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Ethiopia looks to the Singapore model to lure startups in sweeping new reforms

ADDIS Ababa dangles capital gains tax breaks to encourage investors amid capital flight from Africa's top venture capital markets.

ETHIOPIA has unveiled sweeping reforms to support a burgeoning startup industry and turn the country into a leading incubator of entrepreneurs.

Notable changes include slashing a 30% capital-gains tax on the transfer and issuance of shares, according to Brook Taye, Director-General of the Ethiopian Capital Market Authority.

The move, combined with an allowance for startups to retain all foreign currency earned from service exports, is expected to boost investor confidence, as Prime Minister Abiy Ahmed opens up what was once a tightly controlled socialist economy.

In recent years, the Eastern African nation has incubated several successful startups, such as Ride, a cab-hailing service expanding regionally.

Arifpay, a digital payment solutions provider, and Kubik, an innovator turning non-recyclable plastic into affordable building materials, have also sprung from Addis Ababa.

There are clear parallels between Ethiopia’s recent reforms and the strategies employed by Singapore, which has a longstanding reputation as a startup hub.

Like the Asian city-state in the 1990s, Ethiopia is now actively fostering a business environment conducive to innovation through collaboration between the public and private sectors.

Ahmed’s latest reforms could disrupt Kenya’s stronghold as East Africa’s startup haven, as discontent grows over Nairobi’s tax squeeze.

Kenya has historically been the epicentre of startup activity in the region, attracting significant startup funding with its liberal economic policies and a vibrant, tech-savvy entrepreneurial community.

However, with Kenya looking to increase revenue from corporate taxes, Ethiopia’s new policy changes could redirect some of this momentum towards Addis Ababa.

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Ethiopia is not alone in aiming to de-throne Kenya. Rwanda has made huge strides in its ease of doing business rankings, while Zanzibar is aiming to create a new startup destination in the Indian Ocean with its ‘Silicon Zanzibar.’

Ethiopia’s recent initiatives, such as issuing investment banking licenses and planning to open a stock exchange, indicate a deeper commitment to integrating its economy with global markets.

The government is also considering allowing foreign property ownership, which could attract long-term foreign direct investment.

Ethiopia’s 112 million-strong population makes it fertile ground for startups eager to scale.

On July 1, 2023, Ethiopia unveiled a tender for a second new telecommunications license after its market-liberalising test run with Safaricom hit pay dirt.

“There are several positive developments occurring in the Ethiopian telecommunications sector since the beginning of the liberalisation process,” the Ethiopian Communications Authority said in a request for qualifications.

Further boosting Ethiopia’s appeal is affordable clean energy. The country has significantly expanded its renewable energy sources such as hydroelectric power, which it plans to export.

These developments are part of a strategy to create a diverse and technologically advanced African economy that can compete globally.

By SETH ONYANGO, BIRD STORY AGENCY

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