Crypto users in Africa - the secret facts of a 2,500% growth rate!

The compounding crises of the COVID-19 pandemic, unchecked climate change challenges and the war in Ukraine have caused severe negative economic, social and environmental consequences across the globe. We are facing a risk of a sharply diverging world with inequalities widening between developed and developing countries and within developing countries themselves, between urban and rural areas, rich and poor, men and women. 

This is especially true for the African continent, which has already suffered a loss of almost a decade of development gains. But, consistent with the findings of various well operating task forces looking into the Digital Financing under the aspect of a ‘Sustainable Future’, especially looking at the challenges coming upon us in regards to climate crises, the war in Ucraine, ongoing open question on the handling of the pandemic and recent data allocated on raising HIV infections in Sub-Saharan countries, all has put a spotlight on the role of digital finance and its accelerated applications in response to these crisis.

A key question in this regard is how to use digital finance to improve economic participation, agency and resilience of people, facilitate cross-border trade and support sustainable development while addressing the risks of the widening the digital divide. 

Therefore, it is intrinsic to present the emerging applications of cryptocurrency (CC) world-wide and the huge possibilities and advantages existing for CC in Africa; however, apart of this it is key to examine the evolving regulatory landscape and evaluating the voices that warn us of possible key accompanying risks as well. As the evaluation and technical specifications are very complex, it is a highly difficult process for by-standers to get the truth and facts on Crypto Currencies right, we face many suggesting potential policy considerations for leveraging this nascent, innovative instrument towards the advancement of the Sustainable Development Goals (SDGs) on the continent - and this does not happens always objectively, and - unfortunately - too often under false presumptions.

Worldwide crypto transactions over a 90 day period. Sub-Saharan Africa is second. Source: UsefulTulips

Improving financial inclusion

Most of the population living in the Sub-Saharan Africa (SSA) region is still ‘unbanked’ or underserved by traditional financial services. In 2021, 60% of the region’s population above 15 years old had no financial institution accounts (compared with 26% of the global population), with the share of women without a bank account 12 percentage points higher than men without a bank account.

There are 4.5 commercial bank branches per 100,000 adults in Sub-Saharan Africa, much lower than the global average of 10.8.

 Typical barriers to traditional financial access include the expense of financial services, distance to financial institutions, financial illiteracy, lack of necessary documentation and collateral requirements. Thanks to the rapid progress in digitalization over the past years, the financial inclusion level in the region has improved to some extent. In this line, the mobile phone penetration rate among adults has grown significantly, with a regional coverage of 75% on average. It is further projected that average smartphone connections in the region will account for 61% of total mobile phone connections by 2025, a rapid rise from adoption rates of 44% in 2019 and 49% in 2021.

Moreover, the increasing share of mobile money accounts among adults enables more unbanked or underserved people to have alternative access to finance. This is evidenced in by the generally negative correlation between the trend of mobile money account ownership and the trend of adults without any financial institution or mobile money accounts. In other words, countries that have higher shares of mobile money accounts tend to have higher levels of financial inclusion (i.e., lower levels of financial exclusion). 

The overall high penetration rate of mobile phones, the strong uptrend of smartphone connections and the ever-growing ownership of mobile money accounts allow for relatively low transition costs and lay a good foundation for the emerging adoption of cryptocurrencies in Sub-Saharan Africa to further improve financial inclusion and financial access for goods and services needed for the unbanked/underserved population and micro and small businesses.

 Leveraging cryptocurrency solutions through mobile phones could lower some of the barriers to financial inclusion seen in traditional financial services, if coupled with improved digital and financial literacy. One can register accounts via mobile phones to send, receive, spend and convert cryptocurrencies with minimal transaction costs and requirements of documentation and collateral, regardless of the physical distance to financial service providers and the gender of account owners. 

For example, Kenya’s Bitcoin payment service provider, BitPesa, partnered with a German peer-to-peer Bitcoin online lender, BitBond, to facilitate access to financing: micro, small and medium-sized enterprises (MSMEs) could apply for small business loans from BitBond based on credit score and business information and have their tokenized loans paid through BitPesa into a local currency mobile money account or bank account in as little as 20 minutes. The initiative was rolled out in Kenya, Nigeria, Uganda and Tanzania.

 Another example is Nigeria’s SureRemit, a remittance service provider using blockchain and its in-house crypto token, RMT, to facilitate remittance transfers to home countries from the global diaspora. The company hosts a global network of over 1,000 merchants and partners; African e-commerce giant Jumia is among this network. Users can buy and transfer the cryptocurrency RMT for real-life goods and services for the unbanked population, with options to remit vouchers and gift cards, buy consumer goods, pay utility bills and student tuition, send airtime top-ups and donate to charity at low cost and high speed.

Although current cryptocurrency adoption still skews male, a 2022 report by Gemini based on global surveys suggests more women in developing countries are engaging with cryptocurrency and the gender gap in cryptocurrency may be narrowing.

 In the three African countries surveyed (Kenya, Nigeria and South Africa, with a sample size of 1,200-plus respondents in each country), 41% to 50% of the cryptocurrency users are women. Moreover, 46% to 57% of the cryptocurrency-curious people in the three countries are women who are either interested in learning more or are likely to use cryptocurrency in the next year. In SSA, one key question pertinent to leveraging cryptocurrency for expanding financial inclusion is: Will it be hard for mobile money users, especially those who use feature phones to explore the use of cryptocurrencies? 

Despite the rapid growth of mobile phone penetration, about half of the mobile phones in the region are still feature phones, which do not support advanced mobile applications such as most smartphone cryptocurrency apps. The big advancement of mobile money in SSA is primarily driven by payment technology based on unstructured supplementary service data (USSD), short text codes that enable mobile transactions on both feature phones and smartphones without the need for the internet. Innovative solutions that connect cryptocurrency with USSD and work on any phone are thus needed.

 Such solutions, in fact, are already working in Africa. For instance, Machankura, which currently works in nine African countries, uses just USSD codes and phone numbers to create Bitcoin mobile wallets on the Layer 2 Lightning Network blockchain on top of Bitcoin to enable instant, cheap and micro transactions of Bitcoin.

 In improving the financial inclusion of individuals and businesses, some considerations may be important for the design of cryptocurrency solutions: educational resources on digital finance and cryptocurrency; payment methods (online/offline, QR codes, etc.); interoperability with existing payment ecosystems; expansion of accessibility and utility; network of merchants with acceptance of cryptocurrency payment; network of service providers for crypto-local currency/cash exchange; custodial or non-custodial options for the security of accounts; and level of anonymity.

Protecting savings of households and businesses against rising inflation

 Many African countries have a long history of much higher inflation rates than the global average. Countries such as Ethiopia, Ghana, Nigeria and Zimbabwe are known for having years of above-region average levels of inflation. In addition to the inflation effects, many countries suffer from depreciation of their national currencies. The pandemic further worsens the situation. Overall consumer price inflation in Sub Saharan Africa rose by three percentage points in 2021, spurred by supply disruptions and increased energy and food prices experienced since the beginning of the pandemic. 

The war in Ukraine and sanctions on Russia are fuelling inflation further with soaring prices in food (e.g., wheat and corn) and energy. The relatively high and still rising inflation threatens the wealth and purchasing power and thus the livelihoods of households in the SSA region, with a disproportionate impact on poor and vulnerable households.

As mentioned, increasing interest in and application of cryptocurrencies have been seen in the Sub-Saharan Africa region, particularly in countries like Nigeria, South Africa, Kenya and Ghana. However, a lot of uncertainties remain regarding cryptocurrency regulations across the other African regions. The policy approach to cryptocurrency varies in the region and is controversial and ever-changing, under the context of the growing digitalization trend accelerated by the pandemic and other uncertainties to come. However, fact is, Crypto Currency will become an established financial operational process and most likely, will be sooner or later the only financial value system, being operative world-wide.

About us:

MAVECON Africa Ltd. is owner of this Blogspot.

MAVECON AFRICA is a boutique consultancy group with over 35year on the African continent. We help our clients to anticipate the markets evolutions, see the upcoming opportunities, especially in the segments of Production (Food & Farming) and Infrastructure (Sustainable Energy, Waste Management), to transform and adapt Africa's  opportunities, business and organizations, modernize management process, networks and information systems, and achieve profitable growth.