On the 19th of October 2022, his Excellency, President Muhammadu Buhari, GCFR, accented to the Nigeria start up bill earlier passed by the National Assembly. The President’s accent effectively birthed the Nigerian Start-up Act, a legendry piece of legislation which promises to benefit start-up Companies in Nigeria tremendously.
The objectives of the Act as stated in Section 1 thereof include providing a legal and institutional framework for the development of startups in Nigeria and providing an enabling environment for the establishment, development and operation of startups in Nigeria. It will also seeks to provide for the development and growth of technology-related talents as well as position Nigeria’s startup ecosystem as the leading digital technology centre in Africa, having excellent innovators with cutting edge skills and exportable capacity.
That this new Legislation has been long anticipated is to say the least. In recent years, the Nigerian startup ecosystem has experienced tremendous increase as well as a broader uptick in the country’s technology and innovation sectors. For example, According to statistics, Nigeria has the largest number of startups in Africa, with Nigerian companies keeping USD1.37 billion of the USD 4 billion in investment in 2021. Unfortunately, the failure rate of Nigerian startups is alarmingly high, with a staggering 61% startup failure rate recorded from 2010 to 2018. These failures have been attributed to a number of factors, which include unfavourable legislation. Flowing from this, it was pertinent that certain steps be taken in order to make startups in Nigeria grow and prosper as Startup Acts have shown themselves invaluable in achieving this goal going by the experience of Italy and Tunisia.
What companies are regarded as Startups in Nigeria Registration of startup labels?
For any company or enterprise to be regarded as a startup or enjoy any of the incentives under the Nigeria Startup Act they must be registered as a labeled start up. A startup label in this regard is a certificate issued by the Secretariat to a startup upon the fulfillment of the labeling requirements under this Act.
Some of the requirements as seen in section 13 of the Act are; the company must be a registered limited liability company with less than 10 years from incorporation, or registered sole proprietorships or partnerships involved in innovation, development, production, improvement and commercialization of digital technology innovative product or process. The Act also requires that a Labeled Startup should have at least one-third local shareholding, which should be held by one or more founders/co-founders who are Nigerians.
Innovations and New Establishments Provided for in the Nigeria Startup Act. Establishment of the council for digital innovation and entrepreneurship
The Act established the National Council for Digital Innovation and Entrepreneurship (“the Council”) as a corporate entity having perpetual succession and a common seal with ability to sue and be sued in its name and te capacity to to acquire, hold, purchase, mortgage and deal with property amongst others. The council has the power to formulate and provide general policy guidelines for the realization of the objectives of the Act, as well as give overall directions for the harmonization of laws and regulations that affect a startup. It will also be responsible to approve the programmes of the Secretariat established under the Act. In essence, the council will perform all other functions as are necessary or expedient to ensure the efficient performance of the functions of the Secretariat and other bodies established under the Act.
Members of the Council include: the President as the chairman, the Vice-President as the vice-chairman, the Minister for Communications and Digital Economy, who will preside over the Council in the absence of the President and the Vice-President. The other members of the Council include the Minister of Finance, Budget and National Planning, the Minister for Industry, Trade and Investment, the Minister for Science, Technology and Innovation, the Governor of the Central Bank of Nigeria, four (4) representatives of the Startup Consultative Forum, and one representative each from the Nigeria Computer Society and Computer Professionals (Registration Council of Nigeria). The Director of the National Information Technology Development Agency will serve as the Secretary of the Council.
The Secretariat of the Council
The National Information Technology Development Agency serves as the Secretariat of the Council, and it is headed by the Director-General of the National Information Technology Development Agency. Some of the duties of the secretariat include managing the process of labeling a startup, establishing public online platforms and other platforms to provide access to information on matters pertaining to the establishment and development of a startup, incubation, acceleration and venture building programmes, enabling access to fiscal and non-fiscal support, amongst many others provided for in the Act. Additionally, the secretariat will work with other MDAs already in place to make sure that startups are able to take full advantage of the Act’s incentives.
Establishment of Technological Development Zones
Section 42 of the Act provides that the Secretariat through collaboration with the Nigeria Export Processing Zones Authority will establish a technological Development Zone. This is done to spur the growth and development of startups, accelerators and incubators. Startups, incubators, and accelerators operating in the Zone would be eligible for current benefits offered by the Nigeria Export Processing Zones Act, such as a lifetime tax exemption, exclusion from the CBN’s FX regime, duty-free imports, and more.
Benefits and Incentives for startups provided for in the Nigeria startup Act
The Nigeria startup act has many provisions that will be of immense benefit to any enterprise that fulfills the requirements given in Section 13 of the Act. They include:
Investing and Financing of Startups
A Startup Investment Seed Fund will be managed by the Nigeria Sovereign Investment Authority, which shall be established by the Council in accordance with the requirements of Section 19 of the Act. According to the Act, the Council must yearly finance the Fund with at least 10 billion from sources that it must authorize.
Also Section 28 of this Act provides that the secretariat will establish a Credit Guarantee Scheme for the development and growth of a labeled startup. This provision gives startups access to the financial and credit facilities.
Protection of Intellectual Property Rights
The Act provides for the designation of a separate section on the Startup Portal to ease registration of intellectual property for labeled startups and also for the provision of assistance to labeled startups for facilitating the application for grant or revocation of patents and institution of legal action for infringement of any intellectual property rights.
The Pioneer Starter Incentive Scheme
A labeled startup that falls within industries captured under the extant Pioneer Status Incentives (PSI) Scheme may upon application through the Secretariat receive expeditious approval from the Nigerian Investment Promotion Commission (NIPC) for the grant of the tax reliefs and incentives under the PSI Scheme.
Accelerators and incubator programs
The creation of National accelerator and incubator programs that will expand the startup ecosystem is provided for under Section 38 of the Act.These incubators will act as breeding grounds for start ups and assist them in overcoming operational difficulties.
Training and Capacity building
In accordance with Sections 21 and 22 of the Act, digital technology acquisition centers would be established throughout Nigeria’s six geographic zones to support Labeled Startups’ training, capacity development, and growth. By working with pertinent organizations, the private sector, and supporting the initiatives of linked academic research institutes, these centers will aid in the development of talent.
Access to Export Facilities
Section 27 provides that labeled startups involved in the exportation of products and services, which are deemed eligible under the Export (Incentives and Miscellaneous Provisions) Act, are entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund.
Conclusion
The Nigeria Start up Act is as unprecedented as it is a game changer. Startups and other small to medium scale businesses in Nigeria particularly those with technology related talents are set to enjoy the benefits and incentives provided for in the Nigerian Startup Act. It is expected that the days to come will witness industries and organisations drawing from the incentives provided for in the Act giving rise to gamut of technological innovation that will continue to drive change and solve problems across various sectors both now and in the future.