NIGERIA: GIANT OF AFRICA, GIANT OF BLOCKCHAIN?

Exploring the rise of Nigeria's blockchain startups in 2023

HISTORY AND RISE OF BLOCKCHAIN TECHNOLOGY IN AFRICA AS A WHOLE AND NIGERIA IN PARTICULAR

BY MFONISO EPHRAIM AND PRAISE DANIEL

With blockchain on its way to becoming a central element in the next digital transformation of the global economy, one region yet to fully tap into the technology’s potential is Africa.

But that has begun to change in the last two years, with blockchain bursting onto the African Fintech (financial technology) scene, as adoption across the continent has accelerated.

“Africa is rapidly building a reputation as the hotspot of the crypto-tech world,” Gideon Greaves, Managing Director at Crypto Valley Venture Capital (CV VC) Africa, told TRT World.

The rising rates of mobile tech adoption, combined with Africa’s growing tech-savvy population, make the continent a prime candidate for emerging technologies like Bitcoin. With instability in the global financial markets, high remittance fees and limited access to banking, more and more people are turning to alternative solutions like Bitcoin to solve their everyday financial problems.

Today, Africa is the third fastest-growing cryptocurrency market globally, steadily attracting large investments. Between July 2020 and June 2021, crypto adoption in Africa surged by over 1,200 percent.

Adoption rates are high in countries like Kenya, South Africa, Tanzania and Nigeria, where the lack of financial services infrastructure has boosted crypto ownership, alongside being a preferred alternative for storing and transferring assets. In April, the Central African Republic made Bitcoin legal tender, the second country to do so after El Salvador.

In a report published by CV VC, titled “The African Blockchain Report 2021,” blockchain startups on the continent have raised $91 million in the first quarter of 2022, a staggering 1,668 percent increase in cash flow compared with Q1 2021’s growth of 149 percent.

A total of $127 million was raised throughout 2021, representing a 0.5 percent share of total global blockchain funding. 96 percent of those venture dollars went to Nigeria, Kenya, South Africa and Seychelles. Of the money raised, Fintech businesses accounted for $67 million (53 percent) of all blockchain funding, and exchanges raked in $34 million (26 percent).

The adoption of blockchain technology in Nigeria has been steadily increasing over the years. The technology has gained recognition in various sectors, including finance, agriculture, healthcare, and supply chain management. Nigeria has a vibrant tech ecosystem with a growing number of blockchain-focused companies, startups, and initiatives. The government has also shown interest in exploring blockchain technology's potential to address challenges such as corruption, inefficient processes, and data security.

The Nigerian government has recognized the importance of technology innovation and has implemented various initiatives to support the growth of the tech ecosystem. The National Information Technology Development Agency (NITDA) serves as the regulatory body for IT development in the country, promoting the use of technology for economic development.

Additionally, the government has launched programs such as the Presidential Enabling

Business Environment Council (PEBEC) and the Nigerian Technology Innovation and Entrepreneurship Scheme (NITESH), aimed at creating an enabling environment for technology startups and fostering entrepreneurship.

Furthermore, the Central Bank of Nigeria (CBN) has introduced policies to support fintech innovation, including the establishment of a regulatory sandbox and the promotion of digital financial services.

These government initiatives, coupled with private sector investments and collaborations, have created a conducive environment for technology innovation and entrepreneurship in Nigeria, propelling the country's tech ecosystem forward.

There are several notable blockchain startups in Nigeria that are making strides in the industry. Some of these include:

- BuyCoins: A platform that enables Nigerians to buy and sell cryptocurrencies easily.

- SureRemit: A blockchain-based remittance platform that allows users to send digital vouchers instead of cash for specific purposes such as bill payments, airtime purchases, and utility bills.

- SaBi Exchange: A cryptocurrency exchange platform that provides a secure and seamless way for Nigerians to trade digital assets.

- Xend Finance: A decentralised finance (DeFi) platform that aims to provide access to savings and investment opportunities for underserved communities.

- Kora Network: A blockchain-based infrastructure project that aims to provide financial services to underserved populations.

PROSPECTS OF A BOOMING BLOCKCHAIN INDUSTRY IN NIGERIA

Nigeria possesses several advantages that position it as a favourable hub for blockchain development:

Market Size and Potential: With a population exceeding 200 million people, Nigeria offers a substantial market for blockchain solutions. The country's large consumer base presents ample opportunities for entrepreneurs and businesses to develop blockchain-based products and services.

Entrepreneurial Spirit and Talent: Nigeria has a vibrant entrepreneurial culture, with a growing number of tech-savvy individuals and startups. This entrepreneurial spirit, coupled with the availability of blockchain talent, fosters a conducive environment for innovation and technology development.

Cross-Sector Applications: Nigeria's diverse economy presents numerous sectors where blockchain technology can be applied. From finance and agriculture to healthcare and governance, there is a wide range of areas that can benefit from blockchain-based solutions, creating ample opportunities for development and adoption.

Collaborative Ecosystem: Nigeria's tech ecosystem is characterised by collaboration and knowledge sharing. Technology hubs, incubators, and startup communities provide platforms for collaboration, mentorship, and funding, enabling the growth of blockchain startups and fostering innovation.

Government Support: The Nigerian government has demonstrated support for technology innovation, including blockchain. Initiatives such as regulatory frameworks for cryptocurrencies and government-funded programs encourage the development and adoption of blockchain technology.

These factors collectively position Nigeria as a hub for blockchain development, offering a favourable environment for entrepreneurs, investors, and technologists to explore and capitalise on the potential of blockchain technology. The country's unique characteristics and opportunities contribute to its comparative advantage in the adoption and growth of blockchain solutions.

FACTORS LIMITING THE GROWTH OF THE BLOCKCHAIN INDUSTRY IN NIGERIA

In 2023, there were a number of factors which hindered the growth of blockchain startups,both in the country and in the continent as a whole. About nine Nigerian startups,such as lazerpay, which enabled crypto-to-cash payouts and Zazuu,a cross-border payment marketplace that collectively raised over $70 million in the last two years, have shut down in 2023. This downtime was also experienced in other African countries such as Ghana and Kenya, which saw one or more startup shut down.

Amongst the major factors responsible for their demise according to venture capitalists, was receiving funding without adequate due diligence.

The venture capitalists also are of the opinion that most of the investment decisions were rushed and these startups did not demonstrate viability and meet high standards before they were invested in.

Another major problem for some of these startups was access to funding. This is because most investors are sceptical about putting their money into the blockchain industry, which is considered to be quite volatile and unreliable.

THE WAY FORWARD

Moving forward, and in order to encourage the growth of the country's burgeoning blockchain industry,it is necessary to ensure that due diligence is performed by prospective founders before proceeding to initiate these startups.

Also, prospective investors should ensure that these startups are viable. There should be certain parameters to ensure this. For instance, there could be structures such as KYC (know your customer) systems,operational systems, amongst others,which blockchain startups must mandatorily put in place before they can receive funding from investors. In order to raise funds for blockchain startups that have met the standard, the government could provide special incentives to those who are willing to invest in the blockchain industry. Such incentives could come in the form of free government bonds or some form of insurance that could guarantee that these investors would be able to recover their initial capital,if the blockchain startups eventually fold up. This would encourage more investors to invest in the blockchain industry.

Nigeria is gradually becoming the global blockchain hub. More and more people are beginning to appreciate the comfort and ease in transactions,as well as the authority over one's funds, and the versatility of the blockchain system that the blockchain industry provides. However, care and caution must be exercised so that this industry will not die at noon.