Minibus Operators & Passenger Minibus Operators & Passenger Welfare in MalawiWelfare in Malawi

Milward TobiasMilward Tobias

MalawiMalawi

Presentation outlinePresentation outline

IntroductionIntroduction Minibus transport Minibus transport

operationoperation Price fixingPrice fixing Quality fixingQuality fixing• Civil society in Civil society in

transport sectortransport sector• Average Average

expenditure on expenditure on transport by transport by consumersconsumers

Average earnings Average earnings of operatorsof operators

Average cost for Average cost for operatorsoperators

Anti-competitive & Anti-competitive & economies of scaleeconomies of scale

Challenges Challenges affecting affecting consumersconsumers

Presentation outline (cont’d)Presentation outline (cont’d)

• Recommendation Recommendation • conclusionconclusion

IntroductionIntroduction

Malawi has a Malawi has a population of about population of about 12 million12 million

About 25% live in About 25% live in urban areas with urban areas with the majority using the majority using minibus for daily minibus for daily transporttransport

Transport cost and Transport cost and quality have thus a quality have thus a significant bearing significant bearing onon

majority’s welfaremajority’s welfare Minibus operators Minibus operators

are in association are in association called Minibus called Minibus Owners Association Owners Association of Malawi (MOAM)of Malawi (MOAM)

Minibuses flooded Minibuses flooded the market from the market from mid 1990s and mid 1990s and eased transport eased transport challenges.challenges.

The minibus transport operationThe minibus transport operation

Minibus operation Minibus operation faces the principal-faces the principal-agent problem to a agent problem to a great dealgreat deal

To counter the To counter the problem principals problem principals set target amount set target amount of money agents of money agents should generate in should generate in a daya day

The setting of The setting of targets impacts on targets impacts on speeding and speeding and consequent road consequent road accidents as accidents as agents strive to agents strive to meet the target meet the target and make more and make more money for their money for their ownown

Price fixingPrice fixing

In a liberalised In a liberalised market we expect market we expect more players in more players in industry to induce industry to induce more competition on more competition on prices and qualityprices and quality

The consumer is a The consumer is a beneficiary thereforebeneficiary therefore

The role of MOAM The role of MOAM would be would be representation and representation and

quality check in quality check in terms of ensuring terms of ensuring vehicles registered vehicles registered with it have with it have Certificate of Certificate of Fitness, insurance Fitness, insurance and other and other safety safety requirementsrequirements

Price fixing (cont’d)Price fixing (cont’d)

What MOAM does:What MOAM does: Determination of Determination of

fares for different fares for different routesroutes

Cushioning Cushioning inefficient and poor inefficient and poor standard transport standard transport providers by providers by allowing agents to allowing agents to line up on a first line up on a first come first pack come first pack basisbasis

What the law says: What the law says: Section 34(b)(i) of Section 34(b)(i) of the Competition the Competition and fair trading act and fair trading act says.says.

““the following practices conducted the following practices conducted by or on behalf of a trade by or on behalf of a trade association are declared to be anti-association are declared to be anti-competitive trade practices and competitive trade practices and are prohibitedare prohibited;;

making of recommendations, directly or indirectly, making of recommendations, directly or indirectly, by a trade association, to its members or to by a trade association, to its members or to any class of its members which relate to the any class of its members which relate to the prices charged or to be charged by such prices charged or to be charged by such members or any such class of members or to members or any such class of members or to the margins included or to be included in the the margins included or to be included in the prices or to the pricing formula used or to be prices or to the pricing formula used or to be used in the calculation of those prices. used in the calculation of those prices.

Price fixing (cont’d)Price fixing (cont’d)

Price increase Price increase attracts fare attracts fare increase that does increase that does not only push total not only push total cost increase to cost increase to consumer but also consumer but also adds more to profit adds more to profit marginmargin

For example, fuel For example, fuel increase by 17% increase by 17% attracted fare attracted fare increaseincrease

of 16.67% in Lilongwe of 16.67% in Lilongwe and 10% in some and 10% in some routes of Blantyre routes of Blantyre and 14% in highway and 14% in highway of Blantyreof Blantyre

A study of 15 A study of 15 operators by operators by Waziona Ligomeka Waziona Ligomeka indicates that the indicates that the right increase in right increase in Lilongwe would be Lilongwe would be K2.50 and not K10K2.50 and not K10

Price fixing (cont’d)Price fixing (cont’d)

How he calculates:How he calculates: Distance Area 12 to capitol HillDistance Area 12 to capitol Hill Bus uses K400 for fuel per tripBus uses K400 for fuel per trip Old fuel price K161/litreOld fuel price K161/litre New fuel price K191/litreNew fuel price K191/litre K400/K161/litre=2.48 litresK400/K161/litre=2.48 litres K191/litre*2.48litres=K473.68K191/litre*2.48litres=K473.68 Increase is K73.68Increase is K73.68 A bus with carrying capacity of 18 should increase A bus with carrying capacity of 18 should increase

fare by K4.10 if total increase is pushed to fare by K4.10 if total increase is pushed to passengerpassenger

Quality fixingQuality fixing

Quality is Quality is compromised in compromised in the following waysthe following ways::

Lining up of buses Lining up of buses on first come first on first come first pack basis implies pack basis implies passengers have to passengers have to board a bus not of board a bus not of their choice but their choice but that is packingthat is packing

This results in This results in sitting on damaged sitting on damaged seats, boarding seats, boarding buses with poor buses with poor ventilationventilation

Mistreatment by Mistreatment by conductors and conductors and drivers throughdrivers through

Disrespectful Disrespectful languagelanguage

Quality fixing (cont’d)Quality fixing (cont’d)

Diverting from Diverting from normal routes to normal routes to run away from run away from traffic police if the traffic police if the bus is not road bus is not road worthyworthy

Being dropped at a Being dropped at a place different from place different from the passenger’s the passenger’s destinationdestination

Case study ICase study I

Road traffic Road traffic directorate on seat directorate on seat capacitycapacity

Government ordered that minibuses Government ordered that minibuses should be carrying three people per should be carrying three people per seat roll instead of the current four per seat roll instead of the current four per seat roll to reduce accidents. MOAM seat roll to reduce accidents. MOAM reacted to this by ordering a stay away reacted to this by ordering a stay away that was followed by a court injunction that was followed by a court injunction restraining government from restraining government from implementing the directiveimplementing the directive

The court passed judgement on 5The court passed judgement on 5thth February 2008 and MOAM lost the February 2008 and MOAM lost the case. case.

Civil society in transport sectorCivil society in transport sector

There are few There are few consumer rights consumer rights CSOsCSOs

Notable ones Notable ones include Consumer include Consumer Association of Association of Malawi, Centre for Malawi, Centre for Social Concern, Social Concern, Passenger Welfare Passenger Welfare Association of Association of MalawiMalawi

Due to resource Due to resource constraints and constraints and other challenges other challenges the approach is the approach is usually reactive usually reactive rather than rather than proactiveproactive

Coordination is Coordination is generally poor as generally poor as different bodies different bodies react differently to react differently to same issue same issue

Monthly expenditure by consumersMonthly expenditure by consumers

Currently the most Currently the most expensive routes in expensive routes in Lilongwe cost Lilongwe cost K70.00K70.00

In a month of 22 In a month of 22 working days and working days and assuming no other assuming no other trip apart from work trip apart from work place and back place and back home, a person home, a person spends K3080.00spends K3080.00

Average earnings Average earnings for junior staff range for junior staff range around K12,000.00around K12,000.00

People naturally People naturally move to different move to different places and many places and many people want to people want to travel even in family travel even in family where only one is where only one is bread winnerbread winner

Average earnings of operatorsAverage earnings of operators

Most minibus Most minibus operators instruct operators instruct their agents to their agents to generate about generate about K5000 a dayK5000 a day

Thus buses that Thus buses that work 22 days in a work 22 days in a month would on month would on average generate average generate K110,000 K110,000

The K5000 is an The K5000 is an average as average as business faces business faces peaks and troughs peaks and troughs within parts of the within parts of the monthmonth

Average cost for operatorsAverage cost for operators

Running cost for Running cost for minibus involves;minibus involves;

Salary for driver, Salary for driver, conductor, guard conductor, guard where applicablewhere applicable

Mandatory Mandatory insurance, insurance, certificate of fitness, certificate of fitness, vehicle licence, road vehicle licence, road service permit, service permit, registration, change registration, change of ownership, of ownership,

Malawi revenue Malawi revenue authority, authority, subscription to subscription to MOAM, route MOAM, route application form, application form, regional passenger regional passenger membership, gate membership, gate fees, fuel, provision fees, fuel, provision for depreciation, for depreciation, lunch allowance for lunch allowance for driver and driver and conductorconductor

Anti competitive and economies of scaleAnti competitive and economies of scale

Most markets in Most markets in Malawi are imperfectMalawi are imperfect

The 1997 The 1997 competition policy competition policy for Malawi admits for Malawi admits that most goods and that most goods and services are services are produced and produced and distributed under distributed under monopolistic and monopolistic and oligopolistic oligopolistic conditions conditions

Most minibuses are Most minibuses are operated by operated by individuals who individuals who have no capacity to have no capacity to influence demand influence demand for other operators for other operators by charging a by charging a lower price or lower price or improving quality improving quality thus no incentive thus no incentive to do so.to do so.

Anti-competitive and economies of scale Anti-competitive and economies of scale (cont’d)(cont’d)

Established operators Established operators owning many buses owning many buses only exercise only exercise economies of scale economies of scale by setting lower by setting lower targets thus may targets thus may impact positively on impact positively on speedingspeeding

Economies of scale Economies of scale thus do not act as thus do not act as barrier to entry barrier to entry because pricing because pricing

decision is done by decision is done by MOAMMOAM

Challenges affecting consumersChallenges affecting consumers

Weak regulation in Weak regulation in terms of enforcementterms of enforcement

Weak civil society and Weak civil society and passenger union in passenger union in terms of resourcesterms of resources

Structural set up of Structural set up of operators as they operators as they work in oligopoly work in oligopoly because of MOAM because of MOAM and and none able and willing none able and willing to operate differentlyto operate differently

Passive society and Passive society and every person every person operating as operating as individual thus no individual thus no collective decision collective decision as opposed to as opposed to operatorsoperators

RecommendationsRecommendations

MOAM, PAWA and MOAM, PAWA and the Competition and the Competition and Fair Trading Fair Trading Commission should Commission should find plausible ways find plausible ways of ending the anti-of ending the anti-competitive competitive behaviours. Mandate behaviours. Mandate of MOAM should not of MOAM should not include market include market allocation and price allocation and price determinationdetermination

PAWA should be PAWA should be supported supported especially by especially by insurance insurance companiescompanies

PAWA should civic PAWA should civic educate the public educate the public on the right to fair on the right to fair trade practicestrade practices

Recommendations (cont’d)Recommendations (cont’d)

There should be There should be consolidation and consolidation and coordination of coordination of efforts by all efforts by all consumer rights consumer rights bodiesbodies

The new bus The new bus company that company that government intends government intends to replace Shire bus to replace Shire bus lines should extend lines should extend toto

commuter transport commuter transport service as is the service as is the case in Zimbabwecase in Zimbabwe

The working The working relationship relationship between PAWA and between PAWA and MOAM should be MOAM should be enhanced to enhanced to promote the promote the interface between interface between passenger and passenger and transportertransporter

Recommendations (cont’d)Recommendations (cont’d)

Traffic police should Traffic police should check vehicle check vehicle roadworthiness at roadworthiness at the point of the point of departure apart departure apart from on the road as from on the road as is currently the is currently the casecase

International International organisations such organisations such as CUTS should as CUTS should help build the help build the

capacity of PAWAcapacity of PAWA There is need for There is need for

fully fledged fully fledged companies to companies to operate in the operate in the minibus sector that minibus sector that would break the would break the current distortions.current distortions.

The commission The commission should be given should be given adequate resources adequate resources to operate fullyto operate fully

conclusionconclusion

In analysing In analysing competition and competition and market structure market structure the core aim is to the core aim is to investigate investigate consumer welfareconsumer welfare

Consumer welfare Consumer welfare in commuter bus is in commuter bus is compromised in compromised in quality and farequality and fare

There does not seem There does not seem much happening to much happening to reverse the trendreverse the trend

Individuals and Individuals and corporate sector do corporate sector do not seem to value not seem to value the work of PAWAthe work of PAWA

Behavioural rigidities Behavioural rigidities and individualism and individualism hamper the efforts of hamper the efforts of PAWAPAWA

Generalized operating cost structure of minibusGeneralized operating cost structure of minibus

Cost itemCost item amountamount periodperiodsalariessalaries 16,50016,500 1 month1 month

Mandatory Mandatory insuranceinsurance

40,00040,000 12 months12 months

COFCOF 3,0003,000 12 months12 months

Vehicle licenceVehicle licence 2,0002,000 12 months12 months

Road service Road service permitpermit

3,0003,000 6 months6 months

Change of Change of ownershipownership

5,0005,000 One offOne off

registrationregistration 5,0005,000 One offOne off

Route application Route application formform

500500 6months6months

MOAMMOAM 2,5002,500 12 months12 months

MRAMRA 3,5003,500 3 months3 months

SRP MembershipSRP Membership 500500 One offOne off

Year persons involved Year persons involved numbernumber

fatal killed injured injured minor fatal killed injured injured minor vehicles vehicles seriously seriously injuries damagedinjuries damaged

2001 609 667 1189 227 962 11312001 609 667 1189 227 962 1131 2002 646 667 3105 227 992 2002 646 667 3105 227 992

28462846 2003 739 829 2971 768 2203 2003 739 829 2971 768 2203

21182118 2004 509 529 2425 613 1812 2004 509 529 2425 613 1812

13131313

Road accidents as cited by National Statistics Office

THANK YOU! TATENDA! ZIKOMO! SANTE! THANK YOU! TATENDA! ZIKOMO! SANTE! MERCIMERCI

MILWARD TOBIASMILWARD TOBIAS P.O BOX 30207P.O BOX 30207 CAPITAL CITYCAPITAL CITY LILONGWE 3LILONGWE 3 MALAWIMALAWI +265 8 375 967+265 8 375 967 milwardt@yahoo.co.ukmilwardt@yahoo.co.uk