Start a taxi business in Uganda? Is there more than meets the eye

Start a taxi business in Uganda? Is there more than meets the eye

for a typical investor in the field of taxis in Uganda will face two main issues before they even start the first of their shillings. I explain these issues below.

when I bought my first taxi used by my grandparents, took him to a mechanic for reform in the suburb of Wandegeya. He said he "acquired through" She told me that he was in excellent condition. After one week, and the difference was developed some problems. Next to the crankshaft had a few issues. I eventually came around these issues, but then came the magic story.

Ugandan typical reader might be surprised that I have not raised the issue of business and magic before. Many Ugandans seem to firmly believe that going to a witch doctor and give your past white goats (With no black spot) is going to transform your business to success overnight even if you can not differentiate (no pun intended) between monetary ( It is settled and that should not be used until all expenses) profit (which you can use as dividends) and cash from sales.

So this is the story of magic. I hired my cousin John [not real name for obvious reasons] to work in the first taxi conductor. He said that according to rumors the family "Enchanted," a taxi for the following reasons:

* Day 1. erupted comment.

* Day 3: crankshaft developed further problems.

* Day 5. The differential was shaking again.

* Day 7: taxi knocked someone crossing the road in Ndeeba.

per month (1) that the taxi was in business, I made only SHS 7000! Oh, I used to save the driver in the police station. I'm not one to look at the health of the story of magic, but this brings me to the taxi business and the factors to consider if you are to invest in it.

first and cons (of course)

1. mechanics without morality

There is a possibility that when I took a taxi to renewal, and the mechanic to whom I entrusted presented fix me with a pro-forma invoice for the cut had not been install, obtained second hand or third hand or even that didn`t implement all necessary reforms. How can you verify that they have no knowledge of the complexities of a car, let alone a taxi from the second hand of Bungokho?

Of course, you can get round this problem by instead taking your Toyota Hiace (the dominant model used to operate taxis in Uganda) to a repair shop Toyota Uganda. Of course, do not expect to pay SHS. 7000 reform. They use computerized diagnosis and mechanics use a recording of a bill you system at all hours. Oh, and of course, they use a new and genuine parts forget so crank shaft will use your mechanic Kakooza find you the market Kisekka. According to the website of Toyota Uganda, you can expect to start paying for the service to Toyota Hiace model of SHS. 183.00.

2. difficulty of verifying revenue

unless you drive a taxi yourself or install completely cameras such as buses London buses or National Express in the UK, it is almost impossible to be sure of the number of passengers on any track given in no time. I know a lot, and the employer can circumvent the issue through non-payment of wages driver / conductor and instead calls for a fixed daily / weekly amount of say 6 days a week with Sunday being the "driver today." On the driver's going on in the day that does not pay you at all the proceeds will go to the wards earn a living. This may work to some extent until the driver tells you / connector:

"Mocama WANGE, and walk to work etuletedde bizibu" [My Lord, we were unable to make sufficient money today owing to the "Walk to work" demonstrations].

and then move to the hand that half the agreed-upon fee. How can you verify that the driver of the story?

Oh, there will be many of those stories. The next time it will be that the Uganda Taxi Operators and Drivers Association (UTODA) and fleecing them, they fought back, and then another day. "Search and stop" and resulted in the traffic police operations in the huge delay, followed the next day drivers' strike. Of course it as "the Lord" can not be inhumane and continue to claim a fixed amount can you?

like I've hinted, if you are seriously considering investing in this sector, and perhaps you can find a supplier for in cameras aboard. But for simplicity, and in line with the base in Uganda, I therefore suggest that you stick a potential investor access to the common practice of the agreement with the driver's rate of "contractor" fixed for a particular path. But I would recommend that this rate be verified through corroborating with different drivers from the road and a taxi voyage.

3. starting capital and financing costs

and due to the vehicle being considered to be a key asset in Uganda, it is very common for these investments to be financed through a commercial bank loan or finance leasing companies such as DFCU Leasing Limited. In addition, many car dealers are happy to provide loan financing. You can get a taxi used to decent (complete with stripes and fixed seats) for SHS 17M going research information from autotrader.ug.

now a major issue for the cost of funding. After the recent increase (in November 2011) by the Bank of Uganda from the bank rate to 29%, and I can expect that the commercial banks will increase lending rates to an average of 31%. Bank rate is the rate at which commercial banks can borrow from the central bank's role as lender of last resort. Significant cost of financing and as we shall see later will have a significant impact on the expected return on capital.

4. long period during which more than to achieve profitability and the recovery of private investment

I put far outside the analytical ability of this business to profitability.

estimates have indicate that an investor buying a taxi to foil any one of Kampala and its suburbs ways. I'm using the most common form, a "contractor model." Model is that the driver provides the investor the daily amount agreed fixed L5- six days a week with a day 7TH driver / conductor to earn a living.

In this model, the driver / conductor thus incurring the expenses of every day to the day it is. Fuel daily and monthly fees UTODA and loading fees and fees and fees KCC stage and others. However, the owner of incurring repair and maintenance costs, as well as insurance costs.

a summary of the position of profit:

profits month: SHS 750000 (estimated SHS 30000 per day for 25 days)

repair and maintenance in the month: 183,00 (estimated from the Toyota Uganda information workshop)

finance costs: 439167. (estimated interest rate of 31% on a car 17M estimated rate in November 2011 the Bank of Uganda, the bank rate plus a margin of 2%).

insurance (3rd party): 4167

Monthly net income: 122 767

Annual Profit (A): 14730

cost of capital (1994 Toyota Hiace , used) (b): 17,000,000

return on capital (b / a): 11.54 years!

As can be seen from the above analysis, and forget your money in this sector. You can, of course, now, at this stage if you want to go to visit a witch doctor, who probably will use his bouts so that customers prefer a taxi to all the others, he will also be magic to give my analysis above may return in one month. [Please note that the last statement is made in jest and I would not expect a serious investor to consider witchcraft for business success].

5. saturation of the market and moves related.

There are a lot of taxis in Kampala or almost anywhere else in Uganda. It seems everywhere you turn, there is a taxi so I do not even need to go into the details of this but it is certainly worth noting the trend of the sector. There are also plenty of taxis in Uganda, on the basis of several reports of UTODA, will eventually be played surrounding this industry, and politics several government initiatives in an attempt to de-congest the new and old taxi parks in the city of Kampala center. Instead, the transfer of taxis for those car parks space taxi town like Ndeeba will become a reality. Instead, we may finally see step bus passenger instead of taxis as promised by the former mayor Nasser "Sia" Sebagala.

and now PROS

1. fair return on capital, assuming a lack of funding.

The main advantage of this sector, thus the investor who is going to invest without incurring borrowing costs. I set out below the expected return on capital without the cost of funding:

profits month: SHS 750000 (estimated SHS 30000 per day for 25 days)

reform and monthly maintenance: SHS 183, 00 (estimated information workshop Toyota Uganda)

insurance (3rd party): 4167

monthly net profit: 561 933

annual profit: 6,743,0

cost of capital (1994 Toyota Hiace, used): 17,000,000

return on capital: 2.52 years

as can be seen from above, and the return on capital without the cost of funding decreases to 2.52 years of an 11-year cumbersome in the first analysis.

2. Security for more funding

assuming you have not borrowed to buy a taxi assets then the other advantage is that in Uganda, preferably compounds to use as collateral to borrow because of the fluidity of the used car market.

3. One of alternative uses

and take advantage of taxis and of course is that you can use it for one-time uses such as private charters or for example for the private use of the advantage to the investor, for example. Take the kids to school, or for funerals. Gay in Uganda who have been recruited in 05 the courage to take a taxi in a test drive at night before going to visit this "Mzungu" Girl I wanted to impress.

I think the magic of John already at work because when I returned from a visit to the girl, and I crashed into the wall of the neighbors also tried to reverse a taxi so as to make a tight turn in the door of the house. I insisted it was magic at work, and, of course, is not the fact that I did not have any experience at all in driving long!

summarize the final word

First, the numbers.

and on the basis of my analysis:

* Capital investment (A): SHS 17,000,000

* Revenue per year: 000000

* profit annually (revenue excluding all expenses and interest) (B) are SHS 14730

* return on capital (years to get capital back) (a / B) is 11.54 years.

* but if you do not incur financing costs are estimated in this period back to 2.54 years.

Now the basics you must get right before investing:

* Research the contractor a fair rate. As the preferred model in Uganda to hire a taxi to the driver / conductor, it is worth spending some time talking to various drivers and maybe even UTODA to put a fair price for your route and ensure you get the agreed price without any "Mocama WANGE" stories.

* Consideration of the cheapest financing options. Often ignore the advantage of assembling and says money from family members and friends. This can provide equity financing (credit interest free) instead of commercial bank loans paralyzed.

* mechanic decent and trustworthy is a must. good luck!

final word

, in principle, I am worried about business models where you are unable to understand or verify the complexities of revenue recognition and are difficult to verify the costs for the establishment of effective and that on this basis, to me this would to be "No, no" sector.

but has a key advantage of the simplicity of revenue stream and perhaps this is why this has led to more investment in this sector, including [financially] illiterate.

If you are thus drawn to the simplicity of this type of investment as well as a feature that the car is the security for further borrowing then by all means invest in it, and then all you have to make sure that you do not hear tales of Kakooza of "differential vibrate. "

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