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Uber's Strongest Growth Comes in Depressed Argentina Minus Commissions

Uber's Strongest Growth Comes in Depressed Argentina - Minus Commissions

By Reuters | Updated: 25 September 2018 18:38 IST

Highlights

Uber's fastest-growing market in the world is now Argentina
Twenty percent of its drivers were jobless right before joining Uber
There is no regulatory framework for Uber in Buenos Aires

Uber's fastest-growing market in the world is now Argentina, company executives say, attributing the expansion to the nation's sudden economic unravelling, which has boosted unemployment and sliced the purchasing power of Argentines.

Twenty percent of its drivers in Buenos Aires, the only city where it operates in Argentina, were jobless immediately before joining Uber.

The economic downturn, "has certainly helped many people find us as an alternative source of income," Felipe Fernandez Aramburu, who runs Uber business development in Argentina, told Reuters in a recent interview.

Despite worries about the country's economy, which shrank 4.2 percent in the second quarter after its central bank hiked rates to ward off a currency crisis, the company says it does not fear that a recession could boost the number of drivers without an equivalent increase in demand.

"Our growth today is less about economic conditions on the rider side," said Andrew Macdonald, who runs Uber in Latin America. Instead, Macdonald expects what he described as a paucity of public transportation options to lift demand in Argentina and said growth was highest in the neighborhoods with the least bus and train service.

But Uber's Argentine unit still faces a snag: For most rides, the company does not charge its drivers the 25 percent commission it is theoretically owed. Due to legal and regulatory hurdles, Uber rides in Argentina can only be paid with cash or credit cards issued abroad, which almost no locals have.

When rides are paid in cash, drivers currently have no way to pay Uber its 25 percent commission, leaving many with a growing debt to the company. Commissions from drivers are Uber's only source of revenue.

Uber's Argentine conundrum of being unable to profit from its fast growth there mirrors a wider problem for the ride hailing service, which has struggled to prove that it can be profitable as it gears up for a planned 2019 initial public offering.

'Too many drivers'
Macdonald played down those concerns, however.

"It's not about whether we are making money in the near term," he said, adding that the company will "eventually" have to charge those commissions.

Macdonald would not say whether the Argentine market is profitable. Uber has disclosed that its operations in nearby Brazil - now the company's second-biggest market worldwide - are profitable.

Once Uber can accept local credit and debit cards, it will be able to recoup what it is owed, the company said.

Drivers, however, say the current Argentine growth rate may be temporary, tied to the lack of a commission charge.

"What's going on is that there are too many drivers currently and so there's less work for us," said Jorge, a 62-year old Uber driver who requested anonymity. "Everyone's coming to Uber because they don't charge a commission."

Uber says that in the last three months, it has had 55,000 active drivers and 1 million active users in Buenos Aires. Each day, the company said it adds between 300 and 400 new drivers and 7,000 new users. There's also attrition in the mix.

"The average lifespan for a driver in Latin America is about three to four months. It means they use Uber as something temporary," Fernandez Aramburu said.

Uber's recruitment success reflects a wider trend within Argentina, where a rising jobless rate has hit full-time jobs with benefits in particular, economists say.

"We are going through a process that is making labor rights more precarious, and formal employment is dwindling," said Hernan Letcher, director of the Center for Argentine Economic Policy.

Uber has been operating in Argentina since 2016, when it faced aggressive resistance from taxi drivers and government authorities, including legal disputes that led to the ban on credit card payments that is still in place.

There is no regulatory framework for Uber in Buenos Aires, including no way for the government to collect sales tax on the rides.

Macdonald said the company welcomes favorable regulation and that accepting local credit cards is a priority, which will make more drivers pay their 25 percent commission but could also increase Uber's business.

"It's a testament to our investment in Argentina ... that we are able to grow so much even without being able to offer the convenience of all payment options," Macdonald said.

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