On July 17, Ethiopia passed its Startup Act after five years of delay, giving its startup ecosystem a formal legal and policy foundation for the first time. The new law introduces tax breaks, funding access, and public procurement opportunities, while pushing universities, state firms, and private investors into closer collaboration.
State of play: Startups can now get five years of corporate income tax exemption and duty-free imports of capital goods. They also qualify for a share of a 2 billion birr ($36 million at the time of drafting and proposal) government-backed fund, along with easier registration and access to regulatory sandboxes. Angel investors backing early-stage tech startups will get reduced withholding tax. Certified startups are guaranteed a 5% cut of government ICT contracts.
Ethiopia’s tech ecosystem is still nascent. Its capital, Addis Ababa, leads the scene, valued at $87 million and growing 15% annually. Startups like Chapa, Gebeya, and popular fintech ArifPay are early standouts. Ethiopian startups raised $42 million—mostly early-stage deals—in 2024. Ethiopia needs structural support to enable startups to scale to late-stage funding rounds.
Between the lines: The law moves the country away from donor-funded pilot projects and toward a more structured, state-supported ecosystem. Universities must now direct 2% of their research budgets to startup partnerships. A new National Startup Council, chaired by the country’s Innovation Minister, Belete Molla, will oversee coordination across government and industry.
However, Ethiopia’s Startup Act still has some holes. Currently, it defines a “startup” as firms earning less than five million birr ($36,000). Companies outside this threshold will qualify as “innovative businesses,” a separate category with fewer guarantees. But inflation is a real problem. If a company raises prices just to cover rising costs, it could cross the cap without actually growing—losing access to the support the law is supposed to provide.
It’s a fixable flaw—but one that could undermine the law’s promises as things progress.
