Ethiopia’s startup law has been approved. After nearly five years of delays, the Council of Ministers officially ratified the Startup Business Proclamation on Sunday, 13 July 2025, a law that entrepreneurs say could be a game-changer for the country.
But while the proclamation brings overdue regulatory clarity, implementation hurdles remain. Can this new law unlock real opportunities for Ethiopia’s founders, or is it another promise that’ll fade away?
Understanding Ethiopia’s Startup Law
The Startup Business Proclamation introduces Ethiopia’s first formal definition of a startup and lays the foundation for structured regulatory support. Among its most significant reforms is the creation of a National Startup Council, tasked with shaping and overseeing startup policies and programmes.
It also establishes a startup registry, through which eligible businesses can access tailored benefits. These include simplified registration procedures, tax relief, legal protections, capacity-building schemes, and better access to financing.
The law also mandates state-owned enterprises must pilot at least one startup-led proof-of-concept project annually, a clause that many experts say promotes collaboration between public institutions and private innovators.
What This Means for Ethiopia’s Startup Economy
According to World Economics, Ethiopia is one of Africa’s fastest-growing economies, with a GDP growth forecast for 2024 and 2025 reflecting an estimated growth rate of 6.5%, yet the country has historically underperformed in startup capital mobilisation.
Ethiopian startups have long operated under challenging conditions, with analysts citing regulatory uncertainty, underdeveloped capital markets, and weak institutional support as persistent barriers to growth.
Without a formal legal identity, early-stage ventures have found it difficult to raise equity, access credit, or qualify for state-backed incentives.
The new law is widely viewed by experts as a critical first step toward reversing this dynamic. Among its headline provisions is the launch of a 2 billion birr ($36 million) Startup Fund, which will provide a mix of grants and soft loans to eligible early-stage ventures.
Economists say this fund is expected to ease one of the most significant bottlenecks in the ecosystem: access to risk-tolerant capital.
“The absence of a clear legal framework essentially meant startups were invisible to the state. This limited their ability to engage with investors, banks, or even public institutions in a structured way,” Enoch Alemu, a venture ecosystem consultant told Techparley.
“What this fund offers is not just money, but institutional confidence, a signal that the government is now willing to co-invest in high-risk innovation.”
Another key provision analysts highlight is the reservation of 5% of all ICT-related public procurement tenders for startups. This quota, observers say, opens a rare and highly strategic market channel in a country where state spending dominates the digital economy.
Experts agree that while the law addresses foundational constraints, its real impact will hinge on the operational effectiveness of the implementing agencies and the inclusivity of its rollout across regions and sectors.
Why It Matters to the Wider Innovation Ecosystem
The passage of the Startup Business Proclamation is being interpreted by policy experts as a long-overdue institutional alignment with Ethiopia’s broader digital transformation agenda.
While the government’s Digital Ethiopia 2025 strategy laid out ambitious targets for expanding ICT infrastructure and digitising public services, analysts have consistently pointed out that it lacked the legal scaffolding required to support private-sector innovation, particularly from startups.
By joining countries like Nigeria, Senegal, and Tunisia, Ethiopia is now aligning itself with a continent-wide trend of leveraging legal reform to catalyse innovation ecosystems.
“This move places Ethiopia within the continental momentum around startup policy,” noted Grace Jones, a senior policy expert. “Ethiopia’s entry into this space is not just timely, it’s essential for its digital competitiveness.”
Is a Startup Law Enough?
While Ethiopia’s startup law has been broadly welcomed by analysts as a foundational step, experts caution that its impact will depend almost entirely on implementation.
Among the main concerns cited are the operational independence of the proposed National Startup Council, the capacity to manage the 2 billion birr fund, and the law’s ability to reach beyond Addis Ababa to support startups in secondary cities and rural regions.
Transparency in the disbursement of financial support is another key point of scrutiny. Analysts warn that without rigorous checks and accountability frameworks, the startup fund risks being captured by politically connected interests or concentrated among a narrow circle of beneficiaries.
“It’s not the existence of policy that transforms ecosystems, it’s the integrity of implementation,” Grace added. “Without transparency and inclusive stakeholder engagement, this law could simply replicate existing inequalities in access to opportunity.”
Beyond implementation mechanics, experts also note that legal reform alone does not address deeper structural barriers. Ongoing challenges such as foreign exchange shortages, digital infrastructure gaps, and skills deficits continue to constrain the operating environment for startups.
Who Needs This Law the Most?
While Ethiopia’s startup law establishes a national framework applicable to all startups, analysts suggest that its most immediate impact will be felt by early-stage ventures, particularly those at the ideation or product validation phase.
These businesses, typically operating with limited resources and minimal institutional backing, have been the most exposed to Ethiopia’s historical policy vacuum.
Sector-specific analysis indicates that industries such as fintech, agritech, logistics, and healthtech are poised to benefit significantly, given their alignment with national development objectives in financial inclusion, agriculture modernisation, and healthcare access.
Equity-focused policy experts also highlight the importance of targeting underrepresented segments, including women-led startups and those based outside Addis Ababa.
Like Nigeria, Like Ethiopia
Nigeria’s Startup Act was signed into law on 19 October 2022. Since the passage of the Act, Nigeria’s startup ecosystem has seen an influx of capital. By the end of 2022, Nigerian startups attracted over $2 billion in venture capital, leading the continent by a wide margin.
When comparing macroeconomic indicators, Nigeria’s real GDP grew by 3.25% in 2022 – the year the Act was passed, and by 2.86% in 2023, before rebounding to an estimated 3.4% in 2024, according to Statista.
The move was widely welcomed by founders and investors who had long called for policy certainty in a rapidly growing tech ecosystem.
“Things have gotten way better than they were before. We’ve raised over 2 million dollars and that wouldn’t have been possible without this particular Act that has been set up,” Olusola Amusan, co-founder of Vesti, said in a recent Channels interview.
By benchmarking against Nigeria’s experience, Ethiopia’s new law, according to experts, could serve as a launchpad for scaling digital innovation. If Ethiopia succeeds where Nigeria has made early gains, it may turn its legal foundation into a genuine economic multiplier for the decade ahead.
A Promising Start, But Execution is Everything
The ratification of the Startup Business Proclamation is being framed by experts as a pivotal signal of Ethiopia’s intention to reposition itself within the regional innovation economy.
For the first time, the country has introduced a legal architecture that recognises startups as strategic economic actors, a move that analysts say could recalibrate investor sentiment and formalise state engagement with the tech sector.
Observers underscore that the passage of the law is not an endpoint but a beginning. Translating legal provisions into tangible outcomes will require sustained administrative coordination, political will, and robust monitoring mechanisms.
Nonetheless, the proclamation is being described by regional policy institutions as a positive and necessary development, one that positions Ethiopia more competitively within the continent’s fast-evolving digital economy.
The coming months will be critical in determining whether this policy breakthrough matures into a scalable model for startup-led development.
