After years of uncertainty, Ethiopia’s Startup Proclamation has finally been enacted, concluding a five-year journey that challenged the resolve of entrepreneurs, investors, and policymakers.

In an unanimous vote during its second emergency session this July, Ethiopia’s House of People’s Representatives passed the long-awaited Startup Proclamation, establishing the country’s first legal framework for startups. The law was approved five years after its initial proposal and shortly after receiving the Council of Ministers’ endorsement.

Praised by StockMarket.et as “a bold step toward empowering Ethiopia’s innovation ecosystem,” the new law seeks to bring structure and support to the country’s fragmented startup landscape. Its success, however, will depend on effective implementation, a challenge underscored by the cautionary example of Nigeria’s Startup Act, which began with high hopes but now serves as a warning.

A Legal Framework for a Delayed Future

Under the new proclamation, a startup is defined as a tech-driven business less than three years old, with annual gross revenues under 5 million birr, roughly $38,000 at current exchange rates. Notably, this financial threshold was established when the dollar stood at just 57 birr, raising questions about its present-day relevance.

Yet despite currency fluctuations, the law offers a suite of policy incentives aimed at nurturing early-stage innovation:

• A five-year exemption from corporate taxes for officially recognized startups

• Three-year exemption on capital goods imports for eligible startups

• Lower withholding tax rates applied to qualifying angel investments

• Startups will receive preferential treatment in public procurement, including a 5% allocation in ICT-related tenders.

• An Ethiopian Startup Fund valued at 2 billion birr (approximately $36 million) has been established to provide grants and soft loans.

Even Ethiopia’s traditionally inflexible state-owned enterprises (SOEs) are included, the law requires SOEs such as Ethio Telecom and Commercial Bank of Ethiopia to run at least one startup proof-of-concept pilot each fiscal year.

Startup Desk

To implement these measures, the Ethiopian Investment Commission (EIC) will establish a one-stop “Startup Desk”, a centralized body responsible for issuing certifications, liaising with regional states, and managing a national startup registry. The law also introduces regulatory sandboxes under both the National Bank of Ethiopia and the Ethiopian Communications Authority, enabling fintech and telecom startups to trial products under eased regulations for up to 12 months.

Meanwhile, accredited incubators and accelerators will be eligible for co-financing covering up to 30% of their project expenses. Additionally, public universities must allocate 2% of their research budgets to collaborations with certified startups,  a small but significant push to bridge Ethiopia’s historically wide gap between academic institutions and industry.

The law will be enforced across all tiers of government: federal, regional, and municipal as confirmed by the parliament’s Standing Committee on Human Resources, Employment, and Technology Affairs. Existing startups will have a 90-day window to register and retroactively access the law’s incentives once it is published in the Federal Negarit Gazeta.

Ethiopia’s startup ecosystem has undergone a major shift since 2020 largely without state support. In the vacuum left by policy delays, founders turned to donor-led incubators, informal angel networks, and sheer determination to keep going. The lack of formal structures has pushed some to scale too early, while others have relocated in search of better environments.

Elsewhere on the continent, progress didn’t stall. Countries like Tunisia, Nigeria, and Algeria moved ahead with startup-friendly regulations, drawing in global investors and skilled talent. Nigeria’s Startup Act, once seen as a regional model, now serves as a cautionary tale, a reminder for Ethiopia that enacting a law is only the beginning; effective implementation is what truly matters.

Excitement aside, the Startup Proclamation’s impact hinges on execution a historic weak spot for Ethiopia. Delivering on its promise means more than passing a law: the Startup Fund must be capitalized, the Startup Desk must function, bureaucracy across federal and regional levels must align, and persistent challenges like FX shortages and import hurdles must be addressed if tech ventures are to truly scale.

The Ethiopian government frames the law as a stepping stone toward transforming the country from a passive importer of foreign technology into a homegrown hub of innovation. But realizing that vision will take more than legislation, it will require foundational infrastructure, investor confidence, and robust capital markets capable of sustaining long-term entrepreneurial growth.

For now, the law’s passage stands out as a rare policy victory in a nation grappling with post-conflict recovery, economic uncertainty, and a surging youth population hungry for employment. Whether the Startup Proclamation sparks lasting transformation or fades into bureaucratic limbo will depend entirely on how the next steps are executed.

In Ethiopia’s startup journey, passing the law was the easy part. The real challenge now lies in execution ensuring that efforts are coordinated, consistently applied, and supported by actual funding.

SOURCE