David Cruttenden : Why Zupco is struggling

Former Zupco board member David Cruttenden has attributed the problems faced by the state-owned public transporter to lack of a clear transport policy in the country.

Cruttenden (DC), who is also a former MD of Unifreight,  told Alpha Media Holdings chairman Trevor Ncube (TN) on the platform In Conversation with Trevor that Zupco’s problems date back to the 1980s when the government took up shareholding in what used to be a privately owned company.

Below are excerpts from the interview.

TN: David Cruttenden, welcome to In Conversation With Trevor.

DC: Thank you Trevor. Good to be here.

TN: David, I thought that you and I needed to have this conversation because of the chaos that has characterised our public transport system in Zimbabwe.

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You were involved with Rhodesia Omnibus Company (ROC), you were involved with Zupco, you sat on the board for two terms.

I looked around and said who amongst the living can help us come up with a solution as to how do we fix our public transport system.

What goes through your mind David when you see the chaos that is out there right now?

You drove here, forget the potholes, but you saw people waiting for transport all over the place?

DC: Well, quite simply Trevor, when the United Group sold its remaining 49% of shares in Zupco in 1995, as I took the cheque in one hand and released the share certificate in the other, I thought to myself my head is telling me this is the right thing to do, my heart tells me this is going to be a disaster.

I am afraid those thoughts have borne fruit unfortunately.

TN: Let us deal with both. This was the right thing to do. Why was that the right thing to do?

DC: It is a slightly complicated story.

I will not go into all of the detail, but the United Group after independence in 1980, (I was not part of the decision-making), decided on the basis of experience in other countries to have the government as a shareholder would be beneficial to both parties.

The negotiations were extremely protracted and full of difficulties and in the end what turned out was that the government became a 51% shareholder and United was in the minority with 49%, although we had a management contract.

Put quite simply the relationship did not prosper, it became extremely difficult and the government decided to terminate our management contract and the natural sequel to that was that we should dispose of the 49% of the shareholding.

TN: Your heart?

DC: Well although the company was having severe difficulties, it was already in financial difficulty, nevertheless it was still providing a service, the service was useful and I just felt there was an awful likelihood that the whole thing would fall to bits.

Unfortunately that is what has happened.

TN: You were right. As I was researching, the research took me back to the good old days.

Growing up in Magwegwe in Bulawayo and attending Mzilikazi High School.

Our bus was always on time. 07.15hrs.

It was called Rhodesia Omnibus Company (ROC) at that time.

It was on time, it was not crowded, it picked us up from school in the evening, there were a number of school buses.

As I was reading I found that there was a lot of thought that was put into the infrastructure.

Talk to me about the whole idea of putting this urban transport together, and the role that Zupco played, the way it was structured and the services it provided.

The thinking behind if it could be commercially successful, and how you would make it successful?

DC: Well, to do that Trevor we have to go back to 1948, when you weren’t alive but I was, haha.

A company called United Transport, which was a British company, had capital released as a result of nationalisation of bus companies in the United Kingdom.

It was a significant bus operator in the United Kingdom, and it was looking for new opportunities and it perceived opportunities initially in passenger transport, but subsequently also significantly in freight transport in other countries.

Particularly and significantly in Africa south of the Equator bus companies were developed, and for a brief period operated under the United banner in Kenya, Uganda, Tanzania, Malawi, Zambia, Rhodesia and South Africa.

So, there was a very extensive bus operation and an extensive management knowledge.

So the two key issues of capital and management ability were there to be deployed.

The first deployment in this country was the purchase of a block of shares in what was then Rhodesia Omnibus Company based in Bulawayo.

Subsequently, United set up two other companies, one in Salisbury as it then was, Salisbury United and then subsequently Harare United, and United Bus Services which tended to operate more in the rural market although it had some urban services.

Those were wholly owned.

Rhodesia Omnibus continued to be a quoted company on the Stock Exchange, although United was the majority shareholder.

For dual reasons. One, to enable another shareholder to come in, because of how the tax laws work in this country it was decided post 1980 to merge the passenger interests into one company, which became Zupco.

That is the broad history of it.

Of course, the other feature of it is that under the Urban Councils Act, franchises can be given to enable an operator to operate.

It is a type of monopoly, because the operator becomes the sole provider of services for instance in Bulawayo or in Harare, but with the significant difference that it does not have control of its pricing.

Pricing was fixed.

Originally because the franchises were given by the city councils, fares were fixed by negotiation and discussion with the city councils who had access to financial information and so forth.

TN: Reading around this subject I realised that there were discussions with the Salisbury Omnibus Company, Bulawayo Omnibus Company and the city councils would negotiate with the bus company in terms of what the fares were going to be.

There tended to be a sense that this was not an easy industry, that subsidies might come in to support the bus services. Talk to me about the business model?

DC: There are two words which loom large in this whole discussion, and which are still in use today, but in a very different form but they need to be understood.

One is the word franchise, and the other is the word is subsidy.

Now the franchise granted the particular company the sole right to operate the bus services in the given area.

TN: So that is a monopoly?

DC: It is a monopoly, but a monopoly with a twist in the tail, because it comes with obligations. A) You must provide the services.

You cannot just do as you like, and B) You cannot introduce fares at will, the fares must be agreed with the city councils.

One interesting feature of it is when this was done originally the franchises were negotiated with the individual city councils so it was a form of devolution.

TN: I love that bit.

DC: The franchises were actually different.

They were built up in a different way, so there were differences between Harare and Bulawayo.

TN: What were the differences?

DC: In Harare, the company provided everything to its own depots and so forth.

The city council provided the actual locations of the termini.

The bus shelters in Harare were the responsibility and belonged to the company.

In Bulawayo, the depots belonged to the city council and I guess they probably still do.

The city council was responsible for bus shelters and termini and so forth.

So there was quite a difference in the capital structure.

TN: So there you are David, you were holding the share certificate and the cheque.

Your heart and your mind are telling you two different things. Your heart turns out to be right. The thing has collapsed.

There is an effort to resuscitate it. Talk to me about the collapse? You saw this happen. What happened?

DC: Well, essentially the company was very weak financially.

It had become dependent on bank finance really for normal operations, which is no way to run a business. The demand was growing.

We need to recollect that the city 25 years ago was radically different to the city of today.

If you go back to the inception of the finances in the 1950s, 70 years ago nearly, radically different.

So, I think there are three things which stand out in my mind, Trevor.

Those are policy, finance and management.

They are intertwined but they are the key issues.

Now the problem overall if we look at transport as a whole in the country, not just the urban transport problem is that we lack a coherent transport policy, we do not have one.

I do not think I can recall us ever having one.

TN: I do not remember either. It might be somewhere, in somebody’s drawer or something.

DC: It is something which is essentially not there.

So unless you have a clear idea of what you are trying to do, you are bound to have problems later.

Now assuming you know what you want to do through policy, you then have got to decide how you are going to finance it.

The problem that Zupco ran into was that the minority shareholder (United), felt that it was not going to be a very good deal and therefore was not willing to subscribe more capital.

The government in effect was not in a position to subscribe more capital.

So this issue of finance is a fundamental problem and as you know from comments made in one of your newspapers, the government does not own 100% of Zupco.

The government owns 51% of Zupco which is what it acquired under the subscription agreement from United.

The remaining 49% was sold at government request to Zimbabwe Reinsurance Company (Zimre) at quite short notice.

It was all done above board, there is nothing wrong there.

Of course at that time Zimre was government controlled, Zimre is not now government controlled.

• “In Conversation With Trevor” is a weekly show broadcast on YouTube.com//InConversationWithTrevor. Please get your free YouTube subscription to this channel. The conversations are sponsored by Nyaradzo Group.