Introduction
The Nigerian startup ecosystem and digital technology space have experienced significant growth and innovation in the last decade. There is no doubt that the space has produced some of Africa’s leading digital technology across sectors, as well as excellent tech-preneurs with cutting-edge skills and scalable talent. From the finance sector to the health sector, technology innovation is influencing the way Nigerians do business and interact with one another. With this remarkable stride in Nigeria’s startup and tech space comes the need to create an enabling business environment for these ideas and innovations to thrive. To that end, Nigeria joined many proactive African and world nations on October 19, 2022, when the President signed the Nigeria Startup Bill into law, transforming it to the Nigeria Startup Act, 2022. Follow the link below for the Act:
In this article, we look at some of the key provisions of this law so that tech-preneurs and other stakeholders will be aware of this new development in the Nigerian startup ecosystem.
Highlights of Key Provisions in the Act
- Establishment of the National Council for Digital Innovation and Entrepreneurship
The Act in section 3 establishes the National Council for Digital Innovation and Entrepreneurship (the council) which is made up of the President, some ministers and stakeholders. The powers and functions of the council according to section 7 of the Act include. but are not limited to: the formulation and provision of general policy guidelines for the realization of the objectives of the Act; giving overall direction for the harmonization of laws and regulations that affect a startup; monitoring and evaluating the regulatory framework to encourage the development of a startup in Nigeria.
Also, section 9 of the Act designates the National Information Technology Development Agency (NITDA) as the administrative department of the council (the secretariat) for the execution of its operations. The NITDA is saddled with the responsibility of issuing certificates to qualified startups (startup labelling); maintain a directory of startups, incubators, and accelerators; collaborate with the relevant ministries, departments, agencies (MDAs) and other stakeholders to promote innovation in digital technology, and enterprise development for a startup in Nigeria, amongst other duties.
- Startup Labelling
The National Information Technology Development Agency has the responsibility to issue a certificate known as “startup label” to startups that meet the eligibility criteria for the issuance of such certificate. To be eligible for startup labelling, section 13 of the Act sets out the criteria to be met. These include: (i) be registered as a limited liability company under the Companies and Allied Matters Act 2020, and must have been in existence for a period not exceeding 10 years from the date of incorporation; (ii) have the objectives of innovation, development, production, improvement, and commercialization of a digital technology innovative product or process; (iii) be a holder or repository of a product or process of digital technology; or the owner or author of a registered software; and (iv) has at least one-third local shareholding held by one or more Nigerians as founder or co-founder of the startup among other requirements.
Once the certificate has been issued, the startup shall be recognized as a labelled startup and will be able to take advantage of the incentives in the Act. The provisions of the Act will not apply to holding companies or subsidiaries of existing companies that are not registered as startups. Hence, such companies will not be issued a startup label by the NITDA.
- Establishment of Startup Investment Seed Fund
The Act in section 19 establishes a ‘Startup Investment Seed Fund’ that will be set up and managed by the Nigerian Sovereign Investment Authority (the Fund Manager). There shall be paid into this account a sum not less than #10,000,000,000.00 annually from sources to be approved by the Council. The funds will be applied to provide a labelled startup with finance, provide early-stage finance for labelled startups on the recommendation of the Fund Manager subject to the approval of the Council, and provide relief to technology laboratories, accelerators, incubators, and hubs.
- Startup Support and Engagement Portal
Section 10 of the Act provides for the creation of the “Startup Support and Engagement Portal” (SSEP), which will enable startups to register with relevant agencies, ministries, department, and agencies. The goal of the SSEP is to bridge the gap between startups and government regulatory bodies. The SSEP will serve as an instrumental platform to:facilitate the issuance of a permit or licence to a labelled startup; provide platform for interaction between a startup and the Federal Government, private institutions, angel investors, venture capitalists, incubators, accelerators and other relevant institutions; create opportunities for a startup to participate in beneficial challenges and programmes including, incubation and accelerator programmes, showcases, pitch competitions, fellowships, and other related programmes; foster access of a startup to finance, information, innovation, and the global market among others. The NITDA will coordinate the efficient running of the SSEP and appoint a coordinator subject to the approval of the council. Section 11(2) of the Act provides that it shall be the responsibility of the coordinator among other lawful duties assigned to: (i) maintain a register of labelled startups in Nigeria; (ii) keep relevant documents and records of labelled startups; (iii)implement the decisions of the Council on the labelling of a startup and perform other functions as may be necessary for the implementation of the Act.
- Provision of Tax and Fiscal Incentives
Sections 24 to 29 of the Act deal with the tax and fiscal incentives that are provided by the government for startups. Labelled startups are to benefit from incentives which include: (i). exemption from the payment of income tax or any other tax chargeable on the labelled startups’ income or revenue for a period of three years and additional two years if still within the period of a labelled startup, provided that the commencement date of the tax relief shall be the date of the issuance of the startup label; (ii) labelled startup shall enjoy full deduction of any expenses on research and development which are wholly incurred in Nigeria and the restrictions placed by the Companies Income Tax Act shall not apply to a labelled startup; (iii) labelled startup shall be exempted from contributions to the Industrial Training Fund where it provides in-house training to its employees for the period where it is designated as a labelled startup among other incentives provided in the Act.
- Obligations of a Labelled Startup
The Act provides in section 16 that a labelled startup must carry out its business in Nigeria in compliance with certain rules, default from which will attract some sanctions. These include: (i) complying with all the extant laws governing businesses in Nigeria; (ii) providing information annually on the number of human resources, total assets and the annual turnover achieved from the period the startup label was granted; (iii) maintaining proper books of account in accordance with reporting obligations provided under extant laws and regulations; (iv) providing an annual report on incentives received and advancement made by virtue of the incentives; (v) notifying the coordinator of any change in structure, composition or objects within a period of one month from the date of such change; and (vi) complying with obligations set out by the coordinator after the issuance of the startup label.
By the provision of sections 16(2), 17 and 18 of the Act, where a labelled startup defaults in any of the obligations, or fails to meet the eligibility criteria under this Act, the Coordinator shall notify the labelled startup of the default, and within 30 days of the notification, the startup shall take steps to rectify the default, and where a labelled startup fails to regularise the default after being notified, the Secretariat shall withdraw the startup label and notify the relevant MDAs or investors that may have granted incentives to such labelled startup. Also, where a startup, whose startup label is withdrawn under section 17 of the Act, rectifies the default, it may apply to the Secretariat for a reissuance of the startup label.
- Crowdfunding
By the provision of Section 32 of the Act, startups are allowed to use crowdfunding intermediaries and commodities investment platforms which are duly licensed by the Securities Exchange Commission (SEC), to raise funds which would ease the furtherance of their objectives. Startups can access and use these licensed platforms on the startup portal.
- Transfer of Foreign Technology
It is pertinent to note that there is provision for the transfer of foreign technology as a section of the startup portal would be designated to ease such technology transfer registration for the labelled startups. This is in accordance with the provision of section 33 of the Act. This section also provides for the collaboration of the National Information Technology Development Agency (NITDA) with the National Office for Technology Acquisition and Promotion (NOTAP) to ensure the seamless registrations of technological transfer and other related activities.
- Establishment of Accelerator and Incubation Programmes
To realize the objectives of the Act, the National Information Technology Development Agency (NITDA) shall establish accelerators and incubation programmes for startups in accordance with the provision of section 38 of the Act. An accelerator is a fixed-term, cohort-based programme which provides a startup with mentorship and educational assistance to aid its growth. The Agency shall also develop standards and guidelines for the regulation of the relationships among accelerators, incubators, and startups. These startup accelerators and incubators registered with the Secretariat shall be entitled to incentives as may be granted by the Federal Government of Nigeria as provided in section 39 of the Act.
- Obtainment of Licences for a Financial Technology Startup
A separate section of the startup portal shall also be designated by the Secretariat, Central Bank of Nigeria, and Securities and Exchange Commission to ease the licensing procedures for labelled fintech startups as provided in section 34 of the Act. These three bodies shall be responsible for the harmonization of the rules and regulations that affect the establishment, licensing, and operations of fintech startups. The Council shall work with the CBN and SEC in harmonising rules and regulations that affect the establishment, licensing and operations of fintech startups.
- Power to make Regulations and Guidelines
Subject to the approval of the president, the Council may make rules, regulations and guidelines as regards the exercise of any of the duties and functions enunciated in the Act in consonance with the provisions of section 45 of the Act. Any act or omission contravening the rules, regulations and guidelines shall constitute an offence and shall be punishable as prescribed in the particular rules, regulations and guidelines.
- Commencement of Action
Section 46 of the Act barred the commencement of a civil action against the National Council for Digital Innovation and Entrepreneurship or its authorized officers without a pre-action notice to the Council by the intending plaintiff. The action shall not commence until the expiration of a period of 30 days after written notice of intention to commence the suit shall have been served by the intending plaintiff or his agent. This pre-action notice shall unequivocally state the cause of action, the particulars of the claim, the name and place of residence of the intending plaintiff, and the reliefs sought.
Conclusion
The passage of the Nigeria Startup Act, 2022 is a step in the right direction, as it was originally proposed by the President’s administration as part of its commitment to transform various sectors of the economy by leveraging digital technologies. As the technology industry continues to grow in Nigeria, there is an urgent need to create legal protection and regulation for this sector. This set of regulations will not only aid good corporate governance but will also establish a system of reward and incentive for active participants in the space. However, it is important to note that legislation and policies in Nigeria have always struggled with implementation. Given that Nigeria has other laws that are supposed to protect businesses, a healthy dose of skepticism is not out of the question. As a result, it is critical that the enactment of this law be followed by the political will to implement the provisions of the law; otherwise, the startup sector may not advance, despite the good intentions of the law.
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