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By Jin Gonzalez, Chief Architect of Oz
Haunted by the ghosts of colonialism, poor governance, and the rapid transformation of international markets, many parts of Africa’s economy require major structural changes. But the continent, in particular sub-Saharan Africa, has made major strides in catching up with the rest of the world in the tech sector—most notably in fintech.
African startups attracted $5.2 billion in funding in 2021, more than triple the amount received in 2020, and of that sum, $3.3 billion—or 63 percent of total investments—went to fintech startups. Financial Technology Partners, an investment banking firm focusing exclusively on fintech, said Africa presents an attractive opportunity for fintech due to its growing population and an underdeveloped financial services ecosystem.
So where does Africa’s crypto industry fit into this?
Central African Republic’s Bitcoin play
African blockchain startups raised $127 million in total funding last year, and through the first quarter of 2022, the continent had already brought in an unprecedented $91 million. It is a safe to assume that blockchain’s penetration into Africa will continue to rise.
Nigeria, Kenya, South Africa, and Seychelles received 96 percent of 2021’s funds for African blockchain startups. Ironically, none of those countries were the first to adopt Bitcoin, or any other cryptocurrency, as a recognized legal currency. It was the Central African Republic (CAR) who recently voted to adopt Bitcoin as a legal tender, becoming the second country globally to do so after El Salvador.
As was the case in El Salvador, many are left wondering what CAR aims to achieve with this move, especially as the bear market begins. The country is one of the poorest in the world, and only 10 percent of its population had access to the Internet in 2020, making the use of Bitcoin rather insignificant.
CAR’s designation of Bitcoin as a legal tender might be good for the industry at large by possibly encouraging other countries to follow suit, and therefore further legitimizing the industry. But it doesn’t seem to make a lot of sense on the surface. Seemingly, the country has much bigger, and systemic problems to manage. As we’ve seen in El Salvador, simply designating Bitcoin as a legal tender isn’t a magical cure-all solution for a developing nation’s economic woes.
Crypto and blockchain-based applications, in general, can provide economic benefits to underprivileged communities. In Jordan, Syrian refugees have been using applications built on Ethereum’s blockchain to use humanitarian aid provided by the World Food Programme to purchase groceries for half a decade already.
In developing countries crypto enables large swathes of people who are cut off from traditional financial services to easily and affordably transfer funds. Additionally, it can serve as a hedge against hyperinflation in countries whose currencies are regularly volatile. Now that CAR has adopted Bitcoin as an official currency, what steps can the nation take to compliment the decision that will leverage crypto and blockchain to develop its economy?
Crypto and ecozones
In order to create economic advantages, CAR needs to come up with a plan to build the infrastructure needed to support a crypto economy. This should entail expanding Internet connectivity and investing in and developing a real high-tech sector to attract foreign investments. Political stability would go a long way toward helping this process.
Long-term commitment is crucial for this to succeed. Special economic zones, or ecozones, can provide an effective blueprint on how developing nations can generate economic growth. Furthermore, ecozones can serve as a driving force for innovation in the high-tech sector, as evidenced by China’s meteoric rise over the past several decades.
By leveraging the business-friendly incentives that ecozones typically provide, CAR could create a launchpad for the nation’s crypto and broader fintech community to mature and scale.
The United Arab Emirates, for example, has for some time been effectively leveraging ecozones to attract foreign businesses and investors across many different industries. And recently, the UAE has worked to establish a crypto-friendly regulatory environment across some of its ecozones. Some of these initiatives include a framework to regulate virtual asset activities of multilateral trading facilities, brokers, custodians, asset managers, and other intermediaries.
For a country plagued by internal conflicts and an estimated 79 percent of its population living in poverty, establishing a single ecozone requires a massive amount of political will. But, if the motivation is there, an ecozone, or a network of them, can provide a major source of economic growth and foreign investment, while simultaneously serving as Africa’s unofficial crypto capital.
Declaring Bitcoin a 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 investments, grow their economy, and use the crypto industry to become Africa’s fintech hub.
It’s important to be realistic. But the government’s decision to adopt Bitcoin as a legal tender shows they are at least trying to come up with creative solutions.
Whether this is simply rhetoric or an honest belief that his country can become a major player on the international stage is up for debate. CAR took the easy first step, but the next steps will prove to be much harder and less clear. Sub-Saharan Africa is destined to play a bigger role in the years and decades to follow. If CAR is truly one of the “world’s boldest nations,” as declared by CAR Chief of Staff to the President Obed Namsio, then betting on crypto and marrying it with ecozones could prove to be a winning move. Where there’s a will, there’s a way.
About the author:
Jin Gonzalez has established six startups over the years, including two successful exits. Prior to founding Oz, a digital assets project with the aim of connecting a network of special economic zones across the globe, he was responsible for pioneering the adoption and embracing of blockchain technology at the Union Bank of the Philippines, as their 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.
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