A new proclamation law allows foreign startups and investors to finally enjoy the sought-after Ethiopian market.
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Addis Ababa being the hub, the start-up ecosystem in Ethiopia is blooming, albeit slowly. With a large market of over 130 million people, growing digitization, and the rise of incubator programs, the country’s potential is vigorous. Over 300 established start-ups and 45 ecosystem builders are hosted and thriving. A report by GrowthAfrica and Systemic Innovation, released by the end of 2024, stated that the overall valuation of start-ups in Ethiopia was about $302 mn.
If we look closer, however, the figure shows that Ethiopia falls behind major African countries. In the first quarter of 2025, 83% of startup funding went to the Big Four: Nigeria, South Africa, Egypt, and Kenya. These countries have a large population and relatively larger GDP in common. If you had thought that was a lone factor, Ethiopia would have been on the list. What could be missing?
Ethiopian market potential is a giant, the skills pool is quite brilliant, and the country is strategic. But it still failed to stand out when it comes to attracting foreign startups and securing investment. The Big Four are leading in valuation and funding. All advantages taken into account, the success of the four is exceptionally credited to their pro-startup environment and positivity towards innovation. That’s where Ethiopia falls short.
A brief comparison of the Ethiopian ecosystem with the Big 4 African countries
South Africa, Nigeria, Egypt, and Kenya - relatively stable
Ethiopia - lingering conflicts that hinder economic movement
Number of Active Tech Hubs
Nigeria - 90
South Africa -78
Kenya -60
Egypt - 56
Ethiopia -16
Some incentives were proposed to foreigners to improve the conditions. But they weren't as impactful. Among the efforts was the 2020 start-up proclamation, which regarded startups with 50% or less foreign investment to be local. This exempted some startups with minor foreign investment from the hassles of being a foreign company and bestowed them with advantages. It also proposed to lower the foreign minimum direct investment from $200,000 to $150,000. The other was facilitation of capital gain expatriation, which allowed foreigners to move the return on investment back to their home country. But more work was necessary to catch up to the prominent players.
A study by ASRIC assessing why Ethiopia’s startup space drops back from other African countries found that the challenges were multifaceted. Among these are the absence of fitting regulations and venture capital shortage. Following, we evaluate how the recent startup ecosystem development policy document addresses these challenges.
The big time changes
Now comes prime time for foreign companies as the Proclamation No. 1180/2020 is set out for amendment. In what is called the startup ecosystem development policy document, some real changes are put forth.
Revision of the $200,000 minimum entry capital required by the investment legislation
Update the 2020 proclamation to remove the entry capital requirement
Redrafting and simplification of the registration and licensing of foreign start-ups in Ethiopia
A single window or digital service for all document processing and legalization
Facilitation of integration programs: mentorship, access to local market networks, incubation, and acceleration programs.
Provision of subsidies, tax breaks, and more financial advantages
Enhance partnerships with local companies that gradually grow and blend into the international value chain
Present foreign actors with market insights
The proclamation is going to bring about large strides in the startup economy. It’s believed to rest the anxieties of founders and investors arising from the regulatory uncertainties. Tax reliefs, credit and loan facilities, as well as investment funding, are key appeals to those looking to explore the vast opportunities of the Ethiopian market.
Yes, it’s all about execution
This is, of course, with thorough implementations followed. Parallel efforts in creating market linkage, development of innovative spaces, sustainable government support and collaboration, enhanced industry networks, and skill and experience cultivation are decisive in making the best of the situation.
Startups have time and time again proved crucial to innovation, job creation, and economic growth. Investing in Ethiopia, with the hurdles gradually wiped off, is a golden promise. As the policy document has finally gotten the yes from the House of People’s Representatives, we now hope it will bring about tangible changes.
