Dar es Salaam starts counting loss over BA’s closure

BRITISH Airways (BA) will pull out of the London- Dar es Salaam route at the end of this month, on grounds that it is not profitable. Staff Writer ABDUEL ELINAZA interviewed Dr HILDEBRAND SHAYO, a Senior Lecturer at the Open University of Tanzania (OUT) on the impact of the move.

QUESTION: The economic value created by the BA flying to Tanzania is coming to an end later this month. What does this mean to the industry?

ANSWER: On one hand, the principal benefits that the Tanzanian community have been enjoying for the last eight decades touches customers, the passengers or shippers, using the air transport service, on the other, the connections created between Tanzania as a result of BA flying to Julius Nyerere International Airport and markets represent an important infrastructure asset that are now going to go without benefits and hence affects foreign direct investment, business clusters, specialization and other spill-over impacts on Tanzanian economy’s productive capacity.

My senses tell me that any aviation economic footprints bring millions if not billion directly contributed through the output of the aviation sector in the form of airport usage and ground services, billion indirectly contributed through the aviation sector’s supply chain; and billion contributed through the spending by the employees of the aviation sector and its supply chain, in addition billion in ‘catalytic’ benefits through tourism, which raises the overall contribution to GDP.

I know that closing down its services in Tanzania will to a certain extent deny the country taxes in billion of shillings including income tax receipts from employees, social security contributions and corporation tax levied on profits, with a further billion of revenue coming from VAT on domestic and international flights originating in Tanzania.

Although I might not have the precise figure, to me it is enough to suggest that government revenue in billions of shillings is raised via the aviation sector supply chain and billion through taxation of the activities supported by the spending of employees of both the career and its supply chain.

Q: Are there any unforeseen consumer benefits for passengers and shippers loss?

A: Unforeseen consumer benefits and shipper’s loss due to this closure might mean different things to different groups. For example from visiting family and friends to shipping high value products of freight travelled to, from and within Tanzania. For airport handling companies such as Swissport that is listed this could disturb or force them to rethink about their company strategic plans amidst closure news.

Scheduled international flights such as BA depart JNIA annually, destined for London airports with international hub is vital to carriers. I have no exact BA traffic figure percentages, but I can assertively say thousands of passenger flights in total suggesting that anticipated value of the benefits to travellers from flying BA is going to be over. We should also not forget that BA carrier was crucial for the distribution of ‘high value products’. The benefits to shippers, in excess of other benefits to customers will also be affected.

Q: Are there long-term economic growth effects associated with this closure that are likely to disrupt future anticipated income flow?

A: To date there is a good number of carrier competitors connecting Tanzania to other international destinations around the world. Outbound flights per day along these routes enable travellers to have choice, but BA closure of its office means that customer’s choice is reduced. There are those who prefer direct flight from point A to B, something which is no longer going to be possible if one was to fly from JNIA to London for example, conservative passengers who hates transit route will be denied of direct flight hence be forced to go en route other destinations.

In fact, bringing to an end its flight to Tanzania will have effect on opening up foreign markets to Tanzanian exports; increase transport costs, particularly over long distances, reducing competition because suppliers can no longer service a wider area and potentially average costs, through decreased economies of scale and decreased the flexibility of labour supply. Also, improved connectivity can enhance an economy’s performance by making it easier for firms to invest outside their home country, which is known as foreign direct investment (FDI).

Q: Let us turn to value added and jobs supported by this economic activity, how much will that suffer after March 30?

A: The resources set out by the BA carrier that will stop as of March 30, 2013 are measured by its Gross Value Added (GVA). GVA is considered either as the output created by the sector less the cost of purchased inputs (net output measure), or by the sum of profits and wages (before tax) generated from the carrier’s economic activity (income measure) as it services Tanzania customer.

From this direct contribution, the economic footprint that is going to be lost is calculated by adding to it the output (and jobs) supported through two other channels, which I can refer to as the indirect and the induced contributions. The indirect contribution measures the resources deployed by the carrier through using domestically produced goods and services produced by other firms such as the resources used through BA supply chain.

The GVA generated through the indirect and direct channels supports jobs both in the BA carrier and in its supply chain. The workers whose employment depends on this activity in turn spend their wages on goods and services. The induced contribution is the value of the domestic goods and services purchased by this workforce. Taken together, these three channels will cease to exist as of March 30, 2013 when the BA closes officially their services to Tanzania.

The services provided for passengers on-site at airports, such as baggage handling, ticketing and retail and catering services, together with essential services provided off-site, such as air navigation and air regulation that bring revenue to the government all will be affected.
Source: The Daily News, www.dailynews.co.tz reported from Dar es Salaam
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