African Tech vs Bad Regulation 🙅🏾‍♂️

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Regulation is the bane of tech’s existence in Africa.

Sometimes it’s good, sometimes it creates chaos.

But that inconsistency comes at a cost.

And it’s getting too high.

The Story

A month ago, a finance bill dropped in Kenya, and it’s causing mayhem.

The government plans to raise $2.7 billion in tax revenue.

And it’s going full-blown taxman on the digital economy to make it happen.

The move has forced Kenyans to spill onto the streets this week in protest.

Even activist group Anonymous has jumped into the fight throwing punches and dishing out threats.

Here’s what Kenya’s government has in store for tech companies👇🏾

• A 1.5% tax on job sites, ride-hailing apps and food delivery startups - besides income tax.

• A 20% income tax on tech giants like Netflix and Alibaba who aren’t physically in Kenya.

• And a 20% tax on airtime and data purchases.

If you’re running a tech startup in Kenya, you have every right to feel weirded out because …

The Context

Just last year, the same government promised tax breaks to Kenyan startups.

And now, it’s doing the opposite.

This inconsistency is not peculiar to Kenya.

Governments across Africa have a history of blowing hot and cold when it comes to regulation:

• Ghana announced its own CBDC but banned crypto a year later.

• Kenya gave tax incentives to EV startups but is now upping the tax on lithium batteries.

• Nigeria embraced crypto late last year, only to fall into a nasty brawl with Binance in February

Tech startups are constantly playing Russian Roulette in dealing with government regulation.

And when the trigger hits a bullet, it can mean death for them.

In 2018, Nigeria nuked the bike-hailing economy in one ban.

Startups like ORide, Max, and Gokada had invested tens of millions of dollars into building Africa’s Uber for motorcycles.

They were making waves, growing fast and creating jobs.

That all went away with the ban - and the businesses either shrunk, died, or pivoted:

• Gokada laid off 80% of its staff

• Max was suddenly sitting on $6.7 million worth of bikes

• And ORide pulled the plug on bike-hailing.

There’s a quote that says ‘African startups don’t just die; they first mutate’ - and it’s true.

Max and Gokada became delivery startups and are thriving.

SafeBoda steered clear of Nigeria, and ORide is no more.

But you can fill a museum with many other African startups that have been axed by bad regulation.

The Tech Safari Take

Beyond the effect on businesses, bad regulation has a huge human cost.

• Uganda introduced a social media tax last year and 74% of small businesses reported a drop in earnings.

• When Nigeria killed ORide and Gokada in 2019, over 10,000 riders lost their livelihoods and transport was disrupted.

Exposing the (potential) cost of new, bad regulation may be one way of lobbying for the right kind of regulation.

And this has worked before.

In 2018, the Benin Republic introduced a 5 CFA Francs tax per megabyte used on social media apps, plus another 5% tax on texts and calls.

This is a country with a minimum monthly wage of CFA 52,000 ($85).

The result, 7,000 Beninese petitioned the government and held a peaceful protest that got the law overturned.

Bad regulation creates doubt in the market and stunts growth - exactly the opposite of what is needed in African tech.

Fighting bad regulation is something startups have always tried to do alone, but actively carrying their customers along might be a more effective way to do it.

What do you think of this method of fighting bad regulation in African tech?

Let us know here.

Tech Safari Finds

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Watch this → Africa’s richest man talks about his grand new plan to industrialize the continent.

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