How Zambia’s national debt restructuring can boost country’s tech ecosystem

Despite the much-heralded growth during the last two years, Zambia’s tech ecosystem has lagged behind in attracting enterprise capital. With the nation having reached a debt restructuring settlement with a few of its main collectors, can this growth profit its ecosystem?

After Zambia introduced a debt restructuring take care of collectors, economists are hailing the transfer as a step in the fitting route.  Many additionally anticipate the restructuring deal to have an effect on the country’s expertise ecosystem. Zambia’s tech ecosystem is fledgling and has had a troublesome time attracting enterprise capital, not like rival continental hubs like Nigeria, Kenya, and South Africa. Many anticipate that the restructuring will assist rally buyers to the southern African nation’s ecosystem, spurring development.

In 2020, Zambia turned the primary African nation to default on its debt funds offset. That default restricted the federal government’s capability to put money into packages important for financial development.

“[The restructuring] allows for increased fiscal space and increases the amount of funds available for the government to invest in priority projects and social expenditure, and other areas where there was a budgetary gap,” stated Jito Kayumba, particular assistant and advisor to President Hichilema on financial, funding and growth affairs.

Good information for Zambia’s fledgling tech ecosystem

Over the final 12 months, Zambia’s tech ecosystem has seen a big boost as quite a few pan-African firms have arrange operations within the nation. These embrace subscription video-on-demand platform Wi-flix, expertise infrastructure firm Liquid Intelligent Technologies, and crypto alternate, VALR. The fintech unicorn Chipper Cash additionally entered the Zambia market final 12 months. The ecosystem additionally bought a co-sign from Vitalik Buterin, founding father of Ethereum, who hailed the “unique opportunities” current within the nation.

According to Andrew Chibuye, senior nation associate of PwC in Zambia, “The restructuring should result in a more favourable investment environment that will benefit all sectors including technology. Technology is considered as key to enabling growth of the economy and so it is expected to be integral as the country goes forward.” 

This level is reiterated by Kayumba who additionally factors out the significance of the country’s expertise sector in additionally enabling the expansion of different necessary sectors of the country’s financial system like mining and agriculture.

“The beauty of technology is that it can help create efficiencies in the supply chain and the value chain of most of our other core sectors. Growth in agriculture, mining, and energy can be accelerated by the smart integration of technology, leading to new jobs created, new homes being built, and new infrastructure across the board,” he stated.

For startups, who’ve up to now struggled with attracting enterprise capital funding, the restructuring is a welcome growth that would boost their capability to boost capital from buyers, each native and worldwide. Since 2015, 23 startups have raised greater than $75m in disclosed funding, based on Biter Bridges, far behind ecosystems like Nigeria, Kenya, and South Africa.

Ahmad Hamwi is the founding father of Ignitos Space, a spacetech startup offering farmers with farming insights. According to him, the restructuring is the largest alternative to take the Zambian startup ecosystem to the following degree by way of offering liquidity for funding.

“I believe that we will see a lot of shifts in the ecosystem which will lead to more investor attention. Zambia has over the last two or so years shown that it can become a very lucrative place to invest in and this debt restructuring will further prove the viability of the economy for investing which I believe will boost investments in our startups,” Hamwi advised TechCabal on a name.

Beyond funding into startups, Hamwi believes that subsequent digitalisation initiatives will transfer Zambia deeper into the digital transformation journey, boosting the scale-up of native startups, and making them enticing to buyers.

“The restructuring will allow a lot of projects to boom, including digitalisation ones, which would help a lot with bringing a lot of people into the digital economy. Also, an increase in trade resulting from the process could go a long way in boosting the growth of e-commerce and fintech solution providers in the country,” he added.

Creating an enabling setting for ecosystem success

Mwiya Musokotwane is the CEO of Zambia-based funding agency Thebe Investment Management. Together with Perseus Mlambo, CEO of Union54, they’re the founding members of the Zambia Technology Sector Working Group, whose principal mandate is to work with companions, together with forty native and worldwide firms, to develop business-friendly laws to help African tech firms seeking to incorporate or function from the nation.

Speaking to TechCabal, he acknowledged that the restructuring course of, amongst different upsides, presents a possibility to make use of expertise to speed up financial development and job creation in Zambia.

“From a technology perspective, I think the opportunity that exists is that technology investment benefits are felt from day one. For example, if a tech startup domiciles itself in Zambia because the government has created an incentive package, that means jobs are immediately brought to Zambia because that founder will probably come and live here. A significant part of the startups team will probably come and live here and by coming here, they boost adjacent economy sectors,” he stated. 

“If just 6,000 software developers moved to Zambia, its GDP would grow by 1%. That is not immaterial. That is a material contribution to GDP growth rate because software developers have a higher earning potential so they’re bringing their salaries which they will spend on other sectors of the economy. If we look at the number of people who work in the technology sector across Africa, it’s well above 700,000 individuals and if you become the best place for these people to live and work, you can certainly do a significant much in growing the economy.”

For Lulumbi Njeleka, principal associate at Monter Capital, a Lusaka-based funding agency, the restructuring has the flexibility to create an enabling setting for various buyers, together with pension funds, to contemplate the Zambia tech ecosystem as a sexy funding asset.

“The local and regional fund managers, especially pension funds, would find a lot of motivation to seriously consider alternative investments especially as the country opens up on the back of the recent successful debt restructuring. Pension funds play a significant role in the growth of any economy and are an integral source of capital for the growth of companies. We anticipate a lot of pension fund and institutional participation in the private capital space,” Njeleka advised TechCabal.

To startups, he advises them to be extra energetic in contacting and displaying buyers the worth of their companies as a result of there shall be considerably extra capital to deploy going ahead.

“Startups looking for seed funding should certainly be more aggressive in contacting venture capital funds and for entities in the growth stage, the Private equity fraternity is looking to deploy capital in Zambia. We should see increased capital flows into Zambia because of the debt crisis being resolved which ultimately mitigates a major risk that was associated with Zambia as a sovereign,” he added.

Much progress made, a lot work nonetheless to be performed

When chatting with BBC on the debt restructuring, Isaac Mwaipopo, government director on the Lusaka-based think-tank the Centre For Trade Policy and Development, acknowledged that though the method is a welcome growth, there was an pressing want for the nation to work on financial development to utilize honeymoon interval earlier than the following tranche of funds are due.

“There’s a need to come up with a clear plan in terms of reconstructing the economy, especially since we will still be on an IMF programme for the next three years. It will be very important that sectors are identified which can be strategic for growth, boosting job creation and aiding poverty alleviation,” he advised the publication.

Is expertise one in all these sectors? Zambia’s highest workplace appears to assume so.

“The President recognises technology as an important pillar and catalyst, as well as an enabler, for social and economic development in the country,” Kayumba advised TechCabal.

Additionally, from conversations with each public sector and personal sector gamers, there appears to be a broad consensus that expertise might need the capability to ship that much-needed financial development boost. However, for this potential to be unlocked and totally realised, there’s a want for energetic effort to make expertise, and different sectors of the financial system, work.

“The effect of having the debt burden hanging over Zambia is the same as having your handbrake engaged when driving your car. Debt restructuring is like the handbrake being released. The question now is, in the short, medium and long term, will the country accelerate, decelerate, continue to move at the same speed, or go into reverse? Debt restructuring is not necessarily the silver bullet that solves all of Zambia’s economic problems, but it’s one huge obstacle set aside. The rest is up to us as a people,” concluded Chimbuye.