Nigeria’s recent currency rate unification may provide new challenges for companies that declare income to investors in US dollars.
The CBN announced Nigeria’s unified exchange rate on Wednesday. After the unification, the Naira dropped 36% to a record low of $1/750. Nigerian startups were less enthusiastic than markets about the news. A single FX rate may provide new challenges for businesses that received the money in other currencies and reported sales to investors in USD.
Several firms claimed revenues using Nigeria’s official exchange rate of $1/462. Two months ago, $1 million in sales was $462 million; now, it’s $656 million. Startups earning income in Naira benefit from the rise (196 per dollar).
Several companies used the parallel rate (750) to declare revenue. The single rate would primarily impact startups that reported income to investors using the prior official exchange rate. Digital economy expert Nnamdi Ifechi-Fred told TechCabal that firms reporting income at the official rate will see “something change for them.”
Notwithstanding these developments, several company entrepreneurs told TechCabal that they would not revise their revenue projections for the year. Pre-unification Naira-reporting startups have mostly stayed the same. We’ve reported income in Naira for two years. Romain Poirot-Lellig, CEO of mobility company Kwik Nigeria, said investors didn’t set dollar or euro benchmarks. “Reporting on the local economy is vital to me.”
Lendsqr CEO Adedeji Olowe told TechCabal that a single Currency rate might “make them go extremely bad” and lower startup valuations. Startups are still raising money, so things will correct. He continued, “Startups cannot change this.”
Since investors couldn’t repatriate gains, various rates lowered investor confidence. Monday’s uniform rate rumours boosted Nigeria’s overseas bonds. Olowe told TechCabal that FX rate unification might boost investor confidence. “If this continues, the FX might improve and investment could become simpler for everyone.”
Poirot-Lellig told TechCabal that the single FX rate might benefit firms long-term by stabilising the market. “When building a firm, predictability is crucial. If you can frequently access foreign cash, you may adjust your financial and economic planning.”
The various rate scheme confused entrepreneurs but offered benefits. Startups might profit from multiple rates by reporting operational expenditures at the official exchange rate and changing money at the parallel rate.
Mathew Saunders, head of investments at Future Africa, a venture capital company, says the FX rate unification “is an essential step towards increased financial transparency for Nigerian businesses, especially when reporting to investors.” He noted that although this policy may temporarily increase operating expenses for most firms, it would help the ecosystem by fostering trust and transparency.
A unified FX rate requires many Nigerian companies to rethink their business models. Founders will require creative ideas and ways to adapt to shifting economic policies. This exchange rate unification may affect Nigerian companies but also poses difficulties and opportunities for the digital community.
