JUSTIN ASHER: Blockchain’s increasingly important role in Africa

Africa has in many ways been a leader in embracing cryptocurrency and the blockchain technology that underpins it. It’s the third-largest cryptocurrency market globally (and the fastest among developing markets), with SA, Tanzania and Nigeria leading the way. Moreover, the Central African Republic became the second country (after El Salvador) to accept bitcoin as legal tender. 

But the interest in blockchain isn’t limited to the buying and selling of cryptocurrencies. The continent is also home to a growing number of blockchain-based start-ups, looking to improve a range solutions, from financial inclusion and saving to the purchase of solar energy. Through the first quarter of 2022 African blockchain start-ups raised more than $91m, an increase of 1,668% on the same period in 2021. Additionally, some of the continent’s biggest fintech players, including Interswitch and Wave, have integrated blockchain into their offerings. 

What this shows is that, even in the midst of a crypto winter there is still a significant opportunity for blockchain to play an important role in the African economy. To understand why blockchain has so much potential on the continent, it’s important to take a closer look at the opportunities on the continent. 

As with technologies that have historically been more widely and quickly adopted in Africa (most notably mobile phones), much of the opportunity comes down to a lack of existing infrastructure. For example, about 57% of people across the continent don’t have access to a traditional bank account. The comparative ease with which they can set up cryptocurrency wallets to send and receive money makes it an obvious alternative.

Rapid adoption

This is borne out by the rapid adoption of cryptocurrencies in the remittances space (which typically involves people sending money to their families from different cities or countries). While there are a number of services allowing people to make international payments, they can charge up to 7% in fees. By contrast, some cryptocurrencies are designed to support foreign exchanges and allow people to send money in three to five seconds for just a few cents. 

It’s a phenomenon that’s only made easier by Africa’s widespread adoption of mobile technologies. If you’re already familiar with mobile money, then cryptocurrencies are much less of a leap than they might be for people who are more used to traditional bank offerings. 

But there’s opportunity in other areas too. At Upnup, for example, we recognised that blockchain and cryptocurrencies could be used innovatively in a savings vehicle. That’s important to have because South Africans historically have a poor record in that regard. Research shows that 84% of people in the country run out of money before payday and that just 6% will be able to retire comfortably. And even among those who have managed to save using traditional vehicles, years of low interest rates around the globe mean they often haven’t achieved the kinds of returns they would have hoped for. 

By contrast, bitcoin was the best performing asset in the decade leading up to March 2021, bringing annualised returns of 230%. That’s 10 times higher than the Nasdaq 100, which was the second-best performing asset class. By allowing people not only to save but in effect invest as they spend, we saw an opportunity to change the way they think about saving and investing, and to introduce them to the world of cryptocurrencies. 

Adaptive offerings

In time, more of these applications will be uncovered, allowing blockchain to play an ever more important role in the African economy. However, it’s important to point out that blockchain opportunities across Africa aren’t all the same. In SA, for example, more than 81% of people over the age of 16 have access to a bank account. That’s been a hindrance to the adoption of mobile money in the country and is likely also to  be a hindrance to any products that simply try to take a traditional banking product and adapt it for blockchain. 

Every African market is different, and if blockchain is to fulfil its potential on the continent anyone entering the space needs to bear that in mind and adapt their offerings accordingly. For those that understand this and get it right, it’s clear there is a significant opportunity for blockchain offerings across the continent. The combination of the continent’s willingness to adopt new technologies and the need for products and services that aren’t being met by traditional methods, means Africa stands to be a leader not only in the adoption of blockchain, but also in its innovation. 

• Asher is head of strategy & marketing at fintech platform Upnup.