255 | More than just a minibus taxi to finance

MORE THAN INDUSTRY: INDISPENSABLE– To capture a value chain competitively is one thing, it is another thing to build relationships and solidify a robust footing in the passenger transport market. SA Taxi is a textbook example of how transport businesses evolve, too bad the competition is still sticking to finance.

Almost a decade ago, a first attempt at research was titled: ‘The Contemporary Minibus Taxi Industry in its Newly Modelled Direction’.

This study was a literature search, reflecting on the minibus taxi industry between 1970 and 2011. As a result, it covered the emergence of the industry through the late Collen McCaul’s Commuting Conundrum, and No Easy Ride pocketbook size journals of the minibus taxi industry documenting how the industry shot through roof. 

It featured many of the dominant scholars and consultants, including a conversation with the under-cited researcher Meshack Khoza, then SAHA consultant Koos van Zyl, and a visit to see Herrie Schalekamp. 

With Meshack I learned that as black scholars, we need to be keen to make transitions between industries, he practically applied the ‘capital accumulation’ he wrote about to himself. 

Koos outlined to me that they had placed seat occupancy detectors and a fixed income for minibus taxi operations along the V&A Waterfront route in Cape Town. They found that driver behaviour had improved due to both monitoring and predictable income. 

Herrie took me through some of his project and PhD work, covering various aspects of the transition toward Bus Rapid Transit in Cape Town and more interestingly, the structure and dynamics of building the industry’s capacity to reform (highly underestimated). 

These conversations stuck with me: find ways to accumulate capital, technology and predictability change behavoiur, and build capacity. 

The nimble and narrow niche of fertile soil

At a commercial front, the argument behind the study was that the industry was entering a new phase of development. 

There was an appetite for banks to finance the vehicles; Primedia was making bold moves around taxi rank advertising; and the then Department of Trade and Industry (and Competition, now) had built incentive schemes for people-movers. 

This was further accelerated by the Taxi Recapitalisation Programme, which propelled the industry to renew its fleet from the Nissan E20’s and Toyota Hi-Ace toward a list of South African Bureau of Standards approved vehicles for scrapping. 

Meanwhile the South African National Taxi Council (SANTACO) had just emerged from developing a response to the state’s Public Transport Strategy, by contending that the industry will now expand into other modes of transport, and invest in its value chain. 

These three waves in commerce, industry and institutions created a narrow niche of fertile soil for new product offerings in the minibus taxi industry. 

It was narrow because there were many other political, cartel-like and other niches that were exploited, some neglected, and others faded due to mismanaged potential. 

Financing minibus taxi vehicles 

At the end of the study, I argued that the industry was ripe for change, geared for a new direction and should thus leverage on its potential. 

However, there was no single actor, no one organisation that could drive this. Which was probably a flawed conclusion because it personified an entire industry. 

In principle, it seems that SA Taxi leaned in on the opportunity early and understood that leveraging on the interrelated supply chain could create interlocked value. 

The kind of value that induces a reinforcing loop, which on the surface could look like market dominance, but behind the veil it is a strong competitive focus. 

Emerging similar to Amazon, with a single product focus, SA Taxi served to provide a financing platform for the minibus taxi industry. At first I would contend that the actuarial framework they used created an exorbitant interest rate for customers. 

This was largely due to the lack of sufficient evidence and robust data about the minibus taxi industry. 

As the business evolved, it seems to be leaning in more and more toward having a better understanding of the industry in order to provide substantially more competitive product-service. 

SA Taxi Managing the Taxi Industry’s Potent Potential 

Yes, the product platform is tied to the Toyota Quantum vehicles they now refurbish (about 240 per month, by about 180 staff); and then sourcing and salvaging the high-quality e-marked parts for retail and refurbishment from the market and insured vehicles. 

Finally, this is a critical part of the financing model: providing finance, insurance and the capacity to refurbish, or repair the asset for re-entry throughout its lifetime creates a key selling point for both operators (clients) and shareholders (TransactionCapital). 

Above all else is their “commitment to the passenger transport industry” Matsidikanye Moswane emphasised in our meeting. This is not a financing, or retail commitment, it is a commitment to provide support to the industry by investing relationship capital. 

Not only did it create a platform for SANTACO to become a shareholder, but it is also providing systematic support for Taxi Associations through their site visits, patrol vehicles and relationships on the ground. 

A clear acknowledgement that SANTACO is not the only point of contact for the industry, but also a position which could prove vital for the commercialisation of Taxi Associations in future. 

Filling gaps or a growing monopoly

The business as the potential to fill gaps that the state have left wide-open for decades in the form of market intelligence and other offerings—although only for about 33% of the financed minibus taxi vehicle market.

At the same time, competitors will be keen to call foul as the business expands its reach beyond only financing, as this could lock operators into a perpetual loan-insurance-service-parts-and-support deal. Something that diversified banks cannot do with similar margins. 

Thus taking a similar tone to modern tech-companies: niche focus, lock-in and scale-effects create an environment in which competition struggles to mimic and the public perception turns toward a monopoly. 

Whereas, minibus taxi operators have other financing options although without the same service offering. It is the preference of operators who choose the offering and lack of robust competitors which create an artificial dominance, ready for disruption. 

It is quite clear that SA Taxi cannot take comfort in its market position today, it remains vulnerable to small but capital intense disruptions and institutional risks which other financing houses (or new entrants) could lean in on. 

But in an industry where trust is an asset, the numbers tell it all. 

Future disruptions 

Let me close with a brief epilogue: the minibus taxi industry, or passenger transport in general is changing rapidly. 

While South Africa’s discourse is confined to the subsidy conversation, there are multiple dynamic layers which are set to change many patches of the mobility quilt. 

As described in the proceeding sections where commerce, industry and institutions intersect a variety of outcomes are possible. 

But when we add technology, the economics of information create an almost hypersensitive environment. Urging an “in-time” service window for both the supply and demand markets, regardless of the scenario “or else I’ll go elsewhere”. 

Economies are not slowing down, they’re getting faster and better, very few industries can do both across commercial, industrial, institutional and technology spheres. Partly due to the slow pace of industrial investment and institutional decision making. 

However, I have noted elsewhere that the minibus taxi industry, as part of the paratransit market has entered the green-zone where market development is crucial or else its uptake could be uncompetitive and non-complementary. However, it is becoming more clear that industry players are taking note of the major risks, and perhaps it is time to update this chart. 

Thank you for reading.

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