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Air Botswana's Privatisation Struggle

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Air Botswana's Privatisation Struggle UNIVERSITY OF THE WESTERN CAPE Department of Economics The Future of National Flag Carriers in developing Countries: Air Botswana’s Privatisation Struggle Onalenna Molwelwa A mini-thesis submitted in partial fulfilment of the requirements for the degree of Masters (structured) in Economics Student number 2909632 Supervisor: Prof. Wolfgang H. Thomas February 2011 Declaration I, the undersigned, Onalenna Molwelwa, declare that this mini-thesis titled The Future of National Flag Carriers in Developing Countries: Air Botswana’s Privatisation Struggle, is my own work, that it has not been submitted for any degree or assessment at any other university and that all the sources I have used or quoted have been indicated and acknowledged by means of complete references. Signature 26 February 2011 ii Acknowledgements My sincere gratitude goes to my supervisor, Prof. Wolfgang Thomas, for the guidance and advice he offered during the time of writing this mini-thesis. In particular, I am grateful for his patience and fatherly yet professional criticism which has significantly contributed to making this project a success. I also wish to thank the Department of Economics, most notably Mrs Betsy Stoltz and Prof. Lieb Loots, for their great contributions, particularly through the weekly research seminars. Again, I wish to thank the department‘s postgraduate-secretary, Mrs Felicia Petersen, for her co-operation and support through-out my academic stay at the University of Western Cape. Finally, the support of my family and friends was also obliging in completing this project. iii Keywords State ownership Financial support Privatisation Developing countries Small economies Southern Africa Botswana economy Air transport National flag carriers Air Botswana iv Abstract The airline industry is very complex. The industry has over the years become intrinsically unbalanced, because it is an industry continuously buffeted by new developments and constraints. A number of developing countries are currently faced with the dilemma of malfunctioning flag carriers. On one side the debate calls for full privatisation of the national airlines, on the other side governments are not willing to let go of flag carriers as they are deemed to hold national pride. This study evaluates the feasibility of Air Botswana‘s privatisation exercise by analysing case studies of national airlines from six developing countries. Four of the countries in the sample are those that possess more or less similar characteristics with Botswana. The other two were randomly chosen. The study looked particularly at the operations of national carriers and governments‘ efforts to sustain the airlines‘ operations. Evidence has shown that many countries struggle to maintain operations of their flag carriers, but few countries are willing to completely leave the airlines in the hands of the private sector because of national pride. On the other hand, many of those airlines that get into private hands fail and end up being closed down or go back into state hands. These airlines are also perceived to be development tools, in particular for tourism development which is a predominant economic activity in many developing countries. For this reason, many states do not favour privatisation, even though the perception is that the airline industry is better handled by private businesses. The main conclusion of the study for Botswana is therefore that neither full state ownership nor full privatisation is the solution to addressing the problem of ailing flag carriers. There is no single solution, but a combination of several. A broader global view of national airline operations clearly shows that approaches adopted by many successful national airlines, in both developed and developing countries, is some form of partial privatisation. v Table of Contents Declaration ............................................................................................................................ i Acknowledgements ............................................................................................................. ii Keywords ............................................................................................................................ iii Abstract ................................................................ ............................................................... iv Abbreviatons ................................................................................................ ........................ x CHAPTER 1 Introduction and Background ............................................................................ 1 1.1 Significance of Air Travel and National Carriers ................................................. 1 1.2 Airline Dynamics .................................................................................................. 2 1.3 The Privatisation Challenge .................................................................................. 5 1.4 Problem Statement ................................................................................................ 8 1.5 Objectives of the Study ....................................................................................... 10 1.6 Methodology ....................................................................................................... 11 1.7 Outline of the Study ............................................................................................ 12 CHAPTER 2 Botswana’s Economic Development: Progress and Challenges .................... 14 2.1 Geographic Spread .............................................................................................. 14 2.2 General Characteristics ........................................................................................ 14 2.2.1 Social and demographic dynamics ...................................................................... 15 2.2.2 Socio-political context ......................................................................................... 16 2.2.3 Natural resource context ...................................................................................... 17 2.3 Key Sectors in Botswana‘s Economic Development .......................................... 18 2.3.1 Mining ................................................................................................................. 18 2.3.2 Trade .................................................................................................................... 19 2.3.3 Agriculture ........................................................................................................... 20 2.3.4 Financial services ................................................................................................ 20 2.3.5 Tourism ............................................................................................................... 21 2.4 Economic Policy Stance ...................................................................................... 22 2.5 Proximity of South Africa ................................................................................... 27 2.6 The Impact of the World Economic Crisis .......................................................... 28 vi 2.7 Conclusion ........................................................................................................... 29 CHAPTER 3 The Strategic Role of the Transport Sector in Botswana .............................. 32 3.1 Introduction ......................................................................................................... 32 3.2 Modes of Transport ................................ ............................................................. 33 3.2.1 Water ................................................................................................................... 33 3.2.2 Rail ...................................................................................................................... 33 3.2.3 Road ..................................................................................................................... 34 3.2.4 Air transport ........................................................................................................ 35 3.3 Connectivity ........................................................................................................ 36 3.3.1 Domestic places ................................................................................................... 36 3.3.2 Regional links ...................................................................................................... 41 3.3.3 Global links ......................................................................................................... 42 3.4 Conclusion ........................................................................................................... 42 CHAPTER 4 Botswana’s Air-Transport Sector .................................................................... 44 4.1 Market Size .......................................................................................................... 44 4.2 Air-Service Providers .......................................................................................... 44 4.2.1 Air Botswana ....................................................................................................... 45 4.2.2 Mack Air .............................................................................................................. 47 4.2.3 Moremi Air Botswana ........................................................................................
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