Africa faces a scarcity of legislations that enable a robust regulatory atmosphere to foster growth and innovation in tech-ecosystem.
Lawrence Ochulor Senior Associate and Team Lead at Babalakin & Co, a full-service commercial law firm based in Nigeria says this has hampered the economic growth and development of the content.
Ochulor says countries across Africa appreciate the indispensable role of entrepreneurship in their quest for economic development and want to encourage the sector as much as possible, although many factors continue to plague the realization of this aspirations, there is hope with many more African countries following in this route.
He spoke as Nigeria recently enacted its own tech startups legislation named the Nigeria Start-up Act, 2022, into law following its passage by the National Assembly. The Nigeria Start-up Bill draft was created by the Nigerian presidency, in collaboration with 30 tech leaders among others in June 2012, and by October, the Act had been passed into a law.
According to Ochulor, the Nigerian technology and innovation ecosystem has been making waves with tremendous growth in recent times. Unfortunately, the start-ups within the ecosystem had recorded high failure rate with a whopping 61% start-up failure rate recorded from 2010-2018. These failures are because of numerous factors including aggressive government policies, regulatory bottlenecks, high cost of doing business and funding challenges. This created the necessity for a legislative framework that would reposition Nigeria as Africa’s leading digital technology hub.
“The Start-up Bill was thus conceived to chat the path towards creation, growth, and operation of start-ups in Nigeria by offering financial aid in the form of investment funding, tax cuts, grants, and credit guarantee programs”, says Ochulor. “The Bill is also aimed at solving issues many tech start-ups face in Nigeria and to ensure that Nigeria nurtures a start-up-friendly environment for both founders and investors to carry out business”, says Ochulor.
From a continent perspective, Tunisia became the first African country in April 2018, to conceive the idea of a national legislation that created clear frameworks and operational support for start-ups. The Senegalese government followed suit and in late 2019, it passed a new start-up Act which became operative in January 2020.
“Following the developments in Tunisia and Senegal, other African countries including Kenya, Ghana and Nigeria started taking steps to enact their start-up laws, says Ochulor, “Nigeria is the latest and the third in Africa to enact start-up Act” adds Ochulor.
He says these pieces of legislations were created to encourage the development of emerging enterprises. The laws also seek to provide a framework for recalibration and development of emerging businesses that achieve high added value at national and international level and serve as a model for other countries in Africa.
Nigeria’s tech-enabled start-ups that are incorporated in Nigeria stand to reap many benefits under the Act, among them enjoying the Start-up labelling status which is a certification or license showing that a business is tech-enabled, which in turn allows them the incentives provided under the Act.
Ochulor also says for tax incentives, the Act targets labelled start-ups, its employees, its investors, and their external service providers, with up to 5% tax breaks being accessible to start-ups under the Pioneer Status Incentive Scheme.
Similarly, employees of labelled start-ups will be entitled to personal income tax exemption of up to 35% for two years, while investors will get an investment tax credit equivalent to 30% of their investment.
Foreign service providers will be subjected to 5% withholding tax on the income from their services to labelled start-ups, while the Act also provides the start-up and engagement portal – a housing ground for start-ups to engage directly with relevant ministries, departments, and agencies (MDAs), and benefit from the Act through their services.
The Act also provides for Start-up Investment Seed Fund, managed by the Nigeria Sovereign Investment Authority, and provides early-stage financing to labelled start-ups.
Ochulor says other African countries should take steps to enact start-up legislations within their jurisdictions, particularly given that more than 60% of Africa’s population is under the age of 25, while by 2030, young Africans are expected to constitute 42% of global youth.