In Ethiopia, the backdrop of macroeconomic and policy tailwinds has set the stage for the digital economy to flourish in the coming years.
As the second most populous country in Africa, with economic growth in the global top quartile for most of last decade, 70% of the population below 25, and over 40 million mobile users – there are clear incentives to focus financial and technical resources to develop the start-up/digital ecosystem in Ethiopia. This incentive is reinforced by the country’s concerted effort to develop policies promoting digital entrepreneurship, including the crucial liberalisation of the telecom sector.
In its recent, ongoing involvement in the country, LFS observed a nascent ecosystem with strong traction: Ethiopia boasts a rapidly growing number of start-ups, with a clear emergence of sustainable and scaling ventures in certain sectors. The community of entrepreneurs is forming ecosystems, with growing connections within clusters, and many founders recognize the need of technical assistance across the board. The nation’s financing platform has multiple gaps, and private early-stage finance is rare with few exceptions. Hence, there is a clear need for investors that can provide both financial liquidity, and an overall holistic support structure to the Ethiopian digital ecosystem.
LFS has witnessed keen interest among Development Finance Institutions (DFIs) for an investment universe distinct from the traditional targets of the Private Equity funds currently operational in Ethiopia. Furthermore, both DFIs and private impact investors expressed the view that Ethiopia can become a gateway to channel investment in the whole horn of Africa.
As discussed at the Enkopa panel, to fully leverage the huge potential of Ethiopian Venture Capital & Private Equity, the foreign investment framework needs to continue on its liberalization path – including the thorny issue of foreign-exchange repatriation, despite recent promising improvements – and alliances should be formed to launch more hubs/incubators, in order to address the multifaceted needs of the country’s encouraging developments early-stage ecosystem.