What you need to know:
Government should come up with Seed Enterprise Investment Schemes, where tax incentives are given to startups that are either raising venture capital or bootstrapping.
Five Ugandan startups were featured in the Yale Africa Startup Reviews list. Volcano Coffee, Uganics Repellants, MScan, Flip Africa and Ori Rides have made the country proud. Local entrepreneurs, accelerators and ecosystem partners will beam with excitement at the validation this provides for a hub they have long believed in. Even more, they will be the first to point out that these startups have taken off despite a not-so-friendly business environment with countless regulatory, financing and structural hurdles that make it hard for entrepreneurs to thrive.
The Yale Africa Startup Review is a Yale alumni and student-led initiative on a mission to share stories of ingenuity and innovation to attract interested stakeholders to the African startup ecosystem.
The annual publication seeks to feature startups and founders redefining African business through innovation and entrepreneurship. The finalists were selected by a panel of judges that include leading African venture capitalists - after prior rounds of diligence by the editorial team.
Imagine you are a small-scale coffee farmer in Uganda growing coffee on less than an acre of land. You till your field for three years and harvest a fair crop but are offered a minute $0.67 per kg at the farm gate by rural middlemen. You can fetch a higher price if you can store and sell it when the price rises, but you lack storage facilities. You also know that you can get a better deal if you could de-hull and dry it, but you lack the technology.
Volcano Coffee, founded by Gerald Katabazi offers farmers a stable market price based on fair-trade principles through contract farming arrangements that pay premium prices for agreed quality standards. Volcano Coffee also dries and hulls the beans to avert post-harvest losses and offers roasting services to enable the farmers capture more value and resell their coffee at a higher margin on the export market.
Uganda has about 9 million people who operate in the invisible gig economy where there are high levels of exploitation. Without consistent income, these youth are unable to access social benefits schemes or mainstream financial services. On the other hand, small businesses rely on word-of-mouth to find talent.
FLIP Africa, another startup co-founded by Abu Musuuza, Neha Pandya, and Timothy Laku is a freelance marketplace where businesses can hire experienced, rated, short-term talent at the click of a button. FLIP wants to unlock the great potential of the gig economy, while addressing the informality, illegality and exploitation associated with gig work. FLIP offers a revolutionary and scalable solution that not only ensures dignity, accountability and security, but also upward mobility in gig work.
So what can the country do to ensure these startups become the norm, not the exception? What can be done to ensure that these companies survive and thrive?
A good start would be to rethink the needless registration and legal hurdles, internet irregularities and tax infrastructure that stifles innovators and entrepreneurs.
The National information Technology Authority - Uganda (NITA-U) recently started requiring startups to certify with them. But this process adds extra fees and routine audits to cash-strapped startups without delivering any value. It is a barrier that increases the cost of doing business and discourages aspiring entrepreneurs.
Arbitrary Internet shutdowns (such as seen recently) hurt technology startups that leverage the Internet payments and social media networks in their business models. The recent Internet shutdown is estimated to have cost the Ugandan economy more than a million per day. When the Internet is shut down, customers realise that that network isn’t reliable and traffic patterns are re-routed. This may affect local startups looking to leverage the Internet to scale their services and make them less attractive to financiers.
Government should come up with Seed Enterprise Investment Schemes (SEIS), where tax incentives are given to startups that are either raising venture capital or bootstrapping.
Nigeria, for example, passed laws allowing certain tax incentives for venture capital companies and projects since 1993. The Venture Capital (Incentives) Act is Nigeria’s primary legislation for the grant of tax incentives to venture capital companies and projects. Unlike in Uganda, this law gives Withholding Tax Incentives: This is a type of advance payment of income tax. Withholding taxes (WHT) typically track the income earned by investors. The Act does reduces the amount payable as Withholding Tax on dividends payable to an investor in a VPC. The Act provides a 50 per cent reduction in WHT for qualifying companies over a five-year period.
The ICT ministry should fund and provide free incubator-type workspaces in all government universities from Makerere to Gulu. In these spaces, aspiring student innovators should have unlimited access to the Internet, computers, prototyping tools and drop-in mentors to co-mingle and ideate with. Uganda youth are brilliant and inventive, they will create their own informal structures and find the resources they need. Such simple steps would go a long in creating a conducive environment for startups.
The Uganda Capital Markets Authority (CMA) has historically focused on Private Equity for small and medium enterprises (SMEs) and on listed companies in the Uganda Securities Exchange. CMA should take a more proactive role in helping high-growth local startups by advancing policies like they’ve done for SMEs; by helping steward resources towards building university accelerators and equipping hubs - in collaboration with the ICT ministry.
Uganda’s startups are ready to build only if needless barriers are removed and replaced with strategic support systems.
Volcano Coffee, Uganics Repellants, MScan, Flip Africa and Ori Rides featured in the annual publication that seeks to feature startups and founders redefining African business through innovation and entrepreneurship.
The ICT ministry should fund and provide free incubator-type workspaces in all government universities from Makerere to Gulu.