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Africa is set to be the next battleground for major crypto asset exchanges, as the conditions on the continent are favorable for virtual currency, and as a leading economy, South Africa could lead the charge in this digital transformation.

We will examine how the economic situation and the high inflation in Africa could shape the local crypto markets and why people on the second-most populous continent have been gaining an interest in crypto investments. South Africa in particular seems ready to ride the waves and thrive in the crypto world.

Related: Africa Using Blockchain to Drive Change: Nigeria and Kenya, Part One

Promised land?

The continent of Africa contains 54 countries. It’s the second-largest and second-most populated continent in the world, just behind Asia in both categories. In the world of traditional investment, Africa may not be a bright spot, but economic growth has become increasingly noticeable.

Data from the International Monetary Fund (IMF) shows that Africa’s real GDP is expected to have an annual growth of 3.6% this year — higher than the global growth forecast of 3.3% and just behind Poland’s estimated 3.8%. The IMF also forecasts that by the year 2023, Africa’s economic expansion will accelerate to 4.1%.

Inflation at play

Africa’s growth prospects may appear lucrative for some investors, however, its inflation problems could hamper growth. While Africa’s average inflation rate has been relatively contained and much lower than that of other developing economies, if observed over an extended period of time, certain inflation rates across the continent show high instability due to political and economic issues in countries such as Zimbabwe, South Sudan, Sudan, Liberia and Angola. The inflation rate in these countries can be as high as double or even triple digits.





When the inflation rate is too fluctuated or surges drastically, businesses are faced with the challenge of appropriately pricing their goods, which significantly reduces consumer buying power. This is where Bitcoin (BTC) and crypto come in. According to the United Nations, the high-inflation landscape plus an improving economic situation have provided an ideal environment to foster crypto markets in Africa. 

Citing blockchain experts, the UN’s Africa Renewal publication states that many African citizens use Bitcoin as a tool to counter the hyperinflation in their country. The report also says Botswana, Ghana, Kenya, Nigeria, South Africa and Zimbabwe were among the African countries that have the highest Bitcoin penetration rates, while other countries like Uganda were also seen gaining interest in cryptocurrency. 

Increasing crypto interest

We reviewed how the improved economic conditions and inflation environment encouraged cryptocurrency growth in Africa, and this expansion seems also supported by the African people. A search popularity of the term “Bitcoin” in the Google search engine over the past 12 months surprisingly shows half of the top 10 results as African countries.

A weak currency leads to high crypto ownership

The strength of a country’s currency could add another dimension to the crypto development in Africa. A recent Statista survey shows that South Africa, Turkey, Brazil, Colombia and Argentina were among the highest cryptocurrency ownership countries, with almost 20% of respondents reporting that they have used or owned crypto assets in 2019. 





Another similar study from We Are Social and Hootsuite also indicates that 10.7% of internet users in South Africa own cryptos — the highest ratio in the world.Correspondingly, the currencies of the five aforementioned mentioned countries have been some of the weakest performers against the United States dollar in recent years.

Bellow is a 5-year chart of USD against ZAR, TRY, COP, ARS and BRL, and it’s not hard to see they have been trading at or near their 5-year lows. So, it’s reasonable to presume that the demand for countering FX devaluation could be higher among consumers of these weak-currency countries, and Bitcoin could be the answer for them.

South Africa’s edges

South Africa is the second-largest economy in Africa after Nigeria, which has been enjoying faster growth in recent years. The South African economy is more diversified, while Nigeria relies more heavily on its energy sector. In the past, South Africa has mainly been focused on the mining and agricultural sectors, but in recent years, the country advanced its economy by shifting its focus to tourism, financial services and the tech sector. 

Furthermore, South Africa is generally more accessible for foreign capital, which gives the country a slight edge when it comes to investment.

On the regulatory front

Regulatory issues have always been a major concern for crypto, digital asset exchanges and custody providers when it comes to expanding their businesses into new territory, and the regulatory landscape in South Africa — or broadly speaking, in Africa — could be a major factor that drives the crypto industry forward on the continent.

According to its document, the South African Reserve Bank does not currently oversee, supervise or regulate crypto assets, but added that it will continue to monitor this sector as it evolves. The bank also released a Position Paper 02 in 2014 regarding its stance on crypto assets and stressed that the document remains current and relevant. The document highlighted:

“[...] increasing merchant acceptance, integrating existing conventional payment instruments with decentralized convertible virtual currency, and promoting the advantages inherent in such systems. Thus, there is potential for real growth of Bitcoin in its current operational environment.” 

This underlines South Africa’s openness and recognition of Bitcoin, and in a broader sense, cryptocurrency.

However, the lack of a full regulatory structure won’t complete the whole picture. In January 2019, South African Finance Minister Tito Mboweni said the country is looking for a unified intergovernmental cryptocurrency regulatory framework, and established a working group to explore the opportunities of tokens and blockchain technology within the country.

Mboweni expects that the report will be released this year.Africa has laid the foundations for the crypto industry to thrive on the continent, its high-inflation economy encourages demand for value preservation, and Bitcoin and other cryptocurrencies could be an answer for consumers in Africa. South Africa, in particular, could become a leader in this crypto transformation. 

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Nothing in this article should be construed to be legal advice, and all content is for informational purposes only. You should not act or refrain from acting on the basis of anything herein without seeking appropriate legal advice regarding your particular situation.

Cyrus Ip works at OKEx as a research analyst. He provides value-added Bitcoin and altcoin analysis and has produced macro thematic research that bridges the gap between the crypto world and traditional financial markets.

Previously, Cyrus worked with Citigroup where he served as an FX Market Analyst with a focus on G10 and EMFX. He was also a long-time financial journalist with solid experience in Hong Kong, China and Canada.

Blockchain has the potential to better navigate risks around investments. What other future applications could there be?

There's been a great deal of hype surrounding blockchain since its capabilities were first promoted to underpin and support the cryptocurrency Bitcoin over a decade ago. Billions have been invested, and indications in both the PwC 2018 and Deloitte Global Blockchain 2019 surveys suggest that the technology is increasingly becoming an area of organizational attention and focus.

While the fintech industry remains the blockchain leader, organizations in other sectors including healthcare, technology, media and telecommunications are expanding their blockchain initiatives.

According to the Deloitte 2019 survey, which polled 1,386 senior executives across the globe, 53% of respondents identified blockchain technology as a critical priority for their organization this year. Despite its prioritization, adoption is in its infancy, with just 23% of the respondents reporting the initiation of blockchain deployments.

Today In: Leadership

Still, the Deloitte survey shows that there seems to have been a shift in organizational and executive attitudes towards this technology. The question is no longer whether blockchain will work, but how companies can potentially make blockchain work for them.

This uncertainty is an issue that's becoming increasingly relevant in the family office space. There are several areas of interest and potential benefit when it comes to blockchain implementation within family offices.
Investment due diligence

Family offices are increasingly seeking direct investment opportunities for both financial and emotional reasons. These types of investments require a greater focus on due diligence which is often costly and time-consuming, slowing deal flow.

Blockchain has the potential to provide a robust solution.While it will probably not ever replace due diligence in its entirety, it can be used to automate and even share the burden amongst the investor and investee.

This potential is already being harnessed by companies who offer blockchain software as a service. The software which employs smart contracts and identity technology built on top of the blockchain framework allows startups and companies seeking funding to automate their document-based due diligence.

As a result, they're able to securely record their financial and growth data and share this with investors. Investors can then efficiently assess the credibility and potential of the company seeking investment, cutting closure times, and increasing the number of successfully closed deals.

Risk management

Immutability, automation and transparency are vital characteristics of blockchain technology. Given these, the technology's potential is not only limited to applications within financial risk management but in many other non-financial risk areas.

According to Paolo Tasca, Executive Director, UCL Centre for Blockchain Technologies, blockchain has applications in various areas of preventable, strategy-related and external risk management.

Some of which include:

1. People, processes and systems related risksWhen it comes to people, processes and systems, Tasca states that blockchain is "fit and proper to perform monitoring and risk assessment." Data loss and tampering are key risk factors within any organization.

The use of smart contracts and automated procedures employed by blockchain technology helps to reduce the necessity for human intervention in routine processes, helping to mitigate these risks.When humans must perform certain functions, blockchain can be implemented to assess and monitor the integrity of these transactions.

This is achieved by capturing and securely storing information on various tasks and operations performed by both staff and management, affording a higher level of accountability and reducing operational risk.

2. Strategy risk managementStrategy-related risks are unavoidable in the general course of business and investment. While blockchain cannot prevent these risks, when intelligently implemented, it has the potential to reduce the probability of risk materialization.

It may also assist in improving the company's ability to mitigate risk events, should they arise.

3. Compliance riskBlockchain may also be employed to reduce compliance risk. Thanks to its real-time recordkeeping abilities and the use of smart contracts, rules can be embedded into the blockchain database to monitor organizational transactions and create real-time alerts.

As a result, those involved in compliance and auditing can monitor all transactions that occur and receive any alerts for events when they occur. The implications of this are significant.

Not only can blockchain increase compliance efficiencies by reducing the delay in compliance satisfaction, but it also has the potential to stop unsanctioned transactions or those with incomplete due diligence, while notifying the relevant parties of these actions.

This transparency enables compliance to address any issues that arise quickly and effectively.From a financial point-of-view, real-time rules and audits enable the rapid identification of irregularities, offering internal auditors a more efficient way not only to detect possible fraud but also investigate transactions by employing surveillance based on predetermined rules.

All of which reduce compliance risk. Particularly relevant in Impact investments
A growing number of family offices are seeking to generate environmental and social impact along with financial returns.

Using blockchain to manage assets has several potential advantages that could benefit impact investing. These include enhanced security and traceability, greater transparency, efficiency, increased speed of transactions and reduced costs, all of which add real value when it comes to impact investing.

Many impact investments involve startups and companies in developing countries. This often equates to low institutional capacity and environments which are not always conducive to trust. Blockchain, with its inherent trust-generating features, reduces the need for trust and lowers reputational risk exposure.

In terms of impact investment due diligence, measurement and verification, blockchain technology can be employed to automate and accelerate the process, which, with current models and methods is slow and expensive. The increased speed and reliability that blockchain affords means that impact creation can be used as a performance measure when managing impact investments.

The blockchain journey has only just begun, yet it is evident that this technology has numerous applications for family offices. Still, its success or failure within these organizations will come down to its implementation.

Defining business objectives and then looking at ways that blockchain can assist with these remains the differentiating factor.Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.



Francois Botha

I help family offices to define their purpose and align it with their investment strategy. Starting with soft assets, we help plan for continued family involvement over... Read More