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Mum’s the word at Nigerian startups
Are layoffs about performance issues or the economy?
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Layoffs or no layoffs?
Last week, the newsletter talked about salary cuts at the Nigerian startups, GetEquity and Quidax. The commonest reaction was shock, given that one of the startups is a sponsor of Big Brother Naija, the popular reality TV show. GetEquity on its part was already gearing up for what was supposed to be a week-long startup festival, before cutting salaries. Yet, such is the nature of running a startup; difficult decisions must be made quickly, and if you’re not yet profitable, extending your runway is all that matters.
In a secretive tech ecosystem that’s a reflection of how hush-hush all things Nigerian can be, stories like this help us estimate the maturity or financial health of startups. Fund raises are all well and good, but tough times remind us that when all is said and done, founders have been given money to create sustainable businesses, grind out profits, and return massive value to investors. It’s a tough business.
This week, I spent more time following reports of job cuts and some high-profile exits at other startups. Some ex-employees told me they were laid off by these startups with HR citing the broader macroeconomic conditions. But those claims were refuted by the startups, as they both insisted that people were let go for performance issues. It’s difficult to know where the truth lies, but my sense is that if companies cannot easily raise follow-up funding, there will be more job cuts. And it may then be on a scale that’s a lot more difficult to deny.
That’s enough talk about startup struggles, let’s focus on the broader struggles of Nigeria’s FX policy.
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To the left, to the left, every airline carrier in Nigeria to the left
Two weeks ago, I wrote about how the USD is now a controlled substance in Nigeria. Part of my argument was this: “If you have USD or hold a dorm account or do some business that needs you to move USD, you might as well be selling cocaine. Of course, this isn’t to say that money laundering regulations are unnecessary. Instead, these constantly changing rules–which everyone is forced to keep up with– paint a picture of a Central Bank that’s making FX policies on the fly.”
On LinkedIn, I got the most curious response to the newsletter and Nigeria’s FX woes:
While we continue to advance strange arguments like this, the effects of our FX policies continue to haunt us. The newest face of this FX battle is with foreign airlines who now have revenues stuck in Nigeria. Last week, Emirates airline said it had $84m it needed to get out of Nigeria with no luck.
This week, British Airways, Kenyan Airways, Lufthansa and AWA held meetings in Nigeria over the fact that they have some $600m they can’t get out. The airlines are exploring all their options and there are already plans to suspend their operations in Nigeria. Yet, the real problem remains that the CBN has no $600m to give anyone at the artificial rates that it has pegged. Riddle me this: if you insist that the exchange value of the dollar is USD is N422, but no one can get it at that price, then what is the real exchange value?
Beyond the riddle, what I’m having a hard time with is that we’ve been here before. In August 2021, MTN Group had $280million stuck in Nigeria for over a year; Unilever had the same issues too. According to a Bloomberg article from 2021, “Nigeria Unilever Nigeria Plc is being compelled to buy dollars above the market rate because rationing of foreign exchange by the West African nation’s central bank has caused a shortage of the U.S. currency. The local unit of Unilever Plc bought the greenback from money changers and lenders at between 440 to 450 naira on an average in the first half of the year, Adesola Sotande-Peters, finance director at the company, said at an investor conference call in Lagos. That compares with 410.72 Naira to a dollar at 7:28 a.m. in Lagos on Friday.”
How did Nigeria and the CBN work around the problem in 2021? By devaluing the Naira in January 2022. Today, while the CBN insists that the USD is N422, the black market insists that it’s N690 instead, marking the biggest spread between the official and black market rates we’ve ever seen. Where will the CBN and Godwin Emefiele go from here?
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What I’ve been reading
Last week, I shared an article on how newsletters are easy to start but definitely difficult to make money on. This article on podcasting in Africa extends that conversation
It’s Japa season, so nothing is more perfect than this essay that argues that sometimes migration is a gesture of love
How to get published: a book’s journey from very messy draft to best seller
See you on Sunday!