Entrepreneurship Zone: 26 January 2022 :: Tech leaders are pushing to transform Zambia into Africa’s low-tax startup hub

Wed Jan 26 08:23:22 CAT 2022

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Entrepreneurship Zone: 26 January 2022 ::  Tech leaders are pushing to transform Zambia into Africa’s low-tax startup hub

 <http://www.zitf.co.zw/> 

Flutterwave and Chipper Cash, two of Africa’s most valuable tech companies, are part of a new group leading efforts to turn Zambia into a business haven for the continent’s startups, according to startup founders involved in the plans.

The Zambia Technology Sector Working Group is already in early talks with the country’s Ministry of Technology & Science to develop business-friendly legislation to support African tech companies looking to incorporate or operate from the country. 

The group is the brainchild of Perseus Mlambo, co-founder of Zambian fintech company Union54, and Mwiya Musokotwane, CEO of Thebe Investment Management, which is building a $1.5 billion-plus town in Lusaka, Zambia’s capital.

The idea originated after the 2020 virtual African Renaissance Conference, which featured just under 1,500 African and global tech industry participants, Mlambo told Rest of World. Over the last few months, the plan has gained traction, with more than 40 African startup founders and organizations, including Kuda Bank, RiseVest, Ethereum Foundation, BongoHive, and Lagos-based Co-Creation Hub, as working group members.

With the support of various government departments, the group is working to tackle many common issues around business licenses, immigration policy, support for local talent, internet infrastructure, taxes, and stock listing opportunities, according to a document reviewed by Rest of World. The document also discloses plans for cryptocurrency-friendly regulations, including a framework for adopting crypto services.

The new Zambian government of president Hakainde Hichilema, which came to power last August, has been clear it wants to try and create a technologically-driven economy. “It seemed like it was an opportunity here, where the state is willing to listen to the ecosystem,” Mwiya Musokotwane told Rest of World. Mwiya is the son of the country’s current finance minister, Situmbeko Musokotwane.

This push to make Zambia a business hub on the continent follows a flurry of regulatory activities across the continent over the last two years to rein in tech enterprises. African governments are introducing new taxes on digital businesses and mobile money while some financial services regulators have clamped down on cryptocurrency companies and fintechs dabbling in international payments without a licence. 

The group working on the Zambia efforts hopes to make the country a test bed for new technologies. Other companies are looking to the southern African country as an administrative base on the continent with favorable visa policies to attract pan-African talent. 

“Optimizing for the geographical source of investor money has driven decisions on where companies domicile.”

Over the past decade, many African major startups including Flutterwave and Paystack, have incorporated in the U.S. state of Delaware. The state is well-known for its robust corporate laws and tax environment, a major draw for U.S.-based investors. “Optimizing for the geographical source of investor money has driven decisions on where companies domicile,” Eghosa Omoigui, founder of the pan-African fund EchoVC told Rest of World.

For pan-African entrepreneurs unwilling to register outside the continent, the Indian Ocean island of Mauritius, off the African coast, has long been a popular option as well. For years, entrepreneurs on the continent have considered the island a desirable offshore incorporation destination. And the island nation has signed tax treaties with dozens of African countries, setting standards on how to levy companies.

But in recent years, tech founders have had mixed experiences with incorporating in Mauritius. Some, including Tayo Oviosu, CEO of Paga, Nigeria’s longest-running mobile money company, believe incorporation and continuous existence in the country is challenging and expensive. In May 2019, he vowed to shut down the Mauritian entity in favor of a U.K. holding. The process took nearly two years. “It’s very easy to get in [to Mauritius], but very hard to get out,” said Wiza Jalakasi, vice president of developer relations at Chipper Cash, a fintech startup valued at $2 billion.

Now entrepreneurs are seeking a new business sanctuary, and are determined to create one for themselves with willing partners. Hence the choice of Zambia, where the new government was elected on promises to rebuild the struggling debt-laden economy by leveraging business-friendly reforms.

Landlocked with a population of 17 million people, Zambia is one of Africa’s most stable countries with consistently peaceful transitions of power. With a GDP of $19 billion, the Zambian economy is predominantly led by the mining industry, and the country is Africa’s second-largest producer of copper. But over the last few years, as commodities prices declined globally, its economic growth has slowed, exacerbating poverty and a high national debt profile. In June 2021, the country owed nearly $27 billion to local and foriegn creditors, including $6 billion to China, Zambia’s finance ministry said. 

In September, Olugbenga Agboola, CEO of Nigeria’s Flutterwave, met with President Hichilema in Lusaka. In a tweet after the meeting, Agboola shared that “we discussed the power of technology in enabling economic growth” and his company’s payments plans in the southern African country. But no official talking point from the meeting was publicly disclosed. In a brief text message exchange with Rest of World, Agboola confirmed he discussed the working group’s plans with the president, but didn’t respond to requests for additional details.

While the working group members said they expect many of its recommendations to take a few years to achieve, several members have already started touting the benefits for their businesses. In Union54’s recent $3 million seed round, the startup convinced investors, including Tiger Global, it could scale across the continent faster with the success of the working group’s proposals, according to one person who was privy to investment discussions.

Some tech industry stakeholders remain indifferent to the Zambia plan, claiming that Mauritius or Delaware is still more valuable. “Mauritius and the Cayman Islands have history, and they still aren’t attractive to this class of investors, even with the tax incentives,” Omoigui shared.

Grieve Chelwa, a Zambian economist and director of research at New York’s The New School expressed caution at the idea of Zambia competing with Mauritius or being an alternative to Delaware. “We’d have to give up tax revenues which makes it a very expensive bet against the boring things we need to be doing for our development,” he told Rest of World from Lusaka. “But plans like this are in keeping with the business-friendly world view of the president.”

As more than $4.3 billion poured into African startups in 2021 — 2.5 times the figure in 2020 — Zambia will face stiff competition to become Africa’s leading tech-friendly hub. Nigeria, Tunisia, and Senegal have either proposed or passed startup acts designed to support tech innovation and encourage startups and capital to stay within their country. In Nigeria, a coalition of local investors and tech leaders is pushing for the introduction of the Nigeria Startup Bill. The bill’s proponents say it will ensure a more conducive regulatory environment for startups and provide incentives for companies to incorporate locally.

Mlambo said he isn’t concerned about the Nigerian effort. “The vision of our tech working group is not just to compete on one service [financial services], but to compete across all services.”

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