When the app meets an analogue economy: What Uber’s exit should make Nigeria ask (1), By Dipo Baruwa

The deeper issue is that Nigeria is more digitally connected than digitally organised. We have acquired the applications and embraced the devices, but we have not built all the physical, institutional and information infrastructure needed to extract their full economic value. Yet Nigeria is not short of plans. The National Integrated Infrastructure Master Plan already exists. The more important question is whether it actually guides implementation priorities and public infrastructure budgeting.

Uber has left Nigeria.

After twelve years of operating in the country, the global ride-hailing company announced that it was winding down its Nigerian operations from 2 September. To many, this appeared to be an abrupt decision, particularly following the recent banning and subsequent unbanning of the company and similar operators from Nigerian airports. To keen watchers of the economy, however, it was an event waiting to happen; the only question was when.

The announcement has understandably generated another round of debate about Nigeria’s business environment, government regulation, the treatment of investors and the economics of operating businesses in the country. But I think there is a danger in trying too quickly to explain Uber’s departure.

Uber itself has not said that Nigerian regulation, fuel prices, airport restrictions or any particular government policy drove it out. The company exited Uganda at the same time and described its decision as part of a review of its business priorities and investment focus. It also expressly stated that its departure was unrelated to the recent disagreement over e-hailing operations at Nigerian airports.

So perhaps the more useful question is not simply: Why did Uber leave? It is: What does twelve years of Uber operating in Nigeria tell us about the economy we have built underneath the app?

This is where I think we must confront some uncomfortable realities.

A Digital App Sitting on an Analogue Economy

Uber, as an international company operating in Nigeria, did not construct Nigerian roads. It did not create our addressing system. It does not certify vehicles as roadworthy, issue driving licences, police the roads, create national identities, enforce contracts or determine whether streets are properly mapped.

Uber essentially places a technological platform over systems that already exist.

Where those systems work reasonably well, its application can do extraordinary things. A passenger can be identified, a driver verified and a vehicle traced. A location can be established, payment made electronically, complaints investigated and poor behaviour sanctioned. Insurance can respond when something goes wrong, while credit can be extended because the economic history of an identifiable person can be established.

But what happens when that digital layer is placed over an economy where many of these systems remain incomplete? That, for me, is the bigger Nigerian story.

Modern transportation applications depend on geospatial information. Streets need names, buildings need addresses, routes must be mapped and changes reflected quickly. Navigation requires a physical environment sufficiently organised to be translated into code. Applications such as Uber sit on top of the infrastructure that a country has built, so their effectiveness is partly determined by that infrastructure.

We have often confused the widespread use of mobile phones, banking applications and social media with the digitalisation of the economy itself. They are not the same thing.

The fact that millions of Nigerians can make bank transfers or upload videos does not mean that we have created a digitally organised economy. A truly digital economy requires more than devices or access to applications. It requires digital identity, digital location, interoperable records, traceable transactions, institutional memory and predictable enforcement.

Nigeria has made enormous progress in some of these areas, particularly payments. In many respects, our payment systems have digitalised faster and more deeply than the economy they are meant to serve. Yet that progress has not sufficiently transferred into the real sectors of the economy. Instead, financial operators have too often used their advantage to overprice services, extracting value rather than deepening productivity.

Large parts of our informal economy, transportation system, education system, property system and public administration remain heavily dependent on human discretion. Wherever excessive discretion exists, unpredictability usually follows. That is why our economy can feel both highly digital and deeply analogue.

After importing vehicles — many of which have already been used elsewhere — we operate them on roads that rapidly damage suspensions, tyres and other components, increasing maintenance costs for drivers. Those costs eventually return to passengers through higher fares. Bad roads become higher maintenance costs; higher maintenance costs become higher transport fares; higher transport costs increase the cost of moving workers and goods; and those costs eventually appear in the price of virtually everything.

We can transfer money within seconds yet struggle to describe precisely where somebody lives. We can open accounts electronically, while maintaining several identification systems that do not function as one seamless identity architecture. We can create sophisticated financial applications yet struggle to establish useful credit histories for millions of economically active people. We can hail a vehicle through an application using satellite technology, only for it to navigate badly identified streets, avoidable potholes or travel through locations whose addresses are difficult to establish.

Even our roads form part of this supposedly digital economy. A digital map is only as useful as the physical environment it represents. An application can identify a destination, calculate a route and estimate a fare; it cannot repair the road, prevent flooding from making a street impassable or stop potholes from destroying a vehicle’s suspension.

After importing vehicles — many of which have already been used elsewhere — we operate them on roads that rapidly damage suspensions, tyres and other components, increasing maintenance costs for drivers. Those costs eventually return to passengers through higher fares. Bad roads become higher maintenance costs; higher maintenance costs become higher transport fares; higher transport costs increase the cost of moving workers and goods; and those costs eventually appear in the price of virtually everything.

What appears to be an ordinary pothole is, therefore, also a productivity problem.

The application sits on top of the country we have built. No amount of sophistication can fully compensate for deficiencies in the infrastructure underneath it.

Identity Is Economic Infrastructure

This is why I find the ongoing National Digital Alphanumeric Postcode initiative particularly important.

NIPOST is developing a GIS-enabled postcode intended to provide a unique digital location for every addressable building in Nigeria. And that is the key phrase: every addressable building. What happens, then, in informal settlements around city centres or in rural communities on the outskirts of local government headquarters?

I do not expect the project to resolve every challenge at rollout. But I expect it to anticipate these difficulties and develop practical solutions, along with the many others that will inevitably arise. We should not have to start again and reinvent the system, particularly because this is not Nigeria’s first attempt to digitalise its addressing system.

I am, however, optimistic that this time the system will be properly implemented and, more importantly, integrated with other government and commercial systems. If that happens, its significance could extend far beyond delivering letters. A reliable address is economic infrastructure, just like citizen identification.

Nigeria already has the National Identification Number, Bank Verification Number, driver’s licence, passport, voter’s identification and several databases created for specific purposes. The objective should not necessarily be to abolish every functional identifier. It should be to ensure that these systems can reliably identify the same individual and communicate with one another for legitimate purposes, subject to appropriate privacy protections.

This brings us to the Office of the Coordinating Minister of the Economy. I recognise that considerable work may already be taking place behind the scenes to integrate these identification systems. But without effective coordination, the process could continue indefinitely. What appears to be a mundane administrative capability can have profound economic consequences.

The Central Bank recognised this gap years ago. Despite Nigeria’s existing national identification arrangements, the banking industry still lacked a unique identifier that could work across banks. This led to the introduction of the BVN while the national identification system was still evolving. The fact that the financial sector had to develop its own identification system exposes the siloed manner in which our institutions operate. More importantly, it shows that these challenges are not new.

An effective identification and addressing architecture would make credit easier to access, insurance easier to price, assets easier to register, taxes easier to administer, drivers easier to verify, customers easier to protect, contracts easier to enforce, and emergency responses easier to coordinate. Together, these improvements would make the economy more secure and productive.

They would also strengthen Nigeria’s domestic capacity to mobilise capital. When people, businesses and assets can be reliably identified and verified, the risks associated with lending and investment decline. Access to capital becomes less dependent on personal relationships, informal guarantees or foreign funding. The need for foreign capital would not disappear, but our capacity to mobilise, attract and productively deploy capital would improve.

Consider the National Collateral Registry established by the Central Bank of Nigeria. It allows people and businesses to use movable assets, equipment, inventory, vehicles, farm produce and other property, to secure financing, rather than being excluded because they do not own land. The system already relies on unique identification, including BVN, for individual debtors.

That is an important piece of financial infrastructure. But a registry alone cannot create a functioning credit economy.

For movable asset lending to expand, lenders must be confident about who the borrower is, where that person can be found, whether the asset exists, whether ownership can be established, whether competing claims can be discovered, and whether a legitimate claim can ultimately be enforced. These systems must work together.

The Central Bank recognised this gap years ago. Despite Nigeria’s existing national identification arrangements, the banking industry still lacked a unique identifier that could work across banks. This led to the introduction of the BVN while the national identification system was still evolving. The fact that the financial sector had to develop its own identification system exposes the siloed manner in which our institutions operate. More importantly, it shows that these challenges are not new. What has repeatedly held us back is our inability to make decisive choices, coordinate across institutions, integrate systems and implement them consistently.

That is the difference between introducing isolated digital programmes and constructing genuine digital public infrastructure.

Perhaps there is even an irony here. Nigeria’s limited dependence on consumer credit has spared us some of the problems experienced elsewhere. One can only imagine what would happen if Nigerians routinely used credit cards, while the infrastructure for identity, credit assessment and enforcement remained incomplete. But can we continue to sin while praying for God’s grace to abound?

The deeper issue is that Nigeria is more digitally connected than digitally organised. We have acquired the applications and embraced the devices, but we have not built all the physical, institutional and information infrastructure needed to extract their full economic value. Yet Nigeria is not short of plans. The National Integrated Infrastructure Master Plan already exists. The more important question is whether it actually guides implementation priorities and public infrastructure budgeting.

Building the necessary infrastructure is only part of the challenge. Even when technology makes better organisation possible, regulation determines whether it reduces economic friction or merely digitises existing dysfunction.

The recent dispute over ride-hailing operations at Nigerian airports illustrates precisely that problem. I examine it in Part Two of this series.