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Renew Capital has been a player in the Ethiopian startup ecosystem for more than 10 years now, and in that time much has changed. With a population of 126.5 million according to the World Bank and year-on-year economic growth despite various market-disrupting factors, Ethiopia cannot be ignored. Though the startup scene is slowly gaining momentum, we are patiently waiting and willing to share our thoughts with those interested in taking a look. Stop by the Renew Capital office above Galani Cafe in Jacros to meet with the team. If you are an entrepreneur looking for financing for your asset-light, tech-enabled business check out the Renew Venture Lab and apply.
Key Developments in Ethiopia's Market Liberalization
The two most impactful changes to the startup ecosystem in Ethiopia in recent times are Safaricom's entry into the market and the government's decision in May to open the banking and retail sectors to foreign ownership. In the coming months, further liberalizations in Ethiopia’s capital markets are expected. Here are a few of the key factors investors should keep in mind about Ethiopia's startup ecosystem:
Government Support and Reforms: Ethiopia has been making significant strides in creating a supportive environment for startups. The government has introduced various policies and reforms, such as the Digital Ethiopia 2025 strategy, the Science Technology, and Innovation (STI) policy, and the draft Ethiopia Startup Act. The proposed Ethiopian Startup Act aims to support startups by establishing a National Startup Council and an Innovation Fund, overseen by the Ministry of Innovation and Technology. The Act seeks to foster innovation, remove barriers to entrepreneurship, and enhance access to foreign investment. The Innovation Fund will offer startup scholarships, cover intellectual property fees, and incentivize incubators and accelerators. Startups will also benefit from tax exemptions and simplified trade license processes, reducing operational costs and barriers (innobiz-K, Spotlight Ethio, LinkUp Business, Afrikan Heroes).
Focus on Digitalization: The Ethiopian government is heavily invested in digital transformation initiatives. The Digital Ethiopia 2025 strategy aims to leverage technology for economic growth. Additionally, initiatives like the Addis Ababa City Administration's Innovation and Technology Development Bureau and events like the Digital Startup Marketplace showcase Ethiopia's commitment to fostering a digital economy (Startup Genome, Ethiopian Business Review).
Labor and Energy: Ethiopia is positioning itself as an attractive destination for data centers and business process outsourcing (BPO) services, leveraging its abundant and cost-effective electricity and large labor force. The country has made significant investments in its energy infrastructure, primarily focusing on renewable sources such as hydroelectric power, which currently constitutes the majority of its energy production. This abundant and inexpensive energy supply is a critical factor for industries like data centers that require reliable and cost-efficient electricity (World Bank, IEA). Additionally, Ethiopia boasts a large and youthful labor force, with more than 61 million people as of 2023. This workforce is increasingly becoming skilled and educated, thanks to investments in education and vocational training programs (World Bank Data, YCharts). The combination of affordable electricity and a sizable, educated labor force creates a conducive environment for data centers and BPO services, which can benefit from lower operational costs and a pool of available talent.
Challenges: Despite these positive developments, challenges remain.
- Stability: Investors often question the country’s stability and macroeconomic conditions, asking, "Are my assets safe?"
- Limited Funding: Local investors are scarce, and foreign investors are cautious due to the closed nature of the economy and elements of instability.
- Regulatory and Bureaucratic Hurdles: Despite recent reforms, bureaucratic red tape still poses a challenge. The process of registering and incorporating a company, although simplified, can still be cumbersome, including complex tax laws and regulatory requirements that can deter potential entrepreneurs and investors (Benjamin Dada, BTI 2024).
- Infrastructure and Connectivity Issues: The cost and reliability of internet access can create barriers for the smooth operation of tech startups. Additionally, other basic infrastructure needs like transportation and electricity can be inconsistent, impacting business operations (Capital Newspaper).
Ethiopia's startup ecosystem is slowly and steadily evolving, with substantial government backing and a growing focus on digital innovation. The potential for growth is immense, given the young and tech-savvy population, government support, affordable energy and labor, and the ongoing digital transformation efforts. Having called Ethiopia home for more than 12 years, I am hopeful the country will continue to overcome its challenges and become a strong force among Africa’s startup ecosystems.
Go Deeper on Ethiopia
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Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.
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