Are Almaty-Style “Bombilas” the Future of the Tbilisi Taxi Market?

Recently, the administration of Tbilisi City Hall announced that the Tbilisi taxi market is to be regulated. The process of switching to a regulatory frame will be gradual. At first, the taxi drivers will be obliged to acquire taxi signs and a permit from an appropriate authority, a regulation which is not expected to create significant pressure on taxi service providers. At the second stage, however, taxi drivers will be required to pass a technical inspection and satisfy minimal quality standards. The details of all planned regulations remain vague, but economists have already started to estimate the possible consequences of different regulations on the Tbilisi taxi cab market based on the rich experience of other countries around the world.

The Georgian Taxi Market

Regulating the taxi cab market is justified by the idea of eliminating market failure, a fact quite common in totally unregulated markets. To have a better understanding of the topic, we should briefly overview the structure of the Georgian taxi cab market. According to unofficial statistics, there are 40,000 unregistered and unregulated taxi cabs in the Tbilisi, and the taxi market can be further divided into three broad categories: pre-booked, hail and rank markets.

In the pre-booked market, clients use telephone, internet and/or mobile applications to call a taxi. Here, consumers are arguably well placed to choose between service providers, being informed about price structure, quality differentials and able to verify the availability of vehicles.

The hail market (or “street-hail” market) simply means that people hail a cruising taxi on the street. In this market, clients are less well-placed. People who hail taxies on the street are uncertain about the waiting time needed until the next taxi arrives. The price is not predetermined and is a matter of bargaining between client and driver, with bargaining power strictly dependent on various circumstances. The quality of taxi cabs, route knowledge and professionalism of taxi drivers can also vary significantly.

Taxi ranks are specially designed places (in some cases uncontrolled) at which taxies queue to await passengers, with clients expected to take the first taxi in the rank. Consumers in this market are worst placed as the price and quality of services provided in the taxi rank market can also differ quite substantially.

Possible Regulations

To correct the existing market failures related to price and quality, government authorities can introduce three basic forms of regulation: quality inspection, market conduct regulation and/or quantity regulations. Despite the fact that these forms of regulation are quite distinct, they co-exist in most jurisdictions. Qualitative regulations embrace two dimensions: regulated standard of vehicle (based on the age, type, or maintenance requirements of cars) and regulated standard for taxi drivers and operators (tests, uniform requirements, qualification requirements or route knowledge). This form of regulation ensures the safe and comfortable transportation of consumers. In theory, qualitative regulations do not have much of a negative impact on the efficiency and competitiveness of the taxi market, unless there are a large amount of taxi cabs likely to fail to meet the basic requirements.

Market conduct regulations might mean additional requirements for taxis to be affiliated with a radio network, or requirements in relation to ride-sharing and other rules of assigning licenses. These regulations mainly coexist with technical quality inspections and arguably should make our taxi experience much more comfortable. The quantitative regulations, on the other hand, are the most restrictive measures, being the major area of concern in terms of ensuring efficiency of the taxi market.

The advocates of the system would argue that market entry restrictions would raise the incomes of taxi drivers (who are mostly poor, vulnerable workers), and reduce congestion/pollution at the expense of somewhat higher prices and reduced rivalry on the taxi market. Critics see in this the threat of market monopolization and overpriced services. Who is right? Before our policy-makers get “trigger happy” introducing new regulations, let us consider the cautionary tale of another post-Soviet city: Almaty.

Regulations Don’t Necessarily Lead to Desired Results: the Chaotic “Bombila” Market of Kazakhstan.

A few month ago, my friend and I visited Almaty to present a paper at an international conference. Our strange story about the local taxi cab system started right after leaving Almaty International Airport. It was not surprising that taxi drivers were extremely active in convincing their potential clients that traveling in their taxi cab was the best option among all the alternatives, but it was a little strange that the number of vehicles equipped with taxi signs was quite limited.

After that, we walked a lot in the city during our consecutive four days there, and noticed there were very few legal taxes with taxi signs, and it was easy to spot that these taxies were pre-booked and so not for the use of people waiting in the street. However, we quite often witnessed the strange practice of people standing on the side of the road and rising a hand to every car passing by, whether said cars professed taxi signs or not. It seemed a fast process: raise hand, “cab” stops, a quick negotiation with the “independent” driver, and off you go.

We found out later that the taxi cab market was actually very tightly regulated in the Republic of Kazakhstan through the issuing of licenses and control of the quality of taxi service. However, this tightly regulated market seemed to be even more chaotic than a typical unregulated one, as unlicensed taxi drivers, called “Bombilas” (a nickname coming from the Russian word Bombila meaning ‘bombed’ and widely used to describe unlicensed “independent” taxi drivers of many post-Soviet cities) were seen to be dominating the taxi market. There are two main reasons that explain the fact that the tight regulation turned out to be powerless against the vicious practice of providing an unofficial taxi service. First, “Bombilas” are competitive compared to their official counterparts, as grabbing an unlicensed taxi (even without any taxi sign) is as easy as raising a hand while standing on the side of the road, while official competitors need several minutes to reach a customer (as supply of the official taxi service is quite restricted after introduction of the licensing regulation).

Second, despite the fact that police try hard to find unlicensed taxi drivers and fine them by up to 45,000 tenge ($134) for tax avoidance, taxi cab drivers (who mainly represent poor, unemployed individuals) are especially dependent on the income earned from the illegal taxi service and so the risk of being accused and fined is an acceptable one. As a result, according to the unofficial estimates, there are around half a million people that drive unlicensed taxies to earn some form of income, and, for a country of 18 million population, this is no small number. A similar situation can be found in the majority of post-Soviet countries.

Sure, it may be a good idea to introduce some basic requirements in the taxi market to provide for the safe and comfortable service of passengers, but policymakers should take into consideration the current state of the city’s transportation system, road infrastructure and possible impacts of introducing regulations on the main stakeholders (taxi drivers, pre-booked taxi service companies and consumers). In addition, government authorities should be careful when implementing these regulations in order to avoid substituting a “market failure” for a “government failure” or even worse – creating a chaotic “bombila” market.

Davit Keshelava

05 February 2018 17:33