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.
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.
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.
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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