The very famed book ‘Start-Up Nation’ by Senor and Singer asks; how a tiny country of 7.1 million, with depleted natural resources, encircled by enemies, in an endless war for 60 years; able to produces more start-up companies than large, peaceful, and advanced nations like Japan, China, India, Korea, Canada and the UK? It is high time for Tigray to ask the same critical questions and learn from the success of Israel and others. Tigray can also learn beneficial experiences from other countries who have achieved success in start-up ecosystem following the footsteps of Israel. For the record, Israel has the highest start-up per capita in the world.
The main lesson from Israel and others start-up republics is turning curses into blessings. In other words, even if your location is a disadvantage and your situation is tough, you can turn them into an economic advantage. The main DNA of these start-up republics are innovation and entrepreneurship. Both elements are all about coming up with innovative solutions with an entrepreneurial mind-set, to solve existing and upcoming problems. However, there are certain required prerequisites to repeat the success of Israel. Success depends on how countries/states are ready to change their culture that discourages forward failing, rigid regulatory framework, finance constraint and limited infrastructure, just to mention a few. Is Tigray ready for this? It should be. Strong start-up ecosystem is a must-have. This is the time Tigray should make momentous changes around start-up ecosystem and re-create the “Israel effect” in its own colour and context. Start-up Act significantly helps in bringing in a paradigm shift in the start-up ecosystem thinking, cultural change and comprehensive improvements in the legislative framework.
Investopedia simply defines start-up as “a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market”. However, this short definition does not convey the whole idea behind the notion. Hence, it is important to comprehend the main traits of start-ups. To begin with, almost all start-ups seriously consider innovation in their new companies. Innovation plays a vital role in the success of start-ups. Secondly, start-ups are fast runners, taking up to drastic proportions by disrupting the status quo. They often deal with several uncertainties and risks to ensuring the success of their business. Thirdly, start-ups are often very dynamic and ready to adapt to the adversities that may arise. They are often in constant search ofbusiness models that are scalable and repeatable. Finally yet importantly, teams of young entrepreneurs usually form start-ups. Teamwork is very critical for their success.
What is Start-up Act?
Start-up Act is a comprehensive legislative framework aimed at easing the creation and the growth of start-ups ecosystem. Italy and the US often interchangeably cited as pioneers of this Act, briefly looking at both countries’ experiences gives us better understanding. To start with, the Italian policy framework for innovative start-ups (the “Start-up Act”), was first introduced in 2012. It was a nationwide strategy designed to support innovative start-ups and innovative SMEs. The act provides exceptional benefits to registered innovative start-ups, including tax incentives, public loan guarantee, labour laws just to mention a few. The objective was to increase innovativeness of small and young enterprises.
Similarly, the US originally introduced start-up act in 2011 and then reintroduced Start-up Act 2.0 in 2012. Then Start-up Act 3.0 in 2013, the third iteration of the original act. The Act intends to encourage the growth and viability of start-up companies in the US through a series of changes to American tax, immigration and regulatory policies.
Why Start-up Act in Tigray?
Youth unemployment is a very critical problem in Ethiopia. Similarly, youth unemployment remains widespread in many parts of Tigray. Policy makers often address youth unemployment either by designing employment creation initiatives or by enacting initiatives that make doing business very conducive, primarily for start-ups.
Taking the first policy option in to consideration, Ethiopia has initiated some employment creation programs that involve SMEs and youth in both rural and urban areas. Some of the initiatives include the Integrated Housing Development Program (IHDP), the cobblestone project initiated by the Engineering Capacity Building Program (ECBP), the Productive Safety Net Program (PSNP), etc. Tigray has been at the forefront in implementing these employment creation initiatives. These initiatives have brought positive results; however, they are not sufficient. These employment creation initiatives have also their own shortcomings; they do not fully recognize and unleash the entrepreneurial talents and innovative potentials of the youth. They are not dynamic in approach and comprehensive in terms of content as well.
According to SNV’s report (2017), a not-for-profit international development organisation working in Ethiopia, the main reasons for high unemployment in Ethiopia include inadequate business skills, lack of regulatory frameworks, lack of sustained administrative support and lack of access to finance. To mitigate these and other problems, the above-mentioned second policy initiative is mostly needed, a start-up targeted initiative, by enacting an Act that make start-up ecosystem very conducive.
Over the last decade, the success stories of many start-ups across Africa have provided positive storylines. Unfortunately, Ethiopia is not one of the frontrunners of this success storyline. So far, there is no strong government and private led initiative that targets the start-up ecosystem. The lack of start-up related comprehensive regulatory framework is also a reality that is prevalent across much of the Regional States in Ethiopia. Furthermore, the limited number of start-ups, like any other business activities, remain highly concentrated in Addis Ababa. The few incubation centres and accelerators like blue Moon, ice Addis, Growth Africa, etc. are also operating only in Addis Ababa.
Unlike Ethiopia, there are some encouraging prospects across Africa. For instance, Tunisia — a country that is not exactly one of the usual suspects when it comes start-ups matters — laid down a marker when it astonished the rest of the continent by becoming the first African nation to enact a Start-up Act in 2018 (WeeTracker, 2019). Senegal following the footsteps of Tunisia has enacted similar Start-up Act in 2019. Other African countries that are most likely next in line to consider and adopt the Start-up Act are Mali, Ghana, and Rwanda. To the contrary, there is no concrete start-up act discussion among Ethiopian policy makers. Generally, Ethiopia currently lags behind the continent’s tech hubs like Nigeria, Kenya and South Africa that have become focal points for start-up formation. Ethiopia has one of the least tech hubs in Africa.
The Tunisian Start-up Act
It is good to have glimpse view on the Tunisian experience.The Arab Spring, also called the Jasmine Revolution, started in Tunisia. This civil resistance led to the ousting of long time president Zine El Abidine Ben Ali in 2011. Reports show that huge unemployment and inflation mainly triggered this resistance. As there was no adequate, legal and regulatory framework for start-up, the growth of innovation and entrepreneurship was limited. After regime change, initially things were not running smoothly.
However, in April 2018, Tunisia became the first African country to pass legislation known as the Start-up Act. The Act has come after two years of deliberations with legislators engaging relevant stakeholders. All stakeholders in the entrepreneurial ecosystem in Tunisia developed it, in a participatory and collaborative way. The Act is an unprecedented legal framework dedicated to start-ups and supported by the Tunisian Government. It offers a number of advantages and incentives to the different stakeholders of a start-up. Surprisingly, a few days after the law is passing, Google started supporting merchant payments in Tunisia—a boost for local tech start-ups.
It is time for bold moves!
I strongly believe that Tigray can change the above picture. It should take the first move advantage by becoming the pioneer Regional State in Ethiopia in enacting the Start-up Act and one of the first movers in Africa. Jon Stever, Managing director of Impact Hub Kigali, in one of his interviews mentioned, “I think that in a few years the question will be, how many countries don’t have Start-up Acts?” This is a very bold statement. Tigray must be ready for bold moves. Tigray should fully use its constitutional rights to benefit from the first move advantage. The overall objective is to reinforce innovation and entrepreneurship (indirectly science and technology) as a future cornerstone of Tigray economy, at present it heavily relies on agriculture. The Act recognizes and unleashes the untapped potential of youth in Tigray. This act a prerequisite to make Tigray a leader in digital economy and a start-up hub in Ethiopia and beyond.
What are the advantages? The advantages of stronger start-up ecosystem (Start-up Act) are clear. Israel (‘The Start-up Nation’) is a living example. Just to mention some, slowly but surely, it creates internationally competitive economy; it unleashes youth talent and focuses on their innovative enterprises; increases and grows start-ups (start-up per capita); fosters innovative and entrepreneurship culture; strengthens public and private partnerships. Finally yet importantly, it is often a bipartisan initiative.
Identification of the focus start-up areas is very crucial. It requires an in-depth studies and consultation with relevant stakeholders. However, experiences from other countries show that, they mostly focus on innovative and scalable start-ups in diverse areas including software, big data, analytics, e-commerce, clean energy, agricultural technology, transport and logistics, etc. Formation of Tigray start-up task force is necessary. This task force will define the focus areas based on comparative advantages, opportunities, problems, etc. factoring in local context. Some of the relevant stakeholders include Government of Tigray, political parties in Tigray, start-ups, incubators, accelerators, investors, mentors, chambers of commerce, youth association, trade bureau, higher educations and development organizations, etc.
Start-up Acts are often enacted in a very participatory way and the process is a bottom-up approach. It is also very inclusive that encourages all relevant stakeholders to be involved at all applicable stages of the process. The main phases include awareness creation and formation of start-up task force; drafting and gathering support to pass – the Start-up Act; formation of an institution with a mandate to lead the start-up ecosystem; then implementation (learning and success phases).
Given the incentives involved in the start-up act, there is also the risk of start-up founders and other parties might take part in rent-seeking rather than true innovation. However, there are many controlling mechanisms and measures against these manipulations.
It is worth noting that the start-up act is not about few start-ups; it is rather about the overall operating ecosystem. The passing the start-up act will be a breakthrough for Tigray. It will be a game changer. However, proper implementation of the act is far more important. It is worth noting that this Act is not a quick fix; it is rather a long learning process. Slowly but surely, it results in momentous success.
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