Nigeria’s Startup Bill and its Implications on the Nigerian Startup Ecosystem

In May last year, the Nigerian presidency launched the Nigeria Startup Bill project, in collaboration with a group of Nigerian tech CEOs and other government entities, to co-create laws and regulations that would help maximize the potential of the country’s digital economy.

The bill’s goal was to establish a conducive environment for Nigerian startups to develop and scale their products, as well as to avoid the setbacks that have occurred in the past, such as the Lagos State government’s ban on motorcycles and the federal government’s ban on cryptocurrencies.

According to the draft of the bill from last year, it aims to address three significant difficulties for Nigerian startups: a lack of an enabling environment, an unclear regulatory framework, and insufficient local content support. It also advocates for protection and incentives, such as tax cuts, incentives to attract foreign capital, and access to an exclusive list of public and private-led local investment opportunities, including a ₦10 billion federal government fund.

The bill was assented to and signed into law by the Nigerian President, Muhammadu Buhari on Wednesday, the 19th of October, 2022. This means the bill has now become a law and will be referred to as the Nigeria Startup Act, 2022.

Journey to Presidential assent

May 2021: The Nigerian Startup Bill project is launched.

August 2021: Town Hall meetings take place for public consultation and validation.

October 2021: A draft of the bill is submitted to the Presidency and the Federal Executive Council (FEC).

December 2021: The FEC approves the bill.

February 2022: President Muhammadu Buhari passes the bill to the National Assembly.

March 2022: The bill reaches the National Assembly and is received by the Nigerian Senate.

June 2022: Lagos, Nigeria’s most populous state, announces plans to domesticate the bill at state level.

July 2022: The Nigerian Senate approves the bill and passes it to the House of Representatives.

July 2022: The House of Representatives passes the bill to the president for approval.

October 2022: President Muhammadu Buhari signs the bill into law.

What next?

Going forward, the implementation of the Act will be overseen by the Council for Digital Innovation and Entrepreneurship, which comprises the President, the governor of CBN, Nigeria’s central bank, representatives of the Startup Consultative Forum, the Director-General of NITDA, Nigeria’s information and technology regulator, and other key government and industry leaders.

They will be in charge of policy guidelines and the implementation of the bill’s objectives, which include encouraging collaboration between startups and regulators and ensuring that Nigeria’s laws and regulations are clear, planned, and beneficial to the tech ecosystem.

Implications on the Nigerian tech ecosystem

The Act, once implemented, will have a significant positive impact on the Nigerian tech ecosystem, ranging from making it easier to apply for intellectual property rights, which has been a problem for many founders in the past, to the ability to crowdfund capital, as we recently saw with Algeria’s GroDesto.

One section of the Act addresses strategies and plans for the federal government to assist in the training, capacity building, and development of tech talent in the country. It calls for the development of modules, seminars, and workshops in Nigerian universities and polytechnics to help impart the knowledge required to establish and run a startup. This would come as a result of collaborations between the National Information Technology Development Agency, which serves as the Act’s secretariat, and other organizations, including Nigerian tertiary institutions.

Another significant implication is that startups would be eligible for financial aid for the establishment or acquisition of research facilities to be used by the startup. If there is a flaw in the country’s educational system, it is the lack of attention paid to scientific and technological research, which gives rise to innovation. This could potentially help bridge the gap between what appears to be an academic area of research and an industry in desperate need of innovation in order to stay competitive and profitable.

Labelled startups are also eligible for tax breaks on their earnings or revenue for the first four years after incorporation. Given that most startups are iterating to achieve product-market fit during that period, these tax breaks will allow them to iterate and scale quickly without having to worry about the consequences of paying taxes during this lean period. This has the potential to increase the survival rate of Nigerian startups.

The Act also requires NITDA to ensure that labelled startups have easy access to grants and loan facilities administered by the country’s central bank, the Bank of Industry, and other bodies statutorily empowered to assist small and medium-sized businesses. This, combined with labelled startups’ eligibility for grants from the Nigeria Sovereign Investment Authority’s ₦10 billion Startup Investment Seed Fund, puts much-needed capital within startups’ reach, increasing their chances of survival beyond the legendary five-year period.

In addition to direct incentives for startups, the Act incentivizes the activities of entities or bodies that invest in the country’s startups. Incubators, accelerators, angel investors, VCs, and private equity funds that invest in a labelled startup are eligible for a 30% investment tax credit on their investment. Incentives like this will help attract foreign investments while also persuading local high-net-worth individuals to invest in the tech ecosystem rather than stowing away their money in foreign banks.

Once implemented, the Act will make working with regulators easier, particularly for fintechs, who will be able to easily obtain licenses from the CBN and SEC, as well as participate in regulatory sandboxes organized by both regulatory bodies. This will help to avoid situations like those that have affected fintechs in other African countries. Labelled startups would also be easily supported through the process of listing on domestic stock and commodity exchanges.

It is important to note, however, that the Act, as well as these benefits and incentives, only apply to “labelled startups.” A labelled startup is defined in the Act as a registered limited liability company that has been in operation for no more than ten years from the date of incorporation and whose goals are “the innovation, development, production, improvement, and commercialization of a digital technology innovative product or process.”

A startup must also have at least one Nigerian co-founder who will share profit or revenue from the sale of shares in order to qualify for labelling under the Act. This clause will help increase local talent participation in startup creation and reduce cases of foreigners coming to the country to launch startups without considering the input of local talent.

Overall, the Nigeria Startup Act is a long-awaited response to the prayers of the Nigerian tech community, and it has the potential to help grow the ecosystem. However, as is well known, the law is only as good as its enforcement. In this case, rapid implementation will go a long way toward accelerating the growth of the Nigerian startup ecosystem and propelling it to the undisputed leader in Africa.

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