The Sharing Economy: Kenya’s newest tool to Economic Growth?
Over the recent years, Kenya has seen a surge in the number and size of industries that constitute sharing economies. From the thunderous arrival of ride-share apps like Uber in the transport industry to home-sharing platforms like Airbnb, that earned Kenyan hosts over Kshs 400 million in 2017 alone. These sharing economies give a hopeful glimpse into what the exchange of goods and services could contribute to the larger economy in the future.
According to the Cambridge Dictionary, a sharing economy is an economic system that is based on people sharing possessions and services, either for free or for payment, usually using the internet to organize this.
By virtue of its impact and reputation in Kenya, a great example of a sharing economy is the online marketplace OLX. OLX came into the Kenyan shopping industry in the midst of a period of widespread technological diffusion, with smartphones and tablets quickly becoming common household items. It served as the first efficient and easily accessible Peer to Peer transaction platform and, with 2 million visitors monthly, has undoubtedly had a lasting impact on the greater economy.
OLX provided a way for individuals to offer unused assets online, for rent or sale, enabling them to make extra money outside of their regular income. In addition, people have benefited from lower prices and a much larger variety of goods and services than they were previously able to access through retail outlets. These factors have contributed to the improved living standards and economic liberty in Kenya, where 42 percent of the population live below the poverty line according to UNICEF.
OLX also provided a key platform for services to be exchanged in a way that had not occurred in the past. By permitting adverts for professional and more common services, e.g. construction, agricultural and machinery services, this sharing economy offered vital short term and long-term employment opportunities for the economy at large.
The disruptive nature of sharing economies, however, is also an outcome to be considered. In 2017, a collaborative study done in the United States found that a 10% increase in Airbnb listings leads to a 0.42% increase in rents and a 0.76% increase in house prices. By offering short term rentals, mimicking the operation of Airbnb, companies like OLX have the potential to affect the Kenyan real estate market simply by means of their impact allowing similar unregulated fluctuations within the market, as quoted.
This serves as a key argument against the widespread growth of sharing economies from a legal perspective. By cutting out middlemen and dissolving industrial bureaucracy, legal frameworks that tackle issues of ownership, consumer privacy & safety and insurance among others, are inflicted upon. Legal analysts argue that, “In the digital society, policymakers and regulators are often faced with the challenge of having to identify where exactly the regulatory space is, which party should assume liability and on what grounds, and which law should thus apply.”
denied the government vital revenue from companies that dominate these industries and recent efforts to clamp down on P2P platforms like Airbnb, have been applauded.
In addition, the general lack of guarantee when transacting within this sharing economy has cast a shadow of doubt in Kenya, with numerous cases of fraud plaguing the memory of its citizens. For those that have turned to platforms like OLX as the main medium of entrepreneurial operations, e.g. property owners and informal clothing merchants, the performance of their business highly depends upon the integrity of their transactions. For some, the lack of guarantee disregards the platform as an effective economic tool of trade.
However, the sharing economy has almost single-handedly ‘formalized’ several previously informal sectors in Kenya and by extension, has concurrently affected local consumer behaviour around trade. Kenyans are now more open to peer to peer transactions due to the notion that the transactions are now more legitimate according to the perceived integrity of the platform. The effect has been to allow the local community to fully exploit the ripe economic opportunities available and centralize informal income in a taxable manner. For example, the Finance Bill of 2019 proposes that income earned through a digital marketplace be chargeable to tax. This could in turn allow the GoK some fiscal grasp on these informal growth markets.
Simultaneously, OLX has also encouraged online P2P transactions as a more fashionable and common way of shopping. By taking advantage of the accessibility of mobile money services like MPesa, which 1 in every 2 Kenyans use, and integrating with social media platforms like Facebook, sharing in this economy has become much easier and faster over time. This effect was elaborated upon in a series of articles on Understanding the Sharing Economy, which explained that although the sharing economy may have started through financially motivated behaviour, it is now a socially accepted and sought-after way of life.
More importantly, by providing a platform for individuals to transact, the OLX sharing economy has leveled the playing field between individuals, businesses and larger companies in various industries. It allows everyday people to compete with established enterprises by reducing the marketing and distribution costs, in the context of a finance market where access to credit for SMEs is poor. Such platforms further disregard the perceived importance of branding on retail markets, shifting the way we judge products to specific, factual, classifications like price, quality and durability.
The effect of this has also been to make a wide variety of goods and services available to the population, shifting the latent power dynamic between the consumer and the producer. By increasing consumer purchasing power as a result of lower prices and a greater supply of products OLX has, in essence, granted consumers more sway in a situation where even entrepreneurial political inequality is rife.
All considered, the sharing economy has immense potential to contribute to economic growth in Kenya. There are bright prospects for increasing incomes, reducing business costs, creating employment and taking advantage of technology across the African continent. Providing a new-age form of barter, platforms like OLX continue to change the economic landscape with an unwavering potential, leading to increased interest by much larger corporations.