Kenya Airways is seeking to unlock over Sh1.5 billion frozen in Ethiopia due to foreign exchange restrictions that have seen firms struggle to repatriate profits amid a crippling dollar crunch.
Chief Executive Allan Kilavuka told the Business Daily the governments of Ethiopia and Kenya are in talks to ease the blockade of the funds that are losing value in Addis Ababa banks.
For years, foreign companies operating in Ethiopia have struggled to repatriate profits in the wake of hard currency shortages in a landlocked country of 123 million people that is heavily dependent on imports.
The talks emerged at a time when KQ suffered a double blow after the value of Ethiopia’s currency fell by 30 percent against the US dollar after the government relaxed currency restrictions.
This has eroded the value of its revenue locked in Ethiopia as analysts predict that the foreign exchange shortage will take longer to solve.
“We have significant amounts of blocked funds. We have $12.0 million which is blocked and we cannot use it because it is stuck across restricted countries,” Mr Kilavuka said in an interview.
“That is our problem because like now in Ethiopia our money has been significantly devalued and there is nothing, we can do about it. In such markets, we are trying to get to sell more in US dollars as a natural hedge and unfortunately again because of the forex regime, you cannot always do that,” he added.
Kenya Airways draws nearly half its revenues from African routes and foreign exchange problems remain a top risk for the national carrier, especially in markets such as Nigeria.
“Nigeria has improved to be fair because once they liberalised, we were able to remove our money,” Mr Kilavuka said about cash that was frozen in Lagos.
In June last year, Nigeria abandoned its years-long currency peg and allowed the naira to trade freely, tipped to end foreign exchange rationing and encourage an inflow of direct investment.
Foreign airlines were among the hardest hit by Nigeria’s dollar shortages.
The International Air Transport Association said at its annual conference in June last year that carriers had $812mn (Sh105 billion) stuck in Nigeria, more than any other country and almost half of the total worldwide.
Ethiopia has followed Nigeria’s path and implemented a flexible exchange rate policy backed by the International Monetary Fund (IMF) as part of new measures to stabilize its economy.
This helped Ethiopia secure a $3.4-billion four-year IMF loan plan.
The IMF deal unlocked more financing from lenders including the World Bank and paved the way for a fresh debt restructuring push.
Ethiopia said that the new exchange rate regime is “critical to relieving (forex) shortages.
Commercial banks can now set the price of foreign exchange and non-bank entities are permitted to operate forex bureaux for the first time, a historic change in a country where the government for decades fixed those prices, allowing a black market to flourish.
Its birr currency has nearly halved in value this year to trade at 103.97 per dollar – according to data from the Commercial Bank of Ethiopia, the country’s biggest lender, closing in on the black-market rate of 115-120.
This has devalued KQ’s birr holdings.
The Horn of Africa nation has been struggling with chronic foreign currency shortages and high inflation – largely blamed on the brutal two-year civil war in Tigray, which ended in 2022.
Kenya Airways says efforts to shift billing in such restricted markets from local to hard currency with an eye on hedging against foreign exchange losses have proven futile.
“When it comes to our operations, because a lot of our sales are in foreign currency mainly the US dollar, the Euro and the Sterling Pound, it tends to provide 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 rising passenger numbers and reduced debt service costs.
Kenya Airways is hopeful it could break even for the full year.
The airline made a profit after tax of Sh513 million for the six months to June, overturning a Sh21.7 billion loss in the first half of 2023.
The government took over its $641 million (Sh82.7 billion) loan owed to US Exim Bank. Kenya will pay the US lender and expects Kenya Airways to pay it back for 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 by 22 percent in the first half to Sh91.4 billion, helped by a 10 percent rise in passenger numbers.
Mr Kilavuka said the company is racing to finalise negotiations with a strategic equity investor, without giving details.
