What is Zambia’s government doing about the growing platform economy? – Part Two

Zambia’s platform economy: can an innovative approach to policy to support its growth?

Part One of this blog post discussed why platform jobs are an important avenue for young Zambian people, and why these jobs are important as the country advances its digital transformation. Read that blog and add to the conversation on our Twitter and LinkedIn pages.

In the first part of this series, we explored the structure and opportunities presented by the platform economy in Zambia and the potential pathways through which young people can increase their participation in the digital platform economy and realise increased economic gains. While a more targeted study is needed to quantify the magnitude of the platform economy in Zambia, our previous article identified it as an important channel through which young people can gain employment and meet their daily financial needs through three distinct pathways:

• As founders of digital platform businesses that connect buyers, sellers, asset owners, and service providers. These businesses are predominantly growing in three sectors, such as transportation (ride-hailing), hospitality (home rentals and restaurants), and e-commerce (connecting sellers to buyers).

• As individual service providers on various digital platform businesses and social media. Examples of this range from digital content creation to offering ride-hailing services and sourcing customers for errand services through social media.

• Physical and online stores that make use of a combination of social media, digital payments or bike messenger services to source, interact with and distribute to their customers.

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Globally, it is estimated that the platform economy will be worth $250 billion globally by 2025.1 This This growth presents an interesting opportunity for both digital platform business models that facilitate the monetisation of human effort and assets and the participation of individual service providers or self-employed contractors on digital platform businesses. In this part of the series, we’ll examine more closely the policy environment surrounding digital platform work in Zambia, and what adaptations can be made to better support this emerging segment of Zambia’s digital economy.

The protection of customers and service providers are not mutually exclusive in the platform economy.

For most service providers in the platform economy, service provision is more short-term and given on a freelance basis as opposed to fixed and long-term in the case of formal employment. While digital platform businesses vary widely, one similarity between them is the elimination or minimisation of intermediaries – they directly link end-users and service providers. This raises issues around customer protection and quality assurance, where some providers may fail to deliver or provide a sub-par service. On the other hand, customers may equally refuse payment or mistreat service providers given the peer-to-peer nature of the interaction. Industry regulators often play the role of safeguarding the interests of customers while ensuring the integrity of the industry. However, policies and regulations that play this role for traditional business models in a particular industry do not lend themselves as easily to digital platform models in the same industry. The taxi industry can be used as example to illustrate this. A full-time taxi operator is required to have a special service license for transporting passengers. This license ensures that operational taxis are roadworthy and safe for customer use. Translating the exact same license to a ride-hailing service provider may serve as more of a hinderance to the participation of young people looking to provide ride-hailing services on a part-time or ad-hoc basis. While it is a useful protective measure for customers, it introduces a new barrier in an industry with relatively low barriers to entry.

Taxi services and ride-hailing are both part of the transportation sector, however, they demonstrate some key differences between a formal industry and the platform economy, such as:

• Fixed localities and operational times in the taxi industry as opposed to on-demand service provision for ride-hailing operators;

• Registration in a professional association or body e.g. the Bus and Taxi Owners Association of Zambia as opposed to operating as an individual contractor for a digital platform business;

• The asset (vehicle) is used primarily for the purpose of providing transportation services in the taxi industry as opposed to being used to provide ride-hailing services, among others such as errand running and parcel delivery in the platform economy equivalent.

Owing to the on-demand nature of service provision in the platform economy and the lack of formal membership in any industry association where their rights are represented, applying the same regulatory framework to both the formal taxi industry and the platform economy equivalent may tip the scales in favour of the formal industry. Regulatory instruments e.g. licensing, association memberships, etc., may serve as deterrents to platform economy service providers because they can be perceived as expensive and draw income away from them. Hence, while it is important to protect the customer by ensuring the safety and appropriateness of vehicles offering transportation or ride-hailing services, it is also important to safeguard the income and working conditions of the service providers in the platform economy. This dual role that regulation and policy needs to play can be viewed as somewhat opposing, but it is possible to safeguard the interests of both customers and service providers, through a balanced and intentional regulatory and policy approach.

Several studies have explored the relationship between regulation and policy and the platform economy. Some studies have identified potential market failures with platform economy businesses, such as unclear operating standards and poor compliance to customer data generated as a result of service provision.2 These studies propose regulatory frameworks that create an efficient delivery of services while protecting services providers. Other studies find that rather than eliminating the need for institutional and regulatory frameworks, sharing and gig economy merely changes the nature in which these frameworks are applied.3 The question surrounding these businesses and the service providers who work in them is how should policy and regulation be applied in a measured and relevant manner to enable all parties to benefit from platform economy? In answering this question, it is crucial to distil the underlying principle that policymakers and regulators seek to achieve in the traditional sector and explore how this can be translated to the digital platform version, without increasing barriers to participation. It is true that the platform economy creates new opportunities for entrepreneurship, flexible self-employment, multiple streams of income generation. As policies are developed to support the growth of these new opportunities, key issues such as the protection of customers, service providers, and adherence to industry operating standards remain important to regulators and policymakers.

What can be done to enable protection without hindering participation?

The emergence and evolution of the platform economy reveals benefits that can accrue to digital platform business owners, service providers on digital platforms, and established physical stores that leverage digital platforms such as social media. With this in mind, a regulatory and policy approach to the platform economy should not necessarily focus on reigning in unregulated activities, but on developing appropriate frameworks that maximise the benefits to all parties involved. Below are some of the options policymakers and regulators can consider to achieve this balance:

1. Improved understanding of the platform economy enables appropriate customer protection

While this series identified several digital platform businesses, digital stores, and individual service providers working on digital platforms, little is known about the overall platform economy in Zambia. Figures relating to revenues, number of users, volumes of transactions facilitated are largely unknown. Additionally, given that the platform economy is still emerging in Zambia, regulators and policymakers are also still gaining understanding of the same. What is not understood cannot be effectively regulated. To better design and develop appropriate regulatory frameworks for the platform economy, regulators and policymakers must improve both the data available and their technical knowledge of the space. With the necessary information on these emerging business models, regulators and policymakers can view regulation not as a binary choice between more or less intervention, but as array of tools that need careful adjustment to fit the diverse ecosystem building around these digitally-enabled business models. This will allow regulators and policymakers to develop frameworks that enable effective customer protection without limiting the growth of economic opportunities stemming from the platform economy.

2. Broadening labour and competition policies to cater for individual service providers on digital platforms

Platform economy workers are classified as self-employed individual contractors not formal employees. Additionally, though self-employed, they are not fully classified as entrepreneurs due to their operating on a digital platform that has its own conditions of service. Lastly, they are also often not part of any industry association, which could effectively represent their interests. As a result, digital platform service providers operate in a grey area between self-employment and employment, with no formal channels of redress for any issues they face in dealing with customers or the management of the digital platform they subscribe to. While this may not require a formal policy instrument, such as the Employment Act, there is a need for some avenue through which self-employed individual contractors can pursue grievances related to unfair conditions of service or facing abuse of their service from customers.

3. Providing Seed Capital for Platform Economy Entrepreneurs

To holistically respond to the platform economy, public entities need to view the youth not only as beneficiaries of flexible digital employment opportunities, but as creators as well. The application of digital platform businesses has the potential to transcend sectors across the economy – from transport to finance and shared workspaces. The public sector has a role to play in stimulating youth entrepreneurship not only from a participatory angle, but also as developers of platforms. This can be done through leveraging existing funding mechanisms, such as the Technology Business Development Fund, the Community Development Fund, and various grants and loans under the Citizens Economic Empowerment Commission. Expressly designating the platform economy as an area of interest for funding sources can potentially stimulate the development of promising business models, but also enable to the growth of existing businesses mentioned in the first part of this series.

4. Financial security for digital platform service providers

Given that service providers in the platform economy operate on an on-demand basis, their income flows are sporadic as opposed to regular and predictable. For this reason, formal options for pensions and insurance are not viable, given they require regular and fixed payments. In addition to the lack of flexibility, existing private pension products usually target middle- to high- income earners, which excludes the vast majority of low-income earners. This leaves digital platform service providers with the choice of making a trade-off between the flexibility and tax benefits that platform work brings and the social protection and financial support mechanisms that traditional employment brings. Therefore, the public sector has a role to play in facilitating a policy environment for the development of financial products that are tailored to the needs of platform workers with flexible and irregular income streams.

5. Investing in digital infrastructure and skills development in rural areas

The majority of Zambia’s population, 56 percent, live in rural areas.4 As we consider ways to support the growth of the platform economy, significant investments will need to be made in digital infrastructure and digital skills development to ensure that key segments of our population, such as rural youth, are not left behind. Although rural communities may provide fewer opportunities for economic activity than urban areas, there are a variety of economic activities in which people are engaged in rural Zambia, such as crop and livestock farming, handcrafts sales, tourism, milling, blacksmithing and welding, tailoring, knitting, carpentry, mining, fishing, transporting – either on motor vehicles, trucks or motor-cycles – and trading, among others. Rural areas in Zambia are very diverse; incomes can be seasonal or cyclical depending on the activities present in those areas. For example, a community may see more cash flow in their area every two or three months when fish sales are undertaken. Such communities require specific interventions around their economic activities to ensure continuity of incomes and improved livelihoods for all. While the platform economy can facilitate the broadening of marketplaces by connecting buyers and sellers across the rural-urban divide, there are other constraints such as limited internet coverage, high data costs, low digital literacy, and the limited footprint of financial service providers in rural areas that need to be addressed.

6. Developing mapping and addressing systems to enable more efficient messenger delivery services

Digital stores leverage social media platforms to expand their reach, while relying on digital payments channels and bike messenger services for distribution. Parts of urban and peri-urban areas in Zambia have limited formal addressing systems that enable seamless delivery without multiple communications between customers, sellers, and messengers. A uniform, universally-understandable addressing system that covers urban and peri-urban areas could aid in simplifying the distribution process for digital stores, making their virtual interactions with customers easier.

7. Promoting digital device affordability

In the 2023 annual budget address, the Government announced its intention to zero-rate the supply of selected ICT equipment in a bid to encourage investment in the country’s ICT sector. While this applies largely to ICT infrastructure, it sets precedent for the ways in which government can promote digital device ownership through enhanced affordability. Various models have emerged in the private sector including device financing and pay-as-you-go phone ownership. Ultimately, as the platform economy presents an avenue for increased economic participation with relatively low barriers to entry, the one evident barrier may be handset affordability across income groups. There is hence a need for the government to have both good intentions and targeted execution when it comes enhancing digital device affordability.

As Zambia places digital transformation in the forefront of its economic and social development, all stakeholders must act to develop practices that cater to emerging opportunities, such as platform economy work. In dealing with the platform economy, regulators and policymakers cannot apply a one-size-fits all approach, but rather approach the developing platform economy as one that requires careful consideration depending on the respective pathway and sector in which it is being applied. Whether considering digital platform entrepreneurs, individual service providers, or digital stores, the platform economy is clearly one avenue through which the government can support the creation of financial and economic opportunities for Zambia’s young people. While the platform economy in Zambia is still emerging, the conversation should not be around whether it needs more or less regulation, but rather how policymakers and regulators can collectively support its growth in a way that ensures all stakeholders benefit while.

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1. PriceWaterhouseCooper, Sharing or Paring? Growth of the Sharing Economy: https://www.pwc.com/hu/en/kiadvanyok/assets/pdf/sharing-economy-en.pdf
2. Sounman Hong and Sanghyun Lee, ‘Sharing Economy and the Government’, Journal of Open Innovations, 2020
3. Andy Hira et. Al., ‘The Emergence of the Sharing Economy” Implications for Development”, Journal of Developing Sociaties: https://journals.sagepub.com/doi/abs/10.1177/0169796X17710071?journalCode=jdsb
4. 2022-Census-of-Population-and-Housing-Preliminary Report, Zambia Statistics Agency