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Is Kenya ready for the platform economy?

Airbnb app
An Airbnb app, which has proved popular with local and international tourists. FILE PHOTO | NMG 
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When Uber first began operating in Nairobi four years ago, early adopters were only too happy to have an on-demand taxi service that was cheaper and took away the headache of haggling over fares. The initial driver partners were said to have made a killing with anecdotal reports indicating that they got returns on their investment, mostly from loans, in under a year.

In the beginning, traditional cab drivers were oblivious but soon caught on to the disruption that was happening right under their noses. Predictably, the realisation that there was a new player eating their lunch led to an explosive reaction.

Four years and several e-hailing driver strikes later, it is clear that the law, industry players and policymakers are still not prepared to deal with technology-based disruption that has also gone on to hit other sectors.

REGULATORY HOLES

Uber and Estonia-based Bolt were just the beginning. The arrival of other disrupters like Airbnb and most recently, Egypt-based Swvl, has exposed Kenya as an antiquated regulatory wonderland. Policymakers appear to have been caught completely flat-footed by the influx of platform-based businesses whose models Kenyan laws do not understand.

So far, initial State’s response has focused on how to tax these enterprises while issues such as fair competition and labour are relegated to the back burner. For instance, the Ministry of Tourism on realising how lucrative the Airbnb space has been for homeowners has moved to tax those profiting from the platform.

The US-based homestay rental platform had 6,500 Airbnb listings in 2018, which earned homeowners Sh510 million between January and September that year. The previous year, they had raked in Sh390 million, underlining how popular it has become among local and international tourists.

But this has come at a price for hotels that are now crying foul, especially in Malindi where tourism stakeholders have been hardest hit.

While it can be argued that some of the traditional establishments have been shunned by local travellers over prohibitive pricing and perceived preference for foreign tourists, their concern that Airbnb is not being subjected to the same rigorous regulatory environment as them is valid.

COMPETITION

From these stem policy issues, namely competition and labour.

Other than the use of technology, foreign-based disrupters trying to gain a foothold in the Kenyan market have one thing in common: They are awash with venture capital money.

This makes it possible for them to price their services well below that of their competitors without feeling the pinch, a luxury profitmaking Kenyan companies can ill afford.

In this pricing race to the bottom, cash rich start-ups are able to quickly capture the market within a short period of time.

Competitors in other markets have gone as far as accusing them of engaging in predatory pricing. For instance, Flywheel Taxi — a company in San Francisco — sued Uber in 2016 claiming it used its billion-dollar war chest to undercut rivals with predatory pricing.

In Romania, Bolt (formerly Taxify) and Uber were jointly sued by several taxi companies for unfair competition. The traditional cab firms said the two did not have cash registers, were not obligated by local laws to undergo routine car inspections every six months and were not required get a myriad of other permits.

Regulators in places like London have forced companies like Uber to play by the same rules as the traditional minicab drivers, including more checks on driver hours and more safety measures to protect passengers.

PROTECT GIG WORKERS

The other issue at hand is the labour implications of the platform economy. A lot of these platform companies are able to skirt around labour laws in other jurisdictions by classifying local partners as contractors rather than employees. Analysts have argued that this legal grey area allows companies like Uber and Taxify to game the system by avoiding costs like monthly salaries and having to abide by minimum wage rules.

On a human level, it means that locals who rely on these tech platforms to make a living have very little by way of protections against exploitation. Additionally, it brings us back to policy issues since there aren’t sufficient protections in Kenyan law aimed at benefiting gig workers whose work is very insecure.

However, there are examples that Kenya could borrow from other legislations.

After intense lobbying from drivers, legislators in California recently approved a Bill that will require firms that rely on contract workers like Uber and Lyft to treat them as employees. The proposed regulations only apply if a company controls how the workers perform their tasks or if their work is an integral part of the firm’s regular business.

The implication of such a legislation on platform-based tech companies is that once classified as employees, they will then be eligible for minimum wage, leave days and the right to unionise.

So while these companies argue that they want to maintain the status quo of their business models for flexibility, the calls by their workers for better terms and working conditions should be a policy point for regulators.

PROFIT? NO BIG DEAL

But perhaps the biggest advantage heavily investor-funded companies like Swvl have over their competition is this: they may never have to make a profit to remain in business. This is because the value of many of these platform-based companies isn’t necessarily in how profitable they are in the short-term, but in the strength of their network and ability to capture markets in the long-term.

What this means is that as long as companies like Swvl and Jumia can prove to investors that their platforms are able to grab as many users as possible, this pushes up their value and is good news for investors seeking to cash in and out later on.

This in part explains why 2019 has been a big year for global tech initial public offers (IPOs) despite the fact that many of the companies listing their shares publicly remain unprofitable. These platform firms, however, are pegging their value on how many users they currently have and are likely to amass in future as they grow.

The question then becomes, what does this mean for Kenyan companies that are subject to tight industry regulations that are taking on unsexy traditional costs that then find themselves having to compete with cash-rich players that have the financial backing to price their services way below market rates?

More platform-based companies are making a beeline for the Kenyan market even as it remains unclear what the regulatory environment will look like for them and local players.

Just recently, Spain’s on-demand laundry service Mr Jeff — which recently raised Sh1.2 billion funding — became the latest entrant after indicating that it would launch in Kenya this year, specifically targeting the mama fua (casua cleaning women) business segment with affordable pricing.

Kenya needs to speed up regulatory framework that will not only ensure ethical competition in the market, but protections for gig workers as well.

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