Kenya and Ethiopian Airlines Stop trading in Kwacha

By Gregory Gondwe

The tumbling which the Kwacha Malawi currency has been experiencing over the past months, coupled with the absence of forex in the country has forced two top airlines – Kenya Airways and Ethiopia Airlines – to suspend trading in the local currency.

Last month, Ethiopian Airlines started declining purchasing of their air tickets using local currency without any warning, leaving South African Airways as the only international airliner transacting in the local currency in Malawi.

But on Friday last week, at least Kenya Airways issued a circular announcing an indefinite suspension of local sales of their air tickets with effect from Friday March 2.

The two airlines claim to be failing to change the Malawi kwacha into foreign currency which has become a scarce commodity in the past years in Malawi.

The circular is advising Malawians intending to travel by Kenya airways to book their ticket online and pay using credit card or travel to the nearest point of sale outside the country.

The circular addressed to all its country managers, is requesting its officers not to make any bookings or issue tickets in Malawi to be utilized on Kenya Airways flights.

Local Zodiak Radio reported that the move by two the airliners will greatly affect most travel agents and may lead to loss of business and subsequent job cuts, according to some travel agents interviewed.

The airline has also reduced its flights into Malawi to only six per week from daily; as it used to previously operate. There are currently no Ethiopian flights to and From Malawi on Wednesdays.

Ethiopian airline last month confirmed that it has been forced to stop receiving Malawi kwachas as it has accumulated huge sums of the local currency in the banks which it is unable to remit to its headquarters, due to foreign currency problems in the country.

This prompted the Reserve Bank of Malawi (RBM) to come into the matter where they promised to assist the airline remit foreign currency to address the situation.

Ethiopia Airline’s Area Manager for Malawi Jafar Hamit told The Daily Times, at that time that the company has suspended receiving of local currency until the forex issue improves or if there can be any assistance from banks.

“We are not accepting the local currency until further notice,” Hamit was quoted as saying.

He, however, admitted that this might have an effect on the business of the company as there are few customers who can be able to source forex on their own to buy tickets.

Hamit pleaded with authorities and banks to intervene on the matter and enable the airline return to normal operations and flights.

Although he assured Malawians that the airline has no intentions of closing its operations in the country, but the mere action to stop trading using local currency was a slap in the face.

“I have been using these two airlines for my business trips. It is a struggle to get foreign currency in this country to take with me when I am going out to buy goods from outside the country, now I have to start looking for more forex for the air ticket? What has happened to our country?” complained Nia Mzima a business woman in Mzuzu City upon learning the news.

And to add salt to the injury Hamit said should this continue, Ethiopian Airlines might just be forced to reduce flights.

RBM spokesperson Ralph Tseka told the daily that the central bank was aware of the situation at Ethiopian Airlines and was making efforts to assist their airline remit forex to Addis Ababa.

“Of course what we know is that they [Ethiopian] have stopped issuing tickets, not that they are accepting foreign currency payments only. We go this through our travel agents after bookings for some of our officers were rejected. But we will assist them address the problem,” Tseka was quoted as saying.

Many local commentators said this news would not have brought forlorn hope to Malawians had its national airline – Air Malawi operating properly.

The beleaguered national flag carrier has been failing to resuscitate its service in the country as it keeps on hitting the wall every time it tries on different ways to get back to business.

The state owned Air Malawi, is in deep debts and government has even failed to sell it to interested investors due to its state.

Even the announcement that it will resume its Lilongwe- Johannesburg has failed to give any hope as it does not last a return trip every time it tries to start flying its planes.

Air Malawi’s Commercial Director Temwachi Changwa said the airline has leased a Boeing 737-500 Classic aircraft from South Africa for use on the route.

In November last year the airline’s CEO Francis Chilambe told the nation that they have leased new aircraft that was going to be in Malawi before December 1, but this never came to pass.

The company has also tried its hands on a partnership with Kenya’s Jet Link through which the two airlines were to jointly introduce a flight to Nairobi.

However the deal failed to materialize when the two airlines started sending conflicting statement to the media.

While Air Malawi was saying it had leased an aircraft for the Nairobi route only, Jet Link claimed it had partnered with Air Malawi for joint flights on all routes operated by Air Malawi.

Lack of forex in Malawi has been compounded by the discontinuation of Malawi’s Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF).

At the moment there is no immediate hope of resuscitating it in sight as President Bingu wa Mutharika is adamant that he cannot comply with one the IMF’s demand to have the kwacha devalued.

Finance and Development Planning Minister Ken Lipenga says they want to continue negotiations with the Bretton wood institutions.

IMF officially declared the ECF off-track in June last year after Malawi’s failure to devalue the kwacha as agreed in the programme, among other fiscal and monetary policy differences.

Lipenga says they hope to make use of Article IV of IMF’s Articles of Agreement, where the IMF holds bilateral discussions with members, usually every year.

The decision to engage in Article IV negotiations come at a time when commentators believe it is too late to resuscitate the ECF.

Lipenga admitted that it has taken so long to return to the ECF but expressed optimism that they will still fight for the resuscitation of the ECF, a facility that would unlock several millions of dollars in withheld aid.

Under Article IV a staff team visits a member country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff team prepares a report which forms the basis for discussion by the Executive Board.

At the conclusion of the discussion, the managing director, as chairperson of the board, summarises the views of executive directors, and this summary is transmitted to the country’s authorities.

Lipenga said the presence of the World Bank and other development partners in the negotiations is necessary to help the country with avenues of how to mobilise resources to help address the current economic challenges the country is facing.

Late last year, the IMF accepted Malawi’s request for the institution’s technical assistance (TA) to help Malawi return to ECF.

In a report titled ‘Liberalisation of the Foreign Exchange Regime for Current Account Transactions and Exchange Rate Flexibility’, IMF asked Malawi to loosen its overvalued currency from the current K167 per dollar to between K230 (about $1.37) and K250 ($1.49).

Mutharika has since declined this advise and in February he announced that starting from this month Malawi will take control of the monetary policy and not the IMF.

“Shortly, I will attempt to devise mechanisms on how money issues will progress in the country.

“From March this year, this country will take control of the monetary policy not the IMF. I want to make this clear, because it’s our country,” said Mutharika, adding that shortly, he will give details of how Malawi will seal holes in the forex tin so that forex starts trickling in again.

“If you support me, I can guarantee you that even by December 31 this year forex will start flowing. It is my wish that when I step down in 2014, I should leave my successor a $2 billion forex pot. I can manage that,” said Mutharika.

“I’m asking the IMF and its economists that in 2004 and 2009, I swore and signed my name that in the first place, I will protect my people from all kinds of challenges. So when you devalue the kwacha and the prices of goods escalate, what will we do with the people?

Mzima said the attitude displayed by President Mutharika over these issues is not helping matters and the result is what the airlines are now doing which is impacting negatively not only on them as small entrepreneurs but it could bring down the national economy on its knees.


One thought on “Kenya and Ethiopian Airlines Stop trading in Kwacha

  1. Although i know the impact of the action of these two airlines will have on us Malawians, i may also say that they are justified because there’s no way an airline company can run effectively and make profits in an environment like this. To operate such a big business the availability of forex is a must. Though am not prophecying doom but in my opinion it’s just a matter of time, the remaing sore airline that is accepting the local currency will follow suit leaving us with no other option. Lets hope the situation at hand will improve in the long run.


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