How public policy could boost innovation ecosystem in Africa. Tunisia case study

In April 2018, the Startup Act was promulgated in Tunisia, embodying a more committed public policy towards the local innovation ecosystem. Several regulatory texts and notices, in particular from the Central Bank of Tunisia, followed the path to facilitate the implementation of the State strategy to make Tunisia an attractive entrepreneurial hub in the region. More over, Tunisia supplemented the public procurement rules by a new law setting the conditions for granting concessions (Government Decree No. 2020-316 of 20 May 2020) particularly favorable to startups. 

Thus, we are witnessing a true reforms dynamic, the achievements of which are very much hoped for. A research study conducted under the auspices of Tunisia-Africa Business Council, streamlines the discourse on the potential and performance of innovation ecosystems as a tool for assessing public policy.

The Tunisian case study is revealed under the presented approach in the following. According to the report, an innovation ecosystem is distinguished by three capabilities or spheres, as illustrated in the graph below.

  -The "Knowledge/Technology" sphere

  -The "Capital/Financing" sphere

  -The "Entrepreneurship/Market" sphere.

Exhibit 1: The determinants of innovation ecosystem potential

By assuming a systemic approach, each sphere can be modeled by the business processes it deploys. The combined capability of the three spheres is determined by the way they operate and interact together. From there we can deduce the potential and measure the performance of the ecosystem that carries them.

Nevertheless, full potential will not be achieved only when the three spheres are operating at full capacity, but once they are scrutinizing and exploring all the possible fields of synergies and collaboration. This suggests a total fluidity of information between stakeholders. From this point on, performance would be the rate at which the potential is transformed into concrete achievement.

Now, the question is how to measure potential and performance on each sphere. The TABC report gives the following orientation:

1- The Global Capital Index to materialize the Financing sphere

a. For the potential, the index will sum all the grants and funds available (dry powder) on the venture capital market in the country.

b. For performance, this index will sum the total amount of funds engaged in the financing of start-ups over a given period of time. It can also be broken down by sector or technology.

2- The Global Entrepreneurship Index to materialize the entrepreneurship sphere

a. For the potential, we’ll assume it at a theoretical 100% when entrepreneurship is open to everyone without any restriction in the country. This means that full potential is always possible.

b. For the performance, the annual GEDI country index will be used.

3- The Digital Entrepreneurship Index to materialize the technology sphere

a. For the potential, we’ll consider by default that the full capacity is 100% when the country is offering the state of the Art of technology. This means that the full potential is not true for all countries.

b. As for performance, the country index will be taken directly from the GEDI Technology Capability Ranking.

The indexes thus gathered will illustrate the individual weight of each of the three spheres, keeping in mind that it is the degree of synergy between the spheres that counts. As a first approach, we’ll consider that the three dimensions of the ecosystem are collaborating in the value production and that the metrics presented of each sphere are correlated by the synergy level.

Based on these assumptions, the study reported a first ranking of African countries by the potential and performance of their innovation ecosystem. Observation over time will surely give a more candid view of the performance of each ecosystem.

Exhibit 2: African Innovation Ecosystem Potential and Performance ranking

We see in this ranking, that Tunisia is not in the top 10 of high potential countries. But in terms of innovation ecosystem performance it is ranked the second, just after South Africa. So the questions to be followed over time for each country are the following: To which extent does the range of possibilities increases from one year to the next, and how is the potential turned into achievement.

On this basis, the evaluation of the current and future impact of public policies, in particular the Startup Act for Tunisia, is necessary in order to assess the accuracy and relevance of this ranking. It should be recalled that Tunisia has been able to label nearly 300 startups, which have raised around around €130 million since the Startup Act was introduced. This information is useful but remains incomplete to assess the relevance of public policies on the innovation ecosystem.

To give a better idea of the impact of public policies, a rating of each capaibilty is highlighted for each axis, as illustrated in the following graph:

Exhibit 3: Perception of Innovation Public Policy Effectiveness in Tunisia

The study pointed out that some of the Startup Act decisions are still waiting to be implemented, such as simplified accounting, out-of-court (or amicable) liquidation or Business Angels investment funds.

At the end, it is the lack of a common referential with a logical framework for measuring the impact of public policies on the innovation ecosystem that presents the greatest obstacle to governance and the dissemination of good practices.

Thus, in order to identify areas for improvement and make precise and relevant recommendations, the country case study proceeds by allocating a set of public policy instruments for each of the 3 spheres mentioned above, and assesses the level of implementation (from initialization to institutionalization). Responses are funneled from the largest to the smallest capacity, giving a clear picture of the bottlenecks that constrain potential.

This approach applied to the three spheres in Tunisia shows the following results:

Exhibit 4: The Capital Sphere readiness in Tunisia

For the Capital sphere, the simplified amicable liquidation and the compartment dedicated to "over-the-counter" operations on startups capital remain the bottlenecks to be dealt with as a priority in order to unlock the potential of the Capital sphere. Direct financing of entrepreneurs also seems to be crucial for unlocking the sphere potential, and this is all the more so for scientific spin-offs.

Exhibit 5: The Knowledge Sphere readiness in Tunisia

As for the knowledge sphere, the bottleneck is essentially in the area of collaborative research projects in public-private partnerships. Following this is the low flow of technology transfer through Research Based Spin-Offs, with very little data valorization.

Exhibit 6: The Entrepreneurship readiness in Tunisia

Acting directly on the areas of improvement in each sphere will give a better overall potential of the ecosystem. A series of measures derive from this and constitute a set of recommendations summarized as follows:

1- Reforming the commercial companies code to implement certain measures enacted by the Startup Act, such as the simplified corporate (Société Anonyme Simplifiée).

2- Establishing a commercial court exclusively in charge of commercial disputes as well as the facilitation of takeovers, transfers and bankruptcies of companies.

3- Setting up a compartment for Startups at the Tunis Stock Exchange.

4- Reforming the code of investment companies and asset managers, allowing more financial instruments and accelerating investment funds managed by Business Angels.

5- Launching innovation clusters in public-private partnerships and increasing the number of collaborative research projects in "open innovation" mode.

6- Giving priority to local startups to respond to local bids in the digital economy.

7- Creating a trade association specialized in the protection of intellectual property and technology transfer

When it comes to the performance of the innovation ecosystem in Tunisia, good beginnings have already been made and deserve to be institutionalized, such as the multiplication of sectoral and technological clusters (AgriFood, Artificial Intelligence ...) and Open Government strategies.

With a little more focus on transparency and the sharing of good practices, Tunisia will soon be able to establish itself once again as a reference player on the African continent.