When Nigerian agritech startup Winich Farms shared its quarterly financial report with stakeholders in July, it reported all the numbers twice. One version used the old official currency rate of about 460 naira per dollar and the other version used the new rate of 800 naira per dollar. The company wanted to show how much its growth was hurt by Nigeria’s new currency policy, while also showing stakeholders how much it grew in the quarter.
In June, the naira plunged on the back of Central Bank of Nigeria (CBN) policy. Relaxed foreign exchange rate controls. CBN has so far adopted a fixed exchange rate policy that pegs the local currency at around Naira 460 to the dollar. Under the new rules, CBN allowed the market to determine the daily exchange rate.This caused naira Soaring official interest rates Exceeds $770 per dollar by mid-July.
This has caused havoc for start-ups that need to translate their financial figures into dollars for international investors. Revenue in dollar terms has almost halved, even though the business is actually growing.
Nigeria is Africa’s largest startup ecosystem, About a quarter of all venture capital Grown on the continent in 2022. rest of the world Eight Nigerian founders who spoke to them said they were struggling to keep their companies afloat due to the sudden drop in the naira value. Investors said the new policy poses a danger to the country’s startup ecosystem, which is primarily funded in dollars but earns in Naira.
“Before the floating exchange rate regime was applied, we reported revenue of $1 per 500 Naira. This has changed to $1 per 700 Naira. This is a drop of 40% for most startups. “
“We are caught between reporting using a constant exchange rate to represent growth and reporting using current realities that obliterate growth,” Winnitch Farms co-founder Founder and CEO Riches Atay said. rest of the world. “In 2022, moving 1 billion naira worth of agricultural commodities a month will be about $2.3 million. Now that is just $1.2 million.” It also includes an accelerator program in partnership with
“Before the floating exchange rate regime, we reported revenue of $1 per 500 Naira. This has changed to $1 per 700 Naira,” said co-founder and CEO of fintech firm Moni. said Femi Ilomini of rest of the world. “For most start-ups making money in Naira, this is a 40% drop,” said Adedayo Amzat, CEO of Lagos-based financial institution Zedcrest Group, saying the naira’s floating rate will continue. He said it had caused a significant decline, posing a serious risk to the viability of Nigerian businesses. rest of the world. “This adjustment will formally lower the reported naira rate, resulting in a significant reduction in dollar income for naira-earning businesses and a write-down of the naira.” [foreign exchange]Total debt,” Amzat said. rest of the world.
Temitope Ekudayo, co-founder and CEO of online printing startup Printivo, said the high exchange rate was due to the startup’s business operations as the cost of imported goods rose sharply. It also means having to spend a lot, he said. rest of the world. Some startups have paid 200% more for cloud servers and software since the new foreign exchange standards were introduced, he claims. Ekudayo, who is also co-founder of digital investment platform GetEquity, said the cost of raw materials such as paper and ink, diesel, power presses, new machine parts and logistics also rose by 300%. “This is one of the battles I’m working on,” he said. rest of the world. “Customers are negotiating tougher now, but we don’t see any decline in demand.” [yet]it just shifts the margin further. [But] Accounts receivable collection is taking longer than before, making it difficult for even foreign customers to pay. “
Iyinoluwa Aboyeji, general partner at early-stage venture capital firm Future Africa, said: rest of the world His firm advises portfolio companies to explore operations abroad to avoid naira-related challenges. “Generally speaking, we [Future Africa] We want as many companies as possible to be able to start exporting their software and labor. Because we think that’s the only way we can keep this crisis in our favor if our earnings are in US dollars,” he said.
Aboyezi said his firm had reassessed the valuations of several of its portfolio companies in response to exchange rate changes and said, “The valuation expectations set at about half of what they appear to be today are clearly not possible. It is understood that the Some agreed, some were not in a position to agree. “
Ekudayo said the current situation was the worst financial challenge he faced while building his business. He said some startups will languish and shut themselves in their current environment. [the] board. No one is doing it well so far. Too many companies will disappear. The question is not “if” but “when”. “
