5 transformative impact of stablecoins on the economic growth of Africa
In recent years, stablecoin has emerged as a powerful tool in reshaping Africa’s economic landscape. These digital currencies are achieving mass adoption, especially in Africa and this can be attributed to the continent's unique socio-economic challenges coupled with its vibrant fintech ecosystem. In fact, according to a report by Arcane Research, Africa witnessed a 1,200% surge in peer-to-peer bitcoin trading volumes in 2020, indicating a growing appetite for digital currencies.
A frontier market
Africa has a growing population of over 1.3 billion people with 70% of the Sub-Saharan African population under the age of 30 making it the continent with the youngest population. Africa is also the second largest land area, representing a significant market for various industries. The entrepreneurial ecosystem is constantly innovating in different sectors driving more job creation and economic diversification.
Yusuf Ayele, a global Web 3 expert describes Africa as a frontier market that is building its financial system from the ground up without any pre-existing template. True to this, the continent has its own solutions to the challenges it faces. This is mostly attributed to the contextual understanding of its own challenges and an innovative community approach to developing solutions.
An example of this is mobile money. This digital money solution built in Africa is providing financial access for the unbanked population in the continent and currently $36B is transacted annually using it. Mobile money is a technology accessible to the unbanked and Africans without an internet connection.
The transformative impact of stablecoins
Blockchain has made our global community smaller by creating a decentralized and permissionless network that allows anyone to be part of. Facilitating this is cryptocurrencies providing fast and affordable transactions across borders. Stablecoins, a type of cryptocurrency designed to maintain a stable value by being pegged to a fiat currency or a commodity has the potential to address Africa’s financial obstacles and unlock new opportunities for economic growth pushing it further as a global market frontier.
The adoption and utilization of stablecoins are driving positive changes, unlocking Africa’s potential, and positioning the continent as a promising destination for economic opportunities and development. The dollar-backed digital assets are doing this by:
- Driving Financial Inclusion and Access to Banking Services
One of the primary benefits of stablecoins in Africa is their ability to bridge the gap in financial inclusion. According to the World Bank, only 43% of sub-Saharan Africans have access to formal banking services. Stablecoins offer a digital alternative to traditional banking, enabling individuals and businesses to access financial services without the need for a physical bank account. This is particularly impactful in remote areas where banking infrastructure is limited.
The Polish Humanitarian Action (PAH) together with Celo, Kotani Pay, and other partners have in the past rolled out the digital cash-for-work program targeting locals in Laikipia County, Kenya. The program incentivized the participation of local communities in constructing sand dams, a climate-resilient program. Participants would be paid in Celo USD to their feature phones and through the Kotani Pay, USSD code could easily cash out their earnings to their mobile money wallet. The Kotani Pay non-custodial wallet that does not require internet access acted as their bank account where they received their funds in the form of stablecoins and withdrew these funds in their local currencies to their mobile money for use.
2. Facilitating Cross-Border Payments and Remittances
According to World Bank, Africa has a significant reliance on remittances, with an estimated $53 billion flowing into the continent as of 2022. However, the high costs and lengthy processing times associated with traditional remittance channels have hindered economic growth. Stablecoins offer a faster and more cost-effective solution for cross-border payments and remittances. By leveraging blockchain technology, stablecoins eliminate intermediaries, reduce transaction fees, and expedite settlement times. The use of stablecoins like Paxful and Stellar for remittances in countries like Nigeria and Ghana has soared, revolutionizing the way funds are sent and received.
3. Mitigating Inflation and Currency Volatility
Africa has a history of currency instability and high inflation rates, which erode the value of national currencies. Stablecoins provide a stable store of value, shielded from local currency fluctuations and inflationary pressures. By utilizing stablecoins, individuals and businesses can mitigate the risks associated with volatile currencies, thereby encouraging investment and economic stability. For instance, the adoption of the Terra stablecoin in Nigeria has provided a reliable medium of exchange and store of value for businesses, safeguarding them against the devaluation of the local currency.
4. Empowering Small and Medium-Sized Enterprises (SMEs)
Small and medium-sized enterprises play a crucial role in Africa’s economic development. However, limited access to financing and complex regulatory environments often hamper their growth. Stablecoins offer a decentralized and inclusive financial ecosystem, allowing SMEs to access capital through crowdfunding and peer-to-peer lending platforms. Moreover, stablecoins enable secure and transparent supply chain finance, ensuring timely payments to suppliers. The rise of platforms like MojaLoop in East Africa exemplifies how stablecoins are empowering SMEs by facilitating seamless digital transactions.
Cinch Markets in partnership with Mercy Corps Ventures, Moolah Markets, Kotani Pay and Celo has in the past run a program that enabled Cinch Markets farmers to access credit advances in the form of Decentralized Finance (DeFi) directly to their mobile money. Cinch Markets was able to access credit for its workers(unbanked) through the Moolah market in the form of stablecoins. Kotani Pay facilitated the onboarding process and off-ramping process directly to their mobile money wallet in their local currency. The DeFi integration enabled a 50% reduction in the cost of interest with over 50% of the borrowers using the loan for business purposes. The pilot showed that businesses were able to access credit but with an interest rate of 8% APR, less than half of what was available on the market.
5. Democratizing Investment Opportunities
Stablecoins open up investment opportunities for individuals who previously had limited access to traditional investment options. By providing a secure and accessible medium for savings and investments, stablecoins empower individuals to participate in wealth creation. Platforms like Kotani Pay in Africa allow users to convert stablecoins into local currencies, providing them with the flexibility to invest in assets such as stocks, bonds, and real estate. This democratization of investment opportunities contributes to wealth creation, economic mobility, and financial inclusion.
As the adoption and utilization of stablecoins continue to grow, Africa’s economic potential becomes more apparent. The transformative impact of stablecoins is evident in the positive changes witnessed across the continent. Africa’s financial ecosystem is becoming more inclusive, dynamic, and resilient. In embracing stablecoins, Africa is not only transforming its own economic growth but also positioning itself as a key player in the global financial landscape unlocking new possibilities for the continent. Investors should take note of the growing market demand for stablecoins in Africa, as it represents a unique opportunity for both financial returns and making a positive impact on the continent.
Are you ready to tap into the transformative power of stablecoins and unlock a world of financial opportunities? Join the growing community of individuals and businesses harnessing the benefits of stablecoins in Africa using Kotani Pay.