1. COMPETITION REFORMS IN KEY MARKETS FOR ENHANCING SOCIAL AND ECONOMIC WELFARE IN DEVELOPING COUNTRIES PRESENTATION ON DIAGONISTIC COUNTRY REPORT ON FOR BUS TRANSPORT IN GHANA BY PAULINA AGYEKUM 25 TH JULY 2014

2. OUTLINE OF PRESENTATION Introduction Objective Methodology Secondary data analysis Primary data analysis Conclusions

3. INTRODUCTION The CREW project aims to assess the state of competition in selected sectors in countries. It is focused on the impact that past and existing public policies, regulations, private sector business practices have had on competition

4. OBJECTIVE Assess consumer welfare effects in bus use of bus transport based on: – Access – Quality – Choice: – Price: – Time savings Assess bus transport operator welfare effects based on: Access Policies effects Predictability of regulatory actions: Cost savings: Fair market Transparency

5. METHODOLOGY SECONDARY DATA COLLECTION Data collation on history, policy, legislation, strategic plans, institutional framework, actions and experiences on – Private Sector Dev – Bus transp. Operations Identification of competitive reforms in the bus transport industry PRIMARY DATA COLLECTION AND ANALYSIS- Field survey on the characteristics of MMT and private bus operation and use in terms of : – Trip characteristics – Liberalization and Entry – Licensing process – Price Regulation – Routing – Quality and safety

6. SAMPLING AND LOCATION OF STUDY Location was on the Circle Nsawam/Koforidua Kumasi Corridor BUS OPERATORS INTRACITYINTERCITY 207 benz bus15207 benz bus10 Urvan Minis bus15Urvan Minis bus10 MMT20MMT10 OA10 FORD10 Sub Total50 BUS PASSENGERS INTRACITYINTERCITY 207 benz bus45207 benz bus30 Urvan Minis bus35Urvan Minis bus30 MMT70MMT30 OA30 FORD30 Sub Total150 Total 400

7. DATA ANALYSIS Collated data from questionnaires were processed and presented by logical analysis in the appropriate statistical form for numeric and non numeric information Analytical Framework is yet to be applied

8. OVERVIEW OF PSD IN GHANA Private sector development (PSD) in Ghana was to stimulate economic growth and poverty reduction It was to empower people to take entrepreneurial initiatives to build businesses to complement Govt efforts Socialist views were held at independence in late 50’s PSD started in early 80’s with Eco. Recovery Prog. (ERP) Value to has been and is being added to initiatives by successive Govt’s. Eg. SAP, GPRS, SGDA PS reform initiatives include Establishment of: a free market system Trade Policy Inv. Promo centre Free Zones Bored Preparation of the PSD Strategies I & II Financial, Institutional, legal, land, macro econ. reforms, divestiture of state companies etc

9. EXAMPLES OF PSD IN TRANSPORT SECTOR SECTOR Ghana airways corporation was enlisted as a state owned limited liability company in 1995 and dissolved in 2005 due to: Excessive govt control; mis- management; lack of capital; obsolete equipment; overregulation; overstaffing and excessive debt. Sate Transport Corporation was established in 1909, commercialised in 1965 and incorporated in 1995 and divested in 2000. Private component was withdrawn in 2001 on basis of fraudulent divestiture process. It is ailing with financial burden in need of privitisation A pilot Bus Rapid Transit was designed under an Urban Transport Project. Infrastructure was to be provided by Govt and operated through service contracts with bus transpt. companies licensed by MMDA’s. It is at a halt due to delays in transport reforms; cost escalation, resistance from transport unions etc.

10. OVERVIEW OF BUS TRANSPORT SECTOR Road transport is the major carrier in Ghana carrying 98% passenger and 95% freight In 1969, all urban passenger transport services were under Omnibus Services Authority by Decree (NLCD 337) Deregulation took place in the 80’s to allow private participation Currently, bus transport service is operated through both public and private service providers who compete on the market

11. OVERVIEW OF BUS TRANSPORT SECTOR The private sector dominates the bus transport industry at about 95 percent. They consist of formal and informal operators. The public service is provided by Metro Mass Transport (MMT). The industry offers both inter-city and intracity services. Inter-city service involves long distance routes served mostly by medium and large buses with a few minibuses Intracity is operated within cities with mostly medium and mini buses and a few large buses.

12. OVERVIEW OF BUS TRANSPORT SECTOR The market failures in bus transport industry prior to reforms include: Poor service quality, safety issues, worsening access to transport by the poor, use of aged unsafe vehicles, higher demand, limited vehicular capacity etc. Lack of a well developed ‘market’ for private sector bus services delivery as well as absence of formal regulation and a national regulator for road passenger transport. Lack of significant ‘market forces’ (meaning well informed, organized and empowered consumers) regulating service quality etc.

13. COMPETITION REFORMS IN THE BUS TRANSPORT SECTOR Reform initiatives have been defined through policy guidelines, legislative and programmed frame works including the following: National Transport Policy Legislation on Bus Transport Industry include – Road Traffic Ordinance 1952 – Road Traffic Regulations LI 953 of 1974, Road Traffic Act 683 of 2004, Road Traffic Act 761 of 2008 – LI 2180 of July 2012 include revoked regulations on the following: – Road Traffic (Roadworthiness) Regulations, 1972 (LI 780); – Road Traffic Regulations, 1974 (LI 953); – Road Traffic Offences Regulation, 1974 (LI 952); and – Road Traffic (use of Liquefied Petroleum Gas) Regulations, 1994 (LI 1592). Transport Plans and Programmes eg. Third Draft Sector Medium-Term Development Plan (SMTDP), Integrated Transport Plan, Urban Transport Project and National Road Safety Strategies I, II and III

14. COMPETITION REFORMS IN THE BUS TRANSPORT SECTOR Introduction of mass transportation in urban areas to improve affordability, road capacity utilisation and environmental enhancement Strengthening of private sector operation through: – The creation of a vibrant investment opportunities in the industry by promoting private sector financing for acquisition of new buses – Formalization and regulation of operators through route registration Improvement of road safety standards

15. COMPETITION REFORMS IN THE BUS TRANSPORT SECTOR Reform Initiative 1 Policy statement NTP 4.2.4.3 of 2008: Government will invest in transport and subsidise transport services Sector Medium-Term Development Plan (SMTDP) 4.2.12: 2012-14, Metro Mass Transit (MMT) The strategic action undertaken included establishment of one large national operator providing services in the form of the Metro Mass Transport Service. Reform Initiative 2 National Transport Policy: 4.2.4.1 Policy statement: The private sector will be encouraged to invest in transport infrastructure and services

16. COMPETITION REFORMS IN THE BUS TRANSPORT SECTOR A draft policy framework has been prepared and some advisory institutions have been established for the market based model. Reform Initiative 3 Regulation 121: Registration of Commercial Vehicle Operators: Transport units have been set up and equipped with staff in some (MMDAs) to undertake the exercise. Reform Initiative 4 Establishment of NRSC and DVLA Acts 567 and 569 of 1999

17. SECTORAL REGULATORY INSTITUTION AND FUNCTIONS Ministry of Transport Ministry of Roads and Highways National Road Safety Commission (NRSC) Driver and Vehicle Licensing Authority (DVLA) Ghana Road Transport Coordinating Agency Motto Traffic and Transport Department (MTTD) of the Ghana Police Service (GPS) Metropolitan, Municipal and District Assemblies (MMDAs) Transport Operating Unions

18. MICHAEL PORTER’S FIVE FORCES MODEL ON COMPETITION Factors determining competition in a market operation. 1.Competitive rivalry within the industry - Competition is based on attractiveness of a product by brand: Market size is not known there were 71,372 registered buses and coaches in 2013 but not all are in commercial operation. The market dynamics of the bus transport industry is not clear and competitive rivalry amongst the different categories of operators is very variable There is no competition in terms of size, cost, differentiation, service ranges and quality in private informal intra-city operation. Intercity transport is differentiated by brand There is union rivalry over terminal usage

19. MICHAEL PORTER’S FIVE FORCES MODEL ON COMPETITION 2.Threats of new entrants- It is in a company’s interest to create barriers to prevent its competitors to enter the market. There is no restriction on market entry for bus operation in Ghana. Anyone can operate a bus anywhere Requirement vehicular road worthiness certified by the DVLA and Licensing with respective MMDA’s Very little expertise is required in terms of educational skills, there is ease of obtaining driving licenses and permits and there is lack of effective control on quality of service

20. MICHAEL PORTER’S FIVE FORCES MODEL ON COMPETITION 3.Threats of substitutes products-Substitute products or services can be considered as an alternative compared to supply on the market: Introduction of both MMT service and BRT were met with resistance from private informal bus operators 4.Bargaining power of customers- If the bargaining power of customers is high, they influence the profitability of the market. There are no formal structures to align the private interests of the supplier with the public interest

21. MICHAEL PORTER’S FIVE FORCES MODEL ON COMPETITION 5.Bargaining power of suppliers: Liberalisation and lack of regulation has created strong interest groups. The bargaining power of the union is also demonstrated by their ability to negotiate and also stand surety for its members to secure credit capital Unions competing with each other in order to protect their own territories"; and there has been brief periods of intense rivalry between public and private bus operators competition has stagnated

22. COMPETITION CONCERNS OF POLICY REFORMS 1. Policy on Mass Transit (MMT) The MMT entered the market by Govt. veto Investment cost was provided by Govt SSNIT, GOIL, SIC and Prudential Bank. It’s market share is 5% It ‘s marketing benefit is to provide cheap fares to control excessive price hikes for profit making by private operators As at 2011 it was not very productive in terms of cost recovery towards growth Due to high demand, passenger waiting time is very high The quality of service is not well differentiated from the private sector due to overloading, poor maintenance etc.

23. COMPETITION CONCERNS OF POLICY REFORMS 2.Policy to Strengthen Private Sector Operation High cost of vehicles is restrictive to market entry The use of cheaper imported second hand vehicles is common but of low quality and safety There is cherry picking where only profitable routes are served more mostly by union by union cartels The number of bus fleet is growing but in small sizes with limited capacity Regulated pricing does not allow for adequate returns for investment capital Productivity is low on both well populated routes and none populated routes There are no set standards for the quality of service delivery

24. OVERVIEW OF REFORM IMPACTS Policy reform has impacted in different ways and no single measure has delivered all of the expected objectives There is no guarantee that all of the state subsidy is being passed on to the passenger in terms of lower fares due to inefficient operation for the MMT Ideally, the reform benefits should generate safety, decongestion, wider consumer welfare benefits and additional commercial revenue to bus operators from improved service quality.

25. OVERVIEW OF REFORM IMPACTS The introduction of Quality Contract (QC) should cause commercial fares increase due to higher operational costs from improved service quality There should be effective demand management by passengers and improvements to local bus services Economies of scale from combination of overhead operational cost such as management, labour and vehicle maintenance is expected from formation of companies Reform initiative on allocation of bus route though has been in existence for a long time it is yet to be effective

26. OVERVIEW OF REFORM IMPACTS Target impact was to : – Achieve 17.57% and 17.34% reduction in the number of fatalities and Serious Injuries, by end of 2013. – This translated into saving 396 and 1,074 lives over the 3- year period from death and serious injury respectively. Outcomes Not all activities could be fully implemented RTC increased between 2011 and 2012 by 11%. Fatalities decreased by 1.9% this could be due to effective emergency response. Injury levels increased 1.5%- This attributed to increasing vehicle population, unchanged road user behaviour, poor vehicular state and ineffective enforcement.

27. OVERVIEW OF REFORM IMPACTS Characteristics of Bus Operators (Intracity Transport) – 95% male dominance – 98 % do not own their vehicles – 63% are single vehicle owners (Small bus operators dominate) – 85 percent have been in operation for over 6 years so have experienced reform impacts – 22 minor routes are served by private informal operators along selected route – 3 minor routes are served by the MMT along the routes – 88% have been union members for up to 10 years

28. OVERVIEW OF REFORM IMPACTS Characteristics of Bus Operators (Intercity Transport) – 100% male dominance – It is made up of 20% formal private operators, 60% informal private operators and 20% MMT – Informal private holds 240 fleet, formal private 140 and MMT 223. – 80 percent have been in operation for over 6 years so have experienced reform impacts – Loading factor for private informal operators along the route is about 22 and 53 for MMT – 60% have been union members for up to 10 years

29. OVERVIEW OF REFORM IMPACTS ADVANTAGES / DISADVANTAGES FOR UNION MEMBERSHIP Easy access to Loans, Route Allocation Safety From Police Welfare advantage Adjustment of Fares To Prevent Passenger Disagreement Negotiation With Government To Adjust Fare Ensure Better Driver Wages From Car Owners Annual Bonus And Incentives Awards for good safety record and performance. MMT it gives letters of attestation to drivers to secure bank facilities No Benefit Autocratic Leadership Corrupt Leadership Preferential Treatments, Cheating Leaders Are Biased Members Are Treated Badly

30. OVERVIEW OF REFORM IMPACTS Characteristics of Intracity bus passengers – Fifty-five (55) percent were males and 45 percent were females – Only 19 percent reside outside Accra. – 84 percent were aged between 21 to 50 – Monthly income range between US $9 to US 1500 a month – 46% prefer to use bus service compared to other intracity transport services – 59% travel on daily basis Characteristics of Intercity bus passengers – 84 percent were males – Only 16% percent reside outside Accra. – 92% percent were aged between 21 to 50 – 58 percent prefer to use bus service for intercity travel – 44% travel for social reasons and 32 % travel for work

31. IMPACT OF REFORM ON LIBERALIZATION Most private intracity operators indicated that the most impacting reform initiative is loan scheme. 100% said it has impacted on entry, access, profits and growth especially the work and pay system. 75% of intercity operators do not think reform has made significant impacts Helps drivers own their buses Drivers have become maintenance oriented Reduced income due to increased number of buses Impact of reform on MMT is not significant

32. IMPACT OF REFORM ON LICENSES License Validity Registration Certificate With Respective MMDA’s. AMA Sticker, Union Tax Road Worthy Insurance Drivers LicenseIncome Tax Road Worthy QuarterlyYearly Daily/Qu arterly Third Party Insurance- Yearly 2 yearsMonthly6 months Types of Licenses and Validity for Bus Operators

33. IMPACT OF REFORM ON LICENSES Intracity Operators 50% rated ease of obtaining bus license as fairly easy Licensing process rated difficult by 35% and 15% neutral Takes within 3 weeks to obtain license by 48% and 4 weeks and above by 52% Ease of license renewal rated difficult (65%), easy (33%) and neutral (2) 80% indicated positive changes in bus regulation in Last 5yrs Licensing process has changed in terms of cost, process and renewal (100% of respondent) Major change is privatisation of vehicle inspection

34. IMPACT OF REFORM ON LICENSES Intercity Operators 96% rated ease of obtaining bus license as difficult to very difficult 73% says it takes more than 4 weeks 60% rated renewal to be very easy 75% indicated no positive changes in bus regulation in Last 5yrs Major change is privatisation of vehicle inspection

35. IMPACT OF REFORM ON LICENSES Suggestions for Improvement in Licensing by Intracity Operators (Informal and Formal): Need for DVLA to remove middlemen (goro boys) to reduce cost and to make it more accessible Need to introduce electronic system in Licensing processes Need to review the cumbersome and expensive processes in place Need to simplify and expedite the process Suggestions on Renewal Process by Intracity Operators (Informal and Formal): Bribery and corruption among the leaders and laziness Electronic renewal system should continue Goro boys should be sacked It should be automated Process should be fast The delays lead to increase in bribery and corruption

36. IMPACT OF REFORM ON PRICE REGULATION Intracity Operators Informal: Span of break even for most private operators is very variable The percentage of operator profit over the period is varied ranging between 3 to 150 percent. Year of excessive profit ranged between 2010 and 2013 with 2010 scoring the highest at 60 percent. 2014 recorded excessive losses due to fuel shortages and rocketing fuel costs. Current average fare/km is US$ 0.04 compared to US$ 0.07 Intracity Operators Formal: MMT is not able to break even Average fare/km is US$ 0.01 compared to US$ 0.03 –US$ 0.04

37. IMPACT OF REFORM ON PRICE REGULATION Private Operators:. Profits due to increased population and associated increased demand compared to vehicular growth rate Losses due to Increase in fuel prices and buses at the station Fare collection by cash payment (100% of operators) Only 14% Involvement in fare decision making Intracity Operators MMT: Fare collection by ticketing (100% of operators) Only 10% input in fare decision making There are no fare concessions for passengers with the exception of free school service by the MMT for school pupils.

38. IMPACT OF REFORM ON PRICE REGULATION Tax incentives in bus business investment: No form of tax incentives for private bus operators in Ghana. With the exception of insurance and road worthy requirements, the MMT is not obliged to pay any taxes. Prescribed fare setting mechanism used in fare decision: 44% of the private operators acknowledged that they subscribe to fare setting mechanism regulated by their unions with Government. Some union drivers do not also subscribe to government approved fares Floating drivers do not subscribe to fare setting mechanism The MMT normally pegs it fares 15 to 20 percent below regulated prices for private operators.

39. IMPACT OF REFORM ON PRICE REGULATION Suggestions on the Investment Climate in the Bus Transport Sector: GoG should pay subsidies to urban transport operators GoG should subsidise urban bus transport Fare Setting Process: Consultations are arranged by either party that is Government and operator representatives for the purpose when one party demands this with GRTCC playing a coordinating role between the two entities. Ranking of Cost Items in Fare Setting: Fuel cost is ranked as the number one cost component affecting transport fares followed by labour cost, maintenance and tyre cost.

40. IMPACT OF REFORM ON PRICE REGULATION Approximate Cost of Maintaining a Bus Service: maintenance cost of a bus range between US $ 8 and US $108 per month for private operators. About 56 percent spend US $ 54.

41. IMPACT OF REFORM ON ROUTE ALLOCATION Number of Routes Plied For Intra-City Operation (Informal Operators): No officially regulated mechanism for route allocation. Most operators who are members of unions are allocated routes by their union members in accordance with preference and ability to lobby. Non union members ply different routes at different times of the day and in a week as deemed lucrative. 55% ply on single route whilst 14% ply on double routes. The remaining ply on between 3 to 6 different routes at different time schedules.

42. IMPACT OF REFORM ON QUALITY Intracity Operators Informal Government and private ownership 20%, private ownership 70% and private scheme 10% 94% purchased locally and 6% imported Bus procurement rated difficult at 89% and fairly easy at 11% Bus quality rated good, fair and poor at 12%, 38% and 50% Intercity Operators Formal Buses owned by Government Bus procurement rated fairly easy at 100% Bus quality rated good, fair and poor at 25%, 45% and 30%

43. IMPACT OF REFORM Intercity Operators Private 75 per of the respondents indicated there are no policy issue that has had significant impact on transport operation entry Intercity Operators MMT

44. IMPACT OF REFORM ON PASSENGERS Intracity passengers informal Average fare is US $0.027 for MMT and US$0.04 for private informal operators 64% said fare is justified 59% travel daily Intercity passengers The private formal service (US$0.011/km)is rated highest in terms of fare, followed by the private informal (US$0.02km) service with the MMT US $0.01recording lowest 87% passengers said there has not been positive changes in fares levels in the last five years 58% think fares are justified

45. IMPACT OF REFORM ON PASSENGERS Intracity passengers informal 46% are aware of timetable 45% travel within 5 minutes to boarding points 77% wait for 15 minutes Intercity passengers 74% said there are no timetables 67% have easy access to boarding points 33% access transport within an hour on weekdays and 24% do so on weekends 22% there has been changes in service frequency in the past 5 yrs 35% did not attribute changes to Govt intervention

46. IMPACT OF REFORM PASSENGERS Intracity passengers informal 20% have seen positive changes It is easy to access private bus than MMT Most have not seen changes in travel time Intercity passengers 27% have seen positive changes in ability to choose buses It is easy to secure tickets for private formal, followed by MMT with private informal scoring lowest 75% are able to secure tickets within 10 minutes 11% said there has been changes in travel time

47. CONCLUSION The reform initiatives are yet to be fully enforced and the state of competition of the bus transport industry is not easily defined after the reform initiatives. Whilst the market structure of the industry in terms of the supply of services is very highly competitive, the scope for effective competition in terms of costs, market differentiation, and other business issues in the industry is not effective. Also, correspondingly, the need for regulation differs significantly between sub sectors in the system. There is further need for some institutional adjustments of the current dispensation, to make the system work better.