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Q3 2023 - (released November 2023)

SA's quarterly Private Equity & Venture Capital magazine


A bridge to a better taxi industry in South Africa

by Michael Avery

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In the bustling heart of South Africa's economy, a silent revolution is underway, powered by a subsidiary of Mokoro Holdings – Bridge Taxi Finance.

This development firm is not just offering financial support to the minibus taxi industry, but creating a holistic ecosystem, intertwining finance with logistics, credit solutions, parts supply, and vehicle servicing.

The minibus taxi industry is the lifeblood of South Africa's public transport, constituting over 70% of all public transit trips. It stands as the primary mode of transportation across the country. In this vibrant milieu, Bridge Taxi Finance is carving a niche, propelled by a €10m facility from Triodos Investment Managers. This funding marks the inaugural step in a promising journey, with a robust pipeline of international development finance and impact investors poised to join hands in catalysing Bridge Taxi Finance's mission.

Given the well-publicised collapse of SA Taxi, part of the Transaction Capital stable, this funding comes at an opportune time as a key competitor stumbles. While conditions have been tough for taxi operators, the reliance of the majority of commuters in South Africa on this form of transport offers a degree of resilience and comfort to the funders. 

Though privately owned, the minibus taxi industry is the most important cog of South Africa’s public transport network, carrying roughly 15 million commuters to and from work daily, according to Stats SA’s 2020 household survey. The survey also finds that South African households spend the equivalent of 12% of the country's GDP on transport. This ratio is far greater than in many other countries, including those of trading partners. Despite having similar levels of public transport usage, these countries only spend around 7% of their GDP on transportation.

While official numbers are hard to come by, reading through the recent Competition Commission Land Based Market Inquiry into Public Transport, there are roughly 200 000 to 250 000 minibus taxis operating in South Africa, and the National Taxi Alliance estimates that the industry generates at least R100bn annually, though it’s common knowledge that the industry doesn’t pay corporate or income taxes, apart from fuel levies. 

That the minibus taxi industry is largely lawless goes without saying, with many operating without the requisite operating permits, with scant regard for the rules of the road, and brutally violent, with killings over routes a feature. But however unsurprising, the increase of violence over routes is not just the fault of the industry; it is symptomatic of yet more state failure. 

Provincial Regulatory Entities (PREs) receive and decide on operating licence applications. Planning authorities in local government are in charge of giving direction to the PREs – such as whether to award, extend, change, or transfer operating licences – which must be based on five-year integrated transport plans, but the Commission has found that this is not being done. 

Given this history, and limited access to legitimate business opportunities, it’s little wonder that the industry is overtraded and infiltrated by mafia. And its profitability is dwindling too, judging by SA Taxi’s numbers. 

According to SA Taxi's research in 2020, the average short-route operator on the 23km route between Soweto and Johannesburg earned a profit of around R25,000 a month. 

But, since COVID, this has deteriorated markedly. Fare increases haven't kept up with rising costs from interest rates, fuel and the price of the vehicle, where the average monthly instalment on a new vehicle has increased by over R6,000 over the last three years. 
Is it fair that taxi operators pay VAT on purchasing new taxis for commercial use? No, but then, again, they should also pay their fair share of income tax. Then there's still interest rates and fuel, which is probably the biggest input. 

On the revenue side, there has been only one set of fare increases since COVID (with another one expected shortly), but this is hard to track because every association does something different. Added to this, SA Taxi’s figures show commuter volumes still haven’t returned to pre-COVID levels.

Government’s taxi recapitalisation programme has had only limited success, and it’s little wonder that operators are cutting corners, with unroadworthy vehicles rightfully being impounded. But that’s where the idea of subsidisation becomes interesting, because any talk of a taxpayer funded subsidy of a private entity through the Department of Transport or any other mechanism, like local government, immediately brings with it some degree of accountability. 

This will support the heart of Bridge Taxi Finance's operations, its clients – the entrepreneurial drivers who own and operate taxi businesses. The company's portfolio already encompasses over 4,700 such enterprising individuals, filling a crucial gap in the market. For many of these entrepreneurs, Bridge Taxi Finance provides a lifeline, offering them access to income-generating assets and enabling them to be active contributors to the economy.

Looking ahead, Bridge Taxi Finance is setting its sights on a future of electric vehicles, with feasibility studies already underway. This forward-thinking approach is driven by a founding team with over two decades of experience in development finance, emphasising the company's commitment to sustainability and innovation.

This transaction signals a pivotal moment in the inclusive finance sector of South Africa. Verdant Capital, serving as Bridge Taxi Finance's sole advisor, has introduced an investment structure that streamlines and simplifies the process for international impact investors. This strategic move is not only reshaping how capital flows into impact finance, but also promising a more inclusive and prosperous future for South Africa.

As Bridge Taxi Finance continues to pioneer change in the minibus taxi industry, the echoes of its impact will resonate far beyond the confines of this vital sector. It stands as a beacon of hope, illuminating a path towards a more inclusive and sustainable future for South Africa and its unique and enterprising entrepreneurs. 

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