The Economic Consequences of Informality in the Transport Sector

By Timi Olubiyi, PhD

The new year is here, it is my prayer that 2022 will be a profitable year for all individuals, businesses, and households. Our new year resolutions at every level must include enhancing productivity and improving performance.

Without a doubt, transportation is central to this and can be an effective indicator of performance in any economy, business, and quality of life. Simple things like getting to work, school, meetings, appointments, trade facilitation, transacting, moving cargoes, travels, and even delivery of social services such as rescues during emergencies can become extremely difficult with poor transportation.

In fact, business decision-making and access to everything for economic progress hinge strongly on effective transportation I must say.

Certainly, every nation regardless of its population size, level of development, and industrial capacity can benefit from an efficient transportation network be it road, waterways, rail, or air transport. But on the contrary transport poverty exist where inefficiency in all transportation modes is prevalent within an economy. Such is the case in many African countries and cities, including, Benin, Ethiopia, Nigeria, Uganda, Tanzania and Lusaka, Zambia, and a host of others.

In many of the developed countries, transportation plays a significant role in the ease of doing business and the government plays an integral role in the implementation and administration. A recent visit to the United Kingdom (UK) and the United Arab Emirates (UAE) strongly indicated that, where there is efficient transportation and fewer traffic congestions, the economy and businesses are positively impacted.

From my observation in the two countries, public transportation which includes buses, taxis, water ferries, trains, trams, and the metros are regulated adequately by the government and it is not completely private-sector driven, making it so efficient and reliable. Apparently as noted, where private companies are involved in the operations, it is usually on an agreed model such as the Public-Private Partnership (PPP) model.

Ironically, across many African cities particularly in my country Nigeria, the unreliability of the transport system has continued to limit access to services, business, trade facilitation, the attraction of foreign direct investments, and also in the revenue drive of the government.

The pilot region of observation is Lagos State the economic centre of Nigeria, where transport operation is largely run informally by private individuals. This makes the services undesirable because of the inefficiencies that exist due to under-regulations.

For instance, car reliance keeps compounding in the State because of poor demand responsiveness of public transports, commuters then tend to avoid the long queues and waiting hours at bus stops, and the associated risk of using public minibuses called Danfo. But the result is usually wastage of productive hours by many commuters in traffic congestions.

Sometimes, bike taxis which are usually referred to as Okada are considered for mobility. Though this trend depicts transport poverty, it is largely heightened by the informality of the public transport sector, widespread unemployment, lack of worthiness of the available transportations, lack of adequate maintenance system, giving rise to the high traffic congestion on the roads and expensive transport fares.

Basically, the over-reliance on one mode- road transport and over-exposure to informality are the issues that are mainly slowing down growths in the sector. As widely noted, private participation, with little or no government entry barrier promotes informality. Such as the operations of the non-conventional ferry on the waterways, motorized tricycles, and the Okadas and Danfos within the hinterlands. Sadly, these are the only affordable services to the poor despite the widespread insecurity and risks.

In the UK particularly in London, a mobile application (app) offers most of the information about the public transport system, and regulations in the city including fares, routes, and time of arrivals and departures. That means if you must operate government has to know, this procedure reduces informality. In both UK and UAE, the logistics and business supply chains are effective because they rely on the transportation infrastructures and strict regulations available and that reduces the cost of business operations.

For most public transportation closed-circuit television (CCTV) is installed for safety and security businesses. Transport cards are also used on most of these public transports for ease of payment, this offers a hassle-free environment for the populace, visitors, and tourists. Strict regulations also avail the government the opportunity to monitor many of these services, ensure accountability on the part of the operators, and for government to monitor service trends.

For instance, in UAE just in a year, there were around 600 million rides on public transport (in a city of 3 million population). This is an indication of the rate of conversion to the public system by visitors and residents in a region that used to be primarily private vehicle driven.

This is an indication that individuals move with ease and travel on public transportation because they are timely, affordable, and adequately available. With such a system in place, businesses can make projections and enjoy a reliable supply chain, with no uncontrollable logistic issues. With this experience, I have a strong conviction that there is a direct relationship, between the development of the transport system and the ease of doing business in any country.

In fact, without a doubt, it is easy to conclude that transportation can be a useful criterion for measuring development in a country. Because if transportation is made efficient it must impact positively on the economic development of a country and also improve the performance of the businesses in that country. It is no brainer or magic such a system can happen in Nigeria, with improved regulation, reduction of informality with sufficient investments in the sector.

Even though in Nigeria it has been a situation of hectic traffic congestion even at the ports, poorly maintained roads, overstressed railways, underutilization of the waterways, long hours of waiting to have access, inadequate infrastructure, there should be a concerted effort to raise the percentage of public transportation, expand the modes, and offer stricter regulatory regime.

For safety and security reasons, the ease of entry into the sector by informal transport operators needs to be reviewed because it appears that is majorly the issue. Government entry barriers are obstacles that can make it difficult for an individual or business to operate in the sector, such as what is available in the aviation industry.

It is important to improve policies and regulations in transport services, expand transportation networks to achieve large-scale economic growth, and modernization. Though it can be argued, effective transportation can alleviate the level of poverty in the country. Because the current chaotic congestions on the roads and in the ports are essentially aiding market failures and hindering the ease of doing business in the country which are enablers of business closures and impoverishment.

Hence, when transportation is effective and efficient, businesses will be able to make adequate projections, improve production, produce faster, reach consumers faster, attend business meetings promptly and all these stimulate the economy, create jobs, and can reduce poverty.

Truthfully, the transportation sector can offer the needed diversification of the revenue generation drive of the government. I am aware that the current public debt of the country is around N38 trillion, according to figures released by the Debt Management Office (DMO) and this is mainly due to revenue challenges. In my opinion, an effectively regulated and efficient transportation system can be revenue-yielding for the government.

In conclusion, it is also important to note that an improved transportation mode- air, rail, water networks and the expansion of road networks can increase economic productivity, cut the cost of production, and enhance the ease of doing business in the country. For thinkers, the issues mentioned above can adequately present mind-blowing opportunities, particularly for investors and businesses. To this end, businesses and individuals can have better mobility, access and livelihood. Good luck!

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Dr Timi Olubiyi, an Entrepreneurship & Business Management expert with a PhD in Business Administration from Babcock University Nigeria, is a prolific investment coach, seasoned scholar, Chartered Member of the Chartered Institute for Securities & Investment (CISI), and Securities & Exchange Commission (SEC) registered capital market operator. He can be reached on the Twitter handle @drtimiolubiyi and via email: [email protected], for any questions, reactions, and comments.