Last week, QED Investors, a US fintech-focused venture capital firm, made a new investment in TeamApt, a Nigerian fintech that provides business payments and banking platforms. The investment was worth over $50 million. TeamApt operates one of Nigeria’s largest business payments and banking platforms and processes a $100 billion annualized run-rate transaction value via its products, Moniepoint and Monnify, serving 400,000 small and medium-sized businesses across Nigeria.
TeamApt bootstrapped for four years before raising a venture around 2019. It has grown 300% annually to build one of the largest fintechs in Africa. Indeed, Nigeria is leading the way in widescale adoption of digital payments across Africa, with over $800 billion in digital transactions annualized for the first four months of this year. It’s a large fintech market, with countless companies providing numerous services across the country, such as Flutterwave, Chipper Cash and Opay.
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In 2019, African tech startups raised a record $2 billion and have raised half that number in the first few months of this year. In Nigeria, the number of startups was estimated at around 3,300 in 2020, the highest number in Africa. South Africa and Kenya followed with far less numbers of approximately 660 and 600 startups respectively. In the same vein, there are at least 150 fintech startups in the country with Statista putting the figure to 144 as of 2021 and a 2020 McKinsey report putting the number of standalone fintech startups at over 200.
According to the Nigerian Startup Funding Report 2021, over 300 investors (individual and institutional) participated in the funding rounds of over 100 Nigerian tech startups in 2021 with the financial services sector getting the biggest share of the total funding. Nairametrics, reported that Nigerian startups collectively raised a total of $1.65 billion out of a total of $4 billion raised by African startups through seed and series fundings in 2021. In 2022, that record was smashed again based on reports by Disrupt Africa, African Startups have now raised the sum of $1 billion in just January and February alone; 25 per cent of what was raised in the entire previous year in just two months! And most of the money raised has been flowing to Nigerian-owned firms.
It is regrettable that most of the startups don’t have their registered offices in the country. With their incorporation in foreign countries with business-friendly investment jurisdictions, the bulk of the funds do not directly impact the homeland. And part of the reason for incorporating such firms or their parent companies abroad is that regulatory landscape for businesses in Nigeria places several hurdles that only few startups can scale. Despite the trumpeted ease of doing business initiatives, applications for requisite licences remain tedious, laced with bureaucratic bottlenecks.
For example, the Nigerian regulatory sphere does not give startups the chance to test the waters without obtaining a licence to run their operations, a regulatory sandbox popularly used in other jurisdictions, including South Africa, so they can test unlicensed services and products without fear of sanctions. In 2021, a regulatory sandbox was launched by the Central Bank of Nigeria (CBN) for fintechs, intending providers of financial services and developers of new technologies not regulated by any CBN existing regulations. But it is yet to be fully implemented.
Additionally, there is the exorbitant licensing fees startups have to pay to be granted these licences and the ‘extended’ procedure for acquiring the same. For instance, to run a venture capital firm in Nigeria, registration at the Securities and Exchange Commission will cost a total of N10,700,000 (10 million, seven hundred thousand naira) per the amendment to Schedule I, released in December 2021. This is separate from the incorporation costs incurred at the Corporate Affairs Commission.
Also, the Nigerian tax laws require a company duly incorporated within the country to pay some taxes regardless of whether they are a startup or a going concern. And apart from the local taxes, at the federal level, these firms are required to pay companies income tax, capital gains tax, education tax, Value-Added Tax, Withholding Tax and Tertiary Education Tax.
Expectedly, the Nigerian Startup Bill passed on July 20, 2022 by the Nigerian Senate, could take care of the concerns as it seeks to create a friendly environment for tech-based startups. But it is yet to be signed by President Muhammadu Buhari. This process should be accelerated to enable Nigeria to gain from the giant strides its youths are making in this sector. In its form, the bill is not a cure-all, but it goes a long way toward offering incentives that would enable Nigerian-owned startups to incorporate a part of their businesses here in the country.
So, the incorporation of business modalities must be simplified and be more business-friendly. The process of identifying which businesses are startups must be very clear so that those established by politically-exposed or connected people do not crowd out the real operators in having the benefit of the incentives in the bill, such as special seed fund, tax relief and pioneer status.
Ultimately, Nigeria should be made a business-friendly hub through the promotion of ease of doing business. That way, investors and new entrants would be attracted, thereby making both new and existing startups to thrive.
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