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19th ANNUAL RESEARCH WORKSHOP

MOBILE PHONES AND MICRO AND SMALL ENTERPRISES (MSE) PERFORMANCE AND TRANSFORMATION IN DODOMA, TANZANIA

By

Dr. V. Venkatakrishnan

Draft Working Paper S1G

Presented at REPOA’s 19th Annual Research Workshop held at the Ledger Plaza Bahari Beach Hotel, Dar es Salaam, Tanzania; April 09-10, 2013

This preliminary material / interim, or draft research report is being disseminated to encourage discussion and critical comment amongst the participants of REPOA’s Annual Research Workshop. It is not for general distribution.

This paper has not undergone REPOA’s formal review and editing process. Any views expressed are of the author(s) and do not necessarily represent the views of REPOA or any other organisation.

1 2 Table of Contents

ACKNOWLEDGEMENT...... II INTRODUCTION...... 1 SECTION I: SMES IN TANZANIA...... 2 SECTION II: LITERATURE ON ICT USE BY SMES...... 5 SECTION III: MOBILE PHONE SERVICES IN TANZANIA...... 8 Teledensity of Tanzania...... 9

Market share of mobile operators in Tanzania...... 10

Voice minutes and SMS per user...... 11

Unstable tariff for on-net mobile calls in Tanzania...... 12

Stable and low charges for SMS and high charges for off-net calls...... 13

High off-net calls tariff – challenge for further growth in the telecom sector...... 14

The Average Revenue Per User (ARPU)...... 15

SECTION IV: MOBILE PHONES FOR DEVELOPMENT IN TANZANIA...... 17 SECTION V: MOBILE PHONES AND SMES...... 23 Mobile phones usage by African SMEs...... 23

Smart phone applications for SMEs...... 24

Mobile phones usage by Tanzanian SMEs...... 24

SECTION VI: MOBILE PHONES USAGE AND MSE TRANSFORMATION IN DODOMA..28 Research Methodology...... 28

Profile of the enterprises surveyed...... 28

ICTs used by MSEs...... 28

Ranking of mobile phone services usage for business purposes...... 30

Mobile service providers subscribed...... 30

Business related use of mobile phones by MSEs...... 31

Ranking of technological barriers for using mobile phones...... 34

Cost of using mobile phone services...... 34

SECTION VII: CONCLUSION AND RECOMMENDATIONS...... 36 Summary and conclusion...... 36

Recommendations...... 38

SELECT REFERENCES...... 40

i ACKNOWLEDGEMENT

The cooperation extended by all the respondents of this study is hereby acknowledged. Mr Mnyaonga, Samora P, my former BA (Development Studies) student who graduated in 2012 has helped in the survey of the MSEs at Dodoma. My dear children Karthik and Gokul facilitated the data entry and analysis using SPSS. My wife Kavitha has motivated me to use our personal resources for undertaking this self-sponsored study. My thanks and appreciation to all of them; however, the errors and omissions, if any, are mine.

ii MOBILE PHONES AND MICRO AND SMALL ENTERPRISES (MSE) PERFORMANCE AND TRANSFORMATION IN DODOMA, TANZANIA

V. Venkatakrishnan1

INTRODUCTION

Tanzanian Small and Medium Enterprise (SME) sector was said to contribute about one-third of the GDP (Olomi, 2006:1). In 2010, the small businesses were estimated to contribute about 27% of the GDP to the Tanzanian economy (URT, 2012b:16). It has also been claimed that the micro and small enterprises (MSE) play a crucial role in employment creation and income generation in many developing countries (Kuzilwa, 2005: 131; Fjeldstad, Kolstad and Nygaard: 2006:1). With regard to many African countries, the SMEs are stated to account for a significant share of production and employment and are therefore directly connected to poverty reduction (Wolf, 2001:2). Even in Malaysia, which has been cited as a relevant model to Tanzania in the REPOA’s 18th ARW held in 2013, SME sector was considered to be of great importance to the economy. Therein, it had been recognized as the backbone of the economy and played a significant role in generating employment, enhancing the quality of human resources, nurturing a culture of entrepreneurship, supporting the large scale industries and opening up new business opportunities. The SME sector in Malaysia reportedly employed about 5.6 million people, contributed 32% to Malaysian gross domestic product and 19% of total exports of the nation (Selamat, Jaffar and Kadir, 2011: 135).

In Tanzanian context also, SMEs are seen as a key to the economic growth and poverty reduction. The National Strategy for Growth and Reduction of Poverty (NSGRP) has identified development of SMEs as among the key strategies to attain the target of reducing poverty (URT, 2005). A study conducted in Dar es Salaam has found that the small businesses contribute to alleviating poverty. It also showed that the average incomes generated by surveyed businesses (both profit margins and salaries) were above the basic and food poverty lines, much more for small- scale enterprises than micro-enterprises (Mnenwa and Maliti, 2008:viii)

1 Senior Lecturer, Department of Development Studies, University of Dodoma, Dodoma, Tanzania; Email: [email protected] and Mobile Phone: +255 765 1597 44

1 SECTION I: SMES IN TANZANIA

It has been mentioned by Olomi (2005) that ‘according to the 2003 SME Development Policy, micro enterprises are those engaging up to 4 people, in most cases family members or employing capital amounting up to US$ 5,000 majority of which fall under the informal sector. Small enterprises are mostly formalized undertakings engaging between 5 and 49 employees or with capital investment from US$ 5,000 up to US$ 200,000. Medium enterprises employ between 50 and 99 people or use capital investment from US$ 200,000 to US$ 800,000’. He also further claimed that ‘the sector is however dominated by informal micro enterprises with an extremely low incidence of graduation to formal small and medium size. The enterprises remain marginal players, creating and sustaining low quality jobs and unable to effectively contribute to economic competitiveness, exports, tax revenue and economic growth’ (Olomi, 2005:1-2). The Table 1 displays the categories of SMEs in Tanzania with the number of employees and capital investments based on Government of Tanzania’s categorization. This official classification is considered relevant for our purpose.

Table 1: Categories of SMEs in Tanzania with capital investments Capital investment in Category Employees machinery (Million Tshs) Micro enterprise 1-4 Up to 5 Small enterprise 5-49 Above 5 below 200 Medium enterprise 50-99 Above 200 below 800 Large enterprise 100+ Above 800 Source: Omar (2008:6) and URT (2012b:23)

The Tanzanian Poverty and Human Development Report (PHDR) 2011 stated that ‘survey of the manufacturing sector has shown that out of the 25,000 manufacturing enterprises operating in the country, 88% are microenterprises that engage 1-4 persons (60.3% engage 1-2 persons and 27.7% engage 3-4 persons). The PHDR 2011 further admitted that broad-based growth can only be realized through the effective participation of MSEs in the growth process. However, it also lamented about the entrepreneurship culture in Tanzania. It claimed that the under-developed enterprise culture in Tanzania for both enterprises and facilitators of MSEs is partly owing to the system that lasted for 20 years in which enterprise culture was suppressed in favour of building a socialist society (URT, 2012a:146).

A recent (2013) review of the Tanzania SME Development Policy 2003 has provided the basic data about the SMEs in Tanzania. According to this review, SMEs constituted vast number of businesses: there were estimated to be more than 3 million SMEs (de facto MSEs) employing more than 5.2 million people in Tanzania of which some 45% were located in urban and the remainder in rural areas; the

2 industrial sector encompassed some 25,000 enterprises, 97% of which had less than ten employees (compared to 40 large manufacturing enterprises with 500+ employees, covering about one third of employment in industry). The estimated size of the informal economy as a percentage of GDP had decreased over time: from 62.5% in 1991 to 43.6% in 2005 and 39.7% in 2010; the estimated size of the informal sector as a percentage of GDP excluding agriculture is lower and moved from 43.1% in 1991 to 30.1% in 2010 and 27.4% in 2010 (showing a gradual trend from informal to formal) (Oyen and Gedi, 2013: 10).

It is also claimed that ‘since SMEs tend to be labour-intensive, they create employment at relatively low levels of investment per job created’. Further, it was considered that through business linkages, partnerships and subcontracting relationships, SMEs have great potential to complement large industries requirements. Moreover, they were expected to serve as a training ground for entrepreneurship and managerial development and enable motivated individuals to find new avenues for investment and expanding their operations (Economic and Social Research Foundation, 2009:68-69).

A survey of MSEs in Tanzania conducted in 2011 has brought out the status of small enterprises with regard to the various sectors. Based on their main activities, their main products and services, and their location, these small enterprises were allocated to various sectors according to the International Standard for Industrial Classification (ISIC). Table 2 shows the number of enterprises and their relative percentage in the different ISIC categories. The categories were then aggregated to the broad sectors of trade (T), services (S) manufacturing (M), and other (O) services.

It could be seen that wholesale, retail trade, repair of motor vehicles constituted the highest MSMEs in Tanzania i.e. 55.4% out of the total 3,162,887. This was followed by accommodation and food service activities which constituted 26.4% of the total MSMEs. Manufacturing accounted for 13.6% MSMEs. It has also been found out that there were significantly more micro enterprises than small or medium sized ones in all broad sectors. Out of 3,162,887 MSMEs, an overwhelming 3,074,736 amounting to 97.2% had 0-4 employees (micro-enterprises). Trade (1,710,884), Services (942,596), Manufacture (406,426) and Others (14,830) were the sectors among these micro enterprises. Only 88,150 enterprises had five or more employees.

3 Table 2: MSMEs in Tanzania by sector International Standard for Industrial Number Percentage Broad Sector Classification (ISIC) sector Agriculture, forestry, and fishing 13178 0.4 O Mining and quarrying 3684 0.1 M/O Manufacturing 429050 13.6 M Electricity, gas, steam, air conditioning supply 9849 0.3 S Water supply, sewerage and waste management 1843 0.1 O Wholesale, retail trade, repair of motor vehicles 1750897 55.4 T Transportation and storage 14404 0.5 S Accommodation and food service activities 836564 26.4 S Information and communication 1791 0.1 S Professional scientific and technical activities 9845 0.3 S Administrative and support service activities 8742 0.3 S Public administration, defense, social security 2670 0.1 S Other service activities 80370 2.5 S Total 3162887 100.0 Source: URT (2012b), Micro, Small and Medium Enterprises in Tanzania, National Baseline Survey Report, Ministry of Trade and Industry and Financial Sector Deepening Trust, Dar es Salaam

According to this survey, the regional distribution of small business sectors indicated that the numbers of trade, manufacturing, and service enterprises are higher in rural areas than in Dar es Salaam, other urban areas, and Zanzibar. The highest business densities were found in Mbeya (46%) and Dar es Salaam (45%), and the lowest in Kagera (14%) and Manyara (17%) (URT, 2012).

4 SECTION II: LITERATURE ON ICT USE BY SMES

Consoli (2012) made a review of literature on determinant factors and the impact of ICTs on SMEs. It was identified that the adoption and use of ICT could bring benefits to SMEs in terms of efficiency, effectiveness, innovation, growth and competitive advantage. The factors which inhibit and do not stimulate investments in ICT were identified such as (a) financial: high initial investment and difficulty in the access to credit (b) infrastructural: power, bandwidth and reliable internet connection (c) organizational: lack of skilled staff and coherent strategy and (d) technological: evolution of technology not very ‘user friendly’ without adequate training. Similarly various determinant factors for ICT adoption such as top management commitment, personal traits (education, age…), culture on information system, high-skills, learning by doing processes (all related with the individuals), enterprise sizes, human capital, organizational culture, workers participation (all concerned with the organization), competitive pressure, customers’ innovation requirements and public policies (all linked to environment), existing technology (technological) and macroeconomic costs (economic) were identified (Consoli, 2012:93-94). Similarly, the impacts of ICT on organizations were also listed out: efficiency, effectiveness and competitiveness, innovative business and intangible benefits (all associated with the performance), productivity growth, strategic growth and sales increase (all contributing to growth), organization expansion, supply chain improvements and international communication (all connected to expansion) and new products/services, product quality and customer satisfaction (all linked to new products) (Consoli, 2012:95).

A study by Skopo et al (2006) on ICT adoption of Australian and Croatian SMEs concluded that for adopting higher levels of IT/ICT like intranets, Australian SMEs would need a combination of causal conditions in the order: technological support present, government support absent but individualistic factors present. Further, it mentioned that the IT/ICT in Croatia was not politically supported and is left to individuals with their knowledge and IT skills. Other higher forms of IT/ICT were adopted under the influence of technological factors with an obvious absence of all other factors. With regard to Australian SMEs, ICTs were adopted mainly under the influence of technological factors and factors of support by the government policy (Skopo et al, 2006:39).

Skope, Ceric and Huang (2008) developed a model of ICT adoption by Chinese SMEs. They concluded that adopting basic forms of IT/ICT by Chinese SMEs were conducted under presence of technological and individualistic factors. It was confirmed that for adopting IT/ICT in Chinese SMEs, there was no well developed infrastructure and political support. That process was left for individualists and their knowledge and IT skills to do it on their own. As to adopting other higher forms of

5 IT/ICT, they were introduced by the influence of technological factors with obvious absence of all other factors.

Esselaar et al (2007b) undertook a study on the profitability of SMEs due to ICT use in eight African countries including Tanzania. They found out that ‘within the SME sector, ICTs played a role in reducing transaction costs (thereby increasing efficiency) and increasing market access’. They cited the examples of new financial products increasingly based on mobile or Internet platforms. Further, they mentioned that finding new products, increasing customer awareness of the products available and sourcing new markets were considerably easier using ICTs. They concluded that ‘a combination of sector turnover production functions and the correlation between profitability and value of ICT assets relative to the value of total fixed assets suggested that use of ICTs might be more likely a cause of SME profitability’ (p.68).

Ismail, Jeffery and Belle (2011) researched about the use of ICTs by SMEs in South Africa. This research confirmed that ICT use in an enterprise definitely added value to the SME, with the highest rated value added being those of ICT helping the SMEs to improve their customer satisfaction levels, as well as improving their levels of service, which also affect the customer. Nevertheless, the study also found out that many SME owners also thought of ICT as a greater expense to the enterprise as compared to its added the value. These authors concluded that an overall lack of understanding as to the benefits of ICT was evident amongst the SMEs sampled in this research (p, 11).

Kiveu and Ofafa (2013) studied about the Kenyan SMEs’ use of ICTs for marketing. They concluded that ‘the use of ICT for marketing by SMEs still remained low despite SMEs having access to these tools. Majority of SMEs used ICT for communication, social networking and general information acquisition’. They also felt that there seems to be lack of awareness of the range of opportunities that ICT offered for increased market access. According to them, limited use of ICT for marketing can also be attributed to perceived high costs of appropriate applications, security issues and limited knowledge and skills on some ICT applications e.g. e- commerce (p.42).

Lal and Peedoy (2006) focused on the ICT adoption by SMEs in Mauritius. They contended that despite the claim of being a cyber-island, the adoption of ICTs in SMEs is far from being an integral feature of Mauritian SMEs. Cost of communication and the lack of learning opportunities have been found as the major impediments in the adoption of ICTs.

6 The experience of many African and other developing countries’ SMEs in use of ICTs is mixed. Lack of steady electricity supply, poor and expensive internet services, lack of ICT skills in case of Nigeria (Apulu, Latham and Moreton, 2013), high investment costs, bad connections, limited human resources, current economic situation, business partners not having any form of ICT and lack of legislative and government support in case of Croatia (Skoko et al, 2006 :36-7), the high cost of communications inflating the input cost to the business in many African countries (Gilwald and Stork, 2008: ii) and high cost of devices and services in many African countries (Wolf, 2001: 21) were cited as the reasons for low use of ICTs by SMEs.

7 SECTION III: MOBILE PHONE SERVICES IN TANZANIA

There is a significant growth in the use of mobile phones in Tanzania in the last few years. The number of mobile subscribers increased from 126,646 in 2000 to 17.8 millions in March 2010 (Tanzania Communications Regulatory Authority, 2010 cited by Lwoga, 2010:4). The data obtained from the Tanzania Communications Regulatory Authority (TCRA) show that at the end of 2013, the number of mobile phones in Tanzania has stood at 27,442,823.

A study by Gilwald and Stork in 2008 indicated that Kenyans were spending on an average nearly 17% of their individual income on mobile communication, followed closely by Tanzania (15.4%) and Senegal (14.2%) and they considered that the high percentage of individual income spent on mobile is a reflection of the continued high cost of services in Africa. It is also claimed by them that the cost of these services were prohibitively high for majority of the population (Gilwald and Stork, 2008: 14-5). Though the cost of mobile phone services provided by the dominant provider was said to be relatively very high in Tanzania compared to many other countries in Africa, the number of mobile phone subscribers is increasing substantially probably due to mobile phones’ ease of use. Considering the fact that the computers and internet access are still relatively more expensive than mobile handsets, the mobile phone usage is likely to increase manifolds compared to other ICTs. The PHDR 2011 of Tanzania has also stated that ‘Mobile telephony has enormous potential for development, for example, by facilitating greater access to market and health information as well as financial services’ (URT, 2012a: 143).

The figure 1 shows the growth in the mobile lines growth in Tanzania from 1998 to 2013. It may be observed that in 1998, Tanzania had much less than one million mobile connections. As on 2013, it had achieved a growth of more than 27 million mobile lines covering almost all parts of the country. The years 2008, 2009 and 2011 witnessed substantial growth compared to many other years. Nevertheless, it is noticed that the growth in mobile lines since 2011 has not been significant compared to the previous years. It also can be claimed that the mobile phones sector has almost stagnated and reached a plateau in post-2011. Drastic efforts are needed from the leading service providers and the regulators to furthering these achievements.

8 Figure 1: Mobile Phone Connections growth in Tanzania 1998-2013 Source: Data obtained from Tanzania Communications Regulatory Authority

Teledensity of Tanzania

Teledensity is calculated as the number of telephone connections for every hundred individuals living in that area. Tanzania’s Teledensity at the turn of the 20 th century was very low. It was mostly depending on the landline phone connections provided by the monopolistic public sector provider. Onset of liberalization of the telecom sector has resulted in the leapfrogging in the Teledensity considerably due to the mobile phone subscribers’ growth. The Teledensity which was 10% in 2005 has reached 61% in the year 2013. The years 2008 (32%), 2009 (43%), 2010 (50%) and 2011 (59%) have witnessed significant milestones in the telecommunications history of Tanzania. While the numbers of mobile subscribers have increased, the landline connections have been experiencing a steady decline. Nonetheless, the period from 2011 to 2013 has seen very limited increase in the Teledensity. Further, there are also indications that many individuals have been accessing the services provided by different operators simultaneously due to very high interconnectivity charges as the off-net charges of connecting from one service provider to another service provider is considerably high. Thus, it is possible to arrive at a lower Teledensity if the usage of more than one SIM is taken into account. The figure 2 displays the trend in the growth of Teledensity in Tanzania from 2005 to 2013.

9 Figure 2: Teledensity of Tanzania 2005-2013 (mobiles per 100 persons) Source: Data obtained from Tanzania Communications Regulatory Authority

Market share of mobile operators in Tanzania

Vodacom was said to have pioneered many new features in Tanzania. It was the first Tanzanian carrier to launch video call, video messaging and 3G HSDPA USB Modem. As for January 11, 2008, Vodacom Tanzania was again the first and exclusive company to provide a free E-mail ID via a phone number (Furutuni, n.d: 5- 6).

Vodacom was the leading mobile service provider in Tanzania as on Dec 2013 and it was closely followed by Airtel. The gap between these two operators is narrowing down since June 2012. Tigo was very close to Airtel in their share till June 2010. Since then the share of Airtel has increased and the gaps between Airtel and Tigo have increased. The fourth largest mobile service provider, Zantel is just able to maintain its voice subscription base at 2,000,000. The Figure 3 provides the picture of voice subscriptions of these major telecom operators from Oct 2009 to Dec 2013.

10 Figure 3: Voice subscriptions of telecom operators in Tanzania: Oct 2009 to Dec 2013 Source: Data obtained from Tanzania Communications Regulatory Authority

Growth in the national traffic of on-net and off-net voice calls

The national traffic of on-net calls (calls made within the same service provider) has almost trebled in Oct-Dec 2013 compared to April-June 2010. On the other hand, the traffic of off-net calls (calls made from one service provider to another service provider) have been stagnant for a long period till March 2013. Since the quarter of April-June 2013, there has been a slow but steady growth in the off-net voice calls.

Figure 4: National traffic of on-net and off-net voice calls in Tanzania: April’10 to Dec’13 Source: Data obtained from Tanzania Communications Regulatory Authority

Voice minutes and SMS per user

The numbers of voice minutes and short-messages (SMS) per user have been showing a mixed trend from April 2010 to April 2012. However, since July-Sep 2012, it has been noticed that there is an increasing trend in these indicators per user. These increases could be among the reasons for the increasing Average Revenue

11 Per User (ARPU) during this period. Will it display an upward trend if the tariff for both on-net and off-net is reduced by the service providers?

Figure 5: Number of voice minutes and SMS per user in Tanzania: April 2010 to Dec 2013 Source: Data obtained from Tanzania Communications Regulatory Authority

Unstable tariff for on-net mobile calls in Tanzania

The data available for different quarters from April-June 2010 to Oct-Dec 2013 show that Vodacom’s tariff for on-net mobile calls (i.e. Vodacom to Vodacom) remained higher than other mobile service providers. It was comparatively very high at 240 Tshs during April-Sep 2010. Though it touched the rock bottom of 60 Tshs during Oct 2010-Sep 2011, it has been increasing steadily since Oct-Dec 2011 and climbed back to Tshs 225 in July-Sep 2013, just below its highest of Tshs 240 during the period from April 2010 to Dec 2013. Even the other two leading mobile service providers such as Airtel and Tigo which were pegging their tariff for on-net calls much lower than Vodacom for a long period aligned with it since Jan-March 2013 and the tariff difference between these three leading operators has remained very marginal till today.

12 Figure 6: Weighted and average tariff for on-net calls for major telecom operators in Tanzania: April 2010 to Dec 2013 Source: Data obtained from Tanzania Communications Regulatory Authority

The next major mobile service provider, Zantel is maintaining a much wider gap with the tariff of these three leading providers. The public sector’s TTCL has been maintaining a lower tariff for on-net calls and it has been declining as well.

Stable and low charges for SMS and high charges for off-net calls

The usage of SMS among the younger age customers seems to be very high. The analysis of data related to the tariff for the SMS, on-net and off-net calls indicated that the SMS tariff remained almost constant. It was also comparatively lower than both on-net and off-net calls since the beginning. As mentioned earlier, Vodacom’s tariff remained higher for a considerable amount of time than other service providers though the other two major providers such as Airtel and Tigo have narrowed the gap in the recent past. The lower average tariff by these providers as shown in the Figure 7 is due to the fact that they had much lower tariff for quite some time compared to Vodacom. During the quarter Oct-Dec 2013, nothing much separates this three leading service providers in terms of their tariff for the on-net calls as shown in Figure

13 Figure 7: Average tariffs for major telecom operators in Tanzania: April-2010 to Dec 2013 Source: Data obtained from Tanzania Communications Regulatory Authority

High off-net calls tariff – challenge for further growth in the telecom sector

The tariff for off-net calls in case of almost all the service providers seems to be much higher than the on-net calls. The tariff barriers for calls originating from one service provider to another service provider are likely to prevent the subscribers from contacting the subscribers of the other service provider. That means that most of the operators are operating like silos with very limited interconnectivity. Probably, this is among the most important barriers as the national traffic between different service providers seems to be very low. The leading mobile operator, Vodacom has brought down the difference between the tariffs of on-net and off-net calls much lower in the quarter Oct-Dec 2013. Contrarily, the second important mobile service provider has increased the difference in the same quarter. The other major mobile service provider, Tigo has also increased both the tariffs for on-net and off-net calls for the same quarter and effectively it means that the gap between the off-net and on-net calls in terms of their tariffs will continue to be a barrier for inter-connectivity between the customers belonging to different mobile service operators. The next significant growth in the mobile telephony in Tanzania could be achieved by bringing down the gap between the off-net and on-net calls with regard to their tariffs. An indication to that effect is seen since the quarter April-June 2013 as there seems to be a spurt in the off-net call traffic in Tanzania.

14 Figure 8: On-net and off-net voice call tariffs for major telecom operators in Tanzania: April-2010 to Dec 2013 Source: Data obtained from Tanzania Communications Regulatory Authority

The Average Revenue Per User (ARPU)

The Average Revenue Per User (ARPU) is an indicator of revenue generated by the mobile phone / telecom service providers per customer. This is defined as the total revenue divided by the number of customers. With regard to the mobile telephony, it is not only the revenue billed to a customer by the mobile companies but also the pre-paid charges paid by the customer and also the revenue generated by the incoming calls from other service providers determined within the regulatory interconnection regime. In case of Tanzania, the Figure 3 shows that the period April-Sep 2010 observed a high ARPU which declined during the period Oct 2010- Sep 2011. Again it kept on increasing from Oct 2011 and reached a very high of about Tshs 34,000/- in Oct-Dec 2013 except the period April-June 2012 during which there was minor decline. This very high ARPU could be explained as the result of increased usage of minutes per user and growth in the short messages (SMS) and also the resurgent high on-net and off-net call charges by the major telecom operators since Jan 2013. The Figure 4 shows the growth of ARPU since April- June 2010 to Oct-Dec 2013.

15 Figure 9: Average Revenue Per User per month for Tanzania voice and SMS services: April- 2010 to Dec 2013 Source: Data obtained from Tanzania Communications Regulatory Authority

16 SECTION IV: MOBILE PHONES FOR DEVELOPMENT IN TANZANIA

Mobile phones were reported to have been used in various sectors in Tanzania for different purposes. Nyamba (2012) indicated that the largest increase in the use of ICT has been in mobile phones. He claimed that mobile phones have penetrated even the rural areas. Based on these, the researchers from Sokine University of Agriculture, Morogoro alongwith their colleagues from other universities were investigating whether mobile phones really can create an opportunity to address the problem of poor coverage of agricultural extension services to maize farmers in the Kilosa district, Morogoro Region. They were also focusing on the role of mobile phones in improving coverage of agricultural extension services in Tanzania. As on the time of reporting (2012), the project was still in the early stages and the results were expected.

Calandro, Stork and Gillwald (2012) reported the main findings of the 2011/2012 ICT access and usage household and individual survey in 11 African countries. They found out that ‘although the Internet penetration in most countries is still very low, more than 70% of Ugandans and 67% of Ethiopians Internet users first used the Internet on a mobile phone. In Tanzania, Namibia and Nigeria about half of the population use the Internet first on a mobile. The growing importance of the mobile phone to access the Internet is also stressed by the responses to the question “Where did you use the Internet in the last 12 months?” Either complementarily to computer access or exclusively, above 80% of Internet users in Namibia, Uganda and Ethiopia access the Internet via a mobile phone. For South Africa, Kenya, Nigeria, Tanzania and Rwanda Internet is accessed through a mobile phone by 70% of Internet users’ (page 3).

Chambo et al (2013) conducted a study at ten secondary schools in Kilimanjaro Region. The findings of the study indicated that majority of students had mobile phones and had access to internet connectivity. However, the study concluded that m-learning platforms that were in place were not viable solution in all contexts and not necessarily the best solution (Chambo, et al, 2013:698).

The study by Mtega et al (2012) investigated how mobile phones have been used for teaching and learning purposes at Sokoine University of Agriculture (SUA). Most of the respondents of this study reported to use traditional mobile learning applications including text messages and calls. Few respondents had smart phones with a number of m-learning applications and most of them were teaching staff. These were able to create upload, download and share academic resources through their smart phones while others recorded and stored files in their phones. It was also found that

17 among teaching staff many were not aware of the capacity of their mobile phones such that they underutilized them (Mtega et al, 2012:118).

With regard to fishermen in Tanzanian, Myhr and Nordstrøm (2006) found that the fishermen used mobile phones to find buyers and thus cut the time for bringing the fish to the consumers, which led to better quality and higher prices for their products and also made them less vulnerable to loss due to a damaged catch. The fishermen were also able to reduce the amount of spoiled fish while in search of a market buyer (Myhr and Nordstrøm, 2006).

Souter et al. (2005) conducted a study in Mozambique, Tanzania and India. They stated that the potential of mobile phones, in order to reduce vulnerability, lied in people’s ability to obtain information that allowed them to deal with seasonal factors (e.g. weather information), to reduce the imbalance between themselves and those they trade with (e.g. price information) and to respond more quickly and effectively to shocks. This study showed that those engaged in business activities and those of higher economic status believed that the use of mobile phones has brought them significant economic benefits (Furuholt and Matotay, 2011: 6).

Sife et al. (2010) have done a survey on the contribution of mobile phones to rural livelihoods and poverty reduction in Tanzania. They concluded that the phones contributed by expanding and strengthening social networks; increase people’s ability to deal with emergencies and increased the efficiency of travel and business activities (Furuholt and Matotay, 2011: 6).

A study conducted by Furuholt and Matotay in Babati, Tanzania during 2009 and 2011 found out that possibility to own or access a mobile phone had brought radical changes to the way Tanzanian farmers communicated, received information and supported decision making. Further, it revealed some of the unusual new usage and the impact brought about by mobile phone usage (Furuholt and Matotay, 2011: 8-9). This study found out that during preparation for farming and cultivation, farmers used mobile phones, mostly when calling agricultural extension officers for agricultural related advice, about prices and types of seeds and organizing manure and fertilizers. As farmers spend most of the time in the farm areas in the villages, the phones also helped them in communicating with agrovets shops, seeking information about types of seeds and fertilizers to be used given the nature of the season. For example, due to delays of the rains, farmers were sometimes advised to use short- term seeds. They were also able to communicate with extension officers to enquire about subsidized fertilizers and seeds. Another popular type of mobile phone usage during preparation, cultivation and planting was for mobilizing of labour from distant farms and villages. For some farmers, mobile phones were useful when they needed to hire and negotiate prices for tractors for cultivation purposes. It was also reported

18 that the harvesting season was the peak season for the farmers and at that time mobile phone usage increased. During this season, the farmers mostly used their mobile phones in the following ways (arranged in order of importance): calling market centres, agents, players and dealers for prices; selling crops via mobile phones; organizing for storage and booking warehouses; collecting information and ordering of preservative chemicals and contacting distant family members (Furuholt and Matotay, 2011: 10-12). Reduced vulnerability for the rural farmers, information transparency and opportunity for doing additional businesses were cited as the other benefits of usage of mobile phones.

Kadigi et al (2013) had developed an electronic mobile phone Information and Communication Technology (ICT) system namely, “e-Ng’ombe” in an attempt to tackle the pitfall of information asymmetry between producers and other actors in the value chain of indigenous beef cattle in Mwanza region, Tanzania. The authors are optimistic that when successfully adopted and up-scaled to the national level, e- Ng’ombe has the potential of addressing the problem of information asymmetry. It might be noted that the system is under implementation and further details are awaited.

Lund (non-dated) has brought out information on a mobile-phone based experiment called ‘wired mothers’ to improve the maternal and neonatal health in Zanzibar. The pregnant women were linked to a primary health care centre through the use of mobile phones for receiving standard text reminders for care appointments. They also could call the primary provider in case of acute or non-acute problems. Wired mothers’ cards with phone numbers of health centre were also distributed to these mothers for this purpose. Results of this experiment are not yet known.

Hassan and Semkwiji (2011) have focused on the role of mobile phones on sustainable livelihood in Arusha and Unguja (Zanzibar). The main service obtained through mobile phones was information delivery including economic related information such as business news, weather conditions, types and prices of different commodities like new handsets, social information like on ceremonies, deaths, and sickness as well as religious news. They observed that mobile phone technology was believed to increase household income, especially for those engaging themselves in mobile phone business industry, such as selling airtime, running telephone kiosks, agents of m-banking and those employed by the communication service providers. A considerable number of respondents for this study (36%) preferred to receive business related information such as sources and prices of agricultural inputs and other commodities, agro-produce markets and prices, the use of m-pesa service etc. Other preferences mentioned were education related news, entertainment-sports, political and other government events, transport issues like

19 weather, fares, employment information, educational health services and national and international economic news (p.15).

Dias et al (non-dated) have shown that SMS-based data transmission system in combination with open source tools can be feasibly implemented within the social worker community in Tanzania. They also claimed that ‘the SMS-based technology will help supplement the current paper form method for data collection within this community while improving the efficiency and timeliness of transmitted data. Additionally, the affordability of SMS compared with alternative avenues for information communication, render this approach more feasible to and adoptable by the end user; the Para-Social Workers (PSWs) at the ward or village level’ (Dias, et al, non-dated:8).

A study conducted at the District Educational Offices at Iringa Municipal and Iringa Rural, Tanzania found out that perceived ease of use, costs of usage, possible side effects of usage and the compatibility of the technology were the factors influencing the attitudes towards using the mobile phone at work. It concluded that the employees of the two District Education Offices in general had a positive attitude towards using the mobile phone. However, the study found out that mobile phone was not quite compatible with the then working conditions as it was not possible to sign an SMS with a signature, as the technology and the work situation not yet were perfect for them to use the mobile phone (Dahl and Lövgren, 2011: 66-7).

Another study was conducted in 2009 in Tanzania (Iringa) and Jamaica focusing on women’s use of mobile phones. It found out that compared to an early study ‘Mobile Phone and Poverty Alleviation: A survey study in rural Tanzania’, which was conducted in 2008, the disparity of mobile phone ownership between men and women was lower in 2009. The ratio of women to men in the previous study was about 1 to 3 while in the 2009 study it was around 1 to 1.5. The later study predicted a better future trend for women and mobile phone technologies in rural Iringa. The study of 2009 also found out that there were advantages such as faster communication in cases of emergency (i.e. sickness or death), reduction of transportation costs, making the business practices easier and solving many family problems which have made the mobile phone an accepted tool in rural Iringa (Ngumbuke, 2010: 79-80 and 84).

Contrarily, Kihwele and Bali (2013:101) based on their study in four secondary schools in Dodoma concluded that parents and teachers agreed that students with mobile phones performed poorly and misbehaved more often than students without mobile phones. They recommended, in order to have value-based control system for appropriate use of mobile phones, providing proper education on mobile phone use and re-introducing censorship board to control the quality of contents on websites.

20 Similarly Molony (2006), though has identified a good number of entrepreneurs using ICT in various ways to enhance their business prospects, found out that it is a challenge to make interconnection affordable for more users as coverage further expands into rural areas. It was claimed that only when interconnection is affordable, majority of Africans can regularly employ mobile phones and attempt the even greater challenge of applying the Internet for the ‘developmental’ uses (Molony, 2006:348)

Dusabe et al have also devised mobile phone based text messaging service focusing on sexual and reproductive health referral services for implementation in 9 intervention communities in Mwanza region. This is based on the text messaging feature of any basic mobile phone. The intervention will run for 18 months from June 2012 to January 2014 (including 7 weeks pretest). Within a period of 10 months, 45 drug stores have enrolled on the system and 15 dispensaries and 3 health centres have agreed to collaborate with them. More than 800 patients with various RH conditions have been referred from drug stores to dispensaries and health centres (Dusabe et al, non-dated).

Bogan et al (2009) presented a mobile phone-based application called CommCare which helped community health workers (CHWs) to provide home-based care and social support to HIV, tuberculosis and other chronic patients in Tanzania. The application guides the CHWs through a series of questions which they answer using the phone’s number pad. It was stated that initial findings showed that the phone- based system is generally viewed positively by the users and by the clients as more discreet and better for privacy than the paper-based system.

Modi (2013) has identified that in Tanzania there were four mobile-phones based health programs that have the potential to help a large number of people: “Phones for Health”, “SMS for Life” (both supported by government partnerships with private organizations) and e-IMCI and Project Mwana (both supported by non-profit and research organizations). She listed out the ways in which the Phones for Health will enable increasing flow of information between different health systems. By texting or calling patients and local health workers of disease status, directions for taking medicine, or local health issues to be aware of, the program was expected to create an education channel and it also aimed to create a ‘culture of information seeking’.

It was reported that “SMS for Life” used mobile phones, SMS messages and electronic mapping technology to track stock levels of medication at health facilities to increase access to malaria treatment medication and reduce the number of deaths due to malaria. According to Roll Back Malaria Initiative (2010), the “SMS for Life” ran as a pilot program for six months in three districts in Tanzania and the results of the pilot were positive (Modi, 2013).

21 Hoefman et al (2012:42) brought out the experiences of using mobile phone technology to influence uptake and delivery of Medical Male Circumcision (MMC) among male adolescents and men in Northern Tanzania. Three categories of MMC information in the form of short message were sent out to individuals who opted to be included in the campaign: ‘TOHARA’, meaning ‘Text to learn advantages of MMC’; second with the keyword ‘WAPI’ meaning ‘Text to learn where to access MMC’ and third with the keyword ‘BAADA’ which delivered Post-operation text messages to individuals who had undergone MMC. The study claimed that it was possible to use mobile phone short messaging as a measure to increase uptake of MMC. It also found out that, of the 11401 unique individuals who requested to know the advantages of MMC, 417 (3.7%) requested for post-circumcision information, an indication that they actually underwent MMC.

Ringo and Busagala (2012:72) undertook a study on the role of mobile phones in community policing (sungusungu) in Dodoma Region of Tanzania covering Dodoma Municipality, Bahi and Chamwino districts. This study found out that a greater portion (20.6%) of respondents used mobile phones to report crime incidents than other technological means. The statistical analysis indicated that the proportion was significant (p < 0.01).

Wetengere (2013) found that lack of market information, unfamiliarity with packing and transporting the products, lack of storage facilities and time consuming were the marketing constraints facing farmers. This study brought out that the use of mobile phones have provided timely and accurate market information, widened market options, improved negotiation power and maintained freshness of the products. Further, mobile phones have reduced losses and saved time and money. As a result, the income of the farmers has increased tremendously (Wetengere, 2013:1).

Mobile-money transfer services (MMT) popularly known as m-pesa, tigo-pesa and ezypesa are based on the text-based message service of mobile phones. As on September 2013, it was reported that there were 134,158 mobile money agents serving 40% of the population and occupying 19% of the landmass. There were 30.3 million mobile money subscribers in September 2013 (accounts) or 90% of adults were having mobile money accounts of which 9.9 million or 43% of adults were considered to be active users. The MMT covers areas like P2P (remittances), P2B (bill payments, loan repayments, etc) and P2G (tax payments). Many studies have been conducted in different parts of Tanzania in this regard (Komba, 2013; Venkatakrishnan and Ngilangwa, 2013; Senso and Venkatakrishnan, 2013 and Ngilangwa and Venkatakrishnan, 2014).

22 SECTION V: MOBILE PHONES AND SMES

Mobile phones usage by African SMEs

A survey conducted during 1999-2000 in Tanzania and Kenya revealed that mobile phones were considered to contribute significantly to regional market expansion by most enterprises, followed by fixed phones and faxes. The percentage of firms that used mobile phones was increasing much faster in these countries than the other technologies (Wolf, 2001: 12 and 14; Matambalya, and Wolf: 2001: 12). Mobile phones were considered to contribute significantly to regional market expansion by most enterprises, followed by fixed phones and faxes (Matambalya, and Wolf: 2001: 15). A study by Kinda and Loening showed that improved access to markets by SMEs would have the strongest effect on employment growth followed by access to rural finance. This study found out that rural cell communication was ranked third in this context. It was considered to reduce transaction costs and facilitating market information (Kinda and Loening, 2010:197 and 200). An earlier survey of 14 African countries has found out that ‘within the SME sector, ICTs play a role in reducing transaction costs (thereby increasing efficiency) and increasing market access; mobile phones have overtaken computers as tools in supporting the running of SMEs, given their prevalence and accessibility’ (Esselaar, et al, 2007a:98-9).

It has been considered by Esselaar, et al, (2007b:68) that mobile technology is both an advantage and disadvantage for SMEs. It was considered as an advantage because it provided an SME with a low cost base yet the ability to communicate with suppliers and customers very easily. Contrarily, it was also cited as a disadvantage because of its limited functionality in terms of its ability to develop as an SME develops. With the existing technology, it was said that mobile phones cannot be used to track inventory, provide cash flow and income statements, or even more basically, produce formal letters, marketing campaigns or brochures. Therefore, these authors suggested that ‘a policy focus should be to either encourage the development of SME-specific tools for mobile handsets or to encourage lower ICT (specifically computer) costs’.

Ilahiane (2011) studied about the mobile phone usage and the transformation of social and economic ties of micro-entrepreneurs in urban Morocco. It has been argued by him that mobile phone use expanded the productive opportunities of certain types of activities by enabling social networks, reducing risks associated with employment seeking, and enabling bricolage or freelance service work, leading to higher incomes. Further, it has been demonstrated how the use of mobile phones for bricolage jobs began to transform, rather than simply augment and reinforce, the social and economic ties of micro-entrepreneurs (Ilahiane, 2011:31).

23 Smart phone applications for SMEs

According to Esselaar et al (2007a), the mobile phones have many advantages as they can be used with little training and increasing number of people have mobile phones and this is resulting in benefits due to the network externality effect. Contrarily, many other forms of ICTs such as fax machine and post box have a rapidly declining network effect as fewer people continue to use them. Nevertheless, mobile phones have limited functionality in terms of their ability to develop as any SME develops and they also have high usage charges (p.92 and 99). However, the smart phones are breaking these barriers. In May 2013, taking advantage of mobile internet, Indiamart.com has introduced an Indiamart mobile site m.Indiamart.com and an Android app on Google Play aiming at easing business possibilities of SMEs. It is reported to connect users to 1.2 million suppliers and 6.5 million buyers on its platform. MTN South Africa has also introduced MTN mobile fleet management solution for SMEs in South Africa. Smart mobile applications are also being experimented in Kenya to turn the mobile phone into a vital tool for any business (Kisini 2012). Thus, new frontiers using mobile phones are emerging specifically for SME sector. It is expected that with these developments, the mobile phones will become much handier for the SMEs.

Mobile phones usage by Tanzanian SMEs

The SMEs in Tanzania are also expected to benefit by using the mobile phone services covering a range of functions like information, finance, supply and delivery. The Tanzania Chamber of Commerce Industry and Agriculture (TCCIA) have been offering a phone enquiry service eventhough the most information enquiries are reported to come from outside Tanzania. M-payments through mobile phones are also growing in Tanzania. Mobile phones are also used in the service delivery by the Ministry of Agriculture to inform farmers on food/commodity prices (Oyen and Gedi, 2013: 31-2). Melchioly and Sæbø (2010) based on an exploratory study in Morogoro found out that ‘SMEs in the research area claimed to have improved their economic efficiency as a result of using mobile phones in business operations and it was possible due to the subsequent free flows of business information. Utilization of mobile phones by SMEs enhanced productivity and economic growth within the SMEs. Mobile phones seemed to have become powerful enablers for the SMEs, whose impact can range from enhanced financial transactions, wealth generation and its distribution due to the simplified information flows’ (p.11).

A recent review of the Tanzania SME Development Policy 2003 has found out that the Tanzanian SMEs have witnessed increase in the use of mobile phone services (financial services and information services) (Oyen and Gedi, 2013: 11). Thus information based economy is becoming important to them. It might be worth noting

24 that even in a developed city like Johannesburg, mobile phones have become a vital component of everyday economic welfare amongst those operating small market enterprises in the city centre (Hyde-Clarke, 2013:149).

Taking into consideration the miniature size of the substantial number of enterprises in Tanzania, it might be difficult and less cost-effective for them to use other Information and Communication Technologies (ICTs), compared to the mobile phones. In stark contrast to the era of very low tele-density prior to the introduction of mobile phones in Tanzania in 1994 and previous high cost of mobile services regime, the innovative uses of new telecommunications, particularly the mobile phones is considered to contribute to the development of various sectors including SME sector. Fishermen in coastal Tanzania, pastoralists in many regions of Tanzania through the LINKS project and small farmers in various regions seem to have experienced the benefits of using mobile phones to further their livelihoods.

Tanzania is also considered to be a successful example of mobile-phone money transfer services known as m-pesa, tigo-pesa, airtel money and ezypesa offered through the various mobile phone service providers. Many Tanzanian SMEs are also using the mobile-phone money services for their business transactions. A study conducted by InterMedia in 2013 focused on the use, barriers and opportunities for the mobile money in Tanzania. It found out that ‘about one-fifth (21 percent) of registered users of Vodacom M-Pesa used mobile money for business purposes versus 12 percent each of Airtel Money and Tigo Pesa registered users. Of those registered m-money users who used m-money for business purposes, the majority purchased inventory. It was found out that out of 191 respondents covered for this study, 74% said that mobile money is more likely to be used for transactions with the suppliers than with the customers, 23% claimed that it could be used for receiving payments from the customers, 10% indicated payment for bills and only 7% mentioned payment to the employees. There was no difference among rural, urban and peri-urban registered users in the way they used m-money for business’ (InterMedia, 2013:17-18).

Nickerson (2013) studied about the mobile payments among the micro entrepreneurs in Kenya and Tanzania. It has been observed by this study that there were marked differences in attitudes and behaviors between Kenyan and Tanzanian micro entrepreneurs. It was found out that the Tanzanian micro entrepreneurs demonstrated less usage of mobile payments. It was mentioned that Tanzanians had less personal experience with mobile payments and thus less favorable views of benefits of mobile payments on their businesses. The study found correlations between the level of usage of mobile payment for paying suppliers/receiving payment from customers and the number of new hires, increase in the number of customers and business income growth. The correlation was the highest between

25 the level of usage of mobile payment for paying suppliers and business income growth. It was claimed that this observation along with the data related to mobile adoption factors implied that in some cases micro entrepreneurs have yet to fully exploit the benefit of mobile payments (Nickerson, 2013: 92-93).

The survey on MSEs in Tanzania found out that ‘the small businesses surveyed did not use the internet for doing business. Only a few (0.5%) used the internet for getting information on products and markets, and almost none used it for orders with suppliers and customers. A very few (0.6%) used it for sending and receiving emails’ (URT, 2012b: 37).

With regard to computer ownership and usage by the MSEs the above said survey indicated that ‘Very few small businesses owned a computer or laptop. Those who owned a computer used it mainly for business correspondence (0.5%), business records (0.5%), accessing the internet (0.3%), providing computer services to customers (0.1%), selling products and services online (0.0%), or private use (0.1%)’ (URT, 2012b:37).

Nevertheless, ownership and usage of mobile phones seem to be more prevalent compared to the internet and computer. This survey found out that ‘About 59% of small business owners owned a mobile phone. The percentage was much higher in Dar es Salaam (77.8%) and other urban areas (70.9%), but considerably much lower in rural areas (47.2%). About 30.7% of small business owners who did not own a phone used the phone of someone else in their household or someone close to them (URT, 2012b:37).

Mobile phones were mainly used various purposes by these MSEs as shown below (URT, 2012b:38). Prominent among them are placing orders (57.4%), following up on clients (48.65%) and sending and receiving SMS (26.2%). Sending and receiving email and surfing the internet were used to a very limited extent. • Placing orders (57.4%) • Transferring money to family or friends (3.7%) • Transferring vouchers/ sending air time (5.1%) • Following up on clients (48.65%) • Sending and receiving SMS (26.2%) • Sending and receiving email (0.1%) • Surfing the internet (0.2%) • Buying telephone services (0.3%) • Mobile banking (0.3%) • Talking to customers (Skype) and other people (6.4%) • Visiting social websites (5.0%) • Communicating with business partners (1.1%) • Getting information on price changes (1.0%)

26 • I don’t use mobile phones (13.6%) The survey also found out the details about the service providers of mobile phone services to the MSEs. Though Vodacom was the leading service provider of mobile phone services to MSEs, in case of Dar es Salaam, Tigo was the leader in this regard. However, in other urban areas and rural areas, Vodacom retained the leading position in providing mobile phone services to MSEs. The once monopoly in providing the telephone services in Tanzania, TTCL is having a very low market share of the mobile phone services among the MSEs as well. The Table 3 provides the detailed information in this regard.

Table 3: Small business owners per mobile phone provider by area Company Total Dar es Salaam Other Urban Rural areas Zanzibar Vodacom 948,210 145,181 428,582 373,737 710 Zain 834,208 107,597 277,831 445,610 3,170 Tigo 670,671 302,462 219,460 133,707 15,042 Zantel 101,317 17,997 22,603 4,992 55,635 TTCL 10,598 4,418 5,155 1,026 0 Others 108 0 0 108 0 2,565,112 577,655 953,631 959,180 74,557 Source: URT (2012b:38)

27 SECTION VI: MOBILE PHONES USAGE AND MSE TRANSFORMATION IN DODOMA

Research Methodology

This section is focusing on how the micro and small enterprises in one of the strategic cities in Central Tanzania, i.e. Dodoma are making use of the mobile phones for undertaking their business operations. Some of the variables covered for this study are, the nature and dimensions of the MSE business functions undertaken using mobile phones like order placing, delivery of services and goods and payments. It also brings out how the mobile phones have transformed the functioning of the MSEs and have contributed for their efficiency. The barriers in using the mobile phones such as costs, limited applications and other infrastructural issues also have been brought out. About 75 micro and small enterprises in the Central Business district of Madukani/ One-way and surrounding business areas Uhindini, SabaSaba, Jamatini, Terminal Bus Stand and Makole and suburban areas like Kizota and Kikuyu were be covered for this study. Enterprises having less than 50 employees were covered based on the stratified random sampling. The owners, managers and employees making use of the mobile phones for the business purposes of these MSEs were surveyed using a questionnaire.

Profile of the enterprises surveyed

Out of the 75 micro and small enterprises surveyed for the study at Dodoma urban, 58 (81.7%) had less than five employees; nine (12%) had 5-10 employees and only four (5.33%) had more than 10 employees. Among the respondents, 16 (21.3%) were owners, 10 (13.3%) were managers and the remaining 47 (62.7%) were employees. Multiple purpose business enterprises (17), food and related enterprises (10), stationery shops (6), mobile phones, electronics related enterprises (8), timber related enterprises dealing with furniture and carpentry (5), clothes and dress materials (6), hardware and building materials enterprises (6) and cosmetics (5) were the major category of the business enterprises surveyed. Hair dressing saloons, plastics products suppliers, guest houses, lodges, mini-super markets, bars, medical store, decoration materials shops, utensils shops and automobile and car spare parts constituted the remaining business enterprises surveyed at Dodoma in March 2014.

ICTs used by MSEs

Ordinary mobile phones were highly used by these MSEs compared to any other ICTs. Fax machines, landlines, emails, internet and traditional ICTs like Post Box were used only to a limited extent. The smart phones usage is also not significant

28 but relatively better than others. Mobile money is the second most important ICT used by these MSEs as displayed in the Table 4.

Table 4: Degree of usage of various ICTs by MSEs Intensity High Moderate Low Not at all Total ICTs 7 3 65 75 Fax machines - (9.3) (4) (86.7) (100) Ordinary 75 75 - - - mobiles (100) (100) 18 57 Smart phones - - (24) (76) 27 47 1 75 Mobile money - (36) (62.7) (1.3) (100) 7 10 58 75 Emails - (9.3) (13.3) (77.3) (100) 1 15 1 58 Internet (1.3) (20) (1.3) (77.3) 1 74 75 Post box - - (1.3) (98.7) (100) 1 3 71 75 Others - (1.3) (4) (94.7) (100) Source: Field Survey (2014)

Most of the respondents have started to use the phones/mobile phones in the recent years; 36 (48%) started using them during the period 2006-2010 and 22 (29.3%) started using them during 2011-2013. Those who started using them during 2001- 2005 constituted 13.3% and the remaining 6.7% had the experience of using them prior to 2001.

Table 5: Number of ordinary and smart mobile phones and SIM cards used by MEMEs Frequency 1 2 3 4 5 6 7 8 NIL Ordinary 1 15 17 22 11 6 1 2 mobile 0 (1.3%) (20%) (22.7%) (29.3%) (14.7%) (8%) (1.3%) (2.7%) phones SIM cards 2 5 18 26 10 5 3 6 for mobile 0 (2.6%) (6.7%) (24%) (34.7%) (3.3%) (6.7%) (4.0%) (8%) phones Smart/touch 6 8 4 57 0 0 0 0 0 phones (8%) (10.7%) (5.3%) (76%) Source: Field Survey (2014)

It could be seen that owing multiple mobile phones and SIM cards from multiple service providers is widely prevalent among the MSEs surveyed for this study. More than 75% of those surveyed had three or mobile phones. Similarly more than 90% of them had three or more SIM cards. High off-net call tariff could be one of the major reasons for this phenomenon.

29 Ranking of mobile phone services usage for business purposes

With regard to the usage of various mobile phone services, voice calls seem to be most important service used by the MSEs of this study. An overwhelming 71% of the respondents indicated that voice calls are the most important mobile based services used for business purposes. This was followed by mobile money services as about 25% of the respondents ranked it as the most important mobile phone based service. SMS also seems to be widely used by the respondents as it was ranked as the second ranked service by about 45% respondents and 49% ranked as the third most important service. Considering the micro nature of most of the enterprises surveyed, it is not surprising to note that accessing internet, emails, social networks and other mobile based services were not under use. The Table 4 provides these details.

Table 6: Ranking of mobile phone based services used by the MSEs Not Rank 1 2 3 4 5 6 7 Missing applicable Voice 53 20 1 ------calls (70.7) (26.7) (1.3) 1 34 37 1 2 SMS - - - - (1.3) (45.3) (49.3) (1.3) (2.7) Mobile 19 22 32 1 1 - - - - money (25.3) (29.3) (42.7) (1.3) (1.3) 3 10 3 1 56 2 Internet - - - (4) (13.3) (4) (1.3) (74.7) (2.7) 1 6 9 57 2 Emails - - - - (1.3) (8) (12) (76) (2.7) Social 2 57 2 - - - - networks (2.7) (76) (2.7) 1 1 71 2 Others - - - - - (1.3) (1.3) (94.7) (2.7) Source: Field Survey (2014)

Uses of mobile phones for market development for these MSEs were also discussed. It was found out that all the surveyed enterprises were using it for obtaining information about the new products. Contacting the potential customers (97.3%), finding out new markets and higher access to market information (96% each) and expanding to new markets (85.3%) were also cited as the uses of mobile phones for these MSEs for market development.

Mobile service providers subscribed

Vodacom seems to be leading service provider as 81.3% MSE customers ranked it as number one service provider. Tigo is ranked second important service provider by again 81.3% MSE customers. About 88% of them ranked Airtel as the third most important service provider to them.

30 Table 7: Leading mobile phone service providers to the MSEs Rank Mobile service providers 1 2 3 4 61 9 4 1 Vodacom (81.3%) (12%) (5.3%) (1.3%) 10 61 3 1 Tigo (13.3) (81.3%) (4%) (1.3%) 3 4 66 2 Airtel (4.0%) (5.3%) (88%) (2.6) 1 10 Zantel 0 0 (1.3%) (13.3%) Source: Field Survey (2014)

Business related use of mobile phones by MSEs

Most of the MSEs surveyed for this study indicated that they were using the mobile phones for various business related purposes. They were not only making voice calls to their business contacts like suppliers of goods, customers and transporters, but also were receiving calls from these business contacts. It might be borne in mind that most of them were not familiar with the smart phones or their applications. They were using mostly ordinary mobile phones. About 61% of the respondents covered for this study indicated that they used to make between 6-10 calls per day to the suppliers of the goods and services related to their businesses.

Table 8: Business related voice calls traffic from and to the MSEs Number of calls made to per day (outgoing) Business contacts No calls 1-5 6-10 11-15 26 46 3 Suppliers 0 (34.7%) (61.3%) (4%) 2 31 36 5 Customers (2.7%) (41.3%) (48%) (6.7%) 9 54 12 0 Transporters (12%) (72%) (16%) Number of calls received from per day (incoming) 37 34 4 Suppliers 0 (49.3%) (45.3%) (5.3%) 2 38 29 6 Customers (2.7%) (50.7%) (38.7%) (7.9%) 9 54 12 Transporters 0 (12%) (72%) (16%) Source: Field Survey (2014)

Out of the remaining 34.7% indicated that they used to make 1-5 voice calls per day to their suppliers. These respondents were also making calls to their customers and 48% of them informed that they were making 6-10 voice calls per day to their customers. Transporters of goods were also contacted by a considerable number of respondents to track the goods and 72% of the respondents claimed that they used to make 1-5 voice calls per day to the transporters.

31 The respondents were also receiving calls from the suppliers, customers and transporters. The Table 8 indicates that 49.3% of the respondents were receiving 1- 5 voice calls per day from the suppliers and 45.3% were receiving 6-10 calls per day. Customers were also making calls to these MSE respondents. It could be seen that 50.7% of the respondents used to receive 1-5 voice calls per day from their customers. Further queries were also raised to these respondents about the purposes and intensity of calls from the suppliers. The Table 9 provides the details.

Table 9: Purposes of calls to the suppliers and the intensity of use Intensity High Moderate Low Not at all Total Purposes Searching for 5 49 21 75 0 suppliers (6.7) (65.3) (28) (100) Preliminary 26 49 0 0 negotiation (34.7) (65.3) 32 37 6 75 Placing orders 0 (42.7) (49.3) (8) (100) Tracking 24 50 1 75 transport of 0 (32) (66.7) (1.3) (100) supplies Making 33 29 13 75 payment for 0 (44) (38.7) (17.3) (100) supplies Complaints 10 56 9 75 about the 0 (13.3) (74.7) (12) (100) supplies 0 2 73 75 others 0 (2.7) (97.3) (100) Source: Field Survey (2014)

Placing orders (42.7%) and making payment for the supplies (44%) were the purposes which were ranked very highly by the respondents for contacting the suppliers. Searching for suppliers (65.3%), placing orders (49.3%), making payment for the supplies (38.7%) and tracking transport of supplies (32%) were considered as falling under moderate use category. It seems that tracking the transport of supplies (66.7%) and preliminary negotiation (65.3%) were considered by a considerable amount of respondents as low priority issues for making voice calls.

Similarly, the MSE respondents were requested to indicate the purposes for which the customers were contacted by them and the intensity of contacting them for these purposes. The Table 10 displays the details. Compared with the suppliers, the voice calls to the customers were less and even the purposes did not have high intensity of usage. Informing about the availability of goods (54.7%), receiving payment for the goods (41.3%) and tracking transport of goods (21.3%) were considered to the purposes that received moderate rating by the MSE respondents for contacting the customers. It could be concluded that contacting the customers was not a high priority for the MSE respondents compared to the suppliers.

32 Table 10: Purposes of calls to the customers and the intensity of use Intensity High Moderate Low Not at all Purposes 10 41 23 1 Informing about availability of goods (13.3) (54.7) (30.7) (1.3) 16 58 1 Tracking transport of goods 0 (21.3) (77.3) (1.3) 3 31 40 1 Receiving payment for the goods (4) (41.3) (53.3) (1.3) 6 60 9 Complaints about the goods 0 (8) (80) (12) 2 73 Others 0 0 (2.7) (97.3) Source: Field Survey (2014)

With regard to the general benefits of using mobile phones for the business purposes, a significant number of the respondents (90.7%) indicated that they benefited due to (a) reduction of travel costs (b) early arrival of supplies / goods and (c) lessening of travel frequency.

Table 11: Contributions of mobile phones in facilitating the growth of business Not Rank 1 2 3 4 5 6 Missing applicable Increased 19 16 35 4 1 number of - - - (25.3) (21.3) (46.7) (5.3) (1.3) customers Enlarged 21 24 24 4 1 business - - - (28) (32) (32) (5.3) (1.3) operations Better access to 35 32 7 1 - - - - market (46.7) (42.7) (9.3) (1.3) information Improved 2 7 63 1 1 1 contact with - - (2.7) (9.3) (84) (1.3) (1.3) (1.3) suppliers Superior 1 1 53 19 1 customer - - - (1.3) (1.3) (70.7) (25.3) (1.3) services Others 4 1 3 66 1 - - - (5.3) (1.3) (4) (88) (1.3) Source: Field Survey (2014)

They were also further queried about the specific benefits related to their business growth due to use of mobile phones. They ranked the contributions like increased number of customers, enlarged business operations, better access to market information, improved contact with the suppliers and superior customer services among many others.

Better access to market information (46.7%), enlarged business operations (28%) and increased number of customers (25.3%) were ranked as the most important contribution of the mobile phones. They were also ranked as the second most

33 important contribution by 42.7%, 32% and 21.3% of the respondents of this study. Increased number of customers was mentioned as the third most important contribution of mobile phones by a considerable number of respondents (46.7%). Other contributions worth mentioning were improved contact with the suppliers (84%) as the fourth ranked benefit and superior customer services (70.7%) as the fifth ranked benefit. These details are provided in Table 11.

Ranking of technological barriers for using mobile phones

Network failure related problems seem to be the highly ranked problem as 93.3% respondents considered that as the most important technological barrier is using the mobile phones for the business purposes. Limited interconnectivity (or it could be related with the high tariff for off-net calls) was considered as the next major problem as it was ranked as the second most important problem by 76% of the respondents. Potential to lose the password was cited as the third ranked problem by 46.7% of the respondents. Poor quality handsets (30.7%), recurrent short supply of electricity, limited applications of the ordinary mobile phones and the potential to lost the password (21.3% each) were ranked as the fourth most important technological barriers in making use of the mobile phones for the business purposes.

Table 11: Technological barriers in using mobile phones for business transformation Not Rank 1 2 3 4 5 6 7 applicable Poor quality 16 - 3(4) 23(30.7) 9(12) 15(20) 1(1.3) 4(5.3) handsets (21.3) Frequent network 70 2(2.7) ------problems (93.3) Limited 2(2.7) 57(76) 9(12) - 2(2.7) 2(2.7) - - interconnection Recurrent electricity - 1(1.3) 5(6.7) 16(21.3) 25(33.3) 16(21.3) - 9(12) shortage Limited applications of - - 5(6.7) 16(21.3) 6(8) 8(10.7) 2(2.7) 20(26.7) mobile phones Potential to lose - 7(9.3) 35(46.7) 16(21.3) 6(8) 8(10.7) - - Password Others - - - - - 1(1.3) - 71(94.7) Source: Field Survey (2014)

Cost of using mobile phone services

The respondents were also queried about the cost of using mobile phone services. Many of them indicated that their overall expenditure on using mobile phone services was increasing. They also cited the reasons such as (a) frequent network problems while communicating (62.7%) (b) increased frequency of use (61.3%), (c) increased tariff (61.3%), (d) high interconnectivity tariff between different mobile phone

34 operators (60%) and (e) repeated need to change the faulty handsets (40%) as shown by the percentage of respondents indicated in the parentheses. Despite all these problems, a considerable amount of respondents (62.7%) claimed that their usage of mobile phones was increasing over a period of time whereas 28% of them stated that it was reducing and 9.3 indicated that it was stagnant. The respondents were also requested to rank technological problems faced by them in using mobile phones for their business purposes. These are shown in the Table 12.

35 SECTION VII: CONCLUSION AND RECOMMENDATIONS

Summary and conclusion

The years 2008, 2009 and 2011 witnessed substantial growth in mobile phones in Tanzania. Nevertheless, since 2011 the growth has not been significant compared to the previous years and the mobile phones sector has almost stagnated and reached a plateau in post-2011. The years 2008 (32%), 2009 (43%), 2010 (50%) and 2011 (59%) have witnessed significant milestones in the Teledensity and telecommunications history of Tanzania. The Teledensity has reached 61% in 2013.

The national traffic of on-net calls (calls made within the same service provider) has almost trebled in Oct-Dec 2013 compared to April-June 2010. On the other hand, the traffic of off-net calls (calls made from one service provider to another service provider) has been stagnant for a long period till March 2013 though since the quarter of April-June 2013, there has been a slow but steady growth in the off-net voice calls. The numbers of voice minutes and short-messages (SMS) per user have been showing a mixed trend from April 2010 to April 2012 though since July- Sep 2012, there is an increasing trend in these indicators per user.

The second and third positioned mobile service providers such as Airtel and Tigo which were pegging their tariff for on-net calls much lower than the market leader Vodacom for a long period aligned with it since Jan-March 2013. The weighted and average tariff difference between these three leading operators has remained very marginal till today since then. The tariff for off-net calls in case of almost all the service providers seems to be much higher than the on-net calls and hence most of the operators are operating like silos with very limited interconnectivity. The tariff barriers for calls originating from one service provider to another service provider are likely to prevent the subscribers from contacting the subscribers of the other service provider.

The period April-Sep 2010 observed a relatively high Average Revenue Per User (ARPU) which declined during the period Oct 2010-Sep 2011. Again, it kept on increasing from Oct 2011 and reached a very high of about Tshs 34,000/- in Oct-Dec 2013 except the period April-June 2012. This very high ARPU could be explained as the result of increased usage of minutes per user and growth in the short messages (SMS) and also the resurgent high on-net and off-net call charges by the major telecom operators since Jan 2013.

The MSEs surveyed at Dodoma during March 2014 have been using mobile phones for various business purposes. Compared to the other ICTs such as landlines, fax machines, emails, internet, smart mobile phones etc, their use of ordinary mobile

36 phones for the business purposes seem to be much higher and this high usage of mobile phones have transformed the way in which they are conducting their business operations. The smart phones usage is also not significant but relatively better than others.

Most of the respondents have started to use the phones/mobile phones in the recent years; 36 (48%) started using them during the period 2006-2010 and 22 (29.3%) started using them during 2011-2013. Owing multiple mobile phones and SIM cards from multiple service providers is widely prevalent among the MSEs surveyed for this study.

Vodacom, Tigo and Airtel were the leading service providers in case of mobile phones (mentioned in the order of usage). The usage of mobile phones is generally considered to be increasing despite the perceived higher tariff for the off-net calls and increasing cost of using mobile services. For reasons related to the high off-net tariffs and consequent limited interconnectivity between the mobile service providers, most of the respondents of the study have been using more than three mobile phones and SIM cards from different mobile service providers.

Voice calls, SMS services and mobile-money transfer were the three most important mobile based services used by the respondents in that order. Considering the micro nature of most of the enterprises surveyed, accessing internet, emails, social networks and other mobile based services were under very limited use.

With regard to the outgoing calls, the suppliers, customers and transporters (in that order) were receiving 6-10 voice calls per day from the respondents of the MSEs. In case of incoming calls that were received from the business contacts. Again suppliers, customers and transporters were the ones who were making calls to the MSE respondents. Placing order and making payment for the supplies were the most important purposes of using mobile phones with regard to the suppliers. Similarly with regard to the customers, informing the customers about the availability of goods and receiving payment for the supply of goods were cited as the most important purposes of mobile phones. However, contacting the suppliers seems to be more prevalent than contacting the customers. The use of mobile phones seems to have reduced the cost of travel, the frequency of travel and facilitated the early arrival of goods needed by the MSEs.

Increased number of customers, enlarged business operations, better access to market information, improved contact with the suppliers and superior customer services were cited as the major benefits of mobile phones for the growth of the businesses. With regard to market development, obtaining information about the new products, contacting the potential new customers, finding out new markets,

37 higher access to market information and expanding to new markets were cited as the benefits (listed in the order of importance).

Network failure related problems, limited interconnectivity (or it could be related with the high tariff for off-net calls), potential to lose the password, poor quality handsets, recurrent short supply of electricity and limited applications of the ordinary mobile phones were indicated as the important technological barriers in making use of the mobile phones for the business purposes. Many of the respondents were also not familiar with the features of the smart phones and hence not accessing emails, internet or social networks for the business purposes through the mobile phones.

Recommendations

Though mobile phones have been widely used in Tanzania, there is an indication that the mobile phone sector has stagnated since 2011. Drastic efforts are needed from the leading service providers and the regulators to furthering the achievements of mobile phones growth and to overcome the stagnation. Reducing the tariff for both on-net and off-net calls is essential in this regard. If the tariff for off-net calls is reduced, it will increase the overall customer base for each service provider as they will be accessible to customers of other service providers.

Further, efforts have to be made to popularize Multi-Media Messaging Service (MMS) similar to that of Short Message Service (SMS) among younger generation of Tanzanians. The traffic of SMS is increasing considerably. The handsets being used by many of the MSE owners and employees seem to have limited capability for undertaking some of the business functions. As the MMS has more potential for addressing some of the shortcomings faced MSMEs in terms of mobile phone applications for the business, it is desirable that the service providers make campaigns about its uses. This will also increase the traffic in this segment and consequently make an impact on the revenue of the service providers.

Enabling conditions have been created for the next and higher level of usage of mobile phones. The Teledensity has reached a very high level. Mobile-money transfer services have also reached major business locations of Tanzania. There is a need to upgrade the telecom market moving away from mere voice calls dependence to data transmission based services. This is needed to ensure that there is a greater uptake of smarter applications of mobile phones such as accessing internet, emails and mobile-money transactions. Unless these issues are addressed, the enterprises will use the mobile phones merely to make voice calls and make financial transactions with the suppliers.

38 Awareness of the uses of the mobile-money transfer services needs to be increased. Further, efforts are needed from the mobile-money transfer service providers to ensure that inter-service provider collaboration is achieved to enlarge the uses of these services for making payments for purchase of goods and services. Though there are efforts in bigger towns like Dar es Salaam to enlist outlets accepting mobile-money transfers, further consolidation is necessary. Moreover, there is a need to reduce the cost of transactions for bulk and bigger mobile-money transactions to ensure that businesses adopt that in a large scale.

The Government of Tanzania, market regulators and other market players need to make concerted efforts to address the issues of poor quality handsets, limited interconnectivity between operators due to higher off-net tariff, lack of stable electricity supply, frequent network problems, lack of knowledge about smart phone applications and consequent low usage of higher level applications. If these are addressed it will be possible for the MSMEs to convert themselves from merely using voice calls and SMS to data transmitters and users leading to transformation of the sector.

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