The Nigerian Startup Act at A Glance
It is no longer news that the Nigerian Startup Act 2022 (the “Act”) has been passed into law by the National Assembly of the Federal Republic of Nigeria and received the golden presidential assent as the primary legislative framework for the country’s high-flying, highly albeit nascent, startup ecosystem.
The Act is designed to ensure that Nigeria’s laws and regulations are clear, planned, and positioned to enable the national startup ecosystem to grow in giant leaps and bounds in order that creativity will thrive and the next set of ground-breaking ideas may emerge. This will potentially contribute to the emergence of an innovation-friendly environment for growth, investment attraction, and protection of innovation in tech startups.
In addition to that, the Act makes copious provisions to promote local content and establishes a structural legislative infrastructure aimed at enabling the growth of startups all in a bid to properly position Nigeria in the global space as a leader in technology and startup enterprise so that the next generation of unicorn startups from the country may emerge with significant economic and fiscal benefits for the country. With the enactment of the Act, it is evident that the government of the Federal Republic of Nigeria recognizes the truism that young people are a most valuable natural resource, and where well-harnessed, an enabling environment to turn their passions into ideas that can be supported, groomed and scaled.
While there are already several reviews of the Act available, this informative update uniquely presents the objectives of the Act, its structural outlook and overview as well as 10 (ten) key interesting provisions and points that stakeholders and interested persons alike may not yet be familiar with from the contents of the Act for the aim of citizen education and national information.
Main Objectives of the Startup Act
The primary objective of the Act is to provide a legal and institutional framework for the development of startups in Nigeria, as well as to:
- Provide an enabling environment for the establishment, development and operation of startups in Nigeria;
- Position Nigeria’s startup ecosystem as the leading digital technology hub in Africa, having excellent innovators with cutting-edge skills and exportable capacity; and
- Foster the development and growth of technology-related talent in the nation so that the next generation of Unicorn startup companies can emerge and dominate the African startup space.
Frameworks and Structural Outlook of the Act
In a bid to ensure that the full potentials of the Nigerian startup ecosystem are fully unlocked, unshackled, and harnessed, the core provisions of the Startup Act are strategically divided into meaningful frameworks with definite scopes of coverage and specific focus areas. The provisions are:
- The Council for Digital Innovation and Entrepreneurship
- The Startup Support and Engagement Portal
- Startup Labelling
- Startup Investment Seed Fund
- Training, Capacity Building & Development
- Tax & Fiscal Incentives
- Regulations Support
- Accelerators & Incubators
- Clusters, Hubs, Innovation Parks, and Technology Development Zones
Ten Things You Need to Know About the Startup Act
- Establishment of Clusters, Tech Hubs and Innovation Parks: The Act in Section 40 proposes the establishment of Clusters, Tech Hubs and Innovation Parks across all the 36 States of the Federal Republic of Nigeria as well as the Federal Capital Territory (FCT) Abuja. Technology Development Zones are also created to boost technological innovation and ideation.
- Definition of a Start-Up: Under Section 13-14 of the Act, a startup means a company in existence for not more than 10 years with its objectives being the creation, innovation, production, development, or adoption of a unique digital innovative product, service, or process. This means only companies with a technological product, service, output or outlook can be labelled as a Startup under the Act.
- Significance of Intellectual Property Rights Protection to Startups: The Act affirms the significance of intellectual property rights to the growth of startups and provides for regulatory support to assist labelled startups in the exploitation of their intellectual property rights as well as commercialisation of same. Pursuant to this, by the provisions of Section 31, the Secretariat established under the Act is required to collaborate with the relevant regulatory bodies in intellectual property, i.e the Nigerian Copyrights Commission (NCC) and the Trademarks, Patents and Designs Registries to grant startups easy access to registration and protection of their intellectual property.
- Creates a Startup Labelling System: The Act creates and mandates a Startup labelling system for all Startups, whereby only “labelled Startups” can benefit entirely from the provisions of the Act. According to Sections 13-17 of the Act, to be labelled a startup, such an entity must be registered as a Limited Liability Company under the Companies and Allied Matters Act 2020, the startup must have also been in existence for a period of not more than 10 years from the date of i The Startup must have at least one Nigerian as a co-founder and its business objects must include: “innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process”.
- Benefits for Labelled Startups: Being a labelled startup makes such a startup eligible to access certain special funding as provided in Section 27 of the Act, including access to grants and loans administered by the Central Bank of Nigeria (CBN), the Bank of Industry (BOI) and other government-administered funding/loan opportunities available to Startups.
- Fiscal Benefits and Reliefs for Labelled Startups: Fiscal incentives available to labelled startups under the Act include eligibility for possible four years tax exemption under the Pioneer Status Incentive Scheme (Section 24) and other tax incentives; Eligible labelled startups are also entitled to Personal Income Tax exemption of 35% of the income of certain employees for a period of two years from the date of engagement (Section 25). This implies that they can fully enjoy the tag of pioneer status and corresponding tax holiday during their formative years and avoid the hassles and pitfalls of taxation while still financially “finding their feet”.
- Investments Tax Credit for Startup: By Section 29 of the Act, an investor that invests in a labelled start-up is entitled to an investment tax credit equivalent to 30% of such investment and capital gains tax is not to be charged from gains that accrue from such disposal of assets in a labelled start-up.
- Listing on Exchanges: Innovatively, labelled startups in Nigeria can now participate fully in regulatory sandboxes and also achieve the rare feat of being listed on Exchanges under Sections 35-36 of the Act.
- Establishment of Accelerator and Incubator Programmes: Worthy of applause is the establishment of Accelerator and Incubator programmes for innovative and emerging startups in the country and also the provision of incentives for the accelerators and incubators under Sections 38 and 39 of the Act.
- Startup Investment Seed Fund: Sections 19 and 20 of the Act provides for the establishment of the Startup Investment Seed Fund to be funded with a sum not less than N10,000,000,000 (ten billion Naira) annually from sources to be approved by the Council. The Fund is to be managed by the Nigeria Sovereign Investment Authority (NSIA) as the designated Fund Manager. This will be accessed by only labelled Startups.
Recommendations on the Startup Act
While the enactment of the Act is a milestone to be applauded, the authors are of the belief that more can still be done with respect to the implementation of the provisions of the Act, generally and more specifically with respect to the establishment of clusters, hubs and innovation parks in every state of the federation and the establishment of a Technology Development Zone (the “Zone”).
The provisions of the Act in respect of these entities only make for the Council’s obligation to issue a framework for their respective establishments. It would be a welcome development if the Council, in the performance of its functions as contained in the Act, invokes its powers to make relevant regulations and guidelines which give detailed step-by-step actions to be taken in each state of the federation for the establishment of the clusters, hubs and innovation parks, as well as the Zone.
Consequently, we believe that the enactment of the Act is a brilliant idea which can only be further given life through enabling regulations and directional guidelines for the optimal implementation of its key provisions.
Without any iota of doubt, it is evident that the enactment of the Act is impressive and a welcome development. This is because it reflects positively on the position of the Nigerian Government and its perceived regard for technological innovations and the growth of the national startup ecosystem. This is further laudable as it represents a radical economic mind-shift from being a narrow-minded economy whose gaze has been laser-focused on crude oil and taxation. The Act thereby portrays the willingness of the government to widen the scope of the country’s revenue into the potential economic returns that can follow a surge in the startup ecosystem.
The Act is also a fundamental tool of inter-agency collaboration as it fosters integration between the Startup Council and relevant agencies and parastatals of government in a bid to ease the processes for labelled startups that conduct interact and interface with the different regulatory agencies including the Corporate Affairs Commission (CAC), the Nigerian Communications Commission, etc.
Lastly, while the different regulatory bodies established by the Act are laudable and their roles individually significant, the question remains whether they will be effective or simply join the already unimpressive number of redundant establishments and agencies existing in Nigeria? To avoid a repeat of the latter, it fully behoves upon the Council to ensure it is proactive in holding to account and supporting the bodies established by the Act to wholly perform their duties ardently and efficiently.
Above all, the Act is the beginning of the growth and keenness we have long desired from the lawmakers in Nigeria.
Should you require professional advice on any of the foregoing please contact Peter-Cole Onele, Adedamola Odubanjo or Aduragbemi Olushuyi. We would be more than happy to assist.
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