The Nigerian startup ecosystem is growing at a rapid pace. Recently, the country has seen a surge of innovation, especially in the banking and fintech sectors, with numerous startups offering modern financial solutions that are accessible, affordable, and convenient for Nigerians. However, the Nigerian startup ecosystem is still largely unregulated and lacks legal protection, funding, and support from the government. Consequently, this has limited the growth and sustainability of these startups.
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To address the growing needs and enormous concerns of the startup ecosystem, the Nigerian startup ecosystem, in conjunction with the Presidency, has recently introduced an Act that aims to provide adequate regulations that would effectively and efficiently manage the operations of startups in Nigeria.
Its goal is to ensure that these tech startups can thrive without fear of being shut down or having their assets confiscated by regulators or other agencies. The Nigerian Startup Act is designed to help startups grow without being hindered by bureaucracy and red tape.
According to Business Day on the Top 5 Challenges of the Nigerian Tech Space and Possible Solutions, for a change in the operations of startups in Nigeria, the government must be consistent with regulating policies that will encourage tech firms to operate confidently. Hence, Nigerian Startup Act aims to provide the change the tech sector needs.
This article, which is a comprehensive review of the Nigerian Startup Act, is an attempt to highlight the problems of the Nigerian tech ecosystem, the Act, its provisions, and how they would solve them.
What is the Nigerian Startup Act?
The Nigerian Startup Act project is a joint drive by Nigeria’s tech startup ecosystem and the Presidency to outfit the capability of our computerized economy through co-made regulations and guidelines. The Act will ensure that rules and policies made for the tech ecosystem in Nigeria are clear, arranged, and work conveniently to fast-track the growth and development of the industry.
Furthermore, the Act is expected to improve the climate for development, attraction, and assurance of interest in tech startups and new companies.
Currently, the Act is undergoing review by the National Assembly and, upon approval, it will provide a legal and institutional framework for developing startups in the country. The Act will also provide for the development and growth of tech-related talents in the country and further position Nigeria as a hub for young and promising tech startups.
Some Of The Most Common Problems Facing Nigerian Startups
Lack of Access to Financing and Funding
Financing a tech organization is capital-intensive. The ideal way most proprietors can procure sufficient cash is through credits and grants. Over the years, the industry and its key players have been whining about the trouble of acquiring advances and loans from Nigerian banks.
It is out of place to blame banks for not availing themselves of meeting tech startups’ capital and funding needs. Most of the time, the terrible credit records of small businesses and startups directly result from the bank’s constraints in making loans and grants available.
Poor Internet Connectivity
Nigeria is ranked number 8 among the top 10 countries with the highest number of internet users. Despite having over 109 million users out of the 200 million people living in the country on the Internet, Nigeria suffers from poor internet connectivity, which has become a nationwide epidemic.
A significant percentage of tech businesses and startups are fully remote, meaning their business operations and patronage depend on stable internet connections, which is lacking in the country.
This factor alone is responsible for the losses of businesses and individuals who have constantly tried to adapt to and adjust to Nigeria’s slow and unstable Internet speeds. It is ironic that Nigeria, which is believed to be the giant of Africa, is far from the top three spots of Africans with fast and stable Internet connections. It’s little wonder Google launched YouTube Go to bypass the slow Internet connectivity Nigerians suffer.
Poor Power Supply
Nigerian tech businesses and startups are not the only ones that suffer from inadequate and unstable electricity in the country. The World Bank published a report that said Nigerian businesses suffer an annual loss of 29 billion dollars due to an “unreliable” power supply. It is a more significant challenge for tech businesses, as a survey by the Center for Global Development found that 57% of startups find electricity problems to be a “major” or “very severe” obstacle to their business, beating out other challenges such as corruption, taxes, and government regulations.
Undoubtedly, all of these continue to pose setbacks to the Nigerian tech industry, limiting the productivity of individuals and businesses despite the laudable ideas up their sleeve.
Why Is the Nigerian Startup Act Important?
It is clear what the objectives of Nigerian Startup Act are. This includes providing a legal and institutional framework for the development of startups in Nigeria; developing an enabling environment for the tech industry in Nigeria; and making room for the development and growth of tech-related talents in the country. We have captured the following as some of the reasons why the Nigerian Startup Act is important.
Funding Support
Lack of access to financing in the form of loans and grants has crippled the dreams of many tech startups. One of the benefits of the Nigerian Startup Act and what Nigerians stand to gain when it becomes an Act is that it will provide access to government-approved funding. In the first draft of the Act submitted to the National Assembly, the Act will provide for the creation of a Startup Investment Seed Fund, which is to be managed by the Nigeria Sovereign Investment Authority.
Through the Startup Investment Seed Fund, tech-based businesses will enjoy early-stage financing, which is available to all tagged startups. However, the following conditions must be met to be labeled a startup:
- The startup must be registered as a limited liability company under the Companies and Allied Matters Act 2020 and have existed for not more than 10 years from the date of incorporation.
- Its objectives must be innovation, development, production, improvement, and commercialization of digital technology or an innovative product or process.
- The startup must be a holder or repository of a product or process of digital technology or the owner or author of registered software.
- The startup must have at least one Nigerian as a founder or co-founder, provided that the Nigerian or co-founder will share in profit or revenue from the sale of shares.
- In the case of a sole proprietorship or partnership, it must satisfy the conditions highlighted in points (ii), (iii), and (iv).
Bridging the Gap Between Founders and the CAC
The Corporate Affairs Commission (CAC) is the Nigerian agency that is responsible for regulating the registration, formation, and management of companies in Nigeria and much more. Transactions between founders and the CAC have always been bottle-necked. There has been this never-ending friction between the agency and people looking to do business in the country.
Interestingly, the passing of the Nigeria Startup Act into Act will reduce the bottle-necked conditions and friction tech startups and companies in the country suffer when dealing with the CAC. This is because the Act will provide a designated section on the Startup Portal to ease the process startups must go through in transacting with the CAC.
Better Regulation and Control
The Nigerian Startup Act project is a coalition between the tech startup ecosystem in the country and the Presidency. What this coalition will provide on account of the successful passing of this bill into law is the creation of better regulations that would suit the operations of tech companies in Nigeria.
Mostly, the absence of representation in the top-tier government is one reason why several government regulations and controlling guidelines have not been favorable to members of the tech ecosystem. With this Act, tech startups and founders will be at the helm of affairs, ensuring that every regulation or control measure imposed on the industry will not be a limit to its growth.
Protection of Intellectual Rights
The coalition behind the Nigeria Startup Act understands and acknowledges the importance of having intellectual property (IP) rights and protection. Part of the objectives of this joint initiative as regards IP is to ensure holders and owners of IP rights are trained to exploit their rights. The act allows collaboration with the Nigerian Copyright Commission and the Trademarks, Patent, and Design Registries to ensure a designated section is on the Startup Portal to ease intellectual property registration for labeled startups.
This collaboration will assist labeled startups in facilitating the application of grants or revocation of patents and the institution of legal action for infringement of any IP rights. Additionally, it will assist labeled startups in the filing and registration of their trademarks and patents at an international level.
Crowdfunding Support
Crowdfunding is popular among tech startups in other countries, with Kickstarter, Indiegogo, GoFundMe, and crowdfund among some of the best crowdfunding sources for tech startups. However, there is little knowledge, participation, and support for crowdfunding in the tech industry in Nigeria.
The Nigerian Startup act will allow startups to raise funds through crowdfunding intermediaries and commodities investment platforms licensed by the Securities and Exchange Commission (SEC). These licensed platforms will be available to startups from the Startup Portal. In addition, the act will create a provision for the tech ecosystem and the Presidency to partner with the SEC in providing recommendations and proposals that will fast-track the crowdfunding processes for tech startups.
Training and Capacity Building Programs
The act will provide for the design and implementation of a training and capacity-building program for startups. When the act passes its review in the National Assembly and is approved, every startup will enjoy access to training organized by the Industrial Training Fund (ITF) and any organization that provides training for business professionals.
Conclusion
There are so many benefits that the Nigerian tech ecosystem can benefit from the Nigeria Startup act as it promises a better future for the country and tech startups and companies across the country. From tax relief to fiscal incentives and an enabling environment for establishing clusters, hubs, and innovation parks to broaden the scope of the tech ecosystem development, the Nigeria Startup act is one of the best things the current administration has come up with.
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