Tahseen Consulting is honored to have its insights on regulating the emergent sharing economy in the Arab World in the publication’s October issue. Tahseen Consulting’s Chief Operating Officer, Wes Schwalje, spoke with Nikhil Inamdar, a leading voice on key business trends in the region, regarding the evolving role the sharing economy is playing in meeting the region’s youth employment challenge. In a wide-ranging discussion, Schwalje warns of avoiding heavy-handed regulatory approaches that might limit the socio-economic impact pioneering companies in the sharing economy such as Uber and Airbnb can have on the Arab region.

2. Regulating the Sharing
Economy in the Arab WardArapid 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 atten-
tion the sharing economy has
received, the Arab world has
largely shied away from public
and government debate over the poli-
cy issues that this major growth sec-
tor highlights as it disrupts mature in-
dustries. As the sharing economy has
grown , it has puzzled global policy
makers who are faced with the chal-
lenge of embraci ng innovative, digital
services which can lower costs and
increase convenience for consumers
while balancing the continued compet-
itiveness of incumbent industries.
The rapid growth of the sharing econo-
my 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 de-
mand. 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 shar-
ing-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 so-
cio-economic growth .
Dubai is ground zero for how regula-
tion 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 apart-
ment rentals. Until 2013, when Decree
Number 41 was introduced, short-term
rentals of holiday homes were largely un-
regulated. The decree made it mandato-
ry for operators and owners who lease
out their apartments on a short-term ba-
sis to obtain a license from the Dubai .,...
October 2015ITRENDS 87

3. "Licensing of holiday homes in Dubai is an example of areactionary 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 proper-
ties without a license will ultimately af-
fect sharing economy players operating
in the short-term rental sector. The li-
censing 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 impos-
ing a licensing process on landlords. A
88 TRENDS IOctober2015
win-win solution which would have sup-
ported the growth of the shared econo-
my, 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 authori-
ties to do exactly this.
A recent study suggests that the mar-
ket 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 accommoda-
tion prices can drive tourism numbers
even higher, Dubai's introduction of li-
censing 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 be-
tween regulatory and operational func-
tions of government institutions can result
in significant inefficiency. When govern-
ment entities provide a service, set deliv-
ery 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

4. 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-qual-
ity public services, have become too in-
volved in commercially motivated, op-
erational functions. Over-involvement of
government institutions in operational
activities has the potential to reduce the
growth of the sharing economy and, ulti-
mately, negatively impact consumer con-
venience 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 Smart-
phones. The Dubai Road and Transport
Authority's (RTA) recent announce-
ment of its e-limo system, which will
require private-hire vehicle operators
to route transactions through its book-
ing and dispatch system, is a potential
example of a case where a government
entity with a regulatory and policymak-
ing mandate is extending itself too far
into an operational role. By introducing
their own limo application, which es-
sentially competes with sharing econ-
omy 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 Tour-
ism Council, travel and tourism contrib-
utes approximately $283 billion to Arab
economies and employs 11 million peo-
ple. 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 auto-
motive sectors. It is clear that travel and
tourism will play a strong role in gener-
ating 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 at-
tempts to determine the socio-economic
impact of the shared economy in the Arab
world, limited data suggest that the shar-
ing 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 out-
side the country. Statistics such as this
indicate that sharing economy trends and
penetration rates globally can have a sig-
nificant impact on economies regionally.
A recent report on the sharing econ-
omy workforce in the United States
found that 67.5 percent of sharing econ-
omy jobs are occupied by workers in the
11 MILLION
The number of peoplethat are
employed by the traveland
tourism sector in the
Arab world. The sector is key
to the region'seconomies.
October 2015 ITRENDS 89
....

5. Embracing the sharing economy could play akey role in
addressing the Arab world'syouth unemployment challenge.
18-34 age demographic. The youth em-
ployment impact of the sharing econ-
omy globally suggests that embracing
the sharing economy in the Arab world
could play a key role in government so-
cio-economic development programs
to address the Arab world's youth un-
employment challenge. This insight has
important implications for how Arab
BOO
governments should approach regulat-
ing 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.
90 TRENDS I October 2015
will prevent the likely considerable pos-
itive socio-economic development im-
pacts that can be generated by the sharing
economy. In the GCC countries, entre-
preneurship programs and wage subsidies
offer significant potential to attract na-
tionals and private investment to emerg-
ing 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-regu-
lation of the shared economy, the Arab
world has the opportunity to distinguish
itself as a region that embraces the shar-
ing economy through a well-considered
public policy response that harnesses the
sector's potential growth for regional so-
cio-economic development. •