‘Tanzania must introduce tax incentives, policy change to spur VC investment’

Ahead of next month’s launch of Tanzania’s first angel investors network, a top venture capitalist has called for the government to make a number of changes to encourage venture capital (VC) investments in startups in the East African country.

In an email to Ventureburn yesterday Salum Awadh, CEO of Tanzanian financial and investment advisory firm SSC Capital, called on the government to introduce tax incentives, relax part of the country’s competition law and to enact changes to the Companies Act to allow for the setting up of limited partnerships to drive VC investments in the country.

Awadh’s comments come in the wake of the Tanzanian Venture Capital Network (TVCN) conference hosted by his firm last month, and ahead of next month’s launch of the country’s first angel investors network, the Tanzanian Angel Investors Network (TAIN).

“The industry has been picking over the past few years, according to the African Private Equity And Venture Capital Association, between 2012 to 2017, a total $2.4-billion was invested in East Africa and Tanzania accounted for 17% of that,” he said.

“Over the past few years all VCs had been operating from outside the country, but now we see a few setting up local offices in the country, such as DoB Equity, which has done quite number of deals in the region, including Tanzania,” he said.

However, he said more needs to be done to encourage more investment into local startups.

“There are a couple of issues that will need some policy reviews by the government,” he said in an email to Ventureburn yesterday (3 April). These, he said, include changes to fiscal policy, pension funds, and the Companies Act.

“The pension funds, which is a (sic) key institutional investor in supporting fund managers to set up funds, are prohibited from investing in venture capital as an asset class, we plan to advocate for change in their investment regulations,” he said.

SSC Capital is behind the launch of the Tanzanian Venture Capital Network. The firm plans to launch an angel investor network and an equity crowdfunding platform next month

He called on the government to enact changes in the Companies Act to allow for the setting up of limited partnerships, which he said are “an important structure for bringing together limited and general partners in setting up a fund”.

Currently, Tanzania’s anti-competition laws require all acquisition deals to be approved by the country’s Fair Competition Commission. “We need to see a change in threshold to cover only major deals,” he said.

“We also want to see a change in fiscal policy to provide tax incentives to VCs that will invest in local small businesses in the country,” he adds.

But just how much of this is the Tanzanian government willing to change?

The official launch of TVCN on 5 March was officiated by the Permanent Secretary in the Prime Minister’s Office, which Awadh said signalled “a strong message of the government’s political will to support the growth of the industry”.

The network which was started in 2017, launched a membership registration drive after the launch in March and aims to register at least 20 members from the investors community before the end of the year.

TVCN will work closely with SSC Capital to assist members to find “the right” investments. “The network does not operate as an investor, but as a platform to bring together the supply and demand side of VC funding,” he said.

‘Networks to complement each other’

When it launches next month, TIAN will seek to encourage local business angels to start investing in local startups.

Awadh said Tanzanian startups have been struggling to raise capital in the market. He attributes this to the “level of development of VCs” and their “lack of appetite” to invest in startups.

“Many have remained unfunded, using only bootstrapping options. Some organise themselves in groups and seek expensive, commercial micro-credits, while others try to get a few bucks from family and use of personal savings,” he said.

He added that VCs in Tanzania only look to invest in companies that have a capital requirement of at least $1-million, which he believes creates a significant funding gap for early-stage startups.

“The (angel) network seeks to bridge that gap and also create a deadline pipeline for VCs during follow-on financing,” he said. “So, we expect to see two networks complementing each other,” he added.

The launch of the network will take place together with the launch of SSC Capital’s first equity crowdfunding platform, which Awadh believes will together with the network be a “game-changer” in funding for startups.

Featured image: SSC Capital CEO Salum Awadh (Supplied)