Key reforms create a competitive environment for Nigerian tech start-ups and businesses

One of the reforms that will have the most impact on the economic climate of Nigeria when it eventually comes into operation are the proposed changes to the corporate landscape through the long overdue amendment of the Companies and Allied Matters Act (CAMA) with the new CAMA Bill, 2018. The act is the principal law governing corporate law in Nigeria. The last time any major substantive re-touch was made on the legislation was in 1990, when the Companies and Allied Matters Decree No. 1 was promulgated to replace the 1968 Companies Act. Thereafter, not for lack of suggestive inputs, minor changes mostly focused on form rather than substance have been made. In 2004 the act was codified as the CAMA, Cap. C20, Laws of the Federation of Nigeria.

The bill and hopefully the act will as soon as possible manifest the genuine intentions of the government to create an uncomplicated, friendly, modern and efficient platform for undertaking business within the country. This is a highly commendable move by the executive and legislative arms of the federal government, who have from the inception of the act, involved stakeholders.

Technology Start-Ups

There is also the issue of the government’s increasing interest in technology. To really drive real foreign direct investment in the sector, Nigeria must first develop its infrastructure. Once the right infrastructure is put in place, it is expected that private investors, both foreign and domestic, will be attracted to the Nigerian market because of the large population of nearly 194m, which is the largest in Africa.

Vice-president Oluyemi Oluleke Osinbajo, while commissioning Lagos’ Vibranium Valley in June 2018, Nigeria’s largest tech and innovation cluster, hinted that the federal government is including tech start-ups in the list of businesses eligible for a reduction or elimination of tax in the form of a tax holiday. However, there still remains the question of when this will happen. Many seed investors in tech start-ups, such as Y Combinator and other venture capitalists, still insist that Nigerian companies accepted into their accelerator programmes must be incorporated in the US. This may be influenced by a fluctuating economy, numerous permit requirements and increasing challenges that Nigerian businesses and companies face.

SME & Start-Up Regulations

There is yet to be a primary regulation for start-ups and small and medium-sized enterprises (SMEs), which make up 70% of the businesses in Nigeria. Start-ups are still treated on a level playing field with other companies. The high cost of getting an operating licence, and the presence of little or no incentives, multiple taxations and security issues are some of the challenges start-ups and SMEs are faced with as a result of the country’s lack of infrastructure. Key reforms have been introduced to reinforce the importance placed on creating an enabling environment within the framework of the SMEs, as laid out in the Presidential Enabling Business Environment Council (PEBEC) blueprint, the-then acting president signed into law two bills that would ease access to credit.

While the Credit Reporting Act, 2017 recognises that there is a need for the sharing of information between various institutions providing services on credit, such as credit bureaux, banks and financial institutions, and other retailers. Meanwhile, the Collateral Registry Act, legislatively expressed as the Secured Transactions in Movable Assets Act, 2017, ensures that micro-enterprises and SMEs can register their movable assets and use such as means of collateral for accessing its various loans. Movable assets are widely defined under Section 2 and Section 65 in the Collateral Registry Act to mean tangible or intangible property other than real property.

Efforts to support the Nigerian start-up scene

In an effort to boost non-oil growth and job creation, the government of Nigeria rolled out a new three-year ICT development agenda emphasising domestic industry and local content. The new policy is expected to reduce high levels of ICT imports, with rapid currency depreciation offering the country a new opportunity to foster domestic ICT industries and reduce IT imports.

Local talent development will also be a critical component of future ICT development. The country’s huge population of young, tech-savvy individuals has encouraged investment in local start-ups and incubators increase significantly since 2008. Developments in Yabacon Valley, dubbed the Silicon Valley of Africa, as well as eight planned government-backed ICT incubators hold the potential to accelerate start-up growth, although IT workforce development remains challenged by brain drain and a subdued business climate.

With government budgets under significant pressure in the wake of slow macroeconomic growth, new opportunities are available for private sector investors. The attractiveness of Nigeria’s ICT market to foreign investors has driven global tech giants Facebook and Google to make major investments in the country, which should help to stem the brain drain issue, supporting robust long-term industry growth.

Strategic Roadmap

There are just seven original equipment manufacturers (OEMs) operating in Nigeria’s ICT industry, with imports holding an 80% market share of domestic computer hardware sales. Total sales were valued at N868bn ($2.8bn) annually, according to the National Information Technology Development Agency (NITDA) in 2017. In a bid to nurture the country’s ICT industry by supporting local content and domestic businesses, the government rolled out the National ICT Roadmap 2017-20, which was approved by the Federal Executive Council in May 2017 and officially launched in July 2018 at an ICT forum hosted in Lagos. The roadmap builds on previous policies, including the Nigerian National Broadband Plan and 2013 Guidelines for Nigerian Content Development in ICT, and seeks to support the ICT sector as a pillar of the national economy. Suggested interventions under the plan include developing a comprehensive broadband strategy, implementing legal and regulatory reforms, and providing a enabling environment for strong competition.

Compliance

The Ministry of Communication Technology (MoCT) is working with the National Assembly to draft local content legislation which would criminalise any breach of the roadmap’s local content policy, Adebayo Shittu, minister of communications, told media in December 2017. Building on this local content strategy, in January 2018 the NITDA announced it had restructured processes for registering and certifying domestic IT OEMs to ensure local manufacturers adhere to global best practice. One of the most significant changes is the new requirement to provide after-sales support for made-in-Nigeria IT products. Any IT OEM with expired certifications will need to re-certify their products, which entails a NITDA inspection to determine its origin, or risk facing legal action. Additionally, local OEMs are only eligible for tax relief and incentives provided under the 2013 Guidelines for Nigerian Content Development in ICT if they are registered with the NITDA.

Local Talent

The 2017-20 roadmap also calls for a new human resources strategy to ensure local labour market demands are met, as well as the promotion of Nigeria as a regional ICT hub, training programmes for students and ICT professionals, and implementation of the country’s e-government strategy, which includes strengthening its cybersecurity framework. The government has increasingly sought to address ongoing human capital challenges, although brain drain and limited public spending continue to weigh on labour force development, even as private sector investors continue to flock to the country, highlighting Lagos’ potential to become a major African start-up hub.

Nigeria has made significant progress in nurturing a vibrant start-up community. According to local media in February 2018, over the previous five years more than 10 private sector incubators had been established to provide support for early-stage businesses. This helped Nigeria to become one of Africa’s top-five start-up communities, with the new private incubators joining 27 government-owned incubation centres. Government-owned incubators offer businesses free office space for their first three years of operation, in addition to tax exemptions, and fabrication, testing and training facilities. The need to foster a supportive start-up ecosystem is key to allowing Nigeria to compete internationally in a number of sectors, according to Bruce Ayonote, managing director of Suburban WA. “Worldwide financial services, education and governance are being disrupted by new tech solutions. Nigeria needs to establish a relevant tech start up culture, with easier access to registration, finances, electricity and Wi-Fi in order to compete,“ he told OBG.

For such companies to be successful, other stakeholders point to the need for a deep understanding of the local market. “There is a lot of potential for tech-enabling companies to shake up sectors like the used car space in Nigeria. However, for these leapfrogging efforts to take off, companies need to understand the unique advantages and challenges in the country and create a business model that takes them into consideration,” Etop Ikpe, CEO of Cars45, told OBG.

Spending Constraints

However, public spending on ICT training is constrained by an economic recession that has weighed on budgetary outlays. In February 2018 local media reported that the government had abandoned plans to established two so-called super hubs, which are IT-focused developments offering support for start-ups, in addition to six other IT hubs originally expected to be launched by the end of 2017.

Initially announced in January 2017, the IT hubs were intended to provide a space for companies offering creative technology, alternative energy solutions, and e-government services in the health, education and trade sectors. Each hub would have hosted between 10 and 20 start-ups, creating 100 jobs per location to total 800 jobs altogether. The roadmap has targeted creating 2m ICT jobs by 2020 through the establishment of these hubs. With between 300,000 and 325,000 new computer science graduates hitting the job market annually, the private sector is now set to become the sector’s most important developer of human capital.

Yabacon Valley

According to local media in November 2017, Lagos is set to outpace Nairobi to become Africa’s start-up epicentre. The city is already home to some of the region’s largest digital companies, including Jumia and Konga, with many of these firms based in Yaba, a suburb of Lagos, which is referred to as Yabacon Valley. Dubbed the Silicon Valley of Africa, Yabacon Valley was established by Femi Longe and Bosun Tijani in 2010, when they launched tech hub and incubation centre the Co-Creation Hub (CCH ub). According to international media in May 2017, CCH ub marked the beginning of a visible tech space in Nigeria, leading other firms, including MTN Nigeria, Google, Nokia and MainOne, to start sponsoring start-up incubation.

Yabacon Valley’s ecosystem has since grown to comprise major e-commerce start-ups, such as Jumia, Kaymu, Carmudi and Jovago, as well as the hospitality website hotels.ng, which established operations in Yabacon Valley in 2013, later raising $225,000 in start-up funds from local financing platform Spark, and $1.2m in funds from investment companies Omidyar Network and EchoVC Pan-African fund. Fundraising has expanded in recent years, with software engineer training firm Andela raising $24m from the Chan Zuckerberg Initiative in 2016, after local printing start-up Printivo raised an “undisclosed but six-figure” sum from EchoVC in 2015, according to international media.

Brain drain has become a major problem for Yabacon Valley, however, demonstrated by Andela moving its base of operations to the US in early 2017, where wages are higher and employees are not affected by currency volatility since the central bank unpegged the naira in June 2016. “Brain drain is the big problem,” Emeka Onwuka, CEO of Parkway Projects, a financial technology provider, told OBG. “We are constantly losing professionals to Canada, especially in the tech space. Canada has an express entry process for immigration, so there is a huge outflow of people headed there.”

Major Investments

Despite the challenges, strong population growth, falling data costs and rapid mobile phone adoption give the sector a competitive advantage in luring foreign investment. In May 2018 Facebook, in partnership with CCH ub, launched a community hub space in Lagos as part of an effort to encourage software developers and technology entrepreneurs in Africa. The centre will host an incubator programme and offer digital skills training to 50,000 locals in areas such as software development. Training will be offered in Abuja, Port Harcourt, Calabar and Kaduna.

Also in May 2018 Google launched its Launchpad Accelerator Africa initiative in Lagos. The regional programme aims to train 100,000 software developers in Nigeria, Kenya and South Africa over the next five years.