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Africa’s Frontier Economies Chomp at the Bitcoin​

A lot has been written about the potential of bitcoin for emerging economies, with an emphasis on countries in Africa. Here, local currencies have been victims poor fiscal and monetary policies. These countries, also bear the brunt of a deep rooted overdependence on the US dollar. Payment infrastructure to the rest of global economies, weak local currencies and reliance on the US dollar for settling offshore transactions are all inextricably linked.

According to a swift report,

Cross-border payments intra-Africa and between Africa and the rest of the world are skewed towards USD usage and USD clearing via North American banks. Transaction costs remain high at least partly because a large proportion of settlement processes within Africa involve banks outside of Afric

One needs not to look far, Nigeria’s economy is 90% reliant on oil exports and, the US dollar. The Naira, at 345 to the dollar, has taken a nosedive over the past year, along with the decline of commodity and oil prices. Its foreign exchange reserves have not been this low in 11 years.

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The Central Bank of Nigeria is in a precarious position, cornered into imposing capital controls to salvage its dwindling forex currency reserves. Importers now queue up for a share of scarce dollar reserves; forex needs are vetted against a priority list of 41 items, from meat to concrete. Tech startups cannot pay for Facebook adverts, MailChimp subscriptions, or GoDaddy hosting online, the impact of dollar shortage, is hurting businesses, consumers, and entrepreneurs, as banks move to impose international spend restriction on naira credit and debit cards.

In this state of affairs,

Bitcoin becomes a promising alternative to the naira because it makes international purchases more convenient for consumers while also easing the strain on Nigeria’s foreign exchange reserves. Crypto Coin News

On the other side of the continent, East Africa, this particular use case is in part responsible for driving bitcoin adoption in Kenya, a frontier economy in East Africa. The country’s Central Bank recently weighed in on the subject, via a public notice warning users to beware, but simultaneously not outrightly declaring it illegal. Days after, a rebuttal to this notice, appeared in a leading newspaper, putting the matter in perspective of global bitcoin development. Since then, the bank’s comments seem to have been counter productive, the streisand effect.

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The number of Kenyan searches for Bitcoin as per google trends, went up multiple times to an all time high, reminiscent of the last time Bitcoin’s price shot up to $1163. These searches are reflected on weekly volume charts from Kenya’s localbitcoins peer to peer market, where, $30,000 a week worth of BTC exchange hands, a figure that has been on an upward trajectory since March 2014.

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So what’s driving these numbers?

Kenyan market makers on localbitcoins, say this demand stems mostly from speculation and payments. For instance,

  • Kenya’s young forex traders using bitcoin to fund their trading accounts.
  • Developers using bitcoin to pay for their hosting services abroad.
  • freelancers getting paid in bitcoin and needing to convert into local currency
  • Speculation

For international payments, bitcoin is a far superior alternative than current bank options; it only takes a couple hours versus 3 days it would take using bank wire. Additionally, it is fairly straightforward with no hidden forex charges typical of legacy payment channels.

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But, not everyone is pleased by this virtual currency. Mpesa, a payment gateway owned by a dominant Telcos, is throttling Bitcoin services reliant on its gateway. BitPesa, a Kenyan bitcoin startup, had its services shut down by the Telcos, claiming bitcoin posed an AML CFT risk to its platform. Over 73% of all legal adults have local currency denominated mobile wallets, such as Mpesa. For BitPesa,this meant they could no longer offer BTC trading via this ubiquitous digital wallet.
One can make conjectures on why Safaricom might have felt its Mpesa brand was under threat now or in the future. It has partnered with international remittance companies such as Western Union, WorldRemit, Skrill, to allow deposits into its digital wallet. Any successful take off of bitcoin as an alternative payment channel would challenges its revenue streams.

This has not stopped bitcoin growth, rather, has shifted market making activity to peer to peer free markets, like localbitcoins. Digital wallets stimulate free exchange peer to peer markets to thrive. It seems, people are now trading amongst themselves, using their Mpesa wallets to make fiat transfers. You can tell from the listings on LBC.

No doubt, Nigeria and Kenya, the two largest frontier economies in West and East africa, will lead bitcoin adoption in Africa. Watch this space.

6 comments

  1. This development could only be a boon to Africa. One of the problems with the politics of that continent is the rampant kleptomancy of office holders. Is there a single African alive who doesn’t know that anyone elected to office there will pilfer the public coffers and send the loot to a Swiss bank account? as well as install family members to autocratic rule? Nepotism has always been the watchword in Africa, among other poorly developed countries. If cryptocurrencies can gain traction there you could see an upheaval in the rigged economies that make Africa, a stupendously resource rich continent, keep it’s money, instead of getting ripped off by the West and its lackeys at every turn.

    • “only” a boon for Africa? Current Bitcoin tech is wildly unpredictable, liable to social engineering hacks, phishing etc . Maybe in a five or ten years a reliable crypto currency could work, but think about Nigeria: 419 scams abound. Bitcoin piracy would take off there and be the norm. It could work but it needs to get some kinks out right now.

  2. The “emerging economies” thing is a pathetic attempt at legitimacy for Bitcoin. Really pathetic. Exactly the same as the “harm reduction” bullshit is an attempt to legitimize drugs on darkmarkets.
    Both are grasping madly at straws to legitimize themselves. Much like the constant argument that TOR has legitimate uses within Journo and whistleblower circles. Blurbs constantly being rolled out all the time when we all know 99% of it’s use is nothing of the such.
    Not dissimilar to when we used to use “Linux distros” as an excuse to legitimize bitorrent.
    Every one of those examples i used are complete bullshit excuses to hide behind. All these services are used 99% of the time for illegal purposes. You keep kidding yourselves folks if you think they are for any other. You will never convince anyone other than like minded criminals that these services are legit. C’mon folks. let’s be honest.

    • I think you are wrong. As long as bitcoin finds a use case for someone who needs it then bitcoin is working like it should. The author points out actual use cases, which people have not been forced into. It was a free choice. That counts.

  3. “Much like the constant argument that TOR has legitimate uses within Journo and whistleblower circles.”
    Wow, are you way off base. Ever hear about TOR use in Iran, Iraq and Uganda? When Uganda pulled the plug on social media to limit election turn-outs, people communicated with TOR. There are countless examples of journalists in repressive regimes utilizing TOR to stay alive. Just cuz the Feds cut your asset forfeiture program doesn’t mean you can play fast and loose with the facts.

  4. I agree the price is propped up considering what has taken place with large holders of bitcoin but the FBI considers it strategic to keep its coffers full and the war on drugs linking with terrorism catching vulnerable young people into their nets with the lure of get rich quick selling dope and earn bitcoins…….I remeber the same way bitcoin took off with the likes of bitinstant I think who is now in prison for pushing their bitcoins sales through adverts on Silk Road forums. This is what it is like trying to scam Africans to set up their payments using bitcoin, just the last leg of the Coloniolism to prop up the rich western FBI scam “artists”.

    Bitcoin is meant to be a reserve not a everyday payment system. It is more like Bitgold than Bitcash due to its relative scarcity, Satoshi just mislabeled it himself likely due to him not understanding the results of his experiment.

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