Sharing economy boom benefiting GCC businesses and consumers

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JEDDAH — The GCC can truly benefit from sharing economy platforms by tapping into underexploited human resources and assets, says a study by management consulting firm Strategy& (formerly Booz & Company), part of the PwC network. Based on a survey conducted by Strategy&, GCC consumers spent $10.7 billion on sharing economy platforms in 2016, generating an estimated $1.7 billion in revenues for these platforms.

The sharing economy is defined as the exchange of goods and services directly between individuals through online platforms. Strategy& study identified five high-potential sectors, also estimated to have the largest socio-economic implications: transportation, financial services, business services, household services, and accommodation.

GCC start-ups such as Careem, the region’s first ‘unicorn’ (a start-up valued at more than $1 billion), Washmen, and Beehive provide examples of the sharing economy model, and are increasingly popular throughout the region.

Sevag Papazian, principal with Strategy& in the Middle East, said: “The disruption that the sharing economy has had on economic sectors has been felt in the GCC in varying ways. First, sharing economy platforms have increased the use of underutilized assets through mobile-based applications, at a reduced cost. Second, the flexible work arrangements under the sharing economy are creating job opportunities, particularly for the region’s youth and untapped segments of the population – including women and people living in rural areas.”

Several factors contribute to the growth of the sharing economy. GCC countries have a large pool of workers available, especially with a growing young population.. Their high levels technology adoption and urbanization generate large volumes of data to drive the sharing economy — and this is expected to grow as national transformation plans are implemented and the entrepreneurial ecosystem develops.

Although ripe for growth in the region, sharing economy platforms also face some challenges:

1. Inadequate or unclear regulatory frameworks: sharing economy models often do not have a clearly defined regulating authority and operate in legal gray areas.

2. Regional consumers have limited trust in some of these platforms and are wary of data protection and quality assurance issues.

3. Incumbents oppose the intrusion of the sharing economy, as they have heavily invested in acquiring their operating licenses.

4. Strict labor policies sometimes do not cover part-time employment or prevent expatriates from working for different employers, thus limiting the potential of the sharing economy.

5. GCC nationals have a limited need for sharing economy services because they have easy access to low-cost labor when required and generally interact mostly with their close family circles.

“To exploit the sharing economy’s full potential while avoiding its potentially negative effects, GCC governments should adopt a differentiated approach that serves their specific socioeconomic needs and development goals. This will depend on the potential for job creation or risk of job loss, the need to grow the digital economy, cultural acceptance of the concept, quality standards, etc.” said Samer Bohsali, partner with Strategy& and the leader of the firm’s Digital Business and Technology practice and the digitization platform in the Middle East.

How GCC governments can maximize the benefits of the sharing economy?

Once they defined their priorities, GCC governments need to put in place five key pillars:

1. Clear governance model

Each ministry should oversee the sharing economy activities in its sector and manage the disruptive effects of these platforms. Also, a cross-sectoral body will help align the different ministries, municipalities, and authorities across sectors, as well as Internet regulators on the wider implications of the sharing economy.

2. Fit-for-purpose laws and regulations

A clear legal and regulatory framework is required to protect consumers and providers and to ensure fair competition in the market. They should cover 3 key themes: market access requirements, legal liability, and consumer/provider protection.

3. Labor policy reforms

New structures of employment (part-time and freelance work arrangements) should be defined and promoted. Also, some GCC governments may need to reform their Kafala system to allow expatriates to become sharing economy providers.

4. Taxation

GCC governments should integrate sharing economy players — including those based overseas — and providers into the new tax systems they plan to introduce.

5. Localization

Making sharing economy platforms more localized, i.e. finding local solutions to local problems using a grassroots approach, is key to the growth of the phenomenon in the region. For instance, accommodation platforms in Saudi Arabia can be tailored to cater for Haj and Umrah pilgrims.

Melissa Rizk, fellow at the Ideation Center, the leading think tank for Strategy& in the Middle East, said: “A large portion of respondents to our survey said they expected to increase their spending on sharing economy services in the future, particularly on accommodation and transportation. It is exciting to see what impactful socio-economic changes they can have.” — SG


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