Funmilayo Odude, Partner, Commercial and Energy Law Practice (CANDELP)

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Nigeria Startup Bill may be counter-productive 14 Jul 2022

Nigeria has the highest volume of start-ups and one of the most developed startup ecosystems in Africa. The StartupBlink Ecosystem Index Report 2021, a global startup ecosystem map which evaluates innovation ecosystems in 100 countries and 1,000 cities globally by ranking the locations according to the quantity and quality of start-ups and supporting organizations, described Lagos as the most developed African city for startups.

According to the report, which also factors business environment and investment climate into its rankings, Nigeria is the highest-ranking country in Western Africa and the third highest in Africa with seven cities (Lagos, Ibadan, Abuja, Port Harcourt, Enugu, Benin and Kano) in the global top 1,000 cities. This is in spite of an unpredictable regulatory terrain and very little government support. According to a report published by Tech Crunch in February 2022, Nigeria was the top venture capital investment destination in 2021 with about $1.8 billion funding.

For a country with the human capital and population that Nigeria has, the tech startup ecosystem presents one of the most sustainable opportunities for the country to develop its economy and tackle the big, twin problems of poverty and unemployment. Yet, government policies indicate either a lack of understanding of the vast opportunities of the ecosystem to the economy or a refusal to innovate.

Over the last couple of years, government policies have either threatened or outrightly stifled innovation in the startup ecosystem. These policies range from bans on bike-hailing platforms and crypto currency trading, the ban of Twitter and subsequent regulation of social media platforms, to the almost stifling regulation of Fintechs by the Central Bank of Nigeria (CBN). Hence the clamour that led to the Nigerian Startup Bill (NSB).

President Muhammadu Buhari forwarded the executive bill to the National Assembly in February 2021. The NSB is a collaborative project by Nigeria’s tech startup ecosystem and the Presidency “to harness the potential of our digital economy through co-created regulations.” The purpose of the bill is “to ensure that Nigeria’s laws and regulations are clear, planned and work for the tech ecosystem” which will “contribute to the creation of an enabling environment for growth, attraction and protection of investment in tech startups.”

The NSB has the grand objective of promoting and implementing clear, feasible and innovation-friendly legal and regulatory framework for the start up space in Nigeria. It intends to do this through the instrumentality of a governing council known as the National Council for Digital Innovation and Entrepreneurship with a membership comprising statutory offices and representatives of all major players in the tech startup ecosystem and a secretariat domiciled at the National Information Technology Development Agency (NITDA). The Bill also seeks to create the Startup Investment Seed Fund to be managed by the Nigerian Sovereign Investment Authority (NSIA). The Fund is to be used to provide early-stage finance for startups, technology laboratories, accelerators, incubators and hubs.

For the purpose of creating a legal and institutional framework for the development of startups in Nigeria and protecting the space from fraudulent, unlicensed and unregistered entities, the NSB is an important piece of legislation. But for the purposes of creating and developing an enabling and investment-friendly environment for the operation of startups, we do not have to wait for legislation.

Most of the responsibilities for the implementation of the Bill by the Council, which addresses core issues such as funding, investment-friendliness, governance and accountability and talent development, rest with the secretariat, i.e., NITDA. NITDA is already the lead statutory body on digital technology in Nigeria. Whatever support is expected to be given to the Council to empower it to carry out these objectives can be implemented in NITDA to enable it function optimally. For example, the Startup Support and Engagement Portal, which is expected to act as the liaison with stakeholders, does not require legislative intervention before it is created and functional. It can be developed now and domiciled with NITDA. The proposed tax incentives, regulatory registration discounts and grants are all incentives that can be validly, and through the right engagement with the right MDAs of government and following due process of law, implemented without waiting for the NSB.

Perhaps, the startup ecosystem can take a leaf from the Presidential Enabling Business Environment Council (PEBEC). PEBEC was set up in July 2016 to improve Nigeria’s ranking on World Bank’s Ease of Doing Business by removing the bureaucratic constraints. It is an inter-governmental and inter-ministerial agency chaired by the vice president and comprising 10 ministers, the Head of Civil Service of the Federation, Governor of the Central Bank, representatives of Lagos and Kano State Governments, the National Assembly and the private sector.

Through the interventions of PEBEC, strategic innovations were introduced with engagement with stakeholders in both the regulatory space and all arms of government – National Assembly, the Judiciary and all subnational governments. Interventions such as the online portal of the Corporate Affairs Commission (CAC) providing for more efficiency in the incorporation and subsequent compliance with the regulations of the Commission by companies and businesses; the introduction of web-based visa on arrival by the Nigerian Immigration Service (NIS); the establishment of the small claims court in Lagos and Kano States and over 100 reforms have improved the business environment for Micro, Small and Medium Enterprises (MSMEs) in Nigeria.

If PEBEC had gone through the route of first creating and establishing itself as a statutory body and getting statutory powers to function before commencing activities, much of the strides might not have been made especially seeing as a number of the interventions amounted to the amendment of different laws and engagement with different stakeholders. Lagos State has indicated its desire to domesticate the federal start-up bill. However, Lagos has made some strides in creating a friendly start up environment before enacting legislation in that regard. For example, with respect to funding, Lagos has created seed funding for start-ups through its Lagos State Science, Research and Innovation Council (LASRIC).

The implementation of some of the objectives of the NSB does not require enactment as a sine qua non. The different stakeholder engagements that have given rise to the Bill should proceed to implementation of some of the objectives. The factors that make an environment start-up friendly – willingness to invest or promote investment in research and development as well as human capital; robust angel and venture funding; entrepreneurial infrastructure; the technical workforce and the policy regime – require more of political will than legislation.

The NSB must also be careful with its provisions not to be counter-productive for posterity. Subjecting a technology-enabled global industry to a piece of legislation exposes it to the requirement of legislative amendments for some progress to be made. The disruptive nature of the tech industry makes it an impossible subject to the slower and steadier process of law-making and legislative amendments. We must avoid a situation that binds Nigerian start-ups when it is time to innovate.

There is already a statutory regime that affects the tech start up ecosystem that includes laws such as the Companies and Allied Matters Act 2020, the Finance Act, the Small and Medium Scale Development Agency of Nigeria (SMEDAN) Act 2003, the Venture Capital (Incentives) Act 2004, the Industrial Development (Income Tax Relief) Act, among others. A huge portion of the objectives of some of these legislations have not been achieved.

The projection of a holistic legislation as a panacea to regulatory uncertainties and weak investor confidence is a little bit too optimistic and impracticable considering Nigeria’s multi-regulatory landscape. Constant engagement with all stakeholders at all levels until the legal and regulatory space catches up with innovation would always be required.

Funmilayo Odude is a Partner at Commercial and Energy Law Practice (CANDELP).