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Uber: the African Frontier

by internationaldirector

Written By: Morgan Jones – Corporate Finance

Uber’s incursion into Africa has seen the most interesting of consequences. While the advanced economies have fashioned themselves as the champions of competition and the market economy, developing economies seem to actually embrace competition and the market economy more than advanced countries do. Uber’s fast, aggressive expansion globally has shown this.

In the US and Europe, reception to Uber has been negative overall. Governments from city to country levels have gone about exploiting every nuance of the law they can find to keep Uber out of their jurisdictions. Uber has been locked out of some markets because the use of electronic services while driving has been banned. In another scenario, a city blocked the use of GPS as fare metres, while another required taxis to go back to their garages in between fares. Some have had far-reaching rules that wouldn’t allow Uber to completely operate in the region without actually owning all of the cars in its service.

Some of the concerns of governments—such as security—are warranted. Consider India. In 2015 an Uber passenger was raped by an Uber driver. While the case went to court, the government didn’t wait for a legal decision to take the next step; it banned Uber in the country. It may seem an absurd reaction to Western countries, but one has to understand that the security situations, and indeed the structures, in developing countries are not quite acquiescent. People in developing countries come to rely heavily on community structures, friends and family to ensure their safety when consuming services. For instance, a lady would have a couple of taxi drivers on-call whom she trusts and who were probably recommended by family members or are well-known in the community. Word of mouth adds to the security of consumers, but with Uber any driver can pick any client. Uber is adding a security aspect by requiring drivers in India and African countries to get certified background checks from the police. This may appease some clients, but with corruption rife in the countries, background checks can be “cleaned up” so that criminals are still able to prey on Uber users.

Africa has not been completely receptive to Uber either. There have been protests against Uber in Egypt, South Africa and Kenya. As in Europe, Uber has suffered violent attacks and the burning of its cabs by local taxis during protests. In Kenya, for instance, Uber offers prices that are as low as 25 percent of what taxis normally charge. But while European governments have backed the local taxi associations, Kenyan and South African governments have sided with Uber amidst the protests. Uber first launched in Africa in 2012, specifically in South Africa, although it began operations in August 2013. The services started in Johannesburg and later expanded into Cape Town and Durban. In 2014 the company broke into Lagos, Nigeria, and in 2015 into Nairobi, Kenya. In total, there are 12 cities in Africa (in Egypt, South Africa, Uganda, Morocco, Nigeria and Kenya) that have Uber services, with the company laying the groundwork for expansion into Ghana and Tanzania.

The African expansion, though, has provided Uber with added challenges. Unlike advanced economies, in which payments are largely e-based, Africa remains chiefly a cash-based economy. Mobile payments offered hope for the company’s entry into Kenya, but the company failed to consider the cost of transactions for mobile payments. Payment costs can be as much as 15 percent, and that’s only with M-Pesa (withdrawal charges). Payments to third parties usually see the charges rise significantly. Hence the surprise for Uber when they allowed cash payments and saw usage rise threefold. Uber has had to fine-tune its services and at times partner with local companies in order to serve local markets. An example of this is seen in its partnership with OkHi, a Kenyan start-up, to solve a problem with the inaccuracy of maps and directions for drivers. The two companies are currently testing out a pilot program.

Such failures to appease local markets in Africa have encouraged rivals to come in. Some are locals, too. Estonian company Taxify is providing the company with competition in South Africa by leveraging on driver dissatisfaction with Uber prices and emphasizing driver treatment with even higher prices. Saudi Arabia’s Mondo Ride is launching in Kenya and Tanzania, with an expansion of services to include the widely used boda bodas (local motorcycle taxis). Maramoja, a Kenyan start-up, emphasizes a community-based approach and adds driver recommendations to friends and families on social media. Afro, a Nigerian competitor, has accommodated Nigeria’s (and indeed Africa’s) penchant for haggling by adding a bidding feature. Oga Taxi, also Nigerian, offers background checks for users and drivers, plus a built-in SOS button. Others such as Easy Taxi bowed out of Nigeria and Kenya due to competition. But the most interesting competition comes from Little Cab in Kenya, a joint venture of Craft Silicon (a Kenyan banking-software developer that outgrew the local market and went on to base itself in Singapore) and Safaricom (internationally known for its innovation of M-Pesa and M-Shwari. The company is also a behemoth in East Africa, with a valuation of almost half of the Nairobi Securities Exchange).


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