Post date: Fri, Aug 14, 2026
Category: Regulation
By: Fiona Okadia,

Introduction

Imagine paying the same fare to travel at 6 a.m. as you would at 6 p.m., even though the matatu is half-empty in the morning and packed in the evening. At 6 a.m., there may be more seats available than passengers willing to pay for them. By 6 p.m., the situation is reversed. Hundreds of passengers are trying to get home at the same time, while the number of seats available on the road remains relatively limited. The question then becomes: should the price remain the same simply because the service is the same?

I ask this because I came across an article that stated that the National Transport and Safety Authority (NTSA) has backed the regulation of public service vehicle fares, saying that it would protect commuters from arbitrary fare hikes, especially during peak seasons such as holidays. The regulations spoken about are contained in the National Transport and Safety Authority (Amendment) Bill of 2023 which is currently in its second reading stage (29^th July 2026).

Public transport is an essential service and the majority of Kenyans depend on matatus to move from one place to another. Even with this, regulating the price of a service without understanding the economics of providing that service can create more problems than it solves. In as much as the Bill provides for measures to ensure that fares imposed are fair and reasonable, a price increase does not, by itself, demonstrate that passengers are being exploited or that the market has failed. However, this has also never been enough to ensure that the price prescribed by the regulator is the price that consumers ultimately pay.

For consideration of how the market works is to consider that the cost of operating a matatu which includes fuel, vehicle maintenance, insurance, wages, financing, licensing, SACCO fees, informal payments to stage “managers” and traffic police. This is important because the fare paid by a passenger is not simply the operator’s profit. The fare must cover all of the costs incurred in providing the service and leave the operator with a return that makes it worthwhile to remain in business. A matatu operator who collects KSh 10,000 in fares in a day does not take home KSh 10,000.

With that introduction, there are four reasons why I argue against the regulation of public service vehicle fares:

Peak Pricing

First, is that the economics becomes even more complicated when we consider the role of traffic congestion, weather and the seasons such as holidays in which many Kenyans have to travel from the urban to the rural areas. A matatu that spends more hours on the road uses more fuel and completes fewer trips. During peak hours, an operator may spend significantly more time travelling the same route because of congestion. Rain can make roads slower and increase travel time. If the operator can make fewer trips in a day, the cost of providing each trip increases. The passenger therefore sees only an increase in the fare, while the operator is responding to a change in both demand and the cost of providing the service.

There is another important part of this economics that is often overlooked. Matatu fares during the day are a balancing act. During off-peak hours, there are fewer passengers competing for available seats. Operators may therefore charge lower fares to attract passengers. During peak hours, when many more people want to travel at the same time, the available seats are competed for by more passengers. The higher fare is therefore not necessarily an attempt to exploit commuters. It is partly a response to the changing conditions of the market.

In fact, if operators were required to charge exactly the same fare throughout the day, the lower fares during off-peak hours would have to disappear. If one observes the market, it is evident that consumers respond to differences in fares. Consumers who are able to adjust their schedules may choose to commute before 6 a.m., when fares are lower, rather than during peak hours when fares increase. The same applies in the evening, where some commuters may delay their journey to avoid higher peak hour-fares. Prices therefore do not only respond to changes in demand; they also influence consumer behaviour by encouraging some passengers to shift their travel to periods when demand, and consequently fares, are lower.

Therefore, if the fare is the same without considering that the operator doesn’t experience the same level of demand throughout the day then it may end up being disadvantageous to the consumer.

The higher fares during peak periods can therefore compensate for lower revenues during periods when vehicles are operating below capacity. What appears to a passenger as an arbitrary increase in price may, from the operator’s perspective, be part of the economics of remaining in business throughout the day.

Enforcement Challenges

Second, there is also the question of how such regulations would be enforced. Regulation is only effective if it can be monitored and enforced. The matatu industry is formal in some respects, but it also has significant informal elements. There is a total of 67,569 licenses operating across numerous routes, stages and roads as shown in Table 1 below. This is not a small number.

Additionally, there are many public service vehicles on Kenyan roads that are visibly unroadworthy. The government sees them, passengers see them and other road users see them, yet many continue to operate. If enforcement of existing safety regulations is already difficult, enforcing a prescribed fare across every route and at every point in time would create another significant enforcement burden.

Table 1: PSV Licenses in Kenya (2021 to 2025)

How would NTSA monitor every fare charged by every matatu? How would it determine whether a passenger was charged the regulated amount? How would it identify the operator responsible when transactions are largely cash-based? How would it distinguish between a legitimate difference in fares across routes and an illegal increase? The more complicated the regulatory framework becomes; the more resources are required to enforce it. In an industry with considerable informality, this could create opportunities for further rent-seeking and corruption.

There is a further unintended consequence. If the government creates a regulated maximum fare but cannot effectively enforce it, the regulation may simply create a difference between the official fare and the actual market fare. Operators may continue charging what the market can bear, while enforcement officers gain another reason to stop vehicles. This could create yet another opportunity for informal payments. A policy intended to protect passengers could therefore increase the very informal costs that already contribute to the cost of providing transport.

Price Hikes are Market Signals and Not Exploitation

Third, it is the element that a price increase is not necessarily a failure in the market. Sometimes it is a reflection that the market is working. The argument being made by the member of parliament who is proposing the bill (Didmus Wekesa Barasa) and also officials from NTSA is that PSV operators should not take advantage of increased demand to exploit commuters through excessive fare increases. This argument is understandable if one looks at prices alone but in as much as that is the case, it is not necessarily economically sound.

The reason being in a competitive market, prices are determined by the interaction of demand and supply. When demand for a good or service increases relative to its available supply, the equilibrium price tends to increase. This is because the higher prices provide an incentive for operators to make more trips, move vehicles towards routes where demand is high and allocate their limited capacity towards passengers willing to pay more. Without this price signal, there is less incentive for supply to respond to increased demand.

On the other hand, when demand falls relative to supply, the equilibrium price tends to fall. This is not necessarily evidence of exploitation; it is one of the ways prices communicate information such as changes in scarcity and provide incentives for suppliers to respond to changing demand which sometimes includes more suppliers providing the service or goods. The public transport industry is no different.

If the government fixes the price instead, it risks destroying a market mechanism that is already performing an important function. At a regulated price, demand may exceed supply. Passengers may then experience longer queues, fewer available vehicles or overcrowding. The government may have succeeded in regulating the price on paper while making it more difficult for passengers to obtain the service in practice.

Barriers to Competition

Fourth, there is also a competition issue, although the matatu industry is not characterized by monopoly. The thousands of PSV vehicles operating across different routes mean that, in most cases, passengers have several operators to choose from. This creates competition between operators and limits the ability of any single operator to determine prices. However, competition can be weakened in a few instances where there are barriers to entering particular routes, access to stages is controlled by particular groups, or SACCO arrangements make it more difficult for operators to compete freely. These barriers affect only parts of the market and are therefore unlikely to eliminate competition across the industry, but they can increase the cost of accessing particular routes or stages.

Informal groups that control access to particular stages can, for example, create a barrier for an operator who wants to enter a route. An operator may have to pay a premium before being allowed to operate from a particular stage. In this case, the payment does not necessarily reflect the cost of providing transport; it is a cost of gaining access to the market. The same applies to payments made to stage managers or other groups that have established themselves as gatekeepers to particular routes.

There are also informal costs imposed by enforcement. A matatu operator may make payments to traffic officers at different points along a route or to other individuals who have created informal systems of collecting money from operators. These payments may be illegal, but they nevertheless affect the cost of operating a matatu. A rogue traffic officer collecting money from every vehicle that passes is effectively imposing an unofficial cost on transport. Similarly, an informal group that demands payment before allowing a matatu to access a stage is extracting revenue from the transport industry without providing a legitimate service.

These costs ultimately have to be recovered from somewhere. They either reduce the operator’s return or are passed on to passengers through higher fares. If operators are prevented from recovering these costs, the result may not necessarily be lower-cost transport. Instead, operators may reduce the number of trips they make, withdraw from less profitable routes or find other ways of recovering their costs.

The appropriate government response is therefore not simply to prevent operators from passing these costs on to passengers. It is to remove the illegal and unnecessary costs in the first place. Tackling corruption among traffic officers, dismantling illegal stage-control structures and ensuring transparent access to routes and stages would reduce the cost of providing public transport. These measures would strengthen the functioning of an already competitive market and create a more sustainable basis for lower fares than simply imposing a price on the final service.

Conclusion

The role of government should therefore be to address the problems that prevent the market from working efficiently rather than regulate the price simply because some consumers do not like periodic price changes. NTSA has a legitimate role in regulating safety standards, licensing, vehicle inspections, driver qualifications and compliance.

Government also has a role in addressing corruption and the informal structures that increase the cost of operating public transport. Where competition is weakened by barriers to accessing particular routes or stages, these barriers should be addressed rather than allowing them to become permanent costs of operating in the industry.

The regulation of PSV fares is therefore not only difficult to enforce, but also economically inefficient. The government does not necessarily have better information than thousands of operators and passengers interacting in the market every day. The cost of operating a matatu varies by route, distance, traffic conditions, fuel prices, passenger demand and other factors. A fare that is viable on one route may not be viable on another. Even on the same route, the economics of providing transport during peak hours is different from that during off-peak hours. Setting a uniform or administratively determined fare risks imposing a price that does not reflect these differences.

The only economic justification for government intervention in a market is the presence of a market failure. The main sources of market failure are monopoly or market power, information asymmetry, externalities and the under-provision of public goods. The existence of a high or changing price, on its own, is not evidence of market failure. In the case of public service vehicles, the market is characterised by thousands of operators competing for passengers, while prices change in response to differences in demand, supply and the cost of providing the service. There may be isolated barriers to entering particular routes or accessing particular stages, but these do not amount to a monopoly across the PSV market. Where such barriers exist, the appropriate intervention is to remove them and strengthen competition, not impose price controls across the entire industry.

The remedy is therefore being applied to the wrong problem. If the government wants lower matatu fares, it should first look at the cost of providing matatu services. Reducing corruption, improving traffic management, making access to routes and stages more transparent, and eliminating unnecessary costs would reduce the cost of providing transport. This would create a stronger basis for lower fares than simply imposing a price ceiling.

Price controls can also create an inefficient market equilibrium. If the regulated fare is set below the price that would prevail under prevailing market conditions, the result may be excess demand and insufficient supply. Passengers may face longer queues, fewer available vehicles, overcrowding or unofficial charges as operators seek alternative ways to recover their costs. The government may therefore succeed in controlling the price on paper while making it more difficult for passengers to obtain the service in practice.

Public transport is an essential service, seeing that it ferries millions of Kenyans every day, but its importance does not mean that its price must be determined administratively. In fact, because many Kenyans depend on matatus, it is even more important that the industry remains financially viable and that vehicles continue to be supplied when and where passengers need them.

The argument for regulating public service vehicle fares therefore risks replacing a functioning market mechanism with an inefficient equilibrium. The objective should not be to suppress a price simply because consumers do not like it. The objective should be to understand why that price exists and whether there is a genuine market failure that requires intervention. Where the market is working, government should not regulate it out of existence.

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