Impact of Air Transport Sector to Economic Development in Nigeria Using Murtala Muhammad International Airport as a Case Study
CHAPTER ONE
Aims and Objectives
The main aim of this thesis is to analyze the impact of air transport sector to economic development in Nigeria.
The specific objectives are:
- It involved studying how the air transport business has affected the lives of the people in the region of Lagos economically.
- to examine the importance of air transport in a region and identify main visible impacts of air transport in general and the Lagos region in particular.
- The economy of Lagos and the Murtala Muhammed Airport business activities will
CHAPTER TWO
LITERATURE REVIEW
LAGOS REGION AND MURTALA MUHAMMED AIRPORT
Lagos State is an African megacity which is located in south western Nigeria on the West Coast of Africa, within latitudes 6° 23¢N and 6°41¢N and longitudes 2°42¢E and 3°42¢E. The State is flanged from the north and east by Ogun State, in the west by the Republic of Benin and the south by the Atlantic Ocean and Gulf of Guinea. The total landmass of the State is about 3,345 square kilometres, which is just about 0.4% of the total land area of Nigeria. Physically it is the smallest, but the most highly populated state in the country. Lagos metropolis is occupied by about 80% of the population of the State making it the most urbanized State in the country Nigeria. According to projected population growth studies, it has been forecast that Lagos State population will reach 25 million inhabitants in the next ten years (2012), making the city the third largest in the world. As in 2006, the population of Lagos State was 17.5 million, (based on the parallel count conducted by the state during the National Census) with a growth rate of 3.2%, the state today has a population of over 21 Million making it 10 per cent of Nigeria’s population. (Iwugo, D’ Arcy & Andoh 2003).
By the late 15th century Lagos Island had been settled by Yoruba fishermen and hunt- ers, who called it Oko. The area was dominated by the kingdom of Benin, which called it Eko, from the late 16th century to the mid-19th century. The Portuguese first landed on Lagos Island in 1472 and trade developed slowly. The local obas (kings) enjoyed good relations with the Portuguese, who called the island Onim (and later Lagos) and who established a flourishing trade. It was so until the British came to the region and forced out the Portuguese to establish their colonial administration in Lagos and also took over the trade which was predominantly agricultural produce. (Encyclopaedia britannica. com 2014)
Also known as “Èkó” in popular contexts, Lagos has been Nigeria’s premier city since at least 1861. Its role as distribution centre to the West African coast assured by geog- raphy, Lagos attracted Portuguese traders and had become a major centre for the slave trade by the early seventeenth century. In 1851, the British bombarded the city, seeking to expel Portuguese slave dealers, abolish the slave trade altogether, and es- tablish legitimate trade in its place. In the process, the British set up their own colonial administration and finally annexed the city in 1861. The former city-state would soon become a bridgehead to the conquest of the territories that became Nigeria. In 1914, Lagos was named Nigeria’s political capital, retaining that status until 1991 when Abuja formally became Nigeria’s new federal capital territory. It has since remained Nigeria’s capital, except in name. (Encyclopaedia 2014).
CHAPTER THREE
RESEARCH METHODS
Research Design
This research aimed to investigate the short-run and long-run relationships between air transport and economic growth in Nigeria. Based on data availability, this was a longitudinal research design of MMA.
Data
This paper applied annual data from 1980 to 2018. Air transport passengers and the air transport freight in million ton-km represented the air transport variables and change in GDP per capita, current US dollars was a proxy for economic growth. The 2019 World Development Indicators file was the key source of data. All variables were transformed into logarithms and hence interpreted the coefficients as elasticities.
CHAPTER FOUR
RESULTS AND DISCUSSION
The objective of this study was to investigate the short-run and long-run relationships between air transport (air passenger traffic and air freight) and economic growth. Descriptive statistics, correlation and unit root tests were the preliminary tests performed before the key tests.
CHAPTER FIVE
IMPLICATIONS AND CONCLUSIONS
IMPLICATIONS
Bidirectional causality between air transport and economic growth implies that these two indicators influence each other. This suggests that aviation (economic growth) policies may not be taken without influencing economic growth (aviation sector). Practically, for example, policymakers in the Nigerian aviation industry may not continue maintaining restrictive air service agreements without jeopardising economic growth. The AfDB (2019) indicates that restrictive air service agreements persistently impede intra-African services, affecting routing, capacity, frequency and fares. This will delay the development of the aviation sector in Africa and slow the economic contribution of this sector. Apart from the remaining restrictive air service agreements, causality from air transport to economic growth also entails that the high cost of air tickets, increased airport charges and poor air connectivity do not reduce the demand for air transport but also its contribution to economic growth. The previous literature raised these problems (ICAO, 2013; Heinz & O’Connell, 2013; Bofinger, 2018), which the Nigerian aviation sector is still experiencing.
On a positive note, causality from air transport to economic growth shows that policies that are meant to improve the efficiency of the aviation sector will automatically affect economic growth. In this case, it is our belief that the launch of the SAATM in 2018 will improve the aviation sector’s contribution to economic growth in Africa. The benefits of the SAATM include job creation, improved international trade leading to growth in GDP and reduced travel costs (Deloitte, 2018). This initiative may improve competition among airlines and the delivery of services. The intercontinental routes in Lagos that are currently monopolised may realise increased airlines. In this regard, Abate (2016) argues that liberalisation has the potential to elicit competition among African airlines, which would decrease fares. Speeding up the full implementation of the SAATM is strongly endorsed.
The positive effect of economic growth on air transport implies that as African economic growth rises, it causes a greater demand for air transport services. Bidirectional causality between air transport and economic growth shows that it is possible to simultaneously improve air transport and economic growth. While this nexus seems favourable, it also means any adverse shocks to economic growth will jeopardise the performance of the air transport sector. The ARDL results indicate that the effect of economic growth on air transport freight and passengers will materialise in the long run. From a policy perspective, at the moment, this suggests that policy decisions to address the adverse effects of the COVID-19 pandemic on air transport should be taken, in cognisance of how the affected economic growth may come to haunt the demand for air transport, especially in the long term. The income per capita in Africa has already been low and taken as one of the reasons why commercial aviation in the continent remains the least developed (Abate, 2013). This current paper stresses that the COVID-19 challenge and the associated lockdowns that occurred in 2020 may exert downward pressure on income per capita in Africa, further weakening demand for aviation services. Unless the governments make appropriate and adequate post-COVID-19 policies to stimulate domestic aggregate demand, production levels and economic growth, the future outlook of air transport performance is fragile.
Linked to previous implications, our results show that the adjustment speed to correct any deviation from long-run equilibrium relationships between economic growth, air transport passengers and air transport freight was slow. Subsequently, when a shock happens, policymakers should expect a longer period to pass before a full adjustment in the equilibrium relationship between air transport and economic growth is restored. The suspensions of flights due to the COVID-19 challenge that hit the aviation industry hard may have distorted the steady long-run relationship between air transport and economic growth, and it may take time to resolve the distortions.
Also, in the interest of improving air transport provision and connectivity and ultimately the aviation sector’s contribution to economic growth, policymakers in Africa should not be overprotective of the numerous fragile national flag-owned airlines. A good example is the troubled Air Zimbabwe, whose operations are intermittent. This study concurs with an argument by Bofinger (2017) that these fragile, national, flag-owned (often state-owned but not always) carriers are not economically sustainable, lead to lower service standards and impede competition. Protecting state-owned carriers and maintaining restrictive measures while the population is denied access to quality air transport services may not be an effective strategy. Perhaps as argued in Abate’s (2013) paper, it is not necessarily that every nation should own an airline to yield the benefits of an efficient air transport service. Many African economies may continue to be both players and beneficiaries of the sector through enhanced competition.
Another important implication drawn from the results is that policymakers should not expect the effect of their aviation policies to immediately have an effect on economic growth. For instance, this suggests that the SAATM initiative may yield significant economic growth for African economies in the long run and not in the short run.
CONCLUSION
This study focused on the short-run and long-run relationships between air transport and economic growth in Lagos. It was concluded that a bidirectional causality existed between air transport and economic growth, which the ARDL model suggested it happened only in the long run. The variables were cointegrated. The adjustment speed to correct any deviation from long-run equilibrium relationships between GDP, ATP and ATF was slow. While ATP had a positive long-run effect on economic growth, ATF suggested negative growth effects. Nevertheless, the findings showed no evidence of short-run effects. Even for the individual countries, this study found few short-run effects and hence, concluded that the relationship between air transport and economic growth in Lagos existed in the long-run.
Our analysis was limited to Lagos due to the unavailability of data. There should be various channels through which air transport influences economic growth, which requires a detailed investigation. Tourism and trade could be channels in the relationship between air transport and economic growth. Further research may broaden the scope of this study by considering tourism and trade as mediators in the relationship between air transport and economic growth. While this study focused on economic growth, future studies may instead consider the role of air transport in socio-economic development (accounting for poverty and inequality).
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