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Poor carry the cost

Savenaca Narube
Saturday, October 21, 2017

LIKE any policy decision, the eTransport scheme has three components. The first is its economic rationale, the second is its cost benefit analysis, and the last is its execution.

We have heard and seen the chaos around its execution. There should not be any disagreement that this decision has greatly frustrated and inconvenienced the public. Now, people must find a Vodafone outlet, join long queues to buy a card or to top up, take more time to reach their destination, and fork out much needed cash up-front.

Compare this drama with the good old days of just hopping on to a bus and paying cash to the driver.

Banking comparison

We must first understand how this system works. I find it easier to compare it with banking, as this is, pure and simple, a debit card that can only be spent on a bus. Vodafone is our "bank". We, the public, deposit our monies with the bank and we withdraw (spend) our money each time we board a bus.

However, there are four significant differences from normal banking:

* First, it is compulsory — we have no choice if we want to travel on a bus;

* Second, we have no choice but to deposit our monies with the sole service provider;

* Third, we don't earn any interest on our deposit; and

* Fourth, we can lose some of our deposits if we lose our cards, if it is stolen, or we don't spend the unused small balances in our cards. The long queues are a strong disincentive to claiming or transferring small balances.

Our bank will keep a lot of our deposit at any one time because we will spend only a part of it on any day. If we do the simple arithmetic and apply the 600,000 e-Tickets that have been issued to an average of say $5 per ticket, our bank can hold a cash balance of $3 million per day.

Our bank will no doubt invest these monies and earn interest. If we assume an interest of say 1 per cent per annum, this amounts to $30,000 per year. The people deserve to know where the interest on their deposits goes to. Remember, these are interests on the people's money.

There is more to this new banking style. If we make a realistic assumption that a commuter loses on average 25 cents per month from lost or unused tickets, the total amounts to $1.8 million per year. This grows to over $9m after five years.

Even if we estimate a lesser loss per person, there is still going to be a huge carryover of unclaimed monies. Where does this growing windfall go to? An interest rate of 3 per cent per annum paid on this amount which increases every year will fetch a handsome return. To be fair, these monies should go back to the people. Will the sole provider like the banks be compelled by law to pay these back to the commuting public?

The non-payment of interests to depositors and the ownership of the unspent monies have ethical and perhaps legal implications and I am surprised at the silence of the consumer watchdog, the Price and Incomes Board, and the financial supervisor, the Reserve Bank of Fiji.

Economic rationale

Let us examine the economic rationale of the eTransport system.

If a government is operating rationally, Cabinet approvals are given only if the economic rationale and cost benefit analysis support the proposed action. In my experience, if the economic rationale is not supportive, the proposed scheme should not have gone past the responsible minister.

The economic rationale for a system such as eTicketing must be anchored to the income level of bus users in Fiji. This is the context within which this policy should be assessed.

Fiji is classified as a low middle-income country. The income per person of richer countries like Australia and New Zealand can be more than five times that of Fiji.

At the same time, their unemployed people get paid by their governments, often more than many of us that ride buses in Fiji earn. They can comfortably budget for their transport needs.

That is why developing countries tend to use an eTransport scheme. It fits their income levels. Notwithstanding, their governments still offer bus riders the option to pay cash. I guess these governments are concerned about the inconvenience and hardship that a compulsory system will impose on the poor.

In Fiji, where incomes are more than five times lower, our Government is making it compulsory to use the scheme. Those who use buses as the mode of transport are generally at the lower end of the income scale and do not have a regular stream of income or any income at all.

Biggest impact

The biggest impact of this scheme will be on this group of people — the poor and unemployed. Poor families will give Vodafone their money up-front, when they don't even have enough to feed the family.

If I was conducting the economic evaluation of this scheme, I would focus on its impact on lower income earners, the poor and the unemployed.

It is clear to me that the economic rationale for e-Transport for Fiji does not stack up.

That is why the Minister for Economy declined to allow the cash option to the people. He knows very well that given the choice, the people will not use the e-ticket, they will just pay cash.

Why? Simply because of the economic arguments that I have outlined above. It boils down to income levels.

So, if this scheme does not stack up, why is Government imposing it on us?

I have heard people argue that we should embrace this change. I challenge this misplaced logic and say that we should not accept change just for its sake. It is not fair to impose the burden of change on the ordinary people when the change does not make common sense. Let us examine this a bit more.

* Continued on Page 38

I understand that e-Ticketing will stop bus drivers allegedly putting their hands in the till. I have heard people say that this scheme therefore promotes transparency. But how does this transparency gets loaded on to the people?

No sense

It does not make sense to me why the people must suffer in order to fix this problem of alleged stealing in the bus industry.

Normally, this is an employer-employee problem that should be left to them to sort out. It does not make sense to me why we are forcing the people — and the poor people at that — to help bus companies make more money.

Unfortunately, I have yet to find answers to these fundamental questions.

One can argue that bus companies receive less income and therefore pay less taxes. That may be so, but we are not told how much more taxes will be collected by Government if this problem of stealing is resolved.

I know that there is no direct link between companies getting more income and pay more taxes as expenses also may increase. Are these additional taxes which we are not told, worth the frustrations and inconvenience borne by the public?

Hidden costs

A policy decision such as this scheme must have gone through a cost-benefit analysis. The beneficiaries are Vodafone, bus companies and Government. The direct costs are the fees charged by Vodafone and the cost of installing the machines in buses. These costs are mostly one-off.

But there are two major costs that are hidden and borne by the people. These are what we call in economics "imputed cost" and "opportunity costs".

Imputed costs include the cost borne by passengers in the loss of productivity and money (estimated above to be $1.8m a year). The opportunity costs are the benefit foregone by the passengers if they had spent these monies on other things. Very importantly, both these costs are not one-off but are carried by the people for the entire existence of the scheme.

People always find ways to better manage the challenges of a scheme such as this. But time will not reduce these costs.

I am very confident that if Government had done its homework properly, it would quickly realise that the benefits of the e-Transport scheme may be way less than the costs especially in the long term. Most of the costs are borne by the people while the bus companies reap the most benefit.

Options

A robust policy must also evaluate other options? Again, we are not told if this was done. Some options easily come to mind.

First, bus companies can employ auditors as they used to do to board buses randomly and verify that the drivers had given passengers paper tickets. The second is to rotate drivers' routes regularly and compare takings. The third is for passengers to deposit their fares into locked receptors, in the bus, that drivers cannot access. The bus companies rightly bear the costs of these alternatives.

These options are not perfect but the most important thing is that they do not impose hardship on the passengers.

The scheme poses many questions that remain unanswered. To me the basic question is: Given that the economics and cost benefit of the e-Transport scheme do not stack up, for whose benefit are the people making the sacrifice? Are the people — the poor in particular — being required to help companies make more money?

I think our people deserve to know the answer.

* The views expressed are the

author's and not of this newspaper.








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