Here Is Why It Is Hard to Invest in Tech Startups In Tanzania

Having a mechanism in place that removes bureaucratic processes and at the same time creates regulatory certainty will be a good idea. Introducing Sandboxes can be the starting point. 

Although innovative solutions startups are highly increasing in Tanzania, a recent report by UN Capital Development Fund suggests that a few things will need to be done in terms of policies and regulations for the country to be able to attract technology investors to pump their capital in Tanzania.

Taxes, for instance, are considered a major deterrent to entering the technological startup ecosystems. An unclear regulatory environment is another major hurdle to the growth of the startup landscape, it has been reported.

Other challenges concern bureaucratic processes within the government and its agencies that are believed to be inhibiting ecosystem growth, as acknowledged by the former Minister of Communication and Information Technology Dr Faustine Ndugulile.

A very recent study by the Tanzania Startups Association and the Ministry of Investment, Industry and Trade has in huge part revealed how bureaucratic processes have adversely impacted the startup ecosystem growth in Tanzania.

It is for this particular reason, among others, that some of the big technology investors and financiers have been hesitant to invest in Tanzania.

Uncertainties in regulations plus bureaucratic processes hinder investments for tech companies because investors prefer government agencies to be collaborators rather than enforcers.

It is believed that whenever there is a good collaboration between the two parties from the startup level to the products or solution graduation, it gives potential investors and financiers confidence that they are investing in products that are regulatory compliant and, and cannot in any way be interfered by future changes to the regulatory landscape.

Hence their money or seed findings are safer even at the time when a proper legal framework put in place.

Borrowing a leaf from others

Countries like Sierra Leone, Kenya, Mauritius, Mozambique, Rwanda, Ghana and Nigeria have been relatively attractive for big tech companies and investors because they have adopted a mechanism that removes bureaucratic processes and at the same time creates regulatory certainty.

These countries have created regulatory sandboxes through policies and guidelines that apply in all sectors From telecom solutions, fintech, insurance and other technological innovations sectors.

A regulatory sandbox is a controlled environment that allows entrepreneurs, investors, regulators, and other players to live test out innovative products or services without having to face some hindrances posed by the existing laws or regulations.

Through the sandbox Innovative products, solutions and services are deployed and tested in a live environment prior to launching into the open market, within certain specified parameters and timeframes.

The Bank of Tanzania (BoT) adopted a similar approach in 2008 when it allowed electronic money transfers without having laws or regulations in place.

You may recall that laws on electronic money transfer were made later in 2015 after having live tested the said services in the market.

Currently, mobile money services are governed by the National Payment Systems Act, No. 4 of 2015 Payment Systems (Licensing and Approval) Regulations of 2015 as well as the Payment Systems (Electronic Money) Regulations of 2015.

As you can see it would have been very hard if there were laws governing the business model before even innovation has been made.

It must be noted that the above approach only happens in exceptional cases which is why there is a need of having a national guideline or policy to cater for the regulatory sandboxes across the startups innovations, products and or services rather than having laws that unintentionally inhibit or render some innovations nonviable.

One of the major benefits of the regulatory sandbox is to help the regulator to design and adopt new regulations to govern a specific class of business model or innovations that are not adequately addressed under existing regulations or laws.

It is well agreed in business communities that sandboxes can help to identify and manage potential risks and mitigate the consequences of failure, such as the undisclosed risks of financial loss or other undisclosed risks to customers, investors, and market participants.

According to the World Bank, Sandboxes can be useful in countries where regulatory requirements are unclear or missing. It is, therefore, prudent for Tanzania to among other things, start thinking about these regulatory sandboxes.

Emmanuel Mwesiga is experienced in commercial and corporate law transactions and advisory. He can be reached at e.mwesiga@yahoo.com or follow him on Twitter at @EsquireMK. These are the writer’s own opinions and do not necessarily reflect the viewpoint of The Chanzo Initiative. Want to publish in this space? Contact our editors at editor@thechanzo.com for further inquiries.

Emmanuel K. Mwesiga

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