South Africa’s only manufacturer of buses now has its sights set on producing 1000 buses every month throughout Africa.
CIARAN RYAN: This is CFO Talks and today we’re joined by 42-year-old chartered accountant Pat Nodada, he’s been called the bus king of Africa. He’s conquered the South African bus market and now he’s partnering with the Industrial Development Corporation to build bus factories across Africa, starting with Zimbabwe, Nigeria, Kenya and Ghana. Pat, tell us a little bit about Busmark because not many people know about it. You’re called a second tier original equipment manufacturer, which means we are not really going to see branding on your buses, it’s going to carry the branding of Volvo and MAN and Mercedes, is that correct?
PATUXOLO NODADA: Yes, Busmark is a company that was established in 1973, so it’s actually 45 years old now and it’s a company where we design, develop, manufacture, service and maintain buses on behalf of local and international OEM’s, using local labour, materials and funding to make sure that we can deliver the product to the market.
CIARAN RYAN: How many buses are you producing per month?
PATUXOLO NODADA: Currently we have got capacity to produce 200 buses between our plant here in Johannesburg and our plant in Cape Town and currently we’re running at 100 units per month collectively for all the OEM’s that we’re currently producing for.
CIARAN RYAN: So that’s 100 buses per month?
PATUXOLO NODADA: Yes.
CIARAN RYAN: Tell us about your clients, I see in a story on Moneyweb that one of your clients is Gautrain, what about some of the other ones?
PATUXOLO NODADA: Look, the Gautrain is brighter because of its colour, it’s gold and that’s different from the white buses that you would see. So we don’t carry any brand in terms of the brand of a bus. So it would be the first tier OEM that would be carrying the brand, it could be Mercedes Benz, it could be Volvo, it could be Scania, it could be MAN, it could be VW, it could be Isuzu, so in that we become a shadow of the first tier OEM’s. So we basically use our steel structures to produce buses, so we cut components and make components of stainless steel and then we can produce the bus. Then we use composite components from fiberglass composite, ABS in terms of interior and some exterior components.
CIARAN RYAN: What is ABS?
PATUXOLO NODADA: ABS is a material that’s used on the interior, it’s a better finish than a composite, the proof is in the noise levels of the bus but it’s made of chemical particles basically.
Proudly made in SA with local materials
CIARAN RYAN: Now, I see 90% plus local content, is the steel bought from local steel manufacturers in South Africa?
PATUXOLO NODADA: Yes, when we say it’s local content we actually audit up to raw material supply or source. So if it’s steel, it will be from the mill, it could be from the ArcelorMittal mill, it could be coming out from Columbus and come back, it could be via a certain supplier, distributor, wholesaler like Macsteel or like Arcelor in terms of stainless steel but then it comes to us. But the source is South African, then you go further to say where the metals that have created that steel have come from in the mining industry. So we currently say that we will beneficiate whatever is coming from the mining industry in South Africa, so we audit up to the source. In terms of chemicals we do the same, for instance we get chemicals coming from Sasol, the polymer plant and there are some by-products that are coming from various plants of Sasol in composite and fiberglass, we do that. Fiberglass is made out of sand and glass, which we have an abundance of in South Africa terms of that. So that is audited up to the source, where it’s mined, produced or grown from there, it could be a by-product but the source is South African.
CIARAN RYAN: Where are the other parts coming from, the engines for example, the power trains, where is that coming from?
PATUXOLO NODADA: There’s a definition of two things, the power train or what we call the chassis in traditional bus manufacturing and then there is what you call a body component. So in this 96% mostly of the body component and then when it comes to the chassis, the chassis is on legislation is 20% exempt, so it means that a power train can come in from Brazil, from India, from Germany or the US and then it will be exempt 80% and they must comply with local content with 20%. So that’s what you find but we’ve gone beyond that 20% because you’d understand that in terms of the structure of the chassis there is lots of steel there, it’s a different steel that’s used on the body side but it’s not heavier, it’s more iron and other metals there. We’ve actually gone into that level of localising that, so that we can separate the steel structure that is into that and incorporate it with our body and then we form what we call an integrated body structure. That then becomes a platform where then the OEM’s only have to bring in an engine compartment, an axle and a system that integrates the bus together.
CIARAN RYAN: So the engine, the axle and the integration components, those are the parts that are imported, the rest is made locally?
PATUXOLO NODADA: Yes, it’s made locally, it’s available in terms of steel because that’s what we focus on. So if you ask what is the core business of Busmark, it’s on the stainless steel structures, it’s on iron structures, it’s making those components. So you would see that we have a full value chain, full steel fabrication plant that is basically that but not only making components but also then bringing them together to make then the [5:53] of a bus, then you call it an integrated body. Then cladding it afterwards in terms of the Chromadek, the fiberglass, the composite, which we also produce, so our core business is on the steel and then it’s on the fiberglass with basically manufacturing those and we assemble those within our own factories.
CIARAN RYAN: How many people do you employ?
PATUXOLO NODADA: We employ about 1400 people in South Africa and some of the people who we employ are in the rest of the country but most of them are based in Johannesburg and Cape Town and then we’ve got service centres at the depots of the fleet operators.
Designing buses to withstand African roads
CIARAN RYAN: I see that you have about 40% of the South African bus market and you’ve got about 20% of the Zimbabwean bus market. Now, the Zimbabwean one is an interesting one because some of the roads there haven’t been maintained for, I wouldn’t even say years, for decades, so they are potholed and if the road still exists it would be very hard to detect sometimes. What are the problems that you have in designing and building a bus for that kind of road?
PATUXOLO NODADA: Being African it allows me to understand each and every component of being African, so I understand potholes as part of the problem. So our engineers are driven to be being able to offer solutions in terms of potholes because we know that they exist, in terms of dust, in terms of dusty roads, in terms of very imbalanced or mostly undeveloped areas in certain places. So we design buses with that context in mind and then when we design buses in that context we look at what kind of springs do we use, what kind of steel material do we use, what kind of various interaction with the bus, noise levels, how do we protect the bus from the dust, do we rubberise the bus underneath, how do we protect the bus from stones, where is the exhaust placed, the direction of the exhaust, how do we separate between the hot air and the cool air in the bus. Those are the things that are extremely important because we sit in a different zone in the world. We literally will not take a power train that comes from Brazil or Europe and just put anything to it, we actually make sure that it’s engineered properly and we’ve got the support of an engineering team that does that and that’s where we focus our business.
CIARAN RYAN: I see that the Industrial Development Corporation is taking a R2 billion bet on you, they’re going to back you on your factory expansion to the tune of R2 billion. Now, you’ve already started exporting buses to Kenya and to Zimbabwe but you’re also going to opening up in partnership with local producers, you are going to be opening up bus factories in both of those countries. Can you tell us about your expansion plans for the next two to three years?
PATUXOLO NODADA: So if you understand the Zimbabwean market, I will start with the Southern African part, if you understand the Southern African market, we were big in Zimbabwe, we probably had a 40% or 50% bus market share in the commuter bus space and that decreased because of the economy in that country. It’s just the availability of the exchange rate that we can access and people can pay. But that doesn’t mean that there’s no demand for buses in Zimbabwe because most of the population there use public transport as a form of transport, it could be intercity, it could be within the city or at the mines. So we got banned from selling buses into those spaces. So I analysed the problem and one of them was the introduction of 40% local content or import duty into the Zimbabwean market. Then we had to struggle and say what do we do in this case…just exporting at a higher price, then we said we want to make sure that the end user can pay a list price in terms of transport. So we then partnered with one of our clients, which is one of our big clients, [9:56] Funerals, that literally transports and moves people in Zimbabwe for funerals, basically every day when there’s a funeral we have got our buses moving. This guy approached us and said I can’t afford this thing of not being able to buy a bus, can’t we make buses in Zimbabwe and yes, we might not have all the products in terms of what you have like steel and fiberglass but let’s find a solution that we can do. So we started a partnership and in the partnership we were joined by Old Mutual, which is both South African and Zimbabwean. So we are 30% Busmark and 30% between [10:37] Funerals and Old Mutual. So we’re setting up a world class plant in Zimbabwe, where we will produce buses similar to what we do. The capacity we are targeting is to actually produce about 100 units but we know that we’re going to start at about 20 units initially but that 20 units we are going to grow as the business moves on. We know and understand that the economy in Zimbabwe is not going to be like this forever but it’s going to turn. This partnership is also driven by the fact that we’ll be able to make some components here in South Africa, pack them in a container and deliver them to Zimbabwe and it will be finished as a product there. So it creates jobs in Zimbabwe and it creates sustainability of the economy there. So that’s the Zimbabwean part of the business.
CIARAN RYAN: Just to pause on that one, you’re going to start off with producing 20 units per month in Zimbabwe but you’re going to expand it ultimately to 100. That’s the same level of output that you have in South Africa, you see big potential in Zimbabwe.
PATUXOLO NODADA: Yes, currently in the Zimbabwean plant we target to be able to service our Zimbabwean market, our Zambian market and our DRC market, which we have currently, and if we do that in those countries then it would allow us to have capacity in our South African plant, while it allows us to deliver closer to those other customers that we have. We have enquiries every day from DRC, from Zambia and other countries, which we think we’ll be able to service from Zimbabwe.
Establishing an East African base
CIARAN RYAN: Talk about the Kenyan operation then.
PATUXOLO NODADA: The Kenyan operation is to establish a base in East Africa, one of the highly congested towns or cities in Africa is Nairobi and also Dar es Salaam and between those two there are about 200 million people, of which about 60% of them are supposed to use public transport, which is very inefficient currently. People are driving old cars that are more than ten years old or using taxis that are dilapidated and they want a fresh start in terms of the transport. We believe that we are there to help in making sure that the cities are not congested and we have found a good opportunity where we have started delivering buses in Kenya for the first BRT that will be introduced in Kenya and we see that as a milestone. It was not an easy market to establish but for us it’s that solution. We don’t go to any country without partnering with locals, we don’t go to any country without creating jobs in that place. So in a partnership that we have established is we currently have a partnership of assembling with Kenya Vehicle Manufacturers in Nairobi in the short term but in the long term we would want to establish our own factory. It’s something that’s in the near term. Buses are already in Nairobi and there’s big talk that there’s a South African company that’s delivering BRT buses, which are going to be first. So we are being looked at. We’ve also been talking to Tanzania about their BRT in Dar es Salaam that they have introduced.
CIARAN RYAN: What is BRT?
PATUXOLO NODADA: Bus rapid transit. Most people would think that it’s bus replaces taxis but it’s bus rapid transit, which moves people on a universal access bus that can move in high traffic, in a specialised lane that can allow it to move faster than a car.
CIARAN RYAN: Do you see in East Africa in particular that buses of the kind that you produce are going to replace taxis?
PATUXOLO NODADA: I’m not saying that they would replace taxis. They would work closely with taxis, taxis would always be a feeder of what is happening. But what it would do is it would improve the quality of service that is being offered in terms of public transport. Currently the public transport is not safe, it’s not reliable, they are small and they’re not universally accessible and they don’t have a special route that they can do. They are also old, they use Euro 1 engines, which are killing the planet and climate, and we want to transform that.
CIARAN RYAN: Euro 1, of course, is an environmental standard coming out of Europe, right?
PATUXOLO NODADA: Yes.
CIARAN RYAN: What is the latest standard?
PATUXOLO NODADA: The latest standard is Euro 7 but that’s mostly cars, whereas buses and heavy vehicles are sitting on Euro 6. But even that in Europe is already going out because then people are looking at alternative energy in terms of electric buses and hydrogen fuel cell buses in the future.
New battery technology developed in SA
CIARAN RYAN: Now, this is another area that you are involved in, of course, you have produced, you’ve prototyped a battery-operated bus and a hydrogen fuel cell bus, tell us about those.
PATUXOLO NODADA: As the only South African manufacturer of buses, our government took a step to develop electric power trains and developing a better system. It was driven by how can they save planet earth or contribute to zero emissions. [16:15] investment, a company called Hysa, Hydrogen South Africa, which is part of CSIR and the Department of Science and Technology, so there’s a combination of that and the universities locally and internationally have been driving this research of hydrogen fuels and batteries. So we have got batteries that are done here, we’ve got local IP that is done for batteries and we find that these batteries have not been used in South Africa but it has been produced in China for the whole world but the IP is South Africa, which has been researched by the local universities.
CIARAN RYAN: So this battery technology was researched and developed in South Africa but produced in China?
PATUXOLO NODADA: Yes and then the South African government says this needs to change, we as South Africa need to commercialise what has been researched in South Africa and then utilise it, instead of just producing and doing things for other countries. There are huge technology developments that are happening in South Africa but we miss them because we don’t commercialise and industrialise what comes out from the CSIR.
CIARAN RYAN: So that’s what you are doing.
PATUXOLO NODADA: Yes.
CIARAN RYAN: Tell us about these battery-powered buses, when are we going to see them on the roads and how long can they go before they need to be recharged?
PATUXOLO NODADA: The range is something big when it comes to batteries. There are people who are currently delivering buses that can travel for 150 kilometres before a charge and others are talking about 300 kilometres per charge. An average bus travels between 120 and 150 kilometres per day in terms of a BRT or a city bus, so you could drive that within that range. But then there are other ranges that are bigger in smaller vehicles in intercity vehicles, this is where hydrogen fuel cells come in, whereas then you can put in a battery and hydrogen fuel cells, so then you can extend the range without having to charge because one of the things that is heavy in introducing battery electric buses is the charging infrastructure, we currently don’t have the charging infrastructure that allows us to fast charge our vehicles. So the hydrogen fuel cell addresses that range because you don’t want to be putting up a new structure, you rather maybe want to only charge overnight at your depot or you want to charge when you’ve got an opportunity charging like in a station. In the case of Gautrain that moves in a circle, it’s got stations in between, Rosebank, Midrand and Pretoria, you’d find then that at night the buses are parked at the depot in Midrand and in the morning they run their route. But they’ve got a stoppage of about 20 minutes, which creates a huge opportunity to charge and up the battery. These things will change depending on weather, in South Africa our winters are not very cold but in the worst case we can go to about two degrees, then you need some heaters in that space. But in summer you go up to 29, 30 and even 40 in certain areas, so you need to also accommodate air con, which would pick up a lot of energy but you need to be able to deliver a bus that you can make sure that people are always happy when they are inside the bus, they feel safe, comfortable, warm or cool, depending on the climate. If you can keep customers happy and you can keep buses 90% on the road that is what is important than to take buses and you’re charging them 50% of the time.
CIARAN RYAN: I think one of the things also about battery-powered buses and hydrogen fuel cell batteries is that you don’t have many moving parts, so your maintenance is very low. A diesel engine has 1800 moving parts, there’s a lot that can go wrong there. So talk about the economics of a battery-powered bus and a hydrogen fuel cell bus.
PATUXOLO NODADA: As you said, there are about 1800 parts in a diesel and there are five key components in a battery-powered vehicle, you’d find that we are creating a new economy by doing that and you would think that we’re going to destroy the economy in terms of the diesel engine. Currently those are the jobs that we do not have in South Africa of making an engine and we are saying that government have said that they are not going to develop a diesel engine because those jobs currently do not exist. It’s more to focus on and say that how do we create jobs in the new markets and new opportunities, they are more interested in that. Then this opportunity of the hydrogen fuel cell becomes more viable in that form because then you have to start developing new technologies, you beneficiate the PGM’s that are coming out from South Africa, currently we are only exporting platinum, whereas when we go this kind of route we are still going to be able to beneficiate the platinum and then you can use it in EMA’s that are required in the storage, batteries and all of that. Whereas in iron ore we are sending out tin to other countries. So this is the connection, as to how do we take that research and make it work and create jobs in our own country, so this is then when the opportunities come. So we’ll find that in the next coming two to three years we will be the cheapest in those kinds of technologies than anywhere else in the world because the resource is closer to us. Also, one of the biggest things that we have is sufficient water, and hydrogen is driven mostly by water, we’ve got enough gas and then hydrogen becomes a by-product of gas. So those are the things we are looking at. I will give you an example, currently the Sasol pipeline that drives gas from Mpumalanga to Gauteng and then all the hydrogen that is coming out is actually released into the air and not utilised, whereas in the hydrogen fuel economy it would be captured and utilised. It might not be own generated, which will be more condense but it will add value in terms of that. Now we are thinking that people are going to start capturing hydrogen. If you look back again in terms of climate change, Sasol is really interested in how to capture that hydrogen, I also think of other companies that are in that space like Air Liquide. So the by-products that they were throwing away can now be utilised to power up the economy.
Identifying opportunities in the bus market
CIARAN RYAN: I want to talk to you for a minute as a chartered accountant, so put your chartered accountant’s hat on. When you bought into this business, which was a decade ago, what was it that you liked about the business and looking at it from an accounting perspective, how did you evaluate the financial situation and the potential of this company?
PATUXOLO NODADA: There are two things that I look at, you look at the industry that you want to participate in and you check that industry against growing industries and so on. Manufacturing is one which creates jobs first of all, it drives most economies because if you can produce a product then you have something tangible. That was the first [condition] that you need to be able to produce something because it’s very difficult to sell a service but when you produce something you’ve got something tangible when you develop a product. So for me it was important to understand the product that is being sold. So this opportunity came in when there was a huge demand for buses during the 2010 FIFA World Cup, so South Africa imported about 500 buses in that period just for the World Cup. It meant that it externalised lots of cash to other economies when that cash could have been localised. So that opportunity came to my mind when I looked at this and I thought this is something wrong, we need to be able to address that. That’s the first point of call. Then in getting into the business I thought I was going to establish a completely new factory in terms of what I wanted to do but it was also difficult in terms of barriers to entry into the market. So barriers to entry are something that is critical that you check to see what are the barriers of entry in that specific market. Then you look at the business and say what is this business currently doing, what can you do to this business to transform it? The business was focusing on commuter buses, which are the buses that you see in the government like Putco, Unitrans and then there was this new market that was evolving, which was the city buses and then I said the growth of this business is going to be on the city buses. But the base that they have in the commuter business is key in terms of expertise, the material management and all of that.
CIARAN RYAN: Just to be clear, commuter buses are the ones that would travel, for example, between Durban and Johannesburg, the city buses are the ones that travel internally within the city, is that the difference we’re talking about here?
PATUXOLO NODADA: Not really, a commuter bus is higher in terms of floor and in terms of step, for example a commuter bus could move between a city and a township. For instance, it addresses the rural part or the pothole-based environment, you have to get into a step, it gives a higher clearance, that’s a commuter bus. An intercity bus is similar but it’s more luxurious, whereas a commuter bus is just a basic bus because a commuter bus can travel between zero and 100 kilometres but an intercity bus is when you travel between 100 and 1000 kilometres, buses like Greyhound, Intercape, APM, those are intercity buses that are more luxurious, so the comfort for the passengers is key, whereas the commuter bus is meant to service just a community. The city bus is more for when you’ve got an urbanised environment, where you’ve got tarred roads, then that becomes a city bus because that bus is driven on a specific route and it carries a different weight. Passengers will more often stand in a city bus than those who are seated in a commuter bus. So commuter buses would be a 65-seater, whereas a city bus would be a 36-seater or a 44-seater with 54 people standing, carrying 90 passengers because it travels a short distance, even the seating arrangement becomes different, they become shorter, whereas the commuter buses you need to be able to relax a little bit because you’re travelling further kilometres.
CIARAN RYAN: Pat, we’re going to wrap it up now, one final question, it looks like you are a serial entrepreneur, we spoke before and you told me that I think it was at the age of 12 you were mowing lawns for your neighbours, your parents bought you a lawnmower and you were making money that way. Then you started a tuck shop at school and you’ve tried many, many businesses. Maybe you could share a word of advice for entrepreneurs who would be listening to this, what advice do you have, is it one of persistence, don’t be afraid to fail or is there something more?
PATUXOLO NODADA: There’s a combination of things, growing up I thought I was going to be an engineer but I ended up being an accountant but the accounting core gave me a foundation in terms of what I do in business, making decisions, taking a business direction. That core is important but then the passion and ability to take risks is something that is critical. So I didn’t start a business just now, I started a long time ago, that lawnmower that I told you about was not my lawnmower it was my parents’ lawnmower and most of the time they didn’t know I was cutting grass for people and I was making money until they saw me with money and they said where did you get the money from. I said I borrowed your lawnmower so that I could cut grass for the neighbours, I wasn’t just working for free, I charged them. So this [type of thing], using a parent’s asset to make sure that you can get something out of it, those are the things that you need to do, you need to be able to choose how you do things. So passion and school is critical. Probably if I was an engineer I would be a specialist engineer somewhere at Sasol or wherever but the accounting part actually drove me to be able to be involved, then certain things become natural in what you are able to do. I’m able to do valuations, I am able to look at and read financials within a few minutes because that’s what I understand best. So there’s no one who is going to come in front of me and say this business is worth this much, I know how to do a DCF valuation and a PE valuation and cost mechanisms. So there’s no engineer or a cost accountant who is going to come to me with a project and I would not look twice at it and say this is wrong and this is wrong because I understand the accounting part of the business. So then even if somebody wants to propose something, I don’t buy expensive, I buy at a good price.
CIARAN RYAN: Last question, looking five years from now you’re going to have factories in South Africa, Randfontein, in Cape Town, Port Elizabeth, Durban and then you are going to have factories in Zimbabwe, Kenya, Nigeria and Ghana, how many units are you going to be producing five years from now?
PATUXOLO NODADA: Look, the target is to be able to produce about 500 units a month collectively and out of those 500 units you can spread them. I want to have capacity to produce 1000 buses in Africa every month and I’m saying that’s a target that’s reachable and I think it’s going to be easy to reach it if I spread the base instead of focusing on South Africa because market conditions determine what you get in that market. So that spread is across closer to delivering to the client, so here in South Africa and our clients in East Africa and our clients in Southern Africa. A big market that we’re working on very hard is the Nigerian market because the Nigerian market is the biggest in Africa and Lagos is the most populated city, not country, they’ve got 20 million just in Lagos, it’s a big number.
CIARAN RYAN: Pat Nodada, chief executive officer of Busmark, thank you very much for coming in.
PATUXOLO NODADA: Thank you.