Authored By: Majoyeogbe Boluwatife Ebenezer
Obafemi Awolowo University
ABSTRACT
The startup ecosystem in Nigeria has experienced a exponential growth in recent years. Leaving the generic concept of business and entrepreneurship to the very womb of incubation where it belongs. Added to this is a specified Act (The Nigeria Startup Act 2022) to aid properly this incubation. The provision of this Act comes with strength especially in the arear of comprehensive regulatory framework to support and structure Nigeria’s fast-growing startup ecosystem, it also established a Startup Investment Fund aimed at financing startups, incubators, accelerators, and tech hubs, which promotes innovation and offers incentives including tax breaks and financial support for labeled startups, investors, and venture capitalists among many other strengths. With this also comes the weaknesses especially in awareness of the Act been limited primarily to major cities (Lagos, Abuja, Port Harcourt), leaving large parts of Nigeria. Also, the process for obtaining the startup label is slow, causing delays that hurt startups’ ability to access promised benefits quickly. Lastly, regulatory overlap, with multiple agencies involved (NITDA, NOTAP, CAC, NDPC, etc.), creates confusion and bureaucracy, hindering ease of doing business among many others.
INTRODUCTION
Startup as a concept has undergone growth over time. While the startup itself did not emerge in the English language until the late 1970s1, the concept of a startup has been in existence for much longer.
The earliest trace of a startup can be viewed from the lens of a small enterprise, and while they are still prevalent today, they were even more pre-dominant in the early days of the United States2. In fact, small businesses are contributors to the development of any country, as they offered commodities and services that larger companies could not or would not3. Startup has transformed significantly over time, but its fundamental principles remain the same: discovering an opportunity, taking a risk, and investing resources to create something new.
Technological has facilitated the establishment of new companies driven by technological innovation, known as startups.4 These startups are young companies that provide specific technological solutions, products, or services, often leading to innovation and advancements in various industries and scientific fields.5
Nigeria as a nation has risen to the demand of technology, especially in the arear of startups, though not without challenges. Despite Nigeria regulatory challenges, it has become a top location for startup investment in the continent of Africa. In 2021, Nigeria accounted for the greatest amount of $1.3 billion out of the $4 billion invested in startup in Africa6. Three startups such as Flutterwave (founded in 2016), Opay (founded in 2018), and Andela (founded in 2014) achieved $1 billion valuations in 2021, and the industry attracted over $1.3 billion in financing.7 As at 2022 ,Nigerian startups employ a combined total of 19,334 people, and Information Communications Technology alone contributes about 18.44% to the country’s overall GDP.8 All these factors and many more instigated arrival of The Nigerian Startup Act 2022.
FRAMEWORK-BASE DEFINITION
A startup ,generally, is a company in its early stages of operation founded by one or more entrepreneurs with the aim of developing a product or service for which there is demand 9.
Also, a startup is a early stage company established by one or more entrepreneurs to create unique and irreplaceable products or services possibly with the aim of bringing innovation and building ideas. To simply put, a startup is a developing company undertaken by an entrepreneur to seek, develop, and validate a scalable business model. Startups are new businesses that intend to grow large beyond the solo founder.10
Though the above definitions capture a generic idea of startups, but the Nigeria Startup Act (NSA) narrowed the definition of startups in section 47 as …a company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process. 11
This connote that for a company to qualify as startup in Nigeria or according to the NSA, it must not be in existence for more than 10 years, its objective must be or contain digital technology solution or product. These two elements are germane in getting a startup label certificate which in turn qualifies for startups incentives under the Act.12 The following are the other criteria that must be satisfied to for a startup in Nigeria to qualify for the label certificate:
- It must be registered as a limited liability company under CAMA;
- 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 1/3rd local shareholding held by 1 or more Nigerians as founder or co founder; and
In the in the case of a sole proprietorship or partnership, it must satisfy all other exception from the condition of being incorporated. Although a “pre-label status” will be giving for period of 6 months with the expectation that they will fulfill all labelling compliance within that period such as incorporation after which the label certificate will be issued. Failure to incorporate means that the pre-label status will be revoked.13
LEGAL FRAMEWORK
The Nigerian Startup Act, 2022, made provisions for an institutional and legal framework for startups in Nigeria. The Act has ten (10) parts divided into fifty-one (51) sections, with the aim of promoting cooperative engagement between startups and regulators. It gives a clear definition of startups in Section 47 and prescribes what qualifies a startup to have a label certificate in Section 13. Simply put, the NSA establishes the concept of a startup in a more specific description, moving slightly away from the generic concept and keeping it within the purview of digital innovation— an incorporated company not existing for more than ten (10) years, with a Nigerian or Nigerians holding at least one-third (1/3) of the shares.14
The second part of the Act created the National Council for Digital Innovation and Entrepreneurship with the aim of developing, implementing, and upholding broad policy directives aimed at achieving the objectives of the NSA. The Council is conferred with a legal personality that can be sued and sue in its name.15 The third part created a merger of activity between the National Information Technology Development Agency (NITDA) and the National Council for Digital Innovation and Entrepreneurship, with the former prescribed as the Secretariat for the latter (Council). The Secretariat also collaborates with local and international business incubators, accelerators, and digital innovation hubs to support the growth of the ecosystem, while fostering research, capacity training, and a functional synergy between startups and investors.16
Part IV outlines the startup labelling process, covering eligibility, withdrawal of the startup label, and resistance. Part V establishes the Startup Investment Seed Fund (“The Fund”).17
Part six (6) and seven (7) covers tech-education training and tax incentives respectively. NITDA has the responsibility of collaborating with National University Commission, National Board for Technical Education and other tertiary institutions regulatory bodies to offer academic modules in the field. Also NITDA will collaborate with private sectors to establish digital technology innovation parks and hubs within universities, polytechnics, and other higher institutions. More attention will be paid research in the tech sector to stay aligned with global technological trends, with findings shared through incubations, workshops, and training programs.18
Part eight and nine covers collaboration between the Secretariat and regulators at all levels while part nine empowers the Council to establish and manage startup hubs, clusters, innovation parks, and technology zones, including provisions for accelerators and incubator respectively.19
Part ten (10) the last part contains clusters, hubs, innovation parks and technology development zones and also miscellaneous sections, which includes data protection, pre-action notice, powers of the president to give directive for general character and interpretation.20
STRENGTHS
The Nigeria Startup Act is known for many solutions and timeliness among which are the tax incentives, investment schemes, startup incubations and acceleration centers, and Tech-education. The followings are the key strengths and key achievement of the Nigeria startup Act 2022:
A Surge in Local and Foreign Investment: since the inception of the NSA, Nigerian startups have seen a surge in investment. Nigeria’s tech ecosystem secured $160 million in funding in Q1 2024, making up the majority of the continent’s investments and marking a rise from the $42.6 million raised in Q1 2023. By 2023, its valuation had reached nearly $1.3 billion, playing a major role in Africa’s projected $300 billion digital economy for 2025.21 2. Tech-Education Training: section 21-23 of the Act made provision for tech education, capacity building and research programs; enabling NITDA to collaborate and train Nigerians in tech skills to meet the demands of the digital economy. Currently, NITDA has organized different initiatives such Digital Literacy for ALL ,NITDA Digital State Initiative,3 Million Technical Talent(3mtt), and Capacity Building for Women in ICT.22 3. Tax Incentive: Part 7 of the Act provides tax and fiscal incentives for labelled startups, including expedited Pioneer Status approvals, income tax exemptions for up to five years, full deductions for local R&D expenses, and exemption from Industrial Training Fund contributions if in-house training is provided23
WEAKNESSES
The Nigeria startup Act however its timely solution, also came with some notable loopholes. Some of these loopholes are contained in form of its implementation, bureaucracy, and funding.
- Low funding of the Startup Investment Seed Fund pegged at Ten Billion naira N10,000,000,000. For effective scaling of startups, the funds need to be increased to meet international best practice. 24 In 2022, Algerian Startup Fund Commits $411 Million to Boost Local Startups which is equivalent to over 500,000,000 Billion Naira.25
- Excessive bureaucracy and red tape can make it difficult for startups to do business. 3. The implementation of the Act across the States of the Federation may present a potential obstacle. It seems that the effectiveness of the Act’s implementation at the state government level depends on the willingness and readiness of the respective State Governor to create a supportive framework for the activation of the Act.26
CONCLUSION
Startups are an important part of the economy of any nation. The Nigerian Startup Act is a significant component of the digital economy and advancement. Though the Act addresses important issues such as funding, tax incentives, skills and capacity building, research, and compliance, there is a need to review its effectiveness in many states across Nigeria. Additionally, funding needs to be increased to meet international standards, and, importantly, the executive power of the president should be reduced to avoid political arbitrariness in a country like Nigeria. Lastly, the NSA needs to reduce its excessive bureaucracy and instead focus on building more startups, as they can be a key nexus for reducing unemployment in Nigeria.
Reference(S):
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8 Nigerian Bureau of Statistics, A report on Nigeria’s Gross Domestic
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9 Ella-Tamar Adhanan ‘What are the three stages of a startup?’(Silicon valley Bank, 10 August, 2022) < What are the three stages of a startup? | Silicon Valley Bank (svb.com) > accessed 12 August ,2025
10 Robehmed, Natalie ‘what is a startup’ (Forbes ,16 December 2013) < https://www.forbes.com/sites/natalierobehmed/2013/12/16/what-is-a-startup/#544a2a9a4c63 > accessed 12August 2025 ; Wikipedia ‘startup company ’ (Wikipedia , reviewed 2 March 2023) < Startup company – Wikipedia> accessed 12 August 2025
11 Nigeria Startup Act 2022, Section47
1212 Nigeria Startup Act 2022, Section13
13 Nigeria Startup Act 2022, Section13 (2)
14 Nigeria Startup Act 2022, Section 2,13 and 47
15 Nigeria Startup Act 2022, Section 3
16 Nigeria Startup Act 2022, Section 8
17 Nigeria Startup Act 2022, Section 13-18 , and 19-20
18 Nigeria Startup Act 2022, Section 21-29
19 Nigeria Startup Act 2022, Section 30-39
20 Nigeria Startup Act 2022, Section 40-48
21 VerivAfrica “How The Nigerian Tech Industry Performed in Q1 of 2024: Funding and Growth Areas” (VerivAfrica , March, 2024)< https://www.verivafrica.com/insights/how-the-nigerian-tech-industry-performed-in-q1-of-2024- funding-and-growth-areas > Accessed 13 of August 2025
22 Nigeria Startup Act 2022, Section 21-23
23 Nigeria Startup Act 2022, Section 24-29
24 Nigeria Startup Act 2022, Section 19
25Wamda “Algerian Startup Fund to invest $411 million in local startups” (Wamda 22nd August 2022) < https://www.wamda.com/2022/08/algerian-startup-fund-invest-411-million-local-startups > accessed 13 of August 2025
26 Caleb Nnamani and Muktar Oladunmade ‘Why are states not domesticating the Nigerian Startup Act?’(TechCabal March 15 2023) < https://www.techcabal.com/2023/03/15/why-are-states-not-domesticating-the-nigerian-startup act/> accessed 13 August 2025
