Date: Jun 29, 2018 Source: The Daily Star An eye to the future: The Tunisian Startup Act Katrin Sold On April 2, the Tunisian Parliament unanimously passed a new startup law, part of the government’s broader “Digital Tunisia 2020” strategy to boost socioeconomic development and expand technological infrastructure. Widely celebrated, the Startup Act is expected to increase the number of startups, especially in the high-tech sector, making innovative entrepreneurship in Tunisia more competitive internationally and potentially increasing economic growth and employment, especially among youth.With at least 17 tech hubs and a large number of funding and mentoring programs, Tunisia is one of the more dynamic locations for startups on the African continent. In November 2017, Tunis was selected as the location for the African Union’s planned Digital African Excellence Center, which will be in charge of training African government officials and private-sector managers in the digital sector. The broader digital strategy comprises 64 projects, most of which are to be implemented as public-private partnerships. They include e-government projects, expanding households’ and schools’ digital infrastructure (for example by improving broadband technology), strengthening the e-business sector through such mechanisms as promoting online payment systems, and encouraging foreign businesses to outsource digital services to Tunisia. Their aim is to strengthen the digital sector as a future cornerstone of the Tunisian economy, which currently largely relies on agriculture and tourism. However, 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. Therefore, in addition to establishing criteria for defining a startup, the Startup Act calls for reforms to encourage entrepreneurship, provide access to funding, streamline the process of creating and liquidating a business, and promote internationalization. Among the most notable measures the law introduces are tax exemptions for startups for up to eight years, giving public and private sector employees one year to set up a new business after which they have the right to return to their old jobs, and a state-funded salary for up to three founders per company during the first year of operations. They all aim to encourage young people with limited financial resources to become entrepreneurs. Furthermore, the law promotes the internationalization of the sector by making it legal for prospective entrepreneurs to set up a foreign currency account they can use to procure materials and set up branches or invest in companies abroad. The legislative process for passing the Startup Act is groundbreaking for its unusually participatory nature. In February 2016, a group of 70 entrepreneurs, investors, and representatives of banks and accelerators held an initial brainstorming session. Together with then-Technology Minister Noomane Fehri, a task force made up of members of the startup ecosystem formulated a draft law and ensured that the ratification process moved forward even after a ministerial reshuffle in August 2016. To inform Parliament and gain its support for the bill, the task force used social media as well as the new “Parliamentary Academy” – a training module for members of the Tunisian Parliament established in 2016 – to articulate their interests and increase pressure on decision-makers. Within this legislative process, the newly founded interest group TunisianStartups handled public relations, leading to a high degree of favorable media coverage of the Startup Act. 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. In particular, the establishment of an advocacy organization specific to the target group allows more flexible forms of political advocacy beyond the often static structures of two of the large employer and employee organizations, the Tunisian General Labor Union (UGTT) and the Tunisian Union of Industry, Trade, and Handicrafts (UTICA). Moreover, the use of both digital communication channels and direct dialogue with parliamentarians maximizes the visibility of the project and thus the interest of both decision-makers and the target group itself. However, 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. From an economic angle, Tunisia will need to reform its foreign exchange policy and e-commerce legislation. In particular, the government’s regulations that limit the convertibility of the dinar into foreign currencies prevent small innovative companies from entering the global market. Allowing startups to set up a foreign currency account can only be an interim solution. But monetary and financial policy reforms are more likely to face greater political resistance than a law, such as the Startup Act, limited to a specific target group. In addition, the education system will require an overhaul. Tunisian schools offer many information technology and engineering courses, but not adequate training for the digital sector. And many of those with good IT skills are seeking jobs abroad in light of the competitive domestic job market and the still slow growth of the startup sector. Furthermore, the emergence of an entrepreneurial spirit also requires a supportive social context. In Tunisia, however, patriarchal and hierarchical structures in the business sector and public administration inhibit the entry of young entrepreneurs who are not yet part of established business networks but who are most likely to bring innovative, often unconventional ideas into the market. Moreover, laws that restrict civil liberties and an overall investment environment that is rather risk-averse hamper the emergence of a dynamic and creative entrepreneurial milieu. Finally, the startup scene and the digital sector face heightened expectations. The small community cannot meet the demands of creating a multitude of new jobs, at least not in the near future. Even if the sector grows quickly, business activity remains highly concentrated in Tunis and a few other coastal cities, leaving it unable to remedy high youth unemployment in the country’s marginalized southern and interior regions, where programs to promote entrepreneurship in the digital sector are only starting slowly. The huge inflow of funds from foreign development organizations focusing on entrepreneurship and startups as a means for development appears to be rather counterproductive. The high density and low coordination of funding programs distorts the market by keeping some firms afloat and making them more dependent on outside funding than on maintaining a competitive edge. While groundbreaking – especially for the process of drafting it and gathering support to pass it – the Startup Act can only be a first step toward a flourishing digital economy. Far-reaching reforms in areas such as monetary and financial policy and the education system will also be necessary. However, the participatory nature of the legislative process to pass the Startup Act can set new standards for political dialogue and public–private cooperation that can shape the necessary further reform process. Katrin Sold is researcher and lecturer at the Center for Near and Middle Eastern Studies at the Philipps-University of Marburg, Germany. This commentary first appeared at Sada, an online journal published by the Carnegie Endowment for International Peace (www.carnegieendowment.org/sada).   A version of this article appeared in the print edition of The Daily Star on June 29, 2018, on page 7.