How East Africa can catch up to Kenya in startup investment

Kenya boasts a strong pipeline of skilled engineers, fueled by robust digital skills programs and private sector engagement in talent development.

With $800 million, Kenya outshines the entire East African region, surpassing even established economies like South Africa ($600 million) and Nigeria ($410 million).

The Big Deal head of mobile for development at the Groupe Speciale Mobile Association (GSMA), Mr Max Cuvellier Giacomelli said East Africa was performing better than the average growth.

“This basically means its share in continental funding correlates from 37 percent to 31 percent which means that they are now at the two-plus-year, at the first spot,” he told the 2023 Start-up Funding Round-Up live session.

The Information Communication Technology (ICT) commissioner under the Ministry of Information, Communication and Information Technology, Dr Mkundwe Mwasaga, says startups need equity funding to grow and exit.

“The existence of equity funding is a sign of trust in the Tanzania startup ecosystem which is not a good sign for a country leading in debt financing for startups’ growth,” he said.

He adds: There is a sharp decline in startups equity financing globally, probably due to trust concerns, noting that what is celebrated in Kenya is debt financing for cleantech and fintech startups.

He said creditors are owed interests during the loan repayment, insisting equity financing is a sign of trust to startups.

Dr Mwasaga, discouraged entertaining debt financing for startups activities, noting that the type was recommended to established companies.

According to him, debt financing adds a burden of loans servicing even before the establishment of the startups.

Sahara Ventures chief executive officer Jumanne Mtambalike said unlike Tanzania and other East African countries, Kenya produces a significant number of the youth with engineering skills, therefore playing an accelerated growth of its startup ecosystem.

“Kenya is known for supporting the establishment of digital skill programs and platforms that increase the number of enterprise-level engineers,” said the innovator and technology enthusiast.

The private sector in Kenya, Mr Mtambalike said, significantly engage in the skills development business.

“Tanzania needs world-class digital skills programmes and platforms that will enhance production of high-quality talent for local, regional and global startup ecosystems,” he said.

Furthermore, he said the country should also revisit the role of diaspora in supporting growth of local businesses, emphasising that there is a need for Tanzania to build strong diaspora communities.

He added that a conducive environment should be built to effectively allow the diaspora community to participate in the local ecosystem.

“Legal and regulatory frameworks obstructing the startups prosperity should be revisited to encourage opportunities, linkages and capital exposures to the diaspora and local startups,” he said.

“Startups should come up with innovations to encourage the diaspora’s funding. Unlike traditional Small and Medium Enterprises (SMEs), startups require interventions from multiple ministries and public agencies, and their own law should be formulated and enacted,” he said.

“Issues of immigration, investment, ICT and copyright should be streamlined for startups to excel in Tanzania. Investors invest where the exit has clarity, but in Tanzania they have been struggling with exit strategies from the country’s ecosystem,” he added.

He urged the government to engage key stakeholders in developing strategies that will enable locals, regional as well as global individuals and institutional investors to exit once they have invested in Tanzanian startups.

Furthermore, he said currently, investors can invest in the country’s businesses upon exit guarantee from a company outside Tanzania.

“The government loses a significant income from the exit process. However, the trend exists all over the continent, African startups are increasingly domiciling overseas and in tax havens,” he said.

Smooth exit mechanisms, he said will attract more investors, individuals and institutions, therefore increasing Foreign Domestic Investment (FDI) to Tanzania.