28 May 2020

Tanzania, Malawi prepare to reap benefits of digital economy

by UNCTAD / in News

Originally published by UNCTAD on 7 May 2020

UNCTAD has assessed the state of play in the two countries and identified policy actions required to harness ecommerce for development.

Tanzania is well-positioned to integrate into the global digital economy, thanks to its growing economy and a rapidly developing innovation ecosystem, a new UNCTAD assessment says.

The assessment of the country’s readiness to engage in ecommerce has revealed its potential to become a leading contender in online trade in east Africa, especially on mobile finance and digital payment fronts.

However, the lack of a national ecommerce strategy is holding Tanzania back, the assessment observes.

Also, the country has neither mainstreamed ecommerce into its national and sectoral development plans nor into inter-ministerial or public-private sector dialogue, further throttling progress.

“The coronavirus crisis has brought to the fore the value of ecommerce and digital solutions in enabling economic activities and broadening options for consumers in times of lockdowns,” said Shamika N. Sirimanne, director of UNCTAD’s division on technology and logistics.

“Ecommerce can help maintain trade flows, an important part of tackling the fallout from the crisis, especially in least developed countries.”

Following the assessment, UNCTAD recommends several policy actions to grow Tanzania’s ecommerce sector.

They include crafting a national ecommerce strategy, enhancing information, communications and technology (ICT) infrastructure, creating a conducive legislative climate and providing incentives to startups.

Promising signals

The assessment acknowledges Tanzania’s promising signals in key areas. It has rolled out a series of e-government services, soon to be extended to its semi-autonomous region of Zanzibar. 

The country’s economic growth has averaged 6% to 7% annually over the last decade. Increasing public and foreign investments also bode well for its future.

UNCTAD’s assessment found growing awareness of the benefits of new technologies among the country’s public sector, another positive sign.

Tanzania is well-connected in terms of hard infrastructure, but the cost of smartphones remains high, contributing to the low internet use – around 30% – among its population.

Challenges to overcome

The assessment identifies a slew of challenges the country needs to overcome to optimize its ecommerce potential.

Tanzania lacks specific ecommerce legislation and its legal framework is inadequate to create a conducive ecommerce business environment, limiting trust among users of digital technologies.

The growth of ecommerce is also hampered by the population’s limited awareness, exacerbating the lack of trust, the assessment finds.

While efforts have been made to develop ICT human capital and innovation hubs are growing fast, skills in digital entrepreneurship and ecommerce remain narrow.

Access to financing is also limited, with micro, small and medium-sized enterprises (MSMEs) facing difficulties obtaining bank credit.

High interest rates stand in the way of ecommerce expansion, while angel investment and venture capital funds are few and far between.

The use of formal financial services remains limited, mainly due to high costs and a lack of knowledge among most Tanzanians.

Malawi: An untapped potential

In neighbouring Malawi, a similar UNCTAD assessment found that ecommerce has the potential to move the country closer to achieving its development goals, but the sector needs to be structured and organized.

“Clear policy directions and higher visibility of the digital economy should be prioritized in the national development agenda,” the assessment says.

Though a policy framework for ICT development has given rise to an embryonic digital ecosystem in the country, Malawi has no stand-alone policy and strategy on the digital economy and ecommerce development agenda.

The country also lacks a blueprint for formal dialogue with the private sector and civil society on ecommerce and digital economy issues.

Other challenges include Malawians’ lack of trust in online systems, low level of internet access, low technology adaptation by firms, lack of access to financing and weak IT skills across the population.

Making progress, hurdles to beat

According to the assessment, Malawi has recently made improvements in the ICT infrastructure, with the extension of fiber-optic backbone and cross-border interconnections, the launch of 4G and the establishment of a universal service fund.

However, less than 14% of Malawians use the internet due to the high cost of access. The quality of internet service and last mile connectivity are also low, discouraging investment in ecommerce in the southern African nation.

To accelerate progress, Malawi must beat other hurdles such as red tape, costly and time-consuming procedures that slow ecommerce uptake, the assessment says.

More than 80% of surveyed private sector actors cited an unsupportive regulatory environment as a barrier to ecommerce solutions in the country.

Financial institutions in Malawi provide meagre and relatively costly credit to MSMEs, and the products and services they provide are not aligned to ecommerce business models, the assessment notes.

A few financial support schemes provided by donors, local and regional incubators/accelerators and partner financial institutions, however, bode well for the inclusion of potential ecommerce projects.

The Tanzania and Malawi assessments are among a series of 27 conducted by UNCTAD in least developed countries since 2017 with the support of Germany, Sweden, the Enhanced Integrated Framework (EIF) and the International Islamic Trade Finance Corporation.

"Now, more than ever, the world's poorest countries need support to bolster their economies. Based on the assessment’s recommendations, we look forward to working with the Malawian government, UNCTAD and other partners to help the country move towards a bright digital trade future," said Ratnakar Adhikari, the executive director of the EIF.

Any views and opinions expressed on Trade for Development News are those of the author(s), and do not necessarily reflect those of EIF.