Ride-hailing loses appeal as rising costs bite

Rising inflation in Nigeria is casting a shadow over ride-hailing for drivers and passengers, threatening to put the brakes on the growth of the nascent industry.

The industry, which is dominated by Uber and Bolt, has recorded significant gains in recent years.

But the fallout from petrol subsidy removal and the naira devaluation, which have driven the country’s headline inflation rate to the highest in 18 years, has forced some drivers to exit the ride-hailing business.

Drivers, passengers wail economic woes

“It’s a constant struggle to keep up with the rising fuel costs. Despite putting in long hours, a significant portion of my earnings goes directly into filling up my tank,” Tosin Olabode, a Lagos-based Bolt driver said.

“I find myself working longer hours just to make the same amount of money I used to earn a year ago.”

An Uber driver who asked to be identified as Segun, said since the removal of the fuel subsidy, some drivers have stopped operating. “Profits from the business have declined and maintenance costs for cars have doubled due to the high cost of foreign exchange.”

The massive hikes in fares have put ride-hailing services out of the reach of some passengers.

The pump price of petrol has tripled since the removal of subsidy in May, causing public transportation providers to raise fares.

Data from the National Bureau of Statistics (NBS) shows that the average retail price paid by consumers for petrol jumped to N648.9 per litre in November from N238.1 in May. The average retail price of diesel also rose from N844.3 to N1,055.6.

The increase in the cost of petrol pushed up the average fare paid by commuters for bus journeys within the city per drop to N1,047.6 from N649.6.

The average fare paid by commuters for bus journey intercity per drop increased to N6,206.5 from N4,002.2.

The removal of the subsidy shrank the country’s transport and storage industry for the second time in the third quarter of this year. According to the NBS, the sector contracted by 35.9 percent, compared to a negative growth of 50.6 percent in the previous quarter.

With higher transportation fares, many Nigerians are forced to allocate a substantial portion of their salaries to cover commuting expenses at the expense of other essential needs including food and rent.

The country’s headline inflation quickened to 28.2 percent in November from 27.33 percent in the previous month.

Esther Olaniyi, who works on the island in Lagos, said the amount she spends on trips within the island has doubled. “From Ikoyi to Victoria Island, it used to be N1,200, or N1,500 at most. But on Wednesday when I had a meeting, I spent almost N3,000 on that same trip.”

Another regular rider, Ayomide Olaniyi, also lamented the surge in fares.

“I tried booking a ride from my aunt from Magboro to Ayobo using Indrive, the app stated N7,000, I negotiated to N6,000 but the driver that wanted to take the trip said that I should increase the price to N9,300,” Olaniyi said.

In recent years, Nigeria has witnessed a surge in the popularity of ride-hailing platforms in several parts of the country including Lagos and Abuja largely because of the convenience they provide. Other operators include InDrive, Lagos Ride, Rida Nigeria and Max.

The Amalgamated Union of App-Based Transporters of Nigeria (AUATON) had said in a statement that following the fuel subsidy removal, there had been a 200 percent increase in car maintenance costs, leading to a 300 percent reduction in profits.

“The rising cost of living is affecting ride-hailing drivers majorly because the net income after all operational costs cannot meet a livable standard for a single driver not to mention a driver with family members who will have to pay rent, feed the family, pay school fees, maintain the car, pay taxes and levy and others,” Jossy Adaraniwon, the spokesperson for AUATON, told BusinessDay.

He said that despite an industrial action and requests for dialogue on commission, price setting, and driver welfare, ride-hailing companies had not responded adequately, maintaining high commissions and imposing challenging bonus conditions that adversely affect drivers.

“Ride-hailing companies are not providing any measure to cushion the effect of subsidy removal at any time. Rather than reducing their commission of 25 percent, 20 percent to 10 percent as requested by the union to relieve the drivers, they continue to engage in various competitive bonus policies with stringent conditions that make most of the drivers work longer hours, use more fuel and at the end of the day still lose out to get the bonus,” he said.

BusinessDay observed that some drivers have had to take desperate measures such as asking passengers to go offline and non-use of air conditioner during trips to prop up their profit margins.

Tope Akinwumi, country manager for Uber Nigeria, said Uber updated fares on the app in June in Lagos and Abuja to reflect existing economic conditions following an in-depth review of the fuel subsidy removal.

On strategies taken to support the financial sustainability of drivers while ensuring that customers are not subjected to unexpected fare increases he said: “Uber wants what’s best for drivers who operate on the Uber platform and frequently engage with them directly through roundtables, surveys, phone, and in-app channels to better understand and receive feedback on the realities they face in their businesses.”

He said soliciting for payment outside the app is prohibited and violates the company’s Community Guidelines.

“Violating these guidelines can lead to losing access to the Uber platform. We strongly encourage drivers and riders to use the Uber app to access safety features and technology. We also encourage riders to report instances of fare solicitation outside the app, which enables us to take necessary measures to hold the driver in question accountable,” Akinwumi said.