What future has in store for local startups

Dar es Salaam. Africa has a fertile environment for tech entrepreneurs due to the continent’s rising internet access and growing population.

According to the African Private Equity and Venture Capital Association (AVCA), funding for African startups hit record levels, with venture capital deals reaching $3.5 billion in the first half of 2022 alone—more than double the amount raised in the first half of 2021.

In Tanzania, despite government efforts to promote a conducive business environment, the startup ecosystem remains plagued with hurdles. Some founders who talked to The Citizen expressed why they choose to remain reserved and not publicize the investments they receive to push their businesses. They cite revenue authority ambush and exaggerated tax demands as justifications.

However, the Tanzania Revenue Authority (TRA) has in the recent past changed its tax collection approach pursuant to President Samia Suluhu Hassan’s directive for the authority not to use force when collecting taxes, and also not to demand unjustified arrears.

Mr Richard Kayombo, the director for tax payer services and education, has been quoted as saying that the authority’s new approach is contingent on taxpayer compliance.

But startup founders insist that they often find themselves in a dilemma after receiving seed capital of a certain amount. “The government calculates taxes on the spot, and society considers us rich when we get investment, so there are many requests for us to allocate the money elsewhere, making us choose to keep our winnings under wraps,” said a budding startup founder.

Investment, Trade, and Industry deputy minister Exaud Kigahe told The Citizen that money that comes from outside must go through proper channels because there are investors who give young people fraud money. “So the government must satisfy itself where the money comes from and for what purpose,” he said.

Mr Kigahe added that the investment policy that was submitted to the parliament this year has a section that protects youth who venture into business by inventing various things to ensure that they are given priority on how they can develop their startup.

“If there is any young person who has received money from an investor and then been bothered by the taxman, he or she should report to our ministry, and we will contact the Ministry of Finance so that the challenge can be solved. What I know is that taxes are deducted after a business starts production,” he said.

In addition to that, he said that there are many big investors from Kenya who are doing business in Tanzania due to the enabling and friendly environment. “If there is any startup going through a challenge, it is better for them to contact the relevant authorities so that they can find a solution.” On the protection of startup ideas, Mr Kigahe said that the government is preparing an intellectual property policy that will enable startups to develop their innovations without any fear of their ideas being stolen.

On the other hand, the Permanent Secretary in the Ministry of Information, Communication, and Information Technology, Dr Jim Yonazi, said that in order to assist startups under the department of ICT, there are soft centres that nurture those young businessmen.

“If there are specific startups that innovate something related to my ministry, they can communicate with the department and seek any needed assistance,” he said.

For his part, Tanzania Startup Association (TSA) chief executive officer Zahoro Muhaji said culture and policies remain the main challenges that startups in Tanzania face. However, he says ongoing negotiations with the government promise a better future for the ecosystem.

“Now that we are working closely with the government to establish policies and legal frameworks necessary to support the growth of startups, it is very crucial to have success stories of startups told as examples. For founders, it is inspiring to hear the success of fellow countrymen making it big in the same market you are operating,” he stressed.

In Africa, South Africa, Egypt, Kenya, and Nigeria continue to lead in attracting investment into the startup ecosystem. Out of 100 investment deals entered into on the continent, more than 80 percent are directed to the “big four.” Tanzania is now trying to break into that exclusive club by promoting the local business scene.