Reforming public transport by integrating small and informal operators

1. Reforming public transport by integrating small and informal operators Drawing lessons from successful experiences in and relevant for African countries Roland Lomme SSATP Annual Meeting, Lilongwe

2. Small /informal operators as among the most challenging contenders of the reform/rationalization of public transport in developing countries • Small and informal operators are catering to most public transport passenger/trips and are bound to remain indispensable to mobility needs in developing countries • When unregulated, they may infringe on franchised bus operations including the most efficient BRT systems (such as the TransMilenio) • They reflect market and regulatory failures which need to be fixed • Rationalizing public transport supply can hardly be successful without operational integration of small and informal operators • Contracting bus operations can be an effective policy tool to promote access to the market for small and informal operators (even in the most efficient BRT systems)

3. The prevailing informality and multiplicity of small service providers as a major challenge for the rationalization of PT supply in SSA Source: Godard, 2006

4. Why a challenge ? • Introduction of mass rapid systems most often challenged by initial if not on-going resistance of small/informal operators (Bogota, from 1999 to date, Sao Paulo in 2001, South Africa) • Potentially destructive competition with franchised bus operations (including BRT) • Operational integration is demanding for small and informal operators: shifting from self-regulation to enforced government regulation or contractual commitments

5. Why an opportunity ? • Small and informal operators as indispensable to cater to most mobility needs: gender, generations, O/D matrix in scattered urban environments, demographics, market segments (captive, stranded, selective users) • Comparative advantages: availability, affordability, reactivity to market demand, flexibility, on-demand and door-to-door service, cost-effectiveness • Self-regulation and market dynamics: high level of collective organization (South Africa, Uganda), testing market demand and building on market knowledge

6. Prospect for demand of paratransit services in African cities: population growth and urban sprawl Source : The Dynamics of Global Urban Expansion., World Bank, 2005

8. How to deal with small and informal operators when reforming PT supply ? I. Promoting paratransit operations as a necessary complement to mass-transit systems II. Mitigating market and regulatory failures to build on comparative operational advantages of small/informal operators III. Franchising bus operations as a policy tool to regulate PT supply by promoting operational integration

9. I. Promoting paratransit as a necessary complement to mass-transit systems: Why ? • To cater to market demand not catered to by mass rapid systems (even the most efficient BRT) • To enhance service provided by mass rapid systems (e.g. broadening catchment area of BRT lines) • To promote job creation and economic activity as well as their formalization

10. I. Promoting paratransit as a necessary complement to mass-transit systems: How ? Mitigating market and regulatory failures: Planning market demand: demographics, mobility needs (evolving O/D matrix, projected urban sprawl), market segments (captive, stranded, selective users) Mapping service providers: operators and operators’ associations (level of organization and self-regulation, financial sustainability, business model, dynamics, political clout) Fixing institutional and regulatory frameworks: policy and politics, institutional capacity, law enforcement Leveraging the financial system: promoting access to finance and assets financing Coalescing reform supportive coalitions: Championing the reform among public authorities and fixing the institutional framework Leveraging market demand : integrating fare, helping users voice their concerns Alleviating small/informal operators’ concerns and incentivizing their participation

11. II. Building on comparative advantages of small /informal operators Leveraging operational capacities of small/informal operators: Building on self-regulation/ mitigating its shortcomings: enhancing self-discipline (formalization of minibus taxi associations in South Africa), delegating regulatory authority (Uganda) Valuing the quality of service provided by small/informal operators: availability, affordability, traveling time, security Mitigating negative externalities: safety, destructive competition with franchised bus services, traffic congestion, pollution Incentivizing formalization of small/informal operators Fixing public policy: lack of law enforcement, excessive market entry barriers, regulatory failures (inconsistent awarding of route/area permits, lack of planning), Alleviating the costs of formalization/increasing the costs of informality: promoting access to finance, assets financing, securing income, corrallng supply through law enforcement, etc.

12. III. Franchising as policy tool for operational integration: (1) In developing countries, successful introduction of mass transit systems (BRT) based on operational integration of small and informal operators. Experimented strategies: Promoting operational integration prior to introduction of mass rapid systems (Curitiba, Indore) Introducing mass rapid system as a catalyst to operational integration (Lagos, Bogotá) Fostering complementarities between mass rapid systems and paratransit networks (Sao Paulo, Santiago de Chile)

13. III. Franchising as policy tool or operational integration (2) Successfully tested provisions for inclusive franchising of bus operations: Franchising to level the playing field/lower market entry barriers for small/ informal operators: costs and risks allocation, preferential treatment in the qualification and selection criteria, area/route allotment (Cape Town), bidding process/direct negotiations with incumbent operators (Mexico, Jakarta), allotment of operational responsibilities (Sao Paulo, Indore) Franchising to integrate mass-transit systems and paratransit (or on-demand service): integrating trunk routes and feeder service (Bogotá), incentivizing unbundling trunk and feeder service franchising (Santiago de Chile, Sao Paulo), incentivizing incorporation of small operators (Lagos, Bogotá, Sao Paulo, Indore, Cape Town) Franchising with or without precluding competition on the market (Lagos, Bogotá, Indore). Franchising to promote fleet renewal (Mexico, Dakar, Lagos as opposed to South Africa)

14. III. Franchising as a policy tool for operational integration (3) In developed countries, shared taxi operators are increasingly contracted to provide public transport services: A significant phenomenon: paratransit started in the US in the 70s, On-Demand Service (ODS) has become a major thrust in Western Europe and North America for the past 20 years (in the Netherlands, 60% of the taxi industry revenues come from contracts with public authorities and health insurance companies, in Sweden 50%) Rationale relevant to African countries: urban sprawl, increasingly complex mobility O/D matrix (less centrifugal commuting), fast-growing elderly and disabled population (16% of the adult population in the UK is afflicted by a physical disability or health problem that makes it difficult to walk or to use regular PT), cost-effectiveness, IT progress (in central control, tracking and dispatching) Benefits accrue to all stakeholders: to public authorities (e.g. when subsidizing the service), to both standard bus companies (alleviation of service duties, shared taxis as the new frontier market for standard bus operators) and taxi operators (secured cash flow), as well as to users (enhanced access, availability and quality of service)

15. Shared and moto taxis as a modern mode of public transport (Washington DC/Paris)

16. Conclusion • Market demand increasingly calls for extensive paratransit/on-demand services in developed as in developing countries • Formalization and operational integration of small/informal operators, although challenging, is necessary and has been achieved in several instances • Promoting competition for the market through franchising proves to be an effective policy tool for operational integration