This Week In Tech

The Nigeria Startup Bill: My Two Cents

The passing of the Nigeria Startup Bill (NBS) remains a necessary disruption for the Nigerian tech ecosystem as the futuristic demands for more tech-accommodating innovations and startups is on a daily increase in Nigeria and Africa as a whole. Having identified this market, the office of the president, in collaboration with major stakeholders in the Nigerian tech space, drafted the NBS to ensure visible, practical, and innovative national laws and regulations are available for the growth of the Nigerian tech ecosystem. The bill, received by the Nigerian senate in February 2022, focuses on maximally exploring the potential of our digital economy through co-created regulation.

WHAT IS IN THE NSB?

As detailed in the NSB’s report, the bill aims to create a legal and institutional framework for developing startups in Nigeria. This also includes providing enabling ecosystem for the establishment, investment, and operation of startups in Nigeria, fostering the development and growth of technology-related talent, and positioning Nigeria’s ecosystem as the leading digital technology hub in Africa.

In unlocking the Nigerian startup ecosystem, the bill makes provision for the creation of the Council for Digital Innovation and Entrepreneurship, The Startup Support and Engagement Portal, the Startup Labelling, Startup Investment Seed Fund, Training Capacity Building and Development, Tax and Fiscal Incentives, Regulations Support, and a list of others.

In clear terms, these structures are motivated by addressing challenges faced by startups in accessing needed funds, nurturing eco-friendly initiatives, the shrinking interest of investors, governmental support, and the development of identified talents.

DEFINITION OF STARTUPS IN THE NSB

According to the editors of Forbes Advisor, Benjamin Curry and Rebecca Baldridge, startups are market disrupters and world changers. Their aim is to inject what is needed but has not been created into society. They, therefore, achieve this by generating eye-popping valuations that lead to an Initial Public Offering (IPO) and a return on investment.

But for NSB, a startup is labelled as a registered limited liability company between 0 and 10years of the incorporation date. Such companies are to prioritise innovation, research, training, and commercialisation of digital products or services and must be a repository of such or author a registered software. They are also conditioned to have a 51 per cent shareholding capacity from Nigerians.

STRUCTURAL COMPONENTS OF THE NSB

The National Council for Digital Innovation and Entrepreneurship will serve as the corporate body guiding and tailoring the affairs of startups in Nigeria. The council membership is drawn from both the government and major practitioners in the Nigeria tech ecosystem, finance, scientific research, budget and investments, national planning, and trade. The council will also play the role of the Nigerian startups’ national secretariat from where policy implementations, regulations, and planning will be carried out.

PROVISIONS OF THE NSB

Eligible companies that align with the NSB categorisation will enjoy several benefits, including access to the Startup Support and Engagement Portal, where tech companies are registered with ministries, departments, and agencies. This eradicates the duplication of governmental offices, and startup founders are open to a sea of efficient communication lines with the government, private institutions, and other major players in the industry. The Startup Support and Engagement Portal again has a consultation forum that mans the issuance of relevant incentives to labelled startups and provides target information, nominations, and deliberations to the council as affecting the existence of Nigerian tech startups.

The bill considers the need for funding these economic generators, and in response, the Startup Investment Seed Fund is provided for the Nigerian startups. These funds are for financial relief to startups, technology laboratories, accelerators, incubators, and hubs.

The training, capacity building, and development of talents within the ecosystem are core motivations for the bill. The goal is to bring young Nigerians into the tech space to reduce economic over-dependency in the long run. In achieving this, the bill is set to maximise the academia via an alliance with the National Universities Commission and Polytechnics in inculcating knowledge for running a startup. The six geopolitical digital technology acquisition centres also boost the promotion of tech-based knowledge, management, and competency.

On tax and fiscal incentives, the NSB jealously captures four major actors: the labelled startups, investors in labelled startups, employees of labelled startups, and external service providers of labelled startups. For companies with 10 inexperienced employees with a graduation date no longer than three years, such employees will enjoy a five per cent of the accessible profit tax break. Startup investors also stand to gain a 30 per cent investment tax credit, and their capital gains tax will exclude disposal assets. A two-year 35 per cent income tax exemption is guaranteed for eligible employees. And for external service providers attached to labelled startups, a 5 per cent withholding tax on income generated.

NSB VERSUS REALITY

Despite the NSB promise of securing startups in Nigeria, the government’s chances of overriding these protections in terms of their typical abandonment of what is stipulated in the bills remain a threat to the startup space.

However, observable limitations to this bill pin on the incomprehensibility of the bill in favour of left out startups. The NSB provisions, as detailed above, leave out startups with declining potential because they are older than ten years. This neglect may rob the Nigerian tech space of probable contributions these startups can contribute to the larger income ratio of Nigeria. It is also true that the council’s creation will minimise the duplication of stoic governmental agencies. But the nation, torn apart by incessant terrorist acts, kidnapping and corruption, threaten the council’s efficiency. This assertion is based on the fact that political inclinations or godfatherism can easily down the supremacy of the bill in the long run.

Startups will also enjoy ease in terms of Corporate Affairs Commission (CAC) transactions against the stress that comes with transacting with this agency.

Even though the NSB promises to fund the labelled startups, these funding is in no way comparable to the external funding registered startups in the diaspora amass. Many of these startups interest the angel investors because of the securities of policies and regulations provided by the startups’ registering countries. Typical examples are countries like the United States, United Kingdom, Japan, India, China, Dubai, and South Africa, which have traceable policies and regulations protecting startups and investors. The notion of Intellectual Property Right (IPR) is so strong that inventors are secured with expanding time on research and needed innovations. This is not the story in Nigeria, and we must approach the system as one that needs education and awareness on the importance of IPR securities for tech gurus.

Despite the efforts channelled into training, capacity building, and development of the tech ecosystem in Nigeria, a subtle depletion of this idea matures when the ‘Nigerian version’ of the bill is addressed. The bill states that 51per cent of the shareholding power should be Nigerians, but what is obtainable in the Nigerian tech space is crowded with external bodies ranking as top sponsors of tech initiatives in the country. In Lagos, for example, there are over 400 startups valued at over $2 billion, but the major players in growing this market are non-Nigerians who have spotted the need and are ready to invest highly in these gaps. The “Yabacon Valley” project in Lagos is a critical example that, due to external sponsors’ influence, has attracted other accelerators, startups, and incubators like iDEA, Passion Incubator, Co-Creation, and others. Therefore, if the bill is passed, the Nigerian tech ecosystem should be prepared to experience a slope in the momentum these external sponsors are injecting into the system. This also calls for reviewing the bill to massively encourage Nigerian investors to plunge their money into the tech ecosystem.

Concerning the inclusion of the Nigerian academia in the training and creation of basal knowledge of tech for young Nigerians, the success ratio of this action is very low as Nigeria has one of the lowest shares of governmental expenditures on education. At seven per cent GDP, the country is bound to shrink the bill’s aim with incessant strike actions and issues associated with the Nigerian tertiary educational system. There is a huge gap between what the Nigerian educational system can offer compared to what the tech ecosystem needs to scale. The collaboration will remain futile until this is well spelt out in the bill.

On incentives, the bill seems to be on the right path as it targets inexperienced techies to acculturate themselves with the Nigerian tech space over time. But this fair preference should also extend in minimal ratio to the experienced tech bros who are the hitmakers for these startup structures. This has the power to fuel their aggressiveness in driving the marketplace for tech products and services and in turn, expand the unicorn capacity of the Nigerian tech industries the same way Nigerian Fintech and e-commerce giants are driving the evolution.

The NBS initiative is a step toward a greater good for the Nigeria Startup ecosystem. It tables the challenges faced by the majority of the Nigerian techies and further offers solutions to these identified challenges. Still, the negligible parts of the bill need to be attended to. That is, areas with limited clauses that can shrink the envisioned growth of the tech space in Nigeria in the long run.