Foreign investor funding for startups in Africa has been directed largely to eastern Africa, with startups in Kenya, Rwanda, Uganda and others being the biggest winners. CNN recently reported that startups in Ghana are getting just about a third of what their counterparts in east Africa are getting.
Co-Founder and COO of local healthtech startup company, Redbird, Andy Quao blames that mainly on unfriendly local policies and or lack of it, which make startups in Ghana largely unattractive to foreign investors and funding agencies.
He noted that, particularly for startups in the healthcare space, the challenge is they are competing with the huge public sector healthcare system and there are no direct policies that stimulate start up activity in that space, so that does not motivate investors that much.
Andy Quao is therefore proposing that government comes up with policy interventions that deliberately stimulates investments into startups in the country, because, as of today, not many investors are much interested in startups as opposed to directly investing into the existing big players on the market.
He noted, for instance, that even the minimum capital requirement by Ghana Investment Promotion Center (GIPC) is not friendly for a startup, because not many investors would be willing to throw millions of dollars at a young startup just to meet government regulatory requirements.
Not long ago, another local tech startup complained that even the Ghana Revenue Authority (GRA) demanded that they paid at least GHS25,000 tax ahead of the start of its operations. The GRA had unilaterally estimated, that the startup was going to make GHS100,000 a year so they demanded a quarter of that even before the company starts.
Many other financial technology startups are facing the challenge of meeting Bank of Ghana minimum capital requirement, when they don’t even have the funds to grow their business even though they have very innovative products.
This, Andy Quao said is not friendly for startups in Ghana and also demotivates foreign investors, while local investors also demand ridiculous amounts of shares in startups for very little money requested from them, which end up collapsing the business even before it takes off.
He also noted that such unfriendly policies are what make a lot of Ghanaian startups register their companies in tax havens outside of Ghana, to attract foreign investors; and they end up not contributing much to Ghana in terms of taxes, even though they may be making a lot of their money from Ghana.
“I believe as part of the Digital Ghana Agenda, government is trying to do something to fix these challenges and we believe that is the way to go and we look forward to the rollout of such policies,” he said.
Meanwhile, the CEO of Redbird, Patrick Baettie also noted that one other reason for the low investor funding for Ghanaian startups is because the startup ecosystem in Ghana is still young and not well developed so investors are not necessarily confident about recouping their investments.
He explained that payments for startup services, for instance, is a big challenge because, whereas elsewhere, services can easily be charged to credit cards and other payment systems, startups in Ghana are largely left to find their own way of receiving payments and that is not attractive to investors.
The Redbird CEO however observe that, that is changing gradually with mobile money and other payment platforms like ExpressPay, Hubtel, Etranzact and others coming into the system. But again, the challenge is with level of penetration of these payment platforms and how much they have been adopted.
“So, whereas the use of these payment platforms is growing in the right direction, it is not yet comparable to what pertains in other jurisdictions where investors are throwing a lot more money,” he said.
Meanwhile, there have been concerns about how foreign investor funding for local start ups may end up putting the entire local technology space in the hands of foreign multinationals, with locals serving only as agents, particular because a lot of these funds come in the form of equity or convertible equity, in the case of Redbird for instance.
Currently in Ghana, all the telecom operators, who form the bedrock of the local tech industry, and almost all the major commercial banks are multinationals. So, the concern is, if the tech startups and Fintechs continue to strike equity deals with foreign investors, soon that space will also be controlled by multinationals.
But the Redbird COO, Andy Quao said Ghana is only a market of 30 million people, which is not much of a motivation for any multinational to want to have dominance. But on the flipside, no local company looking to expand beyond the shores of Ghana can do it all by themselves without the expertise and partnership with players and investors who have walked that path.
He said the talk of Ghanaians always owning majority shares in local companies does not necessarily make business sense, because “owning 10 per cent of a billion-dollar company with foreign partners and global reach, is definitely better than owning 51 per cent of a US$5 million local company with a limited reach.”
Andy Quao said until Ghana gets local investors who are willing and able to hold up tech startups and help them grow and reach global markets, “we would continue to need foreign investors and multinationals who have the financial muscle and expertise to take local innovation beyond the shore of Ghana.”
He believes what is important is that Ghana is being projected as the source of relevant tech innovations that have the potential to be successful anywhere in the world, and that should be a source of comfort to players in the ecosystem rather than generating a concern about multinationals potentially taking over.