How Zim startups are forging ahead despite hyperinflation, sanctions
TENDAI Mugovi is a serial technology entrepreneur based in Harare, Zimbabwe’s capital. He has founded and currently runs three startups: Cashlinq, a fintech offering core banking services to banks and other financial institutions, including telcos; Panamax, an enterprise resource planning (ERP) software provider; and Mugonat Systems, a software development firm. Cashlinq has already scaled to Zambia with plans to expand to Mozambique and Malawi.
Mugovi is one of the many startup founders who have forged on with building startups, despite the unfriendly operating environment in Zimbabwe fuelled by sanctions and hyperinflation.
Zimbabwe has been under economic sanctions from the US, the European Union and most Western countries since 2003. The country has also experienced hyperinflation, with annual inflation rates going as high as 231 million% in 2008.
Mugovi told TechCabal that access to funding has been impacted by the country’s macro-economic challenges. “Foreign investors consider us a pariah State, so getting access to patient venture capital is next to impossible.”
Despite all the challenges that have been presented by hyperinflation and sanctions, startups in Zimbabwe are still alive and kicking. Some have built products serving a significant local market, while others have scaled to neighbouring countries after achieving product-market fit in the country. Stakeholders who spoke to TechCabal said the operating environment, although undesirable, has also presented opportunities for tech entrepreneurs.
According to data by venture funding tracker Africa: The Big Deal, Zimbabwean startups collectively raised only US$2 million in 2022. In the same period, startups in neighbouring South Africa raised almost US$500 million in venture capital funding. Some startups have resorted to borrowing from microfinance institutions to address the funding challenge. However, in addition to high rejection rates because of lack of collateral, this capital is usually too expensive for startups, with interest rates averaging between 20% and 40%.
Leonard Sengere, the editor of the technology publication TechZim, said a poor population also adds to the unattractiveness of Zimbabwe as a venture capital destination. “When a startup finds a problem, the business model falls apart when they realise customers can not pay what is needed to warrant the business.”
To traverse through the funding problem, startups are looking to diaspora remittances to fund their projects. According to data from the World Bank, remittances by Zimbabwe’s diaspora community reached US$1,66 billion in 2023 or 11% of the country’s gross domestic product.
Startups are resorting to their fellow countrymen abroad as foreign investors who may not understand the challenges of operating in the country, push them away. “The diaspora community knows the ability of innovators in Zimbabwe, so they
are open to angel investing in startups in the country,” another founder told TechCabal.
In 2021, the government also launched
the National Venture Capital Fund (NVCF) and assigned ZWL$300 million (US$3 million then) at its inception. Additionally, the treasury also introduced tax incentives for venture capital (VC) firms, announcing that they would not be liable for income tax. B2C startups are impacted the most
Zimbabwe’s macroeconomic factors have mostly affected B2C (business-to-customer) startups compared to B2B (business-to-business) startups, according to stakeholders who spoke to TechCabal. “It is extremely hard to move money out of Zimbabwe because of a combination of our policies and other countries’ policies concerning us,” said one founder of a B2C payments startup who requested anonymity. As a result, most startups find it hard to scale their products beyond Zimbabwe, making them unattractive to growth-oriented VC purses.
Zimbabwe uses a dual currency regime in which the United States dollar and the Zimdollar are legal tenders. However, because of waning confidence in the Zimdollar, data shows that nearly 80% of local transactions are done in US dollars.
Unlike B2C startups, enterpriseoriented startups have access to a customer base which can pay in US dollars, managing to hedge against the Zimdollar’s instability. “Accepting payments in the local currency is hard because sometimes rates change by multiples of 10 per day, so we pivoted to a B2B model,” said a founder of a B2B fintech startup who also requested anonymity.
Another factor working against B2C startups in the Zimbabwe ecosystem is negative consumer sentiment about digital wallets or any form of non-cash transactions as a result of hyperinflation. “People here believe more in cash because, in the past, they have seen their savings in more stable currencies converted to Zimdollars by the government,” said Njabulo Sandawana, a Zimbabwean technology entrepreneur.
For startups looking to change consumer sentiments and increase adoption of their products, they would have to spend a significant amount of capital on marketing and community outreach programmes. Signs of brighter days ahead for Zimbabwe startups
Despite the multiple challenges brought about by Zimbabwe’s macroeconomic environment, they have also presented some opportunities. “Because of difficulty in accessing and paying for foreignmade enterprise software, we have seen an increase in demand for our products,” said the founder of an ERP software startup.
Due to a limited market in Zimbabwe, some B2C startups have been forced to think outside the country’s borders. Instead of making products primarily for the Zimbabwe market, some startups use the country as a sandbox to verify their theses and product market fit.
These include Cashlinq and Tano Digital who have expanded to Zambia
and Botswana, respectively. Preferred expansion destinations include South Africa, Malawi and Mozambique.
Zimbabweans are also gradually being attracted to alternative financial technologies away from the traditional banking systems as a result of being burnt in the past. Technologies like blockchain and digital wallets by fintech are gaining prominence as the citizenry looks for alternatives.
“When people look back to the early days of hyperinflation when savings would evaporate, they look at offerings by fintechs and think, surely these can not be any worse,” said Tinodashe Dubayi, head of digital transformation at fintech startup ClickNPay.
Some of these offerings include Innbucks, which allows customers to receive loose change at restaurants; EcoCash, a digital wallet and O’Mari, a superapp which includes mobile money, insurtech and investech products.
With the US having recently relaxed its sanctions on Zimbabwe, innovators are excited about what that could mean for the ecosystem in the country.
Having experienced two decades of sanctions, Zimbabwean technology entrepreneurs are ready to take on the continent on a more level playing field, armed with the experience of innovating in a harsh operating environment. “The last two decades have built tenacity into Zimbabwean entrepreneurs, and they are ready for whatever challenges they face,” concluded Mugovi.