Strategy& experts examine the implications for the region
How we can all get the most out of the sharing economy
More and more GCC consumers are using mobile applications to book taxi rides and accommodation at a touch of their screen.
These applications are part of the sharing economy, the latest digital evolution, which allows people to buy or rent goods and services directly from each other. The sharing economy creates markets from previously underused assets, such as rooms in private houses and seats in cars, turning them into accommodation and journeys. It can also provide much-needed flexible jobs and promote digital innovation.
The difficulty with the sharing economy, however, is that it cuts across regulatory boundaries, challenges existing providers and can lead to job losses in established companies.
GCC governments need a strategy to deal with the sharing economy, which is gaining popularity and spreading. We surveyed GCC consumers and found that they spent US$10.7 billion in 2016 on sharing economy platforms in five key sectors: transportation, accommodation, business services, financial services, and household services. Many GCC consumers also expect to increase their spending on these services in the future.
The sharing economy in the GCC isn’t just about consumers – the region has its own sharing economy platforms as part of its growing digital economy. Most are in the UAE, which hosts 80 per cent of locally-based companies. These include the ride-hailing platform Careem, the GCC’s first “unicorn” – a start-up valued at $1bn. Indeed, the company illustrates the impact of the sharing economy.
In 2016, Careem partnered with Dubai’s Roads and Transport Authority to include on its platform all taxis operated by the Dubai Taxi Corporation and other official services, thereby migrating Dubai’s entire taxi sector to a mobile platform.
To exploit the sharing economy’s full potential while avoiding its potentially negative effects, GCC governments should adopt a differentiated approach that serves their specific socioeconomic needs and development goals. Some governments will want to stress job creation in the form of flexible employment or high-value digital jobs. For example, Saudi Arabia has partnered with Uber to create 100,000 new positions for Saudi drivers over five years. Others, such as the UAE, are likely to emphasise digital innovation.
There are five issues related to the sharing economy’s impact on the GCC, namely governance, regulation, labour availability, taxation and GCC-specific needs
First, governments need a comprehensive governance model that oversees sharing economy platforms’ activities both in their respective sectors and across other sectors. Many sharing economy platforms naturally fall under an existing regulator (labour ministries, for example, regulate household services platforms. However, because these platforms blur sectoral lines, consumers often do not know which entity can address their complaints. In some GCC countries, ride-hailing services are licensed by technology authorities, while traditional taxi companies are regulated by transport bodies. A centralised digitisation entity can identify such blind spots to determine governance and regulations.
Second, governments should regulate sharing economy platforms’ market access requirements and legal liability as well as their data and consumer protection. Governments could also require stricter screening of providers and reviewers. Many consumers in the GCC remain wary of online platforms for security and privacy reasons. These fears are well grounded. Sharing economy platforms rely upon large amounts of data, including their users’ personal information and credit card numbers, making them appetising targets for cybercriminals.
Third, governments should update labour policies to allow the sharing economy to grow and also create a more skilled workforce. Much of the sharing economy activity, such as accommodation or transport, involves flexible employment for providers, yet GCC labour laws tend to restrict such opportunities, particularly for expatriates.
Additionally, governments should encourage building advanced digital skills to create more effective roles in forward-looking industries, especially for women and in remote areas.
Fourth, GCC tax systems should cover sharing economy transactions to ensure fairness in the market. Too often, sharing economy providers are not subject to the same taxation as established providers. For instance, hotels pay more tax than homeowners for renting rooms.
Consistency in the application of taxes is particularly important as GCC countries prepare to introduce the new value added tax (VAT).
Fifth, GCC governments should encourage regionally-based sharing economy platforms to offer socially and culturally relevant solutions through a grassroots approach – not just translating an app into Arabic.
Such locally designed solutions trigger innovation and can be adapted to countries with a similar context, thus helping to build a healthier digital sector. Examples include accommodation applications for religious tourism and its specific requirements.
Defining the right framework will help to deliver the benefits of the sharing economy while mitigating its risks. Within this framework, GCC governments can further develop their entrepreneurship ecosystem, promote digital transformation and create much-needed jobs.
Samer Bohsali is a partner and Sevag Papazian a principal at Strategy& (formerly Booz & Company), part of the PwC network. Rawia Abdel Samad, is a former director of the Ideation Center, a think tank for Strategy& in the Middle East