Despite risks, cryptocurrency presents an exciting opportunity in Africa
As more states in Africa come to accept cryptocurrency in a technology-first approach to digitizing and diversifying their markets, these markets could exploit cryptocurrency opportunities. This approach could enable African states to spearhead innovations such as block-chains for easier access to public services and digital currencies issued by central banks.
The cryptocurrency ATM makes its debut
South Africa’s first cryptocurrency ATM opened in Johannesburg in early May. It enables users and those with investments in this market to process various forms of cryptocurrency (including the most popular, Bitcoin) and make cryptocurrency transactions even without a bank account. Although users can at present withdraw only 50 South African Rand ($3.99), its installation is part of a wider attempt by the South African government to formulate policies regulating the use of domestic cryptocurrency. The South African Reserve Bank is one of several in the continent that are actively trying to capitalize on crypto assets through regulation that affects trading in them and their applications.
Influence of the informal sector
Among the most important factors that have influenced the development of Africa’s cryptocurrency market is its large informal sector. The International Labour Organization estimates that more than 66% of all employment in Sub-Saharan Africa is in the informal sector. In addition to having one of the world’s largest labour forces, Sub-Saharan Africa’s informal economy represents the standard source of employment for young people. Informal employment embraces eight out of ten of those who have non-agricultural work, in both the private and public sectors. Other factors that have influenced the development of Africa’s cryptocurrency market include the establishment of regulatory sandboxes in regions such as Sierra Leone to promote Fintech innovation; interest from blockchain companies looking to harness the potential of African markets; and African policymakers and regulators grappling with the risks associated with cryptocurrency by addressing them through existing legal frameworks.
Increasing individual and national interest
In consequence, Africa has seen a surge in interest in the use of cryptocurrencies. In Kenya, for example, young entrepreneurs have started a mining cryptocurrency, seeking alternative crowdsourcing methods, to raise funds for their startups. In Nigeria, Bitcoin sales in January 2018 amounted to $4.7 million per week. In Ghana, young fintech entrepreneurs have developed the country’s first official digital currency, Finchcoin. This aims to build cryptocurrency mining stations across Ghana. Among the entrepreneurs is 16-year-old Elisha Owusu Akyaw, who has helped raise over $40 million in Bitcoin token sales through his marketing services company, Token Media. Examples such as this show the meaningful social value that cryptocurrency trade has had in terms of job creation and alternative forms of employment for young people.
The interest in cryptocurrency has not only been seen among individuals, but at a national level as well. Among the trends driving cryptocurrency use in African markets is macroeconomic instability. In Zimbabwe, for instance, persistent hyperinflation in the domestic currency led to the dollarization of the Zimbabwean Dollar in 2009. This produced an illiquid economy, which made national cash shortages frequent. Zimbabwe’s first Bitcoin ATM opened in April 2018, allowing users to exchange cryptocurrency for cash using Golix, Zimbabwe’s largest cryptocurrency exchange. This has given people a sense of reassurance in a volatile economy.
Despite the growing use of cryptocurrency in Zimbabwe, the Reserve Bank of Zimbabwe in May this year banned cryptocurrency processing by banks. Legal experts in Zimbabwe have, however, questioned the legality of the ban, which stands in stark contrast to the Bank’s former efforts to adopt digital payment platforms to curtail shortages of cash for foreign currency payments because of low foreign direct investment in Zimbabwe.
States facing macroeconomic problems such as volatile money markets may find investment in digital payment cryptocurrency platforms useful for counteracting the negative economic effects that impact ordinary citizens. Nigeria’s recent efforts to liberalize its foreign exchange market by allowing banks to trade at the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) rate have encouraged traders to send foreign currency abroad using Bitcoin. This shows the usefulness of cryptocurrency for increasing African remittance costs, which declined in 2017 due to weak growth in Europe. This consequently reduced remittance flows to North Africa and Sub-Saharan Africa.
The future of cryptocurrency in Africa
Considering the potential for large-scale cryptocurrency use in Africa, policymakers in regions across the continent have some legitimate concerns. Among these is the risk of crypto asset crime, including tax evasion, money laundering, and terrorist financing through cryptocurrency if its trading is unregulated. Continued increases in cryptocurrency-driven economic activity in Africa should inspire new developments in fintech, digital payment platforms, and macroeconomic measures to counter economic insecurity across the continent. This indicates that Africa will continue to develop as an important player in the international cryptocurrency market.
