On July 13, the country’s House of People’s Representatives unanimously passed the long-anticipated Startup Business Proclamation, ending years of policy delays and finally offering formal legal backing to the country’s growing community of tech entrepreneurs.
The law, approved weeks earlier by the Council of Ministers, is designed to give structure, funding, and legitimacy to an ecosystem that has survived on grit, informal networks, and donor-backed incubators.
With this new framework, Ethiopia joins several African countries, from Tunisia to Kenya, that have codified support for startups into national law. But as many observers point out, passing the law is just the beginning.
What the Ethiopian startup act means for founders and investors
The new Startup Act defines startups as tech-based businesses younger than five years old with scalable, innovation-driven models.
To qualify, at least 25 percent of the company must be locally owned, and its annual revenues must be below a threshold adjusted for inflation.
This legal clarity opens the door to a range of benefits aimed at lowering barriers and encouraging growth in Ethiopia’s tech sector.
Startups that receive official recognition, granted through a “Startup Label”, will enjoy a five-year corporate income tax holiday and duty-free import privileges on essential capital goods.
Angel investors supporting these startups will also benefit from reduced withholding taxes, creating more substantial incentives to back early-stage innovation.
Another key gain is regulatory flexibility, as labelled startups will have access to experimental sandboxes under both the Ethiopian Communications Authority and the National Bank of Ethiopia, allowing them to test new models and services in a controlled environment.
The Act also promotes better integration between public institutions and the private tech ecosystem.
Startups can now participate in public procurement, with 5 percent of all government ICT contracts reserved for certified companies.
Additionally, the law mandates that state-owned enterprises—including giants like Ethio Telecom and the Commercial Bank of Ethiopia- pilot at least one project with a startup each year.
This is expected to bridge the divide between large legacy institutions and agile, innovative startups.
New startup fund and national council set to power ecosystem growth
The law’s heart is creating a 2-billion birr ($36 million) Ethiopian Startup Fund, which will offer grants, soft loans, and early-stage financing.
Public and donor contributions will support the fund, which aims to fill the long-standing capital gap that has held many startups back from scaling.
To coordinate all this, the Ethiopian Investment Commission will set up a central “Startup Desk,” tasked with issuing certifications, managing a national startup registry, and ensuring smooth implementation at both federal and regional levels.
Meanwhile, a new National Startup Council, chaired by the Minister of Innovation and Technology, will align policy execution across ministries, academia, and the private sector.
Universities will also play a key role. They’re now required to allocate at least 2 percent of their research budgets to partnerships with certified startups, offering a much-needed link between academia and entrepreneurship.
Execution will be the real test
While the law is being praised as a critical milestone, experts say its real value will be determined by how effectively it is implemented.
Ethiopia’s past reform efforts have often stumbled at the execution phase—either from lack of funding, poor inter-agency coordination, or bureaucratic inertia.
This time, the stakes are higher. Ethiopia has a booming youth population and soaring unemployment.
The startup sector has the potential to drive job creation, tech exports, and digital transformation—if it’s given the right environment to thrive.
With other African nations racing ahead in creating startup-friendly policies, Ethiopia can’t afford to lose momentum.
The Startup Act offers a fresh chance to reposition the country not just as a user of foreign tech, but as a homegrown innovation hub.
But as many founders will tell you, laws are written in parliament, while startups are built in the real world.
