A REVIEW OF THE NIGERIA STARTUP BILL 2021.1
1. Introduction
Startups are young companies established by entrepreneurs utilising innovative business ideas to create unique products or services for consumers.2 Over the years, the influx of technology and investment in Nigeria's economy has spurred the rapid growth and development of the Nigerian startup ecosystem3 and created the need for a legal framework and regulatory oversight. In July 2022, the Nigerian Startup Bill ("NSB" or "the Bill"), a laudable initiative by the Presidency in conjunction with various players, professionals, practitioners and policymakers in the tech startup space, was passed by the National Assembly. The Bill aims to provide a clear and detailed framework for the regulation of the start-up ecosystem, thereby creating an enabling environment for growth, attraction, and protection of investment in tech startups.4 While it awaits presidential assent, NSB is expected to expand the business environment for startups in Nigeria. This article examines the highlights of the NSB.
2. Objectives and Application of The Nigerian Startup Bill
The Bill primarily seeks to provide a legal and institutional framework for the development of startups in Nigeria. The Bill aims to create an enabling environment for the establishment, development, and operation of startups in Nigeria, enhance the growth and development of technology-related talents, and identify excellent innovators with exportable skills and capacity thereby positioning Nigeria's startup ecosystem as the leading digital technology center in Africa.5 The Bill will serve as an emerging instrument for sustaining high growth businesses and accelerating local economic growth thus encouraging entrepreneurs and new startups to thrive in the market. It aims to attract local and foreign investment and promote ease of doing business in the Nigerian tech ecosystem.6
The Bill applies to every company registered under the Companies and Allied Matters Act 2020 and labelled as a startup. The "startup label" is a prerequisite for a company to be recognised as a startup. In addition, the Bill also covers organisations and establishments whose activities affect the support and incubation of labelled startups in Nigeria.7
3. Regulatory Oversight
NSB establishes the National Council for Digital Innovation and Entrepreneurship, a self-regulatory body with a mandate to formulate and provide general policy guidelines for the realization of the objectives of the Bill, provide comprehensive directions for the harmonization of laws and regulations that affect a startup, monitor the regulatory framework for the development of startups, approve the Secretariat programmes, implement the Secretariat policies and programmes, support digital technological development, create and modify regulations for effectuating the functions of the Secretariat and appoint a Council agent for the execution of the Council functions.8 The Council is empowered to review policies and directives which may impact the startup ecosystem. Members of the Council include representatives of the Federal executive arm of government, representatives of Nigeria Computer Society, and the Director General of the NITDA.9
4. Operational Structure of Bill
The National Information Technology Development Agency (NITDA) is to serve as the Secretariat of the Council and is charged with the responsibility of overseeing the labelling process of startups, establish platform for the registration of startups and to provide access to information on matters pertaining to the establishment of a startup, incubation, acceleration and venture building programmes, and access to fiscal and non-fiscal support. NITDA is also expected to collaborate with relevant Ministries, Departments, Agencies, local and international business incubators, and other relevant stakeholders to promote innovation in digital technology, and enterprise development for a startup in Nigeria, amongst other functions.10
The Startup support portal is established to facilitate the allocation of permits to a labelled startup, prepare a platform for the interaction between a startup and the government, create beneficial opportunities for a startup to participate in challenging programmes, promote access to finance, innovation and exchange of information between stakeholders in the Nigerian startup ecosystem.11 The Bill proposes that the Secretariat appoints a Coordinator, with the approval of the Council, maintain a register of all labelled startups along with their relevant documents and records, implement the decisions of the Council and perform similar functions.12
Subject to the approval of the Council, the Bill mandates the Secretariat to set up a consultative body known as the Startup Consultative Forum ("the Forum") on the Startup Portal to provide a platform for information sharing and collaboration in the Nigerian startup ecosystem.13
5. Startup Labelling
The Bill introduces a Startup Label which is a certificate issued by the Secretariat to a startup upon the fulfillment of the eligibility requirements under the proposed Act.14 To acquire the startup label, such entity must be a limited liability company registered under the Companies and Allied Matters Act 2020 in existence for a maximum of 10 years from the date of incorporation, a sole proprietorship or partnership. Such organisation must be a holder or repository of a product or process of digital technology, or the owner or author of a registered software, its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process and it has at least one Nigerian as a founder or Co-founder of the startup, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares.15 The Bill prohibits its application to an organisation that is a holding company or subsidiary of an existing company that is not registered as a startup.16 Applications for the grant of startup label are submitted in accordance with the provisions of the proposed Act by eligible organisations and such labels are granted by the coordinator of the Secretariat.17 The Bill sets out the obligations of labelled startups.18 It also makes provisions for the withdrawal and re-issuance of the startup label by the Secretariat.19
6. Startup Investment Seed Fund
Part 5 of the Bill establishes the Startup Investment Seed Fund ("the Fund") to be managed by the Nigeria Sovereign Investment Authority (''the Fund Manager"). The Fund will be applied to provide a labelled startup with finance and provide early-stage finance for a labelled startup on the recommendation of the Fund Manager subject to the approval of the Council, and provide relief to technology laboratories, accelerators, incubators and hubs.20 Section 20 of the Bill enumerates the functions of the Fund Manager.21
7. Training, Capacity Building and Talent Development
The proposed Act mandates the Secretariat to design and implement training and capacity building programmes for start-ups using the startup portal to disseminate necessary information.22
The Bill empowers the Secretariat to create centres for the acquisition of digital technology across the country, collaborate with the National Universities Commission and tertiary institutions within Nigeria to develop modules, programmes and support academic research aimed at impacting industry knowledge, whilst collaborating with relevant agencies and sectors for the promotion of digital technology utilisation, strengthening of digital technology management capability, and information systems.23
8. Fiscal Incentives
In recognition of the importance of tax reliefs to the growth of startups, labelled startups may apply to the Nigerian Investment Promotion Commission (NIPC) for tax reliefs and incentives, provided that such startup operates within the industries captured under the Pioneer Status Incentives (PSI) Scheme.24 Additional tax relief may be granted by the Federal government under the fiscal incentives.25 Access to export amenities,26 government grants, loans and facilities,27 and Credit Guarantee Scheme28 should be provided for the growth and development of startups. A national policy is to be developed and executed by the Federal government to offer incentives to individuals, investors, capitalists, funds, companies, accelerators or incubators investing in a labelled startup or the startup ecosystem, with the opportunity of enjoying tax credits on their investments.29
9. Regulatory Compliance Support
For seamless and expedited transactions at the Corporate Affairs Commission ("the Commission") for labelled startups, the Bill provides that the Secretariat should collaborate with the Commission in ensuring that a separate section on the startup portal is created to deal with incorporation procedures at the Commission.30
The Bill acknowledges the significance of intellectual property rights towards the growth and development of a startup. In promoting its objectives, the Bill states that the Secretariat, in conjunction with, the Nigerian Copyright Commission and the Trade Marks, Patent and Design Registries will take steps to ensure that holders of intellectual property rights are protected and assist them in exploiting, commercializing, and internationalising their rights.
In line with economic realities, the Bill allows startups to raise funds through crowdfunding intermediaries and commodities investment platforms ("platforms") duly licensed by the Securities and Exchange Commission (SEC). Furthermore, the Council must ensure that SEC fast-tracks the approvals of crowdfunding schemes for labelled startups, by providing proposals and recommendations to SEC.31
Given the quantum of innovative technologies developed by startups, the Secretariat is to work alongside the National Office for Technology Acquisition and Promotion (NOTAP) in ensuring that technology transfer licensing and related activities are seamless, accelerated and in accordance with existing legislations.32
The Secretariat works in partnership with the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC) in harmonising rules and regulations that affect the establishment, licensing and operations of fintech startups.33
According to the Bill, labelled startups are entitled to participate in the regulatory sandbox/incubation programmes conducted by the CBN, SEC, or relevant regulatory bodies,34 be listed on the Nigerian Stock Exchange (NGX),35 and to repatriation of investment by a foreign investor through the CBN's authorised dealers in accordance with extant laws.36
10. Establishment of Accelerators, Incubators, Clusters, Hubs and Innovation Parks, and Technology Development Zones
In the realisation of the objectives of the proposed Act, the Secretariat is also empowered to create accelerator and incubator programmes for startups in accordance with the provisions of the proposed Act.37
The Bill further provides for a framework to be issued by the Council for the creation and operation of startup innovation hubs and physical and virtual innovation parks in each state of the Federation. These hubs are to be used for the generation of businesses between startups and large companies, accumulation of professional advice and expertise, provision of resources for startups, and promotion of partnerships between startups.38 The functions of the hubs and clusters created are highlighted in section 44 of the proposed Act.39 The Bill also makes provision for the establishment of technology development zones for the growth of startups, accelerators and incubators.40
11. Conclusion
The NSB seeks to foster a well-structured startup ecosystem and labelling procedure in Nigeria. The Bill captures the operational structure of the bodies involved in the implementation of the Act and is thorough with the hierarchy of duties for each participant/player to ensure the Act is given due effect. The Startup Bill is a fundamental step in the development of a legal framework for startups operating in Nigeria as it creates opportunities for the growth and expansion of existing and upcoming pioneering businesses and encourages innovation in the local technology space. Adoption of the Bill at the state level is recommended and essential as soon as the Bill receives the Presidential assent and is passed into law as it represents a momentous transformation in the Nigerian technology industry.
Following are some recommendations which, if incorporated, may further strengthen the proposed bill prior to its enactment or in subsequent amendments.
According to the eligibility criteria for the grant of a startup label,41 the bill restricts companies that are not in existence for 10 years from the date of incorporation and companies whose objects are not technologically driven from acquiring the labelling certificates thereby depriving such excluded startups of the benefits provided in the bill. The impact of not extending these benefits to non-technology driven startups or non-labelled startups contradicts the objective of the proposed Act of providing an enabling environment for the establishment, development and operations of startups in Nigeria. It also impairs the growth and development of such startups in Nigeria's economy in need of lifelines and economic incentives.
The Bill states that the validity of a labelling certificate is 10 years from the date of issuance. However, the Bill did not stipulate a renewal process for the certificate, and this suggests that at the expiration of the validity period, such startups are restricted from the benefits provided in the proposed Act, unless this lacuna is urgently addressed in a set of regulations.
The Bill fails to recognise the importance of data protection and privacy compliance for startups as there are no provisions that mandate full compliance with the provisions of the Nigeria Data Protection Regulation (NDPR) or other enacted federal legislation. In providing services to consumers, startups will process the personal data of their consumers and patrons. With the alarming rates of data breaches especially in the tech ecosystem, adequate protections must be put in place while processing personal data and in cross-border transfers of personal data to foreign countries.
For effective and efficient support from regulators as provided in the bill, the necessity for proper implementation and collaboration between various agencies and organs of government is essential in achieving the aspirations captured in the bill.
Footnotes
1. Maryam Abdulsalam, Associate, and Olamide Iseyemi, Intern, Intellectual Property Department SPA Ajibade & Co., Lagos, Nigeria.
2. See https://sendpulse.ng/support/glossary/startup accessed on 25th September 2022.
3. See https://startupuniversal.com/country/nigeria/ accessed on 25th September 2022.
4. See https://startupbill.ng/ accessed on 25th September 2022.
5. Section 1 of the Startup Bill.
6. See https://nairametrics.com/2022/07/29/ten-important-information-you-need-to-know-about-nigerias-startup-bill/ accessed on 25th September 2022.
7. Section 2 of the Bill.
8. Section 7(1).
9. Section 4.
10. Section 9.
11. Section 10.
12. Section 11.
13. Section 12.
14. Section 13(1).
15. Section 13(2).
16. Section 13(3).
17. Section 14 & 15.
18. Section 16.
19. Section 17 & 18.
20. Section 19.
21. Section 20.
22. Section 21.
23. Section 22.
24. Section 24.
25. Section 25.
26. Section 27.
27. Section 28.
28. Section 29.
29. Section 30.
30. Section 33.
31. Section 35.
32. Section 36.
33. Section 37.
34. Section 38.
35. Section 39.
36. Section 40.
37. Section 41.
38. Section 43.
39. Startup innovation clusters, hubs, physical and virtual innovation parks are obligated to assign dedicated a team which will provide support to a startup; assist in registration and application for authorization, facilitate startups appreciation of the regulatory framework and expansion into foreign markets, create workspaces for free or at a subsidised rates; and all other functions incidental to the attainment of the functions provided in the Act.
40. Section 45.
41. Section 13.
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