Exit of Modern Coast and Mombasa Raha lifts lid on troubled sector
Stiff competition from smaller vehicles and strict Covid-19 protocols that require transport companies to carry a third of their capacity is forcing a number of buses to bolt out of the business.
One of the biggest bus companies - Modern Coast - and one of the longest serving ones - Mombasa Raha - have now moved to offering courier services to remain afloat.
Modern Coast CEO Harun Butt told the Nation the company decided to park its buses due to high operating costs and it will only resume normal operations when the government allows 100 per cent passengers on board since sustaining the business is costly.
"The recommended 60 per cent passengers is not favouring us, we will proceed with courier services until the government adjusts to full-board in number of passengers allowed per trip. We will be making losses if we operate with those numbers," said Mr Butt.
Early this year, the company attempted to introduce new routes, including Mombasa-Lamu and Mombasa-Moshi, but stiff competition from shuttles – 14-seater vehicles -- edged them out.
Modern Coast pulled down its booking website and closed its booking office, and it seems the services are not about to resume any time soon.
At Mombasa Raha Bus Company, the manager, Mr Joseph Kyengo, said they also opted to stay out of the passenger services because of the high cost of transport and low number of commuters.
"We will not resume because of the 60 per cent passengers directive. A passenger must pay over Sh2,000 to sustain the fuel and other expenses, a price that does not attract travellers anymore," said Mr Kyengo.
He also called on the National Transport and Safety Authority (NTSA) to control the overwhelming number of private cars ferrying passengers to Nairobi.
"Some private cars, more so Toyota Noah’s, are interrupting our business, as they illegally carry passengers to Nairobi without proper documentation,” he said.
Gangs and cartels
The increasing number of shuttles operating the Mombasa-Nairobi route has also put buses at a disadvantage, with passengers opting to use them instead of buses.
“I would rather use shuttle than bus, even though they charge Sh300 less. The buses charges about Sh1,800 but with Sh2,000, I can use either shuttle and other private vans to travel to Nairobi,” said Mr John Kyalo, a frequent traveller.
In June last year, the government announced the reduction in number of passengers in all public transport vehicles (PSVs) as a measure to control the spread of Covid-19.
The 14-seater matatus were only allowed to carry eight passengers, while the buses were operating with 23 passengers.
The increasing cost of fuel has also hit hard bus operators, with diesel retailing at more than Sh105.
But it is not just trouble for bus companies, as more Kenyans come to terms with the fact that the transport industry is not the best place to invest anymore.
The idea is always a “sure bet”. Buy a matatu -- say a 14-seater, at Sh2 million to Sh3 million, perhaps get a loan to top up the deposit you have from your savings, then sit and wait for quick riches.
Many have learnt the painful way the dangers of venturing into Kenya’s matatu business, which has sunk investments and lifetime savings of many.
They had figured that all they would require is some deposit cash and a top-up loan to buy the vehicle, get the regulatory requirements and a driver, then perhaps invest in an initial full tank of fuel to get the vehicle moving.
But as a research by the Nation reveals, inundated by all manner of rogue authorities, gangs and cartels wanting to reap where they did not invest, the matatu business is one of the most dangerous ventures in the country and the rough environment is the reason many investors have failed.
Take, for instance, putting a 14-seater matatu on the road. Buying the vehicle would cost you between Sh2 million and Sh3 million, depending on the model, then you will need to insure the vehicle at an average cost of 10 per cent, 20 per cent and 30 per cent of the vehicle’s value for the second, third and fourth years of operation, respectively.
That’s not all, you will spend some Sh3,000 to have your matatu inspected by the NTSA once in a year, and as one driver at Nairobi’s Tea Room terminus notes: “When you take the matatu for inspection after booking for the service prior, you have to take some Sh3,000 to the official who serves you to ‘motivate them to get’ the inspection sticker. That is their meat. It’s money that you will never see again.”
Depending on the type of driver you have, the roads the vehicle plies and the period the vehicle has operated, you are likely to spend between Sh50,000 and Sh150,000 on maintenance a year, and there is the driver’s salary. A cheap one would cost you about Sh180,000 a year.
That’s not all. You see, in the matatu industry, you must operate from a designated terminus to get passengers. Here, there are some people whose job is to “invite passengers” to board your vehicle and it is not negotiable. They are called kamagera. They must get their share before a vehicle departs. They cost Sh100 to Sh200, or a price equal to the fare one passenger pays if it is for the town service matatus.
Parked buses at the Modern Coast yard in Mombasa on July 8, 2020.
Once the vehicle is full, before departing, the driver has to pay Sh200 stage fees and Sh400 sacco charges (Nairobi matatus pay Sh1,000 sacco charges daily). To operate, a matatu must belong to a sacco.
On the road, the driver must be armed with as many Sh100 notes as the police road blocks he will come across on the way, or the number of mistakes he makes.
The Nation had a look at the document a driver carries every time he is ferrying passengers. The document is prepared at booking offices, showing the fares passengers pay and how they are distributed. The document was for a matatu plying the Nairobi-Nakuru route.
This particular matatu had received Sh4,500 in fares. Among the expenses was Sh1,900 (fuel), Sh400 (sacco), Sh200 (stage), a Sh100 (police bribe). The document showed that the owner would earn a maximum of Sh1,650 (plus driver’s pay).
If the matatu goes for a round trip, it means the owner would make an average of Sh3,000 before paying the driver, and paying for the vehicle’s wear and tear.
Mr Simon Kimutai, the Matatu Owners Association (MOA) chairman, observes that the many loopholes in Kenya’s public transport have made the industry a loss-making venture, advising those interested in venturing into it never to make the mistake of stepping in blindly.
“Many people do not do the feasibility study. They do not care to find out how much revenues you collect per day and which will translate to the figures you earn in a month, then compare with all expenses. People forget that this vehicle requires maintenance and it depreciates,” he says.
Covid-19 pandemic
Mr Kimutai says many who have invested in the industry with the hope of making money learnt the hard way that that would never happen.
For a matatu to make business sense, it must get the owner money to cater for all expenses, some profit and generate an amount equivalent to its buying price within three years -- when service and maintenance costs start going up. Many investors have never earned enough to meet these needs.
“In true sense, public transport with proper cost accounting is simply loss-making. People who are clever buy (a vehicle) in cash and then they struggle for maybe four years to recoup their money. They then sell the ramshackle and that could probably be their profit,” Mr Kimutai says.
He adds that buying the vehicle on loan which many investors go for, ends up being a trap, since it increases the costs and reducing earnings. Sometimes, owners are forced to step in and pump in money.
“Buying through loan comes with conditions since the lender will require you to insure the vehicle at the company of their choice and the insured value will put to account even the interest on loan. The insurance expenses could go up to Sh600,000 per year for a minibus,” says Mr Kimutai.
It is such traps that have seen many unable to service loans, at which point lenders come to repossess the vehicles, leaving investors destitute. Topped with the many leakages of money in the industry, the matatu business has been a pain to many.
With the current Covid-19 pandemic, which affected the industry greatly with the ban on night travel and a cap on carrying capacity, the situation has moved from bad to worse.
Business of trust
“There are a lot of leakages in the industry; the police, gangs, owners of stages and even city askaris. Those are interested parties who will always be in to cash in in an area they have not invested. If you invest Sh5 million buying a matatu, I’m telling you will never see that Sh5 million in your bank account in your lifetime again,” Mr Kimutai adds.
But the biggest problem for owners has been that despite all the risks, it is also a business of trust, where the owners have to rely on the driver’s word to tell how the business is performing.
“You don’t have any accounting system that can tell you the number of passengers served in a particular day and the money they paid. At the end of the day the driver will go to the fuel station, fill up the tank, pay himself then give you what remains,” Mr Kimutai says.
This has been the main problem, particularly for matatus that do not operate in an organised manner from official booking stations. Locally, they are called ‘matatu za kusonga’.
Operators, however, observe that with the coming of end-to-end operations, where matatus pick passengers from official termini and payments are made at booking offices, the owners have been cushioned a bit from losses.
“Generally, it’s about trust. A driver will tell you he was arrested by police and had to pay them the whole day’s collections,” a matatu owner in Nairobi said.
In Nairobi, matatu owners part with about Sh1,000 to Sh3,000 daily for the unofficial expenses, most of which are illegal, but without which a matatu would not run.
“The reason many matatus are still on the road is that they are living on hope. Owners live in a vicious circle where they buy a vehicle, operate with it for a while then when they see it’s getting old they sell and buy a newer one. There is no growth,” a driver told the Nation. BY DAILY NATION
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