Untapped Potential on E-commerce in Zanzibar

E-commerce in Zanzibar has emerged as a vital component of modern economies, transforming the way businesses operate and consumers shop. This is of paramount importance for small island economies relying on tourism as a key pillar of the economy. The e-commerce industry is an avenue that shows a significant potential to boost Zanzibar’s economy, especially by connecting the island to broader domestic and international markets.

In Tanzania, the e-commerce landscape is gradually evolving, driven by advances in technology, increased digital public infrastructure, and changing consumer habits. According to findings by Statista (2023), the e-commerce in Tanzania is projected to reach $1.2 billion by 2025, yet it remains relatively low in Zanzibar. This can be attributed to high transaction costs, low internet penetration, limited digital skills and innovation, and low trust in online business.

Zanzibar must first overcome these challenges to fully harness the potential of utilizing e-commerce as a tool to tap into both domestic and international markets, increase trade volumes, and bolster economic growth.

E-commerce landscape in Zanzibar

Although digital transactions are increasing across Tanzania, the e-commerce in Zanzibar is still in its nascent stages. The National Bureau of Statistics (NBS) estimated that the value of e-commerce transactions in Tanzania grew by 8.1% in 2023. Nonetheless, most of this growth has been concentrated on the Mainland, with Zanzibar lagging behind.

Zanzibar’s internet penetration rate is steadily increasing, but still, a large portion of its population lacks access to reliable, affordable, and fast internet connections. According to the International Telecommunication Union (ITU), Zanzibar’s internet penetration was approximately 46% in 2023, compared to a higher national average of 58% on the Tanzania Mainland.

This gap limits the reach of e-commerce platforms and slows down the growth of online trade. Several promising initiatives, including Cyber Cities and Zanzibar Silicon, have been launched in recent years to encourage e-commerce. Local businesses, particularly in the tourism sector, are beginning to recognize the potential of online marketing and sales, but the true scale of e-commerce in Zanzibar is still untapped.

Notably, international e-commerce platforms like Amazon, Etsy, e-Bay, Shopify, Alibaba and Jumiya, which closed down its business in Tanzania in 2019, are not visible in Zanzibar.

Policy and regulation, and infrastructure are Zanzibar’s leading digital economy building blocks, stabilizing the foundation for an inclusive digital economy. According to the Inclusive Digital Scorecard (IDES) 2024, policy and regulation and infrastructure scored 57% and 60%, respectively. This demonstrates notable strides to promote an inclusive digital economy by introducing supportive policies and regulations.

Zanzibar’s digital economy is benefiting from substantial electricity access, phone ownership and network coverage, ID infrastructure, and payment system inter-operability. A significant portion of the population, especially the youth, is more active on social media platforms.

Key challenges constraining the E-commerce growth

In Zanzibar, a significant barrier to the growth of e-commerce is the high cost of transactions. Credit card penetration remains low, with many people relying on mobile money services such as M-Pesa, Tigo Pesa, and Airtel Money.

While these mobile money platforms are useful, they come with high transaction fees that discourage both consumers and merchants from fully embracing online commerce. Additionally, businesses face logistical challenges related to cross-border payments and international shipping. The cost of delivering products and services from Zanzibar to Tanzania Mainland or international markets is often high due to limited infrastructure, further raising the overall cost of e-commerce transactions.

Another significant challenge is the low level of trust in online businesses. Many potential customers are still unfamiliar with the concept of shopping online or may be wary of scams. People are seemingly concerned about fraud, payment security, and the reliability of products purchased online. This is exacerbated by the relatively low penetration of e-commerce platforms in Zanzibar due to the limited number of established local online retailers. It further perpetuates distrust in e-commerce and makes it difficult for businesses to build reputations and gain consumer confidence.

Although Zanzibar is improving its digital infrastructure, many small businesses and consumers still lack the skills necessary to navigate online platforms effectively. Many local entrepreneurs are unfamiliar with the basics of digital marketing, payment systems, and e-commerce logistics.

This knowledge gap significantly limits the potential for businesses to scale their operations online. Zanzibar scored 36% on skills and 42% on innovation in the IDES 2024, implying internet penetration, digital skills and innovation suggesting that the community is not fully benefiting from the presence of digital public infrastructure.

These challenges impede the ability of businesses to operate efficiently in a digital marketplace. Furthermore, although Zanzibar’s internet connectivity is improving, it still faces challenges such as slow speeds and inconsistent service, particularly in rural areas.

Potentials and future trends of e-Commerce

Addressing the challenges outlined above could increase the volume of trade and unlock significant economic potential for the island. Building on examples from several small islands around the world which have successfully embraced e-commerce as a means of economic diversification, growth, and expansion of their markets, the rest of this article illustrates how Zanzibar can harness digital platforms to achieve similar outcomes.

Leveraging E-Commerce for expanding the domestic markets

Zanzibar has a growing domestic market with significant purchasing power, including tourists, the diaspora, and an emerging middle class. The tourism sector, which generates approximately 27% of Zanzibar’s GDP, is an important segment that can be targeted by e-commerce businesses.

Online platforms can provide tourists with an easier way to book services such as hotel accommodations, excursions, and restaurant reservations. A good reference for doing this is Barbados, a Caribbean island with a population of about 290,000, that has successfully leveraged e-commerce to boost its tourism sector and empower local businesses.

One of the country’s successful initiatives is the Barbados Tourism Marketing Inc. (BTMI), which launched a comprehensive online platform to offer direct bookings for accommodations, activities, and events. The platform also promotes local artisans, allowing them to sell products such as jewelry, clothing, and crafts to international markets.

Designated efforts have enabled more businesses in Barbados to establish an online presence, and local entrepreneurs are able to access global customers through e-commerce platforms like Shopify and Etsy. Meanwhile, Iceland, with a population of around 400,000, is another small island nation that has embraced e-commerce to expand its export markets and boost its tourism industry. Iceland’s e-commerce success lies in its ability to combine technology with its rich natural resources and tourism structure.

Iceland’s Tourism Board has launched several e-commerce platforms that allow travelers to book flights, tours, and accommodations directly from international websites. Currently, Iceland is prominently using digital payment solutions to facilitate smooth and secure transactions across the value chain of the tourism sector.

In Zanzibar, relevant government entities can nudge tourism-related businesses, such as hotels and tour operators, to adopt e-commerce solutions for direct bookings to make the island more attractive to international tourists, who prefer seamless digital transactions. Equally, e-commerce can be used to sell recreational services and local products, such as spices, handicrafts, and textiles, directly to tourists and expatriates. This is achievable by improving Zanzibar’s internet infrastructure to provide reliable and affordable internet connectivity.

Using E-Commerce for expanding exports

Zanzibar can learn from Seychelles, an archipelago in the Indian Ocean with around 120,000 inhabitants, on how a small island economy can harness e-commerce for growth. In 2017, the Seychelles Chamber of Commerce and Industry (SCCI) launched the Seychelles Online Business Portal.

This initiative encourages local businesses to establish an online presence, which is particularly beneficial for small-scale entrepreneurs selling local products such as vanilla, coconut oil, and handcrafted items. The portal also allows businesses to sell products internationally, increasing their revenue potential. Furthermore, Seychelles has partnered with international e-commerce platforms like Amazon and Etsy to help local artisans and businesses gain access to global customers.

Icelandic companies rely on e-commerce to sell high-value products such as woolen garments, natural beauty products, and unique food items (such as Icelandic fish and lamb) to international customers. The Icelandic Export Centre is playing a key role in supporting local companies in navigating international markets by providing resources for building online shops, developing marketing strategies, and handling international shipping.

The diaspora community, which historically had strong ties to Zanzibar, represents another growing export market segment. Given that many Zanzibari have migrated abroad, particularly to the Middle East, Europe, and North America, e-commerce provides an effective channel for them to purchase high end local products and support businesses in their home country.

Moreover, Zanzibar’s growing middle class with high consumption power is creating demand for a broader range of consumer goods and services. By capitalizing on e-commerce, businesses can better cater to the needs of this new demographic and increase the volume of trade on the island.

E-commerce can also enable Zanzibar-based businesses to expand their reach to Tanzania Mainland and beyond. Zanzibar’s unique products, such as spices, marine products, and art, can be sold online to consumers in larger urban centers on the mainland, and other regional markets within the East African Community. The integration of Zanzibar into Tanzania’s e-commerce ecosystem would facilitate cross-border trade between Zanzibar and other countries in the region, offering a potential revenue stream from exports.

Small island nations around the world are proving that with the right strategies, e-commerce can be a transformative tool for economic growth. Barbados, Seychelles, Malta, Iceland, and Bermuda have all harnessed e-commerce to diversify their economies, empower local businesses, and access global markets.

E-commerce in Zanzibar is at a pivotal stage, with a mix of challenges and opportunities. Zanzibar, with its strategic location, growing infrastructure, and rich cultural heritage, has the potential to leverage on potentials of e-Commerce. It needs to create a more supportive business climate that encourages entrepreneurship, promotes digital skills and attracts both local and international investors. Also, well-defined policies provide a guidance and roadmap for the e-commerce sector, offering regulatory certainty for businesses and addressing key issues such as consumer protection, digital payments, cross-border trade, and data privacy.

Additionally, it should continue building adequate public digital infrastructure – such as high-speed internet, secure payment systems, and logistics networks to enable businesses to reach wider markets including underserved or remote areas and enhance consumer experiences. These factors are essential for building a vibrant and smooth functioning of e-commerce which will eventually improve domestic trade and exportation, stimulating economic growth, creating job opportunities, and positioning the island as a competitive regional player in the digital economy.