Why do ride-hailing companies leave Tanzania?
The use of ride-hailing cab services by Tanzanians to meet their transportation needs has proven to be quite beneficial. By decreasing the amount of time spent in traffic lines, these services not only save money but also save time. The Land Transport Regulatory Authority (LATRA) of the United Republic of Tanzania is the organization in charge of setting and approving rates for ride-hailing services. LATRA increased prices and decreased fees for ride-hailing providers in March 2022. However, a major international ride-hailing company like Uber suddenly left Tanzania in April, citing government regulations that increased the cost of operating there and reduced its commission to 15%. There is still hope for Tanzanians thanks to a number of platforms that are still in operation, despite the fact that the recent changes in the land transportation sector may have caused fear among many service providers. The local businesses may also benefit from the competition by offering better services, breaking into a broader market, and positioning themselves to compete with foreign firms.
In January 2022, there were 62.39 million people living in Tanzania. Data indicate that from 2021 and 2022, Tanzania’s population grew by 1.8 million (+2.9%). Tanzania has one of Africa’s fastest growing economies, with nearly 7 percent annual national GDP growth since 2000. The gross domestic product (GDP) in Tanzania was worth 67.78 billion US dollars in 2021, official data from the World Bank noted. The GDP value of Tanzania represents 0.02 percent of the world economy.
At the start of 2022, 36.6 percent of Tanzania’s population lived in urban centers, while 63.4 percent lived in rural areas. There were 15.60 million Internet users in Tanzania in January 2022. Tanzania’s Internet penetration rate stood at 25.0 percent of the total population at the start of 2022. Kepios analysis indicates that internet users in Tanzania increased by 446 thousand (+2.9 percent) between 2021 and 2022.
Tanzania’s Ride-Hailing Market
Globally, revenue in the ride-hailing and taxi segment is projected to reach US$276.40bn in 2022. Revenue is expected to show an annual growth rate (CAGR 2022-2026) of 7.51%, resulting in a projected market volume of US$369.30bn by 2026. In the ride-hailing and taxi segment, the number of users is expected to amount to 1,430.8 million by 2026. User penetration was 16.8% in 2022 and is expected to hit 18.2% by 2026. The average revenue per user (ARPU) is expected to amount to US$216.10. In the ride-hailing and taxi segment, 53% of total revenue will be generated through online sales by 2026, according to Statista.
Africa is one of the important sites of global urbanization; the continent is projected to accommodate a significant percentage of the over 2.5 billion people set to join the world’s population by the year 2050. Consumers’ quest for affordable and safer transportation has pushed up demand for ride-hailing transport in Tanzania and throughout the continent. Tanzania is no different. With a growing case of internet and smartphone users, people in urban cities like Dar es Salaam, Dodoma, Mwanza, and Arusha get to enjoy the ride hailing services that have created a big shift in how city people access transportation. Tanzania is becoming the number one hub in East Africa for ride-hailing apps.
The ride-hailing taxi services in the country have experienced a conducive environment to conduct their business, whereas the response from their stakeholders has increased their openness and penetration of the market. This is evident due to the number of companies that engage in taxi-hailing services in Tanzania. Currently, there are over ten ride-hailing taxi service platforms in the country such as Taxify, Ping, Bolt Tanzania, In-Driver, Paisha, and Uber, just to mention a few. There may be a legitimate fear due to the trend that one or two companies have created a monopoly environment, which puts them in the upper hand when it comes to setting commissions to the extent that consumers and service providers are left with almost zero chance to choose otherwise. This is a situation that is available in other markets; what is important is to ensure local companies, which are mostly startups, are able to compete. Tax incentives, for example, would place local companies at a competitive advantage even without disrupting the market.
Taming Tech Giants
Ride-hailing services in Tanzania are regulated by a government regulatory authority known as the Land Transport Regulatory Authority (LATRA), established under Section 4 of the Land Transport Regulatory Authority Act No. 3 of 2019. LATRA, as Tanzania’s land transport authority, is charged with the following responsibilities: renewal, issuance, and cancellation of licenses and permits; and also the certification of drivers and crews in public transportation; handling complaints and resolving disputes for key players in the land transportation sector; creating and certifying vehicle road worthiness standards; as well as coordinating safety operations; monitoring of investment levels and performance; service quality and standard; and the cost of public services in the land transportation sector; and general consumer protection in the public transportation sector.
The government assigned LATRA to manage and control ride-hailing services because they are becoming more frequently used, particularly in large cities. Tanzania’s market-movers include:
- Pricing and price control mechanism
Any attempt to regulate prices should not affect the fundamental realities that ride-hailing brings to the transportation market, namely lower transaction costs and easy availability of services. When major players such as Uber leave or reduce their presence in the market, non-competitive outcomes should be expected.
- the Land Transport Regulatory Authority’s legal mandate.
Tanzanian law experts believed that the issuance of standard rates was done to protect local drivers and consumers from any unfair prices by ride-hailing technology companies. However, it is important that pricing is left to be decided by demand and supply forces in the market, considering the demand for these services and the ease of access they provide to urban dwellers.
Earlier in April, after Tanzania’s Land Transport Regulatory Authority (LATRA) introduced a mandatory 15% tax on all ride-hailing companies in the country, Uber hardly protested. Uber charged its drivers a 25% commission. The global ride-hailing giant, which launched its service in Tanzania in 2016, quietly left the country. Their last words? “We will only return if the regulation is addressed,” Uber said. It made the “difficult decision to pause certain operations” in the country. As both drivers and passengers were still adjusting to the vacuum left by Uber, another big player in the market, Bolt switched its operating strategy on August 17 by focusing only on corporate clients and card-based customers in order to remain in the East African country. The Estonian company has maintained that a 15% commission is not sustainable for its operations in the country, as opposed to the 20% it formerly operated with.
Months after that order, LATRA is still unrelenting in its stance, and Bolt is not having it anymore. These commercial choices made by US and Estonian ride-hailing companies serve to exemplify the conventional wisdom that African rules pose a barrier to the growth of the continent’s tech sector and creative start-ups.
Although there are several perspectives on this subject, they all point to the same fact: the regulator’s authority. Such a tale is more detrimental to Tanzania’s investment prospects than beneficial. No investor would want to make a sizable investment in a place where the laws are often being altered. Nobody wants to lose a sizable portion of their investment in hiring attorneys and relocating from one location to another in order to conduct business. Throughout that time, LATRA has maintained that its decision is based on driver complaints that the operator-set tariffs are too low and the commissions are excessive. Similar concerns against ride-hailing services have been documented in various regions of the world, some of which have resulted in legal action, and in some cases, operators have even been held accountable for dubious business practices.
Other African nations, like Ghana and Kenya, are experiencing something similar to Senerio. Uber is contesting Kenya’s decision to cap commission charged per ride at 18% and evaluate pricing structures, saying it would dent its earnings and discourage further investment in the country. Uber currently charges a 25% commission on earnings per trip, and the new rate will force it to lower its service fee by 28%. Meanwhile in Ghana, after a long battle, Uber recently announced it has reduced commissions to 20%, while Bolt still maintains a 25% commission to the disadvantage of drivers. As a result, lots of hailing-taxi drivers now keep their Uber apps active more than they do Bolt, a phenomenon that used to be the other way around. What even kills the drivers is that, when Uber and Bolt give riders discounts without the consent of the drivers, they still charge their commissions on what is left for the driver. Meanwhile, Yango, a Russian ride-hailing app, has decided to play smart by offering cheaper rates to riders and higher earnings to drivers.
If you spend a few hours with some of Tanzania’s tech startup founders, you almost remain with one draining question: Why are they not successful yet? They put in a lot of work. You see the brilliance in their design, implementation, and product. And they also manage to capture enough market share to show traction. Taking a deep dive into their stories, you will understand that they are working in an environment in which, by design, failure is the rule. They have the vision. They have passion and brilliance for innovation. But the regulator hasn’t seen or believed in any of it yet. In 2020, several digital marketplace and service sites like Brighter Monday, digital lender Tala, and Africa’s largest e-commerce operator, Jumia, exited the Tanzanian market, largely citing the challenge of low engagement and growth. This suggests that the Tanzanian local market is still very low and not a profitable affair. As of that time, Tanzania’s internet subscribers were over 27 million.
Tanzanian startups swing
Due to the decrease in Bolt’s customer base in the nation, some of its drivers will no longer receive the expected number of ride requests, causing them to look for new jobs. In addition, Bolt ceded market share to smaller competitors like Little, a 15% commission-based ride-hailing service in the country.
The services that are still available on the market may provide comfort to drivers whose salaries have plummeted as a result of recent disruptions. Though nothing is known about them, a few ride-hailing businesses are still in operation in Tanzania. It’s time for these upstarts to step up and fill the enormous shoes left by the dwindling number of service providers in this market, giving those who relied on this type of commerce a chance at survival. Experts say, “The recent change in the land transport sector may have spiked concern among many service providers, but there is still hope for Tanzanians due to a number of platforms that still operate. This may also be an opportunity for competition for the local companies to improve services, penetrate an even larger market, and position themselves for competition against international companies.”
Paisha is one of the ride-hailing businesses that is quickly growing. This mobility service provider, a Vodacom Tanzania offering, provides transportation for passengers, the delivery of packages, and food and groceries. Different apps have seen an increase in registration as more drivers look for ways to move forward in the wake of Uber’s demise and Bolt’s model change. Paisha, for example, recently registered over 1,000 new entries per day, bringing its total number of drivers on the service to 8,000, serving customers all over the nation. Little Ride, an African platform that offers passenger transportation, is another ride-hailing option besides Paisha. The corporate sector of the economy in Tanzania is currently booming, and many businesses are already utilizing it for commuting. PING is another operating ride-hailing service that offers transportation options. On mobile phones and other digital devices, Internet applications can be downloaded to access all of these channels.
The Talkback Effect
The government of Tanzania has announced that Uber and Bolt are ready to restart operations after weeks of uncertainty regarding their future. The Land Transport Regulatory Authority (LATRA), which sets and approves fares for ride-hailing operators in Tanzania, issued guidelines that doubled the per-kilometer rate to Tsh900 ($0.39) and cut commissions the firms charge to 15 percent for a maximum of 33 percent.
Following a meeting with the government, LATRA’s director, Habibu Suluo, claimed that the issues facing the companies had been resolved. The two parties decided to restore services after meeting on September 5 and 6, 2022, and speaking with their representative for Africa. According to Habibu Suluo, the agreement was favorable to both companies and members of the Tanzania online taxi drivers’ association.
Future options for the sharing economy
Without a question, the rapid use of smartphones, dependable internet access, mobile payment options, and a significant shift in consumer expectations on a continent that values convenience have all contributed to the success of ride-hailing services in Africa. Uber has now exceeded one billion rides in just nine of the African nations where it operates, demonstrating the potential for growth of the continent’s virtual taxi industry.
Depending on their needs, trip distance, and level of comfort, consumers might select from among these many possibilities. According to demographic and urbanization forecasts, Tanzania could experience a surge in the ride-hailing industry. The market for ridesharing services worldwide was estimated to be worth USD 85.8 billion in 2021 and was expected to reach USD 185.1 billion by 2026, rising at a CAGR of 16.6% during the forecast period (2022–2026). A recent development in the sharing economy is the growth of the ride-hailing sector on a global scale. The performance and economic impacts of ride-hailing taxi services in Tanzania were investigated by researchers, indicating that the emergence of a new, powerful, and innovative online business model, such as Uber, presents high potential and wider scopes in economies of scale ranging from production to consumption of goods and services in the market value chain.
In many countries, the operations of app-based mobility services are not regulated by a legal authority. Hence, their operation is not defined and regulated by the government. Taxi services are required to obtain separate licenses and registration. This makes it difficult for app-based taxi services to operate, as many app-based companies do not own the vehicles. Regulators worldwide have proposed or adopted requirements regarding the collection, use, transfer, security, storage, and other processing of personally identifiable information and other data relating to individuals, and these laws are increasing in numbers, enforcement, fines, and other penalties.
However, Tanzania, like numerous other African nations, maintains severe regulations regarding ride-hailing. The government also loses a sizeable sum in terms of tax and charges paid to LATRA, in addition to the loss of employment and money to ride-hailing cab companies and service providers. By providing better services, expanding into new markets, and positioning themselves to compete with foreign companies, local businesses may also profit from the competition. In comparison to other African nations like Ghana, Tanzania is benefiting from continued efforts to expand the shared economy as well as the advantages of efficiency and competition, which give Tanzanians more options and cheaper transportation costs. Tanzania’s Minister of Finance and Planning, Mwigulu Nchemba, declared a few months ago that a 2% digital tax would be imposed on foreign Internet firms providing services in the East African nation. Therefore, regardless of how Tanzania’s ride-hailing industry seems, the government will continue to tax it.