Techpreneurs: Funding hurdles remain a hard bone to chew for Tanzanian startups

Dar es Salaam. Tanzanian techpreneurs are facing significant funding challenges that hinder the growth and innovation of startups, even as the business environment slowly improves.

Participating in a discussion during The Citizen X Spaces held on Thursday night, July 18, 2024, they said despite ongoing efforts, more needs to be done to help the sector’s growth, like in Kenya and Uganda, among others.

Smart EFD co-founder, Ms Prisca Magori, highlighted the challenges, especially in tax education, and the complexities of navigating tax reforms.

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"We lack tax education, so when we started funding or registering our companies, we knew very little about taxes," she said.

She said that one of the obstacles for techpreneurs is the necessity of opening offshore bank accounts to access funds from foreign investors.

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"When seeking funds from investors, especially foreign ones, you often have to open an offshore bank account. While I'm in Tanzania, this is necessary to access funds from certain investors," said Ms Magori.

She said this requirement adds an extra layer of complexity and cost for startups trying to scale up their operations, pointing out the limited exposure of Tanzanian tech entrepreneurs on the international stage.

"We, as individuals, lack exposure. From my experience attending events and summits, it is evident that our presence is minimal. Seeing even five to 10 of us, whether individuals or tech founders, is considered a large number," she said.

Furthermore, she emphasised the need for grassroots efforts, starting from high schools to universities, to foster a culture of innovation.

"I believe every university should establish hubs that serve as centres for innovation," she said, adding that financial institutions have a pivotal role to play in the growth of the innovation sector.” She noted.

"Some banks have begun launching projects for technology. Looking ahead, I envision that we could be competing on par with our neighbours in Kenya," she added, acknowledging the positive strides made in the financial sector.

According to her, improvements are now seen as financial institutions are more willing to provide access to funds and loans, especially for women-led initiatives.

FUNGUO innovation programme manager, Mr Joseph Evarist, revealed that access to finance remains a pressing challenge for young entrepreneurs.

"Some of our banks are not ready to fund startups that are not yet proven as businesses because that's the nature of the startups," he said, calling for more support from different partners to ensure job creation and sustainable growth.

"The role we play is catalytic because many startups cannot access basic funding, and support from initiatives like Funguo helps them improve their business model," he added.

In addition to financial hurdles, tech-preneurs face regulatory challenges. An American entrepreneur, Mr Michael Coudrey, pointed out the confusion around the interpretation of laws and policies in Tanzania.

"In Tanzania, confusion often arises regarding the interpretation of laws and policies. The requirement to seek approvals from multiple authorities for transactions creates numerous roadblocks that hinder investment,” he said.

“Contrarily, in countries like the United States, transactions often only require notification rather than approval, which streamlines the process," he added.

The Tanzania Startup Association (TSA) chief executive officer, Mr Zahoro Muhaji, underscored the necessity of government intervention in funding startups.

"The government provides funding, but it often doesn't reach the startups. This is where the startups' venture fund comes in to support the ecosystem's access to local funding. This initiative will boost local startups and attract foreign startups to invest in the country," he said.

Mr Muhaji also highlighted the importance of data transparency in marketing the ecosystem to external investors.

"When we talk about Kenya, it’s because their data is transparent and publicly available, which helps in external marketing. This is the challenge we have been facing in our ecosystem," he revealed.

The Tanzania Investment Centre (TIC) executive director, Mr Gilead Teri, said the definition of investment in Tanzania focuses primarily on physical infrastructure.

“Digital sectors are not covered or targeted in a way that would make them appealing. We have outlined some ideas and are awaiting the opportunity to amend the Investment Act," he noted.

However, Planning and Investment Minister Prof Kitila Mkumbo said the concept of private investment in Tanzania is relatively new, but the country is catching up and moving in the right direction.

"We need to understand both the current context in which we are operating and the context from which we have come. That's why we are in constant reform in this sector," he said.