Your Excellency President Emomali Rahmon,
Distinguished Participants and Members of the Development Community,
Ladies and Gentlemen,
Let me start by congratulating you all on the upcoming Navruz holiday and wishing you health, success, peace and prosperity.
Thank you for inviting me to this distinguished council and giving me an opportunity to share the World Bank’s perspective of the current situation, digital economy, and e-commerce prospects in Tajikistan.
Unfortunately, the current crisis, resulting from the war in Ukraine and sanctions against Russia, is disrupting commodity and financial flows globally, putting pressure on Tajikistan’s GDP, as the economy remains interconnected with remittances, food and energy imports from Russia. As a result of this exposure, we are already experiencing rising prices of energy and food products in the country due to higher international commodity prices and the exchange rate depreciation. We know that people’s living standards will deteriorate, as household purchasing power is being eroded, having an inevitable impact on the purchasing power of the population.
To mitigate the adverse impacts, the authorities have already started developing an anti-crisis plan and the World Bank Group is supporting the Government of Tajikistan with a crisis response package that focuses on:
- protecting vulnerable segments of the population, including returning migrants and their families through social safety nets
- supporting food security
- addressing the macroeconomic policy framework, including continued discussions on a crisis-response budget support operation.
While urgent actions are needed to mitigate the crisis, strengthening the resilience of the economy and facilitating private-sector-led growth are becoming even more important. Here, in this council’s context, the resilience of the financial sector, as well as diversifying of the digital and air connectivity come in mind particularly.
Since today’s session focuses on e-commerce, I would like to bring in the topic of digital foundations. One of the key challenges for e-commerce development in Tajikistan is insufficient and costly digital connectivity, which is a necessary prerequisite for any online transaction. For e-commerce to really take-off and reach scale, offering tangible benefits to more consumers and producers, for example to farmers in remote rural regions, digital connectivity has to be universal, affordable, and reliable. According to GSMA, the number of unique mobile broadband subscriptions per 100 inhabitants in Tajikistan was 44% in 2021, while in Kyrgyzstan it was 53%, in Kazakhstan - 65% and in Russia - 77%. According to the State Communications Service, in 2021 one-third of the population (equivalent to around 3.3 million people) use mobile internet in Tajikistan. Moreover, mobile broadband is excessively expensive and slow. As reported by the International Telecommunications Union (ITU), the cost of a mobile broadband subscription (with at least 1.5 GB of data) is on average 7.5% of the monthly gross national income (GNI) per capita and as much as 15.3% of monthly GNI per capita for the poor household, being the most expensive in the region. Broadband download speed for mobile users is very low, at a median of 6.4 megabits per second (Mbps) as of January 2022, leaving Tajikistan 135th out of 140 countries in the latest Ookla Global Speedtest. We need to do better and can do better.
Importantly, digital connectivity vulnerabilities have been accentuated with the current security and macroeconomic crisis in Eastern Europe. Currently, most of the Tajik bandwidth is sourced from Russia with some of the primary upstream providers being state Kazakh operator Transtelecom, state Russian operator Rostelecom, and private Russian operator MegaFon. In the context of sanctions and corporate flight from Russia, US-based Cogent Communications—one of the world’s largest intercontinental internet backbone providers—has cut ties with Russian customers, including Rostelecom and MegaFon. This has led to temporary network congestion in Russia which puts us at higher risks for disruptions. This situation reinforces the need for urgent and concerted efforts. The World Bank is in discussions with the Government of Tajikistan on a broad digital transformation agenda that focuses on critical interventions that would ensure the following:
i. international connectivity transit routes in Tajikistan need to be diversified for greater digital resiliency and capacity;
ii. national telecom networks are expanded and densified to reach the unconnected and to avoid network congestion;
iii. the institutional and policy environment is made more conducive (i.e., transparent and predictable) to attract local and foreign investments, including by adapting the sectoral governance to key national priorities and international good practices and ensuring the independence of the sectoral regulator; and
iv. enhancing cybersecurity and data protection capacity of the country amid increased cyber-attacks globally. This would include avoiding single points entries through which the traffic flows and which can impact the whole digital infrastructure in the country in case of a cyber-attack.
As I mentioned, the World Bank is ready to support these measures, including through investments targeting expanded digital infrastructure and inclusion, while improving policy and regulatory environment in the digital economy that are expected to generate significant positive socioeconomic and financial impacts. According to a 2018 International Telecommunication Union (ITU) study, improved regulatory framework and performance (measured by ITU’s ICT regulatory tracker, which ranked Tajikistan 187th out of 193 countries in 2020) is linked to a positive and significant increase in telecom investment, yielding in turn service coverage gains, price reductions, higher adoption levels, including of e-commerce, and consequently, a macroeconomic impact in terms of GDP per capita. More specifically:
- A 10% increase in the score for the regulatory authority and regulatory mandate pillars is associated with an increase in sectoral investment of 8% and 11%, respectively. This means that having a separate telecom / digital regulatory agency with desired characteristics (in terms of independence, accountability, and enforcement power), rather than a ministry in charge of a wide array of regulatory topics, contributes to creating a suitable framework that significantly spurs investment.
- A 10% increase in mobile penetration is associated with 1.25% GDP growth, while an additional 10% of fixed penetration brings an added 0.63% of GDP growth.
Zooming in on the e-commerce subject, we see that it is already on the rise in Tajikistan, but its volume remains small. Over the past decade, a group of local startups emerged in the e-commerce area, including Alif Sarmoya, innovating in the electronic mobile payment market, Somon.tj, rapidly engaging people and businesses to trade online, as well as e-commerce venture capitals and accelerators, such as 55Startups, investing in early-stage e-commerce businesses. Despite these dynamics, e-commerce remains a niche market. According to the 2017 Findex, only 7.6% of the Tajik population shopped online versus 24% in Kazakhstan and 28% in Russia. According to KPMG, e-commerce market size in Tajikistan was $54.7 million in 2020, equivalent to a third of that of Kyrgyzstan, 8% of Uzbekistan’s, and 3% of Kazakhstan’s.
We collectively need to work on the enabling environment of e-commerce sector, in addition to the foundational work I elaborated on before. This includes:
- Logistic Networks: Logistics, particularly fulfillment and delivery, are essential parts of the e-commerce process, and high logistic costs remain an important barrier for e-commerce development in Tajikistan. But costs are not the only challenge – we need to continue our work on critical issues, such as such as customs, infrastructure, tracking and tracing, and others.
- Online Payment Systems: Fin-tech companies, such as Alif Sarmoya, are rising rapidly, with an unprecedented increase in the use of digital payment. The mobile payment instrument subscribers reached 2.2 million in March 2021 from a zero base in 2017. This is very encouraging and a trend that the World Bank continues to support.
- Digital Skills: Improved digital literacy is considered to be one of the main factors supporting wider usage of digital technologies and digital transactions, including online shopping. We need to continue supporting advanced digital skills required to use digital platforms but also convey skills for building online and e-commerce platforms.
- Data Protection: Beyond these challenges, another key obstacle for e-commerce relate to the lack of digital trust in online transactions, which requires concerted efforts to strengthen data protection environment. It is commendable that in 2018, Tajikistan adopted the Law on Personal Data Protection. The World Bank’s support would also include the implementation of the data protection norms and regulatory acts, which are key to provide traders and consumers with confidence in using online services.
All in all, the current crisis presents risks, but also opportunities for the entire economy of Tajikistan, including in the e-commerce segment—opportunities to reevaluate the situation, understand key vulnerabilities and accelerate critical structural reforms as well as pro-market and pro-competition policies, particularly in the domain of ICT and digital economy. The World Bank is ready to support this important agenda with investments to enhance critical infrastructure into key backbone and last mile connections for expanded affordable and inclusive digital connectivity that need to go hand in hand with transparent and independent policies and regulations, and enhanced cybersecurity. These measures will support economic growth and job creation, while expanding the benefits of e-commerce beyond main cities. The Bank is ready to continue its engagement in Tajikistan as a trusted partner of the government, by supporting key sectoral reforms and investments. The measures to be supported by the World Bank will help tackle the digital connectivity divide so that the benefits of e-commerce go beyond major cities.
In addition to our support to improve logistics networks, with efforts focusing on increased online payments systems and developing digital literacy and skills among both consumers and producers, while building trust for online transactions through stronger data protection regulations and enforcement mechanisms, Tajikistan will reap high digital dividends and broader socioeconomic impact, particularly for youth, women, and rural populations for a stronger and more resilient Tajikistan.