How crypto can help the Nigerian economy

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Nigeria, Africa’s largest crude oil exporter and the largest and most populous country, has around 40% of its population living below poverty lines.

The COVID-19 pandemic has caused a decline in the production of goods and services, which has hurt the economy and caused the loss of thousands of jobs.

Nigeria’s unemployment rate is estimated to reach 32.5% this year and increase even more next year.

Olumide Adesina is a Nigeria-based Certified Investment Trader with over a decade of experience.

This is where Nigeria’s emerging crypto economy comes in.

To boost the development of Africa’s largest economy, Nigerian regulators and stakeholders must harness the potential inherent in crypto to improve such unimpressive economic data. We spoke to several experts in the Nigerian crypto scene to explore some of the potential benefits.

Bypass the ban

A crypto-economy can help Nigerians who do not have a bank account to deal with many challenges of international trade. Crypto transactions are growing rapidly in Nigeria, which already embraces the internet. The Nigerian central bank’s crypto ban, banning commercial banks and payment providers from dealing with crypto entities, encourages a young and tech-savvy population to embrace crypto for the first time.

Chartered financial analyst Temitope Busari notes that blockchain technology allows people to transact without intermediaries. Cryptocurrency avoids the bureaucracies and high fees associated with wire transfers. The African economy has benefited from digital solutions for electronic payments and transfers, and new players are leveraging fintech to provide improved banking solutions, ”she tells me.

Anti-inflation

In an economy plagued by hyperinflation, investing in cryptocurrencies means preserving wealth.

The boom in the crypto market in Nigeria is due to the depletion of the value of the naira, which has seen the local currency depreciate by more than 100% since 2015, said Anthony Okafor, assistant professor of finance at the University of Louisville. In an economy bogged down by hyperinflation and high unemployment, investing in cryptocurrencies is emerging as a major outlet and a way to preserve wages and wealth.

Abiodun Keripe, Managing Director of Afrinvest Research, said crypto assets are quickly becoming an easier option for many young Nigerians looking to preserve their wealth. A large number of crypto enthusiasts have used digital assets as a store of value to avoid the negative impact of inflation. For context, bitcoin in 2020 returned 302.8%, while headline inflation (Nigeria’s CPI) stood at 15.75% year-on-year in December.

A significant number of Nigerians are already feeling the negative effect of the recent crypto trading ban, which has led people to go through third parties as traditional banking channels are not allowed to process crypto transactions. The number of individuals exposed to questionable entities has increased.

Still, more than $ 400 million in crypto assets have been traded in Nigeria this year, said Statista, a market data tracker. Market experts attribute this growth to how cryptocurrency prevents central banks from imposing monetary controls.

Crypto also greases the economy by providing greater liquidity, helping Nigerians move money.

Cryptos have provided a sufficiently liquid fiat alternative for naira holders looking to break out of local currency, said Uwa Osadiaye, senior vice president of FBNQuest Merchant Bank.

Discounts

The high cost of cross-border payments has prompted Nigerians in the diaspora to send money home using digital assets.

In the first half of 2021, Nigeria dominated Africa’s peer-to-peer (P2P) trading volume, reaching $ 205.7 million, with Paxful accounting for 77.2% of that volume and LocalBitcoins accounting for most of the rest ( 22.8%).

Cross-border transfers have been expensive and unreliable. With more than 3,000 mobile money transfer platforms, only 3% can make 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, head of LunarCRUSH / Africa, a fast-growing real-time social media analytics company.

Blockchain technology can still facilitate many challenges for Nigerians in international trade, especially those without a bank account, said Busari, the financial analyst.

Témitope Busari (Témitope Busari)

According to the World Bank, there are around 350 million unbanked adults in sub-Saharan Africa. But crypto assets can help increase financial inclusion, enabling quick and accessible transfers, which in turn spur economic growth and improve livelihoods.

With levels of poverty, inflation and unemployment at an all time high, made worse by the onset of the pandemic, cryptocurrencies have presented a different opportunity for some Africans seeking an alternative source of income and protection. against economic downturns, ”Keripe of Afrinvest Research said.

Unemployed Nigerians can generate income using blockchain technology and cryptocurrency, as traditional jobs gradually become obsolete due to new technologies. Jobs are available for those who can create crypto / blockchain products for businesses, develop crypto related products, audit smart contracts, perform crypto audits, and manage projects.

Regulation required

But crypto assets by themselves will not have a global impact on Nigeria’s economic challenges. Better regulation is needed, said Osadiaye of FBNQuest Merchant Bank. Questions remain around transparency and crime prevention. In my opinion, these challenges can be solved, but would require regulatory interest.

Abiodun Keripe (Abiodun Keripe)

“The approach has varied considerably from country to country, but I think in the case of Nigeria, it could help create a structure in which the regulator has clear oversight of end-to-end crypto transactions. This will allow continued adoption by crypto users and increasingly divert demand for the country’s foreign exchange reserves, ”he said.

Yet a post-pandemic Africa must start to develop its blockchain industry. Technology will adapt to meet our unique Nigerian market niche, including financial inclusion.

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