Just last year, Ethiopia introduced a draft Startup Ecosystem Development Policy aimed at encouraging and supporting innovation and entrepreneurship. The draft policy aims to provide tailored support to startups at different stages of their lifecycle, from ideation to expansion, and emphasizes the need for the introduction of incubators, accelerators, and other stakeholders to encourage and augment entrepreneurship.
The challenges facing startups in Ethiopia include lack of access to finance, limitations in the availability of projects sites and skilled manpower, and bureaucratic hurdles, although this list is by no means exhaustive.
The issues mean that too many startups fail or vanish into thin air not long after launch.
The government hopes the policy will offer an improved environment and sturdier support structures for startups, but what do entrepreneurs think about it?
The Reporter’s Samuel Abate sat down with Abenazzer Tadesse, a seasoned entrepreneur who has coached, mentored, and collaborated with hundreds of his peers over the years, for an inside perspective on the policy.
Abenazzer spoke about the rapid changes taking place in Ethiopia’s startup ecosystem, the legislative shortcomings holding it back, and future prospects in light of developments such as the launch of Ethio telecom’s digital marketplace platform and the upcoming capital market. EXCERPTS:
The Reporter: How did you get into the startup business, and what are you doing now?
Abenazzer Tadesse: When I started my business, there was no one to help. There was no LinkedIn, no platform for people to create jobs, network, and help each other. I started my business in 2017. Within a year, I was working in information systems. It was a startup providing software solutions, but it failed. Later, while working in different regions, I realized there was a gap between those who provide solutions and those who receive them. I saw this issue firsthand when I was working in consultancy. My work was focused on infrastructure development, and because building ICT infrastructure requires substantial funding, I couldn’t succeed. I needed foreign currency, which I couldn’t access, leading to failure. Currently, I’ve joined a consultancy startup. I’m working on projects, such as bridging the gap between those issuing construction tenders and those bidding for them. One side wants to announce the tender and quickly identify the winner, while the competitors only want to compete to win. Additionally, I’m involved in projects related to construction finishing, especially interior design for architects, and cultural heritage preservation, particularly when working on corridor development in cities. I’m involved in both areas.
How do you see the current startup business landscape in Ethiopia?
The startup scene in Ethiopia has drastically changed from when my friends and I started in 2017. Back then, I was an IT lecturer at Haramaya University, and starting your own business was considered crazy. The concept of a startup business didn’t even exist. But now, things have improved significantly. There’s more focus on startups, which is positive for the country. Many creative ideas have been transformed into businesses that solve problems and create jobs. International institutions like the MasterCard Foundation, World Bank, and others provide financial and technical support to startups with unique ideas. Most startups are based in Addis Ababa, though there are some in Adama and Hawassa as well.
Are startups able to take advantage of market opportunities?
The system in Ethiopia is not particularly conducive to startups. There are numerous challenges in turning ideas into investments due to the country’s regulatory and legal frameworks. People and institutions lack a tradition of investing in ideas that could generate long-term income. However, some startups have received financial support and have succeeded. Many, though, work during the day and struggle at night, relying on family funds or begging for financial and technical support.
Are there any laws in Ethiopia that encourage startup businesses?
Ethiopia doesn’t yet have a specific startup law. A draft law was proposed five years ago, but it hasn’t yet been approved by the House of People’s Representatives. For example, if a foreign investor wants to invest in a startup in Ethiopia, they must bring at least USD 150,000 [with them]. At the current exchange rate, that’s about 15 million Birr. In neighboring countries like Kenya and Rwanda, they allow startup ideas to begin with only USD 3,000. Ethiopia’s current investment regulations discourage investment in startups and highly encourage investment especially in the manufacturing sector. Additionally, the Ministry of Revenue treats all businesses the same. We lack tax systems that support startups, and banks don’t have systems for lending to them. The startup law draft, which was prepared five years ago, would have provided tax relief and other support, but it hasn’t been approved or implemented. According to the Ethiopian Commercial Code, if a business fails to generate income for two consecutive years after obtaining a license, it is required to close by law. But innovations often take years to find investors and prove their effectiveness, and the absence of laws that encourage startups hinders them from bringing their ideas to market.
New legislation and developments, such as the Ethiopian Securities Exchange (ESX), are being introduced. How can these benefit startups?
The launch of the capital market is a positive development. It gives people with unique ideas and innovations an opportunity to sell their concepts. Currently, the primary source of finance in Ethiopia is through banks or small credit institutions, which offer loans with interest rates starting at 18 percent and require collateral. The introduction of a capital market is beneficial for startups. However, before it can truly benefit, the startup law draft must be approved by the House of Representatives and implemented. If that happens, it could lead to rapid change.
As an entrepreneur, what else do you think should be amended or improved?
The investment and income control laws should be improved. If these laws are updated, many things will change. For instance, reducing the minimum investment required for foreign investors to would attract more startup investment. At present, if I receive a USD 10,000 grant from the World Bank or another international startup support institution, I have to pay multiple taxes to the government, which prevents me from bringing about the changes I want. Another thing is raising awareness about the nature of startups. Institutions still don’t understand what startups are, how to support them, or how to benefit from them.
How do you see Ethiopian startups making a global impact?
Very few Ethiopian startups have achieved global success. In my opinion, the biggest challenge is that most Ethiopian startups are not cross-border because we’ve been isolated from the world for many years. Most Ethiopian startups are run by people who have worked hard here, made money, bought a house, and a car, and prefer to live here. The startups we have are not pan-African or global in nature. I don’t see a significant effort or desire to take our innovative solutions to countries like Kenya, Nigeria, Europe, or the US. Of course, these countries have advanced, but I don’t see the same drive from Ethiopian startups.
What do you make of Ethio telecom’s recently launched Zemen Gebeya digital marketplace platform?
I think it is a good opportunity for Ethiopian startups. Historically, Ethiopian e-commerce has not been strong. Many startups tried but eventually failed. E-commerce has three key components: suppliers, buyers, and enablers, each facing their own set of challenges. Suppliers face financial issues and inflation, while buyers are accustomed to physically negotiating prices and buying exactly what they want. Enablers have capacity problems, and there’s a lack of customer complaint systems once payments have been made. Social commerce, via platforms like Telegram, has been more popular than traditional e-commerce. The launch of Ethio telecom’s platform could address these issues. Since it’s a government-owned platform, it’s less likely to face infrastructure problems. Ethio telecom’s partnership with logistics companies will allow products like teff flour to be brought easily from places like Bahir Dar to Addis Ababa, a problem other delivery companies faced, focusing mainly on the city center. Additionally, since Telebirr is already widely used in Ethiopia, Zemen Gebeya should overcome payment issues. It has only been operational for a week, but if implemented across the country, it could succeed. One of its strong points is that consumers will only pay for services after ensuring they have received them. My only concern is that as a government-owned platform, Ethio telecom might use its influence unfairly, such as limiting other peer institutions from using Telebirr for payments or using data from the platform for other purposes.
What contribution can Zemen Gebeya have on the growing Ethiopian startup industry?
Zemen Gebeya will dominate the e-commerce landscape in Ethiopia. However, the benefits it brings to the market will far outweigh those of previous platforms. It will create new income opportunities for many people. We shouldn’t stop this progress just to protect the interests of 100 or 200 startups. The impact will be much greater in the long term.
How much of the market share do you think startups control in Ethiopia?
It’s hard to quantify without data. When we talk about startups, there’s still no consensus on what qualifies as a startup in Ethiopia. For example, is a ride-hailing app considered a startup? If a startup has been around for 18 years and hasn’t been successful in penetrating the market, is it still a startup? Or should a startup that has achieved success in two years and is earning millions of dollars be categorized differently? There’s a lack of clarity in the government’s definition of a startup, which makes it difficult to determine their contribution to the economy. Broadly speaking, there are two types of startups: Small and Medium Enterprises (SMEs) that have already been tested and proven effective, and Innovation-Driven Enterprises (IDEs), which are high-risk, high-reward ventures, such as ride-hailing apps. Once a successful startup is replicated by others, it may become a small or medium enterprise. The challenge is that there’s no clear categorization, which makes it difficult to measure startups’ contribution accurately.
Isn’t it already USD 150,000?
