INTRODUCTION
The Nigeria Start-up Act (referred to as “The Act”) project is a joint initiative by Nigeria’s tech start-up ecosystem and the Presidency to harness the potential of our digital economy through co-created regulations. The Act provides a legal and institutional framework for the development of startups in Nigeria, enabling environment for the establishment, development and operation of startups in Nigeria and the development and growth of technology related talents.[1]
The Act positions Nigeria’s start up ecosystem, as the leading digital technology centre in Africa, having excellent innovators with cutting edge skills and exportable capacity.[2] The Nigerian start up Act was signed in to law on the 19th of October, 2022 by the president of the Federal Republic of Nigeria.
The provisions of this Act specifically applies to companies incorporated under the Companies and Allied Matters Act 2020[3]and organizations, whose activities affect the creation, support and incubation of labeled startups in Nigeria[4] such as venture capitalists, accelerators, incubators and equity funds.
This article seeks to explore notable provisions in the Act which may serve as a catalyst for growth and possibly increase the rate of success for early-stage startups in Nigeria.
Establishment of the national council for digital innovation and entrepreneurship
This Act introduced the establishment of the National Council for Digital Innovation and Entrepreneurship (referred to as “the Council”)[5] and outlines its membership, tenure of office and cessation of membership, obligations as well as powers and functions of the council.[6] The Council consists of the president of the federal republic of Nigeria as the chairman, vice president as the vice chairman and other stakeholders.[7]
The role of the National Council includes but not limited to formulating and providing general policy guidelines for the realization of the objectives of the Act, giving overall directives for the harmonization of laws and regulations that affect startups, ensuring the monitoring and evaluation of the regulatory framework to encourage the development of startups in Nigeria, and to approve the programs of the secretariat established under this Act.[8]
The Act also on boards the National Information Technology Development Agency (NITDA) referred to as the Secretariat of the Council.[9] The Director-General of the NITDA serves as the head of the secretariat. The NITDA, is to manage the process of labeling a startup, establish public online platforms and other platforms to provide access to information on matters pertaining to the establishment and development of a startup, incubation, acceleration and venture building programs, access to fiscal and non-fiscal support.[10] NITDA plays a crucial role under the Act which complements its already existing position as the government agency responsible for developing programs and policies that drive the growth of technology and tech-enabled businesses in Nigeria. It has the responsibility of implementing the provisions of the Act. It will also collaborate with other existing Ministries Departments and Agencies (MDAs) to ensure that startups are allowed to enjoy the incentives that are provided for under the Act.[11]
Establishment of the startup support and engagement portal
The Secretariat is required with the approval of the Council, to establish a startup support and engagement portal (the startup portal) which shall serve as a platform through which startup conducts registration process with relevant Ministries, Departments and Agencies.[12]
The startup portal will facilitate the issuance of required permits and licenses to a labeled startup. Through the Portal, labeled startups can also interact with the Federal Government, private institutions, angel investors, venture capitalists, incubators, accelerators, and other relevant institutions.[13]
The secretariat is also required to appoint a coordinator for the startup portal, who shall at least have 10years experience in technology and entrepreneurship.[14] This coordinator shall serve for a term of two years.[15]
Establishment of the startup consultative forum
The Secretariat is required to set up with the approval of the Council a body known as the Startup Consultative Forum (the Forum) on the Portal. The Forum will serve primarily as an avenue for information sharing and collaboration in the Nigerian startup ecosystem with respect to relevant incentives that apply to startups, information on available local capabilities, the nomination of Council representatives, deliberations on memorandum to be sent to Council for consideration and other policy proposals that may be relevant to the Nigerian startup ecosystem. [16]
The consultative forum comprises of industry stakeholders and representatives registered on the startup portal from labeled startups, venture capitalists, angel investors, incubators, accelerators, innovation hubs and two civil society organizations involved in the advancement of technology and innovation.[17]
The Platform and Forum are a welcome development as they made available to startups an all-inclusive avenue to interact with private and public stakeholders.
Startups and startup labeling under the Act
Startups are defined in the Act as 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[18]
The stamp of recognition for a start-up under the Act is a start-up label which is an incorporation certificate given by the Secretariat of the National Council for Digital Innovation and Entrepreneurship (‘the Council’) to a start-up upon the fulfillment of the labeling requirements[19] This is perhaps the hallmark of the Act given that only startups that have received a startup label will qualify for the incentives provided in the Act7. Labeled startup means a startup labeled under this Act and issued a digital certificate by the Coordinator.[20]
A startup is eligible to be labeled upon fulfillment of certain conditions as provided under the Act as follows:
i. it is registered as a limited liability company under CAMA 2020 in Nigeria and has been in existence for a period not more than ten(10) years from the date of incorporation;
ii. its objects are innovation, development, production, improvement and commercialization of digital technology innovative products or processes;
iii. it is a holder or repository of a product or process of digital technology or the owner or author of a registered software;
iv. it has at least one-third local shareholding held by one or more Nigerians as founder or co-founder of the startup; and
v. The founder or cofounder of the startup is Nigerian and holds at least one-third of its shareholding.[21]
The applicability of the Act extends to startups set up as sole proprietorships and partnerships however, only a 'pre label' status will be granted for a period of six months until the sole proprietor or partnership is able to comply with the requirements set out in section 13(2) of the Act.[22] A sole proprietorship or partnership which fails to comply with the provisions set out in section 13(4) shall loose the pre-label status grants to it.[23] The provisions of the Nigerian startup Act, does not apply to an organization which is a holding company or subsidiary of an existing company which is not registered as a startup.[24]
To be granted a startup label, the startup is required to submit an application supported by documents prescribed by the secretariat on the Startup Support and Engagement Portal (the Startup Portal).[25] The Portal Coordinator if satisfied shall, with the approval of the Secretariat, enter the name and particulars of the applicant in the register of startups and issue a startup label to the applicant.[26] This label is valid for ten years and will be conclusive evidence that the startup has complied with all the requirements for labeling and has been labeled according to the Act.[27]
However, if a labeled startup defaults in complying with the requisite statutory requirements under the Act[28] and also fails to regularize the default within thirty days of notification from the Portal Coordinator,[29] the startup label shall be withdrawn.[30] A startup whose label is withdrawn may however apply to the Secretariat for a re-issuance of the startup label after the rectification of the default.[31]
Establishment of startup investment seed fund
The Act established the Startup Investment Seed Fund (the Fund) to be managed by the Nigeria Sovereign Investment Authority (NSIA) (referred to as “the Fund Manager”)[32] to provide finance for labeled startups and provide relief to technology laboratories, accelerators, incubators, and hubs to facilitate the growth of the tech ecosystem.[33] A sum of not less than ₦10,000,000,000 (ten billion Naira), from sources to be approved by the Council, shall be paid into the Fund on an annual basis.[34] The Act is therefore silent as to the precise source of the fund thereby leaving it at the discretion of the Council.
The Act obligates the Fund Manager to create an innovation grant budget and management framework to support academic research and development projects, and issue framework which will set out modalities to fund, manage, and access fund.[35]
Training, capacity building and talent development
The Council through its secretariat is to be committed to the training, capacity building and talent developments of these startups.[36] It shall collaborate with the National Universities Commission, national board for technical education and other tertiary institutions regulatory bodies within Nigeria in developing modules and programs to impact knowledge for the advancement of startups in Nigeria.[37]
The Nigeria Startup Act obligates the secretariat to establish its centres across the six geopolitical zones in Nigeria for the promotion of digital technology utilization, strengthening of digital technology management capability and information systems.[38]
The Secretariat may issue a framework for the development of talent, and collaborate with relevant MDs and the private sector to establish digital technology innovation parks and hubs in universities, polytechnics and other institutions of higher learning. It is the intendment of the draftsmen of this novel and innovative piece of legislation, that there will be a support of Academic Research Institutions.[39]
These institutions are to help in academic research and also in the provision of human resources towards the provision of the technical knowledge needed by startups in Nigeria. To achieve these, the Secretariat will finance these research institutions to assist them in the tasks as placed on their shoulders by the Act. These institutions will organize various conferences, workshops, seminars, meetings, and other synopsis which all point towards achieving the core objective of the Act.
Incentives available to labeled startups under the act and the establishment of credit guarantee scheme
One of the incentives available to any company labeled a startup under the NSA is the Pioneer Status Incentive (“PSI”). Labeled startups operating in industries that are captured under the extant Pioneer Status Incentives (PSI) Scheme will enjoy expeditious approval for grant of those tax incentives.[40] The Nigerian Investment Promotion Commission (“NIPC”) is the primary regulatory body with the core objective of inviting investors into the economy. It is also saddled with the responsibility of granting several reliefs to both foreign and domestic investors profound among them is the PSI.
Labeled startups may also be entitled to exemption from the requirement to pay income tax or other tax chargeable on its income or revenue for a period of three years and additional two years if the labelled startup is still within the label period.[41]Furthermore Non-resident companies engaged in the provision of technical, consulting or other services to labeled startups are required to pay withholding tax of 5% on the income derived from the services, and the withholding tax shall then be the final tax to be paid by such offshore service provider.[42] A labeled startup that provides in-house training to its employees is exempted from contributing to the Industrial Training Fund during the period it is a labeled startup.[43]
The Nigeria startup Act provides access to export incentives for labeled startups that will be involved in exporting their products or services. This is to conciliate the economic downturn in Nigeria as the country has relied mostly on importation to the detriment of the economic growth and sustainable development of the economy.[44] In addition, the Secretariat is required to facilitate access by labeled startups to grants or loans administered by the Central Bank of Nigeria (CBN), Bank of Industry (BOI) or other bodies statutorily empowered to assist small and medium scale enterprises and entrepreneurs.[45]
The Act went on to provide for the establishment of the Credit Guarantee Scheme (CGS) which will be administered and managed by the Secretariat.[46] The Credit guarantee scheme is a scheme intended to help labeled startups access financial support, credit guarantees, financial management capacity building programs and financial and credit information.[47] Through this Scheme, labeled startups can access funding, provided they meet the eligibility requirements to be prescribed by the Secretariat and have sufficient collateral.[48]
These incentives also go on to encapsulate investors who will be investing in startups. These investors in whichever form, whether as angel investors, venture capitalists, private equity funds, accelerators, or incubators are entitled to an investment tax credit equivalent to 30% of their investment in the labeled startup. This tax credit is to be applied to the gains of any of their investment subject to tax.[49] This will greatly bolster economic growth and development and also give these investors breathing space in enjoying their investments; in turn, it will attract more innovations from startups with these investors.
Furthermore, capital gains tax shall not be charged on gains that accrue from the disposal of assets by an angel investor, venture capitalist, private equity fund, accelerators or incubators with respect to a labeled startup provided the assets have been held in Nigeria for a minimum of 24 months.[50]
Collaboration with relevant regulatory bodies
The Act seeks to ease administrative and compliance processes for labeled startups, by designating separate sections for relevant regulators in the Portal. The Act provides for collaboration between the secretariat and Corporate Affairs Commission (CAC) to designate a separate section on the startup portal to ease the processes for labeled startups that conduct transactions at the commission.[51] This separate portal for startups will help in the ease and seamless process of carrying out transactions between labeled startups and the Corporate Affairs Commission (CAC).[52]
The Nigeria Startup Act also provides for the protection of the Intellectual Property (IP) rights of these startups by the secretariat.[53] The Secretariat shall collaborate with various bodies on IP rights protection like Nigerian Copyrights Commission and the Trademarks, Patents, and Designs Registries towards helping the startups internationalize and commercialize their IP rights.[54]This collaboration will also lead to the designation of a section on the startup portal to ease registration of intellectual property for labeled startups.[55]
The Securities and Exchange Commission (SEC) is a regulatory body with the core mandate of regulating the capital market. The Act mandates the Council to provide recommendations and proposals to Securities and Exchange Commission and collaborate towards ensuring that SEC considers rules that fast-track crowd funding processes for labeled startups. to create platforms and make rules to fast-track crowd funding process for startups.[56] The Nigeria Startup Act creates an additional responsibility on SEC towards the regulation and licensing of crowd funding intermediaries and commodities investment platforms which the startups will use in raising funds via crowd funding.[57] Similar task is placed on the shoulders of the National Office for Technology Acquisition and Promotion (NOTAP) to create a separate section on the portal for startups to ensure seamless technology transfer registration and also for a discount in the payment of the applicable fees towards the registration.[58]
There is a collaborative duty that is placed on the Secretariat, CBN, and SEC towards startups that are into financial technology (FinTech). The Secretariat, CBN, and SEC are to ensure there is a Startup Portal designated for the startups involved in FinTech. The council is also to collaborate with SEC and CBN towards ensuring that the FinTech startups are duly notified before any rule or regulation that affect the establishment, licensing and operations of Fintech startups are made by the Securities and Exchange Commission and Central Bank of Nigeria.[59]
The Act provides for the participation of labeled startups in regulatory sandboxes. A labeled startup shall be entitled to submit an application through a fast track process available through the startup portal, if it intends to participate in the CBN’s regulatory sandbox[60], SEC’s regulatory incubation programs.[61]
The Council under the NSA is to help startups that wish to be listed on the Board of the Nigerian Exchange Limited (NGX) or any stock or commodity exchange in Nigeria meet the relevant eligibility requirements. It also behooves the Council to help these startups to be granted incentives to help them grow and be developed.[62]
Amidst national concerns about the repatriation of capital and profits, the Act mandates the Secretariat to collaborate with the CBN, in ensuring seamless repatriation of investment by foreign investors.[63] Repatriation of investments in labeled startup shall be carried out at the CBNs official exchange rate, provided that the foreign investor can present a certificate of capital importation (CCI) as evidence that the initial investment fund was injected through the proper channel.[64]
Accelerators and incubators
The Act obligates the secretariat to establish accelerator and incubator programs for startups, to develop national accelerator and incubator policy for the establishment and development of accelerators and incubators. To realize this, the Secretariat is to develop guidelines to regulate the relationship between accelerators, incubators and startups, collaborate with privately established accelerator and incubator programs and provide information on the startup Portal on existing accelerator and incubator programs and the process of registration/admission into the programs.[65]
Accordingly, all startup accelerators and incubators that are registered with the Secretariat and have contributed duly to the startup ecosystem shall be entitled to Federal Government incentives. Additionally, they are entitled to grants for research, development, training, and project expansion. They are also entitled to other grants under the Nigeria Digital Innovation, Entrepreneurship and Startup Policy.[66]
Clusters, hubs, innovation parks and technology development zones
The NSA mandates the Council to issue framework for the establishment and operation of startup innovation clusters, hubs, physical and virtual innovation parks in each state of the federation. The role of these facilities include, collaborating and generating businesses between a startup and a large company, collating expertise, ideas and perspective, providing a startup with access to professional services and promoting collaborations and innovation between startups.[67]
The clusters, hubs, and innovation-park are set to provide a dedicated team, help desk and contact to provide support for startups, assistance for a startup to understand the roles of regulatory bodies and their functions. They will go on to assist in the registration and application of startups for authorization with the relevant regulatory bodies. Added to the task of the clusters, hubs, and innovation park is the projection and facilitation of these startups to the foreign market to help them get a subsidized or free workspace.[68]
Separately, the Secretariat is mandated to collaborate with the Nigeria Export Processing Zones Authority to establish a Technology Development Zone (referred to as “the Zone”) to spur the growth and development of startups, accelerators, and incubators established within the Zone. The Zone is to grant licenses to startups, accelerators, or incubators prior to the commencement of an approved activity. Also, startups, accelerators, and incubators carrying out an approved activity in a Zone shall be entitled to existing incentives provided under the Nigeria Export Processing Zones Act. [69]
Miscellaneous Provisions
The NSA provided for the protection of the data of startups. It also gives power to the Council with the approval of the president to make rules, regulations and guidelines for the achievement of the objective of the Act. There is also the provision for pre-action notice to be served the Council or its authorized officers and the expiration of 30days after the issuance of the notice, before any action will be commenced against the Council.
CONCLUSION
The Nigeria Startup Act is the right step towards a new and innovative direction. Just this year alone, the National Bureau of Statistics (NBS) confirmed that the Information and Communication Technology (ICT) sphere in which startups are primary actors on, contributed to over 18.44% of the Gross Domestic Product (GDP) of the country for Q2.[70] This is good for the seeming failing and oil-dependent economy like Nigeria. The Act introduced a lot of innovative ideas and provisions to the business terrain of Nigeria and I believe it is a great win for Nigeria.
The Nigerian economy is on the brink of collapse and if nothing so serious is done in diversifying the economy now, then the looming economic disaster will be a devastating one. The NSA introduced one of the ways of diversifying the Nigerian economy by promoting various incentives and fiscal reliefs to startups and making things so easy for them. The intentional inclusion of foreign startups is made to bolster Foreign Direct Investment (FDI) which Nigeria is falling short of in recent times. These FDIs will help position the economy for great economic growth and development. I believe every concerned player in the digital economy and startups has a keen interest in the turnout of events in a few months from now as the NSA will be a stepping stone to the greater economic growth envisaged by them.
Nigeria as always is notable for making very good laws. The predominant issue has been the applicability and implementation of the laws. It is our firm belief that every interested and concerned player in this sector will pull every string and throw in their weight in whatever capacity towards making this Act achieve its core objectives.
[1] Section 1(a)&(b)
[2] Section 1(c) & (d)
[3] Section 2(a)
[4] Section 2(b)
[5] Section 3(1)
[6] Section 3, 4, 5, 6 & 7
[7] Section 4
[8] Section 7
[9] Section 9(1)
[10] Section 9
[11] Section 9(2)
[12] Section 10(1)
[13] Section 10(2)
[14] Section 11(1)
[15] Section 11(3)
[16] Section 12(1)
[17] Section 12(2)
[18] Section 47
[19] Section 13(1)
[20] Section 47
[21] Section 13(2)
[22] Section 13(4)
[23] Section 13(5)
[24] Section 13(3)
[25] Section 14
[26] Section 15(1)
[27] Section 15(2)
[28] Section 16(1)
[29] Section 16(2)
[30] Section 17
[31] Section 18
[32] SECTION 19(1)
[33] Section 19(3)
[34] Section 19(2)
[35] Section 20
[36] Section 21(1)
[37] Section 22(1)
[38] Section 22(2)
[39] Section 23
[40] Section 24
[41] Section 25(2)
[42] Section 25(4)
[43] Section 25(5)
[44] Section 26
[45] Section 27
[46] Section 28(1)
[47] Section 28(2)
[48] Section 28(3)
[49] Section 29(2)
[50] Section 29(3)
[51] Section 30(1)
[52] Section 30(2)
[53] Section 31(1)
[54] Section 31(2)
[55] Section 31(3)
[56] Section 32(2)
[57] Section 32(1)
[58] Section 33
[59] Section 34
[60] Sandbox means the regulatory software testing environments created by the CBN, the SEC or any other regulator that may setup a sandbox program.
[61] Section 35
[62] Section 36
[63] Section 37
[64] Section 37(2)
[65] Section 38
[66] Section 39
[67] Section 40
[68] Section 41
[69] Section 42