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Startups in Nigeria have grown exponentially. According to
research conducted by Statista, in 2020, Nigeria recorded over
3,300 startups. This is the highest number in Africa. Coming a
distant second is South Africa with 660 startups and Kenya with
600. Technology startups in Nigeria seem to be leading the pack of
emerging startups in Nigeria and indeed across Africa with leading
lights such as Flutterwave, Paystack and Piggyvest.
Nigeria has seen increasing funding especially for technology
startups over the years. The most recent and indeed the biggest
round of funding in Africa was the Series D round of USD250million
raised by Flutterwave in February 2022. Other noteworthy
investments according to a report published by Nairametrics1, are
funding raised by Moove for USD135million, Bamboo for USD15million
etc. In total, it is estimated that Nigerian tech startups have
raised well over $2billion in funding over the last seven years
– this is according to a report published by Disrupt Africa
titled “The Nigerian Startup Ecosystem Report 2022”.
The Nigeria government has also supported startups by making
fiscal policy reforms that are specifically targeted at growing
this very fragile but extremely important sector of the economy.
Some of these reforms include income tax exemptions for companies
with revenue below NGN25million, exemption from VAT compliance
obligation for companies with revenue below NGN25million in a
fiscal year etc.
While these fiscal reforms are beneficial to the growth of
startups, Nigeria still recognizes the need for more deliberate and
targeted policy reforms. Hence the promulgation of the Nigeria
Startup Act 2022 (or “the Act”) on the 19th of
October 2022 signed into law by his Excellency, President Muhammadu
In this article, we will discuss the implications of this Act to
Nigerian technology startups as well as key takeaways from this
The Nigeria Startup Act 2022: Implications for technology
Startups in Nigeria are impacted by a lot of macro and
microeconomic factors. Key among them is access to finance. It is
said that a lot of startups globally and indeed in Nigeria, fail
because of the unavailability or inadequacy of finance. Other
factors impacting the growth of startups in Nigeria include, but
are not limited to, access to resources, incubators or
accelerators, government interventions etc. The Act has tried to
cushion the impact of these economic factors by focusing on
strategic areas such as access to finance, fiscal incentives,
collaboration and cluster hubs/innovation parks/accelerators and
It is instructive to note that the concessions in the Act are
not automatic to all startups in Nigeria. In fact, the Act only
permits “labelled startups” from benefitting from these
concessions. For a startup to be designated a “labelled
startup”, it needs to meet the following criteria:
- It must be a registered company under the CAMA and has been so
registered for a period less than 10 years;
- Its objects are innovation, development, production,
improvement, and commercialization of a digital technology
innovative product or process;
- it is a holder or repository of a product or process of digital
technology or the owner or author of a registered software;
- it has at least one-third local shareholding held by one or
more Nigerians as founder or co-founder of the startup;
- in the case of a sole proprietorship or partnership, it
satisfies the conditions set out in paragraphs (b), (c) and
- In the case of a sole proprietorship or partnership, a
pre-label status is granted for a period of six months to enable
the sole proprietorship or partnership comply with the conditions
in (a) to (d)
We are going to discuss the impact of this Act on technology
startups under four categories: Access to Finance, Fiscal
Incentives, Collaboration as well as Cluster Hubs/Innovation
Parks/Accelerators and Incubators.
- Access to Finance
- The Act provides for different sources of funding for
technology startups. We have enumerated these sources below:
- A Startup investment seed fund which shall be managed by the
Nigeria Sovereign Investment Authority, and into which, an amount
not less than NGN10billion shall be paid on a yearly basis. The
source of the fund will be determined by the National Council for
Digital Innovation and Entrepreneurship (or “the
Council”) and the fund will be used to finance the needs of
the startup amongst other uses.
- Access to grants and loan facilities administered by the
Central Bank of Nigeria (the CBN), the Bank of Industry or other
bodies statutorily empowered to assist small and medium-scale
enterprises and entrepreneurs.
- Access to a credit guarantee scheme which shall be set up for
the development and growth of a labelled startup.
- Startups may also raise funds through crowdfunding
intermediaries and commodities investment platforms duly licensed
by the Securities and Exchange Commission (SEC).
- Although these financing choices are commendable, it is
important that clarity is provided sooner than later on the source
of the funding for some of the financing options. For example, what
will be the source of the Startup investment seed fund? Will it
come from the Consolidated Revenue Fund or from taxes or
public-private partnerships (PPP) etc?
- Fiscal Incentives
- There are quite a number of incentives available to labelled
startups in the Act. These are listed below:
- Expeditious approval of pioneer status incentive (PSI) for
labelled startups that fall within industries captured under the
extant Pioneers status Incentive Scheme. Consequently, labelled
startups that have been approved for the PSI will enjoy a tax
holiday for three years and an additional period of two years if
still within the labelled startup period;
- Full deduction of expenses on research and development for the
purpose of determining the company’s corporate tax
- 5% withholding tax for non-resident companies that provide
technical, consulting, professional or management services which
shall be the final tax for such non-residents;
- Exemption from contribution to the Industrial Training Fund
where it provides in-house training to its employees for the period
it is designated a labelled startup;
- Access to export incentives and financial assistance from the
export development fund, export expansion grant and export
adjustment scheme fund;
- Access to loans administered by the Central Bank of Nigeria,
Bank of Industry or other bodies that support small and medium
- Investment tax credit equivalent to 30% of the investment in
the startup. This shall be available to investors, venture
- Exemption from capital gains tax on the disposal of assets by
investors in the labelled startup as long as those investments have
been held for a period not less than 24 months.
- Repatriation of investments by a foreign investor in freely
convertible currencies, net of taxes and upon provision of a
Certificate of Capital Importation (CCI) as evidence that initial
investment was injected through the proper channel.
- These incentives are very commendable and when fully
implemented, will provide the startup with some leverage to grow
its business and compete with other top players in the
- The Act recognizes the importance of collaboration especially
for and amongst startups. Collaboration with government agencies,
industry experts, investors etc. Therefore, the following
collaborative efforts have been legislated in the Act.
- Collaboration between the Corporate Affairs Commission and the
National Information Technology Development Agency (or the
Secretariat) to ensure the processes and transactions carried out
by startups at the Commission are seamless and expedited.
- Collaboration between the Secretariat and the Nigerian
Copyright Commission and the Trademarks, Patent and Design
Registries to ensure ease of registration of intellectual property
for labelled startups, facilitating the application for grant or
revocation of patents and institution of legal action for
infringement of any intellectual property rights etc.
- Collaboration between the Secretariat and the National Office
for Technology Acquisition and Promotion (NOTAP) to ease technology
transfer registration for labelled startups, provide a discount on
all applicable fees for technology transfer registration and
provide technical assistance to labelled startups to enable them to
commercialize their research result.
- The Secretariat shall in conjunction with the CBN and the SEC,
ease the licensing procedures for labelled startups to operate as
financial technology companies (or fintech startups). Also, this
collaborative effort will ensure fintech startups are duly notified
of new rules and regulations that affect the industry etc.
- The Council shall assist labelled startups who seek to list on
the relevant board of the Nigerian Exchange Limited (NGX), or on
similar stock and commodity exchanges operating in Nigeria to meet
up with the eligibility requirements for listing.
- It is important to note that these collaborative efforts shall
be consummated through a Startup Support and Engagement Portal (or
“the Portal”) which shall amongst other things serve as a
platform through which a startup conducts the registration process
with relevant Ministries, Departments and Agencies of the
- Cluster hubs/innovation parks/accelerators and incubators
- Just like the Silicon Valley in the United States or the
technology hubs in London, this Act seeks to establish a technology
ecosystem in Nigeria. For example, the Act seeks to develop a
national accelerator and incubator policy for the establishment and
development of accelerators and incubators. These accelerators and
incubators shall in collaboration with the Secretariat, develop
programs targeted at startups.
- These accelerators and incubators registered with the
Secretariat are entitled to incentives as may be provided by the
Federal Government through a regulation(s).
- Also, the Act provides for the establishment of the startup
innovation clusters, hubs, and physical and virtual innovation
parks in each state of the Federation to aid the activities of the
- The Act also makes clear that the Secretariat shall collaborate
with the Nigerian Export Processing Zones Authority to establish a
Technology Development Zone. This is to spur the growth and
development of startups, accelerators and incubators.
- With the passage of the Nigeria Startup Act 2022, it is
envisaged that with proper implementation, Nigeria should
experience an increased growth in the number of Startups in the
country. Also, with the growth in the number of startups, there
should naturally be a growth in the number of jobs available for
Nigerians. Hence, this Act is expected to impact positively, the
country’s current unemployment rate of 33.3%.
- The fiscal incentives legislated in the Act should provide
leverage for tech Startups to grow their revenue and compete with
larger players in the industry. The implementation of the Act will
also relieve tech Startups in Nigeria of some of the bottlenecks
experienced before now, particularly in dealing with regulators in
Nigeria as well as access to funds.
- This Act is also expected to boost investor participation in
the Nigerian technology space. The myriads of incentives available
to both investors and investee companies as well as
government’s deliberate effort in growing the technology space,
should encourage investors who before now, have been unsure about
playing in the Nigerian technology space.
- Although the Act and the provisions therein have been
commendable, there are areas which still require clarity. For
example, how will the Startup Investment Seed Fund be financed?
Will companies be tasked with this responsibility through
additional taxes? Will it come from the government’s purse via
deductions from the CRF or will this be done via a PPP etc. This
question needs to be answered timeously as it forms the basis for
startups, investors and other stakeholders to participate in this
- Also, another pertinent question or concern is the requirement
for sole proprietors or partnerships to transit to corporatization
in order to enjoy the concessions under the Act. Will this
requirement not impoverish the states who before now had been the
body responsible for collecting taxes from these entities? Will
this requirement also not diminish the relevance of partnerships as
a vehicle for investments in Nigeria? Perhaps these points need to
be considered when the regulation pursuant to the Act is
1. Corporate Deals Book report for H1
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