OPINION | Massive growth in fintech investment is good news for African tech startups
Pick n Pay has given crypto payments the green light while the SARB Prudential Authority has paved the way for crypto assets to be regulated. Africa is one of the fastest growing cryptocurrency consuming continents, with adoption growing by over 1,200% in a single year. All this has implications that are worth noting, says Simon Swanepoel.
The South African Reserve Bank (SARB) Prudential Authority has announced that our banks will now be able to work with crypto exchanges in South Africa. The SARB will regulate cryptocurrencies by declaring cryptoassets as financial products. The regulation includes developing a compliance and regulatory framework for exchange controls and tax laws and ensuring that consumers buying crypto assets receive a “health warning”. With this warning, they know that buying crypto assets can cause them to lose money, and that it is not the same as a bank-guaranteed deposit.
In light of the announcement, retail giant Pick n Pay has followed the green light and made cryptocurrency payments available to its customers. Shoppers can buy groceries with digital tokens such as bitcoin at 39 of their supermarkets across South Africa.
The African Blockchain Report 2021 has pegged Africa as an international driver of blockchain technology, particularly in the fintech sector. The fintech sector, using blockchain technology, can create doorways for previously excluded citizens to take part in the digital economy by improving access to financial services.
Blockchain technology is rapidly improving the security, accessibility and reach of financial services to a wider market. This access can build wealth and transform millions of lives for the betterment of generations to come. Africa adds to its mix of tasty tech talent as early adopters embrace and use blockchain technology on the continent.
The African Blockchain Report shows that between July 2020 and June 2021, cryptocurrency usage in Africa increased by more than 1,200%. This upward trend makes Africa one of the fastest growing cryptocurrency consuming continents, causing a leap for traditional banking systems to embrace new age, decentralized digital options.
These payment options overcome significant obstacles such as sharing information, proving identity (500 million Africans have no legal form of identity), and paying for goods and services that were previously out of reach.
In Africa, one of the most prominent pain points solved by cryptocurrency is payment disbursements. Many people are forced to find work away from their families and do not have a cost-effective, near-instant way to send money home. With blockchain-powered apps like Mazzuma, Bitsika and Xago that have developed peer-to-peer payment solutions, users make instant remittance payments in a fraction of the time, with lower fees and fewer restrictions.
According to Ian Putter of Standard Bank, remittance technology has further potential to facilitate intra-African trade.
The need for access to financial infrastructure and the ability to easily transact with various service providers has accelerated Africa’s growth trend in adopting crypto and deploying blockchain technology. Africa’s fluctuating socio-economic and political landscape catalyzes this growth of entrepreneurial spirit, and the necessity to overcome everyday challenges spurs the development of products underpinned by blockchain and crypto-technology.
Although lagging behind our foreign counterparts in terms of number of users and business start-ups, the hunger in Africa to make changes for good using technology is evident. The Africa Blockchain report shares excellent insights into venture capital funding in tech startups, with Africa growing by leaps and bounds.
Total global venture finance investments in 2021 equaled $621 billion. This figure corresponds to an increase of 111% from the previous year. The total number of deals made increased by 31% in 2021 to 34,647. Of these deals, $25.2 billion was plowed into 1,247 blockchain companies, an astounding 713% increase from the previous year.
The global leader in terms of total blockchain investment is the US securing 56% of total blockchain venture capital funding. In comparison, Africa secured $4.3 to $5 billion of total global venture capital investment in 2021. While seemingly small, this is an impressive 239% increase in funding from the previous year. Furthermore, the number of secured deals in Africa increased by 117% compared to the global average of 31%. Finally, 60% of investments in Africa were in fintech companies, three times the global average.
The most striking and certain statistic from the report is that in 2019 it took 11 months for investment in Africa to reach $1 billion. In 2020 it took eight months, and in 2021 it took only seven days.
This stark difference paints a defining picture of the future trajectory of investment in African technology startups.
The breakthrough African nations from the report include three of the “big four”: Nigeria, Kenya and South Africa, with the Seychelles completing the list. Together, these nations secured 96% of the financing for blockchain investments in Africa. While this only represents a 0.5% share of global blockchain investment value, it is 11 times the growth of overall venture funding [Q1 2021 to Q1 2022].
At home, we are actively participating in this growing digital economy, including blockchain development. South Africa has legalized cryptocurrencies and set a standard for adopting these new technologies. We also have a growing blockchain community that is particularly active in the Western Cape, where the provincial government is exploring the possibility of blockchain technologies to reduce delays in service delivery and assist with digital identity verification, such as at licensing centers and the land registry office.
The Internet, the missing link
Africa seems to have brewed a perfect storm for blockchain and cryptocurrency innovations and investments. The brew includes:
- a massive population,
- high mobile penetration [495 million, in sub-Sahara Africa alone, 2020],
- lack of infrastructure that necessitates operations to solve real-world problems, and
- rapid adoption rates.
Everything is clear, and the numbers speak for themselves about the enormous opportunity that creates mass excitement.
In addition to needs such as using self-surrendering identities (SSIs) so that citizens can prove who they are and open bank accounts, we face other obvious challenges.
It is crucial that the necessity, the will and the talent to build and innovate new-age technologies overflow. However, basic fundamental issues need attention to ensure that a sufficient number of users can safely and securely adopt blockchain technology-based businesses. Internet infrastructure and connectivity are critical to unlocking blockchain and crypto opportunities for millions more.
According to the report, internet penetration in Africa is 43%, with broadband a dismal 1%. Although submarine fiber cables are in place and operating along Africa’s coastlines, FTTH infrastructure on land is long overdue.
Maximizing blockchain opportunities requires prioritizing the use of population groups that currently do not have access to fiber networks. By providing this access, the continent can cement its part in the rapid development and growth of this incredible new world.
*Swanepoel is CEO of RocketNet. News24 encourages freedom of expression and the expression of different points of view. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.
