Beyond the headlines - Careem, regulatory hurdles and Saudisation
A closer look at this week's top news stories
Earlier this week, Careem announced a line up of managing directors whose mandate will be to develop the ride-hailing platform into the “everyday Super App” of the Middle East.
We have already seen the UAE-based unicorn transition beyond its core ride-hailing origin to offer on-demand bus and bicycle services alongside food delivery. But the company now hopes to emulate the likes of China’s WeChat and Indonesia’s Go-Jek and build an app that offers services across several sectors.
In a blog post on the company’s website last year, Careem described itself as a “large internet business”. Through its infrastructure of mobility, payments and mapping, it has enabled other businesses to leverage its platform to generate custom – food delivery is one example, the company has built a marketplace model for restaurants in several cities, a model that can be rolled out for other verticals.
What Careem has managed to do by scaling, is create a platform that operates seamlessly across its 14 geographies. It has done the hard work of attaining licences, regulatory approvals, integration of services like SMS to overcome the fragmented nature of the region’s markets to offer a service that works in the same manner from Morocco to Pakistan.
By doing so, it has amassed more than 33 million customers, all of whom sit on the one app, providing a vast trove of valuable data. Currently, 90 per cent of these 33 million continue to pay in cash and so for Careem, the opportunity to convert these cash payments into digital is ripe.
The Middle East and North Africa (Mena) region has the world’s lowest banking penetration rate. Credit card penetration is also low and so financial technology (fintech) has become one way to enable financial inclusion. Careem recently enabled a mobile recharge service through its Careem PAY wallet, allowing users in Egypt, Pakistan and Egypt to top up their phone credit through the app. It comes after the company launched a peer-to-peer, closed loop and prepaid credit transfer service to its customers. Quite simply, users can upload credit into their Careem accounts and transfer that to other users of the app. The company also introduced a rewards programme, where users can gain points per ride and exchange them for credit on the app or transfer them to charity.
These are the markings of both a digital payments and currency or remittance transfer service and so enabling that infrastructure can allow the company to branch out and enable users to purchase other goods and services beyond the app.
This super app platform in theory, could be used by anyone with a product that can be sold online and delivered directly to the customer. Instead of setting up the infrastructure from scratch, a consumer-facing internet business should soon be able to “plug and play” into the Careem platform.
But on its quest to become the internet giant of the region, Careem has faced a couple of regulatory setbacks. Earlier this year US-based Uber agreed to acquire Careem for $3.1 billion, a decision which brought much fanfare to the region’s startup ecosystem. But the deal has not been celebrated by a handful of the competition regulatory bodies in the region. According to Uber’s SEC filing, “the Qatar competition authority issued a decision in August 2019 blocking the proposed [Uber’s] acquisition [of Careem] in Qatar”.
The Egyptian Competition Authority has also issued some murmurs against the acquisition, warning both companies earlier this year that the deal would harm competition in the country.
So far, the UAE is the only country to have approved the deal, but Dubai’s Road and Transport Authority (RTA) this week demanded both Careem and Uber remove their cheapest offering on their apps, ensuring that its own fleet of taxis remains the most economical taxi service in the emirate.
The move comes shortly after the RTA partnered with Careem to onload the authority’s 10,000 fleet of taxis onto Careem’s platform and to launch a joint-venture – Hala, an economical ride-hailing service.
In further regulatory upheaval, Saudi Arabia’s General Secretariat of the Council of Ministers issued a decree preventing foreign consultancy firms from winning government contracts.
The value of contracts awarded to foreign firms is believed to be worth $3.2 billion according to the General Auditing Bureau. The move is yet another example of the government’s Saudisation policy, intended to bring more employment to Saudi nationals. The government will also phase out foreign workers in the hospitality sector. But this patriotic notion does not come cheap. Saudi nationals demand higher salaries and more benefits when compared to the foreign labour force who are willing to work longer hours for fewer Riyals to feed their families back home.
The decree has created uncertainty among the barrage of foreign consultancy firms like McKinsey & Co, Boston Consulting Firm and Oliver Wyman that have, over the past few years, made millions from creating strategies for Saudi ministries and government agencies. In a country that ranks 68th most innovative out of 190 and whose private sector decries access to talent, this sudden ban of foreign consultancies will not bode well. What is likely to happen is that new Saudi consultancies will emerge who will then sub-contract the work to these foreign consultancies and thus either increase the fees that the government pays for these contracts or force the foreign consultancies to reduce their fees. As ever, we will have to wait to see what happens.