In an industrial area of Singapore middle-aged men are queuing up to become drivers for Grab, the six year-old ride-hailing start-up that has grown into Southeast Asia’s largest mobility company by number of drivers. After a quick induction on how to use the smartphone app the men span out and join the gig economy.
Widespread smartphone adoption across Southeast Asia has given a fillip to the development of smarter cities. City dwellers can plan routes to work by checking live transport timetables and use hailing apps while on the move. Meanwhile, governments and companies receive a trove of data that enables them to identify and smooth out congestion hotspots faster.
“You could combine the private sector with the public sector to make a much more robust, efficient, safe overall transportation,” Grab president Ming Maa told FinanceAsia.
In Singapore, consumer trends and public policy are to some extent pushing in the same direction. The space-strapped island is one of the world’s most expensive cities to own a car; so ride hailing makes sense to many urbanites.
And the trend towards a sharing economy can only accelerate in Singapore given the degree to which the city limits car ownership. To cope with a swelling population and the fact 12% of all available land is dedicated to roads, the Land Transport Authority lowered the permitted vehicle growth rate in the city-state to 0% in February.
Grab’s office in Singapore’s Sin Ming industrial estate is a short stroll from the city’s Land Transport Authority, the ministry tasked with making sure commuters travel safely to work, while keeping congestion and pollution to a minimum.
“I’ll walk to the office and meet them,” Lim Kell Jay, head of Grab’s Singaporean operations, said in an interview with FinanceAsia about smart cities, a phrase used to mean how the state and the private sector are harnessing technology to boost the efficiency of public services.
Grab aims to supplement Singapore’s public transport system with its own ride-hailing services, as well as with more unconventional modes of transport such as crowd-sourced shuttle buses to underserved industrial estates and army camps, or autonomous taxis a few years from now.
“Instead of having one person in the car at any one time, can we get two or three? Instead of keeping it [the vehicle] parked 90% of the time, we can get it out moving more,” Lim said.
Grab is leaning on its largest shareholders – San Francisco-based Uber, Japan’s SoftBank and China’s Didi Chuxing – as well as carmakers Toyota and South Korea’s SK Holdings to accomplish these goals.
The economic and social benefits of more efficient transport systems are clear and measurable.
Some 5,000 lives are lost each year in Southeast Asia to traffic accidents, fires, and homicides that could be saved through mobility solutions, crime prevention, and better emergency responses, according to management consultancy McKinsey. Intelligent traffic and transit solutions could save up to eight million person-years in annual commuting time, while smart city technologies could cut congestion by 15% to 20%, the consultancy estimates.
“Say the MTR [Singapore’s subway system] stops or has an accident, we can shuttle these passengers to a bus service or car service to make sure they get to work or home,” Maa said.
The market for smart mobility applications could be as large as $70 billion in Southeast Asia, analysts at McKinsey think. So it’s no surprise that equity investors have been piling into Grab and its largest rival in the region, Indonesia-headquartered Go-Jek, hoping to profit from this huge growth opportunity.
Grab is targeting $3 billion in its latest fundraising push while Go-Jek, which already counts Tencent and Google among its backers, is seeking another $2 billion from investors.
Rob Rosenstein, strategic advisor on investments at Booking Holdings, the world’s largest travel company by market value, said ride-hailing apps such as Didi, Grab and Go-Jek were “making a huge difference in terms of congestion.” Booking Holdings has invested $500 million in Didi and Rosenstein says he talks regularly to Grab and Go-Jek’s management.
For debt investors, there is the promise that local governments struggling with small budgets but unwilling to raise taxes could turn to capital markets. The recent innovation of green bonds could particularly appeal to investors with environmental, social and governance concerns. Auckland Council’s issuance of a NZ$200 million 3.17% five-year green bond to fund electric trains is an early example.
LAUNCH PAD
Singapore is at the vanguard of the smart city movement as technology is generally adopted faster in smaller and more economically developed urban areas.
The Lion City has won international recognition of its efforts. It topped UK-based Juniper Research’s survey of smart cities globally and ranks sixth in the IESE Business School’s 2018 smart city index, scoring particularly highly in technology. In the EasyPark survey, meanwhile, Singapore received a perfect score for its public transport system but ranked poorly for traffic congestion.
So it’s perhaps fitting that as this year’s chair of the Asean bloc, a voluntary association of 10 countries, it is organising coordination on smart city development across the Southeast Asian region.
The Asean member states have already nominated an initial batch of 26 cities for development, stretching from Mandalay in the north in Myanmar to Banyuwangi in Java to the south.
However, Singapore can’t be the perfect petri dish for the region as each city’s problems are to some extent idiosyncratic. Southeast Asia spans a myriad of different jurisdictions and widely disparate levels of development.
Thailand and Indonesia were the most congested countries in the world while Singapore ranked 38th, according to the global benchmark, Inrix 2017 Traffic Scorecard, which included data on 1,360 cities in 38 countries.
“Southeast Asia has never had the same economic mobility force that China has been able to create. If we’re able to help trigger or drive that from the private sector, I think that’s worthwhile,” Grab’s Maa said.
Grab, in the latest jargon out of the tech world, wants to be a platform of mobility services that uses the data it gathers on its users to funnel an ever-wider array of products to them. Grab’s strategy is to stretch this platform across Southeast Asia. And its investors are backing its ambition as a proxy for regional growth across the region – with diversification across often-volatile economies built in.
Maa envisages its symbiotic relationship with Singapore being copied with cash-strapped local governments across Southeast Asia.
Congestion on roads costs 2% to 5% of GDP every year; in Kuala Lumpur this is equivalent to RM3,100 ($749) per resident, according to McKinsey.
“Fiscal budgets, particularly in places like Indonesia, are very challenging. I think that’s exactly where a private sector company can step in and help with filling the gaps,” Maa said.
In gridlocked Jakarta and Bangkok, Grab has introduced a motorbike service to zip through traffic jams. It launched a three-wheeled tuk-tuk service in Myanmar in August.
Investors are carefully watching Grab and Go-Jek’s rollout of services across the region. The land grab is ferocious and is keeping them in the red for longer as they subsidise offers to attract users to their respective platforms.
The prize is to have first-mover advantage with Southeast Asia’s roughly 656 million population – 8.6% of the world’s population.
DISRUPTION
Whilst city planners are broadly keen to embrace the benefits of technology, not everyone believes ride-hailing companies help relieve urban congestion.
While ride-hailing may cut down car ownership, research conducted by Alejandro Henao at the University of Colorado finds that more ride-hailing users switched from public transport rather than away from private driving. On top of this, he found that ride hailing results in more miles on the road than a self-driven car journey as the driver must collect the passenger.
Another problem for policymakers is that ride-hailing platforms disrupt traditional taxi companies and their drivers and stifle competition, given their overweening size and network effects.
Taxi driver Ang Mah Keng, who picks up Grab calls to supplement his regular business, said he often works 13 hours a day, seven days a week, and makes about S$300 ($220) a day. The 56-year-old believes that his union, the National Taxi Association, should have vigorously opposed the growth of Grab because its cheaper fares are undercutting his livelihood.
Grab, which has an 80% share of the city’s ride-hailing market, is starting to feel the heat.
Singapore's Competition and Consumer Commission slapped Grab with a fine on September 24 over its takeover of Uber's Southeast Asia operations, and is taking measures to "reduce the impact of the transaction", including unwinding exclusivity agreements.
The competition watchdog said other start-ups’ market shares were insignificant in Singapore, including car polling app Ryde and blockchain Mass Vehicle Ledger. Go-Jek plans to enter Singapore this year.
The gig economy can also become a poverty trap.
Wengui Aaron Huang said he joined Grab about three months ago to work part time while he looked for a permanent position. He estimates that he works 10 hours to earn just S$100.
“It’s hard,” he said, explaining that he pays a 20% commission to Grab on the fares he collects, rents his car from Grab and pays for petrol as well as car insurance. He pays for the car rental seven days a week but generally only works five days. “I’ll work on the weekends if I’m free.”
Investors in ride-hailing companies can expect closer scrutiny from regulators wary of their growing sway over citizens’ lives. Globally technology companies are facing a slew of regulation that aims to curb their ability to collate user data.
Grab has already collected three petabytes of data after completing more than 2 billion rides; that’s almost 40 years’ worth of HD-TV video or close to 690,000 DVDs.
CARS OF THE FUTURE
Ultimately, Singapore wants to cut the number of cars on its roads and is exploring advanced technologies including self-driving cars, the internet of things and artificial intelligence to help this happen.
The state believes that self-driving cars will cut road congestion during peak hours since autonomous freight and utility vehicles can be deployed during off-peak hours. Autonomous vehicles (AV) can also be sent into remote areas to pick up passengers where and when taxi drivers often don’t want to go.
The government has built a mini-town, complete with traffic lights and pedestrian crossings, for testing self-driving cars in the west of Singapore, so it can draw up regulations ready for the deployment of AVs.
“Singapore is unique in the Southeast Asia region,” Lim said. “We do test a lot of things in Singapore but we can’t assume we can just apply it one size fits all. So we do need to localise.”
“Commercial AVs will happen quite soon. Maybe even in the next one to two years,” Lim said.
Grab has been working with self-driving car developers to turbo-charge its progress. In 2016, Grab and Massachusetts-headquartered nuTonomy trialled self-driving cars in Singapore. Grab and nuTonomy hit Level 3 and Level 4, which means they are close to full autonomy.
“We are more bullish about it because we’ve seen the test, we know what works,” said Lim.
The tests showed that AVs worked really well in Singapore’s bright, sunny weather. However, AVs faltered during the regular short heavy storms in the afternoon. So Grab plans to use AVs to supplement its fleet of drivers for the foreseeable future.
Grab’s corporate venture fund has also invested in Drive.ai, which researches artificial intelligence solutions for autonomous vehicles.
The implications are profound. Big data can help predict and route around traffic jams before they even happen. It can also predict where and when future demand from passengers will spike.
“If you’re able to move the supply of cars to the demand before they even know it’s happening then that’s a tremendous amount of efficiency that you can create in the system. It’s very, very powerful,” said Maa.
With assistance from Molly Jackson
