What does ride-hailing in Kenya show us about the prospects for digitally-mediated work in Africa?

Justin?here. Before we get into this week's newsletter, I?have a couple exciting announcements.

1. can finally share, with great excitement, that season 4 of the podcast - on the future of work - is launching February 9th. You can listen on your favorite podcast app - subscribe?here.
2. The Flip is also launching a new show! We’re teaming up with the indomitable Gwera Kiwana, MFS Africa’s Head of Crypto, for a crypto-focused podcast, crypto@scale. And, for those who will be in Nairobi, we’re organizing a live event on the 14th of February.?If you're interested in attending, please register your interest?here.

As for today’s newsletter - development researcher and consultant?Dr. Julie Zollmann?takes over The Flip Notes. We’re deep into our exploration of the future of work, and Julie’s research on ride-hailing platforms, in particular, has informed not only The Flip’s content, but policy makers and operators, alike.

In this edition, Julie shares her findings from a 6-week panel survey of 450 drivers in Nairobi.

If you’re already subscribed, thank you! If you’d like to subscribe, please do so?here.

What does ride-hailing in Kenya show us about the prospects for digitally-mediated work in Africa?

This month marks eight years since ride-hailing firms, first Uber, then Bolt, Little, and others, entered the Kenyan market. Since then, triumphalist initial?claims?of tech-driven job creation have been overshadowed by driver protest, stories of firms?trapping drivers in debt, and?global accusations?against Uber for undercutting driver earnings and safety.

What might this maturing sector teach us about the future of digitally-mediated work in Africa?

My recently-concluded dissertation research suggests that we ought to recalibrate our expectations. In 2019, I ran a 6-week panel survey of 450 drivers in Nairobi. Between 2020-2022 I spoke with more than 75 digital drivers, app company representatives, offline taxi drivers, and driver association leaders in Nairobi and Mombasa. Based on that research, I argue that initial hopes for job creation were overrated, potential dignity gains for workers were underrated, and the potential to increase worker wages…well, that’s complicated. In this short essay, I summarize some of my key takeaways and what I think they mean for platform companies, investors, and regulators in ride-hailing and beyond.

Potential for job creation

The ability of digital platforms to create jobs is tied directly to the size of the market the platform is able to serve. Kenya, like many African markets, is marked by low average incomes and high inequality. Ride-hailing firms grew the market for private taxis by dramatically cutting prices. That growth has limits. Based on data from Uber and questions I added to a representative, omnibus?survey, I estimate that only 25 percent of Nairobians have ever used a ride-hailing service and only 11 percent do so regularly. It is difficult to grow this further, given that the typical Nairobian gets by on less than?$100 per month.

Uber had about 13,000 active drivers in Kenya at the end of 2019. Given that an overwhelming number of drivers were registered on Uber (plus other platforms they considered secondary), we can estimate that there were likely fewer than 17,000 total drivers on platforms at that time. Platforms had also absorbed most taxi drivers1, meaning net job creation was much lower than the number of registered drivers. Even if platforms created 15,000 new, at least part-time, earning opportunities, that is relatively modest for a mature sector in a country of 50 million people and massive underemployment. Given that drivers are only marginally profitable at this stage, there is little scope for apps to further grow demand by slashing prices.

Justin Norman?and?Chris Maclay?have written about the tradeoffs firms have to make between scale and more niche value creation. In the former, even in a space like taxis, we see that job creation has been relatively modest. In the latter, new job creation is likely to be even smaller. While some new jobtech platforms may shake loose new spending from relatively high-income customers, those customers are a small share of many African markets. The jobs that higher quality digitally-mediated services create are also to some extent displacing lower quality, often informal work. If platforms serving local markets are to create significant numbers of new jobs on net, it will most likely be through?many?diverse platforms rather than a few platforms working at?massive scale.

Potential for dignity

While we may have overestimated the potential for platforms to create many new jobs, we have underestimated their ability to improve worker dignity. Almost 80 percent of the drivers in my survey considered their work dignified. They contrasted their work on platforms with other hustles in the wilds of Kenya’s informal economy.

Background checks and star ratings made drivers legible as professionals to their clients. Digital mediation connected drivers to a steady supply of clients and removed many of the indignities around having to beg for work, haggle over prices, and ensure you would be paid what you were owed. Digital matchmaking allowed drivers from Kenya’s lower-income neighborhoods to connect with clients of means, introducing drivers to individuals (such as politicians, celebrities, and business people) and geographies (embassies, hotels, and high-income estates) where they had previously felt excluded. Rather than feeling oppressed by algorithmic control, drivers felt it provided their somewhat informal work with structure, order, and reliability.

Unfortunately, very low fares have compelled many drivers to subvert the very digital rules they felt provided these dignity gains. Firms that failed to enforce their own rules for drivers and riders also undermined driver dignity.

Dignity was no substitute for low pay, but this research shows us the potential that does exist for the tools of digitization to improve the quality of workers’ experiences in Africa.

Potential to increase wages

The picture on driver wages is more complicated with stark differences between drivers who owned their own cars and those (51 percent in my survey) who rented cars from “partners.” Most drivers (88 percent in my survey) considered digital driving their main source of income, but they also liked that the relative flexibility of driving allowed them to layer other income-earning opportunities onto this base. Still, only 8 percent of drivers working for partners in late 2019 were earning above the hourly minimum wage (KES 164.90 or $1.65 in 2019) . Only about half of those who owned their own cars were. Drivers typically worked long hours each week (about 60 at the median) to make up for low hourly earnings. Those working for partners and paying loans worked especially long hours to pay for their fixed vehicle costs and have something to take home.

In low-income countries, “idle assets”2?are a myth. Where capital is scarce and labor plentiful, returns to the former are higher than the latter. Those drivers simply earning a wage—because capital returns were captured by partners—were earning on average only about KES 5000 ($49 at the time) per month at the median. Only half were earning wages that put them above the poverty line.

Drivers complained that wages were squeezed by declining fares, rising fuel prices, and large numbers of drivers on platforms, due to both scarce alternative options and app company efforts to make drivers more ubiquitous. A big part of the income squeeze drivers feel today is a result of fierce competition among platforms seeking to grow the market and capture market share.

It shows us that regulation that sets some standards around that competition is going to be enormously important for protecting workers as digitally-mediated work platforms mature. But that regulation needs to be smart, adapted for African contexts, and allow policymakers to pivot when things don’t work out the way they hope. Regulatory experiments in ride-hailing in Africa are new and have uncertain outcomes. In late 2022, Kenya introduced a cap on app company commissions. But the impact of this on rider volumes and driver earnings is uncertain. As of today, there are no plans in place to rigorously monitor and measure these impacts to reevaluate this approach.

The bottom line

The ways platforms alter work realities in Africa will be different from other regions, given contexts of high informality, high underemployment, low local demand, low asset ownership and the potential for fierce, unregulated competition. There are real tradeoffs societies face between creating more and better jobs when the pool of demand available in local markets is so limited and supply of eager workers is so high.

While it will be a struggle for platforms independently to create many?new?jobs, startups designing for dignity have quite a bit of scope to create?better?jobs for African workers. Realizing dignity gains and making sure those gains are retained even as competition increases as sectors mature is a difficult task. Here, smart regulation will need to play an important role in ensuring fair competition that protects worker welfare.

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1. The Kenyan government pools licenses for matatus and taxis so it's hard to track how many taxi drivers there were pre-Uber. I looked at imports of new vehicles coinciding with Uber's uptick in drivers and new PSV licenses. (Uber required relatively new cars, so most had to buy newly imported cars to join.) They were both significantly higher than the previous trend, which makes me think that there was a net gain in drivers, but we can't say for certain how much.
2. Ed note: for more on this, I highly recommend Kevin Kwok’s ?Underutilized Fixed Assets?.?