Regulating the Sharing Economy in the Arab Ward A rapid growth in the sharing economy in the Arab world is challenging old monopolies and lowering costs for consumers. But policymakers are yet to figure out how to regulate it.

By Wes Schwalje, Chief Operating Officer at Tahseen Consulting

0 espite the negative press atten­tion the sharing economy has received, the Arab world has largely shied away from public

and government debate over the po li­cy issues that this major growth sec­tor highlights as it disrupts mature in­dustries. As the sharing economy has grown , it has puzzled globa l policy makers who are faced with the chal­lenge of embraci ng innovative, digital services which can lower costs and increase convenience for consumers while balancing the continued compet­itiveness of incumbent industries.

The rapid growth of the sharing econo­my in the Arab world The sharing economy includes a wide range of online platforms that help peo-

pie share access to assets, resources, time and skills. While there is a growing number of regional companies that have entered the sector, the dominant players in the Arab world remain well-funded. Silicon Valley-based start-ups . From Marrakech to Beirut and many cities in between , sharing-economy firms have rapidly scaled their operations across the Arab world due to strong consumer de­mand . However, regional policymakers, for the most part , have yet to consider how to regulate the sharing economy.

Early attempts at regulation In considering how to regulate the shared economy, Arab policy makers face two options: dismiss new shar­ing-economy platforms by regulating them out of existence and retaining leg-

islation that favors market incumbents or embrace the efficiencies that the sharing economy can bring to increase innovation and harness the growth of the shared economy to promote so­cio-economic growth .

Dubai is ground zero for how regula­tion of the sharing economy might unfold across the region. For example, in the run-up to Expo 2020, Dubai is attempting to broaden its range of accommodations . One market segment that has surged in the past several years is short-term apart­ment rentals. Until 2013, when Decree Number 41 was introduced, short-term rentals of holiday homes were largely un­regulated. The decree made it mandato­ry for operators and owners who lease out their apartments on a short-term ba-sis to obtain a license from the Dubai .,...

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"Licensing of holiday homes in Dubai is an example of a reactionary public policy that could erode the supply base of shared economy players:'

Department of Tourism and Commerce Marketing (DTCM). In mid-2014, DTCM started accepting license applications from operators and owners . As of July 2015, a total of 37 operators and owners were licensed to rent out holiday homes in Dubai with 800 units registered.

It is unclear how Dubai's renewed push to register holiday homes and impose fines on offenders who rent their proper­ties without a license will ultimately af­fect sharing economy players operating in the short-term rental sector. The li­censing of holiday homes in Dubai is an example of a reactionary public policy response that could potentially erode the supply base of shared economy players in the short-term rental sector by impos­ing a licensing process on landlords. A

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win-win solution which would have sup­ported the growth of the shared econo­my, as well as maximized government revenues, would have potentially been to meet with sharing economy companies and short-term rental agents to discuss how the Dubai tourism tax could be collected from intermediaries and paid directly to authorities . In France, The Netherlands , India and the US, sharing economy companies work with authori­ties to do exactly this .

A recent study suggests that the mar­ket presence of sharing economy players operating in the short-term rental sector negatively impacts hotel room revenues. However, the competitive response from incumbent hotels often results in price reductions by lower-end hotels and ho-

tels not catering to business travelers. In this respect , short-term rental sharing economy firms have the potential to lead to lower consumer prices for hotel rooms as well as more flexible accommodation offerings . Insofar as lower accommoda­tion prices can drive tourism numbers even higher, Dubai's introduction of li­censing requirements as a mechanism for regulating the sharing economy may ultimately have the unintended effect of reducing tourism by reinforcing higher accommodation prices.

Across the Arab world, overlaps be­tween regulatory and operational func­tions of government institutions can result in significant inefficiency. When govern­ment entities provide a service, set deliv­ery standards and monitor compliance with standards, an unintended outcome is often reduced quality of public service delivery and lower service standards. This governance tradition in the Arab

world has produced a number of cases in which regulatory agencies, which should be accountable to ministries and focused on setting standards to ensure high-qual­ity public services, have become too in­volved in commercially motivated, op­erational functions . Over-involvement of government institutions in operational activities has the potential to reduce the growth of the sharing economy and, ulti­mately, negatively impact consumer con­venience and choice.

In association with the United Arab Emirates' Smart Government Initiative, government agencies have been called upon to make their services accessible via Smart technologies such as Smart­phones . The Dubai Road and Transport Authority's (RTA) recent announce­ment of its e-limo system , which will require private-hire vehicle operators to route transactions through its book­ing and dispatch system, is a potential example of a case where a government entity with a regulatory and policymak­ing mandate is extending itself too far into an operational role. By introducing their own limo application, which es­sentially competes with sharing econ­omy transport networking companies and erodes market supply, RTA risks crowding out private sector innovation that can fuel entrepreneurship, private investment and job creation.

Embracing the sharing economy for regional socio-economic development According to the World Travel and Tour­ism Council, travel and tourism contrib­utes approximately $283 billion to Arab economies and employs 11 million peo­ple. This means that the contribution of the travel and tourism sector to regional gross domestic product is on par with the banking, chemicals, agriculture and auto­motive sectors. It is clear that travel and tourism will play a strong role in gener­ating economic growth and employment in the Arab world over the next decade.

The sharing economy, in so far as it is a key driver of travel and tourism, has

"Over-involvement of government institutions in operational activities has the potential to reduce the growth of the sharing economy:'

the potential to contribute significantly to regional socio-economic development. While there have been no rigorous at­tempts to determine the socio-economic impact of the shared economy in the Arab world, limited data suggest that the shar­ing economy has a growing importance in driving the travel and tourism sector in the region . For example, 40 percent of

Uber's riders in Dubai come from out­side the country. Statistics such as this indicate that sharing economy trends and penetration rates globally can have a sig­nificant impact on economies regionally.

A recent report on the sharing econ­omy workforce in the United States found that 67.5 percent of sharing econ­omy jobs are occupied by workers in the

11 MILLION

The number of people that are employed by the travel and

tourism sector in the Arab world. The sector is key

to the region's economies.

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Embracing the sharing economy could play a key role in addressing the Arab world 's youth unemployment challenge.

18-34 age demographic. The youth em­ployment impact of the sharing econ­omy globally suggests that embracing the sharing economy in the Arab world could play a key role in government so­cio-economic development programs to address the Arab world's youth un­employment challenge. This insight has important implications for how Arab

BOO

governments should approach regulat­ing the shared economy.

The future of the sharing economy in the Arab world The future of the sharing economy in the Arab world is heavily dependent on how governments approach sector regulation. Knee jerk approaches to public policy

The number of units that have been registered with DTCM to be leased as holiday homes in Oubai, as the trend picks up in

the emirate.

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will prevent the likely considerable pos­itive socio-economic development im­pacts that can be generated by the sharing economy. In the GCC countries , entre­preneurship programs and wage subsidies offer significant potential to attract na­tionals and private investment to emerg­ing sharing economy sectors that can reduce public sector employment. While in middle income Arab countries , the sharing economy can offer employment options for youth that can be combined with government finance and training programs that eventually lead to business ownership. Where other countries are limiting consumer choice by over-regu­lation of the shared economy, the Arab world has the opportunity to distinguish itself as a region that embraces the shar­ing economy through a well-considered public policy response that harnesses the sector's potential growth for regional so­cio-economic development. •