In Addis Ababa’s co-working spaces and backstreet workshops, in makeshift home offices and buzzing incubators, a quiet race is on. Young founders are building apps to solve daily problems, engineering machines to replace costly imports, and experimenting with climate-friendly technologies.
For years, this energy has been trapped between ambition and bureaucracy.
Markos Lemma, co-founder and CEO of startup incubator Iceaddis, attributes the quagmire to a lack of devotion from policymakers, which he believes stems from their unclear and inadequate understanding of what a startup is and its potential to boost the economy.
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“About 12 years ago, we requested a meeting with the relevant state minister to discuss the importance of startups and to advocate for their place in the nation’s economy,” Markos told The Reporter Magazine.
“We wanted to convince them how important it was for the nation to pay attention to startups. The focus at the time, though, was on developing already established, large state-owned enterprises. What I learned then was that there seemed to be no room for the idea of a startup in the government’s mindset.”
Kidus Asfaw is a successful young entrepreneur. A co-founder and CEO of Kubik, a climate tech company that turns unrecyclable plastic waste into low-carbon building materials, he shares his personal experience with company registration challenges.
“I came to Ethiopia as a foreign investor. My startup was first founded in the US, where it cost only USD 500 and took one day to register. Bringing that company to Ethiopia required depositing USD 250,000 and having a physical office. It took months to finish,” said Kidus.
Despite the bureaucracy, Kidus believes the Ethiopian startup ecosystem has a strong foundation, characterized by a wealth of creative young people. He argues that the primary need is for “an instrument to enable those ideas to be realized in a company form, to help them grow from ideas to companies.”
The hurdles facing the Ethiopian startup ecosystem go far beyond just registration. The environment remains unattractive due to broader issues, including the fundamental matter of stakeholders failing to distinctly recognize the unique business model of a startup.
“We’ve gone a long way to introduce this idea and advocate for it among the public and policymakers,” said Markos.
The advocacy seemed to work out when, on July 17, 2025, Parliament ratified the long-awaited Startup Proclamation, heralding what observers hope will be a turning point for Ethiopia’s nascent innovation economy.
The legislation promises to grant startups the legal recognition, financial incentives, and policy tools they need to scale. The proclamation has been in the making for years, and people in the startup ecosystem have strong views on what it gets right and what still needs work.
Kidus sees the law as a necessary foundation.
“It’s a positive start. It’s certainly promising,” said Kidus.
A New Era: What the Law means for Entrepreneurs
For Biruk Girma, co-founder of Sumuni Creative Solution, a startup that connects other startups with the right experts and investors through a digital platform, the proclamation’s most important contribution is conceptual clarity.
“There was a misconception among many stakeholders, confusing startups with SMEs, which is totally wrong. A startup is a business model that is highly scalable and replicable,” he explained.
The new proclamation, he observes, directly addresses such misunderstandings.
The Startup Proclamation marks the first time Ethiopia has created a legal category specifically for startups, distinguishing them from SMEs and traditional businesses.
Legally, a “startup” is defined as a person, group, or entity with little or no business history that creates economic value through the introduction, creation, transplantation, or reverse engineering of a product, service, or process that implements innovation, technology, or tech-enabled solutions that are scalable and capable of changing markets. This definition excludes small, stable enterprises but includes technology-driven and innovation-led companies with high growth potential.
Markos argues that startups are now recognized for what they are: innovation-driven, technology-oriented ventures capable of creating substantial economic impact.
The law’s recognition of risk capital investors, angel investors, and venture capitalists is equally significant.
“Before, as a nation, we had no clear legal definitions of angel investors or VCs. Now, these roles are officially recognized,” said Biruk.
The law grants five-year exemptions from income tax, income tax on dividends, and withholding tax for designated startups, as well as the right to carry forward losses for up to three years after the exemption period ends. The proclamation also allows designated startups to import capital goods duty-free, contingent on approval from the Ministry of Finance.
Kidus considers the lifting of requirements like mandatory physical offices a big deal.
“It may seem small, but for many startups, it means a lot,” he said. “Startups are inherently non-traditional businesses. They don’t necessarily need physical offices, and they often don’t use traditional raw materials. The fact that the proclamation has removed this mandatory requirement is an excellent start that shouldn’t be underestimated.”
Foreign-owned startups will find much to celebrate in the new law. It lowers the investment threshold for foreign-owned startups by removing the minimum capital requirement under the Investment Proclamation, formally recognizes angel investors and venture capital firms, and creates risk-sharing tools such as a national credit guarantee fund and a ‘fund of funds’ mechanism designed to co-invest alongside private investors and attract more capital into the ecosystem.
A unique provision is also startup leave, which allows founders or key team members who are public servants or employees to take a temporary leave from their jobs to focus on building their startup while retaining their right to return to their original positions.
For founders like Ezedin Kamil, co-founder of IBEX Technologies and CEO of Tina Mart, an emerging e-commerce startup, some of these changes had an immediate impact.
“Simply having the proclamation allowed us to secure investment from abroad in Singapore,” he told The Reporter Magazine. Ezedin urges officials to move quickly to implement the law, warning that delays could see startups drop out of the market before they reap its benefits.
Ezedin also highlighted practical regulatory challenges and the importance of the new Digital Startup Portal mandated by the law.
“People should be able to register their startups online from anywhere. They should be able to get registered and licensed without much hassle,” he said. “With Tina Mart, every deposit into our account was considered revenue, which is not how e-commerce works. We have been paying high taxes because all incoming money was treated as revenue. I believe this proclamation will fix these kinds of issues.”
To Markos, the law’s recognition of knowledge-based valuation constitutes one of its most forward-looking features.
“When you say a company is a multi-million dollar business, it is not about the value of the office furniture or the assets. In the case of the tech industry, where an entrepreneur may own just a laptop, the current valuation system would suggest their company is worth almost nothing. Unfortunately, that has been our reality. Company value is calculated based only on tangible assets. That’s where the new proclamation makes a huge difference. It recognizes knowledge-based valuation, meaning that intellectual property and other intangible assets will now have real, recognized value. This is one of its biggest wins,” said Markos.
He further noted the need for recognition of digital economy realities.
“For example, in e-commerce, buyers should be able to receive digital receipts recognized by tax authorities. Emerging technologies like AI and cryptocurrency also need proper regulatory sandboxes.”
Sofonias Dawit, CEO of Enzert Engineering, a company that designs and builds agricultural and agro-processing machinery tailored for the Ethiopian context, welcomed the grace period before tax obligations.
“The biggest challenge is access to finance, specifically de-risked access to finance. Startups operate in uncertain territory with a high chance of failure,” he told The Reporter.
“When we build innovative machines, there is no guarantee they will succeed in the market. Tax officials treat us like any other business and expect profits from day one. The new proclamation’s probationary period before taxes kick in is incredibly important.”
With a more supportive startup ecosystem in place, Sofonias and his team envision to expand their innovative projects.
“Ethiopia’s staple crop, teff, is still harvested by hand,” he noted. “We plan to design a harvester but currently lack capital.”
The Real Test
While the proclamation enjoys broad support, every insider who spoke to The Reporter Magazine emphasized the same point: the real test will be implementation.
Amity Weiss, a veteran in the startup scene and former CEO of Komari Beverages, cautions that effective rollout requires both coordination and education.
“A large part of the work will be engagement with startups and investors. Communication is key to make sure everyone involved knows what has changed, what they can and cannot do, and how to comply,” said Weiss.
Markos sees risks in how startups are certified.
“The government agency is responsible for the certification. It’s hard assessing who are startups and who are not, and it might open the door to possible misinterpretation or even corruption. Since certified startups will receive certain incentives, there is a risk that the process could be abused,” he warned.
Kidus suggests that implementation should be iterative.
“No policy is perfect from the start. After implementation, the government should gather feedback, identify gaps, and make improvements,” he said.
Ezedin urges urgency.
“The sooner it is put into action, the fewer startups will fail day by day. The faster the proclamation is implemented, the sooner more investors will be attracted to Ethiopia,” he said.
In terms of positioning Ethiopia within the continent’s startup landscape, Weiss, who has worked with startups in Kenya, South Africa, and Rwanda, sees the proclamation as a significant step forward.
“It really puts Ethiopia on the map and positions it to compete with neighboring countries,” she says. Weiss believes Ethiopia’s new law makes the country a friendlier and more attractive destination for startups and investors alike.
However, there are lessons to be learned from more mature ecosystems. One of the most important is the need to reduce administrative burdens and speed up processes.
“In Kenya and Rwanda, it takes only one day to establish a company. In Ethiopia, it takes significantly longer,” Weiss notes. “Reducing this burden will be crucial. Entrepreneurs should be spending their time growing their businesses, not battling red tape.”
This insight reflects a broader regional consensus that streamlined regulations, combined with robust support systems, are essential to nurture innovation and attract investment.
Entrepreneurs like Kidus, who have practical experience with startup ecosystems elsewhere, believe Ethiopia’s competitive advantage lies in solving its own pressing problems.
“In Ethiopia, agriculture has huge potential. There’s room for many innovations in that sector, as well as in the medical field. There are many dynamic challenges in the country, and many ideas that can address them through innovation,” he said.
However, he notes the ecosystem remains underdeveloped compared to regional leaders, with too few physical spaces for founders to meet, exchange ideas, and collaborate.
Ethiopia’s Place in Africa’s Startup Race
Ethiopia may be buzzing with entrepreneurial ambition, but in the continental startup race, it is still at the starting blocks. In the StartupBlink Global Startup Ecosystem Index 2025, Ethiopia is listed not among the top 100 countries but in the ‘Contender Ecosystems’ category—a nod to its potential, but also a reminder that the ecosystem is still in its formative stages.
Addis Ababa is ranked 390th globally among cities, but posted an 11.3 percent decline, signaling that while there is strategic intent to build a knowledge-based, innovation-driven economy, momentum remains fragile.
By contrast, the rest of East Africa is surging ahead. Kenya now ranks 58th globally and second in Africa, climbing five spots and posting a 33.5 percent annual ecosystem growth rate, the highest among Africa’s top five startup nations. Nairobi holds 107th place globally with strong gains, while Mombasa has re-entered the top 1,000 cities with an explosive growth of 104.3 percent.
Rwanda has also re-entered the global top 100 at 96th, with Kigali ranking 461st and growing by 22.1 percent. Though its domestic market is small, Rwanda’s government has rolled out a Startup Act, investor visas, and Kigali Innovation City to attract global talent and capital.
In West and Southern Africa, the competition is even more daunting.
South Africa continues to lead Africa at 52nd globally, attracting USD 467.8 million in startup funding in 2024, spread across multiple hubs including Johannesburg and Cape Town. Nigeria, ranked 66th globally, remains Africa’s most populous country and home to the continent’s most unicorns, but its growth rate has slowed to 5.4 percent, with funding of USD176.4 million in 2024.
Against these numbers, Ethiopia’s lack of entry into the top 100 and the absence of a unicorn underline both the scale of the challenge and the opportunity.
This is where the Startup Proclamation could be a turning point. By creating a formal legal framework, lowering barriers to entry, and introducing targeted incentives, the law is designed to bridge the gap between Ethiopia and its continental peers.
Now a managing partner at Melela Partners—a firm that works with startups through incubation and acceleration programs—Weiss emphasizes that everything hinges on implementation.
“What is really important now is implementing it properly and making it work on the ground, so that startups and investors can start benefiting from the regulatory changes and the efforts made,” she said.
The Road Ahead
The Startup Proclamation is more than legal reform; it is a cultural signal. For a country that long prioritized large-scale, state-led enterprises, it is an acknowledgment that innovation-driven startups have a role to play in national development.
To capitalize on this momentum, Ethiopia will need more than just laws. It will require sustained dialogue between policymakers and entrepreneurs, the building of physical and digital spaces where ideas can flourish, and the cultivation of a financial sector that understands and embraces risk.
Misunderstandings about the true nature of startups and a lack of appetite for investing in them do not seem to be limited to policymakers; they also extend to the public, including potential investors.
Markos points to the scale of newly opened investment banks as a prime example.
“Take Awash for instance,” he said. “It’s worth about 200 million Birr, which is quite insignificant.” He believes this is a symptom of a yet-to-be-developed mentality among investors.
Markos stresses that Ethiopia needs a truly entrepreneurial mindset as a nation.
“When we deal with 20 startup companies, we consider that 19 will most likely fail,” he noted. “But the one that survives will definitely be able to compensate for all the losses incurred from the 19 failures. That is the typical mindset a startup business needs. It is a high-risk, high-reward business.”
If Ethiopia can turn this proclamation from paper to practice, it may finally secure its place alongside Africa’s leading innovation hubs and perhaps, in time, challenge them.
