Enhancing the Investment Climate in Africa — Exploring Digitalised Currencies
The continent of Africa is one of the most endowed continents by measure of natural resources. With 54 countries, it is presently the second most-populous continent after Asia. The entire region has keen interest in crypto currencies as indicated by the trend and buzz on social media platforms, but there seem to be hurdles of arbitrage, high exchange rates, scarcity of readily available markets, accessibility among others.
Bitcoin is one of the very first form of crypto currencies to be created in 2008 and went public a year after. In 2018, Bitcoin is now known to be the most popular and commonly used digitalized token. There are several other crypto currencies with much smaller market capitalisations; these are usually referred to as altcoins. As of January 2015, there were more than 500 crypto currencies across the globe. In less than three years, precisely September 2017, the number crossed 1,100 (representing a rise of 120%) with a total market cap of over $60bn! By December 2017, the total market cap rocketed to a whooping $600bn (a 10x increase in 8 weeks).
With all these amazing statistics, it is quite clear how tremendous the performance of crypto currencies has been over the years. Companies popularise their crypto currencies by making them public through a ticker (usually made up of four letters max), more importantly, an issue to the public through an ICO.
ICO is the abbreviation for initial coin offering. Like initial public offering (IPO) which is related to stocks, every initial offering is made with the aim of raising equity capital for the company. The capital raised is then used to fund projects that are expected to generate returns for the shareholders who invested their money.
The ICO has become a very popular abbreviation in the world of crypto currencies.
Invariably, the main aim is to generate funds for the start-up through a token sale, crowd funding or a coin creation event. The newly issued digital tokens are priced at relatively low amounts to attract investors and hump up sales volumes.
In March 2018, heads of 44 African states emerged in Rwanda’s capital on Kigali to sign an agreement that will allow free trade across Africa. The continental free trade agreement (AfCFTA) goes down in the books of history as the largest single market in the world after the world trade organisation which was launched in 1995. Will this deal be the ultimate remedy to trade stagnation in certain African economies? Surely yes! This will serve as a gateway to increased productivity and GDP when kick started in the next six months (as per the agreement). Though the benefits may not directly trickle down to households, it will foster growth on a national level. Cooperation amongst governments will be essential in steering the deal on the right track- 10 out of these 44 countries including South Africa and Nigeria have refused to sign the deal.
A new crypto currency platform, VendEx just launched an ICO to focus mainly on African markets with an expected user base of 2 million.
It will serve as a trading platform just like Binance and Kucoin, its Asian counterparts. Binance (BNB) and Kucoin (KCS) started with ICOs of $0.15 and $0.19 respectively; they have both grown to achieve all-time highs of 15,000% and 10,000% in the Asian market. Savvy entrepreneurs on the continent are seizing the opportunity by taking risks to invest in the new frenzy regardless of the aforementioned obstacles. In a report published on CNBC Africa’s website, more than 50% of Africans will be dominated in only 7 out of the total 54 states by the year 2030.
One may ask why 7 countries only? Perhaps the integration of countries via free movement and mobility will cause people to migrate to the best performing nations in search of ‘greener pastures’– a possible case of overreliance on the power houses of Africa — hopefully this does not turn out to be similar to what is happening in the Eurozone.
The report goes on to mention that, there will be an increase in the number of individuals that fall within the middle to high class (roughly 43%). Common logic will suggest that, total disposable income for the average worker living in Africa is expected to rise if the population of the lower class lessens. Exciting times ahead for individuals and businesses that are looking to venture out into the African markets — a forecast of a decent boost in aggregate demand for economic goods and services, amidst a generally dovish growth outlook.
Merchants are beginning to accept bitcoins for payments in Africa, these include; Sierra Lone, Nigeria and Kenya. Though cryptos are not known in some parts of Africa, they are ubiquitously gaining grounds in the Eastern, Western and Southern regions of the continent. VendEx is looking to bolster day-to-day transactions between individuals, households and businesses by issuing fiat currencies. Fiat currencies unlike crypto currencies are approved by governments through the central banks’ authority as a legal tender, therefore they can be used in paying for goods and services. On the other hand, crypto currencies are decentralised digital coins or tokens that are not authorised by central banks, hence they do not qualify to be referred to as ‘legal tenders’. Anticipated to be a medium driving mainstream cryptocurrency usage in Africa, VendEx will also provide ease of access through partner networks (including mobile money operators, kiosks and merchants), mobile apps for exchange related transactions and last but not least, trading of popular and credible assets voted by the general community.
It is about time Africans took advantage of digitalised currencies to embrace the new era of investment. In doing so, it is important to consider the short and long-term impacts on livelihood.
E. Lamptey
