Nigeria is one of Africa’s top three most prominent venture capital (VC) hubs, receiving the bulk of the continent’s VC investments, particularly in fintech.
This was revealed in the report on Nigeria’s Integrated National Financing Framework (INFF).
According to the research, Nigeria was ranked third among the top early-stage investment locations by VC deal volume from 2014 to 2019. South Africa finished first, with Kenya coming in second.
What the report is saying
The report said, “Based on recent statistics, Nigeria is one of the top three most prominent VC hubs in Africa, attracting the bulk of the VC investments in the continent, especially in fintech. In Nigeria, access to finance is a challenge for new and emerging businesses. VC and angel investment will go a long way toward reducing the financing gap. VC and angel investment opportunities also have great potential to attract foreign (and diaspora) capital.”
Despite efforts to increase the ease of doing business, the report stated that Nigeria still has a difficult business environment. The report said, “Investors are faced with regulatory restrictions such as multiplicity of taxes, multiple foreign exchange rates, limitations on access to FOREX, and difficulty in repatriating funds abroad, among others. Furthermore, insecurity is widespread across the country which makes it less attractive for investment. Currently, most VC investment goes to Lagos despite the significant potential in other parts of the country.”
According to the report, policies should be developed to stimulate venture capital investments in fields that improve the socioeconomic status of women and children, and they should be linked to the government’s priority agenda based on the socioeconomic impact of those sectors.
The report said, “The government will develop new and innovative schemes targeted at diaspora investment to encourage VC and angel investment. The government could also come up with policies to encourage VC investments in areas that improve the socio-economic condition of women and children. These incentives could perhaps be linked to the government’s priority agenda based on the socio-economic impact of such sectors.
“There is a need for the Nigerian government to review the current incentives granted to encourage VC and angel investment to ensure they are well designed and effective in achieving the desired goals. Tax incentives for companies that locate in IT parks could be considered to attract VC and angel investment,” the report added.
What you should know
- The Nigerian government has tried to promote VC investments. Nigeria established the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) in 2001 with the goal of increasing equity investment for small and medium-sized businesses.
- Based on the scheme, all banks must set aside 10% of their yearly profit after taxes under the plan in order to finance small and medium-sized businesses. In a similar vein, the federal government passed the VC (Incentives) Act Cap V2, LFN 2004 to promote VC investment.
- The incentive, among other things, grants tax holidays to VC companies or projects to encourage VC investment. The incentive is, however, silent on angel investment. Despite the efforts to introduce these types of schemes and incentives by the government, there is little uptake and minimal or no awareness about them.
- Nigeria needs to design and clarify specific regulations concerning sectors such as technology and fintech that can help attract VC and angel investments in Nigerian start-ups.
