Nigeria is Among African Countries Set to Become Next Cryptocurrency Frontier
There is a lot of chatter in the blockchain community these days about African countries that could be the next cryptocurrency frontier. One of these countries is Nigeria. Experts in the space cite Bitcoin Google Trends, showing that most searches for cryptocurrency around the world in the last 12 months came from Nigeria, as a sign of growing interest in the country. They also speculate about Twitter’s Jack Dorsey recently visiting Nigeria. Many believe that Dorsey – a bellwether for the industry – is eyeing Africa’s bitcoin market. With international organizations like the United Nations and the International Monetary Fund continuing to talk about the economic and social landscape in Nigeria as conducive to increasing cryptocurrency adoption, here are the reasons we see behind the country’s current appeal.
Nigeria’s economic environment is conducive to cryptocurrency adoption
Nigeria’s main economic issue is instability. According to the International Monetary Fund’s report released in early 2019, Nigeria’s economy is still recovering from its 2016 recession. Over the last couple of years, the rebound in oil prices and a tight monetary policy have been helpful in reducing inflation, but it is still higher than the average for African and Sub-Saharan countries having picked up again in September 2019. With its inflation rate bouncing around, prices fluctuate and unemployment and poverty continue to rise. Similar to other countries in the region, Nigeria is also known for its corruption.
Digital currency proponents believe that its adoption can help stabilize economies like Nigeria’s. Using cryptocurrency allows to avoid dealing with banks and helps to work around corruption, as blockchain’s decentralized system relies on mutual control mechanisms. According to the UN’s Africa Renewal publication, many African citizens already use Bitcoin to counter the hyperinflation in their countries, while countries in South America like Venezuela have been using cryptocurrency to manage corruption in the country.
Yet, despite its fragility, Nigeria’s economy – the biggest in Africa – has a lot of potential. With one of the largest populations around the world, Nigeria is projected to be among countries with highest economic growth over the next decade, according to PwC. The country boasts impressive natural resources, including oil and natural gas, and is making strides in telecom, finance, and technology. This positive economic forecast can be enticing for those thinking of investing in the growing cryptocurrency market in the country and the region and those who hope to mainstream cryptocurrency in Africa and around the world.
Cryptocurrency can help improve access to finance and facilitate remittances
Nigeria remains a largely cash-dominated society, mainly because of lacking financial literacy and financial infrastructure. About half of Nigeria’s adults – 60 million people have poor access to financial services. Because of its banking sector’s inability to tackle the problem, Nigeria continues to lag behind other sub-Saharan African countries.
At the same time, like in many other African countries, cell phone penetration and use is growing dramatically. The number of smartphone users in Nigeria is forecast to grow to more than 140 million by 2025 with current rough estimates between 25 and 40 million. The internet penetration amounted to 47.1 percent in 2018 and is projected to grow to 187.8 million users by 2023, reaching 84.5 percent. Mobile internet usage is particularly popular in the country, with almost three quarters of Nigerian web traffic being generated via smartphones. Digital connections are paving the way for new opportunities for businesses and new solutions for the “unbanked.” Blockchain technology can help make unlimited transactions with a universal currency very quickly and at a low cost. It ensures that more people can create a digital identity and participate in payment transactions without involving central authorities that can hinder the process.
Blockchain-based solutions can also be used to facilitate remittances. World Bank reports that cross-border remittances – they money sent by those working abroad to their loved one back home – hit a record high in 2018 at $689 billion and are on track to become the largest source of financing in developing countries. Remittances to Sub-Saharan Africa grew about 10 percent to $46 million in 2018. Nigeria is among the top ten countries benefiting from the largest share of remittances as a percentage of GDP. Cryptocurrency-based solutions, which operate without third party authenticators and so provide a more cost-effective solution in terms of fees and resources required to maintain a cross-border payment infrastructure, can be increasingly used for the service.
There are both challenges and the evidence of progress
There are plenty of challenges ahead, from cryptocurrency awareness, financial and tech literacy to digital divide and inequality. But there is progress on many fronts as well. Take regulation, for example. The Nigerian Central Bank (CBN) and the Securities and Exchange Commission (SEC) have issued strong notices about the pitfalls of investing in cryptocurrency markets largely designed to educated the citizens. Yet, afraid to be left behind as the new technologies and forms of payment become widely adopted, Nigerians are calling for the government to develop a solid legal framework for cryptocurrencies in the country. Community leaders, like prominent Nigerian politician Femi Gbajabiamila, the speaker of the Nigerian House of Representatives probed the government “to take cryptocurrency and blockchain technology seriously.” It appears that Nigerian authorities are taking steps to regulate cryptocurrency activities in the country. Last year, the SEC set up the Fintech Roadmap Committee to develop a framework for the regulation of Virtual Financial Assets (VFAs) and VFA Exchanges, and anti-money laundering, among others, and is expected to deliver in the 2019-2020 timeframe.
It has become clear to many on the continent and beyond that blockchain can be a way for Nigeria and other African nations to bridge the developmental gap. The new technology has the potential to improve transparency and reduce costs and inefficiencies within Nigeria’s and other sub-Saharan economies. Blockchain-based solutions can leapfrog traditional or nonexistent technology infrastructures in African nations and drive a new era of more inclusive growth. It is important to note that technological disruption is already transforming markets and societies across in Sub-Saharan Africa, which has recently emerged as one of the fastest growing FinTech regions across the globe, with one of its three main hubs in Nigeria. The evolution of the local ecosystem lays ground for further progress in the blockchain space and other technological developments.