Coronavirus Weekly

Coronavirus Weekly Update: Hard decisions

By Victor Ekwealor May 11, 2020

Image source: Techcabal

If you’ve followed our weekly updates so far, you’ll realize that we’ve mostly examined the high-level impact of the pandemic on different tech subsectors and technologies. We’ve looked at the effect of the coronavirus and resultant lockdowns on ride-hailing, e-commerce, video streaming, e-commerce again, fintech and drones.

Welcome to this edition where we’ll, once again, examine the impact of the coronavirus pandemic on tech and innovation in Africa.

How have you been?

This week as
cases continue to rise, we are zooming in on the effects of this pandemic on human resources in the industry.

It’s not all negative though, come let’s take a look.

Job losses, pay cuts & tough choices
Andela is the latest company to announce a layoff because of the coronavirus. CEO, Jeremy Johnson disclosed this to about 1,300 employees across its locations via a video conference call.

The decision will result in 135 staff members getting laid off and senior executives could see their pay reduce
by 10 – 30%.

In TechCabal’s report, Johnson cited the effect of shrinkage in the company’s customer base as the major reason necessitating the exits. Andela expects the pandemic to adversely affect 50% of its clients and make new customers scarce.

What makes Andela’s layoff interesting is that it is the third one within 9 months. A saturation of junior talent in Andela’s target markets and a shift to more senior talent over the past two years has upended its business model.

Critics say the layoff is more reflective of issues with Andela’s business model than the pandemic.

But that would be unfair criticism given that the pandemic has been difficult for most businesses. Andela is not alone.

One of the very early reports of tech-related layoffs was at lending company, RenMoney. The lender laid off about half of its workforce as early as March 28 citing digitization and a strategic change in how it conducts its business.

In the online travel industry, Wakanow’s Adebayo Adedeji has a front row seat to the crash as Alex Onukwue reported. The company saw a 98% drop in travel bookings in April relative to March. Before then, there was a 50% drop in bookings in March.

Wakanow has laid off temporary staff who handled reconciliations, and some contractors such as cleaners and security officers who are paid
on a scheduled-service basis. But again, like Andela and RenMoney, the pandemic was likely just a trigger.

“We’ve done a couple of [job] reductions but they were going to happen because of automation anyway,” Adebayo Adedeji told TechCabal.

Fintech company, OPay has reportedly laid off staff members from its bike-hailing business, ORide. That too was likely inevitable given the ban on motorcycles in one of its major locations, Lagos. It’s Director of Operations for ORide Ridwan Olalere appears to have exited the company.

The pandemic is possibly causing business leaders to
hasten business decisions that they would have made anyways. Yet there is another set of entrepreneurs and leaders, those whose businesses could have been said to be fine until the pandemic hit.

After seeing an initial surge in user numbers, a drop in consumer sentiment owing to a lockdown caused IrokoTV’s numbers in Nigeria to collapse. The startup now estimates that it could lose up to $250,000 every month until the end of the year. It took a slightly different decision from layoffs, it furloughed 83 employees, 28% of its Nigerian team. Another 49 employees have taken a pay cut.

Other companies including TechAdvance and even TechCabal’s parent company, Big Cabal Media have also had to make tough choices because of the crisis.

While details are still scanty,
layoffs by global companies including Uber and AirBnB could affect their African businesses.

UberEats has already pulled out of Egypt and its global ride-hailing business announced that it is cutting 3,500 jobs.

When asked about the impact on its South African business, an Uber spokesperson told MyBroadBand, “with people taking fewer trips, the unfortunate reality is that there isn’t enough work for many of our frontline customer support employees.”

It’s not all doom and gloom. The pandemic while tough on most businesses has been an unintended catalyst for some sectors, most especially health tech. A number of interesting funding rounds have been finalised in the middle of the pandemic. One of them, biotech company 54Gene closed a $15 million Series A round and is now
hiring for a number of positions.

Another health company, Helium Health also announced a $10 million funding round. It could also begin hiring for some positions as it looks to expand into other verticals.

Despite these bright spots, there is no doubt that many more startups will downsize and right-size. SA e-commerce company, Takealot which has lost 80% of its revenue has managed to keep paying salaries. However, its CEO Kim Reid said last week that it cannot guarantee that will continue if restrictions persist.

A new report says African startup funding could drop by about half this year.

For most startups, the pertinent question to keep asking is; How much runway do we have?

Bus-hailing suffers losses.
Social distancing and post-lockdown rules are causing Lagos’ bus hailing startups to adjust revenue expectations. Startups have reduced the number of their passengers by about 50%. Coupled with operating at less than optimum capacity, operators now expect their margins to be impacted by the reduced work hours resulting from the government’s safety rules. Fares are likely to go up for some of the leading bus-hailing companies to adjust for revenue losses.

Digital payments boom? Not quite. Day one after Lagos’ five-week lockdown was lifted, residents rushed to banking premises mostly to get cash. While major aspects of the formal economy accept digital payments, cash-based transactions make up huge chunks of daily exchange for most people in transportation, and in food markets.

Africa’s smartphone drought. In May, the continent’s leading smartphone manufacturer, Transsion recorded a decent Q1 with its Tecno brand. But according to our analysis, this ironically signals a brutal 2020 for them, and smartphone manufacturers generally. In Africa and around the world.

Zoom acquires Keybase to address its security problems.
In its first major acquisition to reverse its security woes, the video conferencing giant has bought Keybase, a startup that offers various encryption products. Zoom hopes that Keybase’s encryption technology will help fix its security issues.

Most Google employees will work from home until 2021
After initially telling its employees that they would work remotely until June 1st, CEO Sundar Pichai has now revised its return to work policy. Pichai told employees that only those whose work requires them to be physically present in the office will be allowed to resume in June or July.

How to avoid cowboy investors
As funding sources dry up amidst the coronavirus pandemic, founders might feel some pressure to secure capital from available options. However, accepting funding from the wrong investor can come with consequences. Entrepreneurs need to take some time to understand who they are going into business with. ‘Investor due diligence’ should cut both ways, and target companies should be prepared to conduct ‘know your investor’ research.

For startups facing extinction, surviving the coronavirus is a race against time. With the global economy on lockdown, the fate of thousands of startups may now depend on something they can’t control: their last injection of cash.

According to Pitchbook analyst Alexander Davis, 7,200 of the U.S. startups in his firm’s database were likely running out of cash by mid-March. Most of those identified probably raised capital between 12 and 18 months ago. Meanwhile, the bills keep coming.