What does the digital currency landscape and, in particular, cryptocurrencies, look like in the Middle East and Africa (MEA) region?
Digital currencies update
One of the biggest headlines in the MEA region was Nigeria and a central bank digital currency (CBDC), which in October last year became the first country in Africa to introduce a digital currency. It was Bahamas in the Caribbean that became the world’s first CBDC with the launch of its Sand Dollar in October 2020 while China become the world’s first major economy to pilot one in April 2020 with the digital yuan.
Heading to the Middle East, according to Chainalysis, the top three largest digital currency markets are Turkey, Lebanon and the United Arab Emirates (UAE) – home to commercial hubs of Dubai and Abu Dhabi. Other noteworthy news item was in terms of digital currencies, there was Project Aber with its findings published in 2020. The project was between the Saudi Central Bank (SAMA) and the Central Bank of the UAE (CBUAE) to see the viability of a single dual-issued digital currency.
In terms of wider economic development and foreign direct investment (FDI), Dubai, which has become an undisputed regional hub in MEA (and in some sectors such as transportation and logistics a global hub), expects to have 1,000 cryptocurrency businesses operational by this year and centres in Dubai notably the Dubai Multi Commodities Centre (DMCC) Crypto Centre is a thriving cryptocurrency ecosystem and a gateway to global trade in blockchain technologies, according to its website.
The most spotlighted digital currency though, as where the previous point is gravitating towards, by far has been cryptocurrencies in the global stage, including in MEA, which are digital currencies based on the blockchain.
In focus: Cryptocurrencies
MEA made headlines, in particular the African continent, with respect to cryptocurrencies. Following global headlines when El Salvador in Central America became the first country in the world to adopt Bitcoin as an official currency, the Central African Republic this past April announced it will adopt Bitcoin. It is the first in MEA and second now only to El Salvador.
In terms of adoption, the Chainalysis 2021 Geography of Cryptocurrency Report had a top ten Global Crypto Adoption Index, whereby three MEA countries made that list – Kenya at fifth place, Nigeria at sixth place and Togo at ninth place. The rest of the top ten were Vietnam in first place, India in second place, Pakistan in third place, Ukraine in fourth, Venezuela in seventh, the USA in eighth and Argentina in tenth. Other MEA countries that missed the top 10 were South Africa (16th), Ghana (17th), Tanzania (19th) and Afghanistan (20th).
Comparing to the 2020 top ten list, which had three MEA countries (Kenya at fifth place, South Africa in seventh place and Nigeria in eighth place were Ukraine at first place, Russia at second place, Venezuela at third, China at fourth place, the USA at sixth, Colombia at ninth place and Vietnam at tenth place (note China since has banned cryptocurrencies and others who ranked higher had different changes in their political and economy environment that has reflected in the current top ten list).
In terms of the Middle East, Afghanistan took the rank for the highest Middle Eastern country on the Index in 20th place, which was followed by Turkey at 26th. Turkey also had the highest transaction volume in the Middle East at over $130billion.
Even in more established and developed parts of MEA this has grown. For instance, New York-based cryptocurrency exchange Gemini released a report and included the UAE and Israel, whereby, 28 per cent of people in Israel and 35 per cent of people in the UAE own cryptocurrencies. With the ladder, Bybit and Crypto.com announced they will open offices soon in Dubai. In the former, Israel’s Bank Leumi became the first traditional bank in the county that will permit customers to trade cryptocurrencies. Other headlines in Israel included Canada’ Wellfield Technologies bought out Israeli Coinmama.
In terms of value, in the 2021 Chainalysis report Africa, despite only having received $105.6billion worth of cryptocurrency between July 2020 and June 2021 and having the world’s smallest share, it did grow over 1,200 per cent from the previous year by value. The Middle East has the second-smallest cryptocurrency market (6.6 per cent of global activity), received $271.7billion worth of cryptocurrency between July 2020 and June 2021. Despite the Middle East being low it was a 1,500 per cent increase from the previous year.
Why is cryptocurrencies popular in MEA as a whole?
- Devaluation of currency hedging in times of uncertainty – Like much of the rest of the developing world such as Latin America, home to one of the saddest downtowns in economic and political stability aka Venezuela, it isn’t a surprise to see countries that have undergone difficult or in the Middle East with Afghanistan, where the likes of cryptocurrency (Bitcoin, Ethereum – to name afew) can provide savings protection and those are able to protect their assets from a declining, or in the cases of the two countries mentioned a financial collapse, some home of stability – even though cryptocurrencies is also volatile.
- Financially excluded – For many, especially in Africa where over half the population is still financially excluded, cryptocurrencies has helped people access services they would have not had the chance to – like payments, remittances and insurance. For instance, in Kenya there are farmers who are using the likes of Sarafu, Kenya’s cryptocurrency, to sell vegetables and to purchase supplies without any cash. Also, this year unicorn insurtech Lemonade announced it is working on a project to offer African farmers crop insurance via cryptocurrencies. According to Lemonade CEO Daniel Schreiber, “Ninety-seven percent of farmers in sub-Saharan Africa don’t have access to insurance… The people who need it the most have access to it the least.”
- Necessity vs. Leisure – Unlike generally those in the West who have been using cryptocurrencies mainly as an added value or for leisure trading, many in MEA have been using it out of pure necessity. Think of the business owner in Lebanon who is having to use cryptocurrencies to purchase supplies from abroad because the Lebanese Lira has devalued significantly to the Afghani in Kabul having to receive remittances in crypto because of the collapse of the banking sector – similar stories can be felt across the rest of the developing world and/or regions with current political and/or economic difficulty.
Like much of the rest of the world – where various countries have been considering how to regulate the industry or in other cases outright ban them – the MEA region is also facing this question. Should it be the likes of say India who this year announced it would tax cryptocurrencies? Should it be the likes of Nigeria where it is restricted? Or should it be those that outright ban them? At present from when this was written, nine countries currently ban them (seven are in MEA – Egypt, Qatar, Iraq, Oman, Algeria, Tunisia and Morocco – the other two countries are China and Bangladesh).
Time will tell but, similar to what many across the world are going to do most likely, is I predicted an in-between approach. Instead of going completely laissez faire in one spectrum and the other end ban it, there will most likely be some in-between, where governments potentially (such as in the case of India) announce that they will plan to tax crypto. There potentially could be ways where they could be regulations that ultimately would protect the consumer. However, this could and is proving challenging with the blockchain, decentralisation nature and anonymity as a result of crypto generally.
Despite its challenges in recent memory, cryptocurrencies and wider digital currencies have made its impact in the world and this can be felt in MEA. From farmers in Kenya who are able to pay for goods in cryptocurrencies to a wider digital transformation of a country’s currency – it has brought plenty of attention in its own right that digital currencies and cryptocurrencies in particular has been the talk of the town in the wider fintech and digital ecosystem in recent memory. Despite, when looking at percentages, cryptocurrencies when looking at numbers in detail show how it has impacted and offered hope for many in MEA, in particular with those who use it out of necessity.
