Tech ecosystem in Africa may depend greatly on the cooperation of its governments Sultan Quadri writes in the article below.
Digital technology has an undeniable economic impact in Africa. From connecting the continent to the world and creating an avenue for it to tell its own stories, to placing wealth in the hands of young Africans, knitting far-flung diasporan African families together while making the transfer of wealth easier, digital technology has helped the continent leapfrog decades of development. Despite these benefits, digital technology in Africa has its fair share of problems. For one, the continent is more vulnerable in terms of externally controlled digital infrastructures. This enables deadly disinformation in conflict zones, makes it easier for governments to violate freedom of speech rights through internet shutdowns, and creates multiple avenues for cyber fraud.
Yet, a local tech ecosystem has organically developed in Africa, inspired by the gains pioneered by global tech companies. Over the past few years, technology’s reach has grown larger, touching every aspect of society and as such, it became too important for African regulators to ignore.
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The governmental regulation of the African tech sector kicked off with a bumpy start. Regulations were either vague, nonexistent or hastily constructed as governments tried to control what they did not understand. In truth, the ecosystem was young and most of the key technologies and products in this sprouting ecosystem did not exist until recently.
African founders stayed up at night hoping that their government would not try to swiftly regulate products or industries they could barely comprehend. To put their minds and those of their investors at rest, they incorporated their startups outside the continent, in places like San Francisco, Delaware, and Mauritius, which were more stable. Despite not having a notable startup ecosystem, Mauritius, an African country, attracts startups from around the world with its low tax regime and non-complex regulatory framework.
When African governments realized that they were losing valuable taxes due to this reputation for instability, they began to play catch-up by creating startup laws and getting more involved in the development of their country’s tech ecosystem. In the most successful tech ecosystems, government involvement plays an outsized role in grooming startups and raising overall competitiveness in the sector.
The governments of multiple African countries including Nigeria, Ethiopia, Senegal, Kenya, and Tunisia have passed startup bills into law in the past few years. Nigeria, the latest to do so, brought together tech leaders and public bodies to design a law that will make it easier for Nigerian startups to build their products and scale their businesses faster. Before the formulation of its newly signed Startup Act, tech startups had to endure whiplash policies that oversaw a ban on ride-hailing companies and cryptocurrencies. But this Act seeks to ensure that tech regulation in the country is clear and stable.
As a starting point, the bill is impressive. It establishes a clear line of communication between tech operators and the government through the Startup Consultative Forum, which is composed of startups, VCs, civil society organizations, angel investors, accelerators, and incubators who will represent the sector’s interest during regulatory processes. The Act also covers startup labeling, local content requirement, tax breaks, and access to funding including a ₦10 billion fund from the federal government.
This is similar to Tunisia’s startup bill which was signed into law back in 2018. It gave labeling to over 700 startups and facilitated the rise of AI giant Instadeep as well as other impressive AI startups in the country.
Intensified government involvement is needed because governments have the ability to energize industries. For example, in other countries, governments are the country’s largest tech purchasers, but that is not the case in Africa. In fact, many African governments still prefer to buy digital services and products from foreign contractors.
Taiwan, a small island of just 24 million people, became one of the most important places in the world through its technological capacity, a feat that is heavily credited to its government. But it also started small. When Taiwan realized that its local industries could not manufacture and export tech products like South Korea (which has Samsung and Hyundai), the government began supporting its local industries to build finished products for global brands. And by borrowing Western technologies, Taiwan was able to make a name for itself as an electronic manufacturing country and remained relevant all through the modern computer revolution until the rise of the internet. But the Taiwanese government knew that wouldn’t be enough, so it created Silicon valley-inspired science parks with tech-focused universities while incentivizing Taiwanese engineers abroad to return home and work there. Apart from birthing startups like Foxconn, members of its returnee engineer programme built the Taiwan Semiconductor Manufacturing Company (TSMC), a chip-making foundry which produces the most advanced computer chips used by the likes of Intel and Apple. TSMC is now caught up in the tech tussle between the US and China, who both want to get hold of its chips.
Startup regulations, when done right, have the capability to attract investors who support innovation and create jobs—effectively injecting money into the economy. Many countries have tried to replicate Silicon Valley’s model, which encourages investors to back smart founders capable of creating valuable innovation, but as Robyn Klingler-Vindra maintained in her book The Venture Capital State, successful venture capital policymaking around tech is one that considers their local context. The Taiwanese government, for example, introduced tax credits in 1983 to promote the development of its local tech ecosystem, which earned it the status of one of the most active venture capital markets in the world by the end of the 1990s. In Israel, the government took the first bet by launching the Yozma Fund in 1993 and then other investors followed suit.
Prioritizing local context can help African countries get the best out of their tech regulations. The Nigerian Startup Act, for example, allows for ease of transfer of foreign technology, which will allow the country to use its large market status and huge diasporan population to acquire important technology from abroad. Transfer of technology is one of the ways for emerging economies to close the technological gap between them and more industrial nations. That said, good tech regulations involve continuous iteration, especially in tech’s fast-moving world, and to do this governments need to develop a better understanding of tech trends. This is why a clear line of communication between the regulated and regulators is important.
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The application of digital technology evolves continuously to meet the needs of millions of people and the decision to regulate this evolution will impact how these benefits develop. This is why tech billionaire Bill Gates wrote in his 1995 book The Road Ahead, “It is crucial that a broad set of people—not just technologists or those who happen to be in the computer industry—participate in the debate about how this technology should be shaped.” Ambiguous, exclusive and knee-jerk regulations hurt individuals, companies and their investors, as well as the economy itself. But good regulation can help move Africa into a stable tech ecosystem where investors can look for their next hit run.
This article was first published on techcabal.