An Examination Of The Nigeria Startup Act And Business Facilitation Act: Their Effect On Startups And The Ease Of Doing Business In Nigeria -By Job Joseph

Abstract

The advancement of digital technology has significantly changed the way businesses are established, financed and operated. Nigeria has witnessed substantial growth in technology-driven businesses, particularly in areas such as financial technology, electronic commerce, digital payments, logistics and health technology. The growth of these businesses created the need for laws capable of addressing their peculiar needs and reducing the difficulties associated with doing business in Nigeria. In response to these developments, the Nigeria Startup Act, 2022 and the Business Facilitation (Miscellaneous Provisions) Act, 2022 were enacted. The Nigeria Startup Act establishes a legal and institutional framework for the development of technology-enabled startups in Nigeria. It provides for startup labelling, the Startup Support and Engagement Portal, the Startup Investment Seed Fund, tax and fiscal incentives, intellectual property protection, regulatory sandboxes, training and other measures aimed at developing the startup ecosystem. The Business Facilitation Act, on the other hand, seeks to reduce bureaucratic bottlenecks and improve the ease of doing business through transparency requirements, default approvals, automation of government services, inter-agency cooperation and amendments to several business-related laws.

This article examines the major provisions of both laws and considers their effects on startups and businesses generally. It also identifies some of the challenges that may affect their implementation and makes recommendations towards achieving the objectives of the two enactments.

Keywords: Nigeria Startup Act, Business Facilitation Act, Startups, Entrepreneurship, Innovation, Investment, Digital Technology, Ease of Doing Business.

INTRODUCTION

The twenty-first century has witnessed rapid technological development which has affected virtually every sector of human activity. The way businesses are established, financed and operated has also changed considerably. Businesses can now provide services through digital platforms, receive payments electronically, employ persons remotely and reach customers in different parts of the world without necessarily maintaining a physical presence in those locations. Nigeria has experienced considerable growth in its technology and startup ecosystem. Technology companies operating in areas such as financial technology, electronic commerce, digital payments, logistics, health technology and other digital services have continued to emerge. This development has created opportunities for employment, investment and innovation. At the same time, it has created the need for an appropriate legal framework to regulate and support the activities of these businesses.

The Nigeria Startup Act, 2022 was therefore enacted to provide a legal and institutional framework for the development of startups in Nigeria and to create an enabling environment for their establishment, development and operation.[1] The Act also seeks to promote the development of technology-related talents and position Nigeria as a leading digital technology centre in Africa. Similarly, the Business Facilitation (Miscellaneous Provisions) Act, 2022 was enacted to promote ease of doing business, eliminate bureaucratic bottlenecks and institutionalise reforms designed to improve transparency, efficiency and productivity in Nigeria.[2] The Act commenced on 8 February 2023 and amended a number of existing laws affecting business activities. The two laws are therefore important to Nigeria’s business environment. While the Nigeria Startup Act focuses mainly on technology-enabled startups and the innovation ecosystem, the Business Facilitation Act has a broader application and seeks to make interaction between businesses and government institutions easier. The following are some of the major provisions and effects of the two enactments on startups and the ease of doing business in Nigeria.

OVERVIEW OF THE NIGERIA STARTUP ACT, 2022

The Nigeria Startup Act, 2022 is a specialised legislation designed to create a legal framework for the development of startups and the wider technology ecosystem in Nigeria. The Act defines a startup as a company in existence for not more than ten years whose objectives include the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process.[3] The definition shows that the Act is primarily concerned with technology-oriented businesses. Therefore, not every newly established business automatically qualifies for the benefits provided by the Act. The business must satisfy the requirements prescribed by the legislation. The Act establishes several institutions and mechanisms intended to support startups. These include the National Council for Digital Innovation and Entrepreneurship, the Startup Support and Engagement Portal, startup labelling, the Startup Investment Seed Fund, tax incentives, intellectual property protection, regulatory sandboxes, training programmes, incubators, accelerators and technology development zones.[4]

1. National Council for Digital Innovation and Entrepreneurship

The Act establishes the National Council for Digital Innovation and Entrepreneurship as the principal policy body responsible for the development of Nigeria’s startup ecosystem.[5] The Council is responsible for functions including the formulation of policies affecting startups, monitoring the regulatory framework applicable to startups, facilitating the harmonisation of laws and regulations and approving programmes intended to promote the development of the startup ecosystem. The Director-General of the National Information Technology Development Agency serves as the Secretary of the Council, while NITDA serves as the Secretariat of the Council.[6] The establishment of the Council is important because startups interact with several government institutions. Without proper coordination, startups may face overlapping regulations and different requirements from different agencies.

2. Startup Support and Engagement Portal

Another important provision of the Act is the establishment of the Startup Support and Engagement Portal.[7] The Portal is intended to serve as a one-stop platform through which startups can interact with relevant government agencies and obtain information and services relating to their businesses. The Portal is particularly important because startups may otherwise have to approach several government institutions separately for registration, licensing, intellectual property protection, funding opportunities and other regulatory requirements. The use of a centralised digital platform is therefore capable of reducing administrative burdens and improving the relationship between startups and government institutions.

3. Startup Labelling

The Act introduces a system of startup labelling for businesses that satisfy the statutory requirements. Under section 13, an eligible startup must, among other requirements, be registered as a limited liability company under the Companies and Allied Matters Act, have existed for not more than ten years, have objects relating to innovation and commercialisation of digital technology products or processes, and satisfy the prescribed Nigerian ownership requirement.[8] A sole proprietorship or partnership that satisfies the relevant requirements may obtain pre-label status for six months to enable it comply with the requirement for corporate registration.[9] The application for the startup label is made through the Startup Portal. Where the requirements are satisfied, the Coordinator enters the applicant’s particulars in the register of startups and issues the startup label.[10] The label is valid for ten years from the date of issuance.[11] The importance of startup labelling is that several of the benefits provided under the Act are available specifically to labelled startups.

4. Duties of a Labelled Startup

The benefits of the startup label are accompanied by certain obligations. A labelled startup is required to comply with applicable laws, maintain proper books of account, provide information concerning its human resources, assets and turnover, report incentives received and notify the Coordinator of relevant changes affecting the startup.[12] Where a startup fails to comply with the requirements and does not regularise the default after being notified, its startup label may be withdrawn.[13] However, where the default is subsequently remedied, the startup may apply for reissuance of the label.[14] This ensures that startups receiving government incentives remain subject to appropriate regulatory obligations.

5. Startup Investment Seed Fund

The Act establishes the Startup Investment Seed Fund to provide funding for labelled startups and support other institutions within the technology ecosystem.[15] The Act provides for not less than ₦10 billion to be paid into the Fund annually from sources approved by the Council.[16] The Fund is intended to provide early-stage finance to startups and support technology laboratories, accelerators, incubators and innovation hubs.[17] This provision is important because lack of access to finance is one of the difficulties faced by many startups. A business may have a viable idea but may be unable to develop that idea because of insufficient capital. The statutory creation of the Fund is therefore an attempt to address the financing gap. However, its effectiveness depends on actual funding, transparent administration and accessibility to qualified startups.

6. Training and Capacity Building

The Startup Act also provides for training and capacity-building programmes for startups and their employees.[18] The Secretariat is required to collaborate with relevant institutions, including the Industrial Training Fund, to facilitate training for entrepreneurs and employees of startups. This provision recognises that the development of startups depends not only on financial capital but also on human capital. Entrepreneurs and employees require technological, managerial and professional skills to develop sustainable businesses.

7. Tax and Fiscal Incentives

The Act provides various tax and fiscal incentives for labelled startups and qualifying investors. A labelled startup operating within industries covered by the Pioneer Status Incentive Scheme may receive expedited consideration for the relevant incentive.[19] The Act also provides for income tax relief for qualifying labelled startups for three years, with the possibility of an additional two years subject to the conditions contained in the Act.[20] Qualifying research and development expenses incurred wholly in Nigeria may also receive the treatment provided by the Act.[21] Furthermore, qualifying investors in labelled startups may receive an investment tax credit of 30 per cent of their investment, subject to the conditions prescribed by the Act.[22] These incentives are intended to encourage investment in startups and make the Nigerian technology ecosystem more attractive to investors.

8. Intellectual Property Protection

Intellectual property is important to startups because many technology businesses derive their value from software, inventions, trademarks, designs and other intangible assets. The Startup Act provides for collaboration between the Secretariat and relevant intellectual property institutions to facilitate the protection of intellectual property rights.[23] The provision is important because adequate protection of intellectual property can encourage innovation and prevent the unauthorised use or exploitation of the products and ideas developed by startups.

9. Crowdfunding and Regulatory Sandboxes

The Act provides mechanisms through which startups may raise funds through approved crowdfunding intermediaries and commodities investment platforms.[24] It also provides for regulatory sandbox and incubation programmes for eligible technology businesses, particularly financial technology businesses.[25] A regulatory sandbox allows an innovative business to test a product or service within a controlled regulatory environment. This can enable regulators to understand emerging technologies while allowing businesses to develop innovative products within an appropriate framework.

10. Foreign Investment

The Startup Act also makes provision for the repatriation of capital and profits by foreign investors in labelled startups, subject to the requirements contained in the Act.[26] This provision is relevant to foreign investors because the ability to repatriate invested capital and profits is an important consideration when making investment decisions.

11. Accelerators, Incubators and Technology Development Zones

The Act recognises the importance of accelerators, incubators, innovation parks, hubs, clusters and technology development zones in the growth of startups.[27]These institutions can provide startups with access to mentorship, infrastructure, technical knowledge, investors and business networks.

OVERVIEW OF THE BUSINESS FACILITATION (MISCELLANEOUS PROVISIONS) ACT, 2022

The Business Facilitation Act is broader in scope than the Nigeria Startup Act. Its main purpose is to promote ease of doing business, eliminate bureaucratic bottlenecks and improve transparency, efficiency and productivity in Nigeria.[28] The Act applies to businesses generally and introduces reforms affecting the relationship between businesses and Ministries, Departments and Agencies of government.

The following are some of the major reforms introduced by the Act.

1. Transparency Requirements

The Act requires relevant government agencies to publish complete information concerning the requirements for obtaining their products and services.[29] Such information includes applicable fees, documents, processes and timelines. This requirement is important because businesses need to know what is required before applying for government services. It also reduces the possibility of businesses being subjected to unofficial requirements that are not contained in published regulations.

2. Default Approval

The Act introduces the concept of default approval. Where an MDA fails to communicate its decision on an application within the prescribed period, the application may be deemed approved in accordance with the Act.[30] The applicant may subsequently request documentary evidence of the approval, which the relevant MDA is required to provide within the period prescribed by the Act.[31] The purpose of this provision is to discourage unnecessary administrative delays and ensure that businesses are not left indefinitely waiting for government decisions.

3 One Government Directive

The Act introduces the principle of one government, which requires government agencies to cooperate in the verification and processing of applications.[32] This is intended to reduce the situation where businesses are required to obtain information from one government agency which another government agency can obtain directly. The provision therefore encourages cooperation among government institutions and can reduce unnecessary administrative burdens.

4. Service Level Agreements

The Act requires MDAs to establish service-level agreements setting out the services they provide, requirements, fees, processing timelines and mechanisms for redress.[33] These agreements are intended to make government services more predictable and transparent. A business should be able to know the documents required, the applicable fees and the expected time for processing an application.

5. Port Operations

The Act also introduces reforms concerning port operations and seeks to prohibit touting and improve transparency in the administration of Nigerian ports.[34] This is important because businesses involved in importation and exportation can be affected significantly by delays and inefficiencies at ports.

6 Automation of Business Registration

The Business Facilitation Act requires the Corporate Affairs Commission to ensure that its application processes are automated from commencement to completion.[35] This is particularly relevant to startups because corporate registration is an important requirement for obtaining a startup label under the Nigeria Startup Act. The automation of registration can therefore make it easier for entrepreneurs to establish companies and begin their business activities.

7. Amendment of Existing Business Laws

The Business Facilitation Act also amended a number of laws affecting business activities in Nigeria.[36] Among the laws affected are the Companies and Allied Matters Act, Nigerian Export Promotion Council Act, Customs and Excise Management Act, Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Immigration Act, Industrial Training Fund Act, Investment and Securities Act, Patents and Designs Act, Pension Reform Act, Standards Organisation of Nigeria Act and Trade Marks Act. The Act therefore goes beyond general administrative reform and modifies several existing laws governing commercial activities.

EFFECTS OF THE NIGERIA STARTUP ACT AND BUSINESS FACILITATION ACT

The enactment of the two laws has introduced several measures that are capable of affecting startups and businesses generally.

1. Reduction of Bureaucratic Bottlenecks

One of the major objectives of the Business Facilitation Act is to reduce bureaucratic bottlenecks. The requirement for government agencies to publish information, observe timelines and provide service-level agreements can make government processes more predictable. The Startup Portal also provides a specialised platform through which startups can access government services.

2. Improved Access to Finance

The Nigeria Startup Act provides for the Startup Investment Seed Fund and other mechanisms for financial support.[37] The statutory provision for an annual contribution of not less than ₦10 billion to the Fund represents an attempt to provide early-stage funding to startups. The Act also provides for other forms of financial assistance and support.[38] If properly implemented, these provisions may assist startups that experience difficulties in obtaining funding from conventional financial institutions and private investors.

3. Promotion of Digital Government Services

Both laws encourage the use of technology in government-business relations. The Startup Act establishes the Startup Support and Engagement Portal, while the Business Facilitation Act promotes online publication of regulatory information and automation of business registration. This can reduce physical visits to government offices, reduce transaction costs and improve the speed at which businesses obtain government services.

4. Increased Regulatory Transparency

The Business Facilitation Act requires government agencies to publish information concerning their requirements, fees and timelines. This provides businesses with clearer information concerning regulatory processes. Similarly, the Startup Act establishes specific requirements for obtaining the startup label. This gives eligible businesses a statutory basis upon which to determine whether they qualify for the benefits provided under the Act.

5. Attraction of Investment

The Nigeria Startup Act contains several incentives intended to encourage investment in Nigerian startups. These include tax incentives and investment-related benefits for qualifying investors.[39] The provision of incentives, together with intellectual property protection, regulatory sandboxes and provisions relating to foreign investment, can contribute to the development of an environment capable of attracting domestic and foreign investment.

6. Promotion of Innovation

The Startup Act provides a formal legal framework for technology-enabled businesses and recognises the importance of innovation, research and development, intellectual property, incubators, accelerators and technology development zones. The Act therefore provides a structure through which technological innovation can be encouraged and developed.

7. Easier Business Registration

The automation of CAC processes under the Business Facilitation Act can make it easier for entrepreneurs to register businesses. This is particularly important for startups because a qualifying startup must satisfy the corporate registration requirement before obtaining the startup label. The two laws therefore complement one another in this regard. The Business Facilitation Act facilitates the establishment of the corporate entity, while the Nigeria Startup Act provides specialised benefits to qualifying technology-enabled businesses.

8. Benefits to Small Businesses

Some of the amendments introduced by the Business Facilitation Act are relevant to smaller businesses. For example, the amendments affecting the Industrial Training Fund Act alter certain obligations relating to employers and may reduce some compliance burdens on businesses falling within the prescribed thresholds.[40] This can enable smaller businesses to preserve resources that may otherwise be spent on regulatory compliance.

CHALLENGES OF THE IMPLEMENTATION OF THE NIGERIA STARTUP ACT AND BUSINESS FACILITATION ACT

Although the two laws contain several provisions capable of improving the Nigerian business environment, there are challenges that may affect their effectiveness.

The following are some of the challenges:

1. Poor Implementation

The existence of legislation does not automatically guarantee the achievement of its objectives. The benefits of the Nigeria Startup Act depend on the effective operation of the Startup Portal, the National Council, the Startup Investment Seed Fund and other institutions established under the Act. Where the institutions responsible for implementing the laws fail to perform their statutory duties effectively, the intended benefits may not reach businesses.

2. Inadequate Funding

The Startup Act provides for an annual contribution of not less than ₦10 billion to the Startup Investment Seed Fund.[41] However, the effectiveness of the Fund depends on the actual availability of the required funds. A statutory funding provision without consistent funding and transparent administration may not adequately address the financial challenges faced by startups.

3. Institutional Coordination

Startups interact with several government institutions, including NITDA, CAC, CBN, SEC, NIPC and tax and NCNC. Where these institutions do not coordinate their activities effectively, businesses may continue to face multiple regulatory requirements. The National Council and Startup Portal are intended to address this problem, but their effectiveness depends on cooperation among the relevant institutions.

4. Limited Scope of the Startup Act

The Nigeria Startup Act is not applicable to every type of business. Its definition of a startup focuses on businesses involved in digital technology and innovation. Consequently, businesses operating outside the statutory definition may not qualify for the specialised benefits of the Act. This may limit the reach of some of the incentives provided by the legislation.

5. Digital Infrastructure Challenges

Both Acts rely substantially on digitalisation. However, digital government services can only operate effectively where there is adequate technological infrastructure, reliable internet connectivity, functional platforms and properly trained personnel. Where government digital systems experience frequent interruptions or poor integration, businesses may still encounter delays despite the reforms introduced by the legislation.

6. Lack of Awareness

Some entrepreneurs may not be sufficiently aware of the benefits and obligations created by the Nigeria Startup Act and the Business Facilitation Act. Lack of awareness may prevent eligible startups from obtaining the startup label or taking advantage of available incentives. Government agencies therefore need to engage continuously with businesses and entrepreneurs to create awareness concerning the provisions of the laws.

7. Regulatory Overlap

Despite the reforms introduced by the two Acts, startups may still be subject to requirements imposed by different regulatory institutions. For example, a fintech startup may need to comply with requirements imposed by financial, data protection, corporate, tax and technology regulators. Where these requirements are not properly coordinated, regulatory compliance may remain burdensome.

8. Continuous Changes in Technology

Technology develops rapidly.New forms of artificial intelligence, digital finance, blockchain technology, digital assets and other emerging technologies may create business models that were not contemplated when the legislation was enacted.

There is therefore a need for continuous review of the legal framework to ensure that it remains relevant to developments in the technology ecosystem.

RECOMMENDATIONS

In order to achieve the objectives of the Nigeria Startup Act and Business Facilitation Act, the following recommendations are made:

1. Effective Implementation

The government and relevant institutions should ensure that the provisions of both laws are effectively implemented. The institutions established under the Startup Act should perform their statutory functions efficiently, while MDAs should comply with the requirements imposed by the Business Facilitation Act.

2. Proper Funding of the Startup Investment Seed Fund

The Startup Investment Seed Fund should be adequately funded and managed transparently. There should be clear criteria for accessing the Fund, proper monitoring of beneficiaries and appropriate accountability mechanisms to ensure that the Fund achieves its intended purpose.

3. Better Coordination Among Government Agencies

Relevant government institutions should improve inter-agency cooperation. The Startup Portal should be properly integrated with the systems of relevant agencies so that startups can obtain services without unnecessarily approaching different institutions separately.

4. Strengthening Digital Infrastructure

The government should continue to invest in reliable digital infrastructure and government technology platforms. Digital services should be regularly maintained and improved to ensure that businesses can access government services without unnecessary interruptions.

5. Public Awareness

Government agencies should increase awareness concerning the Nigeria Startup Act and Business Facilitation Act. Entrepreneurs should be informed about startup labelling, available incentives, funding opportunities, regulatory obligations and the procedures for accessing government services.

6. Periodic Review of the Laws

The laws should be periodically reviewed to reflect changes in the Nigerian business and technology environment. New technologies and business models should be considered when reviewing the legislation so that the legal framework does not become outdated.

7. Protection of Intellectual Property The government should strengthen mechanisms for the registration and enforcement of intellectual property rights. This is particularly important because the value of many startups lies in software, inventions, trademarks, designs and other intangible assets.
8. Strengthening Regulatory Accountability

Government agencies should be held accountable for complying with the timelines and transparency requirements imposed by the Business Facilitation Act. Businesses should also have accessible mechanisms through which they can complain where an MDA fails to comply with its statutory obligations.

CONCLUSION

The Nigeria Startup Act, 2022 and the Business Facilitation (Miscellaneous Provisions) Act, 2022 represent important legislative efforts towards improving Nigeria’s business environment and promoting technological innovation. The Nigeria Startup Act provides a specialised framework for technology-enabled startups through startup labelling, the Startup Support and Engagement Portal, the Startup Investment Seed Fund, tax incentives, intellectual property protection, regulatory sandboxes, training programmes and support for incubators, accelerators and innovation hubs.

The Business Facilitation Act has a broader application. It seeks to reduce bureaucratic bottlenecks through transparency requirements, default approvals, inter-agency cooperation, service-level agreements, automation of business registration and amendments to various business-related laws. The two enactments complement each other in several areas. The Business Facilitation Act seeks to make the general business environment easier to navigate, while the Nigeria Startup Act provides additional support and incentives for qualifying technology-enabled startups. However, the success of the two laws depends largely on effective implementation. Adequate funding, institutional coordination, digital infrastructure, regulatory accountability and public awareness are necessary to ensure that the objectives of the legislation are achieved. It is therefore submitted that the Nigeria Startup Act and Business Facilitation Act provide an important legal foundation for improving the Nigerian business environment. Their effective implementation can contribute to reducing bureaucratic obstacles, encouraging entrepreneurship, improving access to investment, supporting technological innovation and creating a more favourable environment for startups and businesses generally.

FOOTNOTES

[1] Nigeria Startup Act, 2022, s 1.

[2] Business Facilitation (Miscellaneous Provisions) Act, 2022, s 1.

[3] Nigeria Startup Act, 2022, s 47.

[4] Nigeria Startup Act, 2022, ss 3–48.

[5] ibid, ss 3–7.

[6] ibid, s 9.

[7] ibid, s 10.

[8] ibid, s 13(2).

[9] ibid, s 13(4)–(5).

[10] ibid, s 15(1).

[11] ibid, s 15(3).

[12] ibid, s 16.

[13] ibid, s 17.

[14] ibid, s 18.

[15] ibid, s 19(1).

[16] ibid, s 19(2).

[17] ibid, s 19(3).

[18] ibid, s 21.

[19] ibid, s 24.

[20] ibid, s 25(2).

[21] ibid, s 25(3).

[22] ibid, s 29(2).

[23] ibid, s 31.

[24] ibid, s 32.

[25] ibid, ss 34–35.

[26] ibid, s 37.

[27] ibid, ss 38–42.

[28] Business Facilitation (Miscellaneous Provisions) Act, 2022, s 1.

[29] ibid, s 3.

[30] ibid, s 4(1).

[31] ibid, s 4(5).

[32] ibid, s 5.

[33] ibid, s 6.

[34] ibid, s 7.

[35] ibid, s 8.

[36] Business Facilitation (Miscellaneous Provisions) Act, 2022, Schedule.

[37] Nigeria Startup Act, 2022, s 19.

[38] ibid, ss 27–28.

[39] ibid, s 29.

[40] Business Facilitation (Miscellaneous Provisions) Act, 2022, Schedule, amendment to the Industrial Training Fund Act.

[41] Nigeria Startup Act, 2022, s 19(2).

Job Joseph, DL, LL.B(Hons), ABU Zaria