- Studies by proponents of financial inclusion and digital economy enthusiasts have established that widespread use of digital finance could boost annual gross domestic product (GDP) of all emerging economies by $3.7 trillion
The digital economy Tanzania aspires to become for its future growth will be unattainable without widespread use of digital finance and readily available quality broadband connectivity.
The latter aspect is high-speed internet access that the country aspire to achieve by 80 per cent in the next four years.
The World Bank says attainment of that connectivity level would generate huge economic value, including some Sh1.7 trillion in additional national output and Sh225 billion income tax in 2022.
Studies by proponents of financial inclusion and digital economy enthusiasts have established that widespread use of digital finance could boost annual gross domestic product (GDP) of all emerging economies by $3.7 trillion by 2025.
2021/22 Govt Budget
At the current market exchange rate, that translates to some Sh8,116 trillion. The staggering amount could finance the government budgets for over 200 years based on what Finance Minister Mwigulu Nchemba tabled in Parliament for fiscal year 2021/22.
The World Bank contend that the above economic output value would be next to impossible without quality broadband connectivity that remains a huge digital finance and knowledge economy challenge in Tanzania.
Among objectives of the global lender’s recent $150 million financing under the Digital Tanzania Project (DTP), is to help the country address the connectivity shortcoming. When fully implemented, DTP will help increase access to high quality broadband internet services for government, businesses, and citizens, and improve the government’s capacity to deliver digital public services.
The second component of DTP will address digital connectivity at a cost of $65.5 million. Its aim is to ensure that all Tanzanians can access high-speed broadband connectivity, and help to attain the government broadband connectivity target of 80 per cent by 2025
“Widespread, affordable, and reliable connectivity is an essential prerequisite to providing and accessing digital services for socio-economic development, and the wider 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 equivalent access to digital services and opportunities,” it adds.
World Bank calculations made in 2019 estimated that a 10 per cent increase in broadband penetration in the country would generate additional Sh8.358 trillion in national output (GDP) between 2018 and 2022.
Out of that, Sh1.695 trillion would be generated this year while Sh1.671 trillion, Sh1.648 trillion and Sh1.625 trillion would have been created in 2020, 2019 and 2018 respectively.
Fiscally, the increase in broadband generation would generated additional income tax for national coffers amounting to Sh1.095 trillion during the five-year period. Of that amount, Sh213 billion would have been garnered in 2018 while Sh216 billion could have been generated the following year.
The additional income tax for 2020 and 2021 would have been Sh219 billion and Sh222 billion respectively. The World Bank argues that the government should plan to grow broadband use if it wants to reap the tax benefits of increased economic growth.
Scrapping VAT on Smartphones
The proposal to scrap VAT on smartphones in the 2021/22 budget aims at doing that. According to Tanzania Communications Regulatory Authority (TCRA), up until June 2020, only 25 per cent of the total population in Tanzania had access to a smartphone, which Tanzania Mobile Network Operators Association (TAMNOA) says is a very low level of penetration.
“Mobile broadband is one of the fastest growing areas of the telecoms industry today with great advancement in technology as most MNOs (mobile network operators) are looking into 3G/4G upgrades,” the association noted in its budget submission to the Parliamentary Budget Committee for fiscal year 2021/22.
“However, majority of Tanzanians are on 2G network as they are using old devices. Therefore, if MNOs upgrade sites to 3G and 4G a lot of Tanzanians will have no communication,” it pointed out.
TCRA acknowledges that MNOs have invested strategically to roll out 3G and 4G technologies but TAMNOA argues that without devices that can access this technology, the whole investment will be futile.
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.
By the end of 2019, mobile phone (voice) penetration had risen to 47.7 million (82.2 per cent). 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 per cent of total GDP.
Following the launch of 3G/4G services in major population centres, access to the internet, particularly mobile broadband, has recently begun to take off. TCRA estimated around 26 million users, equivalent to 44.5 per cent penetration at the end of 2019, who were 35.5 percentage points short of the government’s target by 2025.
These achievements have been driven by both public and private investments in telecommunications infrastructure and digital service delivery, particularly within the highly competitive mobile telecom market.
3G and 4G Mobile Broadband Services
“Despite this progress, Tanzania is underperforming given its potential for harnessing digital communications and technologies for economic growth, job creation, and service delivery. Tanzania also lags its neighbours in terms of take-up of 3G and 4G mobile broadband services,” says the World Bank.
According to a Global System for Mobile Communications Association (GSMA) 2019 report, Tanzania’s 3G coverage of the population in 2018 stood at 61 per cent compared to Uganda’s 78 per cent, Kenya’s 88 per cent and 95 per cent for Rwanda. Local 4G penetration was 24 per cent against 23 per cent in Uganda, Kenya’s 61 per cent and Rwanda’s 99 per cent during the year.
3G network coverage of the population had jumped to 60 per cent by mid last year and now TAMNOA puts it at 68 per cent. The 4G network coverage that was 35 per cent in June 2020 has risen to 45 per cent today.
GSMA has it that despite progress 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 signal, and more than 18 million people without data coverage, essential to connect to the internet.
Even in areas with sufficient signal coverage, mobile broadband services remain unaffordable to most of the population, with tariffs for a basic plan (500 MB per month) equivalent to 10 per cent of gross national income (GNI) per capita. This is twice the United Nations (UN)-endorsed affordability benchmark of five per cent or less.
“Increasing the availability of 4G and, eventually, 5G services will provide the bandwidth to offer a more sophisticated range of mobile-first financial services beyond pure payments and remittances,” argues financial technology expert Rupert Shaw, the Chief Commercial Officer at Ding, the number one international mobile top-up service in the world.
Digital Tanzania Project
The DTP project information document has it that if the digital economy is to expand rapidly in Tanzania, there are a number of interventions that the authorities should sort out quickly.
These include moves to make mobile money and low-value data packages affordable for the poor and to increase participation of citizens in digital financial services.
To stimulate progress toward integration in the global digital economy, the government should seek to attract carrier-neutral data centres and content distribution networks, in addition to ensuring an enabling environment to encourage operators to invest more in underserved areas.
The report says that investment in enhanced coverage of mobile broadband in rural areas is particularly necessary to reduce the digital divide. Under DTP, $30.5 million will be spent on rural broadband for development.
“This subcomponent will build on the successful rural connectivity program supported under the Regional Communications Infrastructure Program in Tanzania (RCIP-TZ) by extending data-enabled (4G or higher) network coverage to the three million people currently living in areas of the country that are currently unserved by any mobile cellular signal and will upgrade existing 2G networks to 4G and above.”
TAMNOA puts 2G coverage in Tanzania, which was 90 per cent in 2018, at 94 per cent today.