The Nigerian Startup Act 2022: A Catalyst for Innovation or a Work in Progress?

Contributor: Lilian Eku

INTRODUCTION

In recent years, Nigeria has distinguished itself as a dynamic startup ecosystem within Africa, bolstered by a burgeoning community of entrepreneurs, investors, and technology innovators.^[1] The rise of notable entities such as Opay, Paystack, Andela, Kuda, etc., has positioned Nigeria as a pivotal player in Africa’s digital transformation, attracting substantial investments both from abroad and within the local market.^[2] Nevertheless, this remarkable progress is tempered by various challenges, including regulatory hurdles, limited funding access, bureaucratic complexities, and an inconsistent policy framework.^[3] Numerous founders have encountered difficulties while navigating these obstacles, particularly in areas such as business registration, tax compliance, intellectual property safeguards, and securing early-stage financial backing, etc.^[4]

To ameliorate these issues and harness the full capabilities of Nigeria’s startup ecosystem, the Nigerian Startup Act 2022 came into existence, born from collaboration between the Nigerian government and the tech community, aiming to create a cohesive legal and institutional structure that promotes innovation, streamlines regulatory processes, and offers financial incentives to startups. Significant features of the Act encompass the establishment of a startup labeling system,^[5] access to a ten billion Startup Investment Seed Fund,^[6] tax reliefs, incentives for investors,^[7] and the formation of tech hubs and innovation clusters intended to facilitate digital advancement across the nation,^[8] etc. However, nearly two years following its passing, a pertinent question arises: Has the Nigerian Startup Act effectively spurred innovation, or does it still require further development? While a segment of industry stakeholders recognizes its beneficial role in cultivating a more organized business milieu,^[9] others contend that discrepancies in implementation,^[10] delays in funding distribution, and inadequate awareness among startup founders have impeded its success. ^[11]

This article endeavors to critically evaluate the impact of the Nigerian Startup Act 2022, focusing on its accomplishments, hurdles, and opportunities for enhancement.

UNDERSTANDING THE NIGERIAN STARTUP ACT 2022

The Nigerian Startup Act 2022 was introduced as a strategic response to persistent challenges faced within the country’s startup ecosystem, with the aim of establishing a well-defined legal and institutional framework that supports technology-driven enterprises.^[12] Acknowledging the vital contributions of startups to economic development, job creation, and technological progress, this Act endeavors to simplify regulatory pathways, improve access to funding, and cultivate an environment conducive to innovation and entrepreneurship.^[13]

At its essence, the Act seeks to create a transparent pathway for the growth and sustainability of startups in Nigeria by minimizing bureaucratic obstacles, offering incentives for both startups and investors, and ensuring regulatory clarity across diverse sectors with the goal of positioning Nigeria as Africa’s foremost technology hub, enabling it to compete with global startup ecosystems through the attraction of both local and international investments.^[14] Furthermore, the Act places a strong emphasis on talent development by endorsing training initiatives, promoting collaboration between academic institutions and the startup landscape, and encouraging research and development in the realm of digital innovation.^[15]

A prominent feature of the Act is the Startup Labeling Process,^[16] which delineates specific eligibility criteria for startups aiming to leverage the incentives provided. In order to qualify, a startup must be a registered limited liability company according to Nigerian law, no older than ten years, engaged in innovation and technology, and have at least one-third of its ownership held by Nigerian citizens.^[17] This labeling process is designed to ensure that only authentic startups with substantial growth potential can access the Act’s benefits. Upon receiving the label, startups are granted access to various incentives, including tax reductions, funding opportunities, and regulatory support, in addition to enhanced visibility within Nigeria’s entrepreneurial landscape.

To tackle the issue of early-stage funding, the Act includes provisions for the Startup Investment Seed Fund, overseen by the Nigeria Sovereign Investment Authority (NSIA).^[18] Annually allocated ten billion naira, this fund is dedicated to providing financial assistance to labeled startups, supporting incubators and accelerators, and promoting research and development in digital technology.^[19] By facilitating early-stage funding, the government seeks to alleviate the financial challenges that often impede the growth of Nigerian startups.

In addition to financial aid, the Act introduces a suite of tax and fiscal incentives aimed at encouraging participation from both startups and investors.^[20] Startups qualifying for the Pioneer Status Incentive (PSI) scheme can benefit from tax relief measures, which include income tax exemptions for up to five years, contingent upon compliance with the Act’s stipulations.^[21] Furthermore, investors such as angel investors, venture capitalists, and private equity firms engaging with labeled startups can access investment tax credits, thereby fostering increased private-sector involvement in the ecosystem.^[22] The Act also facilitates preferential access for labeled startups to government grants, loans, export incentives, and credit guarantee schemes, effectively lowering financial barriers for entrepreneurs.^[23]

A further central element of the Act is its emphasis on intellectual property protection and regulatory support for startups. Recognizing the significance of digital innovation and proprietary technologies within the startup ecosystem, the Act mandates a collaborative effort between the Nigerian Copyright Commission, the Trademarks, Patents, and Design Registries, and the Secretariat to ensure streamlined and expedited IP registration processes for startups.^[24] In addition, the Act supports technology transfer agreements^[25] and offers assistance to fintech startups in securing necessary licenses from the CBN and SEC.^[26] Finally, to strengthen Nigeria’s startup ecosystem, the Act encourages the development of technology parks, innovation clusters, and startup hubs throughout the nation, to offer shared resources, mentorship initiatives, business development services, and networking prospects for emerging enterprises. By nurturing collaboration among startups, investors, accelerators, and research institutions, these clusters act as catalysts for technological progress and business expansion. Furthermore, the Act delineates incentives for accelerators and incubators that actively support startup growth, thereby granting them access to grants and funding opportunities for research, training, and scaling efforts.

IMPLEMENTATION CHALLENGES

One of the biggest challenges facing the NSA is its slow implementation at both federal and state levels. As at 2023, 12 out of 36 states have indicated interest in adopting the Act, and limited information exists as to the interests of other states, thus raising concerns about nationwide applicability.^[27] Also, the Act places significant decision-making power in the hands of the President and Vice President, potentially causing delays in execution.^[28] Given that the tech ecosystem is fast-paced, requiring presidential approval for key processes could hinder startups from scaling efficiently. A more autonomous governing body with limited presidential interference would allow for faster decision-making and implementation of startup-friendly policies.^[29] Furthermore, many startups in Nigeria are unaware of the provisions and incentives offered under the NSA. Without proper education and awareness campaigns, many businesses may fail to take advantage of available funding and support. A structured effort to sensitize and train entrepreneurs about the benefits of the Act is necessary to maximize its impact. In addition, for startups to thrive under the NSA, reliable digital infrastructure is crucial. However, Nigeria’s slow internet speed and unstable power supply create significant hurdles for digital startups. Without government investment in better internet access, data centers, and energy solutions, startups may struggle to operate efficiently, regardless of the regulatory incentives provided by the Act.^[30]

The success of the NSA depends on collaboration between multiple agencies, including CBN, SEC, NITDA, CAC, and others.^[31] However, historical inefficiencies in inter-agency communication pose a challenge. If these agencies fail to work in synergy, the Act’s implementation could become disjointed and ineffective. To overcome this, a regulatory roadmap and clear roles for each agency should be developed.^[32] What is more, there is no clear system for tracking the effectiveness of the NSA. Developing Key Performance Indicators (KPIs) will help monitor the impact of startup labeling, funding distribution, and ecosystem growth. Without proper data-driven assessments, it will be difficult to determine whether the Act is truly benefiting the startup ecosystem.^[33] The Act requires startups to fully incorporate before they can receive a startup label, which may discourage early-stage entrepreneurs. Tunisia’s Startup Act allows startups to receive a pre-label status for six months before formal incorporation, giving them time to develop their business models. Nigeria should consider a similar amendment to encourage more startups to apply.^[34]

CONCLUSION

The Nigerian Startup Act 2022 is a crucial step toward strengthening the country’s tech ecosystem, offering startups funding, regulatory support, and incentives. However, slow implementation, regulatory overlaps, lack of awareness, and infrastructure challenges have limited its impact. To unlock its full potential, nationwide adoption must be fast-tracked, and bureaucratic bottlenecks reduced to ensure smoother implementation. Clearer funding mechanisms are needed, alongside investments in digital infrastructure to support startup growth. Improved inter-agency collaboration would further enhance Nigeria’s attractiveness to investors.

With strong political will and strategic execution, the Act can position Nigeria as Africa’s leading startup hub, driving economic growth, innovation, and global competitiveness.

REFERENCE

1. Agbeyangi, A., Makinde, A., & Odun-Ayo, I. “Nigeria’s ICT and Economic Sustainability in the Digital Age.” Cornell University, arXiv preprint arXiv:2401.03996 (2024) available at https://arxiv.org/abs/2401.03996 accessed February 2025. ↑
2. Ibid. ↑
3. Peter, B., & Olufemi, A., “Overcoming the Challenges Confronting Startups in Nigeria.” European Business & Management 9, no. 2 (2023): 32-42 available at https://pdfs.semanticscholar.org/6941/fa7e4a26cf3e24265d44385f1738af20ce66.pdf accessed February, 2025. ↑
4. Akinso, A., “Successful Strategies for the Survival of Business Owners in Nigeria” (2018). Walden Dissertations and Doctoral Studies. 5155. Available at https://scholarworks.waldenu.edu/cgi/viewcontent.cgi?article=6434&context=dissertations accessed February, 2025. ↑
5. Part IV of the Act ↑
6. Part V. ↑
7. Part VII ↑
8. Part IX. ↑
9. Dairo, T. A. “An Overview of The Nigeria Startup Act of 2022 as A Regulatory Framework For An Emerging Ecosystem.” Lead City University Law Journal 5, no. 1 (2024): 1-17 available at https://www.journals.lcu.edu.ng/index.php/LCULJ/article/download/1153/880 accessed February, 2025. ↑
10. Okolie, C. N., & Akwiwu, I.  “A review of the new Nigeria Startup Act 2022: benefits and challenges for the tech ecosystem in Nigeria.” International Journal of Social Science and Humanity 13, no. 5 (2023): 327-332 available at https://www.academia.edu/download/108514350/1166-MT23-381.pdf accessed February, 2025 ↑
11. See Peter, B., & Olufemi, A., op cit. fn. 3 ↑
12. Ibid. ↑
13. Sagar, S. “Entrepreneurship: Catalyst for innovation and economic growth.” Entrepreneurship: Catalyst for Innovation and Economic Growth 9, no. 1 (2024): 12 available at https://www.researchgate.net/profile/Sahil-Sagar-5/publication/377363303_Entrepreneurship_Catalyst_for_Innovation_and_Economic_Growth/links/65a232cbc77ed940477385b2/Entrepreneurship-Catalyst-for-Innovation-and-Economic-Growth.pdf accessed February 2025. ↑
14. See Section 1 for the Objectives. ↑
15. See Part VI of the Act. ↑
16. Part IV ↑
17. Section 13. ↑
18. Section 19. ↑
19. Ibid. ↑
20. Part VII ↑
21. Section 24 ↑
22. Section 29 of the Act. ↑
23. See Section 27. ↑
24. Section 31. ↑
25. Section 33 ↑
26. Section 34 ↑
27. The Nigerian Startup Act, Unlocking Nigeria’s Startup Potential: A Closer Look at State’s Adoption of the Nigeria Startup Act, (MEDIUM, 2023) available at https://medium.com/@startupact_ng/unlocking-nigerias-startup-potential-a-closer-look-at-state-s-adoption-of-the-nigeria-startup-act-a9c02ad1cfa8 accessed February 2025. ↑
28. Okolie, C. N., & Akwiwu, I. op cit. fn 10. Pg. 330 ↑
29. Ibid. ↑
30. Dairo, T. A. op cit. fn 9. ↑
31. Chime, I. “A Critical Assessment of The Nigerian Startup Act.” Chukwuemeka Odumegwu Ojukwu University Law Journal 7, no. 1 (2022). ↑
32. Dairo, T. A. op cit. fn 9. ↑
33. Ibid. ↑
34. Ibid. ↑