The digital economy that Tanzania aspires to become for its future growth will be inaccessible without widespread use of digital finance and readily available quality broadband connectivity.
The latter aspect is the high-speed internet access that the country aims to achieve at 80% over the next four years.
The World Bank says achieving this level of connectivity would generate enormous economic value, including some 1.7 trillion shillings in additional domestic production and 225 billion shillings in income tax in 2022.
Studies by financial inclusion proponents and digital economy enthusiasts have established that the widespread use of digital finance could increase the annual gross domestic product (GDP) of all emerging economies by $ 3.7 trillion. dollars by 2025.
Government budget 2021/22
At the current market exchange rate, this translates to some 8,116 trillion shillings. The staggering amount could fund government budgets for more than 200 years based on what Finance Minister Mwigulu Nchemba tabled in Parliament for the 2021/22 fiscal year.
The World Bank argues that the above economic output value would be nearly impossible without quality broadband connectivity which remains a huge challenge for digital finance and the knowledge economy in Tanzania.
One of the goals of the global lender’s recent $ 150 million funding under the Digital Tanzania Project (DTP) is to help the country close the connectivity gap. When fully implemented, the DTP will help increase access to high-quality broadband internet services for government, businesses and citizens, and improve the government’s ability to deliver digital public services.
The second component of the DTP will focus on digital connectivity at a cost of $ 65.5 million. Its goal is to ensure that all Tanzanians can access broadband connectivity and help meet the government’s broadband connectivity target of 80% by 2025.
“Widespread, affordable and reliable connectivity is an essential prerequisite for the provision and access to digital services for socio-economic development and the broader digital economy,” says the World Bank.
“This component will support the government’s agenda for industrialization and equitable spatial development, ensuring that all Tanzanians, including those in rural areas, have equal access to digital services and opportunities,” he adds.
World Bank calculations carried out in 2019 estimated that a 10% increase in broadband penetration in the country would generate an additional 8.358 billion shillings in national output (GDP) between 2018 and 2022.
Of this total, 1.695 trillion shillings would be generated this year, while 1.671 trillion shillings, 1.648 trillion shillings and 1.625 trillion shillings would have been created in 2020, 2019 and 2018 respectively.
On the fiscal side, the increase in broadband production would generate an additional income tax for national coffers amounting to 1.095 trillion shillings over the five-year period. Of this amount, 213 billion shillings would have been collected in 2018, while 216 billion shillings could have been generated the following year.
The additional income tax for 2020 and 2021 would have been 219 billion shillings and 222 billion shillings, respectively. The World Bank argues that the government should plan to increase broadband use if it is to reap the tax benefits of increased economic growth.
Elimination of VAT on smartphones
The proposal to remove VAT on smartphones in the 2021/22 budget aims to do just that. According to the Tanzania Communications Regulatory Authority (TCRA), until June 2020, only 25% of the total population of Tanzania had access to a smartphone, which according to the Association of Mobile Network Operators of Tanzania (TAMNOA), represents a very low level of penetration.
“Mobile broadband is one of the fastest growing areas of the telecommunications industry today, with great technological advancements, as most mobile network operators (mobile network operators) are considering 3G / 4G upgrades, ”the association noted in its budget submission to the Parliamentary Budget Committee for fiscal year 2021/22.
“However, the majority of Tanzanians are on the 2G network because they use old devices. Therefore, if MNOs upgrade sites to 3G and 4G, many Tanzanians will not have any communication, ”he said.
The TCRA recognizes that MNOs have invested strategically to deploy 3G and 4G technologies, but TAMNOA argues that without devices that can access this technology, all the investment will be in vain.
Advances in connectivity
Despite persistent broadband challenges, the World Bank says Tanzania has made significant progress in improving connectivity and access to digital financial services over the past decade, which contributes to economic growth. and financial inclusion.
At the end of 2019, the penetration rate of mobile phones (voice) had risen to 47.7 million (82.2%). The number of active mobile money accounts at the end of 2019 was around 24 million, and the value of digital financial transactions was equivalent to nearly 50% of total GDP.
Following the launch of 3G / 4G services in major cities, Internet access, particularly mobile broadband, has recently started to take off. The TCRA estimated around 26 million users, or a penetration rate of 44.5% at the end of 2019, which was 35.5 percentage points below the government’s target by 2025.
These achievements have been driven by public and private investments in telecommunications infrastructure and the provision of digital services, particularly in the highly competitive mobile telecommunications market.
3G and 4G mobile broadband services
“Despite this progress, Tanzania is underperforming given its potential to harness communications and digital technologies for economic growth, job creation and service delivery. Tanzania also lags behind its neighbors in terms of adoption of 3G and 4G mobile broadband services, ”the World Bank said.
According to a 2019 report by the Global System for Mobile Communications Association (GSMA), the 3G coverage of the population in Tanzania in 2018 was 61%, compared to 78% in Uganda, 88% in Kenya and 95% for Rwanda. Local 4G penetration was 24 percent compared to 23 percent in Uganda, 61 percent in Kenya and 99 percent in Rwanda during the year.
The population’s 3G network coverage had jumped to 60 percent by the middle of last year and now TAMNOA is putting it at 68 percent. 4G network coverage, which was 35% in June 2020, has increased to 45% today.
According to the GSMA, despite the progress made in extending rural connectivity, a significant digital divide persists in the country, with at least three million people living in areas still without any mobile signals, and more than 18 million people. without data coverage, essential to connect to the Internet network.
Even in areas with sufficient signal coverage, mobile broadband services remain unaffordable for most of the population, with rates for a basic plan (500MB per month) equivalent to 10% of gross national income (GNI ) per inhabitant. This is double the United Nations (UN) approved affordability benchmark of five percent or less.
“The increased availability of 4G and eventually 5G services will provide the bandwidth needed to deliver a more sophisticated range of mobile financial services beyond pure payments and remittances,” says Rupert Shaw, technology expert finance, commercial director of Ding, the world’s number one international mobile top-up service.
Digital Tanzania Project
The DTP project backgrounder says that if the digital economy is to grow rapidly in Tanzania, there are a number of interventions that authorities should address quickly.
These include measures to make mobile money and low-value data plans affordable for the poor and to increase citizen participation in digital financial services.
To spur progress towards integration into the global digital economy, the government should seek to attract operator-neutral data centers and content distribution networks, in addition to ensuring an enabling environment to encourage operators to invest more in underserved areas.
The report says investing in better mobile broadband coverage in rural areas is particularly needed to bridge the digital divide. Under the DTP, $ 30.5 million will be spent on rural broadband for development.
“This sub-component will build on the successful rural connectivity program supported under the Regional Communication Infrastructure Program in Tanzania (RCIP-TZ) by expanding data network coverage (4G or higher) to three million people currently living in areas of the country that are not currently served by any mobile cellular signal and will upgrade existing 2G networks to 4G and above. “
TAMNOA puts 2G coverage in Tanzania, which was 90% in 2018, to 94% today.