The Nigeria Startup Act: A new dawn for the Nigerian startup ecosystem
by Omoruyi Edoigiawerie Esq
The Startup and Entrepreneurial Ecosystem has received a landmark boost with the enactment of the Nigeria Startup Act 2022 (“the Act”). This enactment elevates Nigeria to the class of countries that have “seen the light” and are focused on creating an enabling environment for startups to thrive. Nigeria now joins other countries like Italy, Tunisia, Kenya and Senegal which have enacted their startup laws.
One interesting thing about the Nigeria Startup Act is that it will cement Nigeria’s position as Africa’s leading digital economy. The Act will also provide an enabling environment for the growth of startups, guard against different growth challenges faced by startups and most importantly ensure adequate harmonization of the statutory obligations and regulations of startups in Nigeria; putting an end to the seemingly disruptive regulations and lack of regulatory certainty and support that startups are presently faced with.
Some notable provisions of the Act include:
- Establishment of the National Council for Digital Innovation and Entrepreneurship (The Council)
The Council is established as a corporate body with the right to sue and be sued. It will be headed by the President but also has a strong coalition of the Ministers of Communication and digital economy, Finance, Industry and Trade and Science and Technology, the Governor of the Central Bank of Nigeria (CBN), representatives from the Startup Consultative Forum, Nigeria Computer society, representatives of the Computer Professionals (Registration Council of Nigeria) and the Director-General of the National Information Technology Development Agency (NITDA) who will serve as Secretary to the Council.
The functions of the Council are among others to:
- formulate and provide general policy guidelines for the realisation of the objectives of this Act
- give overall direction for the harmonisation of laws and regulations that affect a startup
- ensure the monitoring and evaluation of the regulatory framework to encourage the development of startups.
2. Establishment of the Startup Support and Engagement Portal
The Act provides that the portal setup by the secretariat will facilitate the issuance of a permit or licence to a labelled startup and create a platform for interaction between startups and the Federal Government, private institutions, angel investors, venture capitalists, incubators, accelerators and other relevant institutions.
The Portal will also create opportunities for startups to participate in beneficial challenges and programs including, incubation and accelerator programs, showcases, pitch competitions, fellowships, and other related programs while also enhancing information between various stakeholders in the Nigerian startup ecosystem. It will also provide access to finance, information, innovation, and the global market and serve as a platform for the announcement and application of various schemes and incentives granted to a startup by the Federal Government.
3. Startup Labelling
In order to access the incentives under the Act and be availed the benefit of the Portal, a startup can apply to obtain the startup label (“the Label”) — a certificate issued by the secretariat to a startup. To be labelled, a startup registered as a company (within 10 years of incorporation), sole proprietorship or partnership, must fulfil the following conditions:
- the objects of the entity should be innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process.
- it must be a holder or repository of a product or process of digital technology or the owner or author of registered software.
- It must have at least one-third local shareholding held by one or more Nigerians as founder or Co-founder of the startup.
The label will not be granted to any organisation that is a holding company or subsidiary of an existing company that is not registered as a startup.
3. Establishment of the Startup Investment Seed Fund
The Act sets up the Startup Investment Seed Fund (“the Fund”) to be managed by the Nigeria Sovereign Investment Authority (‘’the Fund Manager”) which will be funded from sources to be approved by the Council. The fund will be utilized to:
- provide a labelled startup with finance.
- provide early-stage finance for a labelled startup on the recommendation of the Fund Manager subject to the approval of the Council; and
- provide relief to technology laboratories, accelerators, incubators and hubs.
4. Tax and Fiscal Incentives for the Development of Startups
The Act provides for various incentives to aid the growth and development of startups in Nigeria including:
- Pioneer Status Incentive Scheme
The Act provides that Startups may apply under the extant Pioneer Status Incentives (PSI) Scheme to the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the scheme. It also provides for the expeditious Approval of the grant for startups that qualify for the reliefs and incentives under the PSI Scheme.
- Exemption from payment of Income tax for a labelled startup
A labelled startup may be entitled to exemption from the payment of income tax or any other tax chargeable on its income or revenue for a period of three years and an additional period of two years if it still falls within the period of a labelled Startup, this is in line with the provisions of the Industrial Development (Income Tax Relief) Act.
- Incentives and reliefs for investors investing in a labelled startup
Under the Act, an angel investor, venture capitalist, private equity fund, accelerator or incubator who invests in labelled startups shall be entitled to an investment tax credit equivalent to 30% of the investment in the labelled startup provided that such credit is applied on any gains on investment which are subject to tax.
The Act also empowers the Federal Ministry for Finance and relevant MDAs to develop and implement a national policy for incentives for investors in a labelled startup or in the startup ecosystem.
The Act allows startups to raise funds through crowdfunding intermediaries and commodities investment platforms that are duly licensed by the Securities and Exchange Commission (SEC) and it also provides for mechanisms to ensure that SEC considers these rules and ensures that they are fast-tracked for labelled startups.
- Establishment of a Credit Guarantee Scheme
Under the Act, a Credit Guarantee Scheme is established to provide accessible financial support for labelled Startups and also provide financial management capacity-building programmes for startups.
5. Protection of Intellectual Property Rights
Commendably, the Act reinforces the importance of intellectual property protection and the need to protect the intellectual property rights of startups to ensure that holders of these rights are encouraged to exploit them and also internationalise and commercialise these rights.
6. Establishment of Technology Development Zones
The Act empowers the secretariat to collaborate with the Nigeria Export Processing Zones Authority to establish a technology Development Zone to spur growth and development of Startups, accelerators and incubators.
THE NIGERIA STARTUP ACT VIS-À-VIS OTHER JURISDICTIONS
The Nigeria Startup Act complies with the best standards and compared to that of Senegal, Tunisia, Ethiopia and Kenya, it decisively addresses a majority of the issues faced by Startups in one legislation. Also, compared to other laws, the Act contains comprehensive provisions regarding tax reliefs, loans and credit facilities, investment funding from both the public and private sectors, and grant issuance. Indeed the Act is not just a game changer for Startups in Nigeria, it sets the pace for others to take a cue from.
For the first time, Nigerians will see a law that is a product of a collaborative effort between government and industry stakeholders. This collaboration will be more pronounced in its implementation as stakeholders will be actively involved in the implementation process.
The Secretariat established under the Act, will be managed by the National Information Technology Development Agency (NITDA) while the Council will oversee the implementation of the provisions of the Act.
The Act however goes ahead of the other jurisdictions to create the Startup Consultative Forum. This underscores the need to ensure a collaborative implementation of the Act. The consultative body known as the Startup Consultative Forum will provide a platform for information sharing and collaboration in the Nigerian startup ecosystem with respect to the relevant incentives that apply to startups, information on available local capabilities and nomination of ecosystem representatives to the Council.
This forum will comprise industry stakeholders and representatives of labelled startups, venture capitalists, angel investors, incubation, accelerators, innovation hubs and civil society organisations involved in the advancement of technology and innovation.
NEXT STEP — STATE ADOPTION
While we celebrate the enactment of this landmark Act, there is the need for states to adopt the Act to help contextualize the benefits of the Act for Startups in their states There are incentives and provisions of the Act that can only be available to states that have adopted and implemented the Act, States must see the Act as an opportunity to support and empower Startups in their States.
The implementation of the Act is as important as the Act itself, so all hands must be on deck to ensure that the Act is adopted and its benefit brought home to Startups.
The Nigeria Startup Act is crucial for the next phase of growth and advancement of the Nigerian economy. It makes a strong statement that startups are pivotal to our economic stability as a Nation and must therefore be given a practical and meaningful platform to thrive in an environment that enables their growth and propels the right contribution necessary for the betterment of the Nigerian economy. Indeed, it’s a new dawn.
Omoruyi Edoigiawerie is the Founder and Lead Partner at Edoigiawerie & Company LP, and Ecosystem Advisor at the Nigeria Startup Project.
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