Taxi industry risking Marikana moment?

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Johannesburg - We came to South Africa two months ago and chose the taxi industry as a fascinating example of pure African entrepreneurship for our research. In our first article in the Saturday Star, we claimed that a history of violence obscured the industry’s positive aspects, leaving it unappreciated and misunderstood by most South Africans.

Amazed by many readers’ responses online, we stimulated a constructive debate by challenging some of the most commonly held myths surrounding the taxi business in our second article: taxis actually cause fewer accidents than cars and their owners do pay tax. In this, our third article, we wish to highlight the less well-publicised tensions, which we believe are far more threatening to South Africa’s economic growth and social cohesion.

Reckless lending in the face of weak law enforcement and strained labour relations are the simmering issues, which left unchecked, we believe have the potential to create another tragic Marikana moment.

The collapse of Abil, a South African microlender, reminds us of the dangers of irresponsible lending. Marikana too has its roots in irresponsible credit extension. While bank downgrades, collapse, and executive remuneration grab the headlines, invariably the thousands of humble borrowers typically suffer most. A similar story is unfolding in the taxi industry.

Every month, between 1 000 and 1 500 new taxis are financed by banks and specialist taxi lenders, according to Taxi Choice, the commercial arm of the taxi association representative body Santaco. They estimate that up to half of new vehicles are illegal, meaning they do not have a mandatory operating licence. Some lenders turn a blind eye to this requirement, requesting only “visual approval of the permit, without confirming its validity with the official databases”, complains Taxi Choice deputy managing director Thulani Qwabe.

RISK OF DEFAULT

Much like speculative house buyers in the US, and overstretched Abil borrowers, illegal taxi operators run a high risk of default: by providing them with access to credit, financiers irresponsibly set them on a dangerous course. Illegal operators must push into a profitable route to earn the revenue they require to meet their large repayments. Without an operating licence, they can be discovered by the police, or more likely, by other operators who will kick them off the route, or worse. This puts illegal operators in a much higher credit risk category than their legal counterparts with a secured route.

“Lending to these criminals fuels violence,” according to Santaco president Philip Taaibosch.

Surely it would be in the interest of lenders to insist on proof of a valid licence to ensure that they do not lend to this high risk, illegal group? Despite the risks, this is still a profitable group to lend to for two important reasons: financiers are able to charge very high interest rates, up to 30 percent, and the most popular taxi vehicle brands have a remarkably high resale value. If trouble strikes, lenders can repossess and relend the vehicles of non-performing loans relatively efficiently.

This may go some way to explain the hitherto miraculous financial performance of certain specialised taxi lenders who are able to generate significant profits despite surprisingly high levels of non-performing loans on their books.

Like the examples of reckless lending that resulted in many financial crises and countless human tragedies, a lack of regulation, and its enforcement, are the fundamental failures. Taaibosch believes financial regulation could go further: “It should be a criminal act for a financier to lend to unregistered operators. Financial institutions that do not ensure borrowers meet official taxi license requirements should lose their financial licenses”.

A lack of respect for, and enforcement of, the law runs deeper than reckless lending. Increasing license enforcement through more active and reliable policing could remove illegal operators from the roads and reduce the threat of violent vigilante reprisals by competing taxis. Making the legal means of acquiring a license more efficient and predictable could also help. The government urgently needs to address the backlog of issuing new taxi licenses to reduce the incentives to enter the market illegally.

Another source of building tension is between drivers and owners, in particular the lack of upward mobility for drivers. The taxi industry has a proud history of progressive succession. According to Bonisile Makubalo, SA Taxi corporate affairs director, “60 percent of the current taxi bosses started as drivers”. Traditionally, loyal drivers looked forward to the potential of being “promoted” to owners after serving eight to 10 years.

ILLEGAL OPERATORS

However, due to the increasing competition from illegal operators and declining route profitability, owners and their associations have put the brakes on driver promotion. This has not been widely realised by drivers. Many still report ambitions to be promoted to owners when we interviewed them. If and when drivers realise that promotions have all but ceased, their willingness to endure the trials of their current circumstances, without reasonable hope of improvement, will be severely tested.

There is a big gap between driver and owner views of compensation. “Find me an employer in the country who pays their employees better than the taxi industry,” challenges Taaibosch, as he tallies up the various formal and informal sources of income drivers benefit from.

It is universally acknowledged that drivers supplement their meagre fixed incomes by underreporting daily revenues to owners, the so-called “commission structure” of the their remuneration.

We should all spare a thought for these drivers. As was so tragically apparent in the explosion of violence in Marikana, it is when the frustrations of the most vulnerable people are not heard or acknowledged that the powder keg of unmet expectations explodes. The trigger, in the case of the taxi industry, is unlikely to be the well-publicised gripes of the owners, represented by their local associations and national Santaco body. It is far more likely to come from the drivers. Hated by other motorists, non-unionised, unwillingly pushed into lower-income formal employment by industry and the government, and at odds with their employers, this is the group most likely to be pushed to more radical action if they are not given a due hearing.

 TRAINING DRIVERS

Santaco is attempting to up-skill its drivers. Through its training academy in Welkom in the Free State, it says it gives drivers, owners, and taxi marshals instruction in road safety, service delivery, and business operation management to address passengers and other road users’ concerns. There are also plans to introduce 10 000 to 20 000 women drivers on to the road by 2030. As the Santaco president puts it, “Women have this incredible power of softening people’s emotions. And you know how they do it? They just smile!”

As our research comes to a conclusion, we still believe the minibus taxi industry in South Africa is an instructive expression of African entrepreneurship.

“The taxi industry is pure capitalism at its best. The one who wants to make the most money is the one who works the hardest,” says Makubalo, of SA Taxi.

Striking a healthy balance between regulation, enforcement, and the formal integration of the taxi industry into mass transit, on the one hand, and allowing the entrepreneurial spirit of the owners and drivers to flourish on the other, is at the heart of the challenge for all developing economies wanting to promote growth.

“Taxis will always beat the Rea Vaya (Gauteng’s new rapid bus transit system),” says Santaco president, Taaibosch, “if a shack appears somewhere today, tomorrow morning you’ll see a taxi picking up the new residents.” Appreciating this remarkable feat, and the 15 million others like it which happen every day, will go a long way to achieving the balanced and harmonious growth that South Africa so badly needs.

* Last week we wrote that, based on our interviews, a taxi driver generates an average revenue of R750 per day. This was incorrect, the correct figure is R850.

Alex and Sabine are students from Bocconi University in Milan, Italy. They are doing fieldwork in South African as part of a research project into promoting entrepreneurship in Africa’s taxi industry. Gilbert is their local partner and independent consultant. Follow their research on www.hakunamatatu.com

Saturday Star



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