What's gonna happen to the Naira? 💭
Hello,
This is the 49th issue of the Cloout, meaning next week would be the 50th Issue and sometime during the week we'd be 1 year old. We're super excited to have come this far and glad you've made the journey worthwhile.
Now, The Stories for the Week.
Economy
What's gonna happen to the Naira?
It's not going too well for the Nigerian Economy. This week, The Minister of Finance incoming budget cuts, The Nigerian stock market lost ₦1 trillion, the naira exchange rate, lost over 10% of its value against the dollar and there have been talks on the possibility of devaluing (official lowering of the value of a country's currency within a fixed exchange-rate system) the naira.
Why would a currency be devalued?
It's a chain reaction. Let's take the case of Nigeria. The country’s economy is overly reliant on Oil (90%) for its fx earnings (aka dollars), changes in price is likely to affect the economy.
How?
The $ is used to import raw materials and other foreign goods. Nigeria overlies on foreign products.
The country’s apex bank uses it to maintain the fixed exchange rate and help importers avoid facing higher prices each day whenever the exchange rate fluctuates.
The CBN can do two things to fix this
They restrict spending on imported goods by using their foreign reserves in the CBN vaults to replace the scarce $. This can lead to a rise in prices.
The second option is to devalue the exchange rate to reduce how much $ and the need to spend. This will take the CBN out of the race for $, freeing it up for the importers. This also leads to an increase in prices.
Now that that's out of the way
The CBN recently announced that it is not looking at naira devaluation at this time, contrary to last year when the CBN talked up devaluing the naira if prices fell below $45(it’s $33 now btw).
Déjà Vu
The CBN took a similar step during the recession in 2016, at first deciding against devaluing currency while implementing restrictions on foreign trade. However, after this method proved ineffective the CBN had to and devalue the currency.
What's gonna happen next?
Outbreak
State of the Corona Outbreak
We compare the figures from a week ago to this week.
It’s been a week of a lot of activities and stories relating to the Covid-19. The WHO finally declared Corona a pandemic (a pandemic is declared when a new disease for which people do not have immunity spreads around the world beyond expectations), there's been a further decline in oil prices, the federal government of different countries are cutting interest rates to increase the circulation of money, events are being cancelled and people are compelled to work from home.
In spite of all these, It's not all gloomy.
How can I avoid touching my face: Slightly Robot, a company which made a bracelet, specifically to help people struggling with trichotillomania (compulsive hair-pulling), dermatillomania (compulsive skin-picking), and onychophagia (compulsive nail-biting), has repurposed its product to help people - not touch their face or foreign objects - in the advent of Coronavirus. The bracelet, which works by buzzing when its wearer moves their hand somewhere it shouldn’t go, was typically sold to a specific medical audience now has a larger audience.
Wanna get one? It’s already sold out as you’d expect. While most companies are having a tough time this season, for Slightly Robot business couldn't be any better as its racing to fill in its backlog of orders.
Where are all the toilet papers: People have been panic-buying toilet paper across the world even though there’s no sign of a shortage. Small bottles of hand sanitizer have been re-sold for ridiculously high prices. Good news for makers of these items.
Julia Simons thinks the craze is counter-productive, What do you think?
In the main time, Everybody c̶l̶a̶p̶ wash your hands and Take Protective Measures.
Can I now work from home: The wishes of many employees are finally coming to pass, as many companies are asking their employees to work from home to avoid the spread of Coronavirus. Working remote has been touted as part of the future of work, and companies that had only dipped their toes into developing remote work policies will now be forced to develop them to attract -- and support -- remote workers. Now is a good time really see which meetings could have just been an email thread.
Venture Funding
How does a free $21m sound?
Most companies would love to be in the position of Finix, a San Francisco-based payments infrastructure platform, which just got $21m for free.
How did this happen?
Sequoia last month announced that it led a $35 million Series B round for Finix, but earlier this week turned around and realised that Finix is a direct competition to Stripe another payments companies it’s already invested in. So it let Finix have the money for free since it couldn't back out on the deal.
What’s wrong with funding competing companies?
Think of it like this, Why pay for your own competition? It is normally considered not only unwise to fund competing companies but, to some degree, unethical. It’s difficult for Investors and founders to have long-term partnerships when the investor is caught up rooting for two rivals.
How are the companies different
According to Axios:
Product: Finix is kind of a choose-your-own-adventure for payments, creating API building blocks that clients can mix and match. The advantage is flexibility. Stripe is more holistic, offering an already-assembled solution. The advantage is ease-of-use.
Business model: Finix requires its clients to become payments companies themselves, whereas Stripe acts as the payments company. That basically means that Finix users bear both interchange risks and upside, whereas Stripe users bear neither.
What did Sequoia get wrong?
Sequoia did due diligence but only spoke to experienced professionals. It left out talking to the ordinary merchants and software companies that view Finix and Stripe as rivals because, in the end, they're competing for the same customers and offering solutions to the same problem.
Why does this matter?
Sequoia just learnt that you can't be the smartest guys in the room if you don't learn from those who might seem to know less.
Worth Reading 📚
Rethinking learning tablet initiatives and their impact on education in Africa
The Asian Example: How to regulate okada in Lagos
The World Has a Plan to Fight Coronavirus. Most Countries Are Not Using it.
Quote 💭
Whenever you find yourself on the side of the majority, it is time to pause and reflect.
Mark Twain
Written by Daniel Adeyemi, Bright Azuh and Damilola Amusan.