Make no mistake, digital sharing ventures like Uber here to stay

Opinion and Analysis

The digital sharing economy creates new markets and produces millions of job opportunities. PHOTO | FILE 

By CIKU KIMERIA

In Summary

• Business model has the potential to address some of the world’s most pressing development challenges.

While the average Kenyan might not know what the term “digital sharing economy” means, Uber and the recent popularity it has gained locally is fresh on most people’s minds.

Even those who did not know about Uber suddenly learnt about it after the unfortunate attacks on Uber drivers in Nairobi earlier this year.

Uber, Airbnb and similar services are all part of the digital sharing economy — an economy with annual revenues of $25-$30 billion per year — and growing at between 25 per cent and 30 per cent a year.

The digital sharing economy is defined as the sharing of assets (physical, financial, and/or human capital) between many, without transferring ownership, via a digital platform to create economic value for at least two parties.

The digital sharing economy creates new markets, produces millions of job opportunities, and revives “sharing” — one of civilisation’s oldest forms of economic and social empowerment — as a technological business model.

Dozens of digital sharing ventures are already driving economic and social change in Africa, Asia, and Latin America, and there is potential for these models to address some of the world’s thorniest development challenges.

For a start, the digital sharing economy can help us solve three key issues that developing nations struggle with: youth unemployment and underemployment, access to finance and agricultural productivity.

Globally, 75 million youth are unemployed and another 536 million underemployed, hindered by a lack of formal full-time jobs and a mismatch between skills and employer needs.

Thoughtfully designed digital sharing connects youth in emerging markets with employers that need immediate short-term work. Employers find freelancers through an online platform that aligns availability, pay, and skills with the task needed.

The platform matches and verifies the identity of both parties, and facilitates the digital transfer of payments, intellectual property, and confidentiality agreements as necessary.

The freelancer provides high-quality work, and the employer pays, provides feedback, and rates their experience.

In an ideal scenario, over time, the young freelancer builds skills, a portfolio of work, and a credible personal brand.

Experienced freelancers on Upwork based in India and the Philippines earn hourly rates comparable to those in the United States and Western Europe.

In Africa we have an example of such a platform in mJobs in Ethiopia, which connects a small percentage of youth in developing markets with employers that need immediate short-term work.

Youth unemployment

Can these be scaled nationally and internationally to help ease the global youth unemployment crisis? Many of these on-the-spot work opportunities are low-earning on a per-job basis, and competition between job seekers often drives down rates. However, in economies with high unemployment, such opportunities are very welcome.

Only 15 per cent of the 400 million micro, small and medium enterprises (MSMEs) in developing countries have access to credit.

The unmet investment need exceeds $2.5 trillion, in part because physical bank branches are inaccessible, investable ventures have high search costs, and banks, investors, and business ventures do not trust one another.

Digital crowdsourced lending and investment platforms can match SMEs with small investors.

In fact, one already exists: VC4Africa connects investors to pre-vetted, seed-stage African start-ups via a digital platform, lowering search costs and trust barriers.

Start-ups gain exposure to investors from 159 countries as well as mentorship opportunities. The platform is particularly helpful for start-ups operating outside of Africa’s “Tier 1” cities like Nairobi and Lagos, which have much greater access to local venture capital. In 2014, VC4Africa’s start-ups received $26.9 million through the platform.

The other iterations of this model could show an SME’s credit history and performance on the platform, and then algorithmically segment its financing needs into bite-sized notes (e.g., $5-$5,000) to distribute to many individual investors.

The cost of entry to the platform would need to be low and investors would benefit from diversification, increasing financial inclusivity for both lenders and borrowers.

The practice fuses the age-old idea of peer lending with digital technology, making it possible to scale to thousands of users in months or even weeks.

The world’s 450 million smallholder farming households — over two billion people — coax 70 per cent of the world’s food from their two-hectare plots, but 25-50 per cent of their crops perish after harvest.

The owners of much-needed processing and storage equipment have difficulty finding smallholder farmers who can pay to use the machinery, and they may not trust farmers to foot the bill.

Intelligent voice recognition

What if we used intelligent voice recognition (IVR) or an SMS-enabled platform to link owners of expensive processing and storage assets (such as mills, roasters, and separators) to cash crop-focused cooperatives and small businesses?

The platform would match equipment owners to cooperatives that pool resources or to farmers who can pay individually, giving smallholders access to assets that would otherwise be out of reach.

Examples of this exact model do not yet exist, but the main elements are in progress. The Dutch Agricultural Development & Trading Company (DADTCO) developed a mobile, self-powered cassava processing unit that is currently being used in Ghana, Mozambique, and Nigeria to source cassava from thousands of smallholders. Zambia’s Rent-to-Own leases processing equipment to smallholders who eventually purchase the assets in installments.

Digital sharing is already massive, and here to stay. Make no mistake, this is now a trend. Now to make it work to address the most pressing issues in our individual countries.

Ms Kimeria works for Dalberg Global Development Advisors, a strategic advisory firm dedicated to global development.