Crypto Adoption in Africa - Becoming Increasingly Significant in Some Countries

Africa has the smallest crypto currency economy of any region in the world, with only $8 billion in value flowing in, and $8.1 flowing out (2019-2020 figures).

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(By contrast this compares to $61 billion received and $62 billion sent in Europe during the same period).

However, given the lower cost of living in many African countries compared to Europe, $8 billion is a significant sum, especially when we consider that all remittances from abroad (sent to Africa by African nationals living in other countries) totalled $48 billion, as that $8 billion in crypto represents about 15% of the remittance total.

This is according to Chain Analysis' 2020 report on global crypto currency adoption.

The report also listed three African countries in the top 10 for crypto adoption, when cost of living is factored in, using the Purchasing Power Parity measure of GDP. Those three countries were Nigeria, South Africa and Kenya.

See here for the global overview I produced last week based on this report.

Smaller transfers are more significant in African countries than elsewhere

What Chain Analysis terms 'Retail transfers', or sums under $10 000 make up around 30% of all transfers of crypto in Africa. This is a higher percentage than other regions, which unsurprisingly have larger percentages of larger transactions.

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This means that in terms of day to day use by small businesses and 'ordinary people' crypto is having more of a relative impact in those African countries which are most enthusiastic in adoption crypto.

A lot of this is coming into Africa from regions where there high numbers of African ex-pats such as North America, Europe and East Asia.

Data from one popular exchange, Paxful, shows that Africa has the largest number of transactions of any region, yet one of the smallest volumes of money being sent.

Half of transfers are between Africa and China

About half of the $8 billion worth of crypto which flowed in and out Africa in 2019-2020 was to and from China - most likely due to Chinese mining operators taking advantage of cheap electricity prices in some African countries - China has been a key player in many African countries for years, and there are a lot of business ties between the two regions, so this is no surprise.

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It would be fascinating to find out the extent to which people in Africa have benefitted from these mining operations, but something tells me the deals struck will not be easily accessible, and it's highly likely that the gains the Chinese are making are more than 10 times what the African countries are receiving in benefits.

I'm not sure how this will be affected by the recent Bitcoin mining ban, I guess it depends on the nature of these mining operations' ties with the relevant agents of the Chinese State. (Talk about a black box!)

Crypto helps with large transfer fees between African countries

According to the World Bank, transfers between some African countries below $200 can charge up to 15% fees - crypto transfers solve this problem (unless you're talking about Bitcoin on a busy day), and some entrepreneurs are even setting up their own international businesses to facilitate these low fee transfers - transferring currency into Bitcoin, sending on the Bitcoin and then transferring that into the second currency.

Crypto Helps with International Business Ventures

The report also cites an example of business ventures in Africa which use crypto to pay for imports from China, to get around the fact that their banks don't allow them to wire money to China.

This Coin Desk report from August last year cites examples of some Nigerian import businesses that are sending thousands of dollars worth of crypto to China to avoid 'trade hurdles'.

To my mind this is one of the most profoundly excellent use cases of crypto I've heard about!

Crypto is used to protect against fiat inflation

One of the most interesting correlations in the report is between the inflation rate of fiat currencies and crypto transactions....

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Crypto transactions increase shortly after increases in fiat inflation, suggesting that people in Africa turn to crypto possibly using crypto as a means to prevent the value of their savings falling because of fiat inflation.

This article from the BBC discusses how more than 30% of Nigerians are using crypto, and cites the fact that the Nigerian Government devalued the Naira by almost 25% last year alone!

Final thoughts - this is only SOME African countries....

NB - it's important not to generalise these findings to the whole of Africa - the three countries above represent most of the Crypto transactions, with a handful more 'moderately enthusiastic' if you like, while for many African countries there is no data.

Countries with very high levels of adoption are Nigeria, Kenya and South Africa, and outside of those Ghana is one to watch too, beyond that crypto is much less widely used....

Which could well mean that Crypto is EVEN MORE significant in a handful of countries, those mentioned above!

Find out more.

I thoroughly recommend you read the full report here, it's fascinating reading, and based on some sound data collection.

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