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Exploring the challenges and opportunities of rapid technological change in Tanzania and Indonesia

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Vanessa Fullerton, Umar Salam, Stevan Lee

The Pathways for Prosperity: Commission on Technology and Inclusive Development has recently published two country case studies authored by OPM consultants on the challenges and opportunities presented by rapid technological change, in Indonesia and Tanzania.

The Commission is implemented by the Blavatnik School of Government (BSG), which commissioned the country case studies, alongside various reports by other authors. This was part of a series of background papers for a wider project ultimately aiming to develop a toolkit to help policymakers navigate the development of their own societal deal: a system of trade-offs, which balances policies and goals in such area as social protection, education, public finance, innovation, taxation, investment, and regulation.

An extensive literature on the key challenges and opportunities presented by new technologies exists. The OPM team critically reviewed this literature to frame its research, finding that it tends to be technologically deterministic – reflecting what is technologically possible, rather than what is economically or politically feasible – and western-centric. We argue that the impact of rapid technological change will vary with context – the issues for developing countries are likely to differ markedly from those in the developed world. The update of new technologies will reflect the pattern of growth of a country: in low-income countries, therefore, disruptive technologies will impact on economies that are already dynamic, where jobs are already being replaced and the structure of production is already shifting. In addition, technological update will reflect the innovation system of a country – the system of institutions and incentives that reward (or penalise) innovation and the absorption of technological change in the country. We also thought it was important to place less emphasis on a particular number of jobs, and more on other questions such as the nature of those jobs, the effects on society, the potential for structural change, etc.

During our research, we looked at key sectors in each country that are likely to be particularly affected by disruptive technology, or which technological change could positively impact, as well as doing a stock-take of policy issues impacting on the way technological change plays out. As part of this, we organised multi-stakeholder workshops in Indonesia and Tanzania, attended by the public sector, (including government, regulators, and unions), international organisations, non-governmental organisations and civil society, private sector organisations (including tech start-ups and telecommunications companies), and academia. We also organised two workshops specifically focusing on issues faced by the youth, attended by students, young entrepreneurs, and representatives of youth bodies.

Findings

Indonesia

Our case study of Indonesia found that there is high potential for digital platforms to coordinate informal microenterprises and bring the benefits of formalisation and reduction transactional frictions in a large part of the economy. Some examples of this already exist (in the taxi sector). However, there are also opportunities in many other sorts of businesses, notably for the sharing of information and advice, allocating freight space, and sharing assets. In addition, technology could be harnessed to reduce waste and improve efficiency in highly decentralised supply networks – particular relevant in Indonesia, where services have been the fastest growing part of the economy since 2010.  

We found areas of strength and weakness in the policy sphere. The National Industrial Policy contains many of the sorts of policies which might help industry adjust to the impacts of disruptive technologies, but could be refined with more specific consideration of the challenges and opportunities arising from disruptive technology. There are concerns around labour market regulation, the extent to which the financial sector serves innovative start-ups, and whether the education system produces enough highly skilled workers and managers.

Tanzania

In Tanzania, the case study shows that the impact of disruptive technologies is likely to vary from industry to industry. Some industries may benefit from positive direct impacts, while other industries may be little affected. We found potential for positive impacts of technology in large-scale agriculture, which could improve if market conditions were made right. Technology may also offer the potential for improved efficiency and viability in the mining sector, including exploration. Although Tanzania’s garment industry has had comparatively slow growth next to Kenya and Ethiopia, the sector still has growth potential, largely because disruptive technologies are unlikely to impact Tanzania’s garment production, which is based on low-cost labour and focused on simple, rather than complex, production. Finally, we found that digital platforms hold high potential to coordinate informal microenterprises, and to bring the benefits of formalisation and reduced transaction costs to a large part of the economy.

As with Indonesia, Tanzania’s policy environment has strengths and weaknesses. The 2016 Five Year Development Plan and the Vision 2025 set out ambitious goals, but over-comprehensiveness may be to blame for under-implementation. Firms struggle to access the finance that they need, although the recent mobile money revolution may see this supersede the formal financial sector in providing financial services to microenterprises and the poor. Education, the enabling environment, and communication and coordination emerged as key challenges.