Nigeria – Africa’s
leading crude oil exporter and largest, most populous country – has about 40%
of its population living below poverty levels.
The COVID-19
pandemic caused falls in the output of goods and services, which negatively
affected the economy and caused thousands of jobs to be lost.
It is estimated
that Nigeria’s unemployment rate will reach 32.5% this
year and rise even more next year.
That’s where
Nigeria’s emerging crypto economy comes in.
To strengthen the
development of Africa’s largest economy, Nigerian regulators and stakeholders
must tap into the potential inherent in crypto to improve such unimpressive
economic data. We spoke to several experts from the Nigerian crypto scene to
explore some of the potential benefits.
Get
around the ban
A crypto economy
can help Nigerians who lack bank accounts deal with many of the challenges of
international trade. Crypto transactions are growing rapidly in Nigeria,
which already embraces the internet. The crypto ban issued by the Nigerian
central bank, prohibiting commercial banks and payment providers from dealing
with crypto entities, is encouraging a young, tech-savvy population to embrace
crypto for the first time.
Chartered financial
analyst Temitope Busari notes that blockchain technology allows people to
conduct transactions without middlemen. “Cryptocurrency obviates the
bureaucracies and high charges associated with bank transfers. The African
economy has benefited from digital solutions for e-payments and transfers, and
new players are leveraging financial technology to provide enhanced banking
solutions,” she tells me.
Anti-inflation
In an economy
riddled by hyperinflation, investment in cryptocurrencies means preserving
wealth.
“Nigeria’s crypto market boom is driven by the depleting value of the naira, which has seen the local currency depreciate by over 100% since 2015,” said Anthony Okafor, an adjunct professor of finance at the University of Louisville. “In an economy mired by hyperinflation and a high unemployment rate, investment in cryptocurrencies is emerging as a leading investment outlet, and a means of preserving wages and wealth.”
Abiodun Keripe,
managing director at Afrinvest Research, said crypto assets are
fast becoming as an easier option for many young Nigerians looking to preserve
their wealth. A large number of crypto enthusiasts have taken to digital assets
as a store of value to prevent the negative impact of inflation. For
context, bitcoin in 2020
returned 302.8%, while headline inflation (Nigeria CPI) stood at 15.75%
year-over-year in December.
Significant numbers
of Nigerians are already feeling the negative effect of the recent ban on
crypto trading, which has led people have to go through third parties because
traditional bank channels are barred from dealing with crypto transactions. The
number of individuals exposed to questionable entities has increased.
Still, over $400
million worth of crypto assets has been traded in Nigeria this year, Statista,
a market data tracker, said. Market pundits attribute that growth to the way
cryptocurrency limits central banks from imposing monetary controls.
Crypto also greases
the economy by offering greater liquidity, helping Nigerians move money around.
“Cryptos have provided a sufficiently liquid fiat alternative for naira holders looking to exit the local currency,” said Uwa Osadiaye, a senior vice president at FBNQuest Merchant Bank.
Remittances
The high cost of
cross-border payments has prompted Nigerians in the diaspora to send money back
home using digital assets.
In the first half
of 2021, Nigeria led Africa’s peer-to-peer (P2P) trading volume reaching $205.7
million, with Paxful accounting for 77.2% of that and LocalBitcoins accounting
for most of the rest (22.8%).
“Cross-border transfers have been expensive and unreliable. With over 3000 mobile money transfer platforms, only 3% can do cross-platform transfers. Crypto has been the best alternative so far for such transactions. The freedom that comes with it has also propelled adoption,” said Kabi Hillary, the lead of LunarCRUSH/Africa, a fast-growing real-time cryptocurrency social media analytics company.
Blockchain
technology can further ease numerous challenges for Nigerians when it comes to
international trade, especially those who do not have bank accounts, Busari,
the financial analyst, said.
According to the
World Bank, there are about 350 million unbanked adults in Sub-Saharan Africa.
But crypto assets can help to increase financial inclusion, allowing for fast
and accessible transfers, which in turn stimulate economic growth and improve
livelihoods.
“With poverty, inflation and unemployment levels at an all-time high, made worse by the outbreak of the pandemic, cryptocurrencies have presented a different opportunity for some Africans looking for an alternative source of income and protection against the economic downturns,” Keripe of Afrinvest Research said.
Unemployed
Nigerians can generate income using blockchain technology and cryptocurrency,
as traditional jobs steadily become obsolete as a result of new technology.
There are jobs available for those who can create crypto/blockchain products
for businesses, develop crypto-related products, audit smart contracts, perform
crypto forensic audits and manage projects.
Regulation
needed
But crypto assets
by themselves will not have an all-encompassing impact on the Nigerian economic
challenges. Better regulation is needed, said Osadiaye of FBNQuest Merchant
Bank. “Questions remain around transparency and crime prevention. My view is
that these challenges are solvable but would require regulatory interest.
“The approach has varied widely across countries, but I think in Nigeria’s case, it might help to create a structure where the regulator has clear oversight of end-to-end crypto-based transactions. This will enable the continued crypto user adoption and increasingly divert demand from the nation’s foreign exchange reserves,” he said.
Still, a
post-pandemic Africa must begin to develop its blockchain industry. The
technology will adapt to meet our unique Nigerian market niche, including
financial inclusion.
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