Tanzania pledges to relax rules to promote startup growth

Dar es Salaam. The Tanzanian government on Monday pledged to relax regulations governing startups in efforts to create a more conducive environment for youth-led enterprises to thrive.

The move aims to promote innovation, generate employment opportunities and address pressing social challenges.

According to a recent report by Europe’s innovation agency EIT Climate-KIC and FSD Africa, optimism is growing among businesses and investors regarding Tanzania’s startup ecosystem, driven by the government’s efforts to improve policies.

However, challenges persist, including bureaucratic inefficiencies and restrictive regulations. Some of the key hurdles highlighted in the report include unfavourable tax policies, such as taxing startups at the pre-revenue stage, costly equity investment fees of $25,000-40,000 per transaction payable to the FCC with a six-month approval wait, and stringent bank lending rules set by the Bank of Tanzania, which limit access to financing for early-stage businesses.

Deputy Prime Minister and Energy minister Doto Biteko said during the official opening of the Tanzania Startup Week 2024 that the government was committed to support startups which are mostly led by youth under the age of 35, through policy reforms, infrastructure development and access to funding.

“Startups are not just new businesses; they are the heartbeat of innovation, a hub for job creation, and a catalyst for social development. Our goal is to foster an environment where ideas flourish, businesses grow, and prosperity is shared by all Tanzanians,” said Dr Biteko, who represented President Samia Suluhu Hassan.

He said key measures to strengthen the startup ecosystem include the formulation of clear legal and regulatory frameworks to define and support startups, to create an enabling environment for investors, enhance access to finance, and protect the rights of entrepreneurs.

“The government has instructed the Ministry of Finance, in collaboration with other stakeholders, to review tax systems and create financial incentives for startups. The aim is to attract venture capital firms and private equity investors who can inject much-needed capital into Tanzanian startups,” Dr Biteko noted.

Additionally, the Ministry of Investment and Planning is expected to design policies that will attract foreign direct investment (FDI) into the startup ecosystem.

Dr Biteko said the introduction of legal definitions for startups is seen as a critical step in improving access to funding, which remains a major challenge for many young entrepreneurs.

According to him, data from the 2023 National Investment Report indicates that 64 percent of Tanzanian startups rely on personal savings and support from friends and family to finance their operations. Institutional investors, including banks and venture capital firms, contribute only 14 percent of the required capital.

Dr Biteko emphasised that the government’s goal is to change this dynamic by creating an investor-friendly framework that attracts both local and international funding.

Furthermore, the government’s ‘Pay-Once, Dig-Once’ strategy for fiber-optic infrastructure aims to reduce operational costs and expand access to digital connectivity.

“This development is expected to benefit startups in technology-driven sectors such as fintech, e-commerce, and artificial intelligence,” he said.

Tanzania’s Digital Economy Strategy (2024-2034) was also launched to promote the use of technology in boosting economic growth. The strategy highlights the role of digital platforms in enhancing financial inclusion, which is vital for startup development.

“The Tanzania Instant Payment System (TIPS) has made it easier for small businesses and startups to make fast, real-time payments, reducing transaction times and costs,” Dr Biteko said.

The Deputy Minister in the Office of the President for Investment and Planning, Mr Stanslaus Nyongo, urged youth to address community challenges through innovation, highlighting financial and advisory support gaps.

“A formal startup policy is expected to address this gap,” he said, encouraging self-employment opportunities.

For his part, Communication and IT minister Jerry Silaa said, “This sector has the potential to significantly reduce the unemployment crisis.”

Tanzania Startup Association (TSA) chief executive Zahoro Muhaji said the ongoing formal process to develop a national startup policy, is a crucial step towards creating a more structured and supportive environment for startups.

He said the establishment of a National Venture Capital Fund was also underway, a move that will significantly improve access to funding for startups.

“Efforts are also being made to identify spaces where startups can have access to dedicated office facilities, which will further enhance their operational capacity and growth potential,” Mr Muhaji said.

TSA board chairperson Paul Makanza said that the number of startups grew from 247 in 2020 to 842 in 2024 including software, fintech, agritech and health tech.

He called on private sector actors to seize the opportunity to invest in startups, highlighting that foreign stakeholders have already shown interest in the Tanzanian market.

“We need universities to serve as intermediaries to nurture students’ talents and ideas,” Mr Muhaji added.