StephenThe novelty of resurging inflation in Nigeria is always a mirage as inflation is becoming a lifestyle and this does not mean well for startups in Nigeria judging from contemporary issues prevalent in the country amongst which is the ongoing Currency change and its effect on startups. Whereas, we note that the currency change has affected every aspect of the economy and all its users, we would however streamline our thoughts to its effect, the outcome of the effect and the eventual recommendation for Startups in Nigeria.
Startups
Startup was defined by Section 47 of Nigerian Startup Act 2022 (interpretation section) and from the tenets of the Act, we understand that not every company or business can be classified as a startup as there are some notable qualifications in order to attain startup status and it starts from being Labelled as a Startup.
Thus, a company must be labelled as a startup to qualify as a status and the criteria for this qualification are contained in sections 13 of the Act and these qualifications grants it the benefits under the Act which is further contained under sections 24- 29 o the Act.
Mention must be made that within the purview of the Act as in practice, Startups in Nigeria are spreading their business through new technology and solving people’s needs. They are focusing on innovations and building new digitalized production systems.
These startups are indeed making a massive change in the industries of logistics, finance, hospitality, investment, automobile, etc. some examples of these Nigerian startups are piggy vest, paystack, flutterwave, selar, lifebank , Octafx, opay, expertnaire. etc.
- Inflated Economy
Inflation is the rate at which prices for goods and services rise. It is hike in prices. Its aim is to measure the overall impact of price changes for a diversified set of products and services. It allows for a single value representation of the increase in the price level of goods and services in an economy over a period of time.
An Inflated economy simply occurs when there is constant hike in prices of goods and services which leads to lower purchasing power. For instance, where one unit of money buys fewer goods and services than expected on a repeated deteriorating demand. This loss of purchasing power impacts the cost of living for the common public and Startups in perspectives which ultimately leads to a deceleration in economic growth.
Inflation can occur through the demand pull, push pull or the Build-in.
Demand pull occurs when people have more money and spends more which pulls prices higher by creating a demand-supply gap with higher demand and less flexible supply, which results in higher prices. How do we see this in the scarcity of the new Naira Notes as against the old ones which has totally feigned out as a legal tender?
Built-in is relatively a psychological drive of inflation. It deals with adaptive expectations or the idea that people expect current inflation rates to continue in the future. Resultant effect is on increased wages and salaries to maintain increased demand (HSL). Can also be on the opposite where there is prevention of cash flow. What is our view in the current cash hoarding in Nigeria?
Cost-push is a result of the increase in prices working through the production process inputs. When cost of production spikes up, cost of final consumption follows suit. What then can make cost of production spike up as applicable to currency change in Nigeria?
We are not in doubt of the continued state of our economy which has been massively heightened by the ongoing currency change policy.
- Effect on Startups
Tangible infrastructural effect and intangible infrastructure effect Inflation has off course led to increase in Rents, cost of Utilities and Equipment for the daily operation of Startups in Nigeria (tangible infrastructure)
The life wire of most startups especially in the core techs unit has been faced with internet, server and cloud hiked cost. (Intangible infrastructure)
- Outcome of Effect on Startups
The major of this outcome is Low Productivity-breeds folding up:
Inflation and high cost of living place great demands on existing salaries of workers in startups leading to employees asking for increments. The absence of this is likely to lead to low productivity.
An increased standard of living prevalent in the Nation encourages employees of startups to look for alternative options and this sometimes reduces productivity in the company.
This answers why most of the startups that deal on e-payment transactions and logistics were found hanging on 14th of February 2023.
- Survival Tips for startups
(1) Considering the hike in cost of management and operation especially with physical equipment, an avenue for cloud solutions should be adopted when necessary to aid in storage and management of the pompanies’ data. This will reduce purchase and maintenance and increase productivity.
(2) Startups adopting naturally generated electricity like the renewable energy electricity source is a sure way to save cost as well as improve productivity. Renewable sources are available in all abundance around us, provided by the sun, wind, water, waste and heat from the earth. It is safer on health and further enhances a comfortable work environment.
(3) The need for startups to get acquainted with systems that gives them the opportunity to work from their comfort and outside that can reduce expenses and create productivity as well. This is however subject to policies and operative competence that is prevalent in such a company.
(4) Productivity based payment is advised as regards services of professionals that aid the operations of the startups. This applies mainly to advertisement services as this will reduce the heavy chunk of expenses in this regard.
(5) Most startups do not take inventory of expenses as against value and prospective profit from such venture and in times like this, this consideration is inevitable. Where there is no cash flow as it is now, it even much more poses a dire need.
(6) Value is the crux of sustainability and startups that err in it are heading to the ditch. Competition increases by the day and growth is built on sustainability which cannot exist in the absence of value.
CONCLUSION
It really cannot be overemphasized that startups should endeavour to create partnership as well as transactions that deals in naira alternatives and at such can increase profit to meet up with expenses, this is with regards to the menace caused by the constantly devalued Naira. Usage of alternatives are warmly advised.
About the Author
Chidiebere Mbah Esq. is a Corporate and Commercial Practice Consultant. A Legal Practitioner with a flare for Corporate Practice, Taxation, Litigation/ADR and Human Rights Advocacy. He is a prolific Writer and Poet who believes in salvaging the hope of the common man.
He has written various legal and artistic works to his credit.
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