E-Hailing Policy Somersaults

The ride-hailing industry is one balm of the sharing economy that fills the urban mobility gap, in cities like Lagos, Nigeria. Lagos States Development Plan (2012 - 2015) identifies different mobility methods - road, water and rail, the lion share (93 percent, to be exact) is road-oriented. The commercial options including buses, mini-buses, bus rapid transit (BRT), taxis, motorcycles and tricycles that are publicly owned or privately owned. However, the latter are more dominant.


Lagos, Nigeria’s megacity, has 22 million residents, of which 2017 statistics reported that 7 million daily traverse the 9900km road network. Besides, road-based transportation accounts for 93 percent of the entire system, i.e. over 6.5 million commuters daily. The movement patterns in Lagos are chaotic and follow the paths of economic activity, either across local government areas (LGAs) or within the last mile and multimodal, i.e. using a mix of transport mechanisms.


Motorcycle-based transportation, known as okadas are an unintended consequence of the constrained transport system. The incessant traffic jams and the ability of the motorcycles to weave and manoeuvre between cars made them even more attractive to already impatient Lagosians. These two-wheelers recklessly navigate Lagos traffic, with increasing accidents that further pressurised an already fragile healthcare system, particularly orthopaedic injuries. In the absence of effective regulation, their prohibition came into effect in February 2020.[1]


The entry of mobility ride-sharing platforms and their motorbike siblings into the Lagos State transportation ecosystem was a much-needed addition to the commuters where security, car quality and driver safety were a better value proposition. These platform companies not only facilitated rider and driver interactions, but embedded driver onboarding standards like background and reference checks, Highway Code and safety training, navigating techniques using Google maps, and with bike services, installing with speed limiters on the bikes. Akin with the startup economy, venture capital and private equity investments followed these business ventures, attracting attention with their fund raise announcements.


The quest to regulate these entities dates back to 2016 when the Lagos State Government with introducing fleet-based service operational licenses. Motorbike ride shares were first affected with the re-enforcement of the highway and local government area (LGA) restriction.


Nigerian companies are subject to at least 3 levels of regulation - statutory regulations enshrined in company law like company income tax. Industry-based regulations are in existence for verticals and operational regulations based on other factors like geography.

Lagos’ recent Guidelines for On-line Hailing Business Operation of Taxi in Lagos State seeks to enhance compliance with the 2018 Transport Sector Reform law and sanitise the industry. The Guidelines remodel the Lagos State taxi system by creating a licensing system that acknowledges two operator models - service entities (asset-lite digital platforms) and own-operate entities (asset-heavy digital and non-digital). The model also introduces a traceable licensing scheme exchangeable under the Lagos State Taxi Exchange.


While also mandating comprehensive insurance policies, the State Government introduced licensing fee according to the size of their operations (see table).


The State Government also included a 10 percent service charge per trip for service-based schemes.


Further engagements with the State Government and e-hailing operators resulted in the following amendments:

1. 1-week extension of the implementation date

2. 20 percent reduction of license fee

3. Abolishment of 10 percent license fee (service platforms)

4. Introduction of Road Improvement Fund levy at N20 per trip


Amidst the allure of tech startups, there’s very little shine. Not only do very few succeed, but revenue is not profitability. Having studied the business models of platforms, the one phenomenon of platform businesses is network effects. These are ecosystem development businesses that thrive on scaling both the driver and rider sides of the network. However, the ecosystem development aspect is still lagging. For example, as a result of the lockdown and other movement restrictions, while Uber revenues dropped, that of its food delivery service, Uber Eats, grew.


In a recent study on platform ecosystem sizing, we found that digital platform adoption is increasing, with ride hailing platforms enabling Nigeria’s gig economy and creating jobs despite growing unemployment. The driver dynamics also highlight a male dominant industry of educated contract workers engaged in full-time equivalent work, based on the average daily hours.


Given the platform operators only earn about 21% of the ride-fee, they will transfer the new license model to the riders, who in 2013 were spending about 40 percent of income on transportation[1].


From a regulatory perspective, the new license model will aid the State revenue generation, but is it all encompassing? Where the drivers are engaged by multiple platforms and have multiple income sources, how can regulators ensure compliance with labour and other employee-related[2] laws relating to pay as you earn (PAYE) and pensions. Likewise, how can we ensure workplace benefits like healthcare, holiday and sick leave that provide stability nets for employees are available to this group of workers? These lapses provide an opportunity for portable benefit schemes associated with the individual worker and not the job (employer). Hence, the new Lagos State model needs to acknowledge the employment value proposition these platforms bring to the economy and further develop the transport ecosystem with labour guidelines and industry standards.


On the environmental side, rising operating costs could increase the number of cars and daily rides and carbon emissions. This likely unintended consequence is an opportunity to pivot the entire transport system and promote walking. It’s a travesty that the vehicular trip of 1Km in some parts of Lagos can take up to 45 minutes as opposed to 10 minutes walking at a leisurely pace. Could retrofitting the environs with sidewalks and trees not be another intervention we can adopt - it will also foster health and wellbeing!


[1] https://www.stearsng.com/article/the-implications-of-the-lagos-okada-ban

[2] On August 11, 2020, a US Judge ruled that Uber and Lyft drivers are employees (https://www.bbc.com/news/technology-53737398).

[1] Earlier efforts to regulate the industry like motorbike standards and highway restrictions were ineffective.

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