Radar | Jan 19,2019
In a bid to support languishing start-ups and entrepreneurs underserved by the traditional financial sector, the Ministry of Finance has indicated plans to launch several innovation funds.
At the monthly Zelela event which brings together several stakeholders for discussions on entrepreneurship challenges in Ethiopia, the Ethiopian Youth Entrepreneurs Association (EYEA) partnered with the Ethiopian Diaspora Service (EDS) to link diaspora investors with local talent.
With the start-up proclamation aimed at fostering entrepreneurship and containing the formation of an innovation fund languishing in the halls of different ministries for three years, entrepreneurs had been continuously calling for alternative financing schemes.
Head of the Diaspora Service Mohammed Endries (PhD) indicated that the agreement will provide a financial bridge connecting young entrepreneurs with prospective investors across the world.
He explained that the Association could fill the information gap faced by the diaspora while providing finance for fund-strapped entrepreneurs.
"Our role will be limited to providing the connection," he told Fortune.
Mohammed revealed that the diaspora service has been exploring alternative financing schemes like crowd funds as it better understands novel investment schemes.
One of the panellists in the lively discussion on Homegrown Economic Reform 2.0, Samia Abdulkadir, president of the Association, suggested that the Ethiopian diaspora has already locked in 10 billion dollars to invest once the implementation of the agreement is in motion.
Estimates on the number of Ethiopian diaspora living across the world range up to five million.
The panel discussion was attended by State Minister Eyob Tekalign (PhD) and Hinjat Shamil from the Ministry of Finance alongside Minister Muferihat Kamil and Abraham Asrat, head of strategic affairs from the Labor & Skills.
Eyob suggested that the second reform will have modalities for the establishment of multiple innovation funds, promising at least four through the mobilisation of support from foreign backers.
He acknowledged that implementation in the first reform was not up to target, pointing to e-procurement modalities, easier access to forex and incentivisation of local production through policy as tools in the second one.
Eyob also revealed that there are ongoing evaluations to determine which institution has the mandate to administer the innovation fund within the pending startup proclamation.
Muferihat attributed the underwhelming performance of the domestic entrepreneurial landscape to a dismal attitude by consumers.
"We have a largely untapped resource pool," she emphasised.
The audience, largely composed of budding entrepreneurs, was engrossed by the heated policy discussions taking place on stage.
Hermella Gebregziaber started a natural compost business with her friends after graduating from university with a paid-up capital of 50,000 Br. She indicated that lack of finances had hampered their growth, failing to obtain a loan due to the absence of collateral that could guarantee a credit line.
She echoed the sentiments of the Labour Minister, fearfully enquiring "Who'll buy from us?"
"We can't buy the necessary machines," she told Fortune.
The Association has been working with commercial banks to find alternative financing schemes, revealing a scheme with the Commercial Bank of Ethiopia (CBE) and Hibret Bank to fund promising startups a month ago.
Hinjat was quick to mention the idea financing program launched by the Development Bank of Ethiopia this year in response to questions by moderator Gemechu Waktola on the success of the first Home-Grown Economic Reform.
"It will be put to work soon," Hinjat underscored in reference to the wider creation of innovation funds tabled until the ratification of the start-up proclamation.
The sole panellist hailing from international development partners, Gizachew Sisay, team leader of the inclusive economic transformation unit at UNDP Ethiopia, outlined that access to finance was the most significant bottleneck to startups.
"The bank's concerns are warranted," he reasoned as to the overall apprehension to finance startups which have a low success rate due to them (banks) utilising depositors' funds.
In an effort to curb issues of debtor profile raised by commercial banks, the three-year-old Association has been working to obtain an ID to its 3,000 members, according to Keremenz Kassaye, co-founder and vice president.
Unsurprisingly, Abraham from the Labour Ministry stressed the deficiency of competent human capital while pointing to ongoing efforts to work with employment agencies to meet the gap.
Keen observers of the startup climate in the country echo most of the sentiments expressed by panellists and entrepreneurs alike.
Million Kibret, partner at BDO Consulting Plc, recognises the high failure rate of start-ups attributing validity to the apprehension of commercial banks to issue loans. He applauded the effort to establish a venture capital flow scheme by the Diaspora Service and the Entrepreneurs Association.
"Feasible business ideas can reach the investments of the diaspora," he told Fortune.
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