Posted by: Martin | September 18, 2011

Why buy a taxi?

I’m finally in Abidjan, sadly only for a brief two-weeks sejour this time.

A technical note
The Ivorian Internet Service Provider I’m using is filtering traffic through a so called transparent proxy.  This  has the side effect of disabling stylesheets on wordpress making blogging pretty difficult.  A way around it is to use SSL, ie to use https://hotelivory.wordpress.com/.  Since I just figured this out today I have a bit of a backlog to deal with. Let’s start with the taxi business:

The continuing taxi saga

Yesterday, I met up with the taxi manager and got the first positive cashflow consisting of 129,000 CFA Francs (196 EUR) for the first half of September – quite a good a feeling really.  If it keeps going like this it’s great, but people say that often around the six month mark of running, taxis start having mechanical problems, so I’ll see.

As for the taxi bumper, there’s still nothing written on it. Suggestions are welcome!

Thoughts on the taxi business

From a Swedish perspective doing any kind of business in West Africa is quite original, but that aside, owning a taxi is actually  unoriginal. It feels like every male I know of dioula ethnicity in the Ivorian diaspora is in the taxi business. It’s a mature fragmented market with high competition, low barrriers to entry and little room for innovation. It is still to be seen, but in theory at least, margins should be low, or at least low relative to the Ivorian/African average. On top of that, in the taxi business one doesn’t benefit much from projected economic growth in Abidjan. Increased demand is likely to be met quickly by more taxis on the streets resulting in margins staying the same, while traffic jams increase. And unlike the real estate business there is no asset that can appreciate in value over the long term.

So, why did I buy a taxi?

There are a few appealing traits:

  • The cycle from making an investment to start seeing results is pretty short – much shorter than buying land and building stuff for example – making things more exciting.
  •  

  • It’s relatively passive income, when everything is set up, brief weekly check-up calls over skype should be enough
  •  

  • The initial investment is low, and unlike when building a hotel, the investment can be ramped up incrementally by adding more taxis.
  •  

  • Having an organisation of competent and honest Ivorians is I believe a great competitive advantage. Setting up a taxi business is a low cost way to do the trial and error and learning needed build up such an organisation, and that organisation can later on be used for other business opportunities.
  •  

  • Margins might not be amazing, but they can still be decent and likely much higher than for a taxi in Europe. I can still only guess what the final result will be for the taxi, but the following factors should contribute to bringing up margins:

    -The modest capital required is still a barrier to entry. Not that many people in the Ivory Coast have access to the sums required, and among those who do, I would guess that some consider running a woro-woro in Abobo beneath them.

    -To make it work, one needs the people and organisational skills to handle drivers, mechanics and (optionally) managers. Altogether not straightforward at all.

    -Buying a Toyota Corolla in Europe, sending it to Abidjan and paying all import duties is cheaper than buying one in Abidjan. The Toyota coming from Europe is also likely to be in better shape than the one bought in Abidjan. People that have the opportunity bring in cars from Europe will thus have higher margins plus the option to sell the car at a profit which puts a floor on the risk taken.

Mediocristan

Finally, the taxi business is squarly in mediocristan, which is not necessarily a bad place to be. The classic example of the difference between mediocristan and extremistan is if one imagines 1,000 random persons in a row, and then the tallest person in the world is added to the row.  The average height of the row is only going to be affected very marginally – that’s mediocristan.  On the other hand if Bill Gates is added to the row, the average wealth is going to be dramatically increased.

In the same way as height, the taxi revenue or profit from a single week/month/year is not likely to have a big impact on the overall profit or revenue (assuming the taxi business comprises more than a couple of taxis that are continuously replaced). Profits and revenue are variable but overall it’s robust, both to surprises to the up- and downside, much like a dentists practice, but unlike banking or venture capital firms.

Advertisements

Responses

  1. Hello Martin,

    It’s been a while that I’m following your blog, reading everything since the start and passing the address to my co-workers. Thank you for your hard work on this blog. It is very useful info. Why did I wait so long to write a message and especially on this page?! I was doing my homework. 🙂

    You should receive an invitation to connect on LinkedIn from me today. I used this email address on your blog to not show my contact details. Hopefully we can exchange a bit. Looking forward to read from you or talk to you soon.

    Happy end of year.
    Best, MD.

  2. Glad that you enjoy the blog! Looking forward to hearing from you!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: