National legislation – startup-act is the emerging innovation strategy most countries are adapting to create an enabling environment that supports innovative start-ups and drives local economic growth. The disruptions to the global value chains by the COVID-19 pandemic is a wakeup call to all countries of the urgency to support local innovations and entrepreneurs towards recovery of local economies.
Tunisia led the way as the first African country to pass a startup act that supports the development of tech-enabled ventures in April 2018. By December 2019, Senegal became the second African country to enact a startup act that spells out tax policies and financing incentives targeted at tech-enabled ventures
The successes of the Tunisian startup act thus far have inspired other African countries to consider national legislation to promote entrepreneurship. Côte d’Ivoire, Kenya, South Africa, Rwanda, and Uganda are at various stages of drafting a bill that would foster the growth of startups in their countries.
About the Ghana Startup Act
On August 28, 2020, a technical working committee made up of representatives of multi-stakeholders: National Entrepreneurship and Innovation Program (NEIP), Ghana Hubs Network, Young Entrepreneurs Chamber, Ghana Startup Network, i4policy, Accra Digital Center (ADC)*, and the Private Enterprise Federation was inaugurated to draft Ghana’s version of a startup act. The launch of the committee was preceded an official visit of the representatives of NEIP, ADC, Ministry of Trade and Industry, Ministry of Business Development, and The Ghana Hubs Network to Tunisia. The team engaged the Tunisian officials to study at firsthand, the processes leading to the enactment of the Tunisian startup act.
The announcement of the first draft of the startup bill was received with several questions from key players in the startup ecosystem in Ghana.
“Do we need another law to support private businesses? How different is this bill from existing Small and Medium-scale Enterprises (SME) laws?“
In this article, I make a case for the Ghana startup act and why all stakeholders in the startup ecosystem should rally together to ensure the bill is expediently passed when the final draft is completed.
What is the Ghana startup Act?
The startup bill (becomes an act when passed by the parliament of Ghana) is a legal framework that defines what a startup is and creates specific incentives that would encourage the creation and development of startups in Ghana to drive economic development.
Why Ghana needs a Startup Act
1. Definition and labelling of startups.
The National Board for Small Scale Industries (now Ghana Enterprise Agency), the regulatory body for SMEs in Ghana defines SMEs in terms of both a fixed asset and the number of employees. It defines an SME as an enterprise with a turnover greater than US$200,000 and not more than US$5 million, equivalent with not more than 100 employees.
In the academic spheres, Obeng & Blundell (2015) in their study: evaluating the enterprise policy interventions in Africa: critical review of Ghanaian small business support services defined SMEs as businesses employing between 20 and 50 full-time workers.
The World Bank Group defines MSMEs in terms of the number of employees (up to 300), total assets/total annual sales between US$100,000 – US$15 million.
So, what is the definition of a startup in Ghana? Is it a venture that just launched? There is no official definition of a startup in Ghana. Definition and labelling of an entity are particularly important because it influences the level of support or incentives due to the entity as well as the responsibilities placed on it. For instance, the Ghana Revenue Authority’s classification of an entity determines the tax rate and tax incentives it receives.
The Ghana startup act would clearly define what a startup is and what it is not. The startup label would provide clarity for policymakers, development partners, corporate entities, and other stakeholders who design specific programs to support the growth of startups in Ghana. Labelling would ensure quality data is collected for program and incentive design.
A succinct definition of startups would remove all ambiguity and territorial clashes among government agencies related to entrepreneurship and private sector support in Ghana.
2. A clear and predictable framework for the startup ecosystem
Policies are government choices to solve societal challenges. They create the foundation for programs and activities undertaken by Ministries, Departments, and Agencies (MDAs) in delivering public goods and services. A well-designed policy based on research drives significant economic and social development.
Unfortunately, the life span of a policy proposal is tied to a government’s tenure in power. An existing policy can easily be revised or discontinued based on a new government’s ideology or priority.
Startups need patient capital and a predictable policy environment to yield results. A policy change could lead to disruption of existing models and potential loss of huge investments made in startups. For instance, in January 2020, the Lagos state government announced a restriction on Okada, tricycles. The change in transportation policy disrupted the business model of bike-hailing startups leading to the loss of millions of investments.
On the other hand, the threshold required to amend or replace a law enacted by parliament is high.
The Ghana startup act would harmonize all the incentive structures aimed at supporting venture building scattered in various policies, programs implemented by different ministries. This ensures alignment, coherence, and continuity needed to catalyze the entrepreneurship ecosystem. A consistent and predictable legislative framework attracts investors and significantly improves the business environment in a country. This makes startup acts preferable to the best entrepreneurship policy or program.
3. Improved ease of doing “startup” in Ghana
The World Bank Doing Business Report measures and ranks the ease of doing business in 190 economies across the world. It measures the process for business incorporation, transferring property, getting access to credit, protecting minority investors, paying taxes, engaging in international trade enforcing contracts, and resolving insolvency. In 2020 Ghana was ranked 118th globally, and 13th in Africa below Malawi, Togo, and Seychelles.
On removing obstacles to entrepreneurship, Ghana still maintains a paid-in-minimum capital requirement for business registration and has also made it more difficult for businesses to pay taxes according to the report. This explains the drop in Ghana’s rank from 114th in 2019 to 118th. Ghana has not improved on access to credit score, protection of minority investors. The scores are a true reflection of the numerous challenges entrepreneurs and investors face in starting and doing business in Ghana.
The startup act prioritizes the unique challenges startups face at distinct phases of their growth and suggests specific recommendations to mitigate them. For instance, the act proposes a tiered tax obligation on start-ups based on their growth stage. It also recommends capacity and financial support for startups to protect their intellectual property, access market, and bankruptcy support, among others.
The success stories of tech startups such as mPharma, ZeePay, AgroCenter, Dext technology among many others are bringing positive attention to the startup ecosystem in Ghana. These startups have thrived despite the unfavourable regulatory conditions and limited funding opportunities they faced.
The Ghana startup act provides the opportunity for policymakers to create a startup-friendly ecosystem that would accelerate the digital transformation agenda and post-Covid-19 recovery of the Ghanaian economy.
The process for drafting the Ghana startup act for is still underway. Many stakeholders such as relevant Ministries, Departments and Agencies, entrepreneurs, investors, students, and tech entrepreneurs have been engaged a various forum to make their inputs into the act.
Your views are also welcomed. Visit https://ghanastartupact.org/have-your-say/ to add your inputs into the startup act.