A few weeks ago, the Sindh government yet again drew the ire of angry citizens of Karachi on social media — this time for its action rather than inaction.
The geniuses in the secretariat banned the newly launched smart bus start-ups — Swvl and Airlift — on the basis of vehicles’ lack of fitness and their failure to obtain no-objection certificates. For a government that ‘proudly’ rolled out 10-odd buses to cater to a population of 25 million people, it was an insult to injury for the inhabitants to be deprived ofwhatever few means of transportation available at their disposal.
This wasn’t the first time either. It previously issued notifications pushing for a ban on the ride-hailing services of Careem and Uber. While a move like this might have made sense in Tokyo or some other place, in the private republic of Pakistan, where even water has to be bought at market prices, such regressive policy helps no one.
Private tech companies, especially within the transport and logistics space, have increasingly tried to fill the vacuum left by the state. Starting from Careem and Uber to Bykea’s bet on motorcycles to make commutes cheaper and home-grown Airlift and Egyptian Swvl venturing into bus services, the sector has become a hotbed for innovation and competition.
This has prompted some in the sector to suggest that with private companies taking a proactive role, the government should do away with spending billions of rupees on trying to build transport infrastructure. The argument goes that these emerging tech players have proved themselves to be better equipped to solve the commute needs of people and should be allowed to freely do so or even be encouraged by subsidies. Another reason is that major cities are too populated now to lay the infrastructure for mass transportation.
The idea of delegating mega cities’ transportation needs to start-ups is a risky bet
These claims, however, ignore some underlying realities for the sake of convenience. To begin with, they misrepresent the very concept of efficiency (minimising costs for a given output) considering that much of the operational successes of the companies concerned have been funded by aggressive institutional investors that basically give the managements room to keep expanding while disregarding bottom lines.
If venture capitalist–funded growth and red bottom line are considered successes, then why are state-sponsored development projects, meant to be public goods in the first place, viewed as inefficient? To put things into perspective, take the long-pending project of Karachi Circular Railway, which ideally should have a daily ridership of over half a million people.
With a headline construction cost of $1.9 billion, it seems extremely hefty. But the figure is dwarfed by annual losses the tech companies are incurring just to stay in the market — that too without any fixed costs or infrastructure development. Uber, for example, posted a staggering $7.625bn in operational losses (globally, of which Pakistan accounts for only a minor share) for the nine-month period ending on Sept 30.
Secondly building such infrastructure in megalopolises is nothing new. Delhi national capital region, for example, started work for underground in 1998 when its population was around 14m and much similar to Lahore today.
Lastly, the idea of delegating (or subsidising) mega cities’ transportation needs to start-ups is a very risky bet. These emerging players are trying out new business models and, for this uncertainty, are discounted at higher rates by investors. Why should the government’s approach be any more charitable in that case? Lastly, such logic wilfully ignores the necessity of the state in building the very infrastructure (roads) on which private companies run in addition to a disregard for any sense of urban planning.
But for a while, forget all statements and turn to some basic maths. Take Karachi for instance: a city of some 25m people with roughly 13m daily commuters. While it’s hard to estimate what fraction of that demand is addressed by tech players, given the lack of data, a cursory look at their app analytics suggests it’s limited.
So let’s use a different approach altogether and look at the ride history of a few users of these apps across categories to see how much it was costing them. Starting with Uber and taking a sample of 28 rides taken over the last month, the mean value of fare came out to be Rs331 with the average distance around 11 kilometres. For Careem, the same figure stood at Rs211 for an average of 4km commute, using a sample size of 32 trips.
Since most people use Go and Mini interchangeably based on the peak surcharge and other factors, I clustered the two categories together. As for Bykea and Careem Bike, average fares were approximately Rs130 and Rs150 for a mean distance of 12.6km and 10.8km, respectively. On the other hand, Swvl still hasn’t introduced competitive rates and is offering rides for free or Rs20. Airlift has switched from the promotional price of Rs50 to the fair model charging Rs9km and is now back again at discounted rides. Surely spreading fares across multiple passengers will help make this mode more affordable than the rest.
The amounts might seem bearable especially for the convenience these services bring us. But let’s keep doing more maths. An average urban Sindh household makes around Rs47,000 a month (based on the 2016 Pakistan Bureau of Statistics survey along with a 5pc growth rate). Assuming only one member of the family was commuting on a daily basis and switched between Uber and Careem and travelled around 7.5km five times a week, the monthly transport bill would come in at over Rs11,704 — a significant 25pc share of the family income. Even the relatively cheaper options of bike and bus would still leave a huge dent on the pockets, usually in excess of over 12pc of the family income. Compare that with the fare of Lahore metro of Rs30 that produces a bill of Rs1,320 assuming 22 working days in a month.
The idea behind this is not that the government should disregard tech and do things the traditional way. Rather, any developments by the private sector must be complemented by the state’s efforts. With mobility being a primary need in urban areas, the responsibility by and large falls on the state to ensure its affordable provision. There is enough literature on how that produces positive externalities.
Published in Dawn, The Business and Finance Weekly, November 18th, 2019