The Kenyan government has accumulated an incredible amount of debt to develop infrastructure across the country and improve the accessibility of rural and urban areas.
These development partly favours those with interest in the public transport. But how lucrative is the business of matatus? What are the risks? Can you pay your bills by running fleets of buses? Definitely there are considerations one should make before venturing into the public transport business.
In an interview with Kenyans.co.ke Derrick Mwenda, an owner of a fleet of vehicles in the transport business, elaborated on the considerations before you pump your cash into the sector.
Transport routes
When you venture into the transport business, you must belong to a SACCO. Owners of vehicles profit from the services provided by the SACCOs such as multiple travel routes, and fees from cargo transport.
“The Saccos must be approved by the National Transport and Safety Authority(NTSA) before applying for a PSV license. The PSV license is still processed by the National Transport and Safety Authority after five business days on average.” He stated.
Condition of the vehicle
Should you be cash-strapped, the you can opt for second-hand vehicles. There are travel routes that vary in distance and due to the cost of maintenance vehicles, the use of second-hand vehicles may not be cost-effective.
“It is important to inspect the condition of the vehicle especially if it is a second-hand vehicle. Second-hand vehicles save individuals money but the condition of the vehicle could accumulate maintenance costs and in the worst-case scenarios cause fatal accidents,” Mwenda remarked.
Capacity
The capacity of the vehicle should reflect the returns you expect and the population of the area one is offering transportation services to.
“When acquiring a public service vehicle capacity will matter due to profit. The fees charged on passengers and cargo transported should be in the mind of the businessmen in the transportation industry.
There are individuals who invest in coach travel and are mostly for long distances to the countryside or vacation distances.” he stated
Financing of the vehicle
In media reports in October 2018, they had indicated the rise of repossessed vehicles by auctioneers. In another report, they indicated Kenya Auction, an online auction website, placed over 300 auctions every month.
“Individuals in the transport business will either equity finance or debt finance their vehicles. The biggest problem with financing is understating the dynamics of owning a vehicle in this business.
An individual should factor in such as fuel consumption, repairs, spare parts, the purchase price of the vehicle, insurance, and loan repayment terms and condition,”Mwenda expounded.
Government Policy risks
There are instances where the government might intend to implement a policy that hurt the industry. In 2019, the Ministry of Transport drafted amendments to the Traffic Act, and National Transport and Safety Authority(NTSA) introduced a regulation that caps fare tariffs charged by matatus.
“There are instances where the government may want to bypass market forces when attempting to lower the cost of living but that's false. During the election week, the political climate created by politicians and the policies on the economy greatly affects the transport business” he explained
Market risks
Business risks are sometimes unpredictable. For instance, at the moment, the country is experiencing an acute shortage of fuel, which many players in the transport sector did not expect. Such unprecedented changes to revenues as the cost of doing business spikes.
“We are in a country where liberal pricing of some products will have a ripple effect on businesses depending on the product. When fuel price increases we either reduce our profit margins to retain customers or pass on the cost to consumers,” he stated
Vehicle insurance
Insurance companies will rely on the highway code to establish liabilities. The highway code is established under the Kenya Traffic Law. The codes involve communication and interpretation of road safety rules.
“Having insurance guarantees smooth operation on the road since you are compliant with the traffic laws. As the owner of a public service vehicle, it is less time-consuming when you transfer the risks to an insurance provider when dealing with a third party in a road accident.
An insurance provider will also protect the owner of the public service vehicle against accidents, special perils, and theft. The cost of the premiums will vary as the insurance provider makes their assessment of risks,” Mwenda elaborated.
