Uber and Sospeter: An Unlikely Duo Changing Africa

While the importance of institutions and governance in Africa fostering development is often given front page, I beg to differ. For me, this is a highly theoretical debate which only results in slow – and few – practical changes at ground level.

Real institutional change happens with small innovations – and here is where my friends Sospeter and Uber come into play.

Let me first tell you about Sospeter. On graduating from college in 2013 he decided that tourism was as good an industry as any to get into in Kenya. With this in mind, he decided to buy a secondhand car and run it as a taxi service. To do this, he had to borrow some money (not just from his family). At the same time, he also decided to buy a license to operate airline ticket reservation software from his laptop. He became de facto a taxi plus “mobile” travel agency.

Aerial view of Nairobi from the Kenyatta International Conference Centre. Source: Flickr/Jonathan Stonehouse
Aerial view of Nairobi from the Kenyatta International Conference Centre. Source: Flickr/Jonathan Stonehouse

Unfortunately, two months later, the Westgate terrorist attack happened in Nairobi – and he was even more unfortunate to be in the mall at the time of the attack.

His car and his laptop were destroyed in the parking lot and his insurance failed to pay out. So how did Sospeter react? As if life was a casino, he doubled his bet. He borrowed again and bought not one – but two cars – since he knew that to be able to repay his previous debt, he needed to increase business. And fast.

Two and half years down the line, Sospeter upped the stakes to 6-seater vans – renewed recently – running almost 24 hours, and on his “payroll” 9 very professional drivers. What’s Sospeter’s secret? First up, hard work. This means that he (or his team) are on call 24-hours. They respond over the phone, WhatsApp or SMS in less than 5 minutes (I can personally testify to this). But more importantly, Sospeter offers price stability and service reliability in an “industry” which, by definition, it is highly unreliable.

The “traditional” taxi service in Nairobi

Taking a taxi in places like Nairobi, especially for foreigners like me, used to be an unpleasant task.

Option 1 was getting a “taxi in the street” (that is, hailing anybody willing to drive you a round). This implied: 1) haggling about the price for a while, with the certainty that you were overpaying, 2) getting often into a rundown vehicle, and 3) having no certainty about your personal security.

Option 2 was yielding to the hotel rip-offs, which offer their own reliable cab company services at a hefty premium.  As a way to avoid this situation and guarantee quality in the sector, governments in developed economies, had historically enacted strong regulations (e.g., taxi licenses, medallions, regulated tariffs).

In a sense, Sospeter has leapfrogged institutions and has created his own internal governance and quality control, offering a midway solution! No wonder, my university and other companies have always gone for Sospeter as a preferred option (by the way, he also offers credit and deferred payments to companies).

Something changed in 2015: Uber

Then something changed in 2015: Uber launched in Nairobi, the sixth of nine African cities to host the service, and it has since become one of the most popular means of transportation in the city. A proof is that the 50 IESE MBA students that came to Kenya to study for two weeks massively used it.

The Uber advantages are clear:

  • No more haggling on prices (by the way, a price 30% lower than the best price I was use to get haggling on the street),
  • An improved quality on the vehicles (may be not as much as this of Sospeter vehicles or the hotel cabs, but much better than the usual),
  • At least a license-plate check on the part of Uber to give some reassurance of who is driving you.
  • In addition, cash and mobile money payment options were introduced in June to meet the needs of local consumers as a large number of Kenyans don’t have credit cards but do have mobile money accounts. Thanks to the introduction of the cash and mobile payments options, Uber managed to triple its growth in Nairobi making it one of the fastest growing cities internationally for the company.

As an addendum, this may be a lesson for Europe as well. Lately, I assisted too often to the debates about how we should regulate new services like Uber (which in practice, it meant how we curtail part of these services).  For me, this is NOT the right question. The Kenya example shows that companies like Uber can bring “self-regulation” to places where institutions have partly failed .

For Europeans, the right question should be “how do we get rid of a regulation that was very useful at a time, but it is largely an anachronism. (Of course, this has to be done with care, since there are people – like taxis drivers – for whom key live decisions were based on the stability of the old regulation system, and they may feel rightfully betrayed). Fortunately, Africa is free of this inertia (well not completely as the riots of some “official” taxi drivers in Nairobi show) and can welcome the new technologies as good news.

Find out more about the IESE Africa Initiative


About Alejandro Lago

Alejandro Lago is Professor in the Production, Technology and Operations Management Department at IESE. Since 2007, Dr. Lago has been a visiting professor at Strathmore Business School (Nairobi, Kenya) and has been involved in several consulting projects in East Africa. He is the Co-Director of the IESE Africa Initiative and the Academic Director of the IESE MBA Module in Kenya on “Doing Business in Africa”. Dr. Lago sits on the advisory board of Strathmore Business School as well as Lagos Business School.

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