Did you know the human transport business in Africa is worth billions of dollars? You should take your time to digest this article.
Africans who do not own vehicles are finding it more and more difficult to move around town these days.
The growing population of Africa’s cities and towns is creating a transportation demand so huge that both private and public transport services can barely keep up. Every day, more than 250 million Africans depend on commercial transportation to get them to their places of work, school or business.
In the absence of reliable public transportation systems to serve these people, several opportunities have become available to smart entrepreneurs who want to exploit this huge and lucrative demand.
This article explores these business opportunities and provides useful tips you could use to your advantage in the mass transport business in Africa!
How huge is the demand for human transport services in Africa?
Before we look at the juicy business opportunities, we think it’s very important that you understand the factors responsible for the growing demand for transportation services in Africa.
With this background in mind, it’s easier for you to make the best use of these opportunities and take your ideas to the next level!
In a previous article, we looked at the lucrative opportunities in trucking and haulage of goods in Africa. The factors responsible for the huge volumes of goods being transported across Africa are also responsible for the bursting demand to move people around (human transport).
These factors include Africa’s rapid urbanization (more people are moving to the cities) and growing economic and physical activity (more people are moving around for business and personal reasons).
In the 1980s, the population of Africans living in cities was less than 120 million. Currently, more than 40 percent of Africa’s one billion people live in urban areas.
The proportion of Africans who now live in cities is higher than India (30 percent) and roughly equal to China (45 percent). At the current rate at which Africans are flocking to the cities, more than 300 million more of us will become city dwellers within the next 20 years. (source: McKinsey Research).
At the moment, more than 50 African cities have a human population over one million. Cities like Lagos (Nigeria) with a population of over 13 million people is expected to become the largest city in Africa and one of the world’s megacities by 2015 (with a population of nearly 16 million people).
What does a higher city population mean, you ask?
The answer’s simple – more movement!
People come to the city for a reason – to find work, go to school, or start a small (or big) business. As a result, there is a lot more movement in cities and towns than in the rural areas.
City people wake up in the morning and go to a job they already have, or move around town searching for one. Many other city people are either self-employed or own a small or medium-scale businesses. The ones who do not belong to either of these groups have to get to school.
The point is simple – transportation is a CRITICAL need of people living in cities and towns. Like food and water, we cannot do without it!
Because millions of people (and their goods) NEED to move around every day in Africa, there exists a huge demand for transportation services.
While it’s true that many African economies are improving, not many people can afford cars to move themselves around. Given the inadequate and poorly maintained road networks on the continent, it would be hell if everyone had their own car!
Where it exists, the public transportation systems in many countries on the continent are inadequate, unreliable and poorly maintained. To address this shortfall, many countries license and allow private bus companies, taxi operators and ferry services to help meet the huge demand.
This has opened some interesting opportunities for African entrepreneurs to make good money while providing transport services that help to move people around. We shall look at these opportunities in greater detail below.
5 Small Businesses you can start to exploit Africa’s lucrative transport market
Some of the small businesses we’re about to explore are probably popular in several parts of the African continent, and non-existent in other parts. Most of them require little capital to startup and will work for both aspiring and established entrepreneurs.
Considering the rapid growth of Africa’s population and cities, the demand for these small businesses will surely explode in the coming years.
#1 – Motorcycle Taxis
Photo credit: pilotafrica.com
Commercial ‘taxi’ motorcycles are known by different names on the continent. From Piki Piki and Boda Boda (East Africa) to Okada (Pidgin English – Nigeria), these two-wheeled vehicles have become a very popular means of transportation in many African villages, towns and cities.
Everywhere you look, there’s a high chance of finding one. In fact, it is estimated that motorcycles make up more than 40 percent of all vehicles you can find around (including cars, buses, trucks etc).
Every year, Africa imports more than one million different brands of motorcycles, especially from China and India. This huge demand for motorcycle taxis is understandable.
People on the move find it very affordable, flexible and fast. Motorbikes are best at navigating bad road networks and can help you beat city traffic when it really matters! They are also able to enter remote areas where roads are either too bad or non-existent.
Although motorcycles frequently feature in fatal accidents, its positive qualities have led to the huge and rising demand for motorcycle taxis in many parts of the continent.
A typical motorbike costs anything between $500 – $1,500, depending on the brand and country of purchase.
In many major cities (like Lagos, Nigeria), a single motorcycle taxis can earn up to $25 a day by serving tens of customers who prefer its quick and flexible services.
Most motorcycles are gasoline-powered and fuel costs for operating a motorbike taxi business are usually under $8/day depending on the price of fuel.
There are two common ways entrepreneurs make money from the motorcycle taxi business.
Apart from a Hire-Purchase arrangement (discussed later in this article), another popular way is to buy motorcycles and hire them out to riders for a daily rent.
Depending on the volume of business in the location, this rent is a fixed amount and can be up to 30 percent of the daily earnings. The riders under this arrangement are responsible for fuel costs and keep any amounts above the daily rent paid to the owner. The owner (entrepreneur) remains responsible for registration, insurance, maintenance and repair costs.
Because unemployment remains high in many parts of Africa, many young people now depend on motorcycle taxis to earn a living. Without the capital to buy a motorbike for themselves, these guys have to rely on entrepreneurs who can provide these bikes and earn rent on them.
It’s a win-win business for both parties, although there are often challenges (which we’ll look at in the last section of this article).
#2 – Tricycle (Auto Rickshaw or Tuk Tuk) Taxis
Photo credit: crossriverwatch.com
Known by several names in Africa, the tricycle (Auto Rickshaw or Tuk Tuk) is growing in popularity across Africa (especially with the poor and lower middle class).
Its many names on the continent include: Tuk-tuk (Eastern Africa – Kenya, Ethiopia, Tanzania), Pousse-pousse (Madagascar), Keke (Nigeria) and Raksha (Sudan).
Tricycles have become a neater and less accident-prone alternative to motorcycles which have been banned from major roads in big cities like Lagos (Nigeria).
Like motorcycles, tricycles are preferred by people who want to travel short distances within cities and towns. Although they can carry up to 4 – 5 passengers at a time, tricycles are also flexible, cheap for commuters and can navigate narrow and congested parts of town.
A typical (4-seater) brand new tricycle can cost anything between $1,500 – $4,000 depending on the brand and country of purchase.
Tricycles are simple to operate and anyone who can ride a motorbike can easily ride a tuk-tuk. Depending on the location and volume of demand, tricycles can earn up to $50 in a single day.
Just like motorcycle taxis, entrepreneurs can purchase tricycles and give them out to riders who pay a daily rent for using them. A Hire-Purchase arrangement is also another popular way of making money from this venture.
#3 – Taxi cabs and private hire cars
Photo credit: embarq.org
Taxi cabs are probably one of the oldest forms of transportation within African cities and towns. They are preferred by higher income earners for short and long trips within the city although cab fares can be much higher than motorcycle and tricycle taxis.
While taxi cabs are known to pick customers off the road, private hire taxi cars serve customers who make a prior booking (especially via telephone).
Although many taxi cabs in the cities are operated by their owners, there is a growing trend of private taxi cab companies on the continent. These companies own a fleet of branded taxis and hire drivers (often on a fixed salary).
As more African cities look to modernize, taxi cabs are becoming a very common feature on city roads. For example, since the introduction of a curfew on motorcycles and tricycles in Lagos (Nigeria), more people now have to use cab taxi and bus services to get around town.
Depending on the brand and condition of the car (new or second hand), a suitable vehicle for a taxi cab business can cost between $5,000 and $15,000.
Because taxi cabs are often regulated in most cities, they have to be registered with the relevant city council authorities. Insurance cover and vehicle licenses are some other important costs to be considered when starting a taxi car business.
In some cities with high volumes of human traffic, taxi cab operators can make between $50 – $100 in a single day. Fuel costs typically take up 20 percent of daily earnings.
Just like with motorcycles and tricycles, entrepreneurs can build a taxi cab fleet by purchasing cars, registering them and hiring the right drivers. Drivers could be placed on a fixed monthly salary or required to pay a fixed daily fee to the owner while they keep any excess amounts for the day.
Under this arrangement, the driver bears the cost for fuelling the vehicle while the owner remains responsible for any maintenance and repair costs. Hire-Purchase arrangements are also a popular way of getting good value from the taxi cab business.
#4 – Commercial buses
Photo credit: itsinternational.com
In terms of volume, commercial buses move more people around in Africa every year than any other means of transport. They are the most common form of mass transportation on the continent and move people and goods within a city (intra city transport) and between cities (inter city transport).
In the absence of well-developed rail networks on the continent, buses have taken over the role of moving people and light goods over long distances. Commercial buses are the only option for Africans who travel long distances but afford to travel by air. This makes them a very lucrative venture in Africa’s present and future.
Many commercial buses on the continent are operated by self-employed drivers. These buses operate within the cities or embark on long haul trips between several cities, towns and villages.
There are also private companies that own bus fleets dedicated to transporting people and goods between urban and rural areas.
The initial capital required to start up a bus service business is normally higher than any of the other options explored above.
Depending on the brand and condition of the bus (new or second hand), a suitable bus for this business can cost between $15,000 and $50,000.
#5 – Ferry transport
Photo credit: earthwiseventures.com
Motorcycles, tuk-tuks, car taxis and buses all have one major flaw – they are all road vehicles.
Because road transportation is the common and most used means of transportation across Africa, the existing road networks and infrastructure are just not enough anymore to support the huge pressure.
In fact, the traffic jam faced by commuters in some of Africa’s big cities is leading entrepreneurs to provide a better alternative to road transport.
Water transport remains one of the most underdeveloped and underexploited means of transport across Africa.
Take Lagos (Nigeria) for example, one of Africa’s most populated cities and home to more than 12 million people. Although Lagos is a coastal city with an interesting network of waterways, more than 5 million people commute to work EVERYDAY on its inadequate and ever-busy roads. If its water transport were developed, the burden of traffic on Lagos roads could be cut in half.
To exploit this opportunity, a couple of entrepreneurs are using locally-made boats to ferry desperate commuters over long distances.
The 5-minute video you’re about to watch is a short and interesting documentary that reveals how private ferry companies are cashing in on the huge demand for more convenient alternatives to road transport in the busy city of Lagos.
Another great example that proves the lucrative potentials of Africa’s water transport market is EarthWise Ferries in Uganda.
This private company is providing ferry services on Lake Victoria which connects three major East African countries – Uganda, Kenya and Tanzania.
Before Earthwise started its services, most people travelling across these countries had to embark on a two day travel through terrible roads. Now, this ferry service has cut down this grueling journey to just 10 hours!
The short documentary below is EarthWise’s pitch to investors and reveals the company’s plan to use its ferries to boost higher transport volumes across Lake Victoria. The lake holds a lot of potential for entrepreneurs and will become a huge revenue source for businesses in the future.
Things you need to consider before you start a human transport business in Africa
Just to get things clear, there are two ways anyone can start a transport business in Africa.
On one hand are self-employed people who own and operate their own vehicles (motorcycles, tuk-tuks, taxis etc.). While this approach is totally OK, this article is focused on people who want to own a transport business – that is, have several vehicles on the road and get/employ other people to operate them. This allows the business to spread and grow faster while helping the entrepreneur to focus entirely on running the business.
Here are a couple of important things you need to consider to ensure your transport business remains profitable and successful.
Capital – How much do you really need to get started?
As you may already know, the transportation business is capital intensive due to the large initial investment required to buy a good motorcycle, tuk-tuk, taxi or bus.
If you don’t have the money to buy a durable vehicle and intend to borrow money from friends, family or the bank, make sure you are sure the business will make enough money to pay back the borrowed capital (including any interest).
You can also check out this article on sourcing capital. You will really get a couple of great ideas by reading it.
As we always advise on Smallstarter, it pays to start small.
Start with one motorcycle, tuk-tuk, taxi or bus. Use the first one to gauge the demand and potential of the business. You can scale up and buy more vehicles as you learn about the market and meet with success.
Avoid the temptation to buy a fleet of motorcycles, cars or taxis in an attempt to become a big player. This can often lead to financial ruin. If you can’t afford a bus yet, start with a tuk-tuk or taxi.
Rental or Hire-Purchase?
How do you plan to make money from your motorcycle or bus?
Will you offer them for rent to pre-approved drivers who pay you a daily fee? Or will you enter a Hire-Purchase agreement with someone who will hire the vehicle while repaying you the full cost of the vehicle (plus up to 40 to 60 percent extra) over an agreed period?
With a rental, the owner of the vehicle remains responsible for registration, licenses, maintenance and repairs.
However, under a hire-purchase arrangement, the hirer takes this responsibility. We have included a Sample Copy of a Hire-Purchase contract (Word Document) you could amend and use for this purpose.
Whichever you choose to use, rental or hire-purchase, it’s very important that you carry out proper background checks on any persons you allow to rent or hire your vehicle.
Make sure they have recommendations from people who can confirm their good character and integrity. Some people are known to go on to steal your vehicles or ride them recklessly.
The people who operate your vehicles can make or break your transport business. Make sure they’re trustworthy and responsible!
Do you need to get registered or obtain a license?
Transport businesses are usually required to obtain a license or get registered in many cities. You will need to find out which government offices and associations you need to register with. The penalty for not registering with these bodies could lead to seizure of your vehicles.
The registration and license fees are often affordable (depending on the type of transport business and the routes). For example, in many parts of Lagos (Nigeria), motorcycle taxis have been banned so operating this kind of service may not work.
Just make sure you find out what the rules are and follow them.
Interested in the human transport business in Africa?
If you find that the transport business works for you, start working on a business plan and take action as soon as possible.
You could also choose from many more interesting and amazing business ideas in the Business ideas section of this website.
We would love to hear from you about your successes, challenges, advice and questions. Do not forget to leave a comment in the section below and share this opportunity with your friends.
To your success!