About half of African unicorns–startups worth more than $1 billion are from Nigeria. That is not surprising and explains why people cannot stop talking about the startup space in Nigeria. Beyond the attention, startups have significant impacts on the economy, like Flutterwave hiring 200 employees at once.
This has encouraged many African governments to take necessary steps, like the Nigeria Startup Act of 2022, to provide a conducive environment for startups to thrive. “The Startup Act,” from a legal perspective, was signed by the Nigerian President on October 19, 2022. It establishes the dos and don’ts for developing and managing startups in Nigeria and aims to make Nigeria the topmost tech hub. So, what will this Act do differently? Let’s dive in.
1. Application of the Act– What is a Startup?
The Act defines a Startup as a “company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process”.
Given how wide this definition is, the Act will potentially cut across a wide number of technology companies from industries including financial technology, healthcare, mobility, agriculture, renewables, and energy sectors.
2. Startup Labeling Process
A significant part of the Act is “Labeling”– a merit-based label granted to qualified startups before being considered a tech-enabled startup. It is important to note that getting the label provides access to some incentives and, of course, responsibilities, which we will mention later.
To get your startup label, the Act expects many things, including the following:
a) fulfilling the eligibility requirement of being registered as a limited liability under the Companies and Allied Matters Act and being in existence for not older than 10 years from the date of registration;
b) the focus of the startup should be on the development and improvement of digital technology to solve everyday problems and major challenges;
c) the company either holds/stores (a repository) of a product/process of digital technology or is the owner/author of a registered software;
d) the company should have at least one or more Nigerians as founders or co-founders with at least one-third shareholding control of the company.
Once the requirements are met, a Labeling Certificate will be issued. However, the appropriate government agency won’t just issue the certificate. The issuance of the certificate comes with some guidelines which must be adhered to or risk the withdrawal of the labeling certificate.
3. The Key Differences of the Startup Act
Here comes some of the things we hope will differentiate the Act from others.
First, it establishes the National Council for Digital Innovation and Entrepreneurship– “the Council” to serve as the regulatory framework of the Act by:
a) creating guidelines to ensure the Act achieves its goals;
b) formulating and providing general policy guidelines for achieving the goals;
c) giving directives for harmonizing other laws and regulations that affect startups;
d) monitoring the frameworks for developing startups in Nigeria and other related functions; and
e) reviewing the policies and directives of other government agencies that may hinder investments in startups and affect the operation and establishment of startups in Nigeria.
Another difference is the relationship of the Act with the National Information Technology Development Agency (NITDA). NITDA is responsible for developing, regulating, and advising on information technology in Nigeria. Hence, the Act seeks to create a connection by making NITDA the Secretariat of the Council and conferring administrative responsibilities on it.
4. Important Parts of the Act
The Act has introduced some innovative concepts and functions in relation to the Council to support its primary objective of creating a viable environment to make Nigeria the topmost tech hub. Some of these are discussed below:
A. Accelerators and Incubators
The Council has the responsibility of establishing accelerator and incubator programs for Startups. The accelerator programs will provide qualified Startups with mentorship and educational assistance to help their growth. On the other hand, incubators have the sole aim of supporting the establishment and development of startups, promotion of innovation, and related activities through their dedicated physical spaces and services.
B. Clusters, Hubs, Innovation Parks, and Technology Development Zones
The Council is also responsible for establishing and operating Startup innovation clusters, hubs, and physical and virtual innovation parks in each state of the Federation. This would potentially foster the synergy between Startups and large companies across different industries, provide Startups with access to resources and professional services, and promote innovation between Startups.
C. The Startup Portal
The Startup Act establishes the Startup Portal (the Portal) through the Secretariat to serve as a one-stop shop for startups to go through all required registration and access necessary regulators like the Corporate Affairs Commission (CAC), Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC). This is expected to facilitate a more cohesive implementation of the Act and improve the ease of doing business for startups.
D. Startup Investment Seed Fund, Training, Capacity Building, And Talent Development
To aid the growth, expansion, and scaling of startups, the Act provides for these key incentives:
1. Funding: The Act creates a Startup Investment Seed Fund, which would be applied towards providing a labeled startup with finance, amongst other key incentives. The fund will be managed by the Nigeria Sovereign Investment Authority (NSIA).
2. Training and Capacity Development: The Act, through its Secretariat, creates a training and capacity building program for Startups, information of which will be disseminated on the Startup portal.
E. Tax And Fiscal Incentives
To positively impact the economy, the Act makes room for the attraction of funds from both local and international investors by
- Providing Tax Incentives for qualified labeled Startups;
- Establishing a Credit Guarantee Scheme for labeled Startups to access export facilities, government grants, loans, and facilities;
- Allowing startups to raise funds through crowdfunding platforms licensed by the Securities and Exchange Commission (SEC).
The Startup Act is a progressive step in the right direction by the Nigerian Government to aid the ease of doing technology-centered business in Nigeria. However, achieving its implementation requires a lot of collaborative efforts and seamless synergy between the public and private stakeholders. We are optimistic and eager to see the impacts that the Startup Act bill will have in stimulating digital technology for the economic development of Nigeria. You can learn more about the Nigeria Startup Act by clicking here!