Stalled Liberalization: How the Rentier Economy ousted Uber from Morocco

Stalled Liberalization: How the Rentier Economy ousted Uber from Morocco

Rachid AourrazRachid Aourraz7 December 201824min26911
Uber’s departure from Moroccan markets reflects the rentier economy’s ability to hamper the process of economic liberalization

Uber’s departure from Moroccan markets reflects the rentier economy’s ability to hamper the process of economic liberalization

 

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Introduction

In February 2018, Uber announced the suspension of its services in the Moroccan market following three strained years. The reason for the company’s departure goes to the resistance it faced from the bureaucracy, especially in the absence of a legal framework regulating the activities of start-ups in the urban transportation sector, an area of strategic importance to the Ministry of Interior. The exit was also the result of taxi drivers’ harassment of the company’s drivers in Casablanca in incidents that included car chases, violence, and intimidation before the eyes of the authorities.

Morocco is hardly the only country where there have been confrontations between the traditional taxis and companies like Uber. Egypt [1] and France [2], among others, have seen similar showdowns, which led in some cases to the suspension of Uber services. As for Morocco, these confrontations are a clear indicator of the sway the rentier system has over the public transportation sector and the entire economic liberalization process. These confrontations also speak to the rentier system’s ability to disrupt the economy’s modernization by fighting against market liberalization, competition, and technological innovation.

In light of Uber’s experience, this paper examines the challenges faced by entrepreneurs and start-ups in a rigid rent-based economic structure, and argues that Uber’s failure in Morocco is only the tree that hides the forest, an indicator of the resilience of the country’s rent economy. The paper also argues that Morocco’s economic liberalization attempts over the past decades have failed to curtail the dominance of rent economy, and, as a result, startups will have difficulty accessing the Moroccan market unless the rent economy is replaced with a system based on competition and free enterprise.

 

From the COP22 to the World Cup: What Has Changed?

Uber’s foray into Morocco began in mid-2015 in the Kingdom’s economic capital, Casablanca, before expanding to Rabat. During its three years of activity, the number of drivers rose to 12,000 drivers with 140,000 customers using the application. Uber drivers earned a monthly income between 4,000 and 6,000 MAD, twice the minimum wage [3] of 2570 MAD per month.

Despite the job opportunities Uber provides for thousands of young people in a small economy like Morocco, authorities hold the company in an ambiguous legal status, as it did not fully legalize its activities nor banned it. Authorities also tolerated conventional taxi drivers’ harassment of Uber drivers, forcing the company to end its activity in Morocco. The move came at a critical moment for Morocco, as it was in the midst of bidding to host the World Cup in 2026, a bid that had to include strong transportation and infrastructure plans. And, just a few weeks before FIFA was to announce the host country in June 2018, Uber permanently suspended its services. While Uber suspended its activities in Morocco, it remains active in 86 American cities, 20 Mexican cities and 9 Canadian cities, all of these three countries competed with Morocco for the 2026 World Cup. The company also provides services in 15 Russian cities (the World Cup 2018 host country) as well as in Doha, which will host in 2022 [4]. Before the bid reaches the final voting stage, a FIFA Taskforce made visits to those countries. When FIFA representatives visited Morocco, the Kingdom’s bid earned only 2.1 out of 5 points pertaining to transportation readiness, the lowest score obtained in all fields assessed by FIFA. By comparison, a rival joint bid put in by the United States, Canada, and Mexico received 4.3 out of 5 points in the same category [5], illustrating the relative weakness of road infrastructure and transportation services in Morocco.

The irony of the situation is that the Moroccan authorities had been lenient with Uber in 2016, and even regarded them as partners for having contributed to the success of the COP22 Climate Summit held in Marrakesh. It would now appear that Moroccan authorities behaved opportunistically towards the company. While they allowed Uber to operate with a view to making COP22 a success, authorities also relegated the company to legal limbo and left it vulnerable to harassment from traditional taxi drivers. It is most likely that the partnership between the Moroccan authorities and Uber at COP22 was nothing more than a P.R. deal, with no intention to steer the economy towards modern technologies in the public transportation sector in particular.

This ambivalence in dealing with Uber points to a deeper dilemma: the state’s desire to modernize the economy while at the same time preserving the gains of traditional rentier structures. The Moroccan economy is, in essence, traditionalist and rentier [6]. It is dependent on wealth creation and redistribution that is based on rent. It is at the same time unable to produce enough wealth to meet the needs of cronies and citizens alike. Despite the state’s efforts to modernize the economy through large-scale infrastructure projects (solar energy project, airports, Tangier port, and Tangier-Casablanca high-speed rail, to name a few examples), economic modernization and liberalization have never penetrated small-scale activities at lower economic levels that benefit a large proportion of consumers. It is at this level in particular that the integration of modern technologies is essential to modernizing and developing the country’s economy.

 

Rentier Economy vs. Competitive Economy

To understand Uber’s failure in Morocco, it is important to look at the nature of the transportation sector within the structure of the economy. The urban taxi transportation is but one manifestation of the country’s rent economy. Loyalty to authority is key to obtaining a taxi license in Morocco, and continuing to please the authorities is key to the continued use of these licenses. Urban taxi transportation falls under the jurisdiction of the Ministry of Interior through the prefectures and provinces that manage these licenses and distributes them through the local administration, which also guarantees the loyalty of their holders, who are in turn provided a semi-fixed income. These licenses were not only distributed to ordinary citizens. A portion of these licenses was distributed to political elites, artists, and athletes over the past decades and into today. The distribution of these licenses was based less on objective criteria, like competence or merit, as it was on the criteria of loyalty to the Makhzen; that is, to the regime and powerful elites.

In fact, Morocco attempted, since the mid-90s, to partially liberalize the national economy and steer the country away from a low-yielding rentier system to one based on free market rules. Yet, up to now, it failed in achieving this goal in a comprehensive way. What became of Morocco’s privatization policies of the 1990th onward is clear evidence of the rentier system’s resistance to economic liberalization. Some of the sectors that have been privatized have suffered from the influence of powerful elites or large economic conglomerates. This applies, for example, to telecommunications, fuel, and some food industries, all of which are uncompetitive and dominated by one to three companies, constituting what may be called a “monopolistic competition” in these sectors. This general situation is an indicator of the state’s inability to abandon the rentier system as a style of governance and economic control. Privatization has culminated in the transfer of ownership of some public sectors to the hands of few cronies who dictate market laws away from the logic of free competition.

In this climate, the emergence of modern startups like Uber presents a major challenge to the traditional rentier system. This challenge, for instance, is illustrated by Uber’s competitiveness in comparison with the transportation services provided by the traditional taxis. Uber offers a variety of modern services such as the ability to book a ride through smart phone applications, the enjoyment of being driven in newer vehicles, the professionalism of its drivers who can be rated by service users, and, above all, a transparent fare scheme saving customers the hassle of exchanging cash. In fact, Uber’s entry jolted a market that had not previously experienced any competition. The ministry of interior that governs this sector seeks to ensure the loyalty of taxi owners and drivers. In addition, this latter group would never accept losing part of the public transportation market to modern companies that have technological and service advantages for consumers.

It is therefore understandable that the authorities would turn a blind eye to the harassment of Uber and, to a lesser degree, Careem drivers by traditional taxi drivers, which could be characterized as an “interests alliance” between the two parties to perpetuate the status quo. This harassment even evolved from a mere public condemnation to the company’s presence in the market to the establishment of an organization named the “Taxi Hawks of Casablanca,” which declared an open war on the Uber and the UAE-owned Careem. The so-called Taxi Hawks’ daily activities varied from ambushes and car chases in the streets of Casablanca and Rabat, to the siege of drivers and customers. The group has even closed down streets while awaiting police who do not interfere to protect the drivers and customers of these companies.

Uber’s loss in the face of the traditional taxi sector and the bureaucracy in Morocco is a clear indication of the strength of the rentier economy and its ability to protect its interests. It also makes it clear that political will is a crucial factor in the liberalization of the economy if it is to benefit from technological openness. Without institutional guarantees of competitiveness and market transparency, start-ups will not be able to find a foothold in deeply rooted rentier structures with cross-cutting interests.

 

Modern Technology for Productivity and Development

Uber’s inability to confront the rentier system is also related to the Moroccan market’s limited ability to benefit from modern technologies. According to World Bank statistics published in 2017 [8], a large proportion of Moroccan youth do not have the qualifications to take advantage of the opportunities offered by modern technologies with regard to the labor market and wealth creation. Public expenditure on Research and Development hardly reaches 0.7 per cent of gross domestic product (2010 figures). Conversely, the Global rate in the same area stands at 2.14 per cent (2015 figures). These and similar figures illustrate the inability of Morocco’s bureaucracy and economy to keep up with the knowledge economy and technological progress. Ultimately, there are two reasons for this: the absence of government effort and the poor educational level of graduates from schools, institutes, and universities.

However, this situation should not justify depriving some economic sectors of benefiting from the advantages that modern technologies offer in terms of production. If machines are more efficient than current workers, priority should be given to improving productivity and reducing the cost of production because the Moroccan producer operates within a competitive and open market. Enterprises cannot gain ground in the market without improving outdated production methods.

 

Women & Youth: The Forgotten Population of Development Schemes

Uber could have been the ideal model for integrating young men and women into the labor market and also for the use of technology to modernize the economy. The company provided job opportunities for hundreds of young people and alternatives for poor transportation services. Uber also saved valuable time for the dwellers of major cities, like Casablanca and Rabat. Waiting on the sidewalk to catch a taxi is a source of daily stress and concern for citizens in Moroccan metropolises. A visitor will easily notice the meters-long queues of people waiting for taxis for periods that may, in some cases, exceed an hour.  Faced with this difficult situation, ordering a taxi a few minutes before leaving the office is a luxury service for workers and employees in a city like Casablanca. Uber’s services in Morocco also provide women with an alternative to the harassment that takes place on Moroccan public transportation. A field study in Casablanca revealed that 54% of women between the ages of 19 and 39 were harassed on public transportation [10]. Awareness campaigns alone may not be enough to combat this phenomenon, but economic alternatives and legislation could certainly encourage change.

In addition, the fact that a woman was appointed to lead Uber in Morocco has created a positive role model for the modern Moroccan woman, who is engaged in a productive and non-rentier business combining technology, youth employment, and quality services under the guidance of a businesswoman. As for youth, modern technology sectors attract a significant number of them, especially recent graduates and multi-lingual, multi-talented youth. Moroccan graduates suffer from higher unemployment rates than the other segments of the youth population [12]. Encouraging startups and investing in technology solutions to serve consumers is one of the most effective ways to integrate youth into the labor market. Nevertheless, the rentier economy and a lagging administration deprive Morocco of the opportunity to integrate its youth into wealth-creation mechanisms by encouraging individual initiative in this field.

 

Conclusions and Recommendations

Moroccan government could have benefited from Uber’s presence not only by improving urban transportation services but also by liberalizing the public transportation sector and modernizing it by incorporating companies that adopt modern technologies. Such a structural change could also have benefited other sectors of the economy, especially through the adoption of creative and innovative strategies. Additionally, economic modernization could have enhanced transparency, encouraged competition, rehabilitated infrastructure, and opened Morocco up to successful experiences in the region and the world.

There is still some time for policymakers to act and develop effective and long-term public policies. In this regard, a number of recommendations can be made:

  • Upgrade the conventional transportation sector to benefit from modern technology and to provide quality services to users, similar to modern companies in this field. In this context, the abolition of the current license system will be among the first measures that will promote liberalization of the transportation sector.
  • In general, lawmakers should work to speed up the drafting of a legal framework that allows startups to enter the Moroccan market, simplify administrative procedures, and facilitate access to necessary funds.
  • Authorities should also pay far greater attention to the development of human capital, particularly through accelerated education reform that focus on STEM (science, technology, engineering & math), with a view to facilitating the integration of modern technologies into economic sectors.

 

Footnotes:

[1]– See France24: حرب شرسة بين التاكسي التقليدي وشركة “أوبر” وأخواتها في القاهرة (Ferocious Battle between Traditional Taxis and Uber, Sister Companies in Cairo): (https://goo.gl/P1iPVk)

[2]Les Observateurs de France 24: Violences des chauffeurs de taxis sur des conducteurs UberPop à Marseille – France (Violence Erupts between Taxis and UberPop Drivers in Marseille): (youtube.com/watch?v=h5-jMbDDogI)

[3] Uber Maroc fait son bilan sur fond de polémique (Uber Morocco Reviews Progress amid Controversy), Telquel, 09 March 2017. (https://goo.gl/aY8YLi)

[4]– List of cities offering Uber services across the globe: https://www.uber.com/fr-MA/cities/

[5]– FIFA. (2018), Bid Evaluation Report: 2026 FIFA World Cup, p 13.

[6]– يقدم الحسن عاشي صورة مختصرة عن طبيعة اقتصاد الريع في المغرب من خلال ورقته التحليلية “3 أسئلة حول اقتصاد الريع في المغرب” (Al-Hassan Achi provides a brief overview of the rent economy in Morocco through his analytical paper “3 Questions about Rent Economy in Morocco”): https://carnegie-mec.org/2013/02/08/ar-pub-51030

[7]– Casablanca: course-poursuite très dangereuse entre des taxis et un chauffeur Uber (very dangerous chase between taxis and a Uber driver) (video on YouTube). (https://goo.gl/X4B5jz)

[8]– Jean-Pierre Chauffour. (2017) : Mémorandum économique : le Maroc à l’horizon 2040 – Investir dans le capital immatériel pour accélérer l’émergence économique (Economic memorandum: Morocco 2040 –Investing in intangible capital to speed up the economic emergence). World Bank, Washington, DC.

[9]– Morocco’s research and development expenditure (% of GDP) compared to other countries: https://data.worldbank.org/topic/science-and-technology?locations=MA-US-FR-ES-1W

[10]– Editorial team of Lesiteinfo: Harcèlement dans les transports au Maroc: les chiffres de la honte (Harassment in public transport in Morocco: figures are a mark of shame), 27/11/2017. (https://goo.gl/MTUf2U)

[11]– Manar Joualy. Campagne de lutte contre le harcèlement sexuel dans les transports de Casablanca (Campaign to end sexual harassment on public transport in Casablanca), Telquel: 27/11/2017. (https://goo.gl/yJoNdf)

[12]– Jeune Afrique with AFP: Maroc: l’inquiétant chômage des jeunes s’inscrit dans la durée (Morocco: worrying youth unemployment is there for years to come), 12/02/2018. (https://goo.gl/aLdr9F).

Rachid Aourraz

Rachid Aourraz

is an economist research and founding member of the Moroccan Institute for Policy Analysis. Rachid has a master degree in applied economics and is currently preparing his doctoral dissertation on the role of institutions and human capital in the economic development process of Morocco. Rachid is also often invited in news¬paper and TV programs to comment on economic issues throughout the Arab world.


One comment

  • M..belbehri

    17 August 2019 at 21 h 06 min

    Yes, il agree thé rentier system is wrong and transport should be reworked in morocco . Il dont think, however, a law evading company like uber is welcome in morocco, sorry. Its à bandit company

    Reply

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