When global companies offer Software as a Service (SaaS) in Nigeria, they encounter distinct commercial challenges shaped by the country’s unique legal, economic, and business landscape. From navigating regulatory compliance and overcoming payment barriers to addressing data protection requirements and managing infrastructure limitations, these issues present significant hurdles. Importantly, these considerations differ markedly from those faced by foreign companies operating through local subsidiaries. Below, we explore some of the critical commercial challenges non-resident SaaS providers face when doing business in Nigeria.
- Regulatory Compliance and Licensing
(a) Local Regulations: Global SaaS providers must navigate Nigeria’s regulatory environment, which can be complex and sometimes ambiguous. Compliance with regulations related to technology, telecommunications, and software distribution is essential. Depending on the nature of the SaaS product, SaaS providers may need to obtain specific licenses or approvals from regulatory bodies.
(b) Taxation: Non-resident SaaS providers and foreign companies offering digital services, are subject to a specific tax regime for non-resident companies in terms of remittances and reporting obligations. Proper tax planning is essential to avoid penalties and legal issues.
(c ) Local Entity Requirements: Some sectors in Nigeria require companies to have a local entity or local representation in the country to operate, sell, or enter contracts with government entities and private businesses.
- Data Protection and Data Localisation
Nigeria’s primary data protection law, the Nigeria Data Protection Act (the “NDPA”) sets out requirements for the processing, storage, and transfer of personal data. SaaS providers must ensure compliance with NDPA when handling Nigerian customer data. This includes obtaining explicit consent, safeguarding data, and reporting data breaches. Non-compliance can lead to fines and penalties. Nigeria’s competition regulator imposed a fine of $220m dollars on Meta for breaches for data protection regulations. Although Nigeria has not strictly mandated data localization as a general requirement, certain sectoral regulations mandate the storage of sensitive data within Nigerian borders. SaaS providers may face additional operational challenges if they are required to host data in Nigeria or partner with local data centers.
- Infrastructure Challenges
These are varied but typically centres around low internet connectivity and power outages. Whilst Nigeria’s internet infrastructure is improving, inconsistent broadband penetration rate is still relatively low and can affect the usability of cloud-based SaaS products. SaaS services that are data-heavy or rely on constant connectivity might face adoption issues. Also, frequent power outages and an unstable electricity grid may impact the reliability of internet services, further affecting SaaS usage and customer experience. It is often prudent to contractually address the legal risks that may be triggered by peculiar infrastructure challenges.
- Contract Enforcement and Dispute Resolution
While Nigeria has an established legal system, contract enforcement can be slow-paced. Global SaaS companies may face difficulties in resolving disputes quickly, especially if they do not have a local presence. It would be prudent to optimize for conditions that prevent disputes from happening and for resolving disputes amicably, where possible. Opting for international arbitration clauses in SaaS contracts with Nigerian customers may also help mitigate risks associated with local legal challenges.
- Localized Customer Support & Cultural Adaptation
Providing responsive customer support is crucial to success in Nigeria, as many businesses prefer local or regional customer service channels. It may be prudent for Global SaaS companies to set up localized support teams or establish partnerships with local firms to ensure they can meet the demands of Nigerian customers. We find that adapting their SaaS offerings to suit local preferences and needs is also crucial for adoption, especially in relation to language localization, understanding local business workflows, and ensuring that the SaaS platform is intuitive for Nigerian users.
Final Comments
For SaaS companies planning to enter the Nigerian market, addressing key challenges early is essential for success. According to data from Statista, revenue in the Software as a Service market is projected to reach US$204.40m in 2024. Without a doubt, it is clear that the SaaS market in Nigeria is experiencing strong growth, driven by digital transformation across sectors such as fintech, education, and e-commerce. The country’s burgeoning tech ecosystem, combined with increasing internet penetration, the shift to cloud computing, and rising demand for cost-effective, scalable software solutions, also points to significant opportunities for global SaaS providers.
This publication is not intended to provide legal advice and is not prepared with a specific client in mind. Kindly seek professional advice specific to your situation. You may also reach out to your usual Balogun Harold contact or contact us via support@balogunharold.com for support.
