The Nigerian startup ecosystem has witnessed significant growth and innovation over the past eight years, with young entrepreneurs and innovators launching businesses to solve local challenges and contribute to economic development.
However, the success of startups is often influenced by various external factors, including government policies.
During President Muhammadu Buhari’s administration, several government policies have had a substantial impact on startups, with one of the most notable being the cryptocurrency ban imposed by the Central Bank of Nigeria (CBN).
Taking a retrospective look at the positive and negative impact of these policies that have shaped the startup landscape in Nigeria, let’s do a quick review:
1. Cryptocurrency Ban
In February 2021, the Central Bank of Nigeria (CBN) issued a directive banning regulated financial institutions from providing services to cryptocurrency exchanges. The ban affected the cryptocurrency market in Nigeria and raised concerns within the startup ecosystem.
Many startups operating in the crypto space had to adjust their business models or explore alternative solutions. The long-term impact of this policy on startups and the overall cryptocurrency ecosystem is still unfolding.
The ban limited the ability for Nigerian startups and individuals involved in the cryptocurrency ecosystem, to access banking services and affected their ability to conduct business effectively.
2. Foreign Exchange (FX) Restriction
The CBN also implemented various policies to restrict access to foreign exchange. These policies aim to preserve the country’s foreign reserves, but they have negatively impacted startups that rely on imports or require foreign currency for business operations.
Limited access to foreign exchange has led to increased costs, supply chain disruptions, and reduced competitiveness for Nigerian startups.
3. Cashless Policy and Naira Redesign
The CBN introduced a cashless policy to encourage electronic transactions and reduce the use of cash in the economy.
While this policy promotes transparency and financial inclusion, it has posed challenges for startups, particularly those operating in rural areas with limited access to digital payment infrastructure. Some startups have had to invest in costly payment systems or adapt their business models to cater to cash-based transactions.
On the other hand, the redesign of the Nigerian naira currency had a direct impact on startups and individuals generally.
The new currency design, aimed to enhance security features, improve durability, and increase naira value. While the redesign itself did not have a significant effect on startups, the broader economic factors surrounding the currency, such as inflation and exchange rate fluctuations, directly impacted startups’ operations.
4. High Interest Rates
The CBN has maintained high-interest rates in an attempt to control inflation and stabilize the Nigerian currency. However, these high rates make it more difficult for startups to access affordable credit, limiting their growth and investment opportunities.
5. Multiple Exchange Rates
Nigeria operates multiple exchange rates, including the official exchange rate, the parallel market rate, and the Investors’ and Exporters’ (I&E) window rate.
This creates uncertainty and a lack of transparency in the foreign exchange market, making it challenging for startups to plan and manage their finances effectively.
6. Loan-to-Deposit Ratio (LDR) Policy
The CBN implemented the LDR policy, which requires banks to maintain a minimum loan-to-deposit ratio. While this policy aims to stimulate lending to the real sector, it has led to increased lending to low-risk sectors, such as government securities, rather than startups and small businesses. This has limited access to financing for startups in need of capital.
7. Tax Incentives and Support Programs
The Nigerian government recognized the importance of startups in driving economic growth and job creation, leading to the implementation of tax incentives and support programs.
In recent years, initiatives such as the Pioneer Status Incentive (PSI) have provided tax holidays and exemptions for qualifying startups, reducing their financial burden during the early stages. These incentives have encouraged investment and fostered an environment conducive to startup growth.
8. Ease of Doing Business Reforms
In an effort to enhance the ease of doing business in Nigeria, the government introduced several reforms that aimed to simplify bureaucratic processes and reduce regulatory bottlenecks.
Initiatives like the Presidential Enabling Business Environment Council (PEBEC) set up by President Muhammadu Buhari in 2016 and the introduction of the Nigerian Single Window for Trade have streamlined procedures, making it easier for startups to register their businesses, obtain licenses, and access necessary permits.
These reforms have positively impacted the overall startup ecosystem by reducing red tape and improving efficiency.
9. Intellectual Property Rights Protection
Protection of intellectual property (IP) rights is crucial for startups that heavily rely on innovation and technological advancements.
The Nigerian government has taken steps to strengthen IP protection through legislation and improved enforcement.
The introduction of the Trademarks Act and the Copyright Act amendments has provided startups with legal frameworks to safeguard their innovations and creative works, fostering an environment that encourages innovation and investment.
10. Access to Funding and Investment
Access to funding remains a significant challenge for startups in Nigeria. Recognizing this, the government has initiated various programs to address the funding gap. The establishment of the Development Bank of Nigeria (DBN), and the creation of intervention funds for sectors like agriculture and technology have increased the availability of financing options for startups. Additionally, government-backed investment platforms like the Nigerian Investment Promotion Commission (NIPC) have attracted foreign direct investment (FDI) into the startup ecosystem, providing startups with additional funding opportunities.
11. Nigeria Startup Act
On October 11, 2022, the President, Muhammadu Buhari signed into Law, the Nigeria Startup Bill (NSB), developed by the administration to provide stable legal framework and incentives for technology innovation.
The NSA was an Executive Bill, initiated by both the Office of the Chief of Staff and the Office of the Minister of Communications & Digital Economy.
The development aims to reduce bureaucratic and funding barriers and has been long-awaited by the burgeoning tech startup ecosystem.
According to the Nigerian Startup Ecosystem Report 2022, there were at least 481 active startups with 19,334 employees across the country by August 2022.
An interesting fact is that 173 (36%) of these startups are in ﬁntech. Other sectors presented include e-commerce & retail, e-health, ed-tech, mobility & logistics, recruitment & HR, agritech, entertainment, marketing, energy, prop-tech, legal-tech, waste management, auto-tech, events and printing.
Expert believe that with the Nigeria Startup Act Nigeria is headed in the right direction as a nation
Mohammed Ibrahim Jega, Founder, of Startup Arewa, told TechEconomy:
“The Act tends to focus on providing more access to startups to grow and scale”.
He said the sections that describe the Startup Portal, Incentives, Regulatory Support from NITDA, etc., clearly indicate a forward-thinking approach to regulation in Nigeria.
12. National Blockchain Policy
In a bid to fast track the adoption and utilise the gains of emerging technologies, the Federal Government of Nigeria, few weeks back, launched a National Policy on Blockchain Technology and inaugurated Implementation & Steering Committee to oversee its implementation.
The policy, which was launched by the Minister of Communications and Digital Economy, Professor Isa Ali Ibrahim (Pantami), is to promote the adoption of blockchain technology in Nigeria and to position the country as a leading player in the global blockchain ecosystem.
While launching the Policy on behalf of Federal Government of Nigeria, Professor Pantami recalled that the journey of Blockchain Technology officially started in Nigeria on 28th November, 2019 at the International Conference Centre, Abuja where President Muhammadu Buhari unveiled and launched the National Digital Economy Policy & Strategy (NDEPS) for a Digital Nigeria.
Government policies play a critical role in shaping the startup ecosystem in Nigeria. While several policies have positively impacted startups by providing tax incentives, streamlining processes, and enhancing IP protection, challenges related to funding, infrastructure, and power supply persist.
Continuous collaboration between the government, private sector, and startups is essential to address these challenges, ensuring a conducive environment for entrepreneurial growth and innovation. By implementing targeted policies, Nigeria can further accelerate the development of its startup ecosystem, fueling economic progress and job creation.
While some government policies and regulations are aimed at maintaining financial stability and promoting economic growth, the impact on startups in Nigeria has been mixed.
The cryptocurrency bans and other CBN policies, such as foreign exchange restrictions and high-interest rates, have created significant challenges for startups.