This is the first part in a series of features examining the impact of Covid-19 on the region's transport and mobility startups

Over the past few years, on-demand mobility startups have become the undisputed drivers of the regional ecosystem. The likes of Careem, Swvl and Halan constituted the bulk of venture capital (VC) investments and highlighted the impact that startups could have on traditional sectors.

But as entire cities underwent a lockdown with movement restricted, it was the mobility sector that came to a grinding halt with it. In a Wamda report looking at the impact of Covid-19 on startups in the region, it was the mobility sector that was affected the most, with business demand dropping to zero and investors shying away from the sector entirely. The high cash-burn nature of mobility startups put them at odds with the new world that emerged, one that values a clear route to profitability.

The pandemic presented a devastating blow to the bus-related apps in particular, which had prior to the pandemic been one of the fastest growing segments in mobility. Egypt's Swvl had managed to break several fundraising records in the country raising $76.5 million in total and establishing a presence in Kenya and Pakistan with plans to further expand to Indonesia, the Philippines and Bangladesh. Dubai’s Road and Transport Authority (RTA) had partnered up with US-based Via to offer its own on-demand bus service, but as governments issued lockdown orders and schools were closed and people began working from home, travelling by bus seemed a dangerous endeavour.

Careem, which had reported an 80 per cent decline in revenues during lockdown, killed off its bus service in Egypt, Jordan and Saudi Arabia with no indication whether the service will resume. The company, now embarking on its super app strategy had other offerings to fall back on, but other mobility and bus startups had no such cushion.

SHIFTING FOCUS

The shift in consumer behaviour forced startups operating in the bus-hailing and booking space to evaluate alternative operating models and revise their growth strategies.

“We had to rethink our strategy to become more cost efficient so we can have a longer runway in the coming period,” says Amr ElSawy, founder of Egypt-based Buseet, a bus shuttle service. “Internally, we had to make some tough decisions as we had to let go of about 25 per cent of our manpower and impose salary cuts.” 

The company shut down its business to consumer (B2C) segment, a high cash-burn model with very low returns, and instead readjusted its focus on leveraging the business to business (B2B) model. 

“We have decided to start targeting factories and companies, particularly these that operate in sectors that have been thriving during the lockdown like food and beverage,” says El Sawy.

Similarly, Egypt-based startup Seater, which initially started off as a B2B platform that specialised in transporting students and employees to their places of work - be they companies or factories, had to shut down its school-related operations and relied only on companies. As a result, Seater claims to have achieved 20 per cent growth over the past three months due to these changes.

“Around EGP90 million ($5.6 million) is spent on mobility by 25 million students and 20 million employees combined every day,” says Ahmed Hammad, chief executive officer (CEO) at Seater, who is banking on the potential of the B2B segment and claims that SWVL has also opted for the same strategy to cash out.

In Oman, Muscat-based transport startup eMushrif has leveraged its Internet of Things (IoT) technology to pivot into new sectors.  

“After schools shut down due to Covid-19 outbreak, we had to come up with new solutions utilising our existing technology stack in order to guarantee long-term profitability until schools are reopened,” says Hassan Abkar, country manager at eMushrif. “We created cMushrif, which is a smart attendance system. It also supports contact tracing to help businesses combat Covid19 spread inside their buildings.” 

The startup has also provided Oman’s ministry of health with a contact tracing application based on its own technology.

MOVING WORKERS

The need to move workers is essential to bring life back to the region’s economy, especially for jobs that cannot be done remotely. While demand slowed dramatically in the first couple of months of the lockdown, it is picking up once again.

In Cairo, which has over the past few years become a testbed for mobility solutions, the majority of the population still relies on the paratransit mode of transport, better known as microbuses, to get to work, given their relatively low fares compared to the bus hailing services.

In the wake of the pandemic outbreak and the ensuing first two months of the partial lockdown imposed by the Egyptian government, the private bus operators like Mowasalat Misr as well as mass transit tech startups equally reported a drastic drop in their activities, down by 90 per cent of pre-Covid levels, according to Mahmoud Mahrous, co-founder of consultancy firm Transport for Cairo.

However, the fall demand for the microbuses was short lived according to Mahrous, given that a great bulk of the population in Egypt needed to continue working and rely mainly on this specific mode of transport to get around. 

“Drawing from the interviews we have recently conducted with paratransit drivers and others from mass transit startups, we have inferred that the crisis has been severely felt across startups while paratransit activity has been slightly affected since the beginning of the crisis,” says Mahrous. “Still, the paratransit model has proved to be agile and convenient for the wider segment of the population and compatible with the infrastructure of complex cities like Cairo.” 

The situation is also similar in the UAE, where there is still a need for higher quality bus on-demand services according Syed Karim, CEO and co-founder of Caravan, which operates as an aggregator of privately-run buses in the UAE. The company provides shuttle bus solutions for employees commuting to and fro work.

“We had a good interaction before the crisis. Our business as a whole went from literally hundred to zero overnight,” says Karim. “There is still a need in the market for private bus transportation, but it cannot be like how things were before. Now people are looking for clean, hygienic and sanitised buses with reliable operations.”

As restrictions on movement were gradually lifted in Dubai and the government decreed that employees could go back to their offices, Carvan began to receive a high volume of inquiries asking for transportations solutions.

“After the crisis, we discovered that there are two sets of riders – those who have other options and those who do not,” says Karim.

It is the latter category, usually low-income workers who cannot work remotely, that contributes to an addressable market size of $1.3-1.5 billion according to Karim and has great potential for growth despite the fact that in the UAE it is primarily B2B bus aggregators are currently allowed to operate.

In a roundtable hosted by Wamda in June this year, representatives of the RTA highlighted the need for further studies to ensure the safety and security of consumers before issuing independent licences for the B2C segment. For now, the only B2C services operates in partnership with the RTA.  

As for Caravan, Karim expects that the demand will see a slow pickup but it might take a bit longer.

“I think those might stretch off all the way into Q4 of 2020 as there are many factors that will play out against this type of model; such as more people working from home, less people commuting and less people working overall,” he says.

Buseet’s Hammad holds a similar outlook for the sector.

“While people are growing more conscious about their own safety, bus hailing services operating in the B2C model will struggle for a long while,” he says, expecting it to revive gradually by the time universities and schools are reopened. “The market is at an inflection point, it is still safe to say that the B2C model is going to slowly pick up as companies and factories become less financially able to afford providing mass transport solutions for employees.”

Even once demand begins to rise again, it may take a while before investors feel comfortable enough to begin pouring money into mobility startups. Many of these bus-booking startups rely heavily on labourers and service sector workers for the B2B segment of their business and unless the economy improves and projects continue, the rise in demand will likely plateau.