combination of mismanagement, competition from non-African airlines, and the impact of changing governments. Two subsequent attempts to establish a national carrier, Virgin Nigeria and Air Nigeria, also failed, with the latter laying off all its staff and ceasing operations in 2012. These past failures highlight the challenges of maintaining a viable national airline in the face of foreign competition and the need for strong domestic control and participation.
The Way Forward
As Nigeria’s aviation industry continues to evolve, policymakers must strike a balance between attracting foreign investment and safeguarding national interests. Initiatives like the Single African Air Transport Market (SAATM) may offer opportunities to improve connectivity and industry growth, but they must be carefully navigated to ensure that Nigeria’s sovereignty and economic interests are protected.
To harness these opportunities, attracting domestic investment will be crucial for the revival of Nigeria Air. The government should offer tax incentives, facilitate access to financing, and create a favourable regulatory environment to encourage Nigerian investors, both individual and institutional, to participate in the project. This will help ensure that the profits generated by the national carrier remain within the country and provide economic opportunities for Nigerian citizens. Alongside increasing domestic ownership, the Nigerian government should also invest in building the country’s aviation industry talent pool. Funding aviation education programmes, providing training opportunities, and forging partnerships between Nigerian universities and international aviation institutions will reduce the reliance on foreign expertise and strengthen Nigeria’s long-term position in the industry.
Similarly, improving the country’s aviation infrastructure will also be essential for the success of Nigeria Air. The government’s ongoing efforts to upgrade airport facilities, navigation systems, and air traffic management should be sustained and expanded. By creating a modern and reliable infrastructure, Nigeria can provide an enabling environment for its national carrier to thrive. Finally, the government should foster healthy competition within the domestic aviation market. While protecting Nigeria Air, the government should support other Nigerian airlines through measures such as tax breaks, access to financing, and streamlined regulatory processes. This will drive innovation, improve service quality, and keep prices in check, ultimately benefiting Nigerian consumers.
Conclusion
The cancellation of the Nigeria Air-Ethiopian Airlines joint venture is a prudent decision that reflects the Nigerian government’s desire to maintain greater control and participation of domestic stakeholders in the country’s national aviation industry. By learning from past failures and prioritising national sovereignty, Nigeria can work towards building a sustainable and competitive national carrier that serves the interests of its citizens and the broader economy.
Author: ACoE Research Team
Contact Person: Abimbola Temitope