Careem and Uber: Stopped in their tracks?

The moment of truth is finally here for app-based cab-haling firms operating in Pakistan. Just few days back, Punjabs Provincial Transport Authority ordered its Lahore field formations to initiate prompt legal action against these illegal cab services in Lahore for the security of general public as well as for the recovery of government revenues. Careem, Uber and A-One are named as these illegal cab services.

The notice contends that private cars are being used as taxi cabs, without registering the private cars with any regulatory body and without obtaining fitness certificates/route permits for these operations. The authority also finds fault with private cars being used on commercial basis, thus coming into conflict with provisions of Motor Vehicles Ordinance, 1965 and the Punjab governments Rent-A-Car Service policy. The notification, which has now inspired the Sindh government into action as well, has caused outrage online and among regular cab users.

Official data are not available, but a crude proxy suggests that close to ten thousand private vehicles are operating in total under the flag of Careem and Uber in Karachi, Lahore, and Islamabad/Rawalpindi. Extending the guesstimate, this virtual transportation fleet is making roughly 80,000 rides per day. After accounting for different tariff structures and varying average ride price in the three cities, the market size, by gross revenue, roughly aggregates to between $80-90 million per annum.

Before the day of reckoning hit this week, this market had been growing by the day as yet more drivers plied the road and as positive word-of-mouth reached more consumers. In the last fourteen months since the first entrant, Careem, arrived, this market has been sustained by folks in the upper-middle and high-income groups, albeit for varied reasons, who are willing and ready to spend between Rs400-Rs700 on a single trip. This tripe price is between twice and thrice as much as it costs them using their own cars.

There are folks (full disclosure: some authors of this column are heavy users of Careem) who have come to a point where they have stopped driving on a regular basis. What brought about that behavior? Well, there is great value for money in this service offering as it saves resources of time and mental energy that are otherwise depleted daily while negotiating endless traffic in rush hours.

Then there are college/university students, from different income backgrounds, who happily pool money to afford this ride. The value is further enhanced by the track my ride feature, which reassures guardians that their dependents are safely on their way.

Besides the consumer surplus for higher income groups, the app-based ride-hailing service is important for two other reasons as well. One, it has opened the door of self-employment to otherwise unemployed or under-employed folks. Do you find another Pakistani industry or service concern that has created close to ten thousand new, well-paying jobs in a matter of just over a year? This is the technology dividend: connect online and offline spaces to create value in real life. While this market will get saturated over time and drivers will inevitably find tariffs fall and their fare-cut drop, it is a fun time to be driving right now.

And second, this service offering is indirectly helping entry-level folks acquainted with the digital interface for the first time. If you believe in the thesis that familiarly with an online service offering encourages willingness to interact and try it out, which in turn helps develop trust in the online space, then online ride-hailing service augurs well for consumer trial of even more digital consumer and financial services.

But still, it will be unfair to demonize the provincial governments point-of-view, especially when it comes to public safety. Based on recent conversations with more than a dozen Careem captains, it seems there is no legally-binding service/partnership agreement between Careem and its captains. Uber has had similar practice in some overseas markets. Thats a serious commercial lapse of dire human consequences.

Everything works alright until it doesnt. And it has worked out rather nicely so far. But the drivers and customers will be hung out to dry in case their ride encounters adverse events such as a fatal roadside accident or when one of the parties, customer or the driver, is subject to assault by the other party. Similarly, drivers are vulnerable and without recourse if a firm increases its cut in the passenger fare any time. No need to notify, leave alone be around when things go awry!

On revenue generation, we know that every golden goose is squeezed to the point of extinction under Pakistans regressive tax regime. But there is not much for the tax authorities to drool here. One, the federal government will have to wait for some years to earn corporate income tax because Careem and Uber are suspected to be making losses right now, such being the business model.

As for the provincial governments, they can issue SROs to impose a GST on cab-hailing services gross revenue. But doing that will only yield, even by bullish estimates, somewhere between Rs1.5-Rs2 billion rupees for the provinces, combined. That is peanuts in the larger scheme of things. And it will come at the cost of making this service expensive for consumers, hurting market growth, and reducing new employment opportunities.

We expect Uber, the global PR force that it has become after successfully fighting off regulators and taxi unions across continents, and Careem, the regional upstart, to raise hue and cry in media over crackdowns in Punjab and Sindh. Already, there are murmurs that Punjabs move may end up benefitting a Turkish cab-hailing firm. But we find both the sides government and the firms to be on shaky grounds.

The provincial governments must understand they cannot forever stop the forces of sharing economy. Despite the ban in Lahore, Careem and Uber cabs could still be booked in some parts of Lahore yesterday. And so long as the PTA doesnt block the app, there is no way that on-ground inspectors can intercept the traffic. The provincial high-ups must change relevant laws to provide a supportive regulatory environment to secure jobs of the future. Thats the least they can do given that they have largely failed in providing decent, affordable and adequate mass transit systems to Pakistani cities.

Yet, their argument about public safety is valid and sound. The likes of Careem and Uber will have to beef up their background checks and give a legal shape to their informal service agreements. They should be helped in that process by the authorities, instead of taking steps such as time-consuming and costly route permits and registrations that undermine the viability of this segment for drivers. Both sides must converge to the middle and make it work. This market is capable of much more growth, especially in the mass segment.