Feature Story

| Nairobi Business Monthly June

PUBLIC TRANSPORT

EMERGENCY BRAKES FOR AKAMBA BUS

Giant public transporter veers as two evils stand out: family business set-up and below-par management By NBM Reporter

he origins of Akamba Public Road Services can be traced to 1960 in Machakos where it began with just a few buses. Its founder, Mr Sherali Hassanali Nathoo, grew the company to become one of the most experienced long distance passenger bus transport and courier companies in East Africa with a network spanning over 50 destinations. In September 2000, Mr Nathoo passed away and bequeathed his shares to his wife Zarina and sons Moez and Karim. Moez and Karim, with their majority shareholding, became directors and took the driving seat. In February this year, 14 minority shareholders, including Zarina, led a winding up petition. For technical reasons, it was struck out and four days later, the unfazed shareholders led a second one. The petition, set to be heard on July 11, gives interesting anecdotes about the directors seeking to prove they are not qualied to drive the company. Before joining Akamba, the petitioners say Mr Karim was a ower vendor at Chester House along Koinange Street in Nairobi, while his brother Moez was a

maintenance handyman at the company who worked under a maintenance manager. The petitioners claim that the brothers have repeatedly behaved in an oppressive manner. For instance, they have prevented any inclusion in the board of external directors, they have appointed unqualied persons as directors, and combine annual general meetings such that the AGM for 2007 and 2008 was held at the end of 2008 while the one for 2009 and 2010 is yet to be held. The petition adds that no dividends have been paid since 2001 while remuneration for the majority shareholders has increased. The two brothers are accused of understating the companys income, pledging company property to secure personal loans, and disposing of assets without the shareholders node. Their illegal, unlawful and wrongful enhanced remuneration has had the eect of grounding the operations of the company and increased its liabilities to a point where the company suers serious liquidity hardship, the petition says. As a result, the company which had a eet of over 100 buses in 2010 has been seriously eroded and all the buses save for ve
June Nairobi Business Monthly |

Feature Story

have been cannibalised and sold as scrap and the companys asset base totally eroded in a span of only eleven years. In addition, Mr Karim is facing criminal charges for failure to pay sta wages amounting to over Sh5 million. But some of the challenges the regional transport giant is facing stem from its set-up as a family business, and the way its management has been transferred to unqualied successors who pay only lip service to corporate governance. The backdrop to Akambas dwindling fortunes is also linked to a transport sector that has seen many giants fall, and it is a failure that Edwins Mukabanah, the Managing Director of Kenya Business Management Service (KBS), takes personally.
| Nairobi Business Monthly June

The backdrop to Akambas dwindling fortunes is also linked to a transport sector that has seen many giants fall

What Akamba is going through is exactly what KBS went through or OTC, he says. The big names in the industry have all disappeared, and the next companies to suer will be Easy Coach and Double M. If we dont watch it, well get into serious trouble. He adds, ominously: The big buses are being killed by the mediumsize buses, which will in turn be killed by the 14-seaters, which will be killed by the nguruwe (seven passengers), then the probox (many people in the back) and nally the motorbike. He said in passenger transport, the more of a thug you are, the better you operate. The more organised you are, the more you will suer. He blames the lack of a regulatory, legal and operational framework. Both the Trac Act and the Transport Licensing Act are old fashioned and

PUBLIC TRANSPORT
PSVs have right of way because they carry more passengers per unit of road space and per litre of fuel.
Key Agencies that need to be created

Did you know?

1. Driving standards to regulate driving schools, instructors and examiners 2. Vehicle Standards mandatory inspection of business and private vehicles 3. Vehicle Driver Licensing to ensure theres an electronic track record on each driver 4. Transport Licensing to regulate the entry and exit of companies, and monitor fares, taris and timetables 5. Research and training institute a government sponsored training institution 6. National Road Safety Council to enhance safety in the country

mutilated, he notes. For instance, neither Act allows for technological developments such as electronic driving licences, ticketing and tracking. Not just are there no updates to existing legislation, but new legislation takes inordinately long. The late John Michuki who has been lauded for introducing regulations to the public transport system had developed an Integrated National Transport Policy in 2004. Eight years later, the policy document that he shared with Parliament has not progressed, without which regulatory institutions cannot be created to monitor public transport. The situation is exacerbated by the existence of the para-transit operations. These shuttle services have no human resources, no oce

for complaints, no depot, no infrastructure, no training and no uniforms. And the government allows them to compete with companies that do have those systems and structures in place, Mr Mukabanah says. He traces the inequality to 1973 when President Jomo Kenyatta legalised matatus. Since then, there has been no level playing ground or rules of the game. The uneven playing eld acts as a subsidy to the para-transit operators since compliant companies consistently incur higher operating costs. For instance, KBS spends over Sh180,000 a month on ticketing, which converts into a direct saving for operators that do not issue tickets. A second cost-saving for the para-transit is they only hire a driver, in contravention to the Trac Act which mandates every bus to have

a conductor and driver. Their labour costs are halved. And while companies like Akamba invest in vehicles like Scania, designed for long distance travel, para-transit operators use converted vehicles that do not follow safety or comfort standards. Most are in it for the short haul and for money laundering, he said. No one even checks your nationality. You come in, buy vehicles and start operating. Whatever you make, you bank daily. An unregulated environment breeds predatory pricing where a company cuts prices to push a competitor out of business. A poor regulatory environment that increases costs heightens these market inequities. Your biggest input as an operator is fuel. When the government replaced the road licence with a fuel levy at Sh3.20 per litre, it increased the tax that bus companies pay from Sh14,000 a year (per vehicle for the road licence) to over Sh300,000. In addition, where the government previously issued one licence to all the vehicles in a company allowing every vehicle in a eet to operate any route, it now requires every vehicle to have a licence to operate a particular route. For a company like Akamba that has a eet, this means that when one bus breaks down either the passengers are refunded their fares or a dierent vehicle is made available. Since the replacement vehicle may not be licensed to operate that route, it incurs a ne of Sh50,000 or money changes hands with the boys in blue. The role played by the nancial industry also poses a major challenge. In most countries, Mr Mukabanah says, when purchasing an asset, you are funded by the IFC or by the government at low interest rates but in Kenya, you pay a 40-50% deposit to the banks. Local nancial institutions have a stringent list of demands, including composite insurance, interest of between 25-40%, copies of the borrowers and spouses bank slips and a mandatory transfer of all nancial transactions to their bank. The borrower is also expected to provide collateral, install a tracking system on the vehicle and surrender the logbooks for the new and a second vehicle. Most startling, the bank will also visit the borrowers domestic premises to take stock of household items. Insurance has been cited as a factor that hinders the growth of transport business. For PSVs, you have to take a comprehensive insurance at 13% of the value of the vehicle which means that if you have ve vehicles, you write o a vehicle every year costing Sh6 million.
June Nairobi Business Monthly |