222021SEP
Africa tech start-up boom is creating opportunities for law firms

Africa tech start-up boom is creating opportunities for law firms

Tech start-ups is a hot topic in Africa, and the growing innovation culture is giving rise to a proliferation of apps and digital platforms that are attracting seed funding.

This year alone, by mid August, 303 African tech start-ups had raised just over $1 billion, up 69% on 2020 figures, according to a report by Disrupt Africa.

Another promising sign of growth in this space is that Briter Bridges, in collaboration with the GSMA Ecosystem Accelerator programme recently reported over 600 active tech hubs in Africa.

The growing number of African tech start-ups is creating an increasing demand for legal advice to help these new businesses avoid legislative pitfalls.

“A lot of tech start-ups come to us for help with their new business models to check for any issues that might raise a red flag related to legislation,” says Mahmoud Hazzaa, senior associate at Marghany Advocates in Cairo, Egypt.

“The start-ups have one thing in mind, but legislators have a different way of thinking.”

For example, he says, Egypt is plagued with security concerns that are always in front of the legislator’s mind in terms of the protective interests of the country.

So, the legislation does not easily allow anything that flies above the ground, which includes developing, testing or flying drones.

He says one start-up had to develop and test its drones in Dubai, which are designed to help manage vast stretches of land for agricultural viability. “We have vast desert areas in Egypt.”

Tech start-ups are focusing on the development of their products and not always thinking about these types of issues, says Hazzaa.

“Lawyers can anticipate these types of hurdles and help the start-ups to address them,” he says.

In South Africa, a lot of fintech start-ups are creating disruption in the financial sector space, according to Natalie Scott, a director at Werksmans focusing on banking and finance, healthcare and life sciences.

For example, there is a lot happening in the crypto space and the digitisation of non-fungible tokens, which is the digitisation of assets.

“An example of this is taking a digital photo of a famous painting like the Mona Lisa and offering it for sale in an electronic format,” says Scott

Another is the first ever tweet of Jack Dorsey, co-founder and CEO of Twitter, which sold for $2.9 million. “Crypto provides the platform for this,” she says.

In the financial space there are many regulatory requirements that need to be navigated.

This includes taking deposits from members of the public, or operating in this space without the huge cost of acquiring a banking licence.

“We help them to find ways around challenges like these,” says Scott.

Fintech is not an easy industry to operate in Egypt either, says Hazzaa.

He says start-ups in this space need to partner with a bigger organisation, such as a bank or investment company or a combination of the two.

“All the successes we have seen in this field have done this.”

In Egypt it’s easier for start-ups to offer an investment facility to a qualified group of investors than to the public at large.

In areas such as fintech the legislation has a lot of catching up to do to accommodate new ways of doing business, says Hazzaa.

He said there is also a lot of interest in the healthtech space and there is less red tape involved. “We are advising a number of health care tech start-ups.”

This includes helping those who are providing apps to consolidate a fragmented network of patient information.

“So, when visiting multiple service providers, the patient doesn’t have to keep on retelling their story,” says Hazzaa.

Werksmans’ Scott says now that telemedicine is allowed in South Africa, tech start-ups are offering apps like Hello Doctor and Ollie Health, which allow patients to access and consult with doctors online.

“The Covid-19 lockdowns boosted the emergence of this type of app, because doctors were complaining that their waiting rooms were empty.

“There are legislative challenges around this type of service, but they are all navigable.”

She says while legislation does need to catch up with everything that is tech related, this needs to be balanced against the need to protect the individual. “We can’t throw the baby out with the bath water.”

The most significant start-up activity over the past two years in Africa is in the fintech, agrictech and healthtech sectors, says Ivy Osiobe, executive associate at GIWA-OSAGIE & CO of Lagos, Nigeria.

She says it is notable that Nigeria has had the highest volume of tech start-ups in Africa, with over 750 currently, and South Africa has the second largest number as reported by Quartz Africa.

In Nigeria, the major growth has been in the fintech payment subsector, mainly triggered by the cashless policy introduced by the Central Bank of Nigeria.

This has resulted in the emergence of fintech companies offering e-payment platforms to SMEs, multinationals, governments, government agencies, NGOs, and educational institutions.

The performance and growth of fintech companies like Flutterwave, Paystack and Piggy bank have been impressive, says Osiobe.

Earlier in 2019, Global payments giant, Visa had acquired an equity stake in Interswitch for $200million and we provided legal advisory services to Visa on that transaction. In 2020, Stripes, a leading fintech company in the US, acquired Paystack for over $200 million, to enable it to expand into the Africa market, she says.

“Companies such as Jumia, Interswitch and Flutterwave have attained Unicorn status with valuations of over $1Billion.”

Many tech start-ups have also expanded to other countries with the help of foreign partners, seed funders and angel investors.

Basilia Onuoha, associate at Giwa-Osagie says tech start-ups in Nigeria, like LawPavillion, DIYlaw, LawPadi, Vazi Legal, NLegal are creating access to legal services by bringing lawyers close to clients all over Africa.

This is enabling lawyers in different jurisdictions to interact and share legal ideas with one another.

Tech start-ups should be encouraged by having to pay less tax or not to pay tax at all, says Onuoha.

African governments should also be open to financing African tech start-ups, which are mainly funded by angel investors, venture capitalists and foreign investors, says Onuoha.

Most of the tech start-ups that have recently mushroomed on the continent are responding to the challenges brought about by the COVID-19 pandemic, says Alice Namuli Blazevic, partner at Katende Ssempebwa & Co Advocates (KATS) in Kampala, Uganda.

The pandemic forced many people to work remotely and learn online. And this gave rise to innovations like office management, and cybersecurity systems, virtual meeting rooms and e-signature tools, she says.

“It also led to the huge growth in online education platforms and ecommerce ventures.”

The exponential growth of the use of the internet is helping to drive innovation in Africa, says Blazevic. “Most cities now have fibre and many governments are investing in technology infrastructure.”

Her firm co-founded the Legal Innovation Hub in Kampala in 2017, where legal tech solutions are developed and tested before they go to market.

The hub provides a space where tech start-ups can collaborate with legal professionals and enables technologists to bring legal tech ideas and developments to fruition. “And the hub attracts investors,” says Blazevic.

“My firm has also continually provided pro bono legal advice to tech start-ups who are unable to afford legal services in their infancy,” she says.

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