A Belated Write-up On The Prospective Impacts Of The Nigeria Startup Act On Technology Development In Nigeria.
By Sulaimon AbdulBaqqi
Without a shadow of doubt, Startup Acts have proven themselves to be veritable tools for achieving the maintenance and further advancement of ecosystems and reducing the failure rate of startups. For the purpose of illustration, over thirty-four million Euros of investments went into Italian startups between 2012-2015 following the enactment of a Startup Act; similarly, Tunisia recorded twenty-two million four hundred thousand United States Dollars from investors who invested in startups following the enactment of a Startup Act.
Nigeria’s technology sphere and her startup ecosystem has been gaining momentum and recording tremendous growth in recent years. Reports show that Nigeria has the second-highest amount of startups in Africa; unfortunately, Nigerian startups have a high failure rate. Consequently, pragmatic and proactive measures must be taken to truncate the high failure rate and to maintain the continuous development of startups in Nigeria. Achieving these require conscious and consistent governmental efforts; a measure through which concerned governments of countries around the world have been able to maintain and spur the growth of their startups is by enacting a Startup Act. Nigeria has joined the list of countries that have enacted a Startup Act. On the nineteenth day of October 2022, the inception of a new era was heralded in Nigeria’s technological sphere as the ceremonial and executive head of the nation signed the much-anticipated Nigeria Startup bill into Law. The Act has been described by numerous technology professionals as a game changer. The Act seeks to provide a conducive environment for technology-enabled businesses in Nigeria. It is no longer news that young Nigerians are coming up with innovative technology-driven ideas and businesses; the Act seeks to give these intellectuals a haven.
This essay analyses and assesses the prospective impacts of the Nigeria Startup act on technology development in Nigeria with scrupulous attention to detail.
WHAT ARE STARTUPS:
Before assessing the prospective impacts of the Startup Act on technology development in Nigeria, an inquiry into what startups are will not be extraneous as it will enable us have an insightful grasp of the whole range of this essay’s theme.
The Act defines a startup in its interpretation section thus: “a company in existence for not more than ten years with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service, or process”. This definition implies that the act will not apply to companies and businesses that are not bringing technology-based products and services to the market or which objectives do not entail the adoption of a peculiar technology product or service.
The Act also stipulates certain requirements which startups must meet to be able to benefit from the incentives provided in the Act. These stipulations are contained in section thirteen (13) of the Act. An inquiry into these stipulations is otiose and will be extraneous.
The Nigeria Startup Act Prospective Impacts on Technology Development in Nigeria:
The Nigeria Startup Act, if effectively implemented will be an impetus for the technology sphere of the country’s meteoric development and individual technology talent optimum utilization. The Act prospective impacts on technology development in the country can be cursorily assessed by perusing the provision of section one (1) of the Act, which provides for its objectives which include: 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 centre in Africa.
For a broad assessment of the prospective impacts of the Act on technology development in Nigeria, I shall be exploring notable provisions in the Act, which will expedite technology development in Nigeria.
The Act contains various provisions which are geared towards promoting access to funding for startups. The Act created a Startup Investment Seed Fund which will be managed by the Nigeria Sovereign Investment Authority (NSIA). A sum of money not less than ten billion Naira will be paid into the fund annually. The fund will be used 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. A Credit Guarantee Scheme is also set up under the Act. There are provisions guaranteeing access to grants and loan facilities administered by the Central Bank of Nigeria (CBN), the Bank of Industry, and other bodies statutorily empowered to assist small and medium-size enterprises (SMEs) and entrepreneurs. These measures will spur tremendous technology talents utilization for people who are affected by the snag of not having enough money to fund their businesses as the money required to run their businesses will be provided by the bodies mentioned above. In turn, these measures provided in various sections of the Act will inevitably bolster technology development in Nigeria
Furthermore, to reduce the cost of doing business, the Act introduced various tax incentives for startups. For example, startups may be exempted from payment of income tax for five years in specific circumstances. Also, a labelled startup is entitled to enjoy full deduction of any expense on research and development which are wholly incurred in Nigeria, and the restrictions placed by the Companies Income Tax Act do not apply to a labelled startup. Also, a labelled startup which falls within industries captured under the extant Pioneer Status Incentives (PSI) scheme may upon application through the secretariat receive expeditious approval from the Nigerian Investment Promotion Commission (NIPC) for the grant of the tax reliefs and incentives under the Pioneer Status Incentives (PSI) scheme. Considering the fact that funding from the private sector also has a role to play, the Act introduced tax incentives to encourage local and foreign investors to invest in startups in Nigeria. These Incentives include angel investor, venture capitalist, private equity fund, accelerators or incubators being entitled to an investment tax credit equivalent to 30% of the investment in the labelled startup; capital gains tax not being 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 labelled startup provided the assets have been held in Nigeria for a minimum of 24 months. These tax incentives will encourage local and foreign investors to invest in startups in the country and help in realizing the Act’s objective of positioning Nigeria’s startup ecosystem as the leading digital technology centre in Africa.
Furthermore, the Act has provisions which are pivotal in ensuring the optimum utilization of technology talents in the country and helping the businesses of startups thrive. The Act has provisions as regards training and capacity building programs for startups, and granting startups access to trainings facilitated by the Industrial Training Fund and any organization that partners with the secretariat for the training of entrepreneurs and their employees. These will ensure the growth and optimum utilization of native talents. Also, the Act makes provision for the establishment of accelerator and incubator programs for startups; the development of a national accelerator and incubator policy for the establishment and development of accelerators and incubators. For clarity purpose, accelerators and incubators are programs that provide mentorship assistance to startups. These programs will enable growing startups have the needed guidance to make them thrive. The Act also makes provision for the establishment and operation of startup innovation clusters, hubs, physical and virtual innovation parks in each state of the federation; for the purpose of clarity, these will create an emergence of a workshop for entrepreneurs who will make up a collaborative and pioneering ecosystem which will promote technology and innovative thinking. This will bolster the growth of startups in each state in the federation. These measures provided in various sections of the Act will spurt Nigeria ahead of other countries and position Nigeria as the startup hub in Africa
The Act also makes provision for export incentives and financial assistance for startups involved in exportation; helping holders of intellectual property rights commercialize and internationalize their rights; and startups raising funds through crowdfunding intermediaries and commodities investment platforms duly licensed by the Securities and Exchange Commission (SEC). These measures provided in the Act will truncate the high startup failure rate and increase the fortunes of startups.
Most importantly, these strategic measures expounded in the preceding paragraphs will inevitably help in achieving the objectives of the Act, which are contained in section one (1) of the Act.
Possible Impediment and Recommendation:
The objectives of the Act can only be actualized if the institutions that are to be created in pursuant of the Act are created and empowered to implement the provisions of the Act and ensure its efficiency; however, if its implementation is lax, actualizing the objectives of the Act may become a wild goose chase. Consequently, the government and all members of the National Council for Digital Innovation and Entrepreneurship (referred to in the Act as ‘the council’) must exert sufficient effort to ensure that the provisions of the Act are adequately implemented.
In conclusion, the impacts the Startup Act will have on technology development in the country are manifold; however, these impacts will not be actualized if the implementation of the Act is lax. Consequently, the government must ensure that the provisions of the Act are adequately implemented.
About the Author
This work is published under the free legal awareness project of Sabi Law Foundation (www.SabiLaw.org) funded by the law firm of Bezaleel Chambers International (www.BezaleelChambers.com). The writer was not paid or charged any publishing fee. You too can support the legal awareness projects and programs of Sabi Law Foundation by donating to us. Donate here and get our unique appreciation certificate or memento.
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