Hundreds of Uber drivers came out to protest Uber’s fare cuts in Nairobi, Kenya, on Tuesday. The multinational online transportation firm, which began operations in the East African country in 2015, is cutting fares by up to 35 percent to boost demand for its service and remain competitive amidst stiff local competition.
“We want them to bring back the original fares we used to have,” said Simon Mutembei, one of the drivers who marched to Uber’s offices in a Nairobi suburb, as reported by Reuters. “If they don’t do this we have other alternatives. We have so many other platforms where we can go. Because I need to eat. I need to feed my family,” he said.
However, the company said it consulted with the drivers beforehand and the cuts will attract more customers in the interest of the drivers. Whenever Uber cuts into drivers pay, it says that its price manipulations, such as surge pricing (which can be up to 4 times the regular price) and increased demand from lower fares, will give drivers a higher hourly pay than before. The company dropped the price per km to 35 shillings ($0.35) from 60 shillings ($0.59) last week. It also cut the waiting rate per minute to 3 shillings from 4 shillings previously.
There are at least three ride-hailing apps in Nairobi and these services have not spread beyond the capital, amplifying the scramble for customers. Some disgruntled protestors said they were considering signing up with other ride-hailing companies such as Little Cab, launched last month. On behalf of the drivers, Peter Mbugua, the Secretary General of the Kenyan Taxi Digital Association, said the drivers would all switch to Little Cab if Uber did not succumb to their demands by Tuesday afternoon. Aside from a return to the old prices, the taxi association also wants the company to cut its deductions from drivers’ earnings to 15 percent from the current 25 percent, according to Mbugua.
Uber drivers in Nairobi are contesting that Uber’s actions are akin to exploitation but is this really the case? Uber, which boasts of employing over 160,000 workers worldwide, maintains that it empowers its employees through flexible working contracts and offers an alternative source of income in its host communities. To ascertain if Uber is exploiting Kenyan drivers we need to look at how it compares to other cities.
Uber’s operations are complex and opaque
Uber’s price structures, globally, are complex and opaque. They have no fewer than six constituent parts: the city you’re in; the type of car you’re in; the base fare; the amount per minute; the amount per kilometre; and any surge multiplier that might be in effect. And the way those parts combine to form the total fare is far from consistent, varying wildly from city to city. Consider Uber Black in Moscow. The time charge is $0.40 per minute, the same as an uberX (a cheaper option) in New York. But the Moscow car will cost you only $0.33 per mile, compared to $2.15 per mile for the New York car. In Lagos, an Uber driver needs to drive a passenger for 16 minutes to get the same amount of money he’d get by driving the same passenger a single extra mile. It takes a driver in Turkey 11.5 minutes to get the same amount of money as an extra mile and, in most cities, the figure reduces to about 6 minutes.
Comparisons are, therefore, not straightforward when you account for different base rates and amount earned for time spent waiting for a customer or per minute. It’s not clear how Uber accounts for the vast differences in pricing between cities but to some degree, fares are anchored by local taxi fares, cost of labour, cost of vehicles, regional wealth and living costs. Taking the cost per km in isolation, the fare reduction ranks Nairobi’s rate among the lowest among 400 cities in which the company operates. Uber Nairobi’s new fare of $0.35 is higher than those in several cities including Jakarta, ($0.23) Lagos (0.34), Bangkok ($0.32), Cairo ($0.29) amongst others, but significantly less than in wealthier cities such as Tokyo ($2.56). However, only accounting for fare per km may be misleading, Berlin, for example, has a set rate higher than Nairobi at $0.64 but a base fare of zero, no minimum fare, no cancellation fee, and no charge at all for time. Therefore, a driver stuck in traffic for an hour but only going one mile would earn less than a dollar whereas his counterpart in Kenya would earn close to $5 for the same trip. Drivers in Kenya are also pushing to keep a higher percentage of their earnings, but the 25 percent deduction fee is, however, standard practice in most cities except when promotions are being offered to attract customers.
Are Uber’s practices selectively exploitative?
Uber drivers in Nairobi are not treated too differently from their colleagues across the world, especially those with similar cost and income levels. As a result of this, it is hard to make the case that they are being selectively exploited. The competition to consolidate market share in Nairobi is fierce, as shown in the chart below. The fares were roughly similar for all taxi hailing apps before Uber’s decision to cut rates but, as the only app with a price surge feature, Uber was at a disadvantage and felt it had to act. Changes in its pay structure to manipulate demand are common all around the world. In September 2014, several cities in the United States experienced such cuts including San Francisco, Seattle, Boston, Washington DC, Los Angeles etc. While employees will always resist a fare reduction, there is little evidence of selective exploitation.
Uber is a two-sided market. This means it needs to encourage as many drivers as possible to sign up for its service, while also encouraging as many passengers as possible to use it on any given day. And such measures may be taken from time to time to perform this balancing act. Uber drivers in Nairobi are not wrong to complain about the reduction in fares, indeed the remuneration and transparency of Uber’s operations need to be regulated to some extent, to limit its ability to engage in exploitative practices. There is no doubt that the multinational profits from information asymmetry, as drivers struggle to keep up with changes in its price fare structures talk less about customers. The decision to cut fares in Nairobi, given the competition in the region, is standard practice in Uber, globally, and the taxi industry at large. Whether Uber’s worldwide operations offer a fair deal to its employees is up for debate, as critics suggest that its drivers should be entitled to healthcare and pension benefits as in a regular workplace.