Is there Need for New Regulation Regime for Disruptive Technology in Africa

The last few years has seen a great deal of disruption in many sectors in Africa. These disruptions have come in the form of new technology that either has created new markets or challenged the status quo. Kenya’s Safaricom- Mpesa turned the financial sector upside down, Jumia, PigiaMe, Cheki,OLX among other have dealt a major blow to traditional brick and mortar retailers.

There has been a lot of strife coming from traditional players who claim that many of these online businesses are having a pretty ride when it comes to regulation. For example, and it’s up to you, informed only by the driver review on the app, to decide whether you think the Uber vehicle you are about to step into is safe and road-worthy.

So far, the theory behind this laissez-fair regulatory approach – which many techprenuers are happy to endorse – is that disruptive companies define new markets for which regulators were not prepared, and as such can’t be regulated in the same way as legacy companies. We at Viffa believe, however, that these businesses have not redefined industries in a fundamental way; instead they are “old wines in new wine skins.” They have more similarities than differences with traditional businesses, and should be regulated accordingly.

First, we should agree on a definition of a new market: in our view, it is commerce that brings together products and services with customers in a transaction that did not previously exist. A historical example of this is the introduction of cell phones in Africa in early 2000, which created a fundamentally new market because consumers could connect with each other in ways that were just impossible with land lines. As a result, regulations influenced mainstream cell phone use differently depending in Africa.  In the Kenya for instance, handsets and service plans were sold separately, giving rise to a whole new market of retailers and encouraging open competition among handset manufacturers. Although in recent time’s telecommunication companies such as Airtel, Orange, MTN and the likes have bundled handsets with their service plans.

Although today’s online platform businesses have the potential to expand demand through easier access and lower pricing, they don’t actually create new markets; they serve existing ones. While they do leverage non-traditional assets (e.g., shared capital, shared workforce) to efficiently deliver on the same customer promise, many equivalent approaches have appeared before within those same industries, and it is the successful disruption of the status quo — not any fundamental “newness” — that has incumbents worried.

For example, many leading hotel companies moved to“asset light” model years ago. In other words, they sold their real estate assets to institutional investors and private individual investors, and they began to operate as essentially management companies focused on defining a brand proposition, marketing and generating sales. In some cases, they also retained responsibility for managing hotel operations and of course signing up new properties to be part of their networks. When hotel companies are described this way it seems little separates them from Uber, which acts as a brand and platform to connect consumers with taxi drivers, just as Hilton do.

Outsourcing across industries to companies such as Viffa has let companies tap into cheaper and more flexible labor, with the contractor economy pre-dating platform apps by decades. Even in the taxi industry, the model for an industry undergoing platform-driven disruption, companies long ago separated ownership of demand sourcing from the actual labor of driving.

So if these platform businesses are not fundamentally different because they’re not serving or creating a new market, why should they be regulated differently or not regulated at all? Regulations serve a variety of purposes such as healthy competition, consumer protection, and employee safety. When viewed with these purposes in mind, it is a logical step to say that some regulation should apply. Platform businesses such Uber are attracting both customers and drivers, suggesting that they do offer a compelling value proposition to consumers and workers, so it is important to consider these stakeholders in the new model when considering regulation.

Where platform businesses do run up against regulatory constraints, we should be asking whether those regulations are really fair or have developed over time to protect incumbents. We see a need for a reset of regulations to encompass both existing and new business models on a fair playing field, for the benefit of consumers and workers alike.