Malawi rapid e-trade readiness assessment

EXECUTIVE SUMMARY

Also known as the “the warm heart of Africa”, Malawi is a landlocked country with an estimated population of more than 17 million inhabitants, bordering with Mozambique, Tanzania and Zambia. It enjoys a stable political environment and an economy driven by agricultural production and trade, primarily tobacco, tea and sugarcane. Through Vision 2020, a series of five-year development plans, and the Malawi Growth and Development Strategy (MGDS) III (2017-2022), the country has embarked on a programme of structural reforms to address macroeconomic imbalances, foster economic diversification, and improve infrastructural endowment and social development indicators.

E-commerce has the potential to boost the country’s economic performance, diversify sources of incomes, and improve accessibility to customers, markets and trade information, all of which play a key role in improving Malawi’s capabilities that are instrumental to meet Malawi’s development ambitions. Nevertheless, the conditions for success require the adoption of a series of fundamental reforms in a number of policy areas – primarily Internet infrastructure upgrading, as well as regulatory improvements and institutional strengthening – to allow Malawians to reap the benefits from emerging opportunities in the fast-growing global digital economy.

E-commerce readiness assessment and strategy formulation

The current Malawian national development plan, MGDS III, recognises ICT’s role in accelerating growth of other sectors as enabler for poverty reduction and wealth creation. However, it does not explore the specific contribution of e-commerce and the digital economy as key drivers to sustain the Malawian developing economy, and neither has the country adopted a focused stand-alone e-commerce policy and strategy. Nonetheless, following the National ICT Policy of 2013, a number of polices and strategies address issues related to e-commerce, especially in the areas of e-government and the development of a legal framework for electronic transactions and e-payments uptake.

The overall e-commerce enabling environment in Malawi faces challenges however, hampering its further development. The main challenges include the population’s lack of trust in online systems, low level of Internet access by the population, low technology adoption by firms, lack of access to financing, and weak IT skills across the population. Government capacities to strategise and implement a digital economy development agenda are weak, and organizations representing e-commerce businesses and consumers are neither very visible nor structured in their lobbying efforts. Policy coordination and dialogue among different stakeholders in the e-commerce ecosystem needs to be organized. These challenges mean that the e-commerce ecosystem is still relatively embryonic.

ICT infrastructure and services

Less than 14 per cent of Malawians use the Internet according to ITU estimates. Affordable access to the country’s ICT networks has been identified as one of the key areas slowing down the adoption of e-commerce in Malawi. The cost of Internet access, although decreasing, remains high by African standards and inaccessible for most Malawians. ICT infrastructures have only recently improved with support from the World Bank, fibre-optic backbone is now in place, but last-mile connectivity is still very limited. Over the last two years, telecom operators have started rolling out 4G coverage, mainly in large urban centres. In addition to limited funding for infrastructural upgrading, power supply hinders efforts to expand the network and improve the performance in Quality of Service (QoS) indicators. Taxation, market, and regulatory structures that do not encourage competition slow down efforts for price reductions in mobile data packages and extension of broadband coverage.

Nonetheless, the telecom regulator, MACRA, and the recently established Universal Service Fund (USF) are driving efforts towards greater access and affordability of ICT services. In the private sector, the demand for ICT services is relatively thin and the few local ICT service providers are mostly outward-looking to fuel their growth. E-commerce businesses are poorly developed, and the sector is characterised by a proliferation of informal operators and a low survival rate for companies.

Trade logistics and trade facilitation

In general, transport infrastructure suffers from low levels of investment, minimal private sector involvement, and limited competition in some subsectors, hindering the opportunities for building an integrated multi-modal network, which is particularly relevant for countries like Malawi to become effectively land-linked1 . The market of postal and logistic services for e-commerce is nascent, and most active operators have not yet structured a coherent offer that would suit e-commerce business models. Investments are also hindered by the lack of an addressing system and the small size of the market. The Malawi Post Corporation (MPC), despite the existence of an e-Post strategy, is still focused on its universal service mandate and has yet to fully embrace a digital modernisation process. Malawi has however prioritised trade facilitation reforms and implementation of the WTO Trade Facilitation Agreement, including the establishment of a National Single Window, which is currently underway. This should provide a renewed impetus towards paperless trade and e-payments.

Payment solutions

Malawians are still reluctant to use cashless solutions when buying goods and services remotely. The booming use of mobile money in Africa has not left out Malawi, and although overall uptake in the country is below the continental average, it is still a key driver for financial inclusion. Over the last few years, regulatory dynamism – driven by the Reserve Bank of Malawi – has laid the foundations for banks and other financial services providers to experiment and launch new products with mixed records of success. While integration between mobile money and online banking is gaining ground, sustained by the establishment of a National Switch and regulatory intervention to allow interoperability of payment instruments, third-party applications from fintech and start-ups are struggling to enter a market dominated by strong incumbentstelecom operators and banks. Credit cards still suffer from security concerns, use of PayPal faces some challenges despite some improvements. In general, more needs to be done to sensitise and build awareness about the advantages of e-payments and stimulate their use, starting by shifting government payments to digital channels.

Legal and regulatory framework

Malawi adopted a key law in 2016, the Electronic Transactions and Cyber Security Act, containing the main elements ensuring and developing e-commercerelated services. However, there is a need to enact regulations and to create awareness of the existing legal framework across the private sector and society at large. The trust in buying and paying for goods and services online is currently very low. Cross-border transactions, personal data protection and dispute resolution mechanisms to manage consumers’ complaints are all areas requiring particular attention from lawmakers to fill gaps in the legal framework. On top of this, red-tape plus costly and time-consuming procedures make the overall business environment quite cumbersome for start-ups and Micro, Small and Medium-Sized Enterprises (MSMEs), lowering the incentive to quit the informal economy and build robust e-commerce marketplaces.

Skills development for e-commerce

Limited connectivity and lack of trust in e-commerce is also translated into low use of the Internet for business purposes, signalling a general need for the support of digital adoption and literacy. Higher education and training programs have not yet embraced curricula suitable to develop e-commerce skills; they mostly target traditional ICT engineering or business administration tracks. Technical and vocational education training is also focused on traditional trades. The result is that an important skills gap needs to be addressed through a new education and training offer for Malawian graduates to increase their employability and self-employment opportunities. A dynamic start-up environment supported by a number of business incubators and accelerators has boosted Malawians’ digital entrepreneurship, but start-ups’ growth and their profitability remain critical, particularly for e-commerce business development projects. The business and trade development support system must rethink its structure and integrate support for digital transformation.

Access to Financing

The last major area of challenge identified in this rapid assessment relates to the difficulty of accessing funding options by companies, particularly MSMEs, because banks’ assets are concentrated on a few borrowers and, together with microfinance institutions (MFIs), banks are not serving the credit needs to sustain companies’ growth and innovation investments.

Besides, the cost of credit is in general excessively high by regional standards and collateral requirements are not suitable for e-commerce businesses. Public funding support is unavailable, since there are no public guarantee schemes, grants or subsidised loans available for venturing e-commerce businesses. This lack of funding hampers the ability of MSMEs, and particularly start-ups, to adopt the right mechanisms to scale up production and, therefore, be able to serve a broader customer base. A few financial support schemes have been put in place with support from the donors’ community and in partnership with local and regional incubators/accelerators, in order to provide start-ups with, on the one hand, the right skills to ensure the success and viability of the company, and on the other hand, the funding necessary to further exploit their business. These schemes have the potential to assist companies in expanding their businesses towards e-commerce operations, while at the same time more needs to be done to attract venture capital and other forms of alternative financing.

In conclusion, there are signs that Malawi has started to consider some of the benefits that e-commerce can bring to its population and some important initiatives have been undertaken in this direction. However, the overall ecosystem needs to be structured and organized to avoid the proliferation of informal and unskilled operators, with obvious losses for government and consumers. For this to happen, clear policy directions and higher visibility of the digital economy in the national development agenda are necessary pre-conditions to tackle all the aforementioned challenges that need to be addressed if the country wants to take advantage of the true potential that e-commerce offers. Figure 1 below gives an indication of the most relevant solutions highlighted by UNCTAD survey respondents.