A Critique of The Nigerian Startup Act 2022 -By Ibrahim Bolakale Omoleke

Ibrahim Bolakale Omoleke

Following the lead of Tunisia and Senegal, President Muhammadu Buhari, GCFR signed the much anticipated Nigerian Startup Act, 2022 (the Act) on the 19th of October, 2022. The Act is expected to usher Nigeria into the digital tech driven fourth industrial revolution with resultant upward swing in Foreign Direct Investment (FDI), and technology transfer.

 




 

The Act is a giant leap towards a clear regulatory and legal pathway to the sustained growth and development of the country’s constantly evolving startup ecosystem. In the heightened hope of sub-national entities domesticating the Act, this article examines the Nigerian Startup Act vis-à-vis its rough edges of limited scope, overtly tech-centredness, and bureaucratic burden on Nigeria’s economy.


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Limited Scope

From Silicon Valley to incubator labs across the global startup ecosystem, Startups are misconceived as being synonymous with tech businesses. This jaundiced view was adopted by the draftsmen of the Nigerian Startup Act wherein Section 47 of the Act defines a Startup as

A company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process”

Evidently, for a business to wear the startup toga according to the Act, it must meet the following criterion:

  1. Must be in existence for not more than 10 years
  2. Its objectives must be centred on the development and adoption of a digital tech innovative product, service or process.

To be clear, a startup is simply a business in search of a profitable business model within its identified market niche. Jumia presents a perfect example of a Startup. While its business model appears overtly e-commerce-centric, building capacities in fintech and logistic solutions in a bid to find the most profitable business model qualifies the New York Stock Exchange quoted the company as a startup.

For all intents and purposes, a business ceases to be a startup once it finds a profitable business model within its market niche – irrespective of its turnover, customer base, assets, liabilities and age.

The Act’s conceptualization of Startups as digital tech-centred initiative products or services is outright exclusionary. It excludes non-tech businesses with yet to be identified profitable business models from incentives such as grants, tax cuts, seed funding, technology transfer, SEC-backed crowdfunding initiatives, profit repatriation etc.

The Act’s limited and exclusionary scope is not without effect. For instance, a Lagos based renewable energy company experimenting with alternative energy sources in search of profitable models will be ineligible for incentives under the Act, since it isn’t operating under the digital technology spectrum.

Startups are like laboratories where several business experiments are undertaken to find the perfect business model. They need not necessarily wear the tech toga to be labelled one.

Bureaucratic Drain on the Economy

The two horsemen of over-bloated and largely redundant civil service, evidenced by several resource-draining and quasi-efficient government parastatals continue to burden the country’s economy. Borne out of extreme left-wing socialism-inspired economic policies, Nigeria continues to create tax-funded agencies with little impact on the country’s socio-economic, and political landscape. As a cost-cutting measure, the Oronsaye report recommends the merger and abolition of 102 government agencies.

Unfortunately, there seems to be no end in sight for Nigeria’s policy conundrum. Section 3 of the Act establishes the National Council for Digital Innovation and Entrepreneurship (the Council). The Council is saddled with the responsibility of formulating Nigeria’s digital technology policy framework, and harmonization of startup laws and regulations inter alia.

Considering the country’s fiscal woes, the establishment of the council seems needless. The council’s principal membership restriction to political office holders with enough responsibilities on their shoulders questions the council’s efficiency.

Furthermore, and commendably, the Act’s creation of a private sector centric Startup Consultative Forum comprising of angel investors, venture capitalists incubators, and label startups dispenses or rather limits the need for the Council.

In light of Nigeria’s fiscal challenges, the Council is best absorbed by an already established bureaucratic department under the Ministry of Trade and Investment or National Office for Technology Acquisition and Promotion rather than constituting a drain on the country’s debt-ridden economy.

Conclusion

Undoubtedly, Nigeria is one of the leading prime provenances of tech startup investment in Africa. She deserves a clear regulatory and legal pathway for the sustained development of its startup ecosystem. The Act with its multifaceted incentives is a giant leap in the right direction.

However, its tech-centeredness is extremely exclusionary. It prevents non-tech actors with businesses shrouded in unclear profitable business models in their market niche from its scope. While the Small and Medium Scale Industries Development Agency Establishment Act (SMEDAN) appears to cater for non-tech enterprises, incentives under the SMEDAN Act pale in comparison to the Startup Act.

Globally, small-scale businesses are the soul of the economy. They create most jobs in the formal and informal sectors. According to Statista, Nigeria has over 41 million SMEs across the service, industrial and agricultural sectors of her economy. It would have a far-reaching effect if the Act’s limited scope is extended to the SME’s frontiers.

Expectedly, sub-national entities will domesticate the Act, expanding its scope while avoiding bureaucratic bottlenecks in needless agency will have far reaching effect.

 

Reference

Nigerian Startup Act 2022

Small and Medium Scale Enterprise Act 2003

https://www.forbes.com/sites/jaredhecht/2017/12/08/are-you-running-a-startup-or-small-business-whats-the-difference/amp/?bshm=ncc/2

 

Ibrahim Bolakale Omoleke is a lawyer, international trade enthusiast and business consultant.

Email: omolekeibrahim112@gmail.com

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