Within the framework of THE NEXT SOCIETY project, INSME organizes a series of policy labs aiming at exploring how projects, initiatives, and policies could contribute to establishing a reinforced entrepreneurial ecosystem in the two shores of the Mediterranean basin by highlighting the potential replicability of successful actions.
The first policy lab explored the Startup Act which is part of the wider strategy called Digital Tunisia 2020, promoted by the Tunisian Government.
It identifies a legal framework that includes 20 measures in favour of investors and startups. These measures are structured around five main themes:
- define and label the startups;
- support entrepreneurship;
- create an environment that makes easier the establishment, development, and liquidation of companies;
- access to funding;
- access to international markets.
The background that led to the development of the Startup Act was characterized by the following elements:
- The Tunisian entrepreneurship ecosystem is dominated by public sector entities.
- The hierarchical structure of the business sector in Tunisia inhibits the entry of young entrepreneurs who are not yet part of established business networks but who are usually willing to bring innovative, often unconventional ideas into the market.
- The business activity is highly concentrated in Tunis and a few other coastal cities, this makes more difficult the creation of jobs.
- The high rate of youth unemployment, especially in the country’s southern and interior regions where the digital sectors have started more slowly.
- The low coordination of funding programs makes some companies more dependents on outside funding than on maintaining a competitive edge.
The Startup Act was established by the joint effort between the private sector, the civil society, and the Government (Startup Task Force).
The Startup Task Force reported directly to the Minister of Technology and it was comprised of the main stakeholders of the startup ecosystem: entrepreneurs, investors, representatives of banks and accelerators, and administrations (public sector entities like APII, the Tunisian Agency for the Promotion of Industry and Innovation).
2016 – 2019
The project addressed:
- Innovative entrepreneurs
The Start-up act is the result of a bottom-up approach to foster entrepreneurship and represents the first step to establish the country as a digital hub.
In particular, the initiative aims to:
- boost socio-economic development and expand technological infrastructure;
- facilitate the launch and development of Tunisian start-ups, especially in the high-tech sector;
- streamline the process of creating and liquidating a business;
- increase the access to finance and support the growth of innovative startups and small and medium enterprises;
- boost the economic growth of the country and the employment rate, especially among young people;
- promote the internationalization of the Tunisian enterprises;
- make easier customs procedures for imports.
The Government – by embedding a participative approach – developed a framework based on the following pillars that define exactly who can benefit from the Startup Act and how.
1. Startup definition
In order to apply for the “Label” the company should not be older than 8 years, have less than 100 employees, more than 2/3 of its shareholders should be founders or angel/hedge funds, investors. Furthermore, the company should have an innovative business model, preferably technologically-based, and its activity should significantly boost economic growth.
2. Entrepreneurship culture
The Government i) gives one-year leave, extendable to two years, to set up a new business to public and private sector employees after which they have the right to return to their old jobs, ii) provides a state-funded salary for up to three founders per company during the first year of operations and the payment of patenting fees for startups locally and internationally.
3. Facilitated procedures for creation, development, and exit
The creation of the Startup Portal, the point of contact for Startups to facilitate administrative and regulatory processes. Entrepreneurs, startups, and investors in Tunisia can go through a smooth online application process to obtain the ‘Startup Label’, and therefore benefit from the Startup Act law.
4. Access to funding
Startups can benefit from tax exemptions up to eight years and on capital gain.
5. Access to international markets
The Startup Act raises the maximum amount startups can pay through a prepaid card that allows web users to pay for online transactions in foreign currency. Each startup is allowed to open a “special foreign exchange account” in the country.
The law will facilitate custom procedures considering the startups as “authorized economic operators” under its customs code, with the companies being exempt from certain imports and customs procedures.
- The contribution came from the startup ecosystem, from the entrepreneurs, the lawyers, etc…every actors contributed in each step while the Government was playing the role of the facilitator of the transformation. All the ecosystems pushed in the same direction and shared the same vision.
- The whole process has been designed to be digital.
The online portal enables a multitasking approach and enhances collaboration with other ministers and government entities.
The entrepreneurs can manage the whole process online removing red tape.
- The whole ecosystem advocated and shared the full story of this law.
More than 280 Startups have been labeled and took advantage of the Startup Act.
Detailed data and figures about the results achieved are available on this page.
The legal aspect was the biggest bottleneck for the development of the Startup Act in Tunisia.
Another challenge was to make sure that – despite the appointment of a new Minister of Technology – the Startup Act will move forward.
To sum up, the Startup Act in Tunisia comes from the need to make up for the following barriers:
- the lack of an adequate legal and regulatory framework for such initiatives has so far prevented the development of the digital sector in general and entrepreneurship in particular. The expansion of the digital sector, in which the Startup Act is only one element of the broader Digital Tunisia 2020 strategy, requires additional important reforms.
- The main challenge faced has been the restrictions coming from the existing laws.
- A key challenge in line with the principles of the Startup Act would be the reform of the foreign exchange policy and e-commerce legislation in Tunisia. In particular, the government’s regulation that limits the convertibility of the dinar into foreign currencies prevents small innovative companies from entering the global market.
The Startup Act allowing startups to set up a foreign currency account can only be an interim solution. This highlights the need for policy reforms and more likely of greater political resistance than law, such as the Startup Act, limited to a specific target group.
The Startup Act also promotes an overhaul of the Tunisian education system.
Tunisian schools, in fact, are still not all able to provide an adequate training for the digital sector.
The Tunisian startup community played a relevant active role in the legislation and represents a great example of collaboration between civil society, private and public sector.
Some of the features of this process can serve as a model for further bottom-up legislative processes to encourage awareness, transparency, and stakeholder participation.
Financing alone is insufficient to boost the growth of innovative startups and technology-based SMEs, services like mentoring, training, business advisory consulting, and networking are needed to sustain the growth of startups and SMEs.
A legislative framework aimed at fostering the creation and growth of the startup ecosystem can be replicated in other countries – as demonstrated by the interest it generated in many countries (e.g. Senegal and Rwanda). Innovative firms spur sustainable growth, enhance productivity and create new employment opportunities, they need tailored policies that can be designed according to the existing background of each country and taking advantage of the best practices already developed in this field in other countries.