Overly strict regulatory policy can inhibit investment in internet companies, with governments in emerging markets needing to ensure policy does not put off tech investors.
This is according to the ‘The Impact of Internet Regulation on Investment’ report released by incubator Fifth Era and commissioned, which surveyed 475 investors in 15 countries, including Nigeria and South Africa.
“Investors are chilled by regulatory ambiguity and would reduce their capital investment if countries introduce internet regulations that reduce their investment viability or return,” the report said.
According to Fifth Era researcher Matthew Le Merle, the digital economy will be the most significant driver of growth of GDP and jobs over the next five years, something which most governments understand. Yet he said regulations often had the effect of making it difficult for entrepreneurs to do business, and thus scaring off investors.
“The notion of an innovation-based strategy always collapses down to the fact that we need entrepreneurs and venture capital and both are scarce,” he said.
For example, in South Africa, all of the 31 investors assessed said the current policy environment in the online sector had a negative impact on their investment activities, with 74 per cent saying they were not comfortable investing in business models where the regulatory framework was ambiguous.
The risk of secondary liability and exposure to large damages was of concern to 84 per cent of respondents, while 81 per cent said they would be uncomfortable investing in internet companies if tax rules were applied making those companies liable for double taxation.
Meanwhile, 87 per cent of investors said they would not be comfortable investing in internet businesses if intermediaries could be held liable for third party content or actions, while 58 per cent of investors said they would avoid internet or mobile businesses if regulators were to apply traditional telecom regulations and tariffs to mobile messenger and free online content services such as WhatsApp or Viber.
On the other hand, 77 per cent would consider increasing their investments in internet businesses if regulation was reduced in the mobile app space.