Ethiopian venture capital firms hopeful on deregulation

Ethiopia’s venture capital space is hopeful that the government’s programme of financial liberalisation will encourage more regional companies and foreign investors to enter the Ethiopian market, which in turn could stimulate greater activity and stronger growth among the country’s own domestic startups.

Speaking to African Business from the GITEX Global conference in Dubai, Hilina Resom, founding partner of the Addis Ababa-based Kazana Fund, says that VCs interested in the Ethiopian market have long faced a challenging regulatory environment that has stunted growth and complicated foreign investment.

“Because the market has been closed for a very long time, most local startups are quite confined to Ethiopia as they have been prohibited from expanding outside the country,” Resom explains.

“Under current regulations, foreign investors also need to invest a minimum of $150,000 in Ethiopia, which has made it very hard for a lot of startups to secure funding.”

“However, these regulations are now being changed to create the foundation for money to easily flow in and support promising ideas,” she adds.

“Capital will always go where it is accepted and taken care of. The government is working on a ‘Startup Proclamation Act’ and is announcing other reforms that will not just support local startups, but also support regional startups wishing to set up in Ethiopia.”

Government plots liberalisation

The Ethiopian government has pursued a broad programme of financial liberalisation which has involved opening national strategic sectors, such as banking and telecommunications, to foreign competition for the first time. Most recently, the National Bank of Ethiopia floated the Ethiopian birr (ETB) and agreed to phase out interventions in the foreign exchange market, making it easier for investors to move funds in and out of the country.

Resom is hopeful that these trends will encourage more business leaders and VCs in Africa and elsewhere to consider investing in Ethiopia. She explains that the motivation behind the Kazana Fund is “to invest in the best startups in any sector across the region and support these companies to enter the Ethiopian market”.

The idea is not only to help these companies take advantage of the opportunities offered by a market of over 120m people – and therefore to secure strong returns for the fund – but to encourage foreign talent and ideas to come into Ethiopia and help develop the broader startup space.

“We hope that slowly but surely, initiatives like this will mean more talent coming in, and more competition taking place,” Resom tells African Business. “Eventually, there will be an increasing number of deals available, and more opportunities for investors.”

“Ethiopia’s opening up is happening as we speak. Up until now, the regulation and protection has made it difficult for regional startups to successfully enter the market,” she says. “But what we are excited about is that now there is the opportunity to connect investors and companies in the region with the Ethiopian ecosystem, to the benefit of both.”