Africans who do not own vehicles are
finding it more and more difficult to move around town these days. The
growing population of Africa’s cities and towns is creating a
transportation demand so huge that both private and public transport
services can barely keep up. Every day, more than 250 million Africans
depend on commercial transportation to get them to their places of work,
school or business. In the absence of reliable public transportation
systems to serve these people, several opportunities have become
available to smart entrepreneurs who want to exploit this huge and
lucrative demand. This article explores these opportunities and provides
useful tips you could use to your advantage in the mass transport
business in Africa!
How huge is the demand for human transport services in Africa?
Before we look at the juicy opportunities,
we think it’s very important that you understand the factors responsible
for the growing demand for transportation services in Africa. With this
background in mind, it’s easier for you to make the best use of these
opportunities and take your ideas to the next level!
In a previous article, we looked at the lucrative opportunities in trucking and haulage of goods in Africa.
The factors responsible for the huge volumes of goods being transported
across Africa are also responsible for the bursting demand to move
people around (human transport). These factors include Africa’s rapid
urbanization (more people are moving to the cities) and growing economic
and physical activity (more people are moving around for business and
personal reasons).
In the 1980s, the population of Africans
living in cities was less than 120 million. Currently, more than 40
percent of Africa’s one billion people live in urban areas. The
proportion of Africans who now live in cities is higher than India (30
percent) and roughly equal to China (45 percent). At the current rate at
which Africans are flocking to the cities, more than 300 million more
of us will become city dwellers within the next 20 years. (source: McKinsey Research).
At the moment, more than 50 African cities
have a human population over one million. Cities like Lagos (Nigeria)
with a population of over 13 million people is expected to become the
largest city in Africa and one of the world’s megacities by 2015 (with a
population of nearly 16 million people).
What does a higher city population mean,
you ask? The answer’s simple - more movement! People come to the city
for a reason – to find work, go to school, or start a small (or big)
business. As a result, there is a lot more movement in cities and towns
than in the rural areas. City people wake up in the morning and go to a
job they already have, or move around town searching for one. Many other
city people are either self-employed or own a small or medium-scale
businesses. The ones who do not belong to either of these groups have to
get to school. The point is simple – transportation is a CRITICAL need
of people living in cities and towns. Like food and water, we cannot do
without it!
Because millions of people (and their
goods) NEED to move around every day in Africa, there exists a huge
demand for transportation services. While it’s true that many African
economies are improving, not many people can afford cars to move
themselves around. Given the inadequate and poorly maintained road
networks on the continent, it would be hell if everyone had their own
car!
Where it exists, the public transportation
systems in many countries on the continent are inadequate, unreliable
and poorly maintained. To address this shortfall, many countries license
and allow private bus companies, taxi operators and ferry services to
help meet the huge demand. This has opened some interesting
opportunities for African entrepreneurs to make good money while
providing transport services that help to move people around. We shall
look at these opportunities in greater detail below.
5 Small Businesses you can start to exploit Africa’s lucrative transport market
Some of the small businesses we’re about to
explore are probably popular in several parts of the African continent,
and non-existent in other parts. Most of them require little capital to
startup and will work for both aspiring and established entrepreneurs.
Considering the rapid growth of Africa’s population and cities, the
demand for these small businesses will surely explode in the coming
years.
#1 – Motorcycle Taxis
Photo credit: pilotafrica.com
Commercial ‘taxi’ motorcycles are known by
different names on the continent. From Piki Piki and Boda Boda (East
Africa) to Okada (Pidgin English – Nigeria), these two-wheeled vehicles
have become a very popular means of transportation in many African
villages, towns and cities. Everywhere you look, there’s a high chance
of finding one. In fact, it is estimated that motorcycles make up more
than 40 percent of all vehicles you can find around (including cars,
buses, trucks etc).
Every year, Africa imports more than one million different brands of motorcycles,
especially from China and India. The huge demand for motorcycle taxis
is understandable. People on the move find it very affordable, flexible
and fast. Motorbikes are best at navigating bad road networks and can
help you beat city traffic when it really matters! They are also able to
enter remote areas where roads are either too bad or non-existent.
Although they frequently feature in fatal accidents, its positive
qualities have led to the huge and rising demand for motorcycle taxis in
many parts of the continent.
A typical motorbike costs anything between
$500 - $1,500, depending on the brand and country of purchase. In many
major cities (like Lagos, Nigeria), a single motorcycle taxis can earn
up to $25 a day by serving tens of customers who prefer its quick and
flexible services. Most motorcycles are gasoline-powered and fuel costs
for operating a motorbike taxi business are usually under $8/day
depending on the price of fuel.
There are two common ways entrepreneurs
make money from the motorcycle taxi business. Apart from a Hire-Purchase
arrangement (discussed later in this article), another popular way is
to buy motorcycles and hire them out to riders for a daily rent.
Depending on the volume of business in the location, this rent is a
fixed amount and can be up to 30 percent of the daily earnings. The
riders under this arrangement are responsible for fuel costs and keep
any amounts above the daily rent paid to the owner. The owner
(entrepreneur) remains responsible for registration, insurance,
maintenance and repair costs.
Because unemployment remains high in many
parts of Africa, many young people now depend on motorcycle taxis to
earn a living. Without the capital to buy a motorbike for themselves,
these guys have to rely on entrepreneurs who can provide these bikes and
earn rent on them. It’s a win-win business for both parties, although
there are often challenges (which we’ll look at in the last section of
this article).
#2 – Tricycle (Auto Rickshaw or Tuk Tuk) Taxis
Photo credit: crossriverwatch.com
Known by several names in Africa, the
tricycle (Auto Rickshaw or Tuk Tuk) is growing in popularity across
Africa (especially with the poor and lower middle class). Its many names
on the continent include: Tuk-tuk (Eastern Africa – Kenya, Ethiopia,
Tanzania), Pousse-pousse (Madagascar), Keke (Nigeria) and Raksha
(Sudan).
Tricycles have become a neater and less
accident-prone alternative to motorcycles which have been banned from
major roads in big cities like Lagos (Nigeria). Like motorcycles,
tricycles are preferred by people who want to travel short distances
within cities and towns. Although they can carry up to 4 – 5 passengers
at a time, tricycles are also flexible, cheap for commuters and can
navigate narrow and congested parts of town.
A typical (4-seater) brand new tricycle can
cost anything between $1,500 - $4,000 depending on the brand and
country of purchase. It’s simple to operate and anyone who can ride a
motorbike can easily ride a tuk-tuk. Depending on the location and
volume of demand, tricycles can earn up to $50 in a single day.
Just like motorcycle taxis, entrepreneurs
can purchase tricycles and give them out to riders who pay a daily rent
for using them. A Hire-Purchase arrangement is also another popular way
of making money from this venture.
#3 – Taxi cabs and private hire cars
Photo credit: embarq.org
Taxi cabs are probably one of the oldest
forms of transportation within African cities and towns. They are
preferred by higher income earners for short and long trips within the
city although cab fares can be much higher than motorcycle and tricycle
taxis. While taxi cabs are known to pick customers off the road, private
hire taxi cars serve customers who make a prior booking (especially via
telephone).
Although many taxi cabs in the cities are
operated by their owners, there is a growing trend of private taxi cab
companies on the continent. These companies own a fleet of branded taxis
and hire drivers (often on a fixed salary). As more African cities look
to modernize, taxi cabs are becoming a very common feature on city
roads. For example, since the introduction of a curfew on motorcycles
and tricycles in Lagos (Nigeria), more people now have to use cab taxi
and bus services to get around town.
Depending on the brand and condition of the car (new or second hand),
a suitable vehicle for a taxi cab business can cost between $5,000 and
$15,000. Because taxi cabs are often regulated in most cities, they have
to be registered with the relevant city council authorities. Insurance
cover and vehicle licenses are some other important costs to be
considered when starting a taxi car business.
In some cities with high volumes of human
traffic, taxi cab operators can make between $50 - $100 in a single day.
Fuel costs typically take up 20 percent of daily earnings.
Just like with motorcycles and tricycles,
entrepreneurs can build a taxi cab fleet by purchasing cars, registering
them and hiring the right drivers. Drivers could be placed on a fixed
monthly salary or required to pay a fixed daily fee to the owner while
they keep any excess amounts for the day. Under this arrangement, the
driver bears the cost for fuelling the vehicle while the owner remains
responsible for any maintenance and repair costs. Hire-Purchase
arrangements are also a popular way of getting good value from the taxi
cab business.
#4 – Commercial buses
Photo credit: itsinternational.com
In terms of volume, commercial buses move
more people around in Africa every year than any other means of
transport. They are the most common form of mass transportation on the
continent and move people and goods within a city (intra city transport)
and between cities (inter city transport). In the absence of
well-developed rail networks on the continent, buses have taken over the
role of moving people and light goods over long distances. Commercial
buses are the only option for Africans who travel long distances but
afford to travel by air. This makes them a very lucrative venture in
Africa’s present and future.
Many commercial buses on the continent are
operated by self-employed drivers. These buses operate within the cities
or embark on long haul trips between several cities, towns and
villages. There are also private companies that own bus fleets dedicated
to transporting people and goods between urban and rural areas.
The initial capital required to start up a
bus service business is normally higher than any of the other options
explored above. Depending on the brand and condition of the bus (new or
second hand), a suitable bus for this business can cost between $15,000
and $50,000.
#5 – Ferry transport
Photo credit: earthwiseventures.com
Motorcycles, tuk-tuks, car taxis and buses
all have one major flaw – they are all road vehicles. Because road
transportation is the common and most used means of transportation
across Africa, the existing road networks and infrastructure are just
not enough anymore to support the huge pressure. In fact, the traffic
jam faced by commuters in some of Africa’s big cities is leading
entrepreneurs to provide a better alternative to road transport.
Water transport remains one of the most
underdeveloped and underexploited means of transport across Africa. Take
Lagos (Nigeria) for example, one of Africa’s most populated cities and
home to more than 12 million people. Although Lagos is a coastal city
with an interesting network of waterways, more than 5 million people
commute to work EVERYDAY on its inadequate and ever-busy roads. To
exploit this opportunity, a couple of entrepreneurs are using
locally-made boats to ferry desperate commuters over long distances.
The 5-minute video you’re about to watch is
a short and interesting documentary that reveals how private ferry
companies are cashing in on the huge demand for more convenient
alternatives to road transport in the busy city of Lagos.
Another great example that proves the lucrative potentials of Africa’s water transport market is EarthWise Ferries
in Uganda. This private company is providing ferry services on Lake
Victoria which connects three major East African countries – Uganda,
Kenya and Tanzania. Before Earthwise started its services, most people
travelling across these countries had to embark on a two day travel
through terrible roads. Now, this ferry service has cut down this
grueling journey to just 10 hours!
The short documentary below is EarthWise’s
pitch to investors and reveals the company’s plan to use its ferries to
boost higher transport volumes across Lake Victoria. The lake holds a
lot of potential for entrepreneurs and will become a huge revenue source
for businesses in the future.
Things you need to consider if you want to start a transport business
Just to get things clear, there are two
ways anyone can start a transport business in Africa. On one hand are
self-employed people who own and operate their own vehicles
(motorcycles, tuk-tuks, taxis etc.). While this approach is totally OK,
this article is focused on people who want to own a transport business –
that is, have several vehicles on the road and get/employ other people
to operate them. This allows the business to spread and grow faster
while helping the entrepreneur to focus entirely on running the
business.
Here are a couple of important things you need to consider to ensure your transport business remains profitable and successful.
Capital – How much do you really need to get started?
As you may already know, the transportation
business is capital intensive due to the large initial investment
required to buy a good motorcycle, tuk-tuk, taxi or bus. If you don’t
have the money to buy a durable vehicle and intend to borrow money from
friends, family or the bank, make sure you are sure the business will
make enough money to pay back the borrowed capital (including any
interest).
As we always advise on smallstarter.com,
it pays to start small. Start with one motorcycle, tuk-tuk, taxi or
bus. Use the first one to gauge the demand and potential of the
business. You can scale up and buy more vehicles as you learn about the
market and meet with success. Avoid the temptation to buy a fleet of
motorcycles, cars or taxis in an attempt to become a big player. This
can often lead to financial ruin. If you can’t afford a bus yet, start
with a tuk-tuk or taxi.
Rental or Hire-Purchase?
How do you plan to make money from your
motorcycle or bus? Will you offer them for rent to pre-approved drivers
who pay you a daily fee? Or will you enter a Hire-Purchase agreement
with someone who will hire the vehicle while repaying you the full cost
of the vehicle (plus up to 40 to 60 percent extra) over an agreed
period?
With a rental, the owner of the vehicle
remains responsible for registration, licenses, maintenance and repairs.
However, under a hire-purchase arrangement, the hirer takes this
responsibility. We have included a Sample Copy of a Hire-Purchase contract (Word Document) you could amend and use for this purpose.
Whichever you choose to use, rental or
hire-purchase, it’s very important that you carry out proper background
checks on any persons you allow to rent or hire your vehicle. Make sure
they have recommendations from people who can confirm their good
character and integrity. Some people are known to go on to steal your
vehicles or ride them recklessly. The people who operate your vehicles
can make or break your transport business. Make sure they’re trustworthy
and responsible!
Do you need to get registered or obtain a license?
Transport businesses are required to obtain
a license or get registered in many cities. You will need to find out
which government offices and associations you need to register with. The
penalty for not registering with these bodies could lead to seizure of
your vehicles. The registration and license fees are often affordable
(depending on the type of transport business and the routes). For
example, in many parts of Lagos (Nigeria), motorcycle taxis have been
banned so operating this kind of service may not work. Just make sure
you find out what the rules are and follow them.
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