If you run a startup in Africa, watch what is happening in the New York Stock Exchange and NASDAQ. The rich families and select institutions which give venture capital funds money to invest in startups will stop doing so if the stock markets go south. The Dow lost 810 points today over fears of impending recession.
The United States Federal Reserve (equivalent of the Central Bank of Nigeria) works mainly to keep the U.S. dollars stable (to reduce inflation) and maximize employment (through interest rates). The Fed plans to hike interest rates (unemployment is not a big problem at the moment). This increase will help to quell inflation by deepening the strength of dollars but as that happens, many negative things could happen.
Those things include a drop in consumer spending and broad purchases including real estate assets (costs of loan will be higher and many will forgo purchases). But if purchases are depressed, factories will be forced to reduce production, and if that is not well managed, recession kicks in. As that happens, inflation will drop since limited availability of cheap money will make prices adjust. ECON 101.
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As these things happen, people move into defensive, not offensive when it comes to investing. In other words, they will not invest. Look carefully at your burn rate because this paralysis could be extended.
Besides the US inflationary challenge, Russia’s war in Ukraine remains a big factor: NATO will likely continue to fund Ukraine until Russia gives up. But note this: if the EU does not buy Russia energy, and begins to source from alternative sources, Russia may end up benefiting as global prices will go high. What that means is that Russia may sell less and still make more money than would have been made pre-war.
But as that happens, the US will introduce 3rd party sanctions and that means anyone that buys Russia’s product will be under the crosshairs of US sanctions. That is where the volcano will erupt: China will protest. And watch out the implication in the global supply chain with implications that some Chinese companies in New York could be suspended!
On Saturday, at Tekedia Mini-MBA, I will share more during our scheduled course on Building Investment Portfolios. Join us.
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The burn rate is what needs to be checked, not sure enough founders and operators have learned a thing in that regard, it destroys more than it builds.