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Regulatory Update: Ride Hailing Companies in Lagos, Nigeria

The transportation opportunity in Lagos State is huge but our guess is that the race for returns will be a longer wait for private equity investors, and especially for ride-hailing companies pushing B2C models.  In this update, we share from a recent engagement, some of the key regulatory developments which we believe should drive your business & regulatory strategy, on the legal side, if you are doing business or investing in the transport sector in Lagos

  1. The system design for provision of bus services is akin to a net cost route contract, albeit with local distinctions around royalty and subsidy payments
  2. If your business is to provide bus services, bear in mind that route regulation exists for bus services. Transport routes in Lagos have been franchised to operators who have the contractual right to grant a sub-franchise to third party bus operators. Aside from the risk of regulatory action, there exists legal basis for an existing operator to sue a new entrant where such new entrant provides bus services on a franchised route. It’s important to be sure that you are dealing with the right counterparty.
  3. There is also a new Bus Law that creates/empowers a statutory corporation, – separate from LAMATA – to be responsible for reforming the public bus sector in Lagos. The corporation has extensive powers to create and franchise bus routes, own bus depots and install intelligent transport systems. There exists the possibility of an overlap with a portion of LAMATA’s mandate but there is an even greater opportunity for both agencies to work together synergistically.
  4. Lagos currently adopts an existing franchising system that requires taxi-hailing companies to register/obtain licensing as franchisees and for all taxi cabs to also undergo taxi licensing.
  5. There is a concern that the existing framework for does not adequately reflect the operational realities of a taxi-hailing service. This concern is valid. Here’s why, in summary – The existing legal framework works mostly on the key assumption that taxi ownership is central. i.e. X buys/provides ‘1000’ taxis and with government approval, brands the taxis a certain colour. X applies for and obtains a taxi franchise and then provide drivers, who must meet certain operational requirements, including displaying taxi badges and rate/fare cards in the Taxi. The taxis must be affixed with a sealed/government-approved Taxi-meters and use taxi-stands created by government on highways. The key assumption valid only in a traditional sense because owner and user decentralization is a key element of the ride-hailing model. Regulators will need to better understand the scope of the decentralisation that technology presents within the transport sector, in order to deliver intelligent regulation. We expect that separate regulations would subsist for both models.
  6. Safety considerations remain the biggest concern for regulators in regard to bike hailing business in Lagos, hence the existing prohibitions for operating commercial motorcycles on up to 500 highways/bridges. Industry would have to propose/implement a higher level of personal safety precautioning, to get concessions in this area from the government
  7. Financial projections and operations modelling will need to recognise and be sensitive to the additional costs arising from prevalent infrastructure gaps in Lagos.
  8. Price regulations are feasible across board. The relevant laws allow government agency to determine the fare price, time/days of service for the provision of Bus Services
  9. Driver qualification regulation across board including provisions including maximum driving hours for each driver
  10. There is still a lot of value lost to sub-optimal route utilization. We expect that Lagos State will prioritize route optimization as one of focal points of ongoing reforms
  11. There exists no regulation or official communication that prescribes a 25million licensing fee for ride hailing services

Please feel free to reach out to your Balogun Harold contact or via info@balogunharold.com for more information and/or clarification where required.