Reforms give Ethiopia's startup scene a fighting chance

Over the past couple of years, the government has set up a fund for innovation, approved a policy on Science, Technology, and Innovation (STI), created the Digital Ethiopia 2025 plan, and started preparing a Startup Act.

Reforms give Ethiopia's startup scene a fighting chance
Photo by Daggy J Ali / Unsplash

Ethiopia, the oldest and second most populous country in Africa, has for the longest time been one of the world’s last closed economies. Due to this reality, it has been casually called a sleeping giant.

However, government-led initiatives in recent years are starting to turn the tide, waking the highly overlooked market up to promising opportunities, especially when it comes to its tech startup ecosystem. 

In 2018 when Abiy Ahmed became the East African nation’s prime minister, he promised to help further loosen the government’s firm grip on key market assets like telecoms and unlock the country’s digital ecosystem to drive economic transformation. 

A newly released report by the Japan International Cooperation Agency (JICA), in collaboration with the Ministry of Innovation and Technology of Ethiopia (MInT), strongly recognizes the Ethiopian government’s efforts to liberalize its economy as a key contributor to creating a startup-friendly environment. 

According to the survey, besides Ethiopia being densely populated at 112 million, the government’s focus on enabling initiatives has been pivotal in supporting the emergence of what is now a fairly thriving tech startup ecosystem. 

In the last few years, the administration has established an innovation fund, passed a Science, Technology, and Innovation (STI) policy, developed the Digital Ethiopia 2025 strategy, and digitized government services. What’s more, it is preparing to enact the Ethiopia Startup Act. 

Chiefly, it has opened up the telecommunications sector to non-state investors. In October last year, Safaricom—Kenya’s biggest mobile network operator and East Africa’s most valuable company—launched in Ethiopia after obtaining a local license for $850 million. By doing so, it became the first private-sector player on the block. 

Authorities’ decision to partially privatize state-owned Ethio Telecom and roll out next-gen internet connectivity, has also contributed. Ethio is one of the largest telcos in Africa by number of mobile subscribers, contending quite closely with South Africa's MTN.

“The Ethiopian government has introduced several measures to create a conducive environment for businesses, such as streamlining the process of registering and incorporating a company, simplifying tax laws, and reducing bureaucratic red tape,” the report says.

“These measures have made it easier for entrepreneurs to start and run their businesses, contributing to the overall growth of the startup ecosystem. Despite being ranked among the world's lowest in terms of ease of doing business by the World Bank, Ethiopia presents an opportunity for startup growth,” it reads. 

With a population second only to Nigeria’s over 200 million, Ethiopia is one of the fastest-growing economies in Africa (at an average of 9.5 percent annually). 

Its capital city, Addis Ababa, which is also the country’s unofficial tech nerve, ranks 692nd in the top 1000 global cities globally on the StartupBlink Global Ecosystem Ranking Report. 

The majority of the Ethiopian populace is under 30 years of age, making for a dynamic market of young, educated people open to adopting technology for easy and more productive lives. 

Yet the country remains among the poorest, having a per capita gross national income of $1,020, according to the World Bank. To reach lower-middle-income status by 2025, the country is placing technology at the heart of its economic transformation play. 

Ever since the nation’s first innovation hub, IceAddis, graced the scene in 2001, several other hubs, accelerators, and incubators have launched, including X-Hub, Blue Moon, Startup Factory, Icog Labs, and Antler.

The government has also set up ICT hubs in Bahir Dar, Adama and Mekele. In 2012, it launched the National ICT Park in Addis Ababa to support young entrepreneurs. 

Now, the administration’s efforts are gradually starting to pay off, metamorphosing a nascent tech scene and creating employment. Per JICA and MInT’s ecosystem survey, most of the over 300 considered startups are still in their early stages (77 percent), while 23 percent of them are in their post-early phases. 

“47 percent of startups said they employed 1-4 people, while 25 percent said they employed 5–9 people. This question mainly related to the direct employment opportunities they created for people, which refers to people on their payroll. Only 15 percent of them reported having more than 15 employees".  

Though most Ethiopian startups are bootstrapped and backed by family offices or government grants, a handful of local and foreign venture funders have risen to the occasion; VC funding into the landscape rose from just $0.65 million in 2019 to over $6 million in 2022. 

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