First published 08 Dec 2024
From Nairobi’s Silicon Savannah to Kampala’s burgeoning tech startup scene, the East African region has become a hub of innovation, attracting VC investors and creating solutions that address local challenges. For instance, Kenyan startups, in 2024, secured over $1 billion in venture funding, outpacing other countries on the continent.
These investments, however, are being hindered by a stifling regulatory environment. Local founders have often found themselves crushed under the weight of unpredictable regulatory agencies and excessive bureaucratic red tape. In 2023, a barrage of regulatory challenges including high taxes and licensing issues led to the collapse of Kenyan logistics startup Sendy. Over in Tanzania, e-commerce giant Jumia was forced to shut down in 2022 after it struggled to comply with tax regulations.
For every successful startup story, other ventures have collapsed—not due to a lack of talent or ideas, but because of barriers imposed by existing laws. And things don’t look like they’re speeding up anytime soon.
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In June 2024, the Central Bank of Kenya promised to change local laws to allow the licensing of fintechs, but little has been done, condemning startups to uncertainty with no sight to an end.
The existence of multiple regulatory bodies, each with its own licensing requirements is a pervasive challenge. Take Kenya as an example: founders may need to get clearance from the Communications Authority of Kenya (CA), the Central Bank of Kenya (CBK), the Capital Markets Authority (CMA), and the Kenya Revenue Authority (KRA), among others—all of which can take years. The overlapping—and often conflicting—requirements create confusion and additional costs for startups.
Even with a war chest and the right talent, navigating the legal environment in East Africa is no walk in the park. The time it takes to obtain a license for a startup is prohibitively long.
In some countries like Kenya and Tanzania, acquiring all necessary permits can take more than a year. Chipper Cash, Flutterwave and other fintechs have been trying to get licenses from CBK for close to five years. In Uganda, acquiring a financial service provider license can take up to six months, during which time startups cannot operate legally. The delays in licensing lead to lost revenue and missed opportunities.
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Local startups lack the financial muscle to meet the high compliance costs in East Africa. For example, the new data protection laws in Kenya require companies to hire a data protection officer, a requirement that most startups cannot afford. The strict compliance audits and the high legal fees add to the companies’ financial burden. The pervasive culture of corruption among government officials worsens these challenges faced by entrepreneurs, forcing VCs to seek other markets.
East African governments are notorious for abrupt policy changes, proving difficult for most tech startups. Unpredictability in tax laws and licensing in Kenya, Uganda and Tanzania has created an unstable business environment, discouraging both local and foreign investors. Investors are often wary of regulatory uncertainty. Sudden policy shifts and inconsistent enforcement of laws erode investor confidence, diverting funding to other countries perceived as more business-friendly.
East African governments must adopt policies that support the thriving startup ecosystem. East African countries should prioritise harmonizing regulations across member states to foster innovation.
Despite the slow progress in the region, Rwanda has consistently ranked high on the World Bank’s ease of doing business index, helped by streamlined regulations and ease in starting and operating a business. It has also offered tax incentives and reduced corporate taxes to attract investors.
Adonijah Ndege
Senior Reporter, TechCabal.
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I am the CEO of 9JAGISTLAND.My name is Adedeji Timothy and my co-owner is Oyekola Damilare.This blog is born out of our passion to educating to people in all aspect of internet life.We are enthusiastic about writing posts and articles online.
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