When regulation distorts the market: The bigger lesson from Uber’s exit, By Dipo Baruwa

In the first part of this discussion, I examined what Uber’s exit reveals about the analogue infrastructure beneath Nigeria’s supposedly digital economy. But physical and digital infrastructure are only part of the story. The other question is how effectively Nigeria governs the markets created on top of them.

Uber’s experience in Nigeria does not only draw attention to the analogue infrastructure beneath our supposedly digital economy. It also raises a more difficult question: How effectively do we govern the markets created on top of that infrastructure?

Technology can make drivers traceable, journeys recordable, payments transparent and customer complaints easier to investigate. But those capabilities produce better outcomes only when they are supported by fair regulation, clearly assigned responsibilities and institutions capable of enforcing rules consistently.

The recent dispute over e-hailing access to Nigerian airports demonstrates what happens when those conditions are absent.

The Airport Example: When Regulation Creates Scarcity

FAAN’s position is understandable. Airports are security-sensitive environments, and the Authority says transportation operators must operate within arrangements that give it visibility over vehicles and drivers and enable effective responses to security and passenger incidents. The objective is legitimate and particularly understandable within Nigeria’s present security environment.

But the policy question should always be: What is the least economically distortive way of achieving that objective?

There is a fundamental difference between regulating an activity and creating exclusivity. If every commercial driver entering an airport must be identifiable, insured, traceable and accountable, technology should make achieving that easier, not require passengers to lose access to alternative providers.

A relatively straightforward administrative framework could register platforms and operators, establish clear operating standards and require eligible vehicles and drivers to meet them. The system could integrate identity and vehicle records, create designated collection areas where traffic management requires them and impose sanctions when operators or drivers violate the rules.

For such a framework to work, however, the governance around it must be accountable, fair and transparent, with the right incentives for all parties to comply.

What has happened instead appears to have restricted competition under the guise of ensuring security. This raises an important question: where does the Federal Competition and Consumer Protection Commission stand on this and similar arrangements?

The issue goes beyond Uber. It concerns the balance between legitimate security objectives, a conducive business environment and consumer protection. A security requirement should not automatically become justification for eliminating competition or forcing passengers to use substantially more expensive alternatives.

Anyone who has arrived at a Nigerian airport and attempted to get transportation into the city understands this immediately. For instance, crossing from the domestic airport in Ikeja into parts of Ikeja can attract fares several times what a ride-hailing service might charge, while movement towards Lekki can become extraordinarily expensive. One then begins to wonder what cost structure justifies the difference and how much of it represents genuine operating costs rather than rents created by restricted competition.

This is how we make living unnecessarily expensive for ourselves.

We create regulatory scarcity, prices rise, and government subsequently introduces another intervention to tackle the high cost of living generated partly by the structure it helped create. At some point, we have to recognise that good regulation is not measured by the number of restrictions government can impose. It is measured by whether legitimate public objectives are achieved with the least unnecessary economic distortion.

The Platform, the Driver and the State

There is another important distinction that often disappears from conversations about ride-hailing: Uber is a platform; the driver operates the car. This does not absolve Uber of responsibility, but neither does it make the platform responsible for every failure associated with the service.

Platform companies have faced legitimate criticism worldwide concerning commissions, opaque algorithms, driver welfare and the enormous power they exercise over people formally classified as independent operators. Drivers complain about not always knowing enough about journeys before accepting them, platform deductions and other aspects of the relationship. These are legitimate regulatory issues.

Technology companies are businesses, not charities. They will protect their margins, markets and shareholders. Nigeria should therefore regulate them proactively to protect workers and consumers, preserve legitimate investment, promote fair pricing and ensure that personal data are protected.

But we equally need to identify where particular responsibilities lie.

Who owns and maintains the vehicle? Who presents it for inspection? Who switches off the application to negotiate privately with passengers? Who certifies vehicles as roadworthy and licenses drivers? Who determines whether a dangerously defective vehicle remains on the road? Who maintains the infrastructure on which it operates?

These responsibilities do not belong to the platform alone. They are distributed among drivers, passengers, platform companies and various government institutions. The challenge is to construct a system that makes each participant accountable for the responsibilities assigned to them.

If an intending driver registers a good vehicle and subsequently substitutes it with a ramshackle one, that is operator misconduct. If the platform knowingly tolerates it, it becomes a platform-governance problem. If passengers repeatedly encounter such behaviour but never report it, an important feedback mechanism breaks down, although that does not relieve the platform of its responsibility to monitor the service.

If an unroadworthy vehicle can operate indefinitely despite the existence of the Police, FRSC, VIO, LASTMA and other regulatory agencies, then we are confronting something larger: state-capacity failure.

The proper response is not to choose whom to blame among ‘Uber’, drivers, passengers and the Nigerian state. A functioning system should make that choice unnecessary because responsibilities would be identifiable and consequences predictable. Operators would know the standards they must meet; platforms would know their obligations; customers would know where and how to complain; and regulators would enforce the rules consistently rather than episodically.

Once again, an analogue institutional backbone makes even a technologically sophisticated platform difficult to govern.

Nigeria Needs Honest Self-Discovery

Perhaps the wider lesson is that Nigeria needs to become much more truthful about where it actually stands technologically and institutionally.

We want artificial intelligence, smart cities, fintech expansion, e-commerce, electric mobility and technology-enabled public services. These are worthwhile ambitions. But development does not occur because we adopt the vocabulary of technologically advanced economies or because smartphones and applications have become ubiquitous.

We need what I would call economic self-discovery: an honest diagnosis of where the economy actually stands, particularly at the grassroots, followed by a deliberate process of upgrading from there.

How digitally literate are we really? How many economically active Nigerians have identities that can be reliably authenticated across necessary systems? How much of the country has dependable addressing? How complete are our property and vehicle records? How interoperable are government databases? How efficiently can lenders establish creditworthiness? How easily can businesses enforce legitimate contracts? How much interaction with government still depends upon knowing somebody, physically visiting an office, negotiating with an official or paying an intermediary?

These questions tell us far more about digital transformation than the number of smartphones in circulation. I hope the Federal Ministry of Communications, Innovation and Digital Economy, alongside other relevant ministries, departments and agencies, will see this as a call to duty rather than criticism.

We should not be ashamed of the answers. Development begins with knowing where you actually are. What is dangerous is mistaking widespread consumption of digital technology for the deeper technological capability required to organise production, regulate markets and improve productivity.

This is particularly important because Nigeria’s digital transformation has been uneven. The financial sector has moved considerably faster than education, transportation, public administration and large parts of the informal economy. A truthful productivity strategy therefore cannot simply prescribe more technology. It must identify where technological adoption has penetrated productive processes and where the economy still depends overwhelmingly upon manual systems, informal relationships and human discretion.

Only then can upgrading be purposeful rather than fashionable.

The Business Environment Beneath the App

This brings us back to Uber.

Investors, domestic or foreign, come primarily to make returns. That is not an indictment; it is the underlying bargain of investment promotion. If Nigeria actively courts businesses, our responsibility is to create an environment in which legitimate enterprises can compete, make returns, fulfil their obligations and operate under rules that are clear, fair and consistently enforced.

Their responsibility is to obey those rules, pay legitimate taxes, treat workers and customers fairly within the law, and conduct their businesses responsibly. That is what business ethics demands. That is what Nigerian business laws and regulations stipulate.

It is a reciprocal relationship. If I invite you into my house, I have an obligation to make the room reasonably habitable; you equally have an obligation to respect the rules of my house.

What we cannot do is invite investors and subsequently assume that because Nigeria has more than 200 million people, they must remain irrespective of the economics. A large population is not automatically purchasing power, infrastructure, market efficiency or profitability. Conglomerates can be remarkably unemotional entities: when the numbers no longer work and management cannot see a credible route towards making them work, capital moves.

That is precisely why countries compete for investment and investors make decisions based on the quality of the business environment, the predictability of regulation and the likelihood of earning sustainable returns.

None of this means Nigeria should bend its laws for Uber or any other investor. Nor should Uber’s departure become another excuse for indiscriminately condemning Nigeria. The more useful lesson is that a competitive business environment is constructed through functioning institutions, adequate infrastructure and predictable governance, not merely through investment-promotion speeches or the size of the domestic market.

This also means that regulation must do more than impose obligations. It must create credible incentives for compliance, distinguish between the responsibilities of different participants and apply consequences fairly. Where operators misbehave, they should be sanctioned. Where platforms exploit workers or consumers, they should be regulated. Where public agencies create unnecessary barriers or use regulation to protect exclusive interests, they too should be held accountable.

Fairness cannot operate in only one direction.

Uber’s exit should therefore make us ask a more consequential question: What kind of economy are we asking digital businesses, and indeed all productive businesses, to operate upon?

Nigeria’s problem may no longer be primarily access to technology. We have applications, smartphones, sophisticated payment systems and an increasingly technology-aware population. What we have not sufficiently constructed is the institutional, physical and information infrastructure underneath them.

Even where parts of that infrastructure exist, weak coordination, arbitrary regulation and inconsistent enforcement prevent us from realising their full value. The result is an economy in which technology can sometimes make transactions faster without necessarily making the underlying system more productive, accountable or fair.

Until we confront that gap honestly, we will continue introducing twenty-first-century applications into systems that remain far too analogue and then wondering why the promised efficiencies do not fully materialise.

Technology can improve a functioning system; it cannot substitute for one.