The Nigerian Startup Bill may not solve most startup problems as we think

To a large extent, the Nigerian Startup Bill (NSB) is the much-needed Messiah that will whip the tech sector into shape. The regulations that founders in the space have called for, the lack of which produced the menace of loan sharks, will be implemented in a common-sense way.

Bodies that are concerned with the regulations of tech in Nigeria are able to liaise with stakeholders in the space, to serve their immediate needs through the Startup Support and Engagement Portal.

Through the Startup Investment Seed Fund, funding for startups in their “early stage,” will be made available for young Nigerians.

Nigeria’s Startup Bill has passed second reading at the Senate

The Bill has the potential to enable progress in that space, but, there are also real concerns about certain clauses in the bill.

What “startups” are protected by the NSB?

NSB has a yardstick of what startups it refers to and will protect. They must be registered “with the One Stop Shop Centre (OSSC) to be eligible for the incentives contained in the Bill.”

“The OSSC is made up of representatives of regulatory agencies relevant to Startups in Nigeria such as the: Corporate Affairs Commission (CAC); Central Bank of Nigeria (CBN); Securities and Exchange Commission (SEC); National Office for Technology Acquisition and Promotion (NOTAP); Trademark, Patents and Design Registry, etc,” according to the Pavestones, a law firm that represents Nigerian startups. 

The bill also says that “…the company should be incorporated in Nigeria and have been in existence for not more than 10 years,” adding that “…the headquarters of the company should also be in Nigeria,” and “…involves a new technology or is technology-enabled.” among other criteria.

Compelling companies to have offices in a country that they operate in and register with the OSSC, can be good for society. But only under certain circumstances, say if that company is Facebook. But this is not one of those instances when it is the best option, specifically because these are not just any companies.

These are startups, that haven’t existed for more than ten years. The problem with compelling these startups to be registered as Nigerian companies and have their headquarters in Nigeria is that their chances of getting funding from Silicon Valley-type diminish tremendously.

Foreign investors are not enthusiastic about Nigeria registered companies

Call it whatever term you like, but many investors are not particularly enthusiastic to put their money in companies that are registered as Nigerian companies and have their headquarters in Nigeria.

In fact, during a panel that Technext organised recently, Maxime Bayen, a venture capitalist who knows a lot about how investing in the tech space works, advised an audience of mostly Nigerian founders looking for investors to try and register their startups as American companies.

Flutterwave, the Nigerian unicorn valued at $3 billion has its headquarters in San Francisco, Califonia, in the United States. Meaning Flutterwave would probably be excluded from some of the incentives that the NSB provides.

So one might say, who needs foreign investors when you have the Startup Investment Seed Fund. Well, you need foreign investors to invest in companies. Startups like OnePipe for instance have raised money twice within the space of 12 months.

Funds that the Startup Investment Seed Fund might not have. Sure, there are Nigerian firms like Future Africa and GetEquity that could invest in these businesses but can they get the investment available and quickly to founders on a regular basis before the lights are cut out, all – according to a Statista report from last year – 144 fintech startups?

The Nigeria Startup Bill reaches the Senate | What’s there to know?

Is NSB good for all in the ecosystem?

The startup bill also proposes that for startups to be eligible “51% of its shares should be held by Nigerians.” This again can be good. But then what happens to Lagos as a burgeoning tech hub? The idea of tech hubs is that they shouldn’t be for just citizens of the country. Tech hubs’ gospel is that all can come in and have access to the same opportunities. That clause is the antithesis of that.

NowNow, a fintech that has been in existence since 2018 and is headquartered in Lagos, was founded by Sahir Berry, an Indian tech entrepreneur who has done tremendous work in India and elsewhere, but has now come into the Nigerian space. NowNow is licensed by the CBN to operate.

But this bill will mostly not recognize it for its incentives because it has only one Nigerian on its board, even though the majority of its staff are Nigerians, and the board is very diverse. NowNow plans on embarking on an ambitiously huge-scale financial literacy campaign in Nigeria soon. Sahir, if he wants to benefit from the offerings of NSB will relinquish 51 per cent of his company, more than half of the shares of his company to Nigerians, or get Nigerian citizenship.

It is good for Yaba that people like Sahir get all the incentives of the bill because it is good for the Nigerian tech space. Competition is good and opportunities for all is good. It will accelerate Nigeria’s rise as a tech hub, and maybe close in on South Africa, which is poised to house the top African financial hub.

In Canada for instance, the government has put systems in place that make tech companies thrive regardless of how many Canadians seat on their board. So much so that companies like Meta; Facebook parent, Amazon, Microsoft, Apple, and Google all have huge operations in Toronto, and not “Development Centres” a la’ Microsoft recently in Lagos. Plus, it’s not the best policy for FDI.

Tax breaks for startups and employees

Recently, there was a sneak peek into how well tech bros are paid, thanks to TechCabal’s reporting on Bento Africa. But of course, not all tech bros are receiving in the range of half a million Naira in the tech space in Nigeria. That aside, according to PayLab, the average Nigerian working in tech earns between 90,000 to 380,000 Naira per month.

This is objectively a good thing. Even young Nigerians should be fairly compensated for their work. Except, they might not be paying their fair share in taxes if NSB is passed into law as it is. The bill creates provisions that will see the staff of startups get a 35 per cent tax break even as they are one of the highest-paid Nigerians in the country.

For emphasis, people that work at Fluterwave and Bento Africa could get a 35 per cent tax break if they meet the criteria laid out in NSB for startups.

But that’s not all the tax breaks the bill proposes. The startups themselves will enjoy a “tax exemption on their profits as Startups for 7 years.” This means that companies like, again, Flutterwave, a unicorn that was part of the investment round that saw $3.4 million swallowed by the UK fintech, Dapio, will not pay tax for seven years if they meet the bill’s yardstick of a startup.

For emphasis, Flutterwave will only just be getting ready to start paying taxes on profits despite its valuation.

Presidency to announce Nigeria Startup Bill in August with final draft expected in September

What can NSB really protect?

To a large part, a number of notable Nigerian tech media platforms want to say NSB is good and ready to go and have thrown their support behind it.

But the media hasn’t fully explained to the public what the startup bill is, other than this bill that is good for tech. This has led to some media outlets saying “certain things” in reports about NSB that it won’t be capable of solving.

That is not just incorrect, it’s an outright lie. NSB will not protect tech companies from governmental oversight as the quote from Quartz suggests. What it can do is through what it calls the Startup Support and Engagement Portal, create a pathway for tech companies too, just like we saw with Twitter, to do what the government wants them to do, but faster. Governments across the country could still ban the operations of companies like GoKada and Kwik.

In fact, months before the infamous banning of okada by Governor Babajide Sanwoolu of Lagos in 2020, the type of dialogue that the Startup Support and Engagement Portal could facilitate was already happening before the Lagos government pulled out. The point is that the OSSC and the government can still do what they like regardless of the bill.

What are we saying?

This is not to say that the bill is entirely bad. But it needs more work and the inclusion of clauses that are in line with best practices for tech hubs. Tech media needs to be clear about what the bill can do, which is; to kick out fraudulent and unlicensed companies from the country, create much-needed regulations, and stabilize the space.

But its description of “startups” eligible for its incentives is too narrow. And while it might be good for individual Nigerians, it is not good enough for large-scale growth, the type Nigeria is poised to experience soon.

An email was sent to [email protected], the email on the website created to promote NSB, requesting the full bill. As of the time of publishing, Technext’s email had not been responded to.