Why Tanzania is lagging behind in startup funding

Dar es Salaam. Indifference to the benefits of a digital economy, lack of appropriate policies and poor branding are among factors affecting the financing of startups in Tanzania, according to stakeholders.

They were commenting on recent study findings showing that Tanzania is a distant second in attracting funding for startups in East Africa.

Titled Africa: The Big Deal, the 2022 report shows that while Kenya attracted $1.1 billion in startup financing, Tanzania only managed $80 million during the year under review.

The document shows that Uganda garnered $70 million, while Rwanda collected $4 million. Other East African Community member states are Burundi, South Sudan and the Democratic Republic of Congo (DRC).

Nigeria is first in Africa after attracting $1.2 billion, followed by Kenya and Egypt, which garnered $1.1 billion and $823 million, respectively, in startup financing.

South Africa holds fourth position after collecting $555 million, Ghana attracted $391 million, Tunisia fetched $119 million and Algeria and Senegal garnered $152 million and $112 million, respectively.

“Tanzania – which ranks number eight at continent level – clocked in $80 million through 11 deals, if we include Ubongo’s $27.5 million LEGO Foundation grant, second only to Ramani’s $32 million Series A,” the report says.

“Kenya represents the largest share of the regional funding: 86 percent, 12 percentage points more than in 2021. Notable deals in the market include M-Kopa’s $75 million round, Wasoko’s $125 million Series B and Sun King’s $260 million Series D.”

Apart from Nigeria, Kenya is the only other market in Africa to have attracted over $1 billion in funding in 2022.

Commenting on the findings, Toolbox Technologies Limited founder and chairman Julius Mbungo said investors preferred to invest in places with a favourable environment.

Secondly, he added, Tanzania was not good at promoting its innovations and technologies compared to other African countries such as Kenya and Nigeria.

“Tanzania has come up with much better innovations than some countries that are ranked above it. What we lack are strategic methods of publicising and promoting our products,” Mr Mbungo said.

“Some startups that have received funding have opted to remain silent due to our culture. Some are wary of existing tax regimes.”

Mr Mbungo added that the country’s regulatory framework was another hurdle for individuals and entities wishing to invest in startups.

Innovation and technology stakeholder Asha Abinallah said despite lagging behind, Tanzania is making encouraging progress with impressive 2022 figures recorded compared to 2021.

She added that it was worth noting that Rwanda had attracted only $4 million in startup funding despite having a friendlier environment than Tanzania.

“Also, Kenyan innovators and technology players were the first to understand how innovation and technology can boost economic growth,” Ms Abinallah told The Citizen by phone.

According to her, increasing startup funding required a conducive environment that will encourage foreign players to work with locals, noting that she was optimistic that the future was brighter.

Tanzania Startup Association (TSA) chief executive Zahoro Muhaji said compared to major African startup ecosystems, $80 million may not seem much, but there has been significant growth in recent years.

“This is more than what Tanzania earns from traditional cash crops such as tea, which brings in an average of $31 million annually. Things will get even better as the sixth Phase Administration has agreed to work with the country’s startup ecosystem through TSA to put in place the best possible regulatory environment for players in the country,” he said.

According to him, TSA has signed a memorandum of understanding with the Information, Communication and Information Technology ministry to establish a startup policy.

The document would be a special policy aimed at addressing challenges startups were facing in the country, Mr Muhaji added.

However, some players recommended that African startup founders wishing to secure funds from venture capital firms should study investment patterns over the years to get insights into how their startups could be affected.

This provides a better way forward in spearheading the progress of innovation in Tanzania and Africa as a whole.