This article takes a look at the discussions and steps taken towards enacting a startup bill for Nigeria, which comes after the enactment of similar legislation in Tunisia and Senegal, and is steadily becoming the response of decision-makers in addressing the problems facing startups on the African continent. We also considered possible areas to be addressed by the Nigerian startup bill.
Nigerian startups are attracting more and more investment. In 2019, the country ranked in $663.24 million worth of startup investments. In 2020, her startups raised approximately $120.6 million, with $85.8 million of the total figure from foreign investors. Statistics also show that in the first quarter of 2021 alone, Nigerian tech startups raised $219 million, an amount that tripled the combined amount raised in the corresponding quarters for 2018, 2019, and 2020 respectively.
On another level, the foregoing statistics point to the rise of startup investment on the African continent. According to a 2019 African Venture Capital Report released by WeeTracker, startups operating on the continent received a total of $1.34 billion in startup investments for that year. Despite the global lockdown due to the COVID-19 pandemic, African tech companies still clinched an impressive $757.29 million in 478 deals in 2020, compared to the 427 deals secured in 2019. Furthermore, a report by BCG shows that “from 2015 through 2020, the number of African tech startups receiving backing grew at a 46% annually clip - some six times faster than the global average”
However, despite the encouraging statistics of startup investment in Nigeria, there are many challenges that still threaten the growth of startups in the country, making it difficult for them to scale. In a virtual ecosystem town hall that held in May 2021 to discuss the topic, “Making laws work for startups in Nigeria,” the following problems were identified as affecting startups in Nigeria: disruptive regulations (or outright government competition), fragmented and unclear rules, weak infrastructure (broadband, open data and digital platforms), and difficulty accessing capital for prototyping and growth.
In some other countries, startup acts have been deployed to address these issues. Startup Acts include an amalgamation of policies intended to increase the incentives for young people to start a venture, investors, to put their money into promising companies, and other ecosystem actors to lend their support where it’s needed. As pointed out by i4Policy, startups acts are not made through regular lawmaking processes but are a result of entrepreneurs taking the initiative. In Nigeria, the balls have started rolling in this regard, as discussions for the enactment of a startup act are well underway between startup owners, investors and government representatives.
The startup bill for Nigeria comes right after the enactment of a startup Act in Tunisia and Senegal. From conversations held by key players, Nigeria is not taking this step simply to jump on the bandwagon, but because it is believed that a startup act is the right step to take in order to create a more stable regulatory environment as well as provide the resources needed for startups to thrive in the country.
Its 2019 report also showed Kenya and Nigeria as the premier investment destinations on the continent for that year, attracting US$149 million and US$122 million in funding respectively.
A look at the Startup Act in Tunisia
In Tunisia, the government is taking active steps to make the country a hub of startup investment which will, in turn, grow the economy. Tunisia passed her startup act on April 2, 2018, as part of the government’s strategy to boost socio-economic development and expand technological infrastructure. The Tunisian startup act was developed in a participatory and collaborative way by all stakeholders of the entrepreneurial ecosystem in Tunisia under the supervision of the Ministry of Communication Technologies and the Digital Economy.
The Act provides the criteria to be met by companies in Tunisia that seek to be granted the Startup Label. The criteria to be met are: Age (the company must be less than 8 years old since its legal constitution); Cut (the company must have less than 100 employees and less than 15 million dinars of annual turnover); Independence (more than 2/3 of the company’s capital must be held by natural persons, regulated investment bodies or foreign startups); Innovation (the company’s economic model must be innovative); and Scalability (the company’s target market must be large and homogenous, must have a market-fit solution and the team in charge capable of implementing the project properly).
Statistics also show that 21.9% of the labelled startups as of 2020 had female founders and $18.5 million has been raised by the startups combined.
Upon being granted the Startup Label, startups can have access to the incentives and benefits provided under the Act. Some of the incentives available under the Act include
(i) the startup grant, which is an allowance given to the co-founder and shareholder of a startup to cover living expenses for one year; (ii) the startup creation leave of one year which is granted to the co-founder of the startup to enable him to dedicate himself full-time to the launch and development of his startup. He may terminate the leave at any time and return to his original job with prior notice; (iii) exemption from corporate tax: in the event of liquidation, the Act provides measures such as a Guarantee Fund and exemption from corporate tax; (iv) tax relief is granted to investors who invest in startups or in regulated investment organizations dedicated to startups; and (iv) exemption from capital gains tax: profits from the sale of securities relating to participation in startups are exempt from capital gains tax.
The Startup Act in Tunisia has been celebrated for positively impacting the startup ecosystem in the country. First, the Act has made it easy for startups to be given the startup label. From the enactment of the Act in 2018 to November 2019, the country had 169 labelled startups. As of August 2020, 327 startups had received the startup label which entitles them to the benefits given to startups. Statistics also show that 21.9% of the labelled startups as of 2020 had female founders and $18.5 million has been raised by the startups combined. According to Ali Mnif, co-founder of MAZAM, and also one of the lobbyists of the Tunisian startup Act, “(the Act) pushed some to make a jump they wouldn’t have done. It empowered some others. It inspired many more.” No doubt, this was the right boost needed for public and private engagement in terms of investment. In 2020, the country ranked top five in the list of MENA countries in terms of the number of investment deals.
The Senegalese government also formed the Delegation de l’Entrepreneuriat Rapide (DER) which is aimed at boosting entrepreneurship by addressing the lack of early support systems, accelerators and early-stage funding for startups.
The startup Act has also been praised by startup owners for its attempt to deal with the bottlenecks that threatened the growth of startups in the country. According to them, by dealing with the external challenges involved in growing a startup, the Act has enabled them to pay more attention to product development and growing the right team. Some other startup founders have praised the incentives and benefits provided under the Act, such as the tax holiday, the one-year salary grant, and the Special Currency Account. The result of these incentives according to Sofiane Mabrouk, co-founder of Fabskill, is that several seniors from the Tunisian diaspora are coming back to launch startups; and that the tax exemptions have particularly benefitted smaller startups where the general tax structure would ordinarily crush them.
In 2019, the Global Entrepreneurship and Development Institute (GEDI) published its Global Entrepreneurship Index which ranked Tunisia second in Africa based on 14 values measuring the health of the ecosystem (including entrepreneurial attitudes, abilities and aspirations). It can be concluded from the foregoing that the creation of the startup Act was a step in the right direction for Tunisia. The Act and the results flowing from its implementation has helped draw global attention to the country’s startup ecosystem. The creation of the Act was made possible by the painstaking efforts of the ecosystem’s key players in drawing up the legislation, as well as the strong political support of the Tunisian government.
The Startup Act in Senegal
The Senegal Startup Act was passed into law in December 2019 with the aim of positively impacting the national economy in line with the Digital Senegal 2025 Strategy. The implementation of the Act led to the amendment of the country’s Finance Law in order to make provision for certain things such as the exemption from taxes for the first three years of a startup and reduction in registration fees. The Senegalese government also formed the Delegation de l’Entrepreneuriat Rapide (DER) which is aimed at boosting entrepreneurship by addressing the lack of early support systems, accelerators and early-stage funding for startups. The Delegation has so far, invested more than $2 million in more than 40 Senegalese startups. Other countries like Mali, Ghana and Rwanda are also on the journey to enacting their own startup acts.
Current Developments with the Nigerian Startup Bill
Moving back to Nigeria, the timelines for the drafting and implementation of the startup bill has been published on the Nigeria Startup Bill website. The timeline is as follows:
June 2021: Produce the First Draft.
Harmonize existing laws/regulations and feed inputs to the legal framework from key ecosystem leaders (MDAs, States, and Networks).
July 2021: Validate the First Draft.
Ecosystem leaders and representatives review the first draft as well as the Presidential Working Group composed of MDA decision-makers critical to implementing components of the bill.
August 2021: Town Halls.
Presidential Announcement and Town Hall meetings take place for public consultation and validation of the second draft of the bill with ecosystem stakeholders at the state level in all geographical zones.
September 2021: Final Draft Produced.
Drafting teams take all the inputs and make revisions to feed into the final bill.
a Growth Board has been added to the Nigerian Stock Exchange meant for small businesses and startups. It serves as an alternative IPO exit route for startups and would give them an opportunity to raise equities for their businesses.
Leaning in on the challenges that startups face in the country, some possible provisions for the startup bill include:
- Tax incentives for startups for up to 3 years from the date of their creation, so as to enable them to have a firm financial footing in the beginning stages of the startup;
- Specific provisions tailored to attracting more women founders onto the startup scene. The startup bill can be the boost needed to encourage greater female participation in the startup community, as was achieved with Tunisia’s startup act.
- Tax relief for investors, both local and foreign, who invest in startups or VC firms. Such relief could include tax exemptions for when a company invests a certain amount of its profits into startups.
- A simplified registration process for startups. Making use of online registration portals rather than the traditional physical registration system will help eliminate time wastage in the registration process. Also, registration fees (if any) should not be costly.
- Establishment of research centers across the country to aid research in various sectors of the startup ecosystem. This will spur innovation and will help local startups apply the best practices in their various fields.
- Establishment of a supervisory body to measure the growth of startups, supervise their compliance with extant laws and regulations, and recommend policy changes where needed.
- Consolidation of the existing legislations supporting startups.
Various legislations already exist that support the growth of startups in the country. One example is the Venture Capital Incentives Act which provides tax exemptions for equity investments made by venture capital companies in a startup in Nigeria. There is also a pioneer status tax incentive for innovative business models granted for an initial period of 3 years with a possibility of an extension for another 2-year period.
Furthermore, a Growth Board has been added to the Nigerian Stock Exchange meant for small businesses and startups. It serves as an alternative IPO exit route for startups and would give them an opportunity to raise equities for their businesses. Several government funds also exist to support both startups and venture capital firms. Some of these funds include Creative Industry Financing Initiative and the Future Generations Fund under Nigeria’s Sovereign Investment Authority.
Calls have been made for stakeholders to give their contributions to the startup bill. The method adopted for the bill is the “Big Tent” approach which is a collaborative effort by all the relevant players in the ecosystem. The project is managed by the Ventures Platform Foundation and supervised by the Presidential Strategic Advisory Group composed of stakeholder representatives from the tech-startup ecosystem in Nigeria. The effort is also supported by i4Policy, which has been instrumental in helping African countries with the draft of their startup laws. According to Jon Stever, managing director of i4Policy, “...in a few years the question will be, “how many countries don’t have Startup Acts?”
In Nigeria, if the startup bill is to be successful, it must be backed by strong political support. Going by the words of the President in his New Year address, “our young people are our most valuable natural resource, at home and abroad. Their ingenuity, creativity, innovation and entrepreneurial spirit is evident to all. We will partner with the legislature to develop an enabling environment to turn their passions into ideas that can be supported, groomed and scaled.”Also, the bill must reflect our economic realities and unique conditions rather than wholly lifting provisions from startup acts in other countries. Furthermore, the bill must holistically reflect the input from all relevant key players in the ecosystem.
Finally, one question that remains to be answered is how healthy the environment is for the implementation of the bill, considering the ban on Twitter and the ban on the facilitation of cryptocurrency by Nigerian banks. Whatever the case, it is the hope of stakeholders that the startup bill will be the key needed to make the grounds smoother for the operation of startups in the country.
Emaediong Lawrence | Research Assistant, Start-Ups, Business, Jobs | email@example.com
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