Startup Law Promises Change But Faces Trust Deficit

Jul 19 , 2025. By AMANUEL BEKELE ( FORTUNE STAFF WRITER )

Federal lawmakers have finally passed the long-anticipated startup law, setting the stage for what many in the sector hope is a transformative shift in the country’s technology and innovation ecosystem.

After five years of protracted deliberation and bureaucratic sparring, the new legislation aspires to define, nurture, and formalise the nascent startup ecosystem, which has long been constrained by red tape, undefined mandates, and institutional inertia.

The law defines what constitutes a startup, including a company that is less than five years old, grounded in technology or innovation, and has market-disruptive potential. Beyond this symbolic recognition, it promises substantive support. Corporate tax holidays for up to five years, simplified certification processes, and, perhaps most importantly, a national digital portal to consolidate regulatory interactions.

These changes are intended to reduce the historically onerous burden of dealing with banks, tax offices, and government agencies individually, obstacles that have throttled the growth of early-stage firms.

Mulugeta Wube, a senior official at the Ministry of Innovation & Technology (MInT), describes the moment as long overdue.

"Everyone is thrilled," said Mulugeta.

Now, his department is racing to finalise the operational specifics.

The digital portal, central to the law’s implementation, is expected to go live within months, allowing startups to register, categorise themselves by growth stage, and claim benefits.

This classification mechanism is designed to allow targeted interventions. In theory, early-stage startups will not compete with growth-stage ventures for the same pool of resources. In practice, the challenge lies in maintaining an agile and responsive system, a far cry from the sluggish bureaucracies many founders have come to expect.

Reactions from the domestic tech entrepreneurial community are cautiously optimistic.

Henok Dibekulu, founder of the used-goods e-commerce platform, Yebeteka, welcomes the legislation’s protective mechanisms.

"Every success story comes from trying, and this will give many the chance to try," he told Fortune. “By shielding founders from immediate financial burdens, it may embolden more risk-taking in a culture traditionally wary of failure.”

However, he remains sceptical about whether these benefits will materialise promptly, especially given the sector’s long history of frustration.

"We want to be treated equally," Henok said, pointing to the need for a level playing field with larger, more established businesses.

Kirubel Engidawork is a key figure at the Ethiopian Youth Entrepreneurs Association (EYEA) and a driving force behind ventures such as Betablockers and Lije Care. Betablocker Plc, launched in 2020, currently serves around 3,000 customers, while Lije Care, a tech-driven nutrition platform, began operations in August 2024.

"The sooner the better," Kirubel said, warning that delays in legal implementation could threaten the survival of emerging businesses.

However, he shares similar reservations, cautioning that five years can pass in a blink, particularly if much of it is spent navigating the very bureaucracy the law purports to eliminate. His call for clear institutional mandates and streamlined access echoes a broader concern. Time lost to red tape is opportunity lost forever.

"If the incentive time limit ends navigating red tape, the incentives will be pointless," he said.

Samiya Abdulkadir, president of EYEA, offers a structural critique.

"There are many departments working in silos," she said. "This leads to overlapping mandates and inefficient delivery."

EYEA, a registered civil society organisation, has already built a working registration system with Ethio telecom, generating unique IDs for startups and tracking their progress. The Association currently supports over 15,000 young entrepreneurs through training, networking, and advocacy, and Samiya sees that as only the beginning. She points to countries like India and Tunisia, where central startup authorities have successfully harmonised support. Ethiopia, by contrast, is attempting to layer a new digital framework atop siloed departments, with no guarantee of coherence or interoperability.

"We're delighted the law has passed," she told Fortune. "We've spent over five years lobbying for it."

The law arrives at a time of paradoxical momentum. A recent ecosystem report identified 562 active startups in Ethiopia, with 489 of these having received some form of funding. Yet, the median investment remains a modest 250,000 dollars.

The outlier, a 42 million dollar raise, offers little consolation to the overwhelming majority still stuck in pre-seed or seed funding cycles. Only three firms have crossed the 10 million dollars valuation mark, uncovering the fragility of scale-up pathways.

The government’s proposed “Fund of Funds” may provide some relief. This capital-aggregation model aims to channel resources into venture capital firms and accelerators, which, in turn, support local startups. But funding alone will not solve the ecosystem’s woes if underlying institutional inefficiencies persist.

Behailu Tamiru, an economist and associate vice president at St. Mary University, frames the issue within a broader macroeconomic strategy. Ethiopia’s reliance on imported materials and foreign expertise drains public coffers and stifles domestic capacity.

"With local innovation, we could stop importing experts and materials and start exporting solutions," he said.

Promoting indigenous innovation could reduce these dependencies and potentially lead to the creation of exportable, tech-driven solutions. However, he warns that without administrative discipline, the law risks becoming another well-intentioned but poorly implemented policy.

Despite the capital constraints, the startup sector has proven surprisingly resilient, generating more than 30,000 jobs in 2024, up from 120 six years ago. Yet, the dominance of micro- and small-scale enterprises, valued at under 10 million dollars, reveals a fundamental structural imbalance. A large base of struggling ventures with very few making it past the survival stage.

Initiatives like Ermias Fentaw’s Next Change Makers (NCM) & Creative Hub are attempting to bridge this gap through mentorship, workspace support, and training.

Ermias co-founded And-hulet Creatives, spending the past four years building support systems for young innovators. He believes the new legislation should now prove its worth by delivering real and accessible financial support. Still, Ermias says that all roads ultimately lead to capital, or the lack thereof.

"The question is always financial," he said. "Lack of capital is the single biggest barrier for our trainees and entrepreneurs."

The Creative Hub, which has been operational for approximately four years, offers programs ranging from six to 12 months in duration, designed to equip future founders with practical business skills. Ermias, himself an experienced businessman in e-commerce and digital media, uses the NCM platform to mentor Ethiopia's next generation of change-makers.

"We've been waiting for a long time for meaningful structural support," Ermias said. "It may be late, but it's a good start overall."

From experienced founders like Kirubel and Ermias to institutional advocates like Samiya, the consensus appears to be clear that the new law is a vital milestone. However, it is now expected to clear its final limitation on delivery on the ground.

"We're training change makers," Ermias told Fortune. "With time and the right support, we can grow a vibrant entrepreneurial culture. But we can't do it alone."

PUBLISHED ON Jul 19,2025 [ VOL 26 , NO 1316]