1. Minibus Operators & Passenger Welfare in Malawi Milward Tobias Malawi

2. Presentation outline Introduction Introduction Minibus transport operation Minibus transport operation  Price fixing  Quality fixing Civil society in transport sector Civil society in transport sector Average expenditure on transport by consumers Average expenditure on transport by consumers Average earnings of operators Average cost for operators Anti-competitive & economies of scale Challenges affecting consumers

3. Presentation outline (cont’d) Recommendation Recommendation conclusion conclusion

4. Introduction Malawi has a population of about 12 million Malawi has a population of about 12 million About 25% live in urban areas with the majority using minibus for daily transport About 25% live in urban areas with the majority using minibus for daily transport Transport cost and quality have thus a significant bearing on Transport cost and quality have thus a significant bearing on majority’s welfare Minibus operators are in association called Minibus Owners Association of Malawi (MOAM) Minibuses flooded the market from mid 1990s and eased transport challenges.

5. The minibus transport operation Minibus operation faces the principal- agent problem to a great deal Minibus operation faces the principal- agent problem to a great deal To counter the problem principals set target amount of money agents should generate in a day To counter the problem principals set target amount of money agents should generate in a day The setting of targets impacts on speeding and consequent road accidents as agents strive to meet the target and make more money for their own

6. Price fixing In a liberalised market we expect more players in industry to induce more competition on prices and quality In a liberalised market we expect more players in industry to induce more competition on prices and quality The consumer is a beneficiary therefore The consumer is a beneficiary therefore The role of MOAM would be representation and The role of MOAM would be representation and quality check in terms of ensuring vehicles registered with it have Certificate of Fitness, insurance and other safety requirements

7. Price fixing (cont’d) What MOAM does: What MOAM does: Determination of fares for different routes Determination of fares for different routes Cushioning inefficient and poor standard transport providers by allowing agents to line up on a first come first pack basis Cushioning inefficient and poor standard transport providers by allowing agents to line up on a first come first pack basis What the law says: Section 34(b)(i) of the Competition and fair trading act says. “ the following practices conducted by or on behalf of a trade association are declared to be anti-competitive trade practices and are prohibited; making of recommendations, directly or indirectly, by a trade association, to its members or to any class of its members which relate to the prices charged or to be charged by such members or any such class of members or to the margins included or to be included in the prices or to the pricing formula used or to be used in the calculation of those prices.

8. Price fixing (cont’d) Price increase attracts fare increase that does not only push total cost increase to consumer but also adds more to profit margin Price increase attracts fare increase that does not only push total cost increase to consumer but also adds more to profit margin For example, fuel increase by 17% attracted fare increase For example, fuel increase by 17% attracted fare increase of 16.67% in Lilongwe and 10% in some routes of Blantyre and 14% in highway of Blantyre A study of 15 operators by Waziona Ligomeka indicates that the right increase in Lilongwe would be K2.50 and not K10

9. Price fixing (cont’d) How he calculates: How he calculates: Distance Area 12 to capitol Hill Distance Area 12 to capitol Hill Bus uses K400 for fuel per trip Bus uses K400 for fuel per trip Old fuel price K161/litre Old fuel price K161/litre New fuel price K191/litre New fuel price K191/litre K400/K161/litre=2.48 litres K400/K161/litre=2.48 litres K191/litre*2.48litres=K473.68 K191/litre*2.48litres=K473.68 Increase is K73.68 Increase is K73.68 A bus with carrying capacity of 18 should increase fare by K4.10 if total increase is pushed to passenger A bus with carrying capacity of 18 should increase fare by K4.10 if total increase is pushed to passenger

10. Quality fixing Quality is compromised in the following ways: Quality is compromised in the following ways:  Lining up of buses on first come first pack basis implies passengers have to board a bus not of their choice but that is packing This results in sitting on damaged seats, boarding buses with poor ventilation  Mistreatment by conductors and drivers through Disrespectful language

11. Quality fixing (cont’d) Diverting from normal routes to run away from traffic police if the bus is not road worthy Diverting from normal routes to run away from traffic police if the bus is not road worthy Being dropped at a place different from the passenger’s destination Being dropped at a place different from the passenger’s destination Case study I Road traffic directorate on seat capacity Government ordered that minibuses should be carrying three people per seat roll instead of the current four per seat roll to reduce accidents. MOAM reacted to this by ordering a stay away that was followed by a court injunction restraining government from implementing the directive The court passed judgement on 5 th February 2008 and MOAM lost the case.

12. Civil society in transport sector There are few consumer rights CSOs There are few consumer rights CSOs Notable ones include Consumer Association of Malawi, Centre for Social Concern, Passenger Welfare Association of Malawi Notable ones include Consumer Association of Malawi, Centre for Social Concern, Passenger Welfare Association of Malawi Due to resource constraints and other challenges the approach is usually reactive rather than proactive Due to resource constraints and other challenges the approach is usually reactive rather than proactive Coordination is generally poor as different bodies react differently to same issue Coordination is generally poor as different bodies react differently to same issue

13. Monthly expenditure by consumers Currently the most expensive routes in Lilongwe cost K70.00 Currently the most expensive routes in Lilongwe cost K70.00 In a month of 22 working days and assuming no other trip apart from work place and back home, a person spends K3080.00 In a month of 22 working days and assuming no other trip apart from work place and back home, a person spends K3080.00 Average earnings for junior staff range around K12,000.00 People naturally move to different places and many people want to travel even in family where only one is bread winner

14. Average earnings of operators Most minibus operators instruct their agents to generate about K5000 a day Most minibus operators instruct their agents to generate about K5000 a day Thus buses that work 22 days in a month would on average generate K110,000 Thus buses that work 22 days in a month would on average generate K110,000 The K5000 is an average as business faces peaks and troughs within parts of the month

15. Average cost for operators Running cost for minibus involves; Running cost for minibus involves;  Salary for driver, conductor, guard where applicable  Mandatory insurance, certificate of fitness, vehicle licence, road service permit, registration, change of ownership, Malawi revenue authority, subscription to MOAM, route application form, regional passenger membership, gate fees, fuel, provision for depreciation, lunch allowance for driver and conductor

16. Anti competitive and economies of scale Most markets in Malawi are imperfect Most markets in Malawi are imperfect The 1997 competition policy for Malawi admits that most goods and services are produced and distributed under monopolistic and oligopolistic conditions The 1997 competition policy for Malawi admits that most goods and services are produced and distributed under monopolistic and oligopolistic conditions Most minibuses are operated by individuals who have no capacity to influence demand for other operators by charging a lower price or improving quality thus no incentive to do so.

17. Anti-competitive and economies of scale (cont’d) Established operators owning many buses only exercise economies of scale by setting lower targets thus may impact positively on speeding Established operators owning many buses only exercise economies of scale by setting lower targets thus may impact positively on speeding Economies of scale thus do not act as barrier to entry because pricing Economies of scale thus do not act as barrier to entry because pricing decision is done by MOAM

18. Challenges affecting consumers Weak regulation in terms of enforcement Weak regulation in terms of enforcement Weak civil society and passenger union in terms of resources Weak civil society and passenger union in terms of resources Structural set up of operators as they work in oligopoly because of MOAM and none able and willing to operate differently Structural set up of operators as they work in oligopoly because of MOAM and none able and willing to operate differently Passive society and every person operating as individual thus no collective decision as opposed to operators

19. Recommendations MOAM, PAWA and the Competition and Fair Trading Commission should find plausible ways of ending the anti-competitive behaviours. Mandate of MOAM should not include market allocation and price determination MOAM, PAWA and the Competition and Fair Trading Commission should find plausible ways of ending the anti-competitive behaviours. Mandate of MOAM should not include market allocation and price determination PAWA should be supported especially by insurance companies PAWA should civic educate the public on the right to fair trade practices

20. Recommendations (cont’d) There should be consolidation and coordination of efforts by all consumer rights bodies There should be consolidation and coordination of efforts by all consumer rights bodies The new bus company that government intends to replace Shire bus lines should extend to The new bus company that government intends to replace Shire bus lines should extend to commuter transport service as is the case in Zimbabwe  The working relationship between PAWA and MOAM should be enhanced to promote the interface between passenger and transporter

21. Recommendations (cont’d) Traffic police should check vehicle roadworthiness at the point of departure apart from on the road as is currently the case Traffic police should check vehicle roadworthiness at the point of departure apart from on the road as is currently the case International organisations such as CUTS should help build the International organisations such as CUTS should help build the capacity of PAWA There is need for fully fledged companies to operate in the minibus sector that would break the current distortions. The commission should be given adequate resources to operate fully

22. conclusion In analysing competition and market structure the core aim is to investigate consumer welfare In analysing competition and market structure the core aim is to investigate consumer welfare Consumer welfare in commuter bus is compromised in quality and fare Consumer welfare in commuter bus is compromised in quality and fare There does not seem much happening to reverse the trend Individuals and corporate sector do not seem to value the work of PAWA Behavioural rigidities and individualism hamper the efforts of PAWA

23. Generalized operating cost structure of minibus Cost item amountperiod salaries16,500 1 month Mandatory insurance 40,000 12 months COF3,000 Vehicle licence 2,000 12 months Road service permit 3,000 6 months Change of ownership 5,000 One off registration5,000 Route application form 5006months MOAM2,500 12 months MRA3,500 3 months SRP Membership 500 One off

24. Year persons involved number Year persons involved number fatal killed injured injured minor vehicles seriously injuries damaged fatal killed injured injured minor vehicles seriously injuries damaged 2001 609 667 1189 227 962 1131 2001 609 667 1189 227 962 1131 2002 646 667 3105 227 992 2846 2002 646 667 3105 227 992 2846 2003 739 829 2971 768 2203 2118 2003 739 829 2971 768 2203 2118 2004 509 529 2425 613 1812 1313 2004 509 529 2425 613 1812 1313 Road accidents as cited by National Statistics Office

25. THANK YOU! TATENDA! ZIKOMO! SANTE! MERCI MILWARD TOBIAS MILWARD TOBIAS P.O BOX 30207 P.O BOX 30207 CAPITAL CITY CAPITAL CITY LILONGWE 3 LILONGWE 3 MALAWI MALAWI +265 8 375 967 +265 8 375 967 milwardt@yahoo.co.uk milwardt@yahoo.co.uk