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September 26, 2018

The diminishing returns of digital taxi business

Online taxi operators during a strike in Nairobi on September 11, 2017. /ENOS TECHE
Online taxi operators during a strike in Nairobi on September 11, 2017. /ENOS TECHE

Imagine starving yourself of life’s luxuries for years in the name of saving for a better future, then watching all your hard-earned money go down the drain in under six months.

 That is what happened to Stephen Okeyo when he decided to join the highly sought-after digital taxi business. After working with different corporate taxi firms for three years, he decided in 2015 that it was time to upgrade and try his hand in the new age of public transport. That was when popular online taxi-hailing app Uber entered the Kenyan market. 

After all, those in the business were making quick returns on their investment, something that almost never happens in legitimate business ventures.

“I worked for partners for some time then I decided to get my own car, because you look at the amount of time you put into it, what you are making for the owner of the car and what you are earning — and at the time, buying my own car seemed a smarter decision,” he said.

The 36-year-old father of two took all his life’s savings with an additional loan from a close friend, went to a car yard in the coast, and got a vehicle on hire purchase, having paid a deposit of Sh400,000 with a Sh66,000 monthly payment plan for the next 15 months.

“I worked for three months with the first rates Uber was offering and was able to meet my car payment requirements,” he said. “Having worked with them for a while, my gauge was if I put a particular figure I will finish the payments fast, so I can start making a return on my investment,” he said.

However, the tables turned for Okeyo when a new taxi-hailing firm, Little, joined the Kenyan market, forcing the once-monopoly Uber to engage in price wars with its competitor to maintain its market base.

Initially, Uber charged Sh60 per kilometre and Sh4 per minute, with a Sh100 base fare. Little joined the market with rates of Sh55 per kilometre and Sh4 per minute and no base fare. Fearing it would lose its clientele to the new entrant, Uber almost halved its fare prices to Sh35 per kilometre and Sh3 per minute, with a Sh100 base fare.

“This is where the trouble started,” Okeyo recalled.

The financiers — car dealers — did not care that fares had come down, meaning Okeyo could not make the quoted payments as planned. “I could only manage to pay half the amount quoted, sometimes less,” he said.

Eventually, Okeyo’s car was repossessed and his investment lost. “Raising Sh400,000 to invest in a business plus the payments I was able to make of around Sh300,000, then it goes in less than six months, is not easy,” he said. “I still haven’t been able to pay my friend back.” 

Digital Taxi Association chairman David Muteru said Okeyo’s case is just one among thousands more in the industry. Nairobi alone has an estimated 12,000 e-taxi drivers, with more than 10 apps launched in the last three years.

A file photo of Uber drivers at Mama Ngina gronds in Mombasa county. 

BREAKING EVEN

The taxi-hailing business in Kenya has been plagued by hurdles over the past year, as drivers and partners decry poor regulations in the sector.

The problems in the business are characterised by high commissions paid by cab drivers and owners to the taxi hailing firms and unfair pricing as a result of constant price wars between the firms as they compete for a larger market share.

Rideshare Sacco secretary Muhammad Mburu told the Star: “Not only are drivers struggling to meet targets set by the cab owners, the owners themselves are unable to meet their daily expenses, which are way too high, considering the low fare prices.”

Mburu, a cab owner himself, said at least 80 per cent of people getting into the online taxi business are either taking loans from banks or acquiring cars through hire purchase.

“Hire purchase is a loan in itself, and most people are finding it impossible to break even once they get into the business. Most have their vehicles repossessed over unmet targets,” he said.

Lower fare offers by the firms have left a lot of drivers devastated, as they end up having to either sell their debt to willing buyers or ultimately lose their cars to auctioneers.

Leakey’s Auctioneers told the Star they have repossessed about 60 cars that were in the taxi business over the past six months.

“The ratio of personal cars to taxis we have been auctioning is 9:1, a number that could vary since not everyone quotes the car’s use when they go for a bank loan,” MD George Muiruri told the Star.

Last year, the firm seized more than 1,500 vehicles, as most people were unable to pay their dues to banks in a macroeconomic environment slowed down by prolonged elections.

PRICE MANIPULATION

With high fuel costs, endless car servicing requirements and households to maintain, some members of the online taxi community have resorted to duplicitous means to make ends meet.

These drivers have been using a mock-up GPS application, known as Lockito, to increase their earnings.

The app, which was essentially developed to allow users’ phones follow a fake itinerary and stimulates static locations, was created to help other developers test geofencing-based apps. The use of this app by online taxi drivers has allowed them to hike cab fares to unsuspecting customers in what they have termed an unfair working environment.

“With the firms charging about Sh16 per kilometer right now, can you blame them? They have been pushed to a corner and are just trying to make ends meet,” Muteru said.

He said the other alternative would be to quit the job, which Muteru said happens on a daily basis.

“In as much as people are lined up at the firms trying to get their cars into the business, those who have been in the industry long enough and have been negatively impacted by it just opt to leave the business, be it drivers or car owners,” he said.

RESTORED HOPE

Unfair pricing by the taxi hailing firms has resulted in a number of protests over the past two years, with the most recent one ending on Tuesday last week.

This is after the Transport PS Paul Maringa signed an MoU that is expected to cushion drivers from the losses they have suffered over the years through adoption of better pricing models by the online taxi app providers.

“We are happy that we now have the government’s ear but we have only just scratched the surface of issues affecting us in the business. It’s a good start,” Muteru said.

Although firms are yet to increase fare prices, the agreement dictates that the price charged per kilometer should be guided by the average operating cost of the vehicle and the classification of vehicles by the Automobile Association guidelines.

The firms will also hire private security companies to respond to drivers in case of criminal, emergency and breakdown incidents while they are on the job.

“What we’ve had is firms offering security only when the rider is in the car. Once you drop the client you are your own security,” Muteru said.

Despite having raised hopes, Muteru cautioned that some firms might not want to comply with the new guidelines.

“Now that we have joined forces, we will work with those who are willing and single out those who don’t want to comply and see how they survive,” he said.

Read: Cabbies want apps of ‘hostile’ firms deleted

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