Startups are encountering a series of licensing bottlenecks at various levels of government administration. Although the Ethiopian government’s ambitious “Homegrown Economic Reform” initiative has created new opportunities for Foreign Direct Investment (FDI), the startups expected to drive the country’s economic future are still entangled in overlapping and complex government licensing processes.
Despite the approval of Startup Proclamation No. 1396/2026 earlier this year, entrepreneurs report a significant gap between policy intentions and the on-the-ground reality, which remains burdened by excessive paperwork and administrative delays.
Industry experts identify a “Domino Effect” in the legal compliance process as a primary contributor to the issue. Currently, a startup cannot progress from Stage A to Stage B without obtaining a license; however, acquiring the Stage A license often requires a document that can only be obtained at Stage B. This creates a circular loop that traps the entire process.
Recent studies reveal that Ethiopian Small and Medium Enterprises (SMEs) are facing a financing gap of $4.2 billion. While these funds could potentially be accessed through the new National Credit Guarantee Fund, obtaining the necessary “Startup Identification” certificate has become challenging due to verification delays between institutions.
During the Invest in Ethiopia 2026 forum organized by the Ethiopian Investment Commission, industry leaders and tech founders emphasized the fragmented administrative landscape. This fragmentation forces businesses to navigate bureaucratic hurdles, creating a “domino impact” on their operations.
Unlike established large corporations, startups operate on limited budgets and tight timelines, making them particularly susceptible to a lack of institutional coordination. Kalkidan Arega, CEO of Toppan Security Ethiopia, noted that one government body often refuses to accept applications until a second or third office has granted approval.
Kalkidan stated, “We have to comply with and navigate the various regulations and administrative processes of different institutions. Unfortunately, after securing one permit, we often find ourselves waiting for approval at the next stage; one stage cannot be authorized without completing the previous one. As a startup, we face numerous challenges and must plan far in advance to meet our timelines.”
This “sequential licensing bottleneck” means that even with strategic support, it can take months for a business plan to be executed. Files shuffle between disconnected government tiers, including the Ministry of Innovation and Technology, the National Bank of Ethiopia, and regional land bureaus.
While Ethiopian Investment Holdings is establishing a fund in collaboration with the African Development Bank and the UNDP to support smaller players, its primary focus remains on large-scale investments. As a result, “middle-tier” startups—those that have outgrown microfinance but are too small for sovereign fund partnerships—are left to navigate the bureaucracy independently.
Although Ethiopian Investment Holdings provides “post-investment” services like customs clearance and government liaison, investors argue that such “hand-holding” should not be a prerequisite for market entry. Kalkidan added, “I want to see a single window that handles everything uniformly.” She noted that while efficiency has improved over the past two years, the structural independence of administrative processes continues to be a significant point of friction.
