If there is one aspect of doing business in Africa that we don’t speak about enough, it is definitely the legal barriers. In Africa, businesses are more relationship driven than transactional and this is the reason why prior to entry into a particular sector, many choose to rely on established connections. Research shows that African states are also coming to the realisation that reducing bureaucracy, streamlining of the legal framework, addressing corruption and stabilising the economy are more likely to attract Foreign Direct Investment than tax holidays and other fiscal incentives.
Most African countries face a wide range of confusing political, regulatory, and trading laws that are constantly evolving. However countries like South Africa, Nigeria, Côte d’Ivoire, Senegal and Rwanda have been noted as the top five destinations for business in Africa, due to top legal frameworks that make it easier to do business, and for international investment to enter the country. For this week’s blog, we spoke to a few founders in the ecosystem, who had a lot to say about legal barriers they have faced while doing business in Africa.
A number of startups cited investment readiness as one of the issues that their startups faced due to the legal barriers in their countries. “Government formulates policies without considering implications”, which make it difficult for a lot of startups to raise funding from both local and international investors, according to Pius Mang, Managing Director at Hortis Expert Limited. Edtech entrepreneur, Prosper Ukachi, also believes that most startups are not ready for investment “due to the lack of sufficient knowledge at the early stages of company formation and vague/overly strict regulations.”
For other startups, it is the difficulty to copyright or patent their ideas. For August Bhila, Founder of CYBAUG, it’s copyright issues. He says that “most startups in Africa do not have the startup capital and so they apply for funding, which will require them to pitch their ideas, only to be told they don't qualify, and later to see their ideas being implemented by someone else.” Azubuike Akunne, Director of Growth at NeuBite, is finding it difficult to patent his idea in Nigeria and is unsure what to do. He says that he “wishes the regulatory agencies here were clearer on these sorts of things, as it would really help businesses and innovation in the country.” He added: “So why would someone create an idea in a country where the same idea could potentially be sold to someone else by the same office that was meant to protect it.”
Africa’s policy makers and political leaders are left with the responsibility of reviewing policies that no longer work, or need updating across all sectors, in order to create an enabling environment for businesses to thrive. Major policy areas that need to be addressed in Africa to enable start-ups to thrive include Intellectual property rights, support with legal disputes, incentivised tax laws and access to funding.
Collaboration between public and private sectors is key. Key stakeholders in the ecosystem will need to play their roles, and realise their responsibility of developing the African economy. Thankfully, we have law firms and legal tech firms who are now focused on helping startups with their legal issues, and enabling a more business-friendly environment for startups and investors across the continent. There’s a long way to go - but with Africa’s most populous country (Nigeria) and commercially mature business environment (South Africa) leading the way, there is hope that these regulatory revamps will snowball into lasting change.