23 Aug 2021
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Tech companies in Nigeria are no strangers to being notified of sudden changes in policies and laws by those in power.
A new bill intended to overhaul Nigeria’s tech regulator was made public last Monday, with some of its provisions introducing licenses for tech companies, the payment of pre-tax profit levies and severe penalties for violators. the law.
Still to be sent to the National Assembly, the proposed amendments to the 2007 law on the National Information Technology Development Agency (NITDA) give the body full control over the burgeoning technological ecosystem of the country.
Earlier this year, NITDA chief Kashifu Abdullahi informed lawmakers plan to repeal the law in order to keep pace with the global pace of innovation and address the opportunities and threats posed by recent digital technologies.
“The type of information we store on our phones and other technological gadgets makes the human brain susceptible to hackers,” Abdullahi said in March. “Technology takes over the one thing that sets us (humans) apart from other animals.”
Rather than creating an environment for startups to thrive, however, the details of the 26-page preliminary document are troubling to founders and players in the digital economy who fear that the new bill, if passed, will stifle innovation in Nigeria.
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Enlarge: Regulatory overshoot?
Some specific aspects of the bill – such as Articles 6, 13, 20 and 21 – are of more concern than others and raise questions of regulatory overshoot.
Section 6 grants new powers to NITDA, including testing and approving any technology before it can be used in Nigeria. It can also demand the charges and costs it deems necessary as well as sanctions in the event of non-compliance with the law.
The agency is also empowered to “enter the premises, inspect, seize, seal, detain and impose administrative penalties on persons and companies at fault who violate any provision of the law”, subject to a court order.
According to Article 13, technology companies with annual sales of 100 million yen ($ 243,000) must pay a tax of 1% on their pre-tax profits. This, in addition to other grants, fees and levies, will go to a fund for Nigeria’s digital economy.
Under Articles 20 and 21, NITDA can issue its own licenses for technology products, services and platforms. The exploitation of one of them without authorization is tantamount to an offense.
Those found guilty will be fined at least Â£ 3million or detained for a year or more. A person can also be charged with both a fine and imprisonment. For legal persons, the fine is set at N30 million. The âtop executivesâ of companies can also be jailed for two years or more.
In addition, individuals or legal entities who deny NITDA personnel from performing their duties will be fined 3 million yen and 30 million yen, respectively. Prison sentences for this offense range from one to two years.
A tech company that qualifies for direct debits but does not, after two months, will be liable to a fine of 0.5% of the total amount payable each day after the default.
As necessary as compliance and regulatory requirements are for the ecosystem to thrive and thrive, it appears these regulators are determined to put a wrench in the wheels of tech companies in Nigeria.
In a conversation with some of the first-time tech founders, they expressed their fears and frustrations over the leaked NITDA bill. All they want is an environment that is conducive to making great products and being successful in their home country. But they constantly find themselves walking on eggshells and they are slowly losing faith in the Nigerian government.
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Zoom out: Regulationsâ¦ again
Around the world, technological innovations are changing faster than regulations, and Nigeria is no exception.
The Nigerian fintech industry has seen startups innovate around existing regulations, offering customers a variety of products and services. These range from wealth management to cryptocurrency and foreign equity trading. This has brought rapid growth to these startups and fintech in general, paving the way for foreign direct investment.
This has not gone unnoticed. Regulators like the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) subject industry startups to regulatory oversight.
In February 2021, the CBN issued a circular addressed to banks and other financial institutions banning cryptocurrency transactions. This decision prompted Patricia, a fintech company, to relocate its activities to the Republic of Estonia.
In a related vein, the Securities and Exchange Commission (SEC) prevented unregistered investment platforms from offering foreign stocks to Nigerians earlier this year. To keep up with this, the best players in the space like Chaka and Cowrywise, have taken steps to comply with regulatory requirements.
Chaka acquired SEC’s “Digital Sub-Broker / Sub-Broker Serving Multiple Brokers Through One Digital Platform” license, making it the first beneficiary of the newly created license. Cowrywise has also received a fund / portfolio management license from the same organization. These licenses gave them the right to continue offering digital investment solutions to Nigerians.
In August 2021, the Central Bank of Nigeria frozen Nigerian fintech platforms Risevest, Bamboo, Trove and Chaka bank accounts for 180 days.
CBN alleged that these four startups were complicit in operating unlicensed as asset management companies and “using currencies from the Nigerian foreign exchange market to buy foreign bonds / stocks in violation of a CBN circular.” This was after receiving licenses from Nigeria’s Securities and Exchange Commission (SEC) to operate as digital platforms for buying and selling stocks.
This is a new entry in the list of shock waves fintech startups have faced in the country. It is true that regulation is crucial in any industry, however, frequent changes can slow progress. No one knows how long Nigerian startups can withstand frequent regulatory changes, but for an industry like fintech that has attracted foreign investment in recent years, regulations that encourage growth and innovation, instead of stifling it , is necessary.
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– Koromone Koroye, editor-in-chief, TechCabal & Michael Ajifowoke, journalist for West Africa, TechCabal