Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Tanzania's Online Business (MSMEs) Dilemma
September 15, 2023  
“Rising Internet Costs and Capital Constraints” This research highlights the complex environment in which online businesses in Tanzania operate and the need for effective strategies to navigate these obstacles. In Tanzania, despite the current landscape where more than 85 percent of Micro, Small, and Medium Enterprises (MSMEs) take place online, facilitating easy access to customers […]

“Rising Internet Costs and Capital Constraints”

This research highlights the complex environment in which online businesses in Tanzania operate and the need for effective strategies to navigate these obstacles.

In Tanzania, despite the current landscape where more than 85 percent of Micro, Small, and Medium Enterprises (MSMEs) take place online, facilitating easy access to customers in a short time, there's a notable challenge emerging due to the rising costs associated with internet usage. This escalating cost is proving to be burdensome for emerging businesses with limited capital, hindering their ability to generate sustainable profits. Meanwhile, the remaining 15 percent of businesses in Tanzania employ alternative models to acquire customers.

In Africa, a recent survey unveiled that 53 percent of African Micro, Small, and Medium Enterprises (MSMEs) boost their sales through online platforms. Among these, 53 percent utilize online advertising to bolster brand visibility, while 45 percent directly sell their products and services online. Additionally, the study discovered that 36 percent of these businesses resort to personal savings to cope with the escalating operational expenses.

The research, a collaborative effort by GeoPoll, Africa 118, and the African Talent Company, conducted a comprehensive analysis of MSMEs spanning various industries and countries across the African continent. Its primary objective was to explore how these enterprises are harnessing the potential of the digital landscape, shedding light on the evolving dynamics shaping their operations.

Regarding their assessment of the business environment, a substantial 55 percent of the surveyed businesses reported improvements in their country's business climate compared to the previous year.

The challenges of doing online business in Tanzania include:

  1. Rising Internet Costs: One significant challenge is the increasing cost of internet usage, which can eat into profit margins for online businesses.
  2. Capital Constraints: Many emerging businesses in Tanzania struggle with limited capital, making it difficult for them to sustainably grow and generate profits.
  3. Competition: With more than 85 percent of businesses operating online, competition for customers can be intense, making it challenging for new entrants to establish themselves.
  4. Alternative Business Models: The presence of 15 percent of businesses using alternative models to acquire customers can divert potential customers away from online platforms.
  5. Operational Expenses: The need to allocate personal savings to cover rising operational costs is a burden for online businesses, affecting their financial stability.

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