IT is the ultimate consumer industry, used by more than 15-million South Africans every day. Even with economic growth at a miserly 1.9% and a quarter of the country out of work, it is still raking in the cash.
So does this mean South Africaâ€™s taxi industry is a dream investment, seemingly invulnerable to any recession and guaranteed to make a killing, no matter what? If so, how would an investor get a slice of an industry that seems to be one of the few with enough sway to scare the government into exempting it from such indirect taxes as e-tolls?
The good news for investors who want a piece of the taxi industry but do not want to buy their own fleet is that there is the â€œsafe optionâ€ of investing in taxis through the JSE. Transaction Capital, which owns SA Taxi Finance, listed on the exchange two years ago and finances the purchases of many of the taxis on the roads.
The flip side is that Transaction Capital has not exactly shot out the lights.
This week, it reported a 27% plunge in headline earnings and it still remains worryingly exposed to the pricklier side of the consumer credit market.
So is Transaction Capital a worthwhile investment?
History says no. People who bought shares at its June 2012 listing price of R8 a share would not be thrilled with the fact that its stock is now languishing at R5.65 a share.
Even if you add in the R2.10 a share â€œdistributionâ€ to shareholders last year, this still indicates that investors would be disappointed.
But savvy investors will also have noticed that Transaction Capital sold off two major albatrosses last year â€” unsecured lender Bayport for R1.3bn, which it had bought in 2010 for R650m, and payment service arm Paycorp for R937m, which it had bought for R431m in 2007.
Now, CEO David Hurwitz will tell you, Transaction Capital is primed to make big bucks.
Hurwitz has an unenviable task, trying to fill the shoes of Mark Lamberti, the Massmart founder who was CEO of Transaction Capital until recently and a man lauded as something of a demigod in the business sector.
But Hurwitz is right that if you focus on remaining operations â€” SA Taxi Finance and collections company MBD Credit Solutions â€” then it all looks far brighter.
Earnings at these â€œcontinuing operationsâ€ grew 28% to R148m.
Hurwitz is predicting big things for the credit recoveries business, MBD, and says Transaction Capital spent R160m last year buying various debt books that it now hopes to collect on.
These debtors books come from retailers, banks, gyms, the South African Revenue Service and municipalities in which people owe rates and taxes.
MBDâ€™s earnings inched up only 9% to R47m, but it remains the largest collection agency in Africa.
Vunani Private Clientsâ€™ senior analyst, Viv Govender, said although it was possible to make money from collecting these debts, regulations were making it harder for companies to do.
A far easier sell is Transaction Capitalâ€™s SA Taxi and asset-backed lending division, which did better than MBD, increasing earnings 15% to R78m.
â€œThe replacement of ageing vehicles continues to create a robust demand for the minibus taxi finance provided by SA Taxi,â€ said the company.
Interestingly, the amount of bad debt in the business remains relatively low â€” taxi owners who borrow from SA Taxi tend to repay. The company said its credit loss ratio of 5.6% was â€œbelow SA Taxiâ€™s upper tolerance level of 6%â€.
But still, 30.4% of SA Taxiâ€™s loans are considered â€œnon-performingâ€.
The tricky nature of the business is evident in the fact that, as Transaction Capital said, taxi owners tend to repay loans â€œirregularlyâ€.
To make extra cash, SA Taxi has branched out into different areas: advertising in taxis and a new insurance vehicle, Khusela Taxi Insurance. It is also making a mint from financing bakkies.
Until now, Transaction Capital has not lived up to investorsâ€™ expectations.
But if you believe that the 180,000 taxis that roam our roads daily are not going to disappear any time soon, you would have to believe there is gas in its tank.
â€™Enforcerâ€™ drives plan to reform industry
JOTHAN Msibi shares the same nickname in the South African taxi industry that Bakkies Botha has in the rugby world: â€œThe Enforcerâ€.
It is not his physical stature that has earned Msibi the nickname, because he is not tall. Nor is he some bone-breaking taxi lord bent on extracting his pound of flesh from other mortals. Instead, he appears to be gentle and polite.
The reason for the nickname is that Msibi has a vision for the taxi industry â€” and is determined to make it work.
He is one of South Africaâ€™s most successful taxi owners and the chairman of TaxiChoice, the commercial arm of Santaco, the self-regulated national taxi industry body.
His plans seem to have a good chance of success because Santacoâ€™s new president is Philip Taaibosch, a man who shares Msibiâ€™s vision of leading the taxi industry in a second wave of formalisation.
The first wave came in the early â€˜90s when routes, permits and associations were introduced and Santaco was formed. That first wave was driven by the imperative to end continuous conflict and violence.
The second wave is far greater in terms of its vision and predicted impact. For Msibi, this transformation will put the taxi industry in its rightful place â€” at the main table of South Africaâ€™s formal economy.
Clem Sunter called the taxi industry â€œthe economic miracle of the â€˜80sâ€ and equated its economic value to â€œthree gold minesâ€. And the scenario planner was not joking: the most basic calculations put the industry at the level of a Pick n Pay. That is based on estimated fare collections and does not count all the vehicle finance charges and repairmen that it pays, nor the rank marshals, criers and cleaners that it employs. This is not to mention the 15-million people it delivers to work on time every day.
But first, let us get the complaints about bad driving out of the way.
The feeling in the industry is that people who complain about taxis in the morning traffic were only able to give their maid instructions that morning, before leaving for work, because of that driver behaviour.
â€œIn many countries,â€ says Msibi, â€œthere are high-occupancy vehicle lanes designed to encourage users to get out of their cars and into public transport.â€
In South Africa there are only a few â€” and they are exclusively for buses. But buses only move 15% of the population whereas taxis move 65%.
â€œTaxis in this country should have their own lanes,â€ says Msibi.
Then there are the complaints about taxi safety. According to a Santaco press release: â€œSixty percent of road accident fatalities occur over weekends (Friday to Sunday) and many of those are between 6pm and 9pm, which are times when the taxi fleet is least active. For every fatality in a taxi, there are five fatalities in private vehicles.â€
There is certainly an argument to be made, backed by statistics, that drinking and driving is as much a contributor to South Africaâ€™s road death toll as taxi driver behaviour or taxi roadworthiness.
Although Msibi insists that dedicated lanes would take care of the major moans about driver behaviour, there is another proposal that will be more palatable to most road users -and more realistic. It is the fitting of smartcard and tracking technology to every taxi in South Africa.
Msibiâ€™s vision for this aspect of his plan is simply this: â€œOne united taxi industry with a proper vehicle for South African conditions that will last for seven to eight years.â€
He believes the Mbeki administrationâ€™s taxi recapitalisation programme merely resulted in the introduction of poorer-quality vehicles, which pushed up maintenance and replacement costs.
Despite these expenses, petrol-price increases and a lack of subsidisation, taxi fares in South Africa are the lowest in the world and increases do not nearly match inflation.
â€œThe only reason it has survived,â€ he says with no hint of sarcasm, â€œis because taxi owners are the best entrepreneurs in South Africaâ€.
Msibi is hoping the electronic vehicle management system will give these entrepreneurs some relief -and reward for their guts and resilience.
Cynics will point out Santacoâ€™s failed attempt to start an airline a few years ago. That, says Msibi, â€œwas a case where the good intentions of promoting a broad-based black economic empowerment opportunity overtook the business planningâ€. â€œWe take the positive lessons and move on. In the case of the electronic management project, itâ€™s purely business.â€
Studies show that taxi drivers keep on average 35% of the fares, although Msibi reckons it is more like 50%.
Drivers use the vehicles during quiet periods to make their own runs and race to squeeze in a few extra trips during peak hours. All this makes for bad driving and wears out the vehicle, which means the owners have to buy a new taxi.
Smartcards will take cash out of the system, forcing drivers to be honest. In exchange, they will get salaries with pension and medical aid benefits.
This will make everything safer: drivers with salaries will not have the incentive to race around recklessly and there will be less wear and tear to the vehicles.
Better control of the cash flow will raise ownersâ€™ earnings significantly, Msibi believes. For example, their finance costs will be greatly reduced because they will be able to prove earnings.
The electronic management system has already been tried on 8,000 taxis â€” but it was stopped by the government, which wanted a closer look at the mechanics and potential revenue streams.
This time around the industry is doing it properly. The government is on board and Msibi aims to have 10,000 taxis on the system within three years, which is expected to result in owners earning R700 extra every day. We are talking a net gain of R1.7bn a year.
If you take a net present value of that, using a return rate of 20%, that is about R8bn of collective buying power.
â€œWeâ€™ll negotiate collective rebates on petrol and tyres,â€ says Msibi. â€œWeâ€™ll finance ourselves. Weâ€™ll offer other vending services and act as a payment gateway for village pensioners and foreign workers, who will be able to charge their card and use it as a debit card.â€ The possibilities are endless.
Commuters want this solution too, he says. â€œWhy should taxis be the only purchase they have to carry cash for?â€Many other commuters avoid taxis because they can buy prepaid tickets for buses and trains as a way of budgeting before they spend the rest of their cash. Not to mention white passengers. â€œWhen we ran the trial and people didnâ€™t have to talk to the driver in order to pay fares, we suddenly had more white passengers. When it was stopped they went away.â€
Drivers will naturally protest and this is where Msibi becomes â€œThe Enforcerâ€. Despite the benefits, which will include UIF, training, bringing tens of thousands of unbanked people into the formal economy and even rewards programmes, you sense this will not be enough to persuade the drivers.
Msibi is clear that the owners hold the trump cards.
They, like their drivers and like their clients, all live in the townships.
On the one hand, this makes it difficult for owners to increase their neighboursâ€™ fares. On the other, â€œitâ€™s not like a mine where you have two owner representatives and a single entrance gateâ€.
There are thousands of owners, most of whom have only one taxi and employ one driver. The owners will have conversations with each other and with their associations. â€œTogether with their associations, they will keep their own drivers out of the ranks and off the road and substitute scab drivers if they have to,â€ says Msibi.
The owners want control of their money and are prepared to take action. Msibi is their man to make it happen. â€” Neil Bierbaum
â€™No perks and every cent counts in this businessâ€™
SIZWE Makhathini is a taxi driver who lives in Pietermaritzburgâ€™s France township and drives the Richmond Crescent route.
How old are you?
I am 60, which is old for a driver. Most drivers are very young, almost half my age.
What is your family status?
I am married, although I would say most of the drivers are not married and almost all of them have families to support because they have children out of wedlock.
Are you the main breadwinner?
Yes, I am the only breadwinner and my kids rely on me tremendously. My salary goes towards my family, school fees, groceries â€” everything.
What routes do you drive?
I drive the Richmond Crescent route. It mostly services residents going to and from work, as well as pupils. My passengers are mostly middle-class people, teachers, nurses, government employees and some in the private sector. Mostly it is during rush hours and the traffic is so tense. I drop them off at their workplace and some at the ranks.
Describe a typical day.
I usually wake up at 3am and get back home at about 9pm. During my spare time, I try to get as much rest as I can. During the rush hours, you have to be focused and attentive.
How did you become a taxi driver?
Due to a lack of employment.
Are there any perks?
You mean like tips? We do not get any. Every cent counts in this business.
What is the grinding part?
The thing I hate most is the long hours, because I can hardly do anything of my own.
What do you consider to be your future prospects?
I wish I could own my own taxi one day, because I am currently running someone elseâ€™s business and I always wish it was my own. â€”Â Neil Bierbaum
From driver to fleet owner
JOTHAN Msibi is one of South Africaâ€™s most successful taxi owners.
How did you get started in the taxi industry?
I came to Pretoria from Piet Retief. I trained as a welder and got a job with an engineering company. There were four of us younger guys working there, and when the unions went on strike the management blamed us. So I found myself without a job and became a taxi driver.
How did you get from being a driver to becoming an owner?
Banks were shying away from financing taxis, plus I was young and had no bank account and no track record. One day, I was introduced by a respected owner to a lady by the name of Betty du Toit. She gave me my first finance deal. Getting to that point took me two years.
How did it go from there?
I realised the value in having a good credit record, so I worked on that. It took another four years before I moved from owning a single taxi to starting a fleet. Today I have almost 100 taxis and I have branched out into construction.
Who taught you about money?
The man I worked for as a taxi driver, Frans Mthimunye, was my mentor and teacher. Most taxi owners get cash coming in every day and spend it as it comes in. Not Mthimunye. He would collect the envelopes through the week and only open them on a Monday. Then he would balance his books, do his budget and bank the rest.
What was the greatest business lesson?
The lesson came from Mthimunye and it was about respect. In those days, there were not so many young drivers and they generally drove older people in their family. They had little respect for people outside of that circle. He taught me to respect everybody. â€”Â Neil Bierbaum