The efforts to save Nigerian tech startups that are likely to go out of business as a result of the coronavirus pandemic could benefit immensely from the National Information Technology Development Fund (NITDEF), supposing it is available and accessible.
Nigerian startups are expected to account for a significant portion of more than 80 percent of tech firms in Africa projected to shut down due to the pandemic. Already some tech companies have placed their staff on unpaid leave while those required to work got their salaries cut.
A BusinessDay investigation found that the NITDEF fund has received over N80 billion from FIRS collection as of the first quarter of 2020 and given away less than N200 million in the form of educational scholarship. Unfortunately, far less has gone the way of IT startups that are desperate for funding.
Recently, the Ministry of Communication and Digital Communication through the National Information Technology Development Agency (NITDA), saddled the responsibility of rescuing tech startups on a ten-man committee drawn from leaders in the ecosystem.
Among their mandates, is creating a report that clearly provides quick and long term solutions for the startups. It is a mandate that leaves little to work with. The Central Bank of Nigeria (CBN) did not include the tech ecosystem in its financial stimulus plan and the government doesn’t recognise startups as essential businesses hence movement is restricted for all tech firms. NITDA only started lately to compile a list of firms it considers essential.
Nonetheless, conspicuously missing in the committee’s deliberation is how the ministry plans to utilise the National Information Technology Development Fund (NITDEF) to help the startups.
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NITDEF was established in 2007 by the National Information Technology Development Agency (NITDA) Act. The fund compels major institutions and organisations including banks, insurance, telecom operators among Information and Communication Technology (ICT) entities to devote a percentage of their profits before tax for national IT development.
NITDEF has four sources of revenue.
According to the NITDA Act, the first is a levy of one percent of the profit before tax of companies and enterprises with an annual turnover of N100m and above. The amount paid by the companies is tax-deductible. NITDEF also receives grants-in-aid and assistance from bilateral and multilateral agencies as well as gifts, endowments, bequests or other voluntary contributions by persons and organisations. Other sources of funding for NITDEF include monies appropriated to it by the National Assembly and all other monies or assets that may, from time to time accrue to the fund.
The Act also provides that any company, agency or organisation that fails within two months after a demand note, to pay the levy or the import duty imposed under Section 11 of this Act, should be assumed to have committed an offence and is liable on conviction to a fine, to the tune of N1m, while the chief executive officer of such organisation would be liable to prosecution.
The Federal Inland Revenue Service (FIRS) was given the mandate to collect the one percent tax on behalf of NITDEF. The collection of the one percent levy did not commence until 2011 after a board was constituted for it. Since then, the FIRS has published a monthly record of what it had collected as levy from companies.
The tax regulator’s records show that the fund has generated not less than N6 billion every year since 2011 the collection commenced. In fact, it received N8.67 billion in 2011 and N9.13 billion the following year– 2016 was the first time the contributions dropped to N6.75 billion. It rallied again to N9.87 billion in the first seven months of 2017. Within an eight-year period, the NITDEF levy has generated N74.51 billion. The FIRS released its reports for 2019 showing that the fund received about N8 billion. The first-quarter report for 2020 has also shown that N690 million came into the fund.
Although the Act doesn’t quite specify how the fund should be used, over the years some of the proceeds have been used to finance the education of a few enterprising people. The NITDEF scholarship, as the programme is called, is specifically for masters and doctoral degrees in relevant areas of information technology and ICT law obtainable in Nigerian universities.
Except in 2016, the scholarship has been successfully awarded to between 50 to 90 candidates who are mostly selected based on federal character. After they are selected the candidates are expected to complete their programmes within one year.
As of 2017, NITDA claims it has awarded scholarships to 247 Nigerian graduates in Information Technology fields at the masters level and 24 for a doctorate. The agency awarded scholarships to 49 candidates in 2019 to bring the total to 320. The cost of executive masters and doctorate degrees range from N400,000 to N750,000. In essence, NITDA has spent an estimated N128 million on scholarships in the past eight years.
How much does NITDA have as balance in the fund?
While deploying the fund in this manner has contributed to educating more Nigerians, it is highly unlikely that NITDA has a proper follow-up mechanism to ensure that the candidates are contributing to the IT sector after their programmes.
Importantly, the agency has never publicly said how much it spends every year on each of the candidates, how it disburses the money and how much is left after the scholarship scheme is completed every year.
Prior to writing this article, BusinessDay had made efforts to find a tech startup that has ever applied for funding from the NITDEF. No firm has come forward as of the time of filing this report.
The NITDA act clearly states the fund is for national IT development. Tech startups in Nigeria are at the forefront of IT development in Nigeria today. A majority of them find it very difficult to access funding. This is responsible for the setting up of venture funds like Future Africa, Ventures Platform, CcHUB’s Growth Capital fund, Microtraction, TLcom Capital, etc. While these are bridging the gap, larger funds like the NITDEF can boost their contributions considerably.
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