According to the Global Startup Economy Report for 2021, the global startup economy is worth over $3.8 trillion in Ecosystem Value, more than the individual Gross Domestic Product of most G7 economies, not including the value of exits prior to 2018. Uganda’s contribution to this remains low despite the strides made within the ecosystem. To understand the trends in the local ecosystem better, we spoke to fellow ecosystem player Kenneth Legesi, Chief Executive Officer Ortus Africa Capital.
How would you say the Startup ecosystem has performed this year?
The Uganda Start-up Ecosystem is ranked at number 97 globally, showing a negative momentum of -8 spots since 2020. Uganda also ranks at number 5 for start-ups in East Africa, thus it is an ideal place to locate Fintech, Software, Data and -Ecommerce and Retail start-ups. Across Uganda, start-ups are seizing the opportunity provided by mobile technology to offer fresh thinking and potential solutions to many of the country’s endemic challenges. From financial inclusion to e-Health and market access, mobile-enabled start-ups are solving critical challenges for businesses, government and civil society, stimulating economic growth and supporting economic and social prosperity. Ensibuuko, Numida, Tugende and Chipper Cash are examples of successful fintech companies that have raised funding rounds ($1,000,000, $2,300,000, $3,600,000 and $250,000,000 in 2021, respectively).
From an African perspective, the thriving technology ecosystems across the continent have been a significant propellant of economic growth. The tech economy has potential to contribute up to $300 billion to the continent’s Gross Domestic Product within the next five years at an annual growth rate of 10 per cent, with Nigeria, Kenya, South Africa and Egypt accounting for $6 billion of the total $6.6 billion tech ecosystem value. Uganda has a lot to do to compete and surpass these continental giants.
According to Digest Africa, in the first three quarters of 2021, $2.7bn has been raised making 2021 Africa’s most funded year surpassing the $1.8bn raised in 2019. $906M has been raised by FinTechs in Q3 2021 topping Commercial and Professional Services ($200M), Ecommerce and Retail ($140M) and Transport and Logistics($124M) that managed to raise at least $100M. The $906m raised represents 62 per cent of all funding in that quarter and it is more than the amount raised by all sectors combined in the entire first half of 2021.
Policies and regulations have been developed to drive the use of digital technology to achieve national and regional development goals, and are recognising the key role entrepreneurs play in developing innovative products and services. Although there have been some successes, technology start-ups in Uganda continue to face barriers, such as slow internet speed and a lack of critical business skills, resources, expertise and support to launch, grow and scale their offerings.
As an investor, what improvements would you like to see in the tech ecosystem in 2022 to make it suitable for investors?
Enabling policy environment that encourages tech entrepreneurs to take risks and empower them to innovate and facilitate the use of digital technology across all sectors through leveraging mobile technology to deliver innovative products and services required. We need to also create more enabling regional and national policy frameworks in which start-ups can operate and ensure opportunities are easily availed to them.
Improving the rules and regulations governing start-ups are key for companies to set up, grow, mature and expand into international markets such as regulations that increase the costs and complexity of starting and running a business. This could involve developing supportive company registration rules to facilitate the incorporation process, and creating a conducive policy environment, for example, through the development of regulatory sandboxes.
We also need to improve access to the tech-ecosystem players. Visibility of the tech opportunities in Uganda is still very low despite raising $57 million in Ecosystem Value over the last 2.5 years according to TechJaja. The data gap is a critical resource for stimulating investor growth towards the tech ecosystem in Uganda.
There is also supporting the development of critical business skills. Tech start-ups lack the critical business skills required to grow a sustainable business. Learning and development initiatives designed to build business acumen and entrepreneurial skills as well as collaboration among key stakeholders, including established companies, incubators, start-ups and investors encourages learning, boost competence and provide more opportunities for mentorship.
The country also needs affordable access to mobile and mobile internet services. Start-ups identified affordable and reliable access to mobile and mobile internet services as key challenges affecting their success. Limited access to these critical resources reduces entrepreneurs’ ability to create new services, improve existing public services and produce content tailored to local markets.
Key policy measures will be needed to address barriers to mobile internet access and use. These could include;
- Review sector-specific taxes on mobile-enabled services, including the excise duty on internet bundles and mobile money transaction tax, which increase the cost of using mobile technology (cost of services for start-ups). This is especially crucial during crises like COVID-19 when mobile technology is being deployed to share critical information and facilitate continued access to essential goods and services.
- Provide incentives to stimulate rollout in rural areas, such as tax breaks on imported equipment for rural network deployment.
- Consider subsidising mobile operators’ operating expenditure for running network sites in rural areas.
- Work with mobile operators to implement national roaming. This will ensure seamless connectivity, provide choice for consumers and help avoid the expensive duplication of network infrastructure.
There is need to support the development of different types of intellectual property, such as trademarks, patents and copyrights, so that all organisations, regardless of budget or capacity, can protect their ideas and inventions. Entrepreneurs ought to work with regulators and key ecosystem actors to determine the best way to address the regulatory challenges affecting start-ups. This could be through regulatory sandboxes that allow live, time-bound testing of innovations under a regulator’s oversight, or a test-and-learn approach to try out new ideas under ad hoc conditions in a live environment.
As I conclude, I must say Start-ups in Uganda are making breakthroughs with mobile technology and playing a critical role in achieving national development goals. However, the tech start-up ecosystem remains characterised by high failure rates due to the lack of an enabling business environment, limited access to data, lack and challenges in accessing affordable mobile devices and mobile internet services. Mobile operators are addressing these challenges by providing funding, and sharing technology and market knowledge. Policymakers have a particularly important role to play in supporting the development of digital entrepreneurship and the growth of Uganda’s tech start-up ecosystem. Solving the critical challenges in Uganda’s tech start-up ecosystem will require stakeholder engagement and collaboration to understand the barriers start-ups face and identifying the roles each stakeholder can play in fostering innovation.