Is this the model for an economy that breeds unicorns?
By Luiza Bandeira
2 July 2019
Jusmely Vasquez checks her phone. She can take 10 minutes for a quick interview, she says, before her next delivery. Vasquez is a bicycle courier for Rappi, the Colombian delivery app that has taken the region by storm.
Vasquez, a 24-year-old mechanical technician and musician who moved to Colombia two years ago, comes equipped with Rappi’s standard-issue orange backpack. Her sweatshirt, saying “Made in Venezuela” on its logo, is not part of her uniform, but it might as well be. In Bogota, it’s widely assumed that most Rappi workers are Venezuelans fleeing hunger and poverty across the border.
Last year Rappi achieved unicorn status, a moniker given to tech start-ups valued at over $1bn. It’s a major achievement for a company that was only launched, by three Colombian entrepreneurs, in 2015.
Its rise has coincided with a downward spiral in its eastern neighbour, as political discontent fueled by hyperinflation, power cuts and food shortages has forced four million Venezuelans to flee.
To many of them, Rappi has become a lifeline, providing much-needed jobs. Yet local workers believe the migrants have depressed wages, while some experts question whether Rappi’s success is built on Venezuela’s migrant crisis.
A new labour force
Rappi started out as a grocery delivery service but has since morphed into a “super-app”, integrating multiple services and functionalities. It offers food and medicine shopping (Instacart), restaurant orders (Uber Eats, Deliveroo), cash withdrawals and mobile money transfers (Venmo). It has also become a way for customers to get errands done: a Rappi worker can deliver small packages or even do your clothes shopping (TaskRabbit).
In the four years since it started life, it’s expanded into six Latin American countries and says it currently has more than 100,000 couriers. It achieved the prized ‘unicorn’ status in 2018 and followed up in April with a $1bn investment from Japan’s SoftBank.
Rappi does not publish details of how many Venezuelan workers the firm has, saying it does not want to fuel anti-migrant sentiment in the region. It does state however that 30% of its couriers across Latin America are migrants. Yet economists, migration-linked NGOs and academics, and a dozen Rappi couriers interviewed by BBC Capital all believe that most Rappi workers in the Colombian capital – as well as in nations like Argentina – are Venezuelan migrants.
That’s given rise to the idea that Rappi has indirectly profited from the crisis that has brought 1.3 million Venezuelans to Colombia’s door. The migrants urgently needed jobs, which pushed wages down across the country, according to a World Bank report.
Rappi rejects the suggestion that most of its workers are Venezuelans and the idea that it benefited from the migration crisis. “This is absolutely not true. We are very proud that we hired Venezuelans, but we would be in the same place if it wasn’t for them. We did not plan to hire them because they were cheaper,” says Rappi co-founder Simón Borrero.
Some experts, however, think the crisis helped fuel Rappi’s fast growth. Globally, migrants often make up a significant proportion of the gig economy. But in Colombia’s case, it saw a sudden influx that abruptly altered the labour pool.
“It is not that they are paying less to Venezuelans than to Colombians, or that they reduced payments per delivery after the arrival of migrants,” says Cristobal Perdomo, co-founder of Jaguar Venture, a venture capital firm that analysed Rappi’s business in 2016. “What I believe happened is that if they were paying, for instance, 50 pesos per delivery last year or two years ago, they can still pay 50 pesos this year and Venezuelans will keep working for them.”
Borrero confirms that payment per delivery has not increased since last year. He says no change was needed because Rappi expanded its user base, meaning more deliveries per courier and larger pay packets – an average increase of 11% per courier.
Juan Carlos Guataquí, professor of economics at Rosario University in Colombia, says Venezuelan workers have played a crucial role. “If there wasn’t Venezuelan migration, would Colombians be working for Rappi? Probably yes. But the migration wave gave Rappi access to a labour force that was much cheaper than the Colombians, because they needed to work,” he says.
Were wages hit?
Integrating Venezuelans into the labour market has not been easy for Colombia, which is dealing with its own challenges after decades of civil conflict. In 2017, the government introduced a work permit allowing Venezuelans to work legally, as well as formal registration so they could access health and education systems. This was a generous and “pretty much unprecedented” move, particularly in a nation with high poverty rates, says Michael Lerner, UNHCR durable solutions officer.
This was a generous and pretty much unprecedented move, particularly in a nation with high poverty rates – Michael Lerner
The labour market struggled to absorb the influx. In Colombia, almost half of the working population does not have a legal contract, making finding formal jobs even tougher for new arrivals. According to Lerner, 10% of Venezuelan workers in Colombia have a contract. Yet a report by Rosario University and the Konrad Adenauer Foundation (KAS) found just 0.7% of Venezuelans migrants had found formal employment in Colombia, with another 45% in the informal sector.
“The work permit that most of them have is only valid for two years, and employers do not want to hire someone that might leave so soon,” says María Clara Robayo, one of the report’s authors. “Even when they get this document, they also have problems opening bank accounts and signing work contracts.”
Xenophobia also plays a role, adds Guataquí of Rosario University. Colombia is not used to receiving migrants, meaning many people still prefer to hire locals, he says.
One of the biggest impacts has been wage depression. A World Bank study that has not been published yet found that a 1% increase in migration from Venezuela caused an average 3% decline in wages in Colombian host communities. This number includes Colombians who moved to Venezuela to escape the civil conflict and then returned home amid the crisis. Narrowed to just Venezuelans, the wage drop would be closer to 5%.
“The economy has a certain number of jobs available and there are a certain number of workers available. When you increase the number of workers and not of jobs available, employers can hire workers for lower wages,” explains German Caruso, a World Bank economist.
At a protest in October 2018, Colombian contractors claimedRappi had reduced all couriers’ wages per delivery as a direct result of the Venezuelans. The workers claimed that migrants didn’t know the previous rate and desperately needed money, so agreed to work for less.
Borrero confirms the payment system changed last year, but says it wasn’t related to the Venezuelans. He says Rappi made the system fairer by reflecting distances and types of service: couriers might get less for a short-distance delivery but a higher rate for a longer-distance delivery.
Borrero says Rappi is being “penalised” for the actions of other gig economy companies that have used the model to pay less than minimum wage. “People think that we are looking for a way to make more money, to pay less to our couriers. But we have a waiting list, we didn’t have to pay more than the minimum wage to people. We want to be a company that creates opportunity to people in Latin America, we want to help the continent to grow.”
According to Borrero, Rappi couriers get paid on average 2.5 times the minimum wage in Latin America. In Colombia, the minimum monthly wage currently amounts to about US$258 (£203). The company says payment depended on distance, type and day. In Colombia, a courier can get US$ 1 to 1.25 for a restaurant delivery, or up to US$ 4 for a more complicated task.
Carlos Esteban, a Venezuelan courier who arrived in Bogota seven months ago, says he earns about $300 a month working nine hours per day, six days a week – more than the minimum wage, but less than the estimate given by Borrero. New joiners usually have lower customer ratings, meaning the app directs fewer deliveries their way. Margen Albornoz, a Venezuelan courier, thinks higher worker numbers means people are receiving fewer requests. But she says she earns more working for Rappi than in other casual jobs she’s had in Colombia.
Her Colombian colleague Esteban Girardo is more outspoken. “There are so many Venezuelans at Rappi that it is not possible to get money working for it anymore,” he says. The 18-year-old, who has been waiting for an hour for a request, says that on good days he can earn $10 for six hours. On bad days, he receives $2.15, way less than minimum wage.
‘A positive thing’
Worldwide, migrants can benefit from the gig economy, but experts say platforms like Uber, Lyft and others can be a double-edged sword.
“In a sense, the whole gig economy is fantastic for immigrants, because it allows them to arrive in a country and begin working the next day, without spending much time searching for a job,” says Kirsten Sehnbruch of the International Inequalities Institute at the London School of Economics. On the other hand, there is concern about how vulnerable gig economy workers are, with long hours, no job security and weak ties to social welfare systems.
Rappi says couriers are independent service providers. They receive insurance to cover work accidents, but no health insurance or pension contributions. Rappi argues that couriers are connected to the app for 12 hours per week on average and that most work to boost earnings after their day jobs. Other platforms in the gig economy, such as Uber, use the same model.
Gig economy jobs also do not offer growth and career development, leaving migrants on the fringes of the labour market. “With the low wages, it is unlikely that they will be able to save to invest in education. So these jobs do not imply social mobility,” explains Guataquí. He sees Rappi as an “emergency work programme” for Venezuelans in Colombia.
Integrating workers through the informal system usually means that they do not pay taxes. Since they are self-employed, many do not declare their earnings. This could hit Colombia’s ability to benefit from migration in the long term, according to Caruso of the World Bank.
Felipe Muñoz, the government official tasked with managing the migration crisis, says integrating Venezuelans into the economy is a key goal. Ideally, he adds, everybody would be contributing to the social security system – but acknowledges this is a huge challenge.
“We are not naïve, we know that some regions have very high informality rates. So we see it as a positive thing that Rappi and other companies are helping with job creation, so that migrants can at least have a job.”
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