In this exclusive interview, we sit down with Tewodros Tamrat Eshete, the Managing Partner of AFRI Aviation and a prominent figure in aviation law and industry analysis. With over 35 years of experience in the aviation sector, Tewodros has played a pivotal role in shaping policies and regulations that impact the industry across Africa. His extensive background includes significant positions with the African Airlines Association (AFRAA), where he served as Director of Government, Corporate, and Industry Affairs, and later as Acting Secretary General.
As Ethiopia opens its domestic aviation market to foreign investors, we delve into the implications of this landmark decision for the country’s aviation industry. Tewodros shares insights on the potential benefits and challenges of increased foreign investment, the importance of regulatory harmonization, and the critical need for legal expertise in navigating this evolving landscape. Join us as we explore Tewodros’s perspectives on the future of Ethiopian aviation, its impact on the economy, and the vital role of collaboration in achieving sustainable growth in the sector.
Capital: What are the implications of the government’s decision to allow foreign investors to participate in the domestic aviation market?
Tewodros Tamrat: Let me begin by clarifying the terms such as ‘aviation” and “air transport” which often are used loosely or interchangeably creating some confusion. The Term “Aviation” encompasses airlines, operators of general aviation, and providers of air transport-related services and products such as MRO (Maintenance, Repair, and Overhaul), aircraft parts and components manufacturers, Training Centers, and other aviation-related activities. It is used to refer to “civil” rather than military or police air transport. On the other hand, ‘air transport” refers to the transportation of passengers, freight, and mail by air in scheduled or non-scheduled flights and related enabling services and systems.
As you are aware, currently the local private airlines whose number is around 12 are primarily engaged in charter operations, even though the directive that currently exists allows private airlines to provide scheduled air transport services on domestic routes. The legal barriers to market entry, capacity limits, and restrictions on foreign investment in domestic air transport remained in force until 2020, presumably to protect the National Airlines’ investment in its domestic operations in terms of its investment in aircraft, domestic route development, and infrastructure.
The Investment Proclamation No. 1180/2020 and Regulation No. 474/2020 issued under it, opened the domestic air transport to investment by foreign investors with a caveat that such investment can only be allowed in partnership with Ethiopian nationals and should not exceed a share capital holding of 49% by the foreign investors. It also removed the aircraft’s fifty-seater capacity limits and operation of commercial scheduled flights on domestic routes. Nevertheless, the maximum share limit of 49% for foreign investment in domestic operators by implication prevents domestic airlines from venturing into international air transportation. The rationale for this restriction is not clear one can only assume it could be for the protection of the National Airline from backdoor entry of foreign competitors or concern on loss of control over Ethiopia’s international air transport sector to foreign interests.
The National Air Transport Policy which is yet to be approved and adopted does not explicitly modify the provisions of the Proclamation in this regard. The draft Policy addresses not only air transport services but also other aspects of aviation such as the establishment of MRO (Maintenance, Repair, and Overhaul), the establishment of Training Centers, and other aviation-related activities.
To go back to the question of the implications, the participation of the foreign private sector in domestic aviation has both positive and negative implications.. The experience of other countries that have opened their market to foreign investors in the private sector shows that certain benefits accrue as a result of such participation. The history of Ethiopian Airlines’ establishment and its subsequent success is attributed by many in part to its strategic partnership with a foreign private airline, Transworld Airlines (TWA). While TWA did not have an ownership stake (only a nominal share) in the airline, the management administration and technical skill it brought to the newly established airline gave it a solid basis for its sustained and successful future development.
The twelve or so airlines that currently exist in Ethiopia are capital starved. Local banks have been averse to taking on the risk of lending to local airlines. Domestic airlines also have little access to the foreign currency they require to maintain their operation and to sustainably grow. An important benefit of foreign investment is that it brings much-needed capital into the domestic aviation sector, enabling airlines to purchase new aircraft, upgrade technology, and expand their operations. Foreign investors often bring expertise in airline management, operations, and technology, which can improve the efficiency and competitiveness of domestic airlines, leading to enhanced operational standards, better customer service, and improved safety practices.
Partnerships with foreign investors can help domestic airlines access international markets that may normally be beyond their reach, increasing their route networks and passenger base, and bringing increased revenue opportunities and enhanced brand visibility on a global scale. The creation of new jobs and the transfer of skills to the local workforce through training and development programs, resulting in strengthened local expertise and enhanced employment opportunities in the aviation sector are further potential benefits. Thanks to Ethiopian Airlines which over several decades has built a highly skilled pool of professionals in the various fields of aviation, both in management and technical fields, that have contributed to the development of Ethiopian aviation and the industry of many African countries Ethiopia might not be short of sources of aviation professionals and skilled manpower, compared to many other African countries. Still, foreign investors can diversify and enrich the source of skilled and professional manpower in the country.
One of the benefits of bringing in foreign investment is that it enhances competition in the local aviation market. Foreign investment can stimulate competition in the domestic aviation market, leading to better services, more competitive pricing for consumers, improved customer satisfaction, and more choices for travelers.
Foreign investment however also brings with it several risks. Loss of National control is one of the major concerns. The foreign entities may gain significant control over strategic decisions in the domestic airline, potentially leading to a loss of national control over the aviation industry. The foreign investor’s decision may prioritize investor interests over national priorities, such as domestic connectivity or employment. It might constrain the country’s ability to marshal its aircraft fleet in cases of a National crisis such as disasters, conflict, wars, or other major national emergencies as the foreign interests may be conflicted with the national interests of their own country. Over-reliance on foreign investment could make the domestic aviation sector vulnerable to external economic or political pressures. Potentially leading to increased susceptibility to global economic fluctuations and foreign political influences.
A sizable portion of the profits generated by the domestic airlines may be repatriated to the foreign investors’ home countries, reducing the economic benefits retained within Ethiopia, and thereby limiting long-term economic benefits for the local economy. Increased competition from foreign-backed airlines could lead to market saturation, putting pressure on smaller domestic players who may not have the same level of resources. Potential crowding out of smaller domestic airlines, leading to reduced diversity in the market is a potential risk that needs to be considered.
Mitigating the Risks
Mitigating the potential risks associated with foreign investment requires a strategic approach that balances the benefits of foreign capital and expertise with the need to protect national interests and ensure sustainable growth. These strategies to mitigate or avoid the identified risks could be, encouraging joint ventures with local partners. This ensures decision-making remains balanced between foreign and domestic interests. Limiting the percentage of ownership in domestic airlines, as already provided in the Investment Proclamation, reduces the effect of foreign investors in the domestic aviation industry. However, majority shareholding in itself may not be adequate, to mitigate the risk. In addition, “effective control” of the airline should also remain with the Ethiopian nationals. The government or designated authority, or the Ethiopian Nationals could retain a “golden share”, in the case of a share company, which grants veto power over strategic decisions affecting national interests.
Promoting investment from a diverse range of countries and investors to avoid over-dependence on a single foreign entity and encouraging domestic investment through incentives, such as tax breaks or subsidies, to build local capacity and reduce reliance on foreign capital are additional strategies that will mitigate some of the risks. These are coupled with balanced investment Agreements that include provisions for technology transfer, capacity building, and reinvestment of profits into the local economy, and a requirement for reinvesting a portion of the profits in areas such as infrastructure development or employee training will reduce the effect of profit repatriation and enhance the benefit to the county
To counter the possible market saturation as a result of foreign involvement and domestic competition, providing financial and technical support to smaller domestic airlines could help them compete better in the more crowded market. Setting a mechanism for paced foreign investment market entry could also reduce sudden market saturation, allowing local players time to adapt.
The Ethiopian Civil Aviation and Investment Authorities need to set up a mechanism for continuous monitoring and evaluation of foreign investments to ensure they align with national interests and adapt to changing conditions. This can be augmented by developing a legal framework that allows for adjustments to investment policies based on emerging risks or opportunities, ensuring that the country can respond proactively to changes.By implementing these strategies, Ethiopia can leverage the benefits of foreign investment in its domestic private airlines while minimizing risks, thus ensuring a sustainable and inclusive growth trajectory for its aviation sector.
Capital: is well known that the participation of lawyers in this sector in Ethiopia is low. What is the experience of other countries? What does the country need to do to increase this?
Tewodros: The aviation regulatory regimes across the African continent are not well developed, particularly in sub-Saharan Africa. This reflects the overall low level of development of the industry in many of these countries. The lack of capacity and limitation in legal services in the economic regulations of air transport that directly affects consumers of airlines i.e., passengers and freight shippers, are more pronounced in most African Countries. Even though exceptions and variations in levels of development vary.
In South Africa for example, several law firms specialize in aviation law, providing comprehensive legal services to stakeholders in the aviation industry. Firms like ENSafrica, Webber Wentzel, Bowmans, Norton Rose, and Fulbright among others, have a dedicated aviation practice group that offers services including regulatory compliance, aircraft financing and leasing, dispute resolution, and general advisory services.. They serve a diverse client base, including airlines, aircraft manufacturers, and financial institutions.
Kenya also has several well-known law firms specializing in aviation law, providing a wide range of legal services to stakeholders in the aviation industry. These firms provide a range of services including regulatory compliance, aircraft financing, litigation, and advisory on matters related to aviation law. Some of the prominent law firms include, among others, Kaplan & Stratton Advocates, Iseme, Kamau & Maema Advocates (IKM), Anjarwalla & Khanna (A&K), Bowmans (Coulson Harney LLP), etc.
The situation in Ethiopia unfortunately is far behind compared to the countries I mentioned above. Despite having the biggest airline in Africa and renowned airlines worldwide, aviation law in Ethiopia is at a low level and does not reflect the image created by Ethiopian Airlines Ethiopia as a leading aviation country in Africa. One of the reasons could be the low level of the overall development of air transport in the country. Outside of Ethiopian Airlines, private airlines have been non-existent for over two decades and have only recently been authorized to operate domestic scheduled flights.
On the other hand, Ethiopian Airlines, the major mover of the aviation industry uses little local legal expertise as it traditionally relied on its in-house lawyers for most of its needs for legal services. Where necessary the in-house lawyers are supplemented by access to foreign international law firms and lawyers. Ethiopian Airlines has built a strong in-house legal capacity, however, it has made no visible effort to build capacity locally outside the airline in the form of promoting and incentivizing aviation law training. Still, during the over eight decades years of its existence, Ethiopian Airlines has produced highly qualified aviation lawyers who have served in and outside Ethiopia.
The contribution of the Ethiopian Civil Aviation Authority is even less noticeable. The ECAA which is the aviation regulatory and oversight authority, you would presume, requires high-caliber aviation law experts and a well-established and staffed Legal Department. Unfortunately, that has not been the case over the past years. The legal service had been relegated by ECAA management to a small unit with one lawyer and little supporting staff under one or another Department. The unit is engaged in non-aviation disputes and legal matters rather than handling matters related to aviation, which is one of the core areas of responsibility of the Authority. One of the reasons could be the unattractive pay and benefits it offers may not have been adequate to attract and retain qualified lawyers specialized in the aviation law area. As a result, Unfortunately, Ethiopian Civil Aviation has not been successful in developing its in-house legal capacity over the years nor contributed to development outside it.
The second aspect of the problem relates to the legal community and the academic institutions, which have made extraordinarily little effort and paid little attention to aviation law learning in the Country. While some of the Universities like the Addis Ababa University Law Faculty offer a course in air and space law it appears low credit hours and may also lack university-level aviation law academicians in the field.
Seeing the gap and considering the renewed activities and interest in aviation, due to the opening up of the industry to the private sector and foreign investors, AFRI believes the need for lawyers and law firms will increase. To address this increase we have partnered with Ethio-Alliance Advocates LLP, an upcoming law firm, consisting of very able young lawyers who are enthusiastic to work with AFRI and create a forum for creating awareness among the law community and aviation stakeholders and offer training through workshops, seminars, and conferences. Recently AFRI Aviation and Ethio-Alliance jointly organized and held a successful seminar for a small group of lawyers (20). The response we received was very encouraging. We intend to hold 2025 more seminars and conferences for a larger audience. We plan to seek and support and create opportunities for cooperation with academic institutions, aviation stakeholders such as the Ethiopian Civil Aviation, Ethiopian Airlines Group, private operators, etc., and international organizations. We are confident that we will be able to generate sufficient interest in the subject and obtain support from all concerned.
Capital: What are the implications of the Ethiopian aviation industry on the economy?
Tewodros: The aviation industry has profound impacts on the economy of a country which can be direct, indirect, or induced, affecting various sectors and contributing to overall economic growth and development. It drives job creation, revenue generation, trade, tourism, and regional development. A robust aviation industry facilitates international and domestic tourism, attracting visitors and boosting the tourism sector. Tourists spend money on accommodation, food, transportation, and entertainment, further stimulating the economy. Efficient air cargo services support the export and import of goods, enhancing trade opportunities and economic
The IATA report indicates that the air transport sector makes a major contribution to Ethiopia’s economy as measured in diverse ways of measuring air transport’s impact on the economy. These include the jobs and spending generated by airlines and their supply chain, the flows of trade, tourism, and investment resulting from users of all airlines serving the country, and the city pair connections that make these flows possible. Airlines, airport operators, airport on-site enterprises (restaurants and retail), aircraft manufacturers, and air navigation service providers employ 19,000 people in Ethiopia. In total, the sector supports about a million jobs when considering direct, indirect, and induced job creation. $4.15 Billion gross value-added contribution to GDP and 5.7% GDP supported by air transport & foreign tourists arriving by air.
Capital: What are the gaps in the industry and how can they be addressed?
Tewodros: Rapid growth in aviation can strain existing airport infrastructure, necessitating continuous investment in expansion and modernization. The Addis Ababa Airport has been expanded and developed several times with the addition and expansion of landing strips, and additional passenger and cargo terminals as the National Airlines grew and expanded exponentially, in passenger volumes, aircraft fleet, and growth in freight transportation.
Increased air traffic can lead to congestion in urban areas, requiring effective urban planning and transportation solutions. The current Addis Ababa Bole Airport is reaching its limit and traffic from the airport is congested. The new Planned huge airport construction may relieve the pressure on Bole Airport and the city.
The aviation industry contributes to carbon emissions and noise pollution, necessitating sustainable practices and regulatory measures. Infrastructure development can also impact local ecosystems and communities, requiring careful environmental management.
Compliance with and ensuring high safety and regulatory standards is crucial for maintaining a safe and efficient aviation industry. This is more so in a liberalized environment where private players and foreign parties participate. Towards this, strengthening the regulatory oversight and compliance mechanisms is essential for sustainable growth. Ethiopian Civil Aviation needs to build its capacity, modernize its service delivery, and invest in enhancing its workforce capacity and technological advancement.
Capital: Has Afri Aviation been able to achieve its objectives?
Tewodros: I believe we have partially achieved AFRI’s objectives. We have been successful in establishing an African Aviation Consultancy Firm here in Ethiopia that can address the consultancy service needs in Ethiopia and broadly to the African Continent. Despite the several challenges that we faced have been able to survive and progress. In this regard, we have managed to establish AFRI in the market and have gradually been able to secure consultancies within the continental institutions such as AFCAC/AU even though not as much as we had hoped. We have been creating partnerships with international consultants to access project opportunities in these organizations as these projects are funded by international development funding partners.
Penetrating the African market outside these organizations has been challenging, to say the least. However, this is changing. Recently we have started getting some clients from established airlines or start-ups in the sub-region (Djibouti, Somalia, and Kenya).
In Ethiopia, there is an increased interest and movement towards establishing new airlines. We have been working with a couple of these start-ups in formulating their business plans and strategies. We are in discussions with one or two potential clients who are looking at the possibilities in the country. We are ready to assist if they seek our services.
Support and collaboration from Ethiopian Airlines, a key player and the only significant player in Ethiopia and a potential client for some of the areas in our consultancy services have not been as forthcoming as we had hoped. We hope this may change going forward and Ethiopian Airlines will be supportive of AFRI’s effort to build local capacity in the area.
On the other hand, we are very excited and grateful to the Management of the Ethiopian Civil Aviation Authority (ECAA) for providing AFRI the opportunity to participate in and support the aviation transformation plan and initiatives, for which we are providing high-level consultancy services in three components of the transformation plan study.
Importantly we have managed to create a local forum where aviation experts mostly retirees from Ethiopian Airlines and Ethiopian Civil Aviation come together and pull their expertise and provide consultancy services in the areas of their respective expertise. We have also enlisted experts from other African countries to associate with us on some of the projects that require more expertise than we have internally.
Capital: What are the implications of the government’s policies, especially in the aviation industry? How do you view the sector now?
Tewodros: As I mentioned earlier the Government policy to enhance the participation of the private sector and inviting foreign investors in domestic air transport in principle is a good move These however require the several risks, I have highlighted above associated with such opening up to private players and more particularly to foreign investment. However, the policy must be accompanied by appropriate policies and regulations that mitigate the identified risks and safeguard the sector. Government policies and regulations alone are not sufficient they must be implemented timely and efficiently to mitigate or avoid the risks and ensure the tangible benefits are realized. This will require those responsible for regulating and overseeing the sector primarily, the Ethiopian Civil Aviation, to have the necessary capacity and resources to manage and supervise the liberalized industry effectively and efficiently. Other stakeholders such as Ethiopian Airlines group and private domestic airlines have to closely work with the regulatory authorities to ensure the industry growth continues in the right b path to the benefit of the economy and society.
With about 126.5 million people (2023), Ethiopia is the second most populous nation in Africa after Nigeria, and one of the fastest-growing economies in the region, with an estimated 7.2% growth in FY2022/23, the country has great potential and opportunity for growth of air transport in the country despite the several challenges relating to peace and security, and infrastructure constraints.
