Embracing the Future of Finance Indirectly: A Guide for African Governments (PT 1)

By Joshua Ogwu

In today's volatile economic landscape, individuals, businesses, corporations, and governments are exploring alternative avenues to generate income and diversify their financial portfolios. From traditional investments like stocks, bonds, and forex trading to the booming real estate market, people are constantly seeking lucrative opportunities. However, one method that has gained significant traction and delivered impressive investment returns is the realm of cryptocurrencies and decentralised finance (DeFi).

While everyone is familiar with popular cryptocurrencies like Bitcoin and Dogecoin, there is a whole new world of blockchain products emerging, ranging from the exciting realm of DeFi to the fascinating realm of non-fungible tokens (NFTs) and tokenization. These innovative assets have captured the imagination of investors worldwide, offering unprecedented opportunities for growth and financial gain.

Interestingly, investing in cryptocurrencies has proven especially rewarding for investors in developing countries. Consider Bitcoin, for instance, which has witnessed remarkable price surges after a temporary decline. Its resurgence, climbing to $28,000 from a significant drop, has caught the attention of both states and private actors alike. As a result, cryptocurrencies have attracted substantial investments and garnered increased recognition as valuable assets in the financial landscape.

As African nations strive to revitalise their economies and explore new avenues for wealth creation, the realm of cryptocurrency presents a compelling opportunity for policymakers to consider. With its potential for growth and financial innovation, investing in cryptocurrencies can open up a world of possibilities for the continent. Here, we explore several intriguing ways in which African states can directly or indirectly embrace the world of crypto:

Creating crypto safe space:

While cryptocurrencies are not universally recognised as legal tender, some countries have embraced them as tradable assets, creating safe havens for their utilisation. These forward-thinking nations have reaped a multitude of economic advantages, ranging from increased investments and financial innovation to infrastructural development, tax revenue, and job opportunities. In light of pressing challenges such as South Africa's staggering 34% unemployment rate, South Sudan's limited 8% internet penetration, and Nigeria's quest for alternative energy sources, African policymakers should seriously consider the potential benefits of fostering a welcoming regulatory environment for cryptocurrencies. By doing so, they can unlock a realm of possibilities for their respective nations and pave the way for unprecedented growth and prosperity.

In paving the way for a thriving crypto economy, African states must embrace an inclusive and adaptable approach, finding the delicate balance between safeguarding consumers and reaping economic benefits. Rather than rigid laws, flexible guidelines should guide the crypto space, recognizing its ever-evolving nature that often outpaces legal systems. Equipping the state judiciary with the necessary tools to address disputes arising from the adoption of this technology is crucial. Additionally, cryptocurrency platforms ought to be legally obliged to adhere to Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) regulations, as well as robust data protection laws, to mitigate risks effectively.

To foster a secure environment for crypto investors, African states can establish regulatory sandboxes and innovation hubs, serving as fertile grounds for fintech pioneers venturing into the blockchain and crypto realm. This approach cultivates a symbiotic relationship between investors and regulators, ultimately boosting local crypto investments and fostering innovation. By nurturing a progressive regulatory landscape, African nations can seize the immense potential of cryptocurrencies while nurturing a thriving ecosystem that benefits all stakeholders.

Direct Investment and Incentives to Cryptocurrency Companies:

Unlocking the full potential of the crypto economy in the continent, African governments should consider investing in the companies that make it possible. Companies like Nestcoin and Ghana Dot Com have emerged as important players in the industry and are setting the pace for crypto adoption in Africa. These companies can be involved in cryptocurrency mining, exchange platforms, mining hardware manufacture, or can provide support for cryptocurrency transactions like PayPal Holdings. To promote the growth of these innovative companies, African governments could offer economic development assistance such as interest-free loans, consulting, and export assistance. This will create an enabling environment for these companies to hire more staff and accelerate their growth. Investing in cryptocurrency companies could be the key to unlocking Africa's untapped potential in the global crypto economy.

Unleashing the power of diversification, African governments can explore a more nuanced approach by offering enticing incentives to private companies operating in the crypto sphere. These incentives encompass a wide array of tantalising benefits designed to nurture the growth of these innovative enterprises. Picture tax and regulatory incentives, where the allure of tax cuts and research and development tax credits dances harmoniously with the flexibility of regulatory sandboxes. Grants and subsidies join the party, amplifying the potential of these crypto-focused companies, while the extension of credit lines embraces them with open arms.

These incentives craft a nurturing environment, smoothing the path for private crypto-based companies to access funding at favourable rates and enjoy reduced taxation. By bestowing special status upon these forward-thinking entities in the digital age of nation-building and financial inclusivity, governments pave the way for groundbreaking advancements. And here's the exciting twist: the ripple effect of these investments in private crypto-focused companies will ripple throughout African economies, fostering substantial net growth. With their blockchain and crypto solutions, these companies possess the potential to tackle Africa's most formidable adversary—poverty itself.

As Africa embarks on this transformative journey, blending innovation with strategic incentives, a brighter future beckons. By embracing the boundless possibilities of the crypto realm, African nations can unlock new horizons, champion economic prosperity, and reshape the destiny of the continent.