Island nations with populations under 20 million have traditionally experienced geographic isolation and limited connections to larger continental markets. Due to generations of people leaving them for work opportunities abroad, they tend to have a diaspora larger than the global average. However, small island nations also have an inherent advantage over larger economies in an increasingly digitised global economy with interconnected tech start-up ecosystems.

The small size of island nations enables them to create and implement innovative policies quickly — a task that is far more difficult in larger, more developed economies. By targeting global or regional digital services markets, small island nations can also diversify their economies, create new job opportunities and help stem brain drain. Recently, we have observed steps toward developing start-up ecosystems in three small island nations across the globe: Cape Verde, Jamaica and Cyprus. They offer lessons on how small, isolated nations can create the conditions for the growth of successful start-up economies. 

There is a precedent for these three countries to follow too. Three other island nations — Ireland, Taiwan and New Zealand — are ranked in the top 30 per capita for innovation output, according to our 2024 Startup Ecosystem Index Report. 

Proactive governments

First, we see strategic involvement from these island nations’ governments in ecosystem development to create a favourable environment for start-ups and counter the effects of having small and geographically disconnected markets. In Jamaica, for example, the Development Bank of Jamaica has teamed up with the IDB to support local companies to expand their businesses by targeting the larger regional Caribbean market, giving these businesses more chances to scale.

Meanwhile, Cape Verde’s national digital initiative is a strong case study of how a government can actively shape its start-up ecosystem. The direct involvement of the prime minister and creation of focused roles like Secretary of State for Digital Innovation demonstrates the strategic importance the country has placed on its start-up ecosystem. The Cypriot government has a proactive approach towards ecosystem development by having a dedicated Research and Innovation foundation. This glues the ecosystem together and offers favourable tax incentives, superior to any other EU country system at this current point in time.  

More on tech hub development:

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• Opinion | LatAm tech hubs are limited by regional focus
• Opinion | The climb against major US coastal tech hubs has slowed

Agile, creative policymaking

The greatest advantage of island nations is they can be nimble and quick to make changes that favour their start-up ecosystems. Many islands have aggressively implemented favourable tax incentives, making them more attractive for investment and foreign talent. 

By combining its connection to Europe as an EU country with a favourable tax environment, Cyprus leverages digital innovation to expand its market reach and attract talent within the region. Similarly, Cape Verde is looking to become a small, smart and agile leader of innovation with a regional footprint. 

But policy doesn’t end with taxes. Taiwan Tech Arena’s innovative approach with the Black Card Program, is designed to attract international serial entrepreneurs and investors to Taiwan while helping them set up a company and deal with visa restrictions. Island nations need to think outside the box and create unique advantages to offset their inherent disadvantages and enable them to strategise and execute much faster than their larger continental counterparts.

It is more critical than ever for small island nations to counter brain drain and boost connections with their diaspora. Building strong start-up ecosystems is one way of them doing this. With the right strategies in place, the small size of an island nation can become an advantage, making it attractive to foreign entrepreneurs and investors, as well as enabling it to be global from the very start. 

Eli David Rokah is the CEO of StartupBlink, a global start-up ecosystem map and research centre that tracks and advises on the development of the global innovation economy. Additional research for this column was undertaken by Sengul Enginsoy, a marketing manager at StartupBlink.

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This article first appeared in the October/November 2024 print edition of fDi Intelligence