Thinking long term

Warren Buffett says that you should only buy shares in those companies you would feel comfortable if they were no longer traded on a stock exchange and you had to hold them for 10 or 20 years.

Evaluating something with a time horizon of 10 or 20 years improves your thinking by adding a layer of objectivity and reducing the impact of short-term events. Consider an investment opportunity in a hotel at the Kenyan coast. If you evaluate the prospects for beach tourism over the next few years, investing may look very risky given the current economic slump caused by our politics. If you consider the prospects over a 20-year period though, present politics fades away and you emphasize factors like economic growth, increasing disposable incomes, a bulging middle class, better infrastructure, and the steady improvement of our institutions.

Yesterday we celebrated the heroes and heroines who fought for our independence. They could not have been certain that they themselves would live to see independence- and many of them did not. But they knew their actions would reverberate through time. Celebrating them is also celebrating long-term thinking.


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Ideas Thinkpieces

Jam rescue: Fixing Nairobi’s public transport problem

Nairobi has a public transport problem. Our young school-going children wake up in the wee hours, before the cock crows, to make it to class on time. Our professional population is in a race to wake up earlier and earlier, just to clock-in by 8am. Traffic jams at 6am on Kiambu Road, Ngong’ Road, Mombasa Road or Lang’ata Road are so common that we no longer find it an oddity of our society. We are internalising the concept that commuting at 5:30am to a job that requires you to report at 8am is ‘normal’, and that sitting in a traffic jam for 2 hours in the evening on the way home is kawa.

The good old days | Source

The baby boomers speak longingly of their heydays, when travelling into and out of the CBD using public transport was a pleasurable experience. The Nairobi County Government recently tried to enforce gazette notice no. 4479 from earlier this year which specified the matatu termini and routes, and would effectively ban PSVs from operating in the CBD. As expected, the sector’s biggest lobby group raised a furore, threatened to go on strike and the County Government acquiesced and suspended enforcement of the notice for one month, to allow for consultation. Credit to the County Government for trying. Call me a cynic, but I am not convinced that the ‘ban’ is a viable long-term solution to our public transport problem. First, using a carrot (positive incentive) generally costs less and is easier to implement than using a stick (negative consequences). Anyone who has interacted with a young child knows that it is much easier to motivate a child into action with the prospect of a reward than with the threat of punishment. Secondly, the power in a negotiation between the County Government and the matatu operators is not as asymmetrical as one may initially think. Yes, the rules can be enforced and errant PSVs impounded. It is not possible however that all, half, or even 20% of all PSVs can be impounded. On the other hand, what if the PSVs were to go on strike? Even if just 20% of them were to down their tools, the effect on fares – those that would remain operational would likely hike fares – would raise much brouhaha. The public uproar would be most likely be untenable, and within several days the parties would be at the negotiating table. Third, it is not yet clear if those that will be mandated to operate within the CBD have the capacity to manage demand at peak times of the day.

“If residents of Nairobi in fact do become wealthier, our results predict that there will be strong growth in both car ownership and use, and in matatu demand. For instance, …in the absence of changes to the transport system in the city, relatively small absolute increases in expenditure levels for the poorest in Nairobi are predicted to lead to a net 13 percentage point reduction in walking among this sub-population. Given that approximately two-thirds of Nairobi residents are in this category, this would put an additional 8% of the population on the roadways in motorized vehicles, worsening traffic congestion and air pollution further” (Salon & Aligula, 2012, p. 75).

In their 2012 paper analysing why, where, and how people in Nairobi travel, Deborah Salon and Eric Aligula essentially conclude that the city’s public transport system is on the edge of failure. Thankfully, we can create a new way forward. One that incentivises PSV owners and operators and secures their buy-in, while creating a centralised system that gives us the benefits of an integrated mass transit service. With a new county leadership, fresh-faced folks still adjusting to their new environs and yet to begin their programs and projects, this is an opportune moment to make the necessary system interventions.

What we currently have is a democratized city transport system. PSVs are privately-owned, there are few institutionalised barriers to entry and exit, and other than the NTSA, operators pretty much run their own affairs. A state or city-owned mass transport system has been proposed many times (such as here) as the solution, and for good reasons:

  • A single operator would be incentivised to make the whole system work efficiently (rather than to optimise for the one or few routes they operate in, as is the case with private owners);
  • It is easier to set and enforce quality standards when there is only one operator;
  • The perverse incentives that motivate private operators into speeding, overlapping, and other road-use abuses would not exist for a single operator. We can reasonably expect a better travel experience for motorists and passengers. This would have the additional impact of reducing the opportunities for corruption, which has been reported to cost the industry up to KES 50 billion a year.

In my opinion, neither model can work on its own. The status quo is not working, and converting to a state or city-owned system would face incredible resistance. But what about a centralised bus rapid transit (BRT) system that is owned by the matatu owners and operators, and members of the public? A single BRT system would provide the benefits of centralisation: scheduled buses and dedicated lanes on the roads, and a higher standard of service and travel experience for commuters. As the sole operator, such a company is likely to be highly profitable, and if the current matatu owners and operators, and members of the public can own equity in this company, their economic interests can be addressed.

The BRT in San Francisco de Quito, Equador | Source

Doing it

  • This idea can be implemented in many ways. To my thinking, Nairobi should follow in the footsteps of Cape Town and conduct a thorough viability analysis and develop a business plan for the proposed BRT system (see the latest update of Cape Town’s myCiti BRT system here).
    The BRT in Cape Town, South Africa | Source
  • The state can issue a bond on behalf of the Nairobi County Government to finance the construction of BRT infrastructure, and operationalise the service. This debt may be paid back by the county government once the system is up and running, or deducted from the debts it (the county) is owed by the state. The state or the Nairobi County Government can take a 10% or 20% equity stake in the company that would be created to own and operate the BRT service. 50% of ownership can be allocated to the current matatu owners and operators to ensure they are sufficiently motivated to support the initiative.
  • As the BRT infrastructure is being built, existing PSVs can be phased out. Within the CBD, small dedicated all-weather bus stops of around 2 metres by 3 metres can be built, and the major bus parks rehabilitated. This should be ready within a year or so, and the system can be launched first in the CBD. On the 3-lane highways such as Waiyaki Way, Mombasa Road, or the expanded Ngong’ Road, one lane can be dedicated solely for the use of BRT buses and emergency service providers like ambulances and fire trucks. Like Cape Town, this lane can even be painted in a different colour for clarity. Over time the system can expand outwards, eventually reaching Karen, Kinoo, Kiambu, Juja, Athi River and all the big satellite towns around the city.
  • Commuters can use passes to enter and exit buses. These cards can be sold at a nominal fee by the BRT company, and can be credited using any of the money transfer services at our disposal, with a view to making the system cashless.
  • The buses should move according to a strict schedule. The schedule should be designed around the travel behaviour of Nairobians, optimising for morning and evening peak and off-peak times, giving commuters the peace of mind that comes from having a dedicated schedule.
  • After 5 – 7 years, hopefully when the system is running smoothly, the remaining 30% to 40% equity portion can be sold to members of the public via an IPO on the Nairobi Securities Exchange.

Our capital city badly needs a modern public transport system. One that will alleviate the traffic jams, ease the demand for parking spaces in the CBD, and offer safe, comfortable, and reliable service to commuters. But for any intervention to work, it needs the buy-in of the key stakeholders. If the current matatu owners and operators can be owners of this proposed BRT service, I believe it would be easier for them to be persuaded to support the new initiative. And if the state can recoup its investment through an IPO, it would be more amenable to financing the whole endeavour. If an intervention must be made in our city public transport sector – and it must – let it be one that holistically addresses the problem. We all want a free-flowing Nairobi. Other cities have done it. We have an opportunity to do it too, but we must do it now. Will we rescue Nairobi from the jams?


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Source cited

Salon, D., & Aligula, E. M. (2012). Urban travel in Nairobi, Kenya: Analysis, insights, and opportunities. Journal of Transport Geography, 22, 65–76.