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Startup Acts are Africa’s next frontier to political innovation. If implemented in Nigeria, the Startup Acts could create positive changes in the broader business environment by increasing local support for entrepreneurs and signaling to global venture capital investors that the country is open to business, thereby driving innovation, creating jobs and trust between governments building and entrepreneurs are built.
African entrepreneurs have long been hurt by unfavorable regulatory conditions that make it difficult to start, build, and scale an innovative business. For many corporations – especially in countries like Nigeria, where older politicians rule over a young population – the government often seems not to be coping with their needs. Changing this view, which is a crucial first step, requires new policy making that prioritises the interests of entrepreneurs, investors and other stakeholders.
Startup acts can help. Startup Acts are a set of regulations designed to increase the incentive for young people to start a business, investors to invest in potential businesses, and other actors in the ecosystem to provide help where it is needed. Tunisia and Senegal, the two early adopters in this area, are implementing these rules as part of broader government initiatives to position their nations as centers of innovation by capitalizing on an evolving technology scene to fuel economic development.
What is a startup?
Startups are young companies that were founded to develop a unique product or service, bring it to market and make it irresistible and irreplaceable for customers. Startups are rooted in innovation, fix the deficiencies of existing products or create completely new categories of goods and services, which break up well-established thought and business patterns for entire industries.
The word “startup” has become a popular catchphrase as corporate culture grows around the world. It is surprising, however, that there are still few countries that have passed laws that actually support the startup ecosystem. They create more jobs, which means more employment, and more employment means an improved economy. In addition, startups also help diversify the economy by stimulating innovation and promoting competition.
What is a founding law?
Startup Acts set out rules, guidelines and, in some cases, unique institutions that strengthen a country or jurisdiction’s entrepreneurial ecosystem.
Startup Acts offer startups financial and tax advantages. The incentive covers, for example, start-up costs, regulatory barriers, the establishment of organizations and funds to support entrepreneurship, and the establishment of an expedited process for registering intellectual property.
In 2012, Italy became the first country to pass the startup law, followed by Tunisia in 2018, which became the first African country to pass a startup law. Senegal followed suit in 2019, making it the second African country.
The Tunisian startup law
There are three features of the Tunisian founding law. These features have enabled a significant increase in the Tunisian economic hemisphere.
First, the law created a legal framework that simplifies the start-up process for startups and makes it easier for them to do business.
Second, the creation of a EUR 200 million (two hundred million) fund of funds to be paid out to specific sectors of small and medium-sized enterprises (SMEs).
Third, the creation of an operational strategy to consolidate the ecosystem and centers in Tunisia. The Arab startup law has produced impressive innovations from which the Tunisian economic sector has benefited. Some of them are:
- In addition to the shareholder, founders can receive a living allowance for one year
- Providing government support for start-up patent application processes and fees at the national and international levels.
- Holiday pay support so that an employee of a company can be given leave of absence for up to one year to devote themselves to the start-up and development of their start-up. If such a startup fails, he can return to the company on leave.
- Tax exemption for startups up to eight years.
- Exemption from capital gains tax on investments in these startups.
As of December 2019, 169 of more than 279 companies that applied under the Tunisian Startup Act received startup recognition. 37 (21.9%) of the 169 startups were run by women. All startups have raised around $ 18.5 million so far.
Data from the official Entrepreneurs of Tunisia (EOT) website shows that startup coworking spaces in Tunisia increased by 61.2% from 38 in 2018 to 62 in 2019. The number of startup founders throughout the country has also increased significantly and the financing of investors has increased due to the business-friendly conditions of the Founders Act.
The Senegalese startup law
The law, written in French, contains some provisions on the incentives and benefits a startup can benefit from under the law.
The incentives are, but are not limited to, the following:
- Three-year tax exemption for startups and SMEs.
- Direct allocation of private or public funds to registered startups
- The implementation of capacity building measures for the startup.
- The implementation of support, moderation and development measures for the startup.
Why do we need a startup law in Nigeria?
In Nigeria, the laws regulating startups and SMEs are found in different laws, which leads to an increase in taxes that have to be paid to numerous agencies. The laws also provide for the payment of taxes to various regulators. Some of these laws are:
- The Companies and Allied Matters Act, 2020.
- The Investment and Securities Act
- The trade tax law.
- The Income Tax Act.
- The Standard Organization of Nigeria Act.
- Law of the Council on Accounting, No. 6 2011.
Starting with Tunisia and Senegal as case studies and taking into account the economic developments that the law has brought with it in Tunisia, a startup law would be the next path.
The private sector accounts for up to 80 percent of employment in the country and below, most of the companies in this category are classified as micro and small businesses.
Given the severe economic decline and difficult operating environment, the average Nigerian business owner becomes very resourceful but cannot stand out from their income bracket.
A start-up law that recognizes the potential of start-ups and offers assistance is long overdue. Fortunately, there is talk that the first draft of the startup law should be presented to the National Assembly by August.
These are the main reasons why we need startup law in Nigeria:
- There will be diversification of the economy. A startup law in Nigeria will create jobs in sectors other than oil and gas, banking, etc.
- Creation of employment opportunities. A startup law in Nigeria will increase employment, reducing it by 33%. A startup law will create a friendly environment for startups to thrive, thus encouraging people to get involved. This would indirectly create employment opportunities for people as human capital would be used.
- It gets easier to do business. Right now, your average startup is taxed by no fewer than 4 regulators. The regulatory burden on startups in Nigeria is one of the highest in Africa. That’s why people don’t get involved in startups. However, a startup law in Nigeria will change that. Using Tunisia as an example, a startup with a tax exemption of up to eight years will have an enormously positive effect on the startups. They become the best versions of themselves.
- Active participation in government. The Nigerian government would intervene in SMEs’ affairs to make it easier for them to raise funds, either from them or from venture capitalists. They would help strengthen citizens’ capacities to provide seminars and training for individuals.
Nigeria has everything to gain when you consider that we are one of the economic giants on the African continent.
The content of this article is intended to provide general guidance on the subject. You should seek expert advice regarding your specific circumstances.