Can Uber Become a Success in Belarus?
On 23 March Evgenia Shipova, official representative of Uber Technologies in the CIS region, announced that Minsk was developing faster than in any other city in Europe, Africa or the Middle East. Within four months, 80,000 city residents used this online taxi service.
Feeling threatened by the competition, regular taxi drivers have requested that the government investigate Uber activities. In contrast, most customers seem rather content with Uber. People are enjoying the high quality of service and hope it will promote a client-oriented framework which will influence the market as a whole.
Uber, however, will hardly conquer the Belarusian cabbing market, considering that old habits of ordering cabs by phone or catching them in the street remain extremely prevalent. For example, most people over 40 do not use Internet capable mobile devices and therefore cannot become potential Uber clients.
What is Uber?
Uber is a mobile application, which allows consumers with smart phones to submit a trip request which is then routed to Uber drivers who use their own cars. It spots a client via GPS and finds the closest driver who would be able to pick them up. The consumer can initially see the route price, choose a driver according to his rating and watch him approach the pick up location. Uber clients cannot pay in cash as it accepts only bank cards.
Currently, the company operates in 400 cities worldwide with their main office in San Francisco, USA. The company claims that it creates an innovative competition environment among drivers and thus raises quality of service.
However, governments and taxi companies across the globe challenge the legality of Uber because it does not follow proper consumer and labour laws. The use of drivers who are not licensed to drive taxicabs is unsafe and illegal.
Uber comes to Minsk
Uber officially opened its service in Minsk on 5 November 2015. The Belarusian media widely discussed the new service and social media highlighted user's riding experiences.
To mention a few problems, taxi drivers often use old uncomfortable and sometimes dirty cars and cheat on trip prices.
In February 2016, Uber launched a cheaper UberX service which led to a mass use of their service by Minsk residents. Those who heard about Uber earlier or used it abroad were quite excited. They hoped that Uber would raise competition and quality of taxi service.
Regular taxi drivers in Belarus often use old uncomfortable and sometimes dirty cars and cheat on trip prices. Taxi drivers in the post-Soviet space have been associated with music called criminal chanson, which is regarded as the music of criminals and people of low socioeconomic status. They are often involved in shadow market like trading i.e. illicit alcohol or prostitution deals.
In contrast, Uber drivers undergo strict control; they cannot have a previous criminal conviction, minimum three years of driving experience, a car no older than 2010 year and, moreover, pass a psychological test.
Minsk taxi drivers protest
On 6 February, Minsk taxi drivers from major taxi companies organised a spontaneous rally to discuss the “growing chaos on the market, where Uber became the last straw”. They claim that Uber has far more favourable conditions of operation: “We have to pay taxes, insurance, road tax, dispatcher service, taximeters, deal with controlling state bodies, and Uber does nothing of that!” drivers said with outrage.
Drivers threatened to “take to the roads and halt the city” if the authorities do not find a solution to Uber's activity. Less radical ones urged others to organise a trade union that will lobby taxi interests in the bureaucrat’s offices.
Uber does not breach law, partners do
On 8 February head of Minsk city Andrej Šorac ordered to investigate Uber operation in the city. “Taxi drivers complain that the service puts them in the unfair working conditions. We need to study the subject and inform the stakeholders on the results”, the official said.
After an investigation, state transport inspection reported that companies and individuals cooperating with Uber in Belarus have special licences for cabbing and do not need to have all attributes of taxis, like taximeter and lamps. They pay taxes and insurances like taxi services, but do not need to pay for dispatching office services since the online application does this job. However, this type of cabbing supposes signing a contract with each client, and the inspection doubts that Uber drivers do that properly. They also violate legislation by not using yellow car number plates.
Irregular cabbing supposes signing a contract with each client, and the inspection doubts that Uber drivers do that properly. Read more
After the investigation the transport inspection stopped the licence of Molberg company, one of the Uber partners and filed a case against another one. The reason was violation of contracting procedures with the clients. Meanwhile, Uber says the authorities punish partners who violate the rules, not the company who runs the online platform itself. Uber also claims that pressure from authorities came as the result of rivals' campaign to oust Uber from the market.
Getting rid of rivals or promoting competition?
Despite the unfriendly environment and emerging rivalry, Uber has recently announced its success in Belarus. According to Evgenia Shipova, official representative of the company in Minsk, Uber has developed more rapidly than in any other city in Europe, Africa or the Middle East. Within four months, 80,000 people have used the service. However, Uber does not yet seem to have an interest in entering other Belarusian cities.
The reaction of taxi companies to a new and unusual market player is understandable. They have operated in a familiar environment for years and have met any innovative trends with enmity. Uber, if operating in compliance with law, will definitely make the market more client-oriented and quality of service will grow.
Regular taxies should not worry much – if companies introduce high standards of service, the clients will see no major difference. Customers are deeply rooted in the habit of calling dispatcher offices or catching a cab in the street. This will last for years. Moreover, most people over 40 do not actively use Internet capable mobile devices in Belarus, and will retain their old way of cabbing. All this offers taxi companies enough time to adopt to higher working standards. Belarusian companies can finally realise what competition on the market is.
Waiting for a Miracle: Digest of Belarus Economy
On 28 March 2016 the Council of the Eurasian Fund for Stabilisation and Development (EFSD) approved the provision of a new loan to Belarus.
In the meantime, the export and real estate market established new numbers of their record fall, questioning the limits of slowdown in Belarus.
In such a situation the government tries to secure state financial support – President Alexander Lukashenka has signed a new decree that grants funding only for profitable strategic investment projects.
Exports: Reaching the Bottom
According to new data announced on 21 March 2016 by Belstat, Belarus’ exports in January has decreased by more than 20 per cent (in dollar terms) in comparison with the same month last year to just $1.6bn – the lowest level for one month since 2009 (see figure 1).
Moreover, exports declined for 16 straight months in a row. This happened mainly for three reasons. First of all, approximately half of Belarus’ exports go to Russia, where growth has been under pressure since 2014.
Second, Belarus’ main exports are positioned to markets outside the Eurasian Economic Union; this includes potash fertilizers and oil products. In January, the delivery of these items to foreign markets fell by more than a third in dollar value compared to the same period of the previous year.
However, according to the General Director of Belarusian Potash Company Elena Kudryavets, the company (Belaruskali) increases its share in the world exports and focuses on the real needs of the market while responding to changes in demand.
Next reason concerns refinery. Belarus exports about 14-15mln tones of oil products produced mainly from Russian crude oil and purchased at a reduced price. Therefore, the drop of world oil prices adversely affected the interests of Belarus – the lower world price, the lower the margin between the world and price for Russian oil.
Additionally, export prices for oil products has fallen more in comparison with world oil prices. As a result, foreign exchange earnings of Belarus from the sale of oil products in 2015 fell by 28 per cent compared with 2014.
Real Estate: Repeating the Bubble
Deep recession and big financial rescues for inefficient Belarus’ state-owned enterprises led to the downfall of households’ incomes (nearly by half). However, right now the next wave of economic problems has reached the shores of Belarus’ main private companies.
Starting in 2001, the rising oil prices marked the beginning of the "golden age" for real estate investments in Belarus. Sensing the smell of "easy money" local major entrepreneurs have started to turn into real estate bosses. As a result, the average house prices in Belarus almost tripled by the end of 2013 (see figure 2).
However, since 2014 house prices dropped by more than 28 per cent – the nightmare for Belarus’ real estate market.
The bubble occurred generally due to three motives: the overconfidence in stability of oil prices and the Russian market; steady growth of incomes of Belarusians subsidised by loose monetary policy of the National Bank of Belarus (NBB); and lack of other possibilities for profitable investment.
Moreover, Belarusian companies helped to ignite the fire of problems by themselves leading to the rising debts of their operations including real estate transactions.
Additionally, this situation plays both as a consequence of the economic crisis and a big reason for its continuance causing subsequent problems in the banking sector. According to the NBB, in February 2016 the amount of troubled assets of Belarus’ banks increased once again and reached 10 per cent share of their whole assets.
State Governance: Swapping the Rules
Step by step the state machine begins to change its main driving economic mechanisms. On 21 March 2016, a new Presidential decree, No.106, changed the system of formation of state programmes and the provision of state support to economic entities.
The main adjustments suppose the transition from an individual towards a programme approach for the granting of state financial support. It cancels the possibility of direct requests of the enterprise for additional financial resources in case of permanent economic troubles.
For now, the government provides financial resources only according to the strategic investment priorities of the economy and the possibility of the fulfillment of strict requirements for achieving efficiency targets.
As a result of such a daring decision, the EFSD, on 28 March 2016, approved the provision of $2bn loan to Belarus in order to support the economic policy measures and structural reforms proposed by the government and the National Bank of Belarus.
According to EFSD’s press centre, Belarusian authorities agreed to insure the control over the monetary policy, through implementation of flexible exchange rate policies and the achievement of a balanced budget. Moreover, structural reforms assume substantial increase in the share of compensated utilities by the population – up to 70 per cent by the end of 2017.
All these should add up to reduction in cross-subsidies and direct lending, playing an important role in the increase of competitiveness in the economy.
However, according to former NBB’s Chairman Stanislau Bahdankevich, the economy, right now, is experiencing substantial difficulties with repayment of previously obtained loans ($3.3bn only in 2016). The inability to accomplish such transactions means default for the economy; Bahdankevich believes that the new EFSD’s loan is needed only to avoid such a negative scenario.
Belarus’ economy still suffers from recession, stacked in debts enterprises, free falling exports and a declining real estate market. However, it seems that state authorities finally got some insight into the economic troubles and have started the process of finding a way out.
Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)