Tanzania rapid e-trade readiness assessment

EXECUTIVE SUMMARY

With a growing economy, favourable geographic location and rapidly developing innovation ecosystem, Tanzania is well-positioned to integrate into the global digital economy. Economic growth over the last decade has averaged 6 to 7 per cent per year and the medium-term outlook is positive, with growth projected at 6.6 per cent in 2019 and 2020 . Large public investment projects and continued foreign direct investment bode well for the future, and there is growing awareness of the benefits of new technologies (as seen by the widespread use of mobile money).

Tanzania’s economy has also become more diversified over the last decade. While agriculture continues to be the mainstay for the vast majority of the population, emerging sectors such as finance and communications are propelling the economy forward. Export of manufactured goods to regional markets is also growing. Micro, small and medium-sized enterprises (MSMEs) contribute to 27 per cent of the GDP and employ more than 5.2 million people . More than half of the MSMES are owned by women.

As a coastal economy bordering eight countries, six of which are nearly or completely land-locked, Tanzania is well-situated to expand as a regional trade hub. E-commerce has the potential to boost the country’s economy by creating new employment opportunities, diversifying sources of income and creating new value chains. For MSMEs in particular, digital technologies provide the potential to improve access to new and existing markets and customers. There is also immense development potential in tourism.

E-commerce readiness assessment and strategy formulation

The Government of the United Republic of Tanzania has taken key steps to develop the country into a regional e-commerce hub. Digitalization of government services is advancing and the Government is investing resources into enhancing the overall business environment. Despite this, Tanzania has yet to adopt a stand-alone e-commerce policy or strategy, and e-commerce is not mainstreamed into the national or sectoral trade development strategies. E-commerce development is not currently on the agenda of existing interministerial or public-private dialogue platforms.

The Government has adopted a series of e-Government services, including the establishment of a Government Portal that serves as a one-stop centre for public services. The Government has also recently introduced the Government electronic Payment Gateway (GePG) that enables all Government entities (Central, Local and Agencies) to use a single payment platform. There have also been efforts to implement e-Government services in Zanzibar, such as the Online Business Registration System implemented by the Zanzibar Business and Property Registration Agency (BPRA).

With support from the UNCTAD, the Tanzania Investment Centre (TIC) runs an e-Regulations website providing detailed step-by-step guidance for investing in Tanzania. The Ministry of Industry and Trade (MIT), with TradeMark East Africa (TMEA) and UNCTAD support, is also currently developing a National Business Portal.

ICT infrastructure and services

With a large and growing population, a competitive mobile network operators (MNOs) market and increasing mobile service delivery, the trajectory of growth of mobile Internet users is positive. Building the National ICT Broadband Backbone (NICTBB), connected to the region’s main submarine cables, has resulted in lower mobile data prices for end-users. By the end of 2018, 3G and 4G networks covered around 61 per cent and 28 per cent of Tanzania’s population, respectively. This remains considerably lower than the 2G coverage of around 90 per cent.

Although mobile data prices are reasonably low, they remain unaffordable for segments of the population that mostly reside in rural areas. This has resulted in a large gap in Internet use between urban and rural areas. Also, fewer women than men access and use the Internet. Given that most Tanzanians access the Internet through their mobile phones, the low Internet penetration rate – 25-30 per cent – is likely due to the high cost of obtaining an Internet-enabled phone.

Trade logistics and trade facilitation

Tanzania is becoming a transport hub or corridor for many of its neighbours and improving the transportation infrastructure is a key priority for the Government. Significant investment is directed to road, rail, sea and air travel development, as well as into enhancing One-Stop Border Posts (OSBPs). Several challenges persist in the context of e-commerce development however, notably the lack of widespread home addressing. This represents a major challenge for last-mile delivery service providers. Implementation of the National Addressing and Postcode System (NAPS) project is underway but covering all regions of the country takes time.

The Parliament of the United Republic of Tanzania ratified the WTO Trade Facilitation Agreement (TFA) on 13th November 2019, but Tanzania is yet to submit the Instrument of Ratification to the WTO Secretariat. The country has also not acceded to the Revised Kyoto Convention (RKC). Despite this, the country performs better than its LDC peers on the different trade facilitation-related indicators, a reflection of the Government’s efforts to improve its trade environment. Implementation of the Blueprint for Regulatory Reforms to Improve Tanzanian Business Environment will further improve trade facilitation, while the National Single Window was expected to be rolled out by the end of 2019.

Payment solutions

Although many formal financial sector service providers operate in Tanzania, uptake and usage of the offered services are limited. The demand-supply gap in formal financial services is due in large part to the lack of awareness in the general population and the high cost of services. Usage gaps persist between men and women, and between higher- and lowerincome segments of the population.

Mobile money has emerged as the main tool used by Tanzanians to access financial services. Based on the numbers of users and transactions, Tanzania has become one of the largest markets in the world for mobile finance. The Bank of Tanzania’s regulations provide a conducive business environment for mobile money, including interoperability between mobile money service providers. Despite the growth in this form of payment, cash-on-delivery is still the most common form of payment, even for e-commerce transactions.

Legal and regulatory framework

One of the key challenges highlighted during UNCTAD’s in-country consultations was the lack of an enabling regulatory environment for e-commerce development. The current legal and regulatory environment was viewed as inadequate for the modern digital economy, particularly in terms of creating trust among users of digital technologies. Stakeholders lamented the absence of specific e-commerce legislation that would provide the foundation for building this trust.

Tanzania does have an Electronic Transactions Act (2015) and a Cyber Security Act (2015), and a Personal Data Protection Bill is currently being drafted. Tanzania has also introduced the Electronic and Postal Communications Regulations (2018) to regulate online content. While consumer protection in general is covered by the Fair Competition Act (2003) which is currently under review, the Electronic Transactions Act covers elements of consumer protection in e-commerce.

Skills development for e-commerce

Although a number of efforts have been made to develop ICT human capital in the country, including adding ICT curriculum to tertiary education, skills in digital entrepreneurship and e-commerce remain limited. It is critical for policymakers to make a distinction between technical ICT skills and the broader set of skills that are needed to conceive, plan, develop, launch and operate an e-commerce business.

Currently, the formal education and training systems aimed at developing the skills required for e-commerce and digital entrepreneurship are limited to some courses on social media and digital marketing.

Innovation hubs are growing fast in Tanzania, however, as part of the broader innovation ecosystem, and have great potential to introduce and support new e-commerce businesses. A further challenge is the limited understanding of the different facets of e-commerce, across all levels of society, which has led to a persistent lack of trust between e-commerce vendors and their customers.

Access to Financing

Entrepreneurs and MSMEs, including those working in e-commerce, face several barriers to accessing financial services in Tanzania. In 2018, Tanzania had the highest (among EAC countries) percentage of SMEs claiming difficulties in accessing bank credits. The Government is in the process of addressing the strict requirements around Know Your Customer (KYC), which could be hindering people from joining formal financial institutions. Registration, collateral and credit history requirements, as well as the lack of products tailored to MSMEs, also pose barriers. This all makes it challenging to launch new e-commerce businesses and to expand existing ones.

The Dar es Salaam Stock Exchange (DSE) has a second-tier market, the Enterprise Growth Market (EGM), designed to attract small and medium enterprises (SMEs) with high growth potential; however, the number of SMEs served by the EGM remains small. Angel investment and venture capital, while limited, are growing and complemented by schemes led by the Government and development partners.