When Transport Minister Fikile Mbalula announced recently that the government was considering a R50 billion subsidy to the minibus taxi sector, it seemed a watershed moment.
The sector transports 66.5% of commuters and has been hit hard by the sharp economic contraction that was deepened by the Covid-19 lockdowns since March.
Buses and train services receive operating subsidies from the government. These are critical for containing fare increases, which are regulated by the government. They are also key to establishing an operating model that can withstand temporary, short-term shifts in user behaviour.
Despite many promises, taxi operators have only ever received capital subsidies to repair and replace old vehicles, beginning in 1999 with the “Taxi Recapitalisation Programme”.
The main goal was to ensure vehicles were safe; essentially providing a one-off payment to buy new vehicles. This did little to address the core, recurring costs that drive the sector’s economics.
I argue that a new proposed government subsidy for minibus taxis, for which most of the details have yet to be announced, should focus on guaranteeing the viability of taxi operations. Some may be wary of securing the future of the taxi industry, given its largely deserved reputation for poor labour relations, substandard service and violence.
Precisely because of these seemingly intractable problems, an operational guarantee is probably a necessary condition for enabling meaningful reform, plucking the industry from its lowlevel equilibrium.
In South Africa’s largest cities, such an approach could make possible a more centralised mode of fare collection by municipal authorities.
This would enable an integrated fare across multiple legs of a trip, potentially saving users money for a service that accounts for more than one fifth of most poor households’ average expenditure.
The economic model of South Africa’s minibus taxi sector has never been fully transparent. As the post-apartheid government began investing in black townships in the mid to late 1990s, the sector was stuck in a dangerous spiral of incentives that encouraged cut-throat competition. The consequences were often violent.
There was no way to stop new entrants, other than a very thin licensing regime that focused on the quality of the vehicles. This regime served as a form of implicit deregulation: competing taxi cartels continued to expand their fleets in order to capture ever thinner slices of a captive market. The need for their service grew as new urban employment centres sprawled into former white suburbs. Black townships and informal settlements likewise mushroomed, with the fall of apartheid-era population controls. As the customer base grew rapidly, the supply of taxis grew even faster.
Today, the sector remains cash-based and its employment relations often exist in a grey zone of formality. Most reliable estimates place operations – especially labour and fuel – at the centre of its cost structure.
A strong operational subsidy could restructure the relationship between taxi operators and municipal governments, so that there is an integrated taxi service at the municipal level, and the possibility of a single fare for multi-leg trips.
This could enable further integration with other transport modes.
The Star