Introduction
The Nigeria Startup Act 2022 is a significant policy milestone, but several Nigeria Startup Act Challenges have emerged that hinder its full potential. As startups navigate Nigeria Startup Act regulations, challenges around funding, compliance, and accessibility continue to surface. While the Act aims to support startups, various Nigeria startup law limitations continue to create obstacles for entrepreneurs. aimed at fostering innovation, easing regulatory burdens, and providing financial incentives for startups. However, while it lays a solid foundation, the Act is not without its challenges. Several gaps in implementation, funding disbursement, and regulatory clarity could hinder its effectiveness.
In previous articles, we explored Nigeria Startup Act: Key Benefits, Funding & How to Register and The Essential Nigeria Startup Act for Entrepreneurs and Investors We also compared it to international frameworks in Nigeria Startup Act vs Global Startup Policies: Key Insights & Lessons. This article focuses on the challenges in the Nigeria Startup Act, its limitations, and recommendations for improvement.
Nigeria Startup Act Challenges: Issues, Policy Gaps, and Solutions
I. Limited Awareness and Accessibility
Many startup founders, particularly in cities outside Lagos and Abuja, remain unaware of the Act’s benefits or struggle to access its provisions.
Poor internet penetration (42% as of 2023) and erratic power supply further hinder access to digital portals in rural areas Source: NCC.
✅ Identified Issue:
- Lack of targeted awareness campaigns.
- Complexity of the Startup Support and Engagement Portal.
- Limited regional incubation hubs for guidance.
✅ Proposed Solution:
- Government-led outreach programs to educate startups nationwide.
- Localized digital content explaining Act benefits in simple terms.
- Expansion of incubation hubs to secondary cities.
II. Problems with Startup Registration & Overlapping Regulatory Jurisdictions
The Act introduces a startup labelling process (Part IV, Section 13), which is crucial for accessing incentives. However, the Nigeria startup registration process remains complex, with delays at CAC, SEC, and CBN causing roadblocks for new businesses. The CBN’s crypto ban vs. SEC’s token recognition has also led to fintech confusion.
For instance, a fintech testing blockchain payments could operate under temporary CBN/SEC approval while refining compliance under a Regulatory Sandbox model, similar to Singapore’s approach. Singapore’s Monetary Authority allows fintech firms to test innovative financial solutions in a controlled environment with regulatory guidance, enabling them to iterate quickly while ensuring compliance.
✅ Identified Issue:
- CAC registration takes 14 days, whereas Rwanda’s process is completed in 6 hours.
- Conflicting rules from multiple regulators.
- Bureaucratic inefficiencies slowing down approvals.
✅ Proposed Solution:
- A unified digital portal integrating CAC, FIRS, and CBN APIs for real-time approvals.
- Regulatory Sandbox, similar to Singapore, to allow fintechs and startups to test compliance pathways.
- Defined service level agreements (SLAs) for processing applications.
III. Startup Funding Challenges in Nigeria
One of the biggest highlights of the Act is the ₦10 billion Startup Investment Seed Fund, but Nigeria business funding challenges remain a significant hurdle for many entrepreneurs. (Part V, Section 19). However, uncertainties around access and allocation criteria pose challenges.
✅ Identified Issue:
- Disbursement delays—only 12% of the ₦10B fund reached startups in 2023 Source: NITDA.
- Lack of clarity on funding eligibility.
- No structured disbursement timeline.
✅ Proposed Solution:
- Publicly available funding guidelines.
- Tripartite committee (government, private investors, NGOs) to manage the fund.
- Annual impact assessment reports to track utilization.
IV. Bridging the Gender Gap in Startup Funding
While the Act promotes inclusivity, only 15% of Nigerian startups are female-founded Source: Briter Bridges. Women-led startups face greater barriers in funding and regulatory navigation.
✅ Identified Issue:
- Limited funding access for female-led startups.
- No specific provisions addressing gender disparity in the Act.
✅ Proposed Solution:
- Reserve 30% of the ₦10B fund for female-led startups or mixed-gender founding teams, similar to Kenya’s Women Enterprise Fund initiative, which allocates dedicated funding for women entrepreneurs to bridge gender financing gaps.
- Mentorship & investment networks for women founders.
V. 10-Year Limitation on Startup Eligibility
The Act restricts eligibility to companies less than 10 years old (Part IV, Section 13). While this ensures focus on early-stage startups, it excludes scale-ups that have pivoted or grown over time.
A 12-year-old Agritech startup leveraging AI for crop yield optimization would lose eligibility despite ongoing innovation.
✅ Identified Issue:
- High-growth companies may still require support after 10 years.
✅ Proposed Solution:
- Case-by-case exemptions for older startups demonstrating continuous innovation.
- Reclassification as “Innovation Enterprises” for extended eligibility.
VI. Local Shareholding Requirements & Foreign Investment Hurdles
To qualify for the startup label, at least one-third of the company must be Nigerian-owned. Unfortunately, fintech regulations in Nigeria further complicate investment pathways, as CBN and SEC policies create uncertainty for foreign investors. (Part IV, Section 13). While this promotes local participation, it could deter foreign investors.
✅ Identified Issue:
- Restrictive equity structure may limit global funding access.
- Investors may prefer greater flexibility in ownership stakes.
✅ Proposed Solution:
- Allow foreign investors to hold 80% equity for the first 3 years, provided they commit to mentoring local partners.
- Policy adjustments balancing local participation and foreign investment.
VII. Policy Gaps in Nigeria Startup Law Regarding Intellectual Property (IP) Protection
The Act acknowledges IP protection as crucial (Part VIII, Section 31), but enforcement remains a concern. Lengthy registration processes and limited international IP partnerships pose risks.
Weak IP protections deter foreign investors, as 68% cite this as a risk in Nigeria Source: AfDB. For instance, Kenya’s recent IP policy reforms have led to a 20% increase in foreign direct investment in its tech sector, demonstrating how stronger protections can boost investor confidence.
✅ Identified Issue:
- Nigeria ranks 114th in IP protection in the 2023 WIPO Global Innovation Index.
- Delays in patent and trademark registration.
✅ Proposed Solution:
- Expedited IP registration for startups via the Startup Portal.
- Government-facilitated international patent protection programs.
Conclusion: Moving the Nigeria Startup Act Forward
The Nigeria Startup Act represents a crucial step toward a more structured startup ecosystem in Nigeria, but several policy gaps in Nigeria startup law must be addressed to enhance its effectiveness. Refining policy gaps in Nigeria startup law, resolving startup funding challenges in Nigeria, and simplifying registration processes will be essential to making it truly effective.
✅ Metrics for Success:
- Reduce startup registration time to 48 hours by 2025 by implementing a fully automated digital processing system integrated with CAC, FIRS, and regulatory APIs, ensuring instant verification and approval. Additionally, streamlining documentation requirements and introducing an expedited service option can help meet this timeline..
- Ensure at least 50% of the ₦10B fund reaches startups annually by establishing a transparent tracking system with publicly accessible reports. This can be enforced through independent audits and an open dashboard displaying fund allocations, beneficiaries, and impact assessments in real-time..
- Increase Nigeria’s WIPO IP ranking by 10 places within 3 years.
✅ Call for Collaboration:
- Government: Ministry of Digital Economy, CAC, SEC, NITDA.
- Investors: ALSO, Ventures, TechCabal, Nigerian Angel Network.
- Startups & Hubs: CcHub, Founders Factory, Ventures Platform.
In our next article, we will explore how startups can maximize the benefits of the Nigeria Startup Act, featuring case studies and actionable strategies.
📢 Are you a startup founder in Nigeria? What challenges have you faced in the registration or funding process? Share your experiences in the comments!
