Posted by: Martin | May 8, 2011

The Business of Taxis

Talking football in taxis

When you live in a large  West African city as a westerner without having a car, what happens is, you take a lot of taxis. I quite enjoy it (especially after I’ve got the price haggling nailed down), and find that you often have interesting conversations with the driver.  Thinking about it, the most common topics are probably local politics and football, the latter possibly being, beside the opposite sex,  the only truly global subject of discussion for guys.

I still remember a taxi driver in Dakar a couple of months before the 2002 World Cup. The guy had (understandably) probably no idea of who Abba or Björn Borg are, or even what IKEA or Stockholm is, but upon hearing I was from Sweden his first reaction was “Oh, you are in the group of death”.  Then he knew all the names of the players in the Swedish team, and details about them – very impressive. It’s like, the taxi driver and me  come from totally different cultures, and have very different frames of reference, and still we have this topic where we can totally bond.

"Sweden now has four Andersson on the field: Patrik, Kennet, Robert and Alex Andersson."

The bling indicator

Anyhow, I’ve always been intrigued by the business side of taxis in African cities. Among the Ivorians in the diaspora mentioned in the previous posts quite a few own  taxis in Abidjan.  Being curious about the economics behind it, I asked around  and got a few numbers for fuel costs, repair costs, owner’s daily and monthly profits, time the taxis last on the pot hole filled roads of Abidjan, insurance, tax, import duties etc.  Then I checked prices of used cars in Europe and costs for shipping cars to Abidjan, and plugged in all the numbers in a spreadsheet.

The results, even using the most conservative numbers I got, showed an internal rate of return of over 100%, and a profitability index (Net Present Value/Initial investment) above 1.3 which is in the too-good-to-be-true range. Taxis in Abidjan seem to be a pretty competitive business with low barriers to entry, so the return on investment shouldn’t be that good.

Then in a moment of out-of-the-box thinking I took a look at the jewellery of the girlfriends/wives of the (all male) diaspora taxi owners.  Yup, some very heavy bling. And as a control, girlfriends/wives of non-taxi owners: A lot less jewellery.

So maybe there is something to the numbers. I’m thinking barriers to entry or to expand taxi business could be:

-No cars are produced in the Ivory Coast so they all have to be imported.  The ivorian diaspora would be in a good position to import cars, but the diaspora isnt that big, and maybe there arent that many that have the financial means to set up a taxi business. And it’s difficult to import cars if you are based in the Ivory Coast and don’t have a visa for Europe.

-Trusted drivers are necessary for it to work, and they are maybe hard to find.

-It could be hard to find suitable used cars. They almost all seem to be Toyotas and especially Toyota Corolla.  (Which is an interesting subject by itself, more on that in the next post.)

What’s the catch?

Still I’m thinking, there’s got to be a catch. Ideas:

-Import duties and bribes to get a car through the port of Abidjan was one of the numbers that was hardest to estimate, it seems you can’t know exactly how much it will cost until you are there. Maybe I’m underestimating this cost.

-I’ve heard of drivers taking off parts of the car and selling them, and then faking or claiming they had an accident. Maybe this is a c0mmon significant problem (and linked to the trusted drivers issue)

-The repair costs is another wobbly number that could be overoptimistically estimated by the taxi owners I talked to

-Fuel costs. The whole business is very sensitive to oil prices which have been going up lately. Maybe profit number estimates are based on unrealistic fuel costs.

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Responses

  1. Taxi’s are a profitable because everything can or could be be arranged: car papers, insurance, drivers license, repairs, etc. And not all taxi’s have to be imported. A friend of mine bought an old Peugeot for as little as CFA 250,000 and is planning to convert it into a woro-woro. His only problem is the reliable driver. If you have one, he says, owning a taxi is most definitely a profitable business.

  2. Ok, that’s good to hear! But if you can find cheap used cars in Abidjan that would ruin my theories in the next post. Oh well…

  3. […] with the taxi project I thought the budgeted numbers looked too good to be true and wondered where the catch […]


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