Why other African governments need to adopt Tunisia's startup act

According to the 2018 Global Entrepreneurship Index, Tunisia has a relatively healthy business and startup ecosystem. Given it ranks 6th and 40th in MENA and worldwide respectively. Other African countries in the top 60 included Botswana, South Africa and Namibia at 52, 57 and 60 respectively.

To ensure the country became more business and startup friendly, last month, the Tunisian parliament stunned the world when they approved a startup act. This will guarantee grants, tax exemptions and government incentives to businesses that qualify as start-ups.

The long-term objective of all this is to inspire young people to chase innovative business ventures and drive progress in the science and technology sectors.

The act clearly stipulates that for any company to be a startup, it needs to not have existed more than eight years ago, the majority (two-thirds) shareholders are founders, hedge fund investors or angel investors. The startups should also preferably have a technologically based business model and its operations encompass the use of new cutting age technologies as their core.

With this new act, the government of Tunisia is trying to move away from the traditional dependency on Tourism and Agriculture as a major source of revenue. Putting science, innovations, and Technology in order to boost the country’s economic transformation.

As it is now, apart from Tunisia, one can't identify an African country that's making itself more startup friendly. What has been witnessed in most cases are knee-jerk reactions.

For example, recently, the Ugandan government came out to reward a few startups. Yet, many argued that instead of doing this, why not focus on creating an environment that won't necessitate them running to the government all the time?

"Instead of government picking winners, it should create an environment for [innovators] to equitably access capital to build their innovations," Ck Japheth, Founder, The Innovation Village in Kampala

This is a testament that few governments go a step further to craft something that has an objective of creating a long-term positive impact on their economies.

Despite access to funding being among the pressing challenges for a couple of African startups, few countries have put in place in place lasting solutions. An example is Nigeria. Taken as one of the countries with the most vibrant tech startup ecosystems across Africa, crowdfunding for startups is still illegal.

In Tanzania and Uganda, running online businesses - especially those focused on media and publications - is likely to become harder. One will be required to pay the Tanzanian government over US $900. Making it harder for those looking to start businesses in that field.

While, the Ugandan government is now mandating all those doing online media and publication to register with its communications authority, UCC. A move many have viewed as the initial step towards Tanzania's direction of levying fees on them. On top of what they already pay as trading licenses.

Uganda is also exploring the possibility of charging its social media users a daily fee of UGx. 100 (US $0.03). Yet, according to a report released early this year, Facebook and other social networking platforms are becoming a channel many small businesses rely on to reach customers. Such a move would curtail their growth.

When you look at the figures of investment into African (technology) startups, the future is promising. Last year, the figure grew by over 53% to US $560 Million. According to Partech Venture's Cyrill Collon, it is likely to grow past US $1 Billion annually by 2020. A significant addition to the African economy.

 

Additionally, the African continent is considered to be the youngest in the entire world. With the median age estimated to be 19.5 years. But grappling with unemployment. Tony Elumelu pointed out "youth unemployment" as "Africa's greatest challenge."

Yet, according to the Atlantic, "startups tend to have more people in their early- and mid-20s." Adding that "more than half of startup employees are below 30, compared to 42 percent at non-startups."

Startups provide an alternative source of employment for the young educated masses of Africa. Ride-hailing services such as Safeboda, UberBoda, Taxify have provided employment to over 6000 Bodaboda riders in Kampala, Uganda, alone.

Technology and accelerator hubs have sprung up across Africa and many credit them for the spike in the number of (technology) startups across the continent. But, these hubs are mainly donor funded.

It's therefore important that African governments find a way of creating a conducive environment that will allow several (technology) startups to mushroom. There needs to be a move away from knee-jerk reactions to better thought out solutions. Hence the need to adopt a similar approach like Tunisia.

African governments must, therefore, aim at establishing enabling environments where investors, entrepreneurs, and other startup enablers can thrive. For example, African governments need to have policies that enable investors in startups to receive tax deductions if the company fails.

They can also explore the possibility of setting up funds to match investments into any startups. Say, if a foreigner invests in a local startup, the government matches it by 50%. If the local does so, it matches the investment by 100%.

Digest Africa

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