What you need to know before buying a matatu
Matatus jam at a stage in Nyeri town on December 14, 2022.
“Don’t even try, it is the riskiest business you can put your money in.”
This is the advice that Simon Kimutai has for anyone who is considering pouring millions of their hard-earned cash into the crowded, chaotic and unpredictable world of public transport.
Mr Kimutai is the former long-serving chairman of the Matatu Owners Association (MOA) and has more than 30 years of experience in the sector and reckons that the matatu business is a raging river that is drowning even the most talented and seasoned swimmers.
While he still serves as the chairman of one of the local public service vehicles (PSV) saccos, Mr Kimutai has largely retreated from the sector and liquidated much of his PSV assets.
He now resides in the village, where he says he does farming and wakes up every morning to enjoy playing golf.
He says the matatu industry, as the sector is commonly known, has been a loss making venture for at least the last six years and that investors who are eyeing the sector would be better served betting on something else.
This is due to a huge influx of PSVs in the sector with thousands of investors betting on the sector to reap a pie of the millions of shillings that exchange hands between passengers, conductors and drivers daily.
Simon Kimutai during a past event.
“Most people think that millions of people travel every day and that therefore there is so much money. But there is nothing. Matatus are a loss-making business and have been for the last six or so years now,” says Mr Kimutai.
The amount of money required to invest in the sector varies on many factors including the size and type of vehicles and how much one wants to modify their vehicles, but can range from between Sh4 million and Sh10 million.
If you have no cash at hand and have to rely on a loan to buy a matatu, think twice, cautions Steven Musau, a youthful industry player who owns a 14-seater matatu. Mr Musau says that he bought his vehicle at Sh580,000.
“A new 14-seater goes for about Sh3 million. I was lucky because I managed to get a second-hand matatu that was still in good condition for which I paid Sh580,000,” says Mr Musau.
Typically, someone who wants to invest in matatus and does not have the cash at hand secures a loan.
Once they have bought the vehicle, they must register with a sacco and find a reliable driver and conductor, says Dickson Mbugua, long-serving chairman of the Matatu Welfare Association with decades of experience in the public transport sector.
You also need a PSV (Public Service Vehicle) license, NTSA (National Transport and Safety Authority) certificate, and a road service license (RSL).
“The entry fee into a sacco depends on the size of the vehicle, the sacco and route. Some charge Sh20,000, Sh30,000 annually while others charge as much as Sh100,000 to join their sacco,” said Mr Mbugua.
Like Mr Kimutai, Mr Mbugua advises any investor to keep their hard-earned money as far away from the public transport sector as possible.
“Invest your money in something else,” says Mr Mbugua.
And he has good reasons. For long, industry outsiders have viewed Kenya’s chaotic public transport sector as one of the most attractive places to put their money.
Citi Hoppa MD Judy Thuo (left) with Jit Bhattacharya (CEO BasiGo) and Dr Joseph Njoroge, the principal secretary in the Ministry of Transport and Infrastructure, during the unveiling of the first electric buses for passenger use in Kenya.
This is based on the view that demand for public transport is only set to increase as the country’s population balloons, allowing them to earn daily from deploying their matatus to ferry passengers to different destinations across the country.
However, industry players have differing views on the sector. While some who have poured millions of their hard-earned cash in the industry say their foray into the sector has been worthwhile, others have cut their losses and exited the sector in a huff to look for more worthwhile ventures to invest in.
Mr Mbugua says he sold six matatus he owned during the Covid-19 pandemic when the government introduced movement restrictions making it hard for operators to survive.
“I had to sell my matatus during Covid-19. I don’t have any matatu now,” said Mr Mbugua.
Mr Kimutai says that if you take a loan to buy a matatu, it must take comprehensive insurance, which is a costly burden to add on top of the monthly loan repayment at a time interest rates on loans have shot up.
“Even if you buy two matatus in cash and you want another one it is difficult to raise enough money to pay for a third one using cash from the two,” he says.
Mr Mbugua says the sector is already saturated owing to the State’s reluctance to regulate the sector which has allowed anyone with capital to invest in public transport.
“The main problem with the matatu sector is that it has become saturated. There are too many players in the market and especially some routes have too many operators. It means that operators are undercutting each other which has led to very low margins,” he says.
Mr Musau, on his part, says that he earns about Sh2,500 daily, but during peak seasons such as when schools are closing or reopening and Christmas holidays, the earnings can rise up to Sh5,000 daily.
The older your vehicle the more you will incur in service costs, says the entrepreneur, extolling the importance of keeping the vehicle in top condition to keep it in shape and reduce maintenance costs.
“Don’t see this as pure profit because you still have to pay for service. I take mine to service either sometimes every Saturday but other times once in two weeks to change oil and other works. It costs between Sh4,500 and Sh5,000,” said Mr Musau.
Mr Kimutai says that anyone who wants to join the matatu business must do thorough research before making the leap of faith into the sector.
He says that about 30 percent of the revenue collected daily is lost through theft by conductors and drivers, bribes to police officers and county officers among other expenses.
Matatus parked at the Ngara Stage in Nairobi.
“If you ask any matatu driver or conductor they will lie to you that the business is very lucrative. But their main aim is to make you invest in the sector to create jobs for them where they will also be stealing from you,” he says.
Mr Kimutai says that it takes years to break even in the business, but that most investors continually make losses until they sell their vehicles and abandon the trade altogether.
“Most people who invest in matatus don’t do proper cost accounting. If you buy a vehicle for Sh6 million but get into problems, you can’t sell the same vehicle for more than Sh4.5 million,” he said.
For Mr Musau, it helps that he paid for his vehicle in cash and thus faces no pressure to repay any loans. Thus, any money he receives is profit after subtracting all costs associated with insurance and service.
Insurance is also one of the major headaches that matatu owners face. Most matatus are covered by the cheap third-party insurance instead of the more expensive comprehensive insurance.
Mr Musau says that third-party insurance taken by operators is almost useless due to non-payment of claims by insurers which means the operators often have to pay out of their pockets in case of an accident.
He says that third-party insurance costs between Sh8,000 and Sh13,000 annually while comprehensive insurance costs in excess of Sh30,000 per year.
“You can’t take comprehensive insurance because it is expensive and it would make the business unprofitable. Most of us only take third-party insurance which is cheaper but doesn’t really cover anything. We only take it to avoid problems with the police,” he said.
Another major cost for matatu operators if fuel, whose prices have risen sharply in recent years owing to a global price increase as well as higher government taxation. Matatus consume dozens of litres per day which varies on the distance covered during the day.
“When fuel prices increase we usually raise fares. But there is only so much you can pass on to customers,” reckoned Mr Musau.
Run-ins with the police are a major revenue leakage for matatu operators who pay hundreds of shillings daily especially to traffic police. “If they arrest you, you can pay as much as Sh10,000 to be released. They look for any small mistake and pin it on you,” said Mr Musau.
Kenya’s PSVs carry millions of passengers annually with the sector tipped to continue growing boosted by a rapidly rising population which has pushed operators to import more vehicles to meet demand.
For instance, the total number of newly registered motor vehicles stood at 99,365 in 2022, according to data from the Kenya National Bureau of Statistics (KNBS), with an overwhelming majority being personal vehicles. The number of newly registered buses and coaches more than doubled from 893 units in 2021 to 2,173 in 2022.
NTSA issued some 35,897 road transport licenses during the period, underlining the huge public transport market in the country. This includes 12,229 licenses for matatus with a capacity of 14 passengers, 11,699 licenses for mini buses of between 15-33 seaters and 11,969 licenses for buses of 34 and or more seaters.
Albert Karakacha, who is the current MOA chairman, says the sector has some 380 saccos with about 173,000 PSVs on the road. He adds that while about 20 new PSVs are added annually, the growth of the sector has stagnated over the past decade mainly due to high costs of operations.
Mr Karakacha has urged the government to subsidize loans issued to the sector by commercial banks to enable operators to borrow at an interest rate of about 8 percent.
He adds that the State should accelerate expansion of its road network to enable operators open up new routes and repair roads to reduce damages caused by potholes to vehicles.
“Public transport is a public service. We provide a service to the masses who are hustlers. We are, however, being heavily weighed down by high interest rates [on loans] and we beseech the government to consider how we can get loans at about 8 percent,” said Mr Karakacha.
