By Jin Gonzalez, Chief Architect of ounces
Haunted by the ghosts of colonialism, poor governance and the rapid transformation of international markets, many parts of the African economy require major structural changes. But the continent, particularly sub-Saharan Africa, has made tremendous progress in catching up with the rest of the world in the technology sector, especially in fintech.
African startups attracted $5.2 billion in funding in 2021, more than triple the amount received in 2020, and of that $3.3 billion, or 63% of total investment, went to fintech startups . Financial Technology Partners, an investment bank focusing exclusively on fintech, said Africa presents an attractive opportunity for fintech due to its growing population and underdeveloped financial services ecosystem.
So where does the African crypto industry fit into all of this?
The Central African Republic Bitcoin Game
African blockchain startups raised $127m in total funding last year, and in the first quarter of 2022, the continent had already brought in an unprecedented $91m. It is safe to assume that blockchain penetration in Africa will continue to increase.
Nigeria, Kenya, South Africa and Seychelles received 96% of 2021 funding for African blockchain startups. Ironically, none of these countries were the first to adopt Bitcoin, or any other cryptocurrency, as recognized legal tender. It was the Central African Republic (CAR) that recently voted in favor of adopting Bitcoin as legal tender, becoming the second country in the world to do so after El Salvador.
As was the case in El Salvador, many are wondering what the CAR is aiming to achieve with this move, especially as the bear market begins. The country is one of the poorest in the world and only 10% of its population had internet access in 2020, which makes the use of Bitcoin rather insignificant.
CAR’s designation of Bitcoin as legal tender could be good for the industry as a whole by possibly encouraging other countries to follow suit, and therefore further legitimizing the industry. But that doesn’t seem to make much sense on the surface. Apparently, the country has much larger and systemic issues to deal with. As we saw in El Salvador, simply designating Bitcoin as legal tender is not a silver bullet to a developing country’s economic woes.
Crypto and blockchain-based applications, in general, can bring economic benefits to disadvantaged communities. In Jordan, Syrian refugees have been using apps built on the Ethereum blockchain to use humanitarian aid provided by the World Food Program to buy groceries for half a decade already.
In developing countries, crypto allows many people cut off from traditional financial services to transfer funds easily and cheaply. In addition, it can serve as a hedge against hyperinflation in countries whose currencies are regularly volatile. Now that CAR has adopted Bitcoin as its official currency, what steps can the nation take to complete the decision on who will leverage crypto and blockchain to grow its economy?
Crypto and ecozones
In order to create economic benefits, the CAR must come up with a plan to build the infrastructure needed to support a crypto-economy. This should go through the expansion of Internet connectivity and investment and the development of a real high-tech sector to attract foreign investment. Political stability would go a long way to fostering this process.
A long-term commitment is crucial for this to succeed. Special economic zones, or ecozones, can provide an effective model of how developing countries can generate economic growth. Additionally, ecozones can serve as engines for high-tech innovation, as evidenced by China’s meteoric rise in recent decades.
By leveraging the business-friendly incentives that ecozones typically provide, the CAR could create a launchpad for the country’s broader crypto and fintech community to mature and evolve.
The United Arab Emirates, for example, has for some time effectively leveraged ecozones to attract foreign companies and investors in many different industries. And recently, the UAE has been working to establish a crypto-friendly regulatory environment in some of its ecozones. Some of these initiatives include a framework to regulate the virtual asset activities of multilateral trading systems, brokers, custodians, asset managers and other intermediaries.
For a country plagued by internal conflict and with an estimated 79% of the population living in poverty, establishing a single ecozone requires massive political will. But, if the motivation is there, an ecozone, or network of ecozones, can provide a major source of economic growth and foreign investment, while simultaneously serving as Africa’s unofficial crypto capital.
Declaring Bitcoin legal tender must come with the necessary economic infrastructure to support the move. Ecozones represent a way for CAR to leverage Bitcoin to attract foreign investment, grow its economy, and use the crypto industry to become Africa’s fintech hub.
It is important to be realistic. But the government’s decision to adopt Bitcoin as legal tender shows that it is at least trying to find creative solutions.
Whether this is just rhetoric or a sincere belief that his country can become a major player on the international stage is up for debate. CAR took the first easy step, but the next steps will prove much more difficult and less clear. Sub-Saharan Africa is called upon to play a greater role in the years and decades to come. If the CAR is truly one of the “boldest nations in the world,” as President Obed Namsio’s CAR Chief of Staff put it, then betting on crypto and associating it with ecozones could turn out to be a winning decision. When we want we can.
About the Author:
Jin Gonzalez has created six startups over the years, including two successful exits. Prior to founding Oz, a digital asset project with the goal of connecting a network of special economic zones around the world, he pioneered the adoption and adoption of blockchain technology at Union Bank. of the Philippines, as Director of BD, Fintech and Blockchain. Gonzalez is also the executive director of the Distributed Ledger Association of the Philippines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.