Ethiopia Moves to Formalize Startup Ecosystem with Long-Awaited Legislation
Ethiopia’s Council of Ministers has unanimously endorsed a long-delayed Startup Proclamation, setting the stage for a significant policy shift aimed at formalizing and boosting the country's emerging tech startup ecosystem.
The draft law outlines a framework tailored to early-stage, tech-driven businesses. It offers targeted incentives such as a five-year corporate tax exemption, reduced withholding tax on angel investments, and duty-free capital imports for three years. To qualify, startups must be less than three years old, generate under five million birr in annual revenue, and be primarily technology-based.
However, the financial thresholds set when the exchange rate was 57 birr to the US dollar are now under scrutiny. With the birr currently trading at around 130 to the dollar, due to Ethiopia’s IMF-backed currency reforms, the revenue cap now amounts to roughly $38,000, down from $87,000 in 2022. Critics warn this could exclude startups reliant on foreign services or imported tech, limiting the law’s practical impact.
The Act also mandates the creation of a two billion birr ($36 million) Ethiopian Startup Fund to provide seed capital and low-interest loans. Universities must allocate 2% of research budgets to partnerships with certified startups, while state-owned enterprises are required to pilot projects with at least one startup annually and set aside 5% of ICT procurement for them.
A “Startup Desk” will be established within the Ethiopian Investment Commission to handle registration, while fintech and telecom startups can test products in regulatory sandboxes under relaxed oversight.
If approved, the legislation could provide a much-needed jolt to Ethiopia’s startup ecosystem, which has so far relied heavily on donor support and informal investor networks amid a lack of clear legal protections.
The proposed legislation now heads to the House of People’s Representatives for debate and potential passage, expected by mid-July.