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Ethiopia’s Startup Proclamation: Granting 30% Stake to EIH

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The Ethiopian government is taking significant strides to nurture its startup ecosystem with the introduction of the long-awaited Startup Proclamation. This groundbreaking bill proposes granting the Ethiopian Investment Holding (EIH) a stake of up to 30% in startup businesses supported through government-facilitated grants.

Key Highlights of the Startup Proclamation

  1. Government Stake in Startups The EIH, representing the Ethiopian government, will hold up to a 30% equity stake in startups funded by grants under the new program. This provision was included in the final stages of the drafting process and is seen as a vital mechanism for fostering sustainable growth in Ethiopia’s startup ecosystem.
  2. Startup Grant Program The bill introduces a Startup Grant Program, managed by the Ministry of Innovation and Technology. The program aims to provide financial support for the establishment, development, and operational needs of eligible startups. Funding will be sourced from the annual national budget, development partners, and other approved entities.
  3. Eligibility Criteria for Startups To qualify as a startup under this bill, businesses must:
    • Be less than five years old.
    • Own the product or service they provide.
    • Have at least 25% of their capital held by the founder.
    • Maintain a workforce size within limits set by the Ministry.
  4. Startup Fund of Funds A new ‘Startup Fund of Funds’ will be established as a share company with participation from both the public and private sectors, including foreign investors. The EIH will hold up to 30% of the Fund’s shares, focusing on investing in other funds that, in turn, support startups.
  5. Foreign Direct Investment (FDI) Incentives The proclamation exempts foreign investors targeting startups from the USD 150,000 minimum capital requirement currently stipulated for investments in Ethiopia. However, foreign-owned startups will not have access to the grant program.
  6. Ecosystem Builders’ Role Entities such as incubators, co-working spaces, TVET institutes, and NGOs will be recognized as ‘Designated Startup Ecosystem Builders.’ These entities may distribute grants and receive a management fee for their services, further enriching the ecosystem.

Positive Reception from Experts

Startup ecosystem experts and stakeholders have lauded the new draft, emphasizing its potential to address long-standing issues such as fragmentation and limited access to funding.

“The final draft has significantly improved compared to earlier versions. Involving EIH is a brilliant move as it brings financial strength and professional expertise to help startups grow into impactful businesses,” said a startup expert involved in the drafting process.

The Road Ahead

The draft proclamation is currently undergoing public consultations, inviting feedback from entrepreneurs, investors, and other stakeholders. Once finalized, the bill is expected to become a pivotal instrument for transforming Ethiopia’s startup ecosystem into a thriving hub for innovation and investment.

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