Nations across the globe and mostly in Africa are rushing to pass laws designed to support and promote homegrown innovation. Africa has made great strides recently in fulfilling its dream of becoming a launchpad for innovative high technology companies. In 2020 alone, Nigeria and Kenya were the hotspots of venture capital investments with the countries raising $307m and $305m respectively.
Three years ago, the continent had only one privately owned start-up; Nigeria’s e-commerce company Jumia which has since changed. According to Digest Africa, a database of early-stage investments on the African continent, in the third quarter of 2021, African fintech firms raised $906m. This represented more than 60% of all venture money that flowed into Africa and more than all sectors combined in the first half of 2021. Securing venture capital funding has become an important step that enables entrepreneurs to scale and develop novel products.
Africa enjoys a fertile environment for technology entrepreneurs due to the continent’s youthful and growing population. The rise of internet penetration and the application of emerging technologies that have the potential to improve access to healthcare, financial services, education, and energy have provided good breeding grounds for idea incubation.
Traditionally the high cost of doing business in Africa has served as a major deterrent for many foreign investors with political instability and regulatory uncertainty having long spooked investors in Africa. This however remains the harsh reality in many nations today.
Africa’s inhospitable start-up environment not only stunts job creation and economic development, but also threatens the competitiveness of Africa’s national champions themselves by depriving them of crucial sources of innovative technologies, products, and business models. This happens especially if there is no regulation in the various countries. Complex and inconsistent or lack thereof of legislation as well as the fragmented market of 54 countries, low consumer purchasing power, scarce capital, and low digital talent negatively influence Africa’s startup sector.
Kenya is on its way to enacting into law a bill dubbed ‘Startup bill,2021’ which aims at providing a framework that fosters a culture of innovative thinking, entrepreneurship, monitoring, and evaluation of the legal and regulatory framework to encourage the development of startups. Once the law comes into action, it also aims at establishing incubation facilities at the national and county levels of the Kenyan government.
Tunisia became the first African country to pass a startup law in 2018. The legislation outlines which businesses count as startups by creating a system for the concerned parties to apply for formal recognition by the state. Tunisians who qualify can receive government grants as well as get corporate tax exemption for the first eight years of their existence. Up to three founders of these startups have the leverage of even having the cost of their salary covered during the first year their startup is in business. In addition, Tunisia does not charge capital gains tax on investments made into startups which is such a huge relief to these startups.
Senegal, the second country to enact into law a bill on startups, continues to create a specific support and governance framework for startups. The Senegalese government also gives a suitable legal regime for the registration and labeling of startups. The law also creates a resource center dedicated to startups and an overall package of incentive measures.
A host of countries including Ghana and Mali have made moves towards getting startup laws with both having bills in for legislation by their respective governments. The legislation will help African startups both in technology and other areas to thrive and make sure wealth created does not leave the continent.
Africa remains an enormously fertile ground for tech entrepreneurs since its population is young and growing and internet penetration is progressing as years go by.
