Earlier in May, reports went round about discussions to approve a Startup Bill in Africa's largest economy, Nigeria. Following the report, concerns were raised as to what aspect of the bill would favour the startup space and what aspect could be problematic as the Nigerian government have a history of making things difficult for their citizens.

On Monday, 16th August, a glimpse of the startup bill (leaked) made rounds on social media and some aspects of this bill has raised concerns for many stakeholders in the startup space.

In summary, the bill states that NITDA wants tech companies operating in Nigeria to get a license, pay pre-tax profit levies, and sanction whoever (person or company) that operates contrary to the new Act’s provisions.

For context, the NITDA (National Information Technology Development Agency) is the government agency responsible for developing and regulating Information Technology in Nigeria. The agency is empowered by its enabling Act to create a framework for the planning, research, development, standardization, application, coordination, monitoring, evaluation and regulation of Information Technology practices in Nigeria by developing standards, guidelines and regulations for that purpose.

The Bill in a glance

A section (6) of the amended Bill gives details of the autonomy of licensing and authorization charges, fees and penalties collection, contravention notices and non-compliance with the Act.

Another section (13) of the Bill proposes the establishment of a fund (The National Information Technology Development Fund) saddled to carry out the country’s digital economy objectives. The Fund is said to be financed by Grants-in-aid, fees, accrued money under administrative payments, and levies charged from tech companies. Tech companies making an annual turnover of N100 million (~$200,000) will now have to pay a levy of 1% of their profit before tax.

In section 20 of the leaked bill, The NITDA disclosed that licenses and authorisations would be issued to tech companies regardless of their size, although the licenses are classified into three — product, service provider, and platform provider - the bill, however, failed to provide additional information about what these licenses entail and how startups qualify to get them.

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However, the agency is more concerned about stating what will happen to individuals or companies that do not get these licenses or pay the 1% levy fee.

Why is this concerning?

In a 2019 World Bank ranking, Nigeria ranked 131 out of 190 countries on its Doing Business Index. The ranking measures the ease of doing business through a comparative assessment of regulatory environments.

Although the report claimed that Nigeria has grown from April 2018 to May 2019 for being one of the top 10 countries with the most notable improvements, much of the talks about progression from the country has been whitewashed in paper. In reality, businesses especially those focused on technology, have faced harsh regulations and policies that are detrimental to their growth. And this bill is also veering in that direction.

Many startup companies are faced with policies that don't favour them. In Lagos, GoKada and other motorcycling-hailing services were discontinued over sanctions made by the Lagos State Government. Also, in March 2020, Nigeria's apex bank restricted Nigerians from trading cryptocurrency through banks. Even more recently, the Twitter ban has affected small businesses in general and how tech startups communicate with customers.

The leaked Bill will present a new level of concern for many startups. If passed, it will affect the Nigerian startup space as we know it today. It will affect how these startups operate and will definitely and drastically affect the ease of doing business in Nigeria.

The first draft is said to be made public later in August with a first reading in the country’s National Assembly in October.