With 94 million people, one would think that Ethiopia would be an attractive market for technology entrepreneurs. But a myriad of challenges and strict regulations have hampered the growth of IT companies in the country.
Just over 25 million people have mobile phones while only 2% of Ethiopians have access to the internet, according to 2014 statistics. This is partly due to the country’s vast geography, limited infrastructure and lack of electricity in remote areas. Mobile money, which has been a success in neighbouring countries, is just starting in Ethiopia with many limitations. State-owned Ethio Telecom is the only telecommunications operator and the industry is closed to foreign investors.
It is an uphill battle for Ethiopia’s young tech entrepreneurs. But they are soldiering on nonetheless.
Iceaddis – Ethiopia’s tech hub
In 2011 Markos Lemma co-founded Iceaddis, a leading technology hub, accelerator and co-working space in the capital Addis Ababa.
“When we started, the first motivation was actually to create a one-stop shop for the young entrepreneurs to come and get all the information about what market research is, what a business plan is, where to get the legal advice, how to register and grow a business,” Lemma explains. “But it has grown into a community space. It just naturally and organically grows.”
Today it hosts nine start-ups at its new offices in the city and has a community of 5,000 members. The space has also attracted entrepreneurs in the creative industries, including photographers, film makers and artists.
“We are not just tech-focused. That combination of ICT, creative industries and maker communities, creates a more comprehensive kind of growth,” says Lemma.
University students are the main target for Iceaddis. “I would assume maybe 10% to 20% of the graduates think of really going the entrepreneurship way… Office work, from what I know, is not really encouraging here. There are few big companies that provide a good salary, and the work is not so interesting when you are young and creative. You feel limited in a way,” says Florian Manderscheid, product development manager at Iceaddis.
Those who choose to start a business have to bootstrap because accessing financing is difficult. Unlike in neighbouring Kenya – where there is more money floating around from venture capital funds, grants and competition cash prizes – Ethiopia’s start-ups have to walk a tighter rope. Many do part-time work to finance their businesses, explains Lemma.
There is limited foreign money due to legal restrictions that limit participation of foreigners in the financial sector. Local investors too are more focused on booming industries such as real estate, agriculture, trade and manufacturing.
“All [entrepreneurs] here invest their own personal money and that’s why they don’t grow fast. They have all the potential, their product is ready, they just don’t have funds to market it. So there are some missing links in terms of funding,” says Lemma. “If there was a chance to access finance, I think the start-ups would actually grow fast.”
However, Lemma is hopeful, pointing at a bank located right across his office that has introduced a loan package for entrepreneurs.
“Before they [would] never give you anything unless there was collateral… but now they are trying to look into the business plans and use that to decide on giving loans. That’s very promising [and] we are actually trying to work with them,” he says.
Better times ahead
Despite the many hurdles, Ethiopia’s technology industry is growing, and adoption of technology services is on the rise. “The general economy is growing. If people change their mobile phone, they always purchase a smartphone. There are more Facebook users than actual internet users in Ethiopia. So there is a high demand for communication and for digital products,” says Manderscheid.
Iceaddis is working with other stakeholders to improve the industry by offering capacity development opportunities for entrepreneurs. One of the efforts paying off is peer-to-peer learning.
“People actually like what they learn from each other. We have noticed that some start-up members actually try to connect with each other and work together on different products. I think that’s very interesting,” notes Manderscheid.
In the next five years Lemma expects to see more innovation hubs in Ethiopia and an increase in investors and financiers willing to back entrepreneurs as well as greater adoption of new technologies by consumers.
“There are so many service gaps in the city. You run around from shop to shop to find things, but if you have a mobile app it makes it easy,” says Lemma. “I think there is so much potential in this sector to just send information from A to B. I am sure a lot of start-ups will jump into this gap and focus on trade, real estate, cars, taxis, whatever is needed – it is coming.”