Regulations may hurt ride-hailing sector

There is value in maintaining Kenya as one of the Information and Communications Technologies (ICTs) hubs. But that requires collaborative leadership in developing enabling regulatory frameworks.

The digital economy presents opportunities for greater efficiencies in the economy, creates much-needed jobs for the bulging youth population and offers the country an opportunity to leapfrog in economic development. The 2019 Economy Survey offers testimony on the growing ICT sector. The sector expanded by 12.9 percent from Sh345.6 billion in 2017 to Sh390.2 billion in 2018, driven by growth in the digital economy.

With the falling manufacturing sector, ICTs are plugging the gaping hole. It is therefore imperative that an enabling digital regulatory environment allows for innovation to thrive as seen in ride hailing, fintech, hospitality and transportation solutions like Uber. These solutions create employment and bring about much-needed mobility and decongestion solutions to the city of Nairobi.

For instance, with ride hailing apps, one has the ability to push a button and get a safe, reliable and affordable ride. Mobile money platforms and infrastructure, on the other hand, continue to drive financial inclusion in Kenya and other emerging platforms.

Technology-based platforms like Uber have played a key role in improving the quality of work and enabling young people to access work easily and perform it flexibly across the world. In Kenya, over the past five years, over 12,000 flexible economic opportunities have been enabled for drivers including more than 500 women.

A recent report by Mercy Corps estimates the size of Kenya's online platform economy to be $109 million or Sh10.13 billion, employing over 36,500 gig workers. The ride-hailing sector accounts for 41 percent of this value ($45 million or Sh4.7 billion).

The report estimates that by 2023, the sector will expand by 33 percent employing 93,873 workers, assuming that the current level of investment is maintained.

Considering the fact that unemployment is a major problem in the country, there is need to closely collaborate in maturing sectors that will expand employment. A good starting point is to enable the private sector to innovate and scale new enterprises while the public sector works closely to develop enabling regulatory regime for greater economic growth. A conducive regulatory environment will encourage and not stifle growth in the sector.

The recent draft regulations by the National Transport and Safety Authority (NTSA) are meant to regulate ride-hailing services including vehicle licensing, driver licensing and licensing of “digital hailing service operators” are welcome. The proposed regulations bring some benefits into the sector. However, some of the content goes too far into the realm of economics. The proposed 15 percent cap in commissions for example, amounts to price controls that will undermine a growing competitive market. It will affect the product quality.

The draft regulations also prohibit operators from levying or charging any fees over and above the commission, both for drivers and riders. No other country has made such proposals other than Portugal whose commissions are capped at 25 percent.

The capping is beginning to affect both the drivers and operators. We should have learnt from the capping of interest rates that such policy does not work in a free market economy.

It should therefore, not be in our interest to set a precedent of such prohibitive regulations that could lead to a broader impact on the industry, disincentivizing investment in the ICT sector as a whole, and leading to tens of thousands of economic opportunities lost.

Some of the outcomes of the capping of commissions will include a massive reduction in the operator’s ability to operate, lead to multiple negative effects to the ride hailing sector and most likely impact other digital employment platforms. A good regulatory regime should focus on creating an equal playing field. Our matatu industry, although chaotic, is the epitome of a free market economy. Capping commissions in a section of the transport sector amounts to an unfair regulatory environment.