Matatus are the most common means of public transport in Kenya. You will find them across the country both in the urban and rural areas. This demand and acceptance have created an investment opportunity with many Kenyans venturing into the industry. Although it is a lucrative business, there are a few things you need to know before starting a matatu business in Kenya.
The matatu business in Kenya started in the early 1930s when the only matatu fleet in the country was owned by a London-based company, OTC, which later became the Kenya Bus Service (KBS).
The earliest matatu fleet was made up of buses operating as a monopoly in the country. However, With the increase in demand for transport services, private investors later joined the business.
Matatu Industry Status
Currently, over 60,000 matatus are operating in the country transporting millions of Kenyans daily with the transport industry contributing about 10.8% of the Kenyan GDP.
Transportation is an essential service creating ready business for investors. However, due to the complexity of the Kenyan public transport sector, there are a lot of complexities you need to understand before starting a matatu business.
Some of these issues include the complexity of matatu art, choosing the right operating route, managing the cartels and police units in the industry. An example of this is the recent directive by Kenyan president, Uhuru Kenyatta, allowing matatus owners to pimp and decorate their vehicles.
These famous matatus are known as “Nganyas”. They are most common in the cities and charge more than the ordinary matatus.,
The Nganyas are also popular among the millennials due to their impressive graphic designs, loud music, and other fancy services such as Wi-Fi.
Although they charge more, they are also more expensive to buy and deploy as the extra fittings come at an additional cost.
Hence, these are just some of the dynamics and factors you need to understand when getting into this industry.
How to Start a Matatu Business in Kenya
1. Purchasing a Matatu
There are various types of matatus operating in the country. Purchasing one is dependent on various factors such as cost, capacity, and existing government laws. Some beginners make mistakes at this level and end up getting the business wrong.
Depending on the cost, secondhand 14 sitters and below Matatus could cost below 1 million shillings. However, you need to do a thorough checkup to ensure you get one in the right mechanical condition.
Due to the regular and long journeys, most of these cars have a shorter lifespan in comparison to private ones. The alternative to these challenges is to get one not in use before.
A new 14-seater matatu costs an average of 2 million shillings while a new 33-seater mini-bus will cost you more than 3 million shillings. You can also choose to get the bigger buses that average up to 10 million shillings.
It is advisable to purchase a new matatu when starting, to avoid incurring the extra costs involved in repairing a second-hand matatu. Some of the common matatu brands are Toyota, Isuzu, and Nissan. They are preferred due to the affordability and availability of spare parts within the country.
A point to note is that the government plans to outlaw 14-seater matatus which are the most common matatus on Kenyan roads in favor of the larger capacity ones. This directive aims to reduce the use of smaller matatus from the cities and towns to reduce congestion.
There are also various government directives regarding issues such as car inspection, permits, and insurance requirements.
When purchasing a matatu, you can consider engaging the services of a professional in case you are importing it. This helps you in navigation processes such as clearing and tax processes.
It is also key to consult those already in the industry to get opinions on issues such as the right car to buy and the compliance process.
In addition to the buying cost of the matatu, you also need to set aside some emergency funds for your vehicle. This helps cover emerging costs before the business picks up.
2. Find a Reliable driver and Conductor
If you will not be the matatu driver, you need to get one before starting the business. This is an important process because the staff will be to the success of the business.
Your driver and conductor should be reliable and trustworthy as they will be in charge of the car maintenance and income growth. The wages paid to most matatu drivers and conductors are commission-based. Conductors act as helpers to the driver.
In this payment model, you will set a daily target amount such as 2,000 shillings per day. However, this amount varies depending on the size and state of the car.
The amount that the driver and conductor earn will be net of fueling cost and car wash payment.
You can also ask the driver to send you a summary of the costs incurred within a given time frame e.g. monthly or weekly. This will help you keep up to date with the state of your matatu, and give you a better understanding of the business model.
3. Get the Relevant licenses and Permits
Before starting the matatu business, there are various requirements you should comply with. Most of these are guided by the public service vehicles rules set by the government through the National Transport and Safety Authority (NTSA)
Some of the requirements include having a valid public service vehicle license and a certificate of good conduct clearance from the DCI.
You are also required to purchase an insurance cover for your PSV. NTSA will perform a vehicle inspection annually, to ascertain whether your vehicle is roadworthy. Once satisfied with the state of your vehicle, you will be issued a valid road service license.
Another requirement is a County Council Permit that allows you to ply a specific route. This license averages 2,000- 3,000 shillings monthly. However, the fees depend on various factors such as area of operation and vehicle capacity.
Another requirement is the license from the Music Copyright Society of Kenya (MCSK) license to allow have entertainment such as music in your matatu.
Compliance with these requirements is mandatory to avoid facing legal challenges that could result in fines and jail terms.
Branding key for Public Service Vehicles, this comes both in form of regulatory compliance as well as gaining a competitive advantage. Well branded matatus make more than average ones. However, they also require more resources to brand.
In case you do not want fancy matatu designs, a plain white paint coat with yellow stripes will do. This is the basic requirement for all PSVs, to help differentiate them from privately owned vehicles.
Some of the most common branding modifications include; decorating the matatu’s interior and exterior, installing high-quality music and TV system, spacious seats, LED lights, and getting high-quality seat covers.
Depending on the quality and extent of modifications, it costs a minimum of 100, 000 shillings. Hence, you need to do a cost-benefit analysis before deciding the level and extent of branding.
5. Sacco Registration
Every matatu in Kenya must belong to a Sacco as per the government directive. This is meant to ensure control of the industry in areas such as route management, Financial assistance, and accountability.
Most Saccos require you to pay subscription fees, and the amount varies depending on the reputation of the Sacco.
Joining a Sacco also increases the trust level of the passengers with the beat run Saccos attracting more customers.
Saccos come with some benefits to the matatu owner such as care management services, collective negotiations, and provision of credit facilities to the members.
Saccos are also useful in maintaining discipline and enhancing rules and regulations such as ensuring staff are in uniforms and the cars are well maintained.
- Start Operations
After fulfilling the above requirements, you are now ready to start operations. It is key to note matatu business is just like the rest. You need to put in the work, manage costs and ensure compliance to become profitable.
There are also some key additional instruments that you require such as a GPS tracker. This ensures you can monitor the car remotely in case of occurrences such as theft.
A GPS tracker will also help you identify the routes plied. Keeping track of your vehicle will help minimize the chances of your driver misusing your vehicle.
Costs and Profit Margins in the Matatu Business
Every business model has its operating costs. The matatu business is no exception.
The main costs involved in the matatu business are:
- Fuel costs – this is the main cost involved since you will need to refuel your matatu every day.
- Garage costs – These costs are in the form of car repairs and servicing costs
- Traffic fines- whenever your matatu is involved in a traffic offense, a fine has to be paid.
- Police bribes- some corrupt cops will require matatu drivers to pay them “kitu kidogo”.
- Sacco fees and contributions- these charges will depend on your Sacco. They include subscription fees and any other subsequent payments such as renewal fees.
Although there are a couple of costs in this business, the business is also lucrative if you get it correct. Some of the factors that define profitability include route is taken and vehicle capacity.
Vehicles with higher capacity will make more money than low-capacity ones.
It is possible to make an average of 3,000 shillings daily as net income for the 14 sitter matatus and 5,000 shillings for higher-capacity vehicles.
Normally, it could take at least 3-5 years to recover your investment.
Challenges Facing Matatu business
- Cartels in the matatu industry
As a starter in the matatu industry, you are likely to find already established cartels within the industry. The cartel problem arises due to the high unemployment levels among the youth.
The cartels and gangs control most of the key business aspects such as pick-up areas and terminals. Failure to comply with them could lead to business disruptions pushing you into losses.
- Corrupt traffic officers
Corruption among law enforcers remains high in the country as per various reports. This causes an increase in the operating costs due to the payment of bribes across.
These corrupt enforcers also contribute to the increase in the number of accidents since they allow un-roadworthy vehicles to operate on the Kenyan roads.
- Theft of the matatu
There is always a risk of losing your car to theft. Without a comprehensive insurance cover, theft results in loss both in the car and income
The best way to curb this is by installing a GPS tracker on your vehicle, doing due diligence before getting the staff, and ensuring the matatu is well insured.
These actions help to minimize the chances of theft and support recovery in case it happens.
- Customer challenges
As a matatu owner, the business involves dealing with thousands of customers who have different characteristics.
Occasionally, you will encounter a difficult customer that doesn’t want to pay or are rude and chaotic. Some could also cause physical damages to the car.
Refusal to pay exposes the business to potential losses while damages increase the operational costs.
The matatu business has been evolving for years. If you have an interest in venturing into the matatu business, ensure you do adequate research both from those in the industry and external materials.
A key point to note is that matatu business requires a huge capital investment compared with the average Kenyan business ideas. However, the profit margins are also high, especially during the peak season.
The business also enjoys the benefits of a ready and adequate market as transportation is a necessary need.
To recap, the steps involved in starting a matatu business in Kenya include:
- Purchase a matatu
- Find a reliable driver and conductor
- Get the relevant licenses and permits
- Branding of the matatu
- Sacco registration
- Start your matatu operations