West Africa doesn’t need Eco, it needs Crypto
In the fall of 2019 Jack Dorsey, billionaire Twitter founder, and longtime bitcoin advocate, after his African Tour tweeted: “Africa will define the future especially the Bitcoin one!”. I stared at my phone motionless for a split second as I re-read the tweet, thinking to myself, Why would Jack Dorsey, one of the world’s most celebrated Tech entrepreneurs think that Africa would define the Bitcoin future? In terms of Bitcoin adoption, Africa was way behind the rest of the world. Bitcoin is a Cryptocurrency or simply “Crypto”, which is a digital asset designed to work as a medium of exchange. It is simply money. Only this is a special kind of money that cannot be printed by governments.
Money that is powered by the code of the people, by the people and for the people.
Money that would truly embody what democracy stands for.
Cryptocurrencies are powered by an innovation called the “Blockchain”. Think of a Blockchain as a sort of the Internet that can be used for so many things and Bitcoin as Google.com, Ethereum (another cryptocurrency) as Facebook.com, etc. This has no relation, the point here is that the Blockchain is a ledger of transactions where copies of that ledger are distributed across computers all over the world and automatically updated and verified. Collectively people have bet half a trillion dollars on Cryptocurrencies. But still, for me, that didn’t explain why Jack Dorsey would make such a bold statement. After all, there were so many flaws I could point out off the top of my head as to why Bitcoin could simply not define Africa’s future. Jack Dorsey was wrong. He had to be.
First of all, Africa largely lacked the two main pillars needed for any Cryptocurrency such as Bitcoin to thrive. Internet and Electricity. Despite being the second most populated continent, Internet penetration in Africa is just 11.9% compared to the rest of the world.
The continent also faced cost, accessibility and connection speed problems with regards to the internet. According to a report, Africans faced the most expensive internet charges in the world. Such prices are “too expensive for all but the wealthiest few,” the report states. Internet speeds across Africa are still far below the global minimum standard according to data from a global broadband speed league. Even in Lagos, one of the biggest tech hubs on the continent, internet speed, and access are often cited as a major limitation by startup founders and their prospective customers.
Access to constant electricity is already a problem in Africa. Around 600 million people lacked access to electricity in Africa, according to World Bank data from 2014.
Besides Internet and Electricity being major issues, cash not digital payments, is still very much used on the continent and even if Cryptocurrencies were to be adopted as a medium of payment, Smartphones would likely spearhead the revolution. Unfortunately, feature phones still rule the continent. The market share of smartphones fell to 39% in 2017 (from 45%), while feature phones rose to 61% (from 55%), according to data provided by IDC.
At this point, I was starting to doubt Jack Dorsey’s knowledge of the Cryptocurrency Space in Africa. But I’m an optimist. Some part of me wanted this seemingly impossible idea to work despite the doubts I was having. After all, that’s the beauty of technology, making the impossible possible. Then it dawned on me. Maybe if these problems could be addressed Cryptocurrency could be used widely on the continent, especially in West Africa. It could solve some huge problems currently being faced.
The West African Eco
In a bid to integrate much of West Africa, Fifteen Member States had agreed to launch a single currency and proposed the name ‘Eco’ much like how countries in Europe use the ‘Euro’ It was due to launch twenty years ago but due to political and economic concerns the launch has been postponed several times and had been pushed to 2020. But considering the current state of affairs, it was questionable if the entire project was feasible at all. There had been no significant progress regarding the design and production of the currency notes. Also, the Fifteen member states had very different levels of debt, interest rates, and budget deficits.
Nigeria’s economic size and influence had also been a matter of concern since they constituted almost 70 Percent of the ECOWAS. Was the Eco basically going to be a rebrand of the Naira? How was the rest of West Africa going to handle the Nigerian influence? Would the Francophone states involved be willing to jeopardize their stable currency? Would all the member states be able to meet the requirements before its launch? The four primary criteria to be achieved by each member country are:
- A single-digit inflation rate at the end of each year
- A fiscal deficit of no more than 4% of the GDP
- A central bank deficit-financing of no more than 10% of the previous year’s tax revenues
- Gross external reserves that can give import cover for a minimum of three months.
The six secondary criteria to be achieved by each member country are:
- Prohibition of new domestic default payments and liquidation of existing ones.
- Tax revenue should be equal to or greater than 20 percent of the GDP.
- Wage bill to tax revenue equal to or less than 35 percent.
- Public investment to tax revenue equal to or greater than 20 percent.
- A stable real exchange rate.
- A positive real interest rate.
Since most of the West African countries were far from these requirements the Eco seemed like a distant dream.
Crypto in West Africa
However, I had come to realize how Cryptocurrency could efficiently work on the continent and magically solve all these problems. Maybe Jack Dorsey could be right. Maybe with a few good decisions here and there, Africa could actually lead the Cryptocurrency (not Bitcoin) revolution in the world. Despite its problems with Internet, Electricity and the dominance of Cash and Feature phones, West Africa was in a perfect spot to pull this off. That is if it wanted to. Here’s how this could work. A Stablecoin. Instead of adopting Eco, a fiat currency that would be pegged to the Euro, West Africa could consider adopting a Stablecoin, a price-stable cryptocurrency backed by reserve assets.
Economic & Political factors
Where Bitcoin would be too volatile a Stablecoin would be perfect. Even some of the West African countries anticipating Eco currently did not have stable currencies themselves such as Ghana’s Cedi and Nigeria’s Naira. There was also no promise that the Eco would be stable as some member states including Nigeria were demanding that it be unpegged from the fairly stable Euro otherwise it would not partake. A Stablecoin would also not be affected by Government actions such as inflation adjustments, demonetization, etc. Looking at political factors such as Nigeria having so much influence on the Eco currency, a decentralized stable coin would solve this problem. Clearly, there is a need for a West African Stablecoin.
Cash & Feature Phone dominance, Internet & Electricity accessibility
A Stablecoin may sound bizarre given the state of issues stated earlier such as Cash & Feature Phone dominance and Internet & Electricity accessibility. Several West African states including Ghana are rapidly adopting Mobile Money, a USSD payment solution and are increasingly moving closer to a cashless society. Governments across West Africa are encouraging these digital systems. It is the fastest-growing mobile money market in Africa. According to the Bank of Ghana data, the total value of all mobile money transactions reached 156 billion GHS ($29 Billion) in 2017, compared to 35 Billion GHS ($6.5 Billion) in 2015. Nigeria also planned to adopt Mobile Money and was set to become Africa’s largest Mobile Money market. A Stablecoin with lower transaction fees would be an added advantage over Mobile Money.
Companies such as Dash have also proved that Cryptocurrencies via Text and USSD to serve the unconnected are possible with offerings such as Dash Text which makes it possible to send, receive and check the balance on your Dash wallet, without needing an Internet connection or even a Smartphone.
Cost of Printing Money
According to Mastercard, Nigeria alone spends an average of $5.1 billion (1 percent of its GDP) annually on printing and moving cash. Cryptocurrency would allow the Fifteen member states to save money on printing notes not to talk of its environmental sustainability impact due to the millions of trees that would be saved. Within 10 years it is expected that Electricity access would not be a problem for most Africans. Due to major advances in Solar, Hydroelectric, Geothermal, and even Windfarms, Africans expect should expect light at the end of the tunnel. The African Development Bank is looking to spend 12 Billion dollars to enhance electricity supply over the next 5 years.
A seamless medium of exchange would also boost cross border payments especially as the Africa Continental Free Trade Area (AfCFTA) is launched. For software developers across West Africa, this would be a major win. Instead of individual APIs from hundreds of banks, they would deal with one digital currency API and wallet standard just by getting a single API key that could be integrated into apps. China is leading the way and is close to issuing its own cryptocurrency. Several other major countries are expected to launch national digital currencies. Crypto could very well be the answer West Africa seeks. Not Eco.
Let’s get interactive on Twitter with the #CryptoNotEco