Technology plays a crucial role in today’s society and it is predicted to have a more important function in the future. The potential for countries and businesses to raise revenue, reduce costs and administer effective policies now depends largely on the adoption and integration of technology into their societies and business operations.
Nigeria has witnessed exponential growth in its tech industry as many Nigerian companies are now heavily funded by large international corporations and players in the global tech sector. On the 19th of October 2022, Nigeria’s former President assented to the Nigeria Start-Up Bill which perhaps is the most transformative law in Nigeria’s technological ecosystem. The Nigeria Startup Act (the Act) aims to establish an enabling environment for the establishment, development and operation of startups in Nigeria.
This article analyses the major innovations in the Act. From explaining the meaning of startups and the ‘start-up label’ to discussing the benefits that a company may gain from having this status, this article aims to shed light on the significant changes and their potential impact on Nigeria’s tech sector.
Startups and the Startup Labelling Process
The Act defines Startups to be companies 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.
This means that for a company to enjoy the numerous benefits of the Act, it must be a duly registered company within its first 10 years of existence.
Furthermore, the Act states that it is applicable to companies incorporated under the Companies and Allied Matters Act and granted the start-up label.
The Startup label is a certificate issued by the Secretariat to a startup upon the fulfilment of the labelling requirements. The label is valid for 10 years and enables startups to enjoy numerous benefits and incentives. To be eligible for the status, a potential startup must:
- be registered as a company under the Companies and Allied Matters Act for not more than 10 years from the date of incorporation;
- Have its objects as innovation, development, production, improvement and commercialization of a digital technology innovative product or process;
- Be the holder or repository of a product or process of digital technology or the owner or author of a registered software;
- Have at least one-third of local shareholding held by one or more Nigerians as founder or co-founder of the startup;
- and in the case of a sole proprietorship or partnership, it satisfies the conditions set out in paragraphs (b), (c) and (d)
It is important to note that a sole proprietorship or partnership referred to in paragraph (e) above shall be granted a pre-label status for a period of 6 months to enable the sole proprietorship or partnership to comply with other requirements.
After obtaining the label, the startup must comply with certain requirements such as furnishing the Coordinator with information annually on the Startup’s total assets, turnover and human resources. Failure to comply will result in the forfeiture of the label.
Incentives Available to Startups
Pioneer Status Incentive Scheme. A labelled startup which falls within industries captured under the extant Pioneer Status Incentives Scheme may, upon application through the Secretariat, receive expeditious approval from the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the PSI Scheme.
Tax Exemption. A labelled startup may also be entitled to exemption from payment of income tax or any other tax chargeable on its income or revenue for a period of 3 years and an additional 2 years if it is still within the period of a labelled startup.
Deduction of Expenses. A 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.
Exemption from ITF Contribution. A 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.
Export Incentives. A labelled startup that is involved in the exportation of products and services, which are deemed eligible under the Export Act, is entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund.
Access to Government Grants. The Secretariat shall ensure that a labelled startup has access to grants and loan facilities administered by the CBN, Bank of Industry or other bodies statutorily empowered to assist small and medium scale enterprises and entrepreneurs.
Credit Guarantee Scheme. The Secretariat shall establish a Credit Guarantee Scheme for the development and growth of labelled startups.
Easier Filings at the Corporate Affairs Commission. The Act mandates the Secretariat to collaborate with the CAC to designate a separate section on the Startup portal to ease the processes for labelled startups that conduct transactions at the CAC and ensure transactions are seamless.
Easier Intellectual Property Registrations. The Act mandates the Secretariat to collaborate with the Nigerian Copyright Commission and the Trademarks, Patent and Designs Registries in ensuring that they designate a separate section on the Startup Portal to ease the registration of intellectual property for labelled startups and ensure the process is seamless.
Crowdfunding. The Act expressly permits labelled startups to raise funds through crowdfunding intermediaries and commodities investment platforms licensed by the Securities and Exchange Commission.
Easier NOTAP Registrations. The Act requires the Secretariat and the National Office for Technology Acquisition and Promotion (NOTAP) to designate a separate section on the Startup Portal to ease technology transfer registration for labelled startups and ensure the process is seamless, amongst others.
Easier Licensing for Financial Technology Companies. The Act mandates the Secretariat, Central Bank of Nigeria and Securities and Exchange Commission to make the licensing of any Fintech seamless and to establish a separate section on the Startup Portal for the application of licenses.
Fasttrack Process for Regulatory Sandbox Applications. A labelled Startup intending to participate in the CBN’s regulatory sandbox, SEC’s regulatory incubation programme or any other regulatory sandbox programme set up by other regulators is entitled to submit an application through a fast-track process available via the Startup Portal.
Assistance for Listing on Stock Exchanges. A labelled Startup shall be assisted by the Council to be listed on the board of the Nigerian Exchange Limited or on similar stock and commodity exchanges operating in Nigeria.
Repatriation of Capital and Profits. The Act mandates the Secretariat to collaborate with the CBN to guarantee the repatriation of investment by a foreign investor through the CBN’s authorised dealer.
The Startup Investment Seed Fund
The Act establishes a Startup Investment Seed Fund which is to be managed by the Nigeria Sovereign Investment Authority. The sum of N10,000,000,000 is to be paid into the fund on an annual basis from sources to be approved by the council.
The fund will be applied towards providing a labelled startup with finance, providing early-stage finance for labelled startups on the recommendation of the Fund Manager subject to the approval of the Council; and providing relief to technology laboratories, accelerators, incubators and hubs.
The National Council for Digital Innovation and Entrepreneurship (‘NCDIE’)
The Act establishes the NCDIE, which consists of the President of Nigeria, the Vice-President, the Minister for Communications and Digital Economy, the Minister for Finance, Budget and National Planning, the Minister for Industry, Trade and Investment, the Minister for Science, Technology and Innovation, the Governor of the CBN, the Director-General of the National Information Technology Development Agency (NITDA) and others.
NITDA is the Council’s Secretariat while the Director-General of NITDA is the Secretary of the Council and Head of the Secretariat. The Secretariat’s most critical function is the management of the process of labelling a startup.
The Council has a significant role to play in the Startup Act. Some of the Council’s functions are to formulate and provide general policy guidelines for the realisation of the objectives of the Act and to give overall directions for the harmonisation of laws and regulations that affect a startup.
The Council shall also appoint an agent for the implementation of the provisions of the Act if it so desires. The agent is mandated to supply the Council with quarterly monitoring reports and annual reports. The Secretariat, with the approval of the Council, is to establish a Startup Support and Engagement Portal (in this Act referred to as “the Startup Portal”) which shall serve as a platform through which a startup conducts registration process with relevant MDAs. The Secretariat is also required to appoint a Coordinator for the Startup portal with the approval of the Council. The functions of the Coordinator revolve around maintaining the register of labelled Startups.
The Consultative Forum
The Act makes provision for the establishment of a Startup Consultative Forum to ensure ease in the sharing of information and enhancement in collaboration within the Startup ecosystem.
The Forum is to be comprised of industry stakeholders and representatives registered on the Startup Portal from labelled startups, venture capitalists, angel investors, incubators, accelerators, and innovation hubs; and two civil society organisations involved in the advancement of technology and innovation.
Accelerators and Incubators
The Act requires the Secretariat to establish accelerator and incubator programmes for Startups and to develop a national accelerator and incubator policy for the development of accelerators and incubators.
Clusters, Hubs, Innovation Parks and Technology Development Zones
The Act prescribes that the Council shall issue a framework for the establishment and operation of Startup innovation clusters, hubs, and physical and virtual innovation parks in each state in the federation.
This is a commendable provision as the establishment of these societies will foster collaboration and generate business between startups and large companies.
Training, Capacity Building and Talent Development
The Secretariat is required to design and implement a training and capacity-building programme for Startups and use the Startup Portal for the dissemination of necessary information. The Secretariat is also required to collaborate with the National Universities Commission, National Board for Technical Education and other tertiary institutions regulatory bodies within Nigerian to develop modules and hold workshops necessary for the establishment and running of a startup in Nigeria.
The provision of training on how to run a Startup seems to be a good development as most startups are reputed to fail within their formative years; however, it will be interesting to see if the Secretariat hinges on the provision of the Startup label on the attendance of such training.
Conclusion
This article has discussed the critical provisions of the Nigeria Startup Act and highlighted important points that players in the tech industry ought to be aware of.
The Act is a significant manifestation of Nigeria’s intention to develop its technology sector. The provisions will assist most technological companies in surmounting the most pertinent challenges that these organisations face such as regulatory bottlenecks, lack of access to funding and tax obligations.
It is particularly notable that the Act mandates the Secretariat to carry out a significant amount of work; thus, the success of the Act largely depends on the activities of the Secretariat.
