On Thursday 19th of October, 2022, President Muhammadu Buhari signed the Nigeria Startup Bill into law, thus bringing Nigeria in the list of African countries with Startup laws. The Nigerian Startup Act, 2022 (the Act) defines the nature of startups in Nigeria, their scope, operations, incentives and limitations to attract foreign investors and open up the tech market in Nigeria. The Act defines Startup as “a company in existence for not more than ten (10) years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process.” It seeks to provide a legal and institutional framework for the development of startups in Nigeria; provide an enabling environment for the establishment, development, and operation of startups in Nigeria; provide for the development and growth of technology-related talents; and position Nigeria’s startup ecosystem as the leading digital technology center in Africa. This article highlights the salient provisions of the Act and how it affects stakeholders operating in the startup space.
APPLICATION OF THE ACT:
The Act applies to all companies incorporated under the Companies and Allied Matters Act, 2020 and granted the startup label and organizations and establishments, whose activities affect the creation, support, and incubation of labelled startups in Nigeria. It does not apply to an organization which is a holding company or subsidiary of an existing company which is not registered as a startup.
The Act creates a certificate mechanism known as Startup Label. The certificate is issued by the Startup Secretariat to eligible Startups to confirm their status as labelled Startup. Startups designated as labelled Startups are entitled to all the incentives provided under the Act. For a Startup to be eligible for certification, it must do the following:
be registered in Nigeria as a limited liability company
existed for not more than 10 years;
business objects are to carry out innovation, development, production, improvement and commercialization of digital technology, innovative products or processes;
it is a holder or repository of digital technology or author of registered software;
it has at least one-third local shareholding held by one or more Nigerians as founder or Co-founder of the startup;
in the case of sole proprietorship or partnership, it satisfies the conditions set out in paragraphs (b) (c) and (d).
An application for a Startup label shall be submitted on the Startup portal in the prescribed form supported by documents prescribed by the Secretariat. Once approved, the applicant’s name and particular will be entered in the register of Startups kept for that purpose and thereafter issued a Startup label. The Startup label shall be conclusive evidence that the Startup has complied with all the requirements for labelling. A Startup label shall be valid for a period of 10 years from the date of issuance.
ONE-STOP SHOP STARTUP PORTAL
The Act establishes a Startup and Engagement portal through which Startups conduct registrations and collaboration with Ministries, Departments and Agencies (MDAs). The Act further enjoins the Secretariat to collaborate with Corporate Affairs Commission, Nigeria Copyright Commission, Trademarks, Patent and Design Registries, National Office for Technology Acquisition and Promotion, Central Bank of Nigeria, Security and Exchange Commission to designate separate sections on the Portal to ease the processes for labelled Startups that conduct transactions at the Commissions. The Act mandates the Secretariat with the approval of the Council to set up Startup Consultative Forum on the Startup Portal to provide information concerning qualified labelled Startup, relevant incentives, local capabilities, the nomination of representatives to the Council, deliberations on a memorandum to be sent to Council for consideration and other policy proposals.
STARTUP INVESTMENT SEED FUND
The Act establishes Startup investment seed Fund to be managed by the Nigeria Sovereign Investment Authority (the Fund Manager) for the benefit of Startups. A sum of N10,000,000,000 (Ten Billion) shall be paid into the account from sources to be approved by the Council. In essence, the fund will be applied to provide labelled Startups with finance and provide relief to technology laboratories, accelerators, incubators and hubs.
TAX AND FISCAL INCENTIVES
The Act provides for several tax incentives for labelled Startups such as:
pioneer status incentives;
tax relief for total period of 5years;
exemption from contributions to the Industrial Training Fund;
import incentives and access to export facilities;
access to government grants, loans and facilities.
The Act further granted tax credits up to 30% to investors investing in labelled startups. Capital gains tax exemption from the disposal of assets by investors provided such assets have been held in Nigeria for a minimum of 24 months.
CREDIT GUARANTEE SCHEME
The Act empowers the Secretariat to establish a Credit Guarantee Scheme for the development and growth of a labelled startup; provision of accessible financial support to a labelled startup; creation of a framework for credit guarantee for a labelled startup; provisions of financial and credit information to startups and provision of financial management capacity building programmes to startups. Where the Scheme is established, the Secretariat shall ensure that there is a strategy and operational goals which align with the objectives under the subsection 2; criteria for eligibility and qualification for receipts of funding under the Scheme; criteria for the monitoring and evaluation of projects undertaken under the Scheme and the efficiency of the operations of the Scheme; mechanism for transparency, accountability and reporting on the activities of the Scheme and chattels, registered intellectual property, assignment of shares or any other instrument identified in the collateral registry as sufficient collateral.
ESTABLISHMENT OF THE COUNCIL
The Act creates the National Council for Digital Innovation and Entrepreneurship (the Council) to regulate and support the operations of Labelled Startups. The Council is composed of the following:
the Vice President,
the Ministers of Communication and Digital Economy,
Minister responsible Finance, Budget and National Planning,
Minister responsible for Industry, Trade and Investment,
Minister responsible for Science, Technology and Innovation,
Governor of the Central Bank of Nigeria,
Four Representatives of the Startup Consultative Forum.
One member to Represent the Nigeria Computer Society,
One member to Represent the Computer Professionals and
Director-General of the National Information Technology Development Agency.
The establishment of the Council is important because it has mandates amongst others to do the following:
formulate and provide general policy guidelines for the realization of the objectives of the Act;
Give overall directions for the harmonization of the laws and regulations that affect a startup;
Approve the programmes of the Secretariat established under the Act;
Ensure the monitoring and evaluation of the regulatory framework to encourage the development of startups in Nigeria; and
Support digital technological development through grants to persons, research institutions and universities pursuing postgraduate programmes in the areas of science, technology and innovation.
The National Information Technology Development Agency (NITDA) shall serve as the Secretariat of the Council and therefore manage the process of labelling a Startup, establish online platforms for easy access to information, maintain a directory of Startups, incubators and accelerators, implement National Digital Innovation, Entrepreneurship and Startup Policy (NDIESP) of the Secretariat for the development of the Startup ecosystem, advise the Council on issues affecting Startups and digital technology innovation entrepreneurship in Nigeria and matters connected to the implementation of the Act amongst others.
INCUBATION PROGRAMMES/REGULATORY SANDBOX
The Act empowers the Secretariat to establish incubator and accelerator programmes for Startups. The incubation programme is expected to aid Startups to tackle problems they encounter while running their businesses. The Secretariat shall develop standards and guidelines to regulate the relationships between accelerators, incubators and Startups; encourage and collaborate with existing accelerator and incubator programmes established by private organizations and provide information on the Startup portal of existing accelerator and incubator programmes and the process of registration and admission into the program. A labelled Startup wanting to participate in the CBN regulatory sandbox, SEC’s incubation programme or any other shall apply through a fast-track process available in the Startup portal.
TRAINING, CAPACITY BUILDING AND TALENT DEVELOPMENT
The Act mandates the Secretariat to design and implement a capacity-building programme for Startups, and collaborate with the National Universities Commission and Polytechnics to develop modules, programs and workshops aimed at impacting knowledge necessary for the establishment and running of Startups in Nigeria. It further empowered the Secretariat to establish centres for the acquisition of digital technology in the six geopolitical zones of Nigeria and to issue a time-to-time framework for the development of talent and collaborate with relevant stakeholders to establish digital technology innovation parks and hubs in universities and polytechnics. The Secretariat shall support activities of academic research institutions towards the development of Startups by providing financial support amongst others.
INCENTIVES FOR ACCELERATORS AND INCUBATORS
Accelerators and Incubators that provide goods, services or finance crucial in supporting the operation and growth of Startups in Nigeria shall be registered with the Secretariat and thus entitled to some incentives as such grants and aids for research, development, training and expansion projects, grants given under Nigeria Digital Innovation, Entrepreneurship and Startup Policy and such other incentives as may be granted by the Federal Government.
ESTABLISHMENT OF INNOVATION, CLUSTERS, HUBS AND PARKS
The Act mandates the Council to create a framework for the establishment of Startup innovation, clusters, hubs, and physical and virtual innovation parks in each state of the federation. The roles of the innovation clusters, hubs and parks include fostering collaboration and generating business between Startups and large companies, collating expertise, ideas and perspectives, promoting collaboration amongst Startups and providing Startups with access to resources and professional services. It will further aid Startups in registration and application for authorization and expansion into foreign markets.
ESTABLISHMENT OF TECHNOLOGY DEVELOPMENT ZONES
Under the Act the Secretariat is to collaborate with the Nigeria Export Processing Zones Authority to establish a Technology Development Zone (the Zones) in Nigeria to fast-track Startups, accelerators and incubators’ growth and development. The Zones shall grant a license to a Startup, accelerator and incubator before the commencement of an approved activity and shall therefore be entitled to existing incentives provided under the Nigeria Export Processing Zones Act.
PROTECTION OF PERSONAL DATA
The Act provides for the protection of personal data by mandating Startups to ensure compliance with the extant data protection laws in Nigeria in giving effect to the provisions of the Act and in their day-to-day activities.
The framers of the Nigerian Startup Act, 2022 have ensured that there are adequate provisions which, if implemented, will ensure the realization of the objectives which are clearly stated therein. Thus, there is a likelihood that the Act will attract investors into the Nigerian Startups space and thereby accelerate the ecosystem’s growth. It is to be noted, however, that it is one thing to have a good law and an entirely different thing to enforce or implement the law, especially in a developing country such as Nigeria. It is hoped, therefore, that the Federal Government of Nigeria and other stakeholders will take the necessary steps to ensure the full implementation of the provisions of the Act and thereby bring about a phenomenal growth in digital technology which will have a positive impact on the country’s economy.
*Samuel Ngwu is an Executive Associate at Alliance Law Firm, Lagos.