• BEE NEWS

SA taxi industry: Lost in the boardroom?

BUSINESS MAVERICK / 09 JULY 2020 - 15.22 / HLUBI XABA

It’s time for a quantum leap more inspiring than state subsidies and powerless black empowerment deals in the taxi industry. The key is where the rubber hits the road.

A look through the minibus rearview mirror shows that the reverence of the South African taxi industry for large corporates ranks higher than what is conferred to government.

About a fortnight ago, a group of hardworking men, acknowledged for waking up pre-dawn and washing their faces with cold water before jumping in the minibus, got up fuming.

The fellows known for aggressively pressing on minibus accelerator pedals with their sandal-clad feet could not take it anymore. It was as if someone had stepped on their sore corns and callouses.

Armed with an overloaded list of demands enough to overfill a taxi, the operators requested, among other things, that South Africa’s leader of traffic officials, Transport Minister Fikile Mbalula put up a big red stop sign over the repossession of their commercial vehicles by lenders.

Here is the sad irony.

The South African National Taxi Council (Santaco), a national body representing taxi operators, owns a 25% equity position in leading minibus financier, SA Taxi. Asking Mbalula, a non-shareholder, to intervene on credit matters exposed the dimness of the taxi industry when it comes to reining in the real power-brokers steering the country’s economy.

With such a sizeable shareholding, it is not unreasonable to expect Santaco to have a seat and/or a recognised voice on the board of SA Taxi, Executive Management and Credit Committees. This is where discussions and decisions around bad debts and vehicle seizures take place.

For the taxi industry to have a sizeable stake, but no audible voice, is tantamount to allowing the “sheep to pass resolutions in favour of vegetarianism, while the wolf remains of a different opinion”, to borrow from William Ralph Inge.

The request to Mbalula simply showed some sorrowful powerlessness on the taxi operators’ part. The taxi drivers’ physical strength, often depicted through thick vein-popping hands on a Toyota steering wheel, was not visible when it came to dealing with the lenders. There was no hooting noise at the gates of lenders, no peeping for the large corporates to open up the value chain.

In 2018, Mbalula and SA Taxi announced a much-welcomed Broad-Based Black Economic Empowerment (BBBEE) deal. The transaction was hailed as long overdue as it gave the minibus industry a stake in a value chain worth billions of rands.

Mbalula, through a special purpose vehicle, acquired a 25% stake in the share capital of SA Taxi. The deal, valued at R1.7-billion, was largely funded by Africa’s largest lender, Standard Bank, and FutureGrowth Asset Management, a member of Old Mutual Investment Group. About R1.2-billion came from the former and the latter, and was used to buy 15.7% of ordinary shares in SA Taxi. The remaining R500-million for the 9.3% of ordinary shares was funded via vendor finance from JSE-listed Transaction Capital, the majority shareholder of SA Taxi.

A fortnight ago, the taxi industry made all sorts of demands and government humbly avoided being drawn into a blood-letting street fight. One of the complaints was the fact that taxi operators were limited to loading 70% of the minibus capacity. While any physical distancing matters during Covid-19, it is absurd to think that a limit of seven passengers in a 10-seater minibus can reduce infection.

Out of the R1.2-billion raised from Standard Bank and FutureGrowth, R1-billion was used by SA Taxi to settle interest-bearing debt and the remainder to fund growth. When the transaction was announced, it was reported that the deal would shore up SA Taxi’s balance sheet and increase its net asset value to about R3-billion from the R1.6-billion reported in September 2018.

The pact was engineered to grow SA Taxi’s market share by expanding its client base from about 30,000 to almost all of the estimated 250,000 minibus taxi operators in South Africa. The co-operation paved the way for a number of benefits for the minibus industry, including fuel and tyre rewards schemes aimed at easing the running costs of taxis. This seemed to be an earnings accretive corporate affairs masterstroke for shareholders.

First, it drove the formalisation of the taxi industry to territory untraveled before, giving the financier a better grip on understanding and routing the sector, perhaps even in a much stronger manner than the government. Secondly, it made the sector a key stakeholder with skin in the game.

Santaco knows continued havoc on the street risks undermining future dividend flow. The radical economic transformation (RET) forces call this capture.

The taxi sector is a difficult one to regulate. It is rough. At the buzzing taxi rank, working-class commuters brave the biting winter chill, standing in snaking queues. This demonstrates the importance of the minibus industry to the country’s economy.

At the taxi rank, caucuses with colourful language are aplenty. Some operators, both the grey-bearded and hairless faces, often begin a sentence with words containing a reference to the genitalia of someone’s mother. Depending on how the discussion goes, the tête-à-tête often ends with phrases comprising the testicles and buttocks of someone’s father.

The lingua franca is not spared, even in the presence of primary school-going children and white-collared priests. In a certain taxi rank in downtown Johannesburg, the carrier of the vulgar sonnets is often a chap with a round big belly protruding out of a tight black football club T-shirt.

Of course, some of the operators and tycoons are the friendliest and most romantic people with a heart of gold. These are people who kickstart the economy, and without them, many factories would stop humming and spitting out products.

As demonstrated by Mbalula, the ANC-led government has no appetite for a gun-fight with the taxi industry on the streets. Of course, the government would win, but it would be another bad spectacle and a political disaster.

But in the end, it is “natural selection” at the taxi rank, to cite Charles Darwin. Only the fittest survive. This is the type of behaviour that the government can’t regulate.

A fortnight ago, the taxi industry made all sorts of demands and government humbly avoided being drawn into a blood-letting street fight. One of the complaints was the fact that taxi operators were limited to loading 70% of the minibus capacity. While any physical distancing matters during Covid-19, it is absurd to think that a limit of seven passengers in a 10-seater minibus can reduce infection.

Anybody who has filed into such a vehicle knows that the seating arrangement is quite tight. If there are no masks and shields, a single sneeze has the potential to infect the entire taxi even if there is just 70% of the people in there. There is seriously no difference between 70% capacity and 100%, even on a 15-seater.

The Covid-19 grievances created an avenue for the minibus sector to ventilate other issues. It sounded like Mbalula was prepared to kowtow to the costly demand of state subsidies. The government should not go that route. Mbalula must make a U-turn fast because that journey could further overload the already burdened state fiscus.

Unlike the private sector, an offer of state subsidies will not get the minibus industry to observe the red traffic lights. Instead, there is a higher risk that if subsidies are offered, the following year there will be pressure to increase contributions way higher than the government may afford. What would make it difficult for the state to capture the taxi industry is that politicians battle to take financial decisions because of a fear of losing votes.

As demonstrated by Mbalula, the ANC-led government has no appetite for a gun-fight with the taxi industry on the streets. Of course, the government would win, but it would be another bad spectacle and a political disaster.

The anarchy in the minibus sector is also not new. The disorder was birthed in the racist workshop of apartheid. A case study of the minibus industry in South Africa by Jane Barret, then a researcher for the South African Transport and Allied Workers Union (SATAWU), showed that the chaos has its roots in apartheid spatial planning which forced black people to reside far from their workplaces in urban areas. At the time, public transport was dominated by subsidised buses and railways.

An opportunity exists in the tyre industry. The IDC has an opportunity to co-invest with the taxi industry in a South African tyre factory indigenous to the country. There is a market for this rather than expanding what is already a consumption orientated Leviathan state.

The former and the latter were inconvenient due to their preference for peak-hour operation. In the 1970s, the South African minibus industry entered the space to solve that problem. At the time, entrepreneurs operating the taxis were not given permits as vehicles carrying 10 passengers were regarded as a bus. They took advantage of a loophole in the Road Transportation Act and only loaded nine people, thus allowing them to apply for permits. The National Transport Commission (NTC), protective of the bus industry, was also under pressure not to issue permits to the black taxi owners.

Due to demand, many minibuses forcefully operated without permits and were subjected to police harassment such as impounding of vehicles. To counter this, the traffic police also took bribes from operators. The then government was also sending mixed messages with the Competition Board calling for an unregulated industry. While permits were ultimately issued for 15-seaters to operate as minibuses, the policy confusion caused more chaos as many unregulated players entered the sector.

How can government control the pandemonium on the road?

One of the inroads made by the ANC government post-1994 is its expansion of South Africa’s transport infrastructure, although it has failed to maintain a lot of what they took over from apartheid. The ANC government built the Gautrain, they expanded OR Tambo Airport to a world-class facility, built the under-utilised Port of Ngqura (Coega) in the Eastern Cape, the new King Shaka International Airport and many national roads.

There is an opportunity to add to the good without making the state a bottomless treasury. The dissidents rightfully argue that the middle class is subsidised through the state airline and amenities such as the Gautrain while the working class hardly benefits. The country ought to look at more value-accretive ways to benefit the working-class transport system.

The state-owned Industrial Development Corporation (IDC) could be a turn-key solution. At the moment, the taxi industry collects crumbs from its total value chain. It is rewarded through loyalty programmes. The SA Taxi deal is arguably the biggest investment that Santaco has ever done to participate in the mainstream economy. It needs to do more, but not just through BBBEE deals.

Mbalula, and Trade and Industry Minister Ebrahim Patel have an opportunity to work with the taxi industry to fund the establishment of a new business linked to the minibus value-chain. The two ministers could apply the brakes and slow down the notion of black businesses buying stakes, and taking over established white-owned businesses. It is tiring and a long haul to transform an old established corporate. It also does not assist in creating a legacy of building new businesses.

An opportunity exists in the tyre industry. The IDC has an opportunity to co-invest with the taxi industry in a South African tyre factory indigenous to the country. There is a market for this rather than expanding what is already a consumption orientated Leviathan state.

According to a Who Owns Whom Report published three years ago, South Africa’s tyre industry has an annual value worth about R30-billion. It has the capacity to manufacture 18 million tyres every year, but only produces 61% of that (11 million tyres). About 2 million South African manufactured tyres are exported to the neighbouring Southern African Development Countries. South Africa imports close to 40% of all passenger car tyres and 60% of all truck tyres are imported.

The South African tyre industry is dominated by foreign players such as Bridgestone, Goodyear, Sumitomo and Continental. There is no doubt a market for this. Government vehicles could procure its tyres from this entity with the local taxi industry bringing its own market. The tyre industry is just an example. Government and the minibus industry need to look beyond the state coffers and BBBEE.

* Xaba is a pseudonym.

--------

LINK : https://www.dailymaverick.co.za/article/2020-07-09-sa-taxi-industry-lost-in-the-boardroom/#gsc.tab=0

Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

25 views

© 2019 BEE Chamber (PTY) Ltd, All Rights Reserved