The taxi industry is poised to emerge as a more appealing investment case as the government moves to regulate it, asset manager Futuregrowth says.
Futuregrowth, which manages about R194bn of client assets and is a subsidiary of JSE-listed Old Mutual, is already an investor in the industry via SA Taxi, the country’s largest financier of minibus taxis.
The industry is a crucial cog in SA’s economy, with at least two-thirds of commuters relying on minibus taxis to commute daily. It generates R50bn in revenue a year and spends more than R20bn on fuel.
Despite the country’s finances being in a dire state, transport minister Fikile Mbalula recently backed the proposed introduction of a R50bn taxi industry subsidy by April 2021, which is likely to require that the sector be formalised or regulated. But industry players have opposed any regulation.
In a note published earlier this week, Futuregrowth investment analyst Luzuko Nomjana said many investors may be disinclined to invest in the taxi industry because of its reputation as being impossible to regulate, difficult to understand and politicised.
“Assessing the extent of the risk involved is complicated. While it is easy to understand this view, we should not underplay a key reason this industry has thrived for so long with minimal government support ... the industry has a continually growing customer base as more people flock to the big cities in pursuit of better job opportunities,” Nomjana said.
From a South African point of view, this economic fundamental is likely to remain in play for decades to come as development in non-urban areas continues to take a back seat, driving people to relocate to cities. As a result, Nomjana said, the demand for minibus taxis has consistently exceeded supply over recent years.
“With appropriate risk-reward measures in place, investing in this industry provides socially-minded investors with a way to participate in a sector that is vital to the wellbeing of the majority of ordinary South Africans. This is expected to become easier, given the plans under way to formalise the industry.”
Nomjana said recent protest actions by taxi operators emphasise the need for the industry to be subsidised by the government.
Earlier in 2020, the Competition Commission’s Tembinkosi Bonakele said the commission had recommended in a report on a market inquiry into land-based public passenger transport that funding for subsidies for the minibus taxi industry be increased. The commission’s report revealed that the 40% subsidy the rail sector received from the government only benefited wealthier provinces as there was no proper rail network in poor provinces.
According to Nomjana, for subsidies to come into play the taxi industry will need to be formalised and regulated — a fundamental shift. This will take willingness and commitment on the part of both government and taxi owners.
“News of a planned national taxi indaba anticipated to take place towards the end of 2020 is encouraging. This is planned to be a formal discussion on a collaborative strategy between the government (through the department of transport) and the taxi industry, to formalise government support and the transition of the industry towards compliance with the country’s tax and labour laws.
“While this will not be achieved overnight, it is a step in the right direction and should make the industry more appealing to a wider investment base,” Nomjana said.
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