Just a few days ago I had a long conversation with the owner of a taxi about the economics of his business. I called him after learning about the stunningly low price that someone had paid to buy a car to operate a cab business in the city: two hundred thousand only.
The Taxi owner, who agreed to talk only if I wouldn’t use his name, expressed discontent in the industry saying that many competitors are “not playing by the rules,” but asserted that the taxi business wasn’t dead.
In Kenya, taxi-hailing app vendors are grappling with new entrants who have ignited a price war. There are about 10 taxi-hailing apps in Kenya with Uber, Taxify and Little Cab battling for dominance in the market.
In the face of competition, Uber, which pioneered ride hailing apps in East Africa, entered into partnerships with financiers to lock in drivers.
While this enabled individuals to own cars, it left them exposed to loan defaults in the event of changes in business conditions.
In the first partnership in 2016 with Sidian Bank, about 150 drivers entered into the business under the UberX brand. Its success informed more ambitious lines of credit with Stanbic Bank, Barclays Bank, CMC Motors and Suzuki Motor Corp.
The partnerships enabled 516 drivers to obtain loans to acquire the low fuel consuming Suzuki Alto from CMC motors under the Uber Chap Chap brand.
The taxi operators who took loans to acquire the Uber Chap Chap cars are now faced with financial ruin as cut-throat competition takes a toll on the once lucrative business.
Gone is the mad rush to enter the business that runs on taxi-hailing apps despite the existence of car ownership deals.
Kenya’s Stanbic Bank recently announced plans to auction 13 Suzuki Altos belonging to Uber taxi operators who have defaulted on their loans.
The move lifted the lid on the challenges facing taxi operators in a market characterised by rising competition, a tough operating environment and dwindling earnings.
The challenges have their origins in market leader Uber’s decision two years ago to lower fares as it sought to win more rides.