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Technology & Information

Afrijet CEO looks forward to growth as pandemic restrictions ease

Afrijet is a Libreville-based airline operating scheduled services to airports across Camer­oon, Gabon, and São Tomé. CEO Marc Gaffajoli spoke to African Business about the company’s experience over the last year and the future of the African airline industry.

How was last year in terms of demand and passenger numbers?

The year 2020 was terrible. After a promising start to the year and double-digit growth, we had to deal with a four-month ban on any activity and five months of severe restrictions due to the pandemic. In the end, we came out of it with a 55% drop in revenue and a 65% decrease in traffic compared to 2019, which was, admittedly, a very good year.

These figures are more or less the average for the industry. In Africa, there was a higher level of government restrictions on our business, but the traffic was also less volatile than elsewhere. On the African continent, the motive for travelling is often to do with a fundamental need, for family, health or business reasons.

What is the outlook for you for the next 6-12 months?

Afrijet is currently ramping up on a step-by-step basis as the restrictions are eased. At the same time, we are preparing the start of a new phase of expansion for 2022-25 and hope to reap the benefit of the major cost reduction effort that we have made. We have managed to preserve the operational tools and human capital, and we are ready to bounce back.

An Afrijet ATR2 twin-engine turboprop in the hangar.
An Afrijet ATR2 twin-engine turboprop in the hangar at Libreville Airport. (Photo: Afrijet)

If you were new to the industry, would you choose to focus on commercial flights, private jets or freight?

If I were new to the industry, I would choose to… not focus! The most resilient business models during this crisis have been those that are built on a balanced portfolio of activities.

Since 2016, our strategy has been based on two main drivers: business travel on-demand and regular air travel. That is what has enabled us to survive thus far. Repatriation flights and charters linked to the pandemic, for example, have been a breath of fresh air for our cash flow at critical times. In early 2021, we launched a third line of services for cargo in the same spirit. We believe in airfreight over the coming decade, particularly due to the development of e-commerce.

The cost of air transport on the continent is still too high; can you see any rapid solutions to making it more competitive and helping the airlines?

Modernise the air travel infrastructure, put an end to the inflation of airport charges, encourage the setting up of African aeronautical maintenance centres, better regulation of travel agents… these are a few areas for the authorities to consider to bring down factors that can make up to 60% of costs.

The airlines also have a role to play – accelerate the digitisation of distribution up to and including their internal processes and work better together to position themselves in the operations/marketing value chain depending on the routes.

Read our special report on African aviation

How can the regulators help the airline industry and entrepreneurs like yourself?

The lead times for commissioning aircraft are a real problem in Africa. It should be the number one priority for all the regulatory authorities – planes that sit on the tarmac for weeks or even months and the completion of regulatory formalities are real destroyers of value. The inspectors are rarely allocated to these tasks and that makes the process even longer.

The regulators don’t receive enough support from governments, which results in the development of a sort of informal fiscality in the form of billing for services and charges that, in the end, affects the cost of travel.

Is the airline industry working together to make flying in Africa safer, easier and more affordable?

Africa, despite the stereotypes, has had safe air travel for a decade now. Some countries are naturally lagging behind, but the African fleet in general has been greatly modernised, for all types of planes. More and more players, including us, also have IOSA certification, which is acknowledged to be the highest level of safety for air travel.

The question of affordable transport remains an issue, but we should not forget that the main driver of cost reduction is the volume of passengers. With only 2.5% of global traffic happening on the continent, we don’t have the large economies of scale of other regions.

Categories
Economy

Botswana pushes for more from De Beers diamond deal

A three-carat rough diamond, no larger than a coin, was unearthed in a giant pit of pale dust in eastern Botswana by Debswana, a company owned jointly by diamond giant De Beers and the Botswana government. The stone, formed more than a billion years ago, hundreds of kilometres below the Earth’s surface, would later form the centrepiece of the ring that British royal Prince Harry gave to American actress Meghan Markle upon their engagement in 2018.

Botswana’s four diamond mines harbour some of the richest diamond deposits in the world. Finds such as the cushion-cut stone that adorns the royal engagement ring have transformed Botswana from a cattle-rearing economy into one of Africa’s wealthiest countries, with the fifth highest per capita income on the continent according to the IMF.

However, the future of the diamond industry, which accounts for a fifth of Botswana’s GDP, is currently the focus of intense discussions. Negotiations between De Beers and the government are taking place to hammer out a new contract for the sorting, valuing and sales of diamonds from mines run by Debswana.

De Beers and Botswana’s deeply entwined and mutually enriching history is rooted in Debswana. The diamond company and the government of Botswana each hold a 50% stake in the joint venture, which was founded in 1969. The government also holds a 15% stake in De Beers, with the rest owned by mining group Anglo American.

Polishing Botswana’s sparkle

The last contract between De Beers and Botswana’s government commenced in January 2011. It saw De Beers agree to move the company’s global sightholder sales operations – through which it sells 90% of its rough diamonds by value – from London to Gaborone by the end of 2013. Eighty-five of the 300 London-based De Beers staff relocated in a move costing some $120m. 

De Beers also agreed to move some of its beneficiation operations – the process of transforming raw diamonds pulled from the ground into finished products – to the Botswana capital. 

The agreement marked the creation of an independent company, wholly owned by the Botswana government, called the Okavango Diamond Company, which has the right to sell 15% of gems extracted locally. De Beers commenced its Botswana diamond sales in November 2013 in the state-of-the-art Diamond Trading Centre, a rough diamond sorting and valuing operation which has the capacity to sort 45m carats a year, and where 50% of employees in the sales division were newly recruited locals. The company also recruited local account managers, HR and finance workers, says David Johnson, head of strategic communications at the De Beers Group of Companies.

“[Moving the sales operations to Botswana] didn’t create many direct jobs, but it meant that we were undertaking our aggregation processes in country,” Johnson told African Business, referring to the process of sorting and blending stones from different mines on the continent.

De Beers’ leading diamond customers, known as sightholders, represent 85 of the world’s leading cutting and polishing trading businesses, and now buy around $6bn worth of stones in Gaborone, says Johnson.

“They would then obviously support growth and development in Botswana’s service sector through hotels, limousines, and a lot of ancillary services,” he explains.

According to an economic impact report compiled by De Beers two years after the relocation, the value of rough diamonds traded in-country soared from under $1bn annually to more than $6bn in 2014, which translated into taxes and royalties for the country. De Beers also generated $380m in revenues for Botswana from the sale of rough diamonds to international manufacturers, the report says.

Supplier and employee expenditure by De Beers added $30m to GDP, roughly 2.5% of Botswana’s GDP, making the partnership the largest single contributor to the Botswana economy, besides the government itself, says the report.

Between a rock and a hard place

According to the report, in 2014 the Debswana partnership supported more than 34,000 jobs in the country. Some 8,000 people were directly employed by the partnership, of whom 96% were Botswana citizens; 12,870 people were employed by suppliers; and 13,400 jobs were supported by the spending of direct employees and those of the suppliers.

But since then the number of jobs has declined due to a combination of automation eroding mining jobs, limited activity among local sightholders, and the inability of Botswana to compete on price and expertise with other diamond processing centres such as Tel Aviv and Antwerp, according to Christopher Vandome, a research associate at Chatham House’s Africa Programme.

These were not the only problems created as a result of the relocation. De Beers had to overcome other problems as a result of the relocation, says Vandome. “When the move was made there were real issues right from the start around electricity generation and power. It was the case at the time that they needed to bring in extra generating power from over the border in South Africa in order to just hit the deadline for the opening day,” he explains.

High stakes

The current negotiations are set against a backdrop of weakening global diamond demand, which may allow De Beers to demand more lenient terms. Macroeconomic uncertainty is dragging on consumer spending in the US and China, while cheaper lab-grown rocks are taking market share. De Beers cut its diamond prices by around 5% at its November sale, according to Bloomberg, in a bid to improve profits for struggling traders and polishers that buy rough stones from the company. The open market price for rough diamonds fell by about 9% in the year to November 2019.

The company’s position is also strengthened by the importance of the De Beers partnership to the Botswana government. It remains the country’s biggest employer outside the government and the largest source of state revenues, which weakens the government’s position in negotiations. Nevertheless, they became a political issue on the campaign trail in October when opposition leader Duma Boko vowed to take a tough stance and ensure “much fairer and more equitable” terms from the company. Other candidates criticised the relationship in a televised election debate, but President Mokgweetsi Masisi, who emerged victorious in the poll, said he was looking for a “win-win” from a “wonderful relationship with De Beers”.

Despite the significant economic contributions reaped from the relocation of De Beers sales to Gaborone, diamond industry analyst Edahn Golan says this time round the government will push for more benefits from diamonds, be it royalties, or an expansion of activities. “What can they get that is as large [as the relocation] this time?” he asks.

Changes needed

Gobusamang Keebine, president of the country’s largest private sector lobby group, Business Botswana, says he hopes the latest talks will bring “tangible changes” to the relationship between the government and De Beers.

“At the time everybody thought [the 2011 deal] would really turn Botswana and Gaborone into a diamond city like Antwerp, but that did not happen. We haven’t seen much in terms of local entrepreneurs being involved in the diamond industry. For most Batswana it really was just the same as it has been for the last 20 or 30 years,” he says.

Keebine believes that much more can be done to create opportunities for local companies and entrepreneurs to act as sightholders for De Beers: “We the private sector would like to see more involvement of local companies in the downstream, because if you look at the sightholders which are located in Botswana, and if you see who they are, you find out the involvement of Botswana entrepreneurs in those organisations is almost zero percent.”

Another way to make the diamond industry work better for the economy would be for Botswana’s state-owned Okovango Diamond Company to expand along the value chain, says Keebine.

“The Botswana government is being cheated on the pricing based on value in Botswana, and value when the diamonds reach offshore. If the entire value chain remains in the control of the Botswana government the realisation on the sale of the diamonds will be much higher.”

De Beers has a confidentiality agreement with the government of Botswana, whereby it won’t talk publicly about the content of the ongoing negotiations. Yet the negotiations remain crucial to the company, as it extracts some two-thirds of its diamonds from the country. Industry analyst Edahn Golan believes the deal is essential for De Beers, which he predicts will seek the certainty of a “long-term” five to ten year deal. De Beers’ Jwaneng Mine in south-central Botswana is the company’s largest, and the world’s richest diamond mine by value.

“Its extremely important. Diamonds for the government of Botswana are the largest source of income for the state and for the country, and for De Beers it is one of the most important locations in terms of resource. It has mining in other countries but Botswana is by far the most important one in terms of value, in terms of volume, in terms of activity,” Golan says.

On the government side, talks with De Beers are usually led by Botswana’s permanent secretary for the ministry of minerals Dr Obolokile Obakeng, who alternates as the chairperson of Debswana. He is joined on the negotiating team by the acting permanent secretary to the president, Elias Magosi, and the governor of the Bank of Botswana, Moses Dinekere Pelaelo. On the De Beers side, a team composed of senior leadership is led by CEO Bruce Cleaver, according to Johnson.

The current 10-year deal expires at the end of 2020. In September, President Masisi told Bloomberg TV that a new deal should be concluded after the election in October.

“The discussions are ongoing but I haven’t got anything to suggest to me they will be imminently concluded,” says Johnson.