Terminology
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The minibus taxi industry is a massive industry
with an aggregate turnover of more than R100 billion per annum generated from multiple channels including but not limited to:
Fare revenue / Vehicle Manufacturing and Distribution / Financing / Insurance / Vehicle Tracking / Vehicle Maintenance (service and repairs, tyre sales, spare parts sales) Vehicle Consumables (fuel and lubricants) / Panel Beating / Media Advertising
There are estimated to be around 80,000 taxi owners operating more than 250,000 mini and midibus taxis and employing more than 200,000 direct employees mostly as drivers, queue marshals and assistants.
These estimates exclude the indirect jobs and other job opportunities the mini and midibus taxi industry (MMTI) creates through the multiplier effect in related industries.
The fact that the MMTI is almost exclusively owned and operated by blacks, represents the successful implementation of an ideal black economic self-empowerment model.
However, despite the MMTI’s impressive turnover and employment statistics, taxi operators are short-changed as they mainly participate as consumers in their own industry while other stakeholders, particularly large established suppliers and service providers hold the greater share of the market.
To this end, the Department of Transport’s (DoT) initiative to introduce and implement a commercially viable Revised Taxi Recapitalisation Program (RTRP) management solution that will leverage and exploit opportunities available in the MMTI’s entire value chain with taxi operators as active participants is a welcome intervention.
Ultimately, the MMTI should use its buying muscle to participate meaningfully where the ultimate goal is to own elements within the value chain such as vehicle distribution and retail, vehicle financing institutions and insurance companies, vehicle tracking companies, as well as fuel retailing operations, electronic fare collection systems, and property and facilities management companies.
OPPORTUNITIES
A showcase of some of the elements we intend to introduce as part of a commercially viable RTRP management solution that will leverage and exploit opportunities available in the MMTI’s entire value chain follows hereunder:
Click on the links below to navigate to the topic you wish to read:
Procurement / Financing / Insurance / Vehicle tracking and management / Maintenance (spare parts, tyres and panel beating) / Consumables (fuels and lubricants) / Electronic Fare Collection / Media Advertising / Partnership with OEMs / Green Taxi Ranks and Facilities Management / Capacity Building Programme / Taxi Scrapping / Taxi Recapitalisation Fund / Sustainability / Empowerment Mediums
MMTI value chain elements
Procurement
The oligopoly associated with vehicle supply within the MMTI results in inflated vehicle costs which undermine the sustainability of the MMTI. One of the main challenges reiterated in the TRP review confirmed that higher prices make compliant and durable NTVs unaffordable
The MMTI is to leverage its enormous buying power to reduce NTV procurement input costs and utilise its buying muscle to achieve a level of participation in the assembly and manufacturing of NTVs.
Measures to enhance the progressive sustainability of the MMTI in the short-to-medium term include but are not limited to the following:
- Negotiating rebates with manufacturers for bulk purchase of compliant NTVs
- Negotiating discounts with distributors to reduce the retail price of compliant NTVs
- Negotiating an approved list of vehicle extras and associated pricing
In order to tap into this to leverage the enormous buying power, unification of the MMTI is a pre requisite.
FINANCING
Taxi operators struggle to access finance for the purchase of their NTVs from the commercial financial institutions and when they do secure finance via secondary financial institutions they are charged higher than normal interest rates due to their high-risk profile.
- The intention is to bridge the funding gap in the taxi industry not addressed by commercial financial and other institutions that offer finance to the taxi industry
- Access to finance is key to the success of the taxi industry with the securing of NTVs that are safety compliant
- Negotiations will be focused on commercial financial institutions to guarantee finance to taxi owners. The main objective is to address the following issues currently facing taxi owners:
- Limited access to finance due to their perceived high risk profile
- Provide affordable finance and interest rates
- Retention of repossessed vehicles within the taxi industry on more viable terms
- Customer service focus
INSURANCE
Currently the taxi industry is characterized by tailored insurance products that are underwritten by major insurance providers and promoted through insurance brokers.
The nature of the cover and the associated costs of the monthly premium differs from product to product and taxi operators are required to discern the suitability of each product offered, to their individual requirements both in extent of cover and cost of monthly premium. The fragmented nature of the take up of insurance products does not currently present any pricing advantage to individual taxi operators as their collective buying power is not being realized.
It is imperative that the collective purchasing power of the MMTI is harnessed to design a bespoke industry specific insurance product at reduced monthly premiums to cover:
- Adequate vehicle cover
- Replacement vehicle in the event of accident damage or theft
- Premium discount for the fitment of a vehicle tracking device
- A no claim bonus
In the medium to long term, the option of a cell captive insurance product would be investigated where the taxi industry would, in partnership with an alternative risk transfer insurer, provide a taxi industry branded insurance product where the taxi industry would benefit as a shareholder in the cell captive and share in the profits of the scheme. These profits could be transferred to the taxi operators through a reduction in monthly insurance premiums
Vehicle tracking and management
All financed new taxi vehicles purchased will include mandatory comprehensive insurance for the duration of the financial agreement as well as a GPS enabled Electronic Vehicle Management device (EVM). The EVM device will allow more than simply tracking, monitoring and recovery assistance. It would also allow taxi operators to manage their operations more efficiently.
Maintenance (spare parts, tyres and panel beating)
Routine maintenance and repair is an essential component of the MMTI, not only to increase the life span of taxi vehicles, but enhancing their roadworthiness and passenger safety as well.
Routine quality maintenance also contributes towards the profitability and sustainability of the MMTI by reducing operating costs and increasing efficiencies.
Unfortunately, most taxi operators do not always carry out maintenance in accordance with Original Equipment Manufacturer (OEM) standards and specifications due to the generally higher costs associated with OEM accredited spare parts and accredited repair centres, and the arduous hours of MMTI operations.
Taxi operators then often compromise regular maintenance and prejudicing commuter safety by cutting corners such as:
- Using aftermarket spare parts and tyres which do not meet OEM standards to repair their vehicles
- Using informal mechanics to repair taxi vehicles
- Using local informal service providers for panel beating services
The objective is to:
- Negotiate and partner with selected key suppliers of spare parts and tyres with a national footprint, in order to secure special prices on commonplace and critical parts particular to the preferred taxi vehicles
- Establish a ‘retail rewards loyalty programme’ within the retail value chain of the MMTI which aims to unlock partnerships with retailers in order to deliver value to the industry.
- Facilitate the upskilling, training and formalization of local repairs and panel beating workshops. These are Small, Medium and Micro Enterprises (SMME) needing the support to accelerate recognition through affiliation to credited associations
Consumables (fuels and lubricants)
Fuel and lubricants constitute the single biggest cost in operating a taxi vehicle. This being the case, it is unfortunate that the MMTI merely consume fuel and lubricants with minimal if any, meaningful institutional participation in the value chain of the supply of fuel and lubricants, its distribution and the end service being the operation of fuel stations.
Ideally the MMTI should be in a position to develop its own supply network, including the direct ownership and operation of home based sites equipped with fuel storage and dispensing facilities and on-road petrol stations.
Electronic Fare Collection
- The MMTI has traditionally been a cash-based sub-sector of the economy especially in respect to fare collection
- The use of cash as a payment mechanism should be phased out through installing an electronic fare management system (EMS) in all mini and midibus taxi vehicles in line with the DoT’s integrated intermodal transport structure, and aiding the MMTI to slide smoothly into its niche within an integrated public transport system
- Cash-based fare revenue is received and expended outside of the banking system which results in the taxi operator being misrepresented on their financial position, which would negatively impact on the ability to apply for loans and access finance
- Taxi drivers are paid in cash and do not receive pay slips. This prohibits their eligibility for credit and other financial services
- Taxi commuters would be able to pay taxi fares either through the smart card or through a Mobile App on their smart phone
- An auditable record of income will better reflect the financial position of the taxi operator to financial and other relevant sectors
Media advertising
The MMTI is the most accessible mode of public transport and currently commutes at least 69% of South Africa’s daily commuters. This presents an opportunity to monetize a GPS location-based media platform that allows large as well as local businesses to reach captive commuters through audio and text-scrolling messaging onboard vehicles. Campaigns can target an area or economic sector more directly than most other forms of advertising and are cost effective compared to other forms of outdoor advertising.
Partnership with OEMs
There are many OEMs represented in South Africa where more than 20 OEMs supply vehicles to the MMTI. This affords an opportunity for the MMTI to use its buying muscle power to:
- Participate meaningfully in the vehicle manufacturing, assembly and distribution of taxi vehicles
- Partner with the OEM dealer network
- Possibly establish its own dealership network
Development of Green Taxi Ranks and Facilities Management
Taxi ranks are key business hubs serving several ends such as being the initial and terminal points of travel, serving as places of social gathering, shopping and trading within local communities, and as such need to be fully facilitated to accommodate this thoroughfare. Estimates place mini and midibus taxi commuter trips at 15 million daily as used by 10 million households. This translates into a huge volume of traffic passing through taxi ranks every day.
Currently minibus and midibus taxi ranks are typically characterized by inadequate facilities – such as kitchens for food preparation, seating facilities for eating, shelter against the elements, ablution facilities and wash bays for vehicles.
Ideally the MMTI should be in a position to invest not only in taxi ranks that accommodate all users, but also provide adequate facilities who are responsible for the management of the cleaning, security and maintenance of taxi ranks. It should also invest in green taxi ranks that are environmentally friendly facilities that are energy efficient with adequate alternate renewable energy sources thus saving on operational costs daily.
Green initiatives should include:
- Rooftop rain water harvesting
- Recycling
- Ability to generate its own electricity
Capacity Building Programme
As part of an RTRP capacity building initiative, a “RTRP Skills Development and Transfer Strategy” will be in place prior to the transfer of TRSA equity share to the MMTI Trust.
The envisioned strategic document will serve as a guideline on the necessary skills required by the MMTI to successfully run a project similar to RTRP.
The strategy document will include clear terms of reference for the MMTI which will include amongst others, the following:
- Corporate Governance
- Communication strategy between the RTRP partners
- Determination of skills requirements at executive, management and operation level to include:
- Skills Audit Plan
- Skills Development Plan
- Mentoring and Skills Transfer Programme
- The MMTI participation in the execution of the RTRP
- MMTI representatives to the new TRSA Board of Directors
The ultimate objective of the MMTI Trust is an economically viable sustainable powerhouse with the proven capabilities to govern the new entity.
Taxi Scrapping
The Department of Transport’s physical scrapping component to address the ageing and unroadworthy mini bus taxis is ongoing.For more information on this process CLICK HERE
Taxi Recapitalisation Fund
Beyond the RTRP, consideration must be given to the creation of a recapitalisation fund and the inflow of annuity revenue streams for the recapitalisation of taxi vehicles as they age and become eligible for recapitalisation.
The realisation of the commercial components are the foundation for the MMTI to gradually reduce financial reliance on government, ultimately achieving a goal of complete sustainable financial independence.
This fund will be established and sustained through amongst others, a significant share of the revenue generated through the value add initiatives in the aforementioned paragraphs.
Prerequisites for progressive sustainability of the minibus taxi industry
For an industry that is a major player in the transport sector, it operates on an informal basis. In order for the MMTI to be a successful commercial venture, the industry needs to be formalised to reap the full benefits that is customarily conferred on a legitimate organisation.
We go back to the 1996 recommendations of The National Taxi Task Team where it highlighted the need for the taxi industry to formalised. The recommendation focused on three critical areas for a successful taxi industry:
- Regulation and control – enforcement of all legislation pertaining to the minibus public transport
- Formalisation - formalise employment of all those employed in the minibus public transport, operate as legal taxi entities and legalize illegal operators that meet the criteria for Special Legalisation Process
- Training and economic assistance – mandatory training for drivers, identify training needs and establish training programs
Empowerment Mediums – different forms of taxi ownership structures
The MMTI currently works on an individual taxi ownership model and collaborative route management structure through local taxi associations, regional, provincial and national taxi councils.
By and large, this ownership and management model is at the heart of the endemic conflict and violence which has plagued the taxi industry for decades. The reason for this is because the MMTI’s profitability and sustainability has been under pressure for decades due to a myriad of factors, including uncompetitive (not market related) fares, overtraded routes (oversupply of taxi vehicles, both legal and illegal) and increased competition from other modes of transport (buses, BRTs, trains, private cars, etc.).
The MMTI’s profitability and sustainability challenges are exacerbated by the fact that unlike other modes of transport (buses, trains and air), the MMTI does not receive an operational subsidy from government. The lack of subsidization is partially attributed to the MMTI’s informal cash-denominated operations which are devoid of any commuter statistical records. The MMTI will continue to come under increasing revenue pressure as input costs such as financial, insurance, operational, maintenance, recapitalization and inflationary costs, escalate.
The introduction of the TRP has offered the MMTI some welcome financial relief, but this is not a sustainable reprieve. Unless the MMTI’s profitability and sustainability challenges are resolved, rivalry, conflict, strife and even violence will continue to be a regular feature within the MMTI operations as factions of taxi operators are forced to compete for the crumbs of a shrinking pie.
The envisaged end state of the taxi industry’s commercialisation will follow a phased approach, either through co-operatives or single corporate structures.
The elements described above, with exception of the taxi scrapping are envisaged solutions.
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