Sharing is caring? (ii)
From online shopping of luxury brands to groceries and electronics just a click away to on-the-go cars; the sudden rise of tech-based services and their acceptance by the large publics is no longer a foreign phenomenon for the developing world. Car rides specifically are gaining massive popularity across Pakistan, especially in the major cities so much so that the demand is in excess of the existing cars available with Uber and UAE-based Careem; the prominent two car-sharing apps.
And this demand will only keep increasing as the middle class expands, rural-urban migration soars (nearly half the population will be living in cities by 2025) and trust begins to develop between people and technology that is usually missing in economies that are still largely underdeveloped and uneducated, also often marred by great security concerns that are urgent and unique to Pakistan.
But Pakistani market is proving to be receptive, and become more tech-savvy with communication becoming ever so easier. Millennial play a huge part in driving this movement—60 percent of Pakistan’s population is already young; of which half resides in urban communities. Pakistan’s mobile usage overall stands at an incredible 80 percent of which 25 percent are 3G/4G subscribers, while 18 percent of the population has access to internet, so the infrastructure is there.
This column yesterday talked about the concept of sharing economy; its meteoric rise across the globe with beds, rooms, cars, parking spaces, camping spaces, appliances, machinery, tools and even money lending facilities shared in peer-to-peer and business-to-peer market structures. Next door neighbour India despite having a public transportation system, albeit inefficient, (public trains, buses, taxis) has welcomed several ridesharing apps: Uber, Ola, DriveU, LiftO, Shuttl among others to facilitate massive urban commuting. Uber has introduced Rickshaw and Motorcycles as its products to be more inclusive. Other rental and sharing apps such as furniture and appliances rentals are fast gaining impetus.
Sharing itself is not a new phenomenon but has been embedded in many historically popular ideas. Adam Smith, a renowned 18th century economist talked about the division of labour where many different people with different skills combined efforts to a production process. This could be applied to the sharing economy if the revenues and gains went to more people, however as discussed in yesterday’s column, the problem is that more often than not, wealth accumulation is very common in the sharing economy.
The system was most attractive to existing entrepreneurs and operators who pay contracted wages and take a profit instead of creating opportunities for people from all levels of the economy to enter. Uber and Careem in Pakistan for instance first and foremost attracted existing car-rental service providers who were quick to ascertain the tremendous potential and enrolled their drivers, many of whom still received a fixed income left upon the fleet operator to decide. There is no incentive to provide a service when one is already earning a fixed compensation and therein lays the biggest problem.
This phenomenon has been different from Uber globally where car drivers are also car owners, but in Pakistan car ownership by individuals is significantly low. For those who already owned substantial wealth, this became a promising investment opportunity and so begins a cycle of concentration of wealth leading only to further wealth inequality.
Indirectly, this will have created jobs for people as more drivers were needed to drive new fleets but for the spirit of the sharing economy to work, the gains must trickle down from service provider to end-user to middleman if he exists. Ideally, it should be an attractive entry point for individuals and small asset owners.
The second concern is regulatory in nature. Even in the US, because of the lack of stricter regulations compared to traditional car services, Uber nearly drove out the taxi market within two years. In Pakistan, it is even more problematic because there is no regulatory efficiency. In Islamabad just last week, several car sharing services were suspended because they were operating illegally without a license. Because of poor governance, it is especially easy in Pakistan to get away with cheating, evading taxes or other regulatory obligations.
This is not to say that the sharing economy will not work in Pakistan. It does open doors for new entrepreneurs to adopt this model to share other assets and services. If the government is able to improve financial access to more people, there are many young entrepreneurs with great ideas, just like a similar movement taking shape in India.
In cars, auto financing has been up at historic highs recently. Demand for cars has been increasing and there are some ambitious estimates for car sales in the near future with new European players promising to enter the market. As more people are becoming aware, more individual car owners will respond to this demand.
One major issue is security. Even though couch surfing has recently been gaining momentum in Pakistan, a major concern for services like this are safeguarding concerns and that is where the facilitator comes in, who need stringent background checks.
For the current car apps at least, they have invested in training and background checks which is excellent. It is very commonly known that many Pakistanis do not have valid driving licenses. To get on board as drivers, these car owners will have to get authentic licenses which would facilitate the government in documenting—although it is a long term benefit. The model and its receptiveness in the Pakistani market should be most attractive to young entrepreneurs who are brimming with ideas. The model ideally cuts down transactions costs and creates additional demand for goods and services.
It should be pretty clear though that if there is no sharing in the sharing economy and if these models are not inclusive in nature, they will only exacerbate the problem of inequality in an already unequal economy. But great ideas win in the long run and they are ever flexible. Two of the car riding services has introduced new features such as custom-rickshaws for people who want even lower fares while providing an opportunity for rickshaw owners to become part of the formal sector.
In India, some researchers claim the biggest beneficiaries of peer-to-peer sharing are the poor, both consumers and contractors. If that is true, and if Pakistan is able to provide an open and freely competitive infrastructure for new ideas to thrive; who would not want to be on board?
