Kenya Airways is seeking to release more than Sh1.5 billion frozen in Ethiopia due to foreign exchange restrictions that have seen the company struggle to repatriate profits amid a severe dollar crunch.
CEO Alan Kilavuka told Daily business The governments of Ethiopia and Kenya are in talks to ease a blockade on money losing value in Addis Ababa banks.
For years, foreign companies operating in Ethiopia have struggled to repatriate profits following a shortage of hard currency in the landlocked nation of 123 million people that relies heavily on imports.
The talks come at a time when Ethiopia has been hit by a double whammy after the Ethiopian currency fell by 30 percent against the US dollar after the government eased currency controls.
This has eroded the value of its retained revenue in Ethiopia, where analysts expect the foreign exchange shortage to take longer to resolve.
“We have a lot of money that is being held back. We have $12 million that is being held back and we cannot use it because it is stuck in embargoed countries,” Kilavuka said in an interview.
“This is our problem because our currency has depreciated dramatically as it has now happened in Ethiopia and there is nothing we can do about it. In such markets, we try to sell more in US dollars as a natural hedge, but unfortunately again because of the foreign exchange system, you cannot always do that,” he added.
Kenya Airways gets nearly half of its revenue from African routes, and foreign exchange problems remain a major risk to the national carrier, especially in markets such as Nigeria.
“Nigeria has become more equitable because once it was liberated, we were able to remove our money,” Kilavuka said of the frozen cash in Lagos.
In June last year, Nigeria abandoned its years-long peg to the dollar and allowed the naira to trade freely, in a move aimed at ending foreign exchange rationing and encouraging foreign investment.
Foreign airlines have been among the hardest hit by the dollar shortage in Nigeria.
The International Air Transport Association said at its annual conference in June last year that airlines had $812 million (Sh105 billion) stranded in Nigeria, more than any other country and accounting for nearly half of the total worldwide.
Ethiopia has followed Nigeria’s lead and implemented a flexible exchange rate policy with the support of the International Monetary Fund as part of new measures to stabilize its economy.
This helped Ethiopia secure a $3.4 billion four-year IMF loan plan.
The agreement with the IMF has unlocked more financing from lenders, including the World Bank, and paved the way for a renewed push toward debt restructuring.
Ethiopia said the new exchange rate system was “important to ease foreign exchange shortages.”
Commercial banks can now set the foreign exchange rate, and non-bank entities are allowed to operate foreign exchange bureaux for the first time, a historic change in a country where for decades the government set those rates, allowing a black market to flourish.
Its local currency, the birr, has nearly halved in value this year to trade at 103.97 to the dollar, according to data from the Commercial Bank of Ethiopia, the country’s largest lender, close to the black market rate of 115 to 120 birr.
This has led to a decrease in the value of KQ’s land holdings.
The Horn of Africa nation suffers from chronic foreign currency shortages and high inflation rates — largely due to the brutal two-year civil war in Tigray, which ended in 2022.
Kenya Airways says efforts to convert invoices in such restricted markets from local currency to hard currency to hedge against foreign exchange losses have proven futile.
“When it comes to our operations, since a lot of our sales are in foreign currency, particularly the US dollar, euro and pound sterling, it provides a natural hedge for the expenses we incur,” Mr. Kilavuka said.
The national carrier last week reported its first half-year profit in more than a decade on the back of higher passenger numbers and lower debt servicing costs.
Kenya Airways hopes to break even on revenues for the full year.
The airline made a profit after tax of Sh513 million in the six months to June, reversing a loss of Sh21.7 billion in the first half of 2023.
The government has taken over its $641 million (Sh82.7 billion) loan to the U.S. Export-Import Bank. Kenya will repay the loan to the U.S. bank and expects Kenya Airways to repay the loan over a longer period and in local currency.
This saw KQ’s costs under other expenses fall to Sh687 million from Sh22.8 billion, reflecting the effects of the balance sheet restructuring.
The airline’s revenue rose 22 percent in the first half to Sh91.4 billion, helped by a 10 percent rise in passenger numbers.
Kilavuka said the company is rushing to complete negotiations with a strategic equity investor, without elaborating.
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