Tunisian entrepreneurs hope a groundbreaking new law to support start-ups will mark the beginning of a tech-led boom, creating much needed employment in the fledgling North African democracy and slowing the departure of its brightest young talents abroad.
Entrepreneurs have long faced multiple difficulties in trying to get a business to succeed in Tunisia, from onerous bureaucracy to foreign currency restrictions and penalties should a company fail.
But all that should all now change thanks to the Startup Act, approved by the Tunisian parliament in April and awaiting a state decree to come into force. The Act features 20 measures to nurture a start-up ecosystem the government hopes will enable 100-200 new firms to launch annually, a government spokesman said.
“The Startup Act, for the first time, recognises what a start-up is, and companies given this label will be afforded a series of advantages,” says Amel Saidane, a former engineer and sales manager for Microsoft and Siemens who quit the corporate world to launch her own career management start-up.
The law defines start-ups as any company that has been operating for less than eight years, has annual revenue and a total balance sheet of less than 15 million dinars ($5.8 million) and fewer than 100 employees. Start-ups must also demonstrate an innovative business model and be at least two-thirds owned by individuals, private equity funds or foreign startups. An expert committee will decide whether a company receives the “start-up” label.
Those companies qualifying for this status can hold foreign currency bank accounts, enabling them to pay foreign suppliers more easily. Previously, companies needed authorisation from the central bank to hold other currencies.
“If you raise money in Euro, you'll be able to do whatever you need to do with that money for your business. You'll be able to open a subsidiary elsewhere using that money. If you generate revenues in euro, you can keep it in euro,” says Saidane.
The Act also gives startups similar tax perks to those enjoyed by foreign companies entering Tunisia. Foreign investors can invest in Tunisian companies more easily, with full repatriation of capital allowed should an investor later sell its stake in a local firm. Start-ups are exempt from capital gains tax, while the government will guarantee up to 30% of the money invested in start-ups by venture capital funds.
ATTRACTING INVESTORS
“This has opened the door for successful Tunisian start-ups to raise money from foreign investors,” says Hedi Zaher, chief executive and co-founder of Datavora, a Tunisian big data start-up specialising in auto-monitoring e-commerce sites for the likes of brands, online merchants and distributors. “The law is going to make a big impact. It will make it easier to create global Tunisian companies.”
He continues: “The main issue for the ecosystem is that while you can raise up to 1 million dinars, if you need more than that there’s no pool of local investors to approach. That means that every year, a few successful start-ups relocate abroad so that they can find the funding they need. Consequently, the intellectual property they created leaves the country. This law addresses that drain.”
Job creation is key to accelerating economic growth in Tunisia, which has averaged 1.5 percent growth annually since the 2010-11 revolution. In the five years prior, it expanded at an average of 4.5 percent, while unemployment remains around 15.5 percent, according to the World Bank.
“Tunisian companies will be able to thrive and grow and remain in the country, keeping the skills and the added economic value they create within our borders,” says Zaher. “This will ease the brain drain from Tunisia – currently, it’s very hard to find a senior developer or project manager because after 4-5 years learning the ropes they move abroad, partly for better salaries, but more to obtain more rewarding work.”
Another key reform is to allow companies to fold or go bankrupt. Previously, the senior management and founders of a failed company would be barred from holding similar positions for several years.
“Making it easier to close a company is important because otherwise we won’t get serial entrepreneurs in Tunisia – you need to be able to start afresh,” continues Zaher.
Entrepreneurs seem overwhelmingly positive about the Act, and so they should – around 60-70 of them worked with the government along with universities and investors to frame the law. Many of these entrepreneurs united in 2017 to co-found Tunisian Startups, the country’s first start-up association.
“Every entrepreneur has a story to tell, but the whole ecosystem was so fragmented, and we didn't have a voice,” concludes Saidine, who is also the association’s president. “Our ambition is to help transform Tunisia into an environment where entrepreneurs can start up and scale up. We hope the momentum created through the Startup Act and can be a prototype for a more liberalised economy so that people can see what kind of energy and economic value this can bring.”