Avenues to recapitalising the public transport industry

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CAPE TOWN– Passengers queueing for minibus taxis to some of the townships. Much of the queues are too long because there are too view minibus taxi vehicles.

Finding an appropriate avenue to reform the public transport industry in South Africa is a dense process involving multiple transportation modes, services and systems. Each component in the industry require some degree of intervention. Most public transportation services are in some-kind of crisis. Passenger rail in South Africa is undergoing some form of recapitalisation with the new trains, delivered through domestic industrial capacity through the Gibela Rail Transport Consortium – but no obvious change in the business model. The formation of the South African National Small Bus Owners Council formed in 2009 (SANSBOC) is one of the symptoms of capital formation beyond the legacy bus operators under the umbrella of Southern African Bus Owners Association (SABOA). At the early stages the formation echoed a deep understanding from the hallways of Parliamentary Portfolio Committees that :

Small bus operators faced several challenges, including high maintenance costs and low revenue. Most operated in rural areas where they were unable to maintain scheduled services. Operators were also burdened by strict conditions attached to contracts and the tendering process, which often forced them to make major investments with no guarantee of a return. It was very difficult for small bus operators to compete against established companies.”

Whereas a more recent reflection on the topic reveals much neglect as Obakeng Jacobs of Black Books Salon, wrote for Network Live News:

It should be noted that government has made commendable work in the recognition of SANSBOC, although with minimal tangible economic returns for small bus operators. Conversely formerly apartheid bus operators continue to reap large socioeconomic returns through the favourable tender system…The issue of legacy operators in the public passenger industry is treated as a footnote because it is central to the complete transformation and integration of the transport system in South Africa.”

Perhaps it may add value to small bus operators, minibus taxi owners, and even micro-transit operators who are part of the public passenger transport economy to take note of the nature of recapitalisation in the minibus taxi industry.

Highlighting the unique needs of smaller bus owners, SANSBOC who represent a new dimension in the passenger transport economy—which may at some point need to be recapitalised due to the nature of the services they offer (i.e. scholar transport in rural areas). So far, the capital formation underlying the minibus taxi industry may be constrained but cannot be neglected. Against this peculiar background, I would like to consider the dynamics of the new taxi recapitalisation scheme based on the information at hand and some previous work. Perhaps it may add value to small bus operators, minibus taxi owners, and even micro-transit operators who are part of the public passenger transport economy to take note of the nature of recapitalisation in the minibus taxi industry.

The instrument of recapitalisation and its industrial texture

For the minibus taxi industry, the unscheduled operations serving 64% of the motorized public transport commuters– but only 42% of all road users—recapitalization has been instrumental. Between 1994 and 2010 an average of 8000 vehicles were scrapped per year, whereas between 2013 and 2017 this annual average was almost halved. In my estimates, 89% of the vehicles that were registered in the 1980’s were ejected (or recapitalized) by 2010. Which should give one an idea of how long the recapitalization process actually is.

On the other hand, this type of intervention has been aimed at ensuring a fresh cycle of vehicles in the public transportation sphere and it seems to be composed of a number of structural subsidies:

  1. A recapitalization subsidy: which an amount paid to an owner-operator for scrapping a certain vehicle that they could use to purchase one that is compliant.
  2. An industrial subsidy: which is the public cost of the tax incentive for the People-Mover Incentive Scheme by the Department of Trade and Industry.

Furthermore, the industry is experiencing significant market level shifts. Firstly, the South African National Taxi Council (SANTACO) has consistently been innovative with regard to the future of the industry by focusing on its TR23 programme. The programme is focused on expanding the industry’s vertical and horizontal reach along the minibus taxi value chain. Fundamentally, public and private moves have been made in this direction. The most overt one involves the taxi industry through SANTACO having a corporate stake in a major financer: SATaxi Finance propelled by Transaction Capital.

On the other hand, industry players have leveraged aggressively on the industrial potential of the minibus taxi industry. To an extent that the Toyota Motor Company leaned deeply into the DTI’s incentive scheme to expand plat operations, and offer an open service plan for minibus taxi vehicles that carry passengers. Other manufacturers leverage against the incentive scheme in order to propel deeper manufacturing capacity that ripples into other sectors which use minibus vehicles as panel vans or passenger vehicles, in addition to boosting exports.

…there is a limit to the average operator-owner’s propensity to earn an income: too many vehicles along a route may result in less income per day. However, too few vehicles may result in poor quality services for commuters, and very long waiting times just to home.

Changes in the transportation political economy in the face of corporatisation

The ground level dynamic is opaquer than ever before. With the taxi industry extend its arms into the political sphere through ATA, and the abovementioned corporate level participation of the industry—there is more going on the ground than before. The industrial value is unquestionable as a skills base and employment gateway, the taxi scrapping process is an input to this process too. However, with market access to the public transportation side being controlled through permits, and operating licences there are still some local level politics to win over an association. Where minibus taxi vehicles operate, especially in rural areas, or in the face of poor-quality roads, is a key element to the operational resilience of the vehicles. This is in addition to the characteristics of its labour economy which incentives the manner in which they drive. Finally, there is a limit to the average operator-owner’s propensity to earn an income: too many vehicles along a route may result in less income per day. However, too few vehicles may result in poor quality services for commuters, and very long waiting times just to home.

While the new scrapping model leans on corporatising the minibus taxi industry. The National Department of Transport uses the term “commercialization” which has some regulatory flaws. The sector is a already commercial, as it hosts transactions, generates income but doesn’t operate entirely through the Companies Act. Which is also reflected in the measures of “formality” in that there are formal institutional systems in place in the industry, but only insiders know how the formalities work behind the late-night anonymous calls from large taxi owners. This system might not change without local level insight that develop approaches and functions which reflect the parallelism between the legitimate and formal.

Let’s wait for the Land Passenger Transport Market Inquiry report

It is of increasing importance to note that a balance between market entry regulation and economic regulation needs to be struck. While new technologies could help the minibus taxi industry from an operational perspective the journey to come remains long. This will not be an easy road, but minibus taxi owners will need to diversify their public transport service portfolio into buses, light rail technologies and delve into infrastructure (which some have already done). Operators may need to have stronger and more standard labour provisions that are consistent with the Labour Relations Act. While essentialisation might not be on the table, professionalising the industry may ensure that basic operational and service standards are encouraged, enforced and monitored on the ground. This is another anticipated outcome of the new recapitalisation scheme. Somewhere between the various spheres of government, and the minibus taxi industry’s various layers of governance a balance must be struck. Furthermore, with the growing public passenger transport industry in SA, there is a lot of recapitalisation, reform and corporatisation to do. For now, we wait for the report from the Competition Commission on the Land Passenger Transport Market Inquiry for fundamental clarity on these local, regional and national complexities. The rest is in my view, punctual not electric and largely premature.


This blog is based on a discussion on MetroFM with Mr Ayabonga Cawe on the 30th April 2019. His insightful show on entrepreneurship, business and the political economy runs from 19:00-21:00. 

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