On October 9th, a collective of creative minds, innovators, researchers, regulators, and entrepreneurs gathered at the Radisson Blu Hotel in Addis Ababa for the Mesirat Knowledge Series on Digital ID, Taxation, and Gig Workers’ Employment Classification. The event marked the inaugural knowledge series of the Mesirat Entrepreneurship Program, designed to spearhead Ethiopia’s gig economy. The gathering highlighted the complexities and uncertainties surrounding the licensing of gig platforms in Ethiopia and its subsequent implication.
Facilitated by the growth of mobile devices, internet penetration, urbanization, and high youth unemployment rates, the gig economy in Ethiopia has been gaining traction in recent years. Several platforms have emerged over the years, connecting workers to various gigs. These range from ride-hailing services such as Yango to delivery and creative gig platforms like Findall.
According to Mesirat’s recent policy digest on gig platforms published in September 2023, the surge extends beyond the capital to Gonder, Pawi, Metema, Adama, Bure, Nekemet, Jima, Mizan, and Wolaita, marking major regional expansions in the last two years. Despite this significant milestone in the Ethiopian gig economy, the ease of doing business for gig startups remains a challenge.
This same study, titled Gig Platforms and Gig Workers Classification and Taxation in Ethiopia by Laurendeau & Associates, has found that more than half of gig businesses in Ethiopia have encountered difficulties in determining the appropriate classification and obtaining the necessary license.
Gig businesses are required to obtain licenses tailored to the specific sectors they work in, while some are even required to get multiple licenses to provide a single business. These findings were reported earlier in another study by Cepheus Growth Capital in 2020. But the problem still persists.
The L&A study states, “There is a gig platform that was initially registered as a software development company. As it began offering job matching services for gig workers in the HomeServices sector, it was required that it obtains a license for labor recruitment and linkage. The company was again required to obtain a construction and finishing license to link plumbers and painters with customers.”
To understand how gig platforms are navigating the existing legislation and lack of appropriate classification, we spoke with startups, from recent entrants like Yango and Findall to established ones such as GoodayOn, Mogzit, and Freelance Ethiopia. We also further explored the reality on the ground by taking the issue to policy experts and stakeholders.
Spotlight on Gig Platforms
“Findall came to life following a conversation with my partner Beki (Co-founder and COO), where we recognized a shortage of stock images and design assets that truly capture the essence of the Ethiopian identity.’’ Markos Awraris, the CEO and co-founder of Findall, told Shega.
The platform emerged from a shared passion for empowering creatives by providing a platform that enables them to showcase their work and connects them to clients. “We envisioned a space that brings together diverse talents, fosters collaboration, and enables success. And our journey began with a desire to bridge the gap between creatives and opportunities, ultimately leading to the creation of Findall”, underscores Berket Getnet, co-founder and COO.
Ethiopia’s growing economy presents immense opportunities for a creative gig-work platform like Findall. As the country embraces digital transformation, there’s a rising demand for diverse creative services. The platform aims to tap into this demand and contribute to the creative economy.
The platform is currently operating under the umbrella of BerberaMarket.com and intends to become an autonomous entity.
“Yet there are no specific categories available for us, and the exact trajectory of the subsequent process remains unknown,” Bereket added.
“Securing foreign investment for Ethiopian-based startups is an uphill battle. Even after successfully obtaining investment, transferring funds to Ethiopia is a formidable challenge. This stems from the lack of proper licensing procedures and efficient coordination between city and federal government offices,” remarks Alem Abreha, co-founder and CEO of GoodayOn. GoodayOn, a pioneering digital gig marketplace in Ethiopia, facilitates connections between skilled service providers such as domestic help and home repair professionals with clients, emphasizing convenience, affordability, and quality through technology-driven high-precision matching.
Since its inception in 2020 by Alem and Tigist Afework during the COVID-19 pandemic, GoodayOn has emerged as one of Ethiopia’s leading digital gig marketplaces. It boasts over 150,000 app downloads, more than 40,000 gig workers, around 290,000 gig worker searches, and over 80,000 successful gig matches.
Nevertheless, the absence of standardized licensing for gig platforms poses continuous obstacles for GoodayOn, affecting funding and investment operations. Initially operating under a digital marketing license, GoodayOn transitioned to a software development license due to the barriers faced in securing an investment permit for foreign direct investment. Despite these adjustments, challenges remain prevalent.
“We secured funding from a Japanese Venture Capital (VC) firm based in the US for our Delaware-incorporated holding entity in late May. However, despite having a software development license, now we are in the fifth month since we started the process towards an investment license and we are still in a bureaucratic shuffle between the investment commission and the Ministry of Trade and Regional Integration offices,” Alem states.
Like GoodayOn, Mogizt In-Home Care, a sector-specific digital gig platform that connects caregivers with care seekers, shares the sentiment that the lack of appropriate license categories poses. The co-founder and CEO of Mogzit looks back and shares the story behind the creation of her tech startup.
“The inspiration behind Mogzit came from an article I read, stating that millions of women worldwide are forced to quit their jobs due to a lack of childcare services, resulting in over $800 billion in revenue loss. This issue resonated with me, as it is also true in Ethiopia. For working parents, especially ambitious women, the absence of a reliable childcare system has been a significant obstacle. Concurrently, the unemployment rate in the country has been on the rise.”
Mogizt, which started operations with 20 registered nannies two years ago, now has 1000 registered caregivers on their platform, and they call themselves “the Uber of nannies.”
Although the Mogizt business model operates as a marketplace, the legal registration process in Ethiopia required them to select a related sector since the marketplace sector was not available at the time.
“We registered as a software development company. As a software development company, we had to obtain professional competence from the Ministry of Innovation and Technology (MInT), followed by business registration and obtaining a business license.” Samrawit told Shega.
For Samrawit, the most challenging aspect was determining the sector that aligns with her business model. Apparently, Mogzit isn’t the only business entity facing the same challenge.
The research on gig platform classification and taxation by Mesirat estimates the percentage of gig businesses facing difficulties in determining the appropriate classification and obtaining necessary licenses (66%). This means there are more gig platforms facing the same challenge of determining appropriate classification.
However, for the new entrant “Yango powered by ShuuFare” and for the well-established Freelance Ethiopia (Afriwork), the current licensing category seems to work seamlessly, or so they said.
According to Dr. Yekenalem Abebe, Country Manager for Yango in Ethiopia, Yango entered Ethiopia’s ride-hailing market through a partnership with G2G IT Group. G2G IT Solutions is a franchise and license holder launching Yango operations in Ethiopia, while Yango licenses G2G’s software, brand, and expertise.
A few years ago, G2G IT Group developed its own ride-hailing platform, ShuuFare, which launched innovative features like street pickup on the market. After operating for over a year and gaining a better understanding of the market, “we aimed to elevate the industry and differentiate ourselves in more ways. And the answer was Yango, a global player known for its cutting-edge tech and passenger-driver win-win model, a feat yet unachieved in Ethiopia,” says Berook Moges, Co-founder and CEO of G2G IT Group.
Yango has global expertise with a presence in more than 20 countries and over 600,000 drivers across the globe. Berook is certain that the platform’s unique capabilities will benefit both drivers and passengers.
Currently, G2G operates the Yango platform in Ethiopia, resulting in “Yango Powered by ShuuFare,” and the licensing process has been pretty straightforward, as further explained by Berook.
The last gig platform we spoke to was freelance Ethiopia. A platform that connects clients or jobs with talents is arguably one of the most browsed platforms across channels. Even though freelance Ethiopia is currently operating under Masero Advertising and Technologies PLC, which provides advertising and technological solutions, Simegn Tadesse, CEO and co-founder of freelance Ethiopia, says that the current licensing and regulatory framework aligns well with their business.
He further states that as a startup in the gig economy, “We haven’t encountered significant challenges; even securing a license posed minimal challenges for us. The entire process, from initiation to obtaining the license, spanned just 1.5 months.”
Freelance Ethiopia is operating under a business license that covers consultancy activity in advertising as well as transport, storage, and communication activities. Afriwork (Freelance Ethiopia) is one of the software solutions provided by the company in the Software-as-a-service (SaaS) sector.
The Licensing maze: what do the experts say?
Habtamu Hailemeskel is an advocate and legal consultant whose focus is on business and investment laws. Habtamu says the main challenge of gig platforms mainly comes from being a new sector in Ethiopia and the lack of labor laws that specifically govern them.
“I suspect that, given the lack of a proper regulation tailored to gig platforms, there may be a tendency to consider them as private employment agencies as defined in Labour Proclamation No. 1156/2019. But I am not suggesting gig platforms should be considered private employment agencies.’
According to Habtamu, the Ethiopian Standard Industrial Classification (ESIC) does not have a licensing category relevant for the operation of gig platforms. As a result, businesses may be required to be registered and licensed in categories remotely related to their operations, like software development or commission/brokerage.
Because of this, some of their expenses may not be recognized as deductible expenses by the tax authority, or they may be required to be holders of multiple licenses to make up for the deficiencies of existing licensing categories.
In October 2022, MInT wrote a descriptive letter to the Ministry of Trade & Regional Integration to explain how e-commerce trade should get licensed. The main aim of the letter was to request the inclusion of “electronic commerce platform operators” and “electronic commerce intra-platform operators” in the Standard Industrial Classification.
A classification, if standardized, helps gig platforms be determined as electronic platform operators. In the letter, “electronic commerce platform operator” and “electronic commerce intra-platform operator” are defined as legal entities that facilitate online trading activities by connecting buyers and sellers or service providers and receivers.
According to the letter, electronic platform operators can determine the quality and price of services or products provided on the platforms; therefore, these operators are expected to get a certificate of qualification from the Ministry.
However, startups looking to obtain the new electronic platform operator license haven’t yet managed to get one, including GoodayOn.
On the other hand, Jirata Nemera, Lead Executive in Licensing and Regulatory Affairs at the Ethiopian Ministry of Trade & Regional Integration, confirmed the integration of electronic operator licenses into the standard industrial classification in an interview with Shega. Anyone meeting the standard requirement for a commercial license can obtain an electronic operator license, states Nemara.
Entities looking to obtain an electronic platform operator license are mandated to obtain a license by fulfilling specific requirements, including having a Tax Identification Number (TIN), a registered.et or another domain, a compliant electronic transaction system, adherence to relevant rules, an agreement with logistics providers, recognized electronic payment systems, and documentation proving alignment with tax laws.
However, digital platforms such as GoodayOn are unable to acquire the license, even after fulfilling the mandated requirements by MInT. When we brought this issue to Nemera, he mentioned that their office is not familiar with any startup that has been unsuccessful in securing a license after fulfilling the requirement. He further stated, “We have granted licenses to around 40 to 45 companies.”
This suggests a communication gap between different government agencies and the private sector. Even then, there are several incentives and projects that come from the persistent challenge and ongoing conversation between government stakeholders and the private sector.
In September 2023, Mesirat held a public-private partnership event that brought several stakeholders together in an attempt to address this issue.
Mesirat, a partnership between the Mastercard Foundation, Gebeya Inc., and its consortium partners, announces the opening of applications for the Mesirat Entrepreneurship Program.
The program will support 100 multi-sided gig and professional marketplaces across Ethiopia to create opportunities for one million highly skilled workers. As part of this goal, the Mesirat Entrepreneurship Program is offering free resources and support to 100 select business owners looking to build their businesses quickly, at no cost.
The event, hosted by L&A and the Center for Accelerated Women’s Economic Empowerment (CAWEE), delved into crucial topics. The discussions included the classification of gig workers’ employment, insights into taxation, and exploration of the current operating environments for gig workers and their impacts on the broader Ethiopian gig economy.
Tiobesta Yitnashewa, lead of the Mesirat project at Laurendeau and Associates, mainly working on policy and regulatory aspects, acknowledges the existing challenges when it comes to determining the appropriate classification and obtaining the necessary license for most gig platforms. However, streamlining the licensing process for gig platforms by introducing a specialized license that recognizes them as technology companies could solve a lot of these challenges.
Tiobesta emphasizes that the lack of standardized licensing dedicated to gig platforms is something that policymakers need to investigate closely and pay attention to. Learning other countries’ experiences is also critical in shaping the regulations around registration and taxation, she adds.
Habtamu emphasizes the lack of gig-specific labor laws and the potential application of private employment agency regulations. He suggests, “Introducing a licensing category tailored to gig platforms will provide certainty and predictability for them and offer more opportunities for employment and the protection of the gig workers themselves.”
“Doing so is possible if there is a political commitment from decision-makers, particularly the MInT, the Ministry of Labor & Skill and the Ministry of Trade & Regional Integration,” Habtamu told Shega.
Both Habtamu and Tiobesta emphasize the need for political commitment from decision-makers. Highlighting that it’s only when the recommendations are considered by policymakers that Ethiopia could expect some changes in the ecosystem and ease the burdens of gig platforms in terms of registrations and licensing.