Emefiele’s masterclass on how to trigger a panic
Should Nigeria's tech sector brace up for another round of layoffs?
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Here’s the summary of this week: you can run, but you can’t hide from the blow-by-blow details of everything that’s been happening at Twitter since Elon Musk bought it. To put it mildly, it’s been a bit of a shitshow so far. It’s been entertaining, but it’s been a shitshow nonetheless. With mass layoffs ongoing, and reports that employees who were laid off are considering a class-action lawsuit, you just know we’re going to be drowning in Elon news next week.
Closer to home, a different type of shitshow is going on, with our Man Friday, Godwin Emefiele, smack in the middle of it. Last week, Nigeria’s Central Bank announced a redesign of the country’s currency. Away from global best practices that prescribe these redesigns every 5-8 years, the CBN was hoping that this redesign would force excess money in circulation back to the banks. The argument goes something like this: there are a lot of illicit funds outside the banking system and the CBN does not have a view of the cash outside banks. A currency redesign will force these illicit funds back into the system.
But it prompts a few questions: has the money in circulation outside the banking system always been like this or is this a new phenomenon? Also, if Nigeria is a cash-based economy where hard cash is still the most popular way of making payments, surely it can’t be surprising that there’s so much cash outside the banks. The image below shows that there’s not a lot of disparity over the years in cash outside the banks.
Poor communication leads to yet another shitshow
I’ve argued before now that any sort of obsession with foreign exchange currency rates is a failure on the part of the CBN. Yet today, Nigerians talk about black market rates the way the British talk about the weather, in part because of our ridiculous multiple-exchange windows. The World Bank has recommended moving towards a single FX window, but Emefiele will not budge. There’s this misguided belief in artificially insisting that $1 = N442, even when you can only really get it at over N800.
Back to the present. I’m not sure what the market heard, but when you have 20% inflation and multiple exchange windows, any talk of pulling cash from circulation will trigger a panic. If the regulator is trying to force money that’s losing its value back into the system, what’s the obvious way out? Well, buy up some USD. That’s exactly what has happened, with demand for the greenback leading to some wild prices on the black market. The CBN has reacted by arresting Bureau De Change operators, and the banks have responded by warning everyone that USD for school fees payment and imports are “subject to availability.”
The CBN governor, Godwin Emefiele, has maintained his silence, ignoring the black market despite the fact that he has now created the largest-ever arbitrage opportunity Nigeria has seen. Anyone who gets PTA now ($4k) can simply sell off the whole thing on the black market and make an instant N1.7m on the black market. It’s a ridiculous situation that cannot be ignored for too long.
Some might argue that the recent run on the Naira is likely to be short-lived, but consider that everyone in Nigeria now understands that the country’s currency is in danger of failing as a store of value. It’ll only lead to more people demanding the dollar with whatever discretionary income they have.
That’s enough about the Naira. Moving on!
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Are we at the end of the layoff cycle?
This week, Stripe laid off 14% of its workforce and companies like Lyft and Open Door. The reasons for layoffs are almost cliche at this point; startups figured covid inspired growth would go on forever. On top of that, you’ve got global inflationary pressures that’s got everyone really cautious about the future; all the signs point to a difficult 2023.
When the first round of layoffs started in the US in Q2, I asked questions about whether Nigeria’s tech ecosystem should brace for impact. In May, investors and founders I spoke to predicted belt-tightening and layoffs, while some others expected the impact to come later. We saw some instant impact, with Alerzo, Kuda, and 54Gene laying off employees. By the end of August, it might have been easy to conclude that the worst had passed.
Yet, what we saw from 54Gene last week shows that the worst has not passed. Like startups in the US, a few Nigerian startups too also leaned into the growth that came with the pandemic. Some of these startups raised money pretty fast and burnt it at even faster rates. As we head into 2023, we may very well see another round of layoffs as companies in Nigerian tech startups. Survival is the name of the game, and no one can simply assume that 2023 will be an easier year.
What I’ve been reading
I wrote this article on Melodia, the creator of a dress that went viral on Twitter in 2020. It’s one of the most fun things I’ve written in a while.
Everywhere you turn, you’ll find some sort of prediction about Facebook a.k.a Meta dying out. This article argues otherwise.
This article from the New Yorker on Festac ‘77 is the thing!
Women, not men, are more likely to get bored with sex in long-term exclusive relationships. This article is worth reading.