It’s an open secret that the African continent will be the next crypto frontier. Companies are filing up to bring the future of crypto payments to the continent, and the landscape is as vibrant as it’s ever been. Adoption is ramping up as well, with many using cryptocurrencies either as speculative investments or effective payment methods.
However, like it is in the West, regulators and governments play a significant role in shaping the future of cryptocurrencies in Africa. There’s little to no doubt that the private crypto industry can do everything on its own. Governments still yield a significant amount of power, and their actions could make or break the industry’s future on the continent.
With that in mind, it is worth looking into how well policy proposals have addressed cryptocurrencies. This piece looks into how some countries have moved forward in recognizing digital assets, and possible warning signs.
Nigeria is perhaps the most important country when it comes to crypto in Africa. The country is Africa’s largest economy, and it has arguably the highest levels of crypto adoption.
Crypto growth in Nigeria has been noticeable for at least five years now. However, most of the progress regarding regulatory developments only began last year. Most prominent was a surprising document from the country’s Securities and Exchange Commission (SEC), in which the agency all but put forward its regulatory agenda for the crypto space.
Released on September 14, the SEC’s statement defined coins and tokens across Nigeria’s financial markets. It explained that digital assets provide alternative investment opportunities for citizens, and that it would classify them into three categories for adequate regulatory supervision.
“Virtual crypto assets are securities, unless proven otherwise. The burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets,” the SEC’s statement read.
The SEC went on to list its categories. It recognized Initial Coin Offerings (ICOs), Security Token Offerings (STOs), and Digital Asset Token offerings (DATOs). All companies looking to release any of these assets would need to register with the SEC.
In November, local news source Business Day also reported that the Nigerian Ministry of Finance was working with the SEC to “provide a regulatory environment for blockchain” and digital assets. An official at the Ministry explained that the objective would be to grow innovation and ensure customer protection. It remains unclear how this expects to pan out, but time will hopefully tell.
Kenya is another nation that is making significant waves when it comes to adoption. With the country leading Africa on Chainalysis’s Crypto Adoption Index, it is undoubtedly a powerhouse and a force to be reckoned with.
The most significant policy proposal that the Kenyan government has made concerns taxation. The country has imposed its Digital Service Tax (DST) on crypto firms, imposing a 1.5 percent levy on all crypto payments. The DST is a part of Kenya’s Finance Act, which primarily focuses on the digital services industry. The tax applies to both residents and non-residents, although the payment structures differ in some subtle ways.
So far, policymakers believe that the DST will do little to affect startups in Kenya. The Kenyan Revenue Agency also argues that the new tax will ensure that foreign firms make their required tax payments to the government for operating in the country.
The South African crypto space is also growing. Along with Nigeria and Kenya, the country is currently the only African nation making waves in the crypto space over increased adoption. As expected, the government has also made significant moves to regulate its crypto space.
Last June, reports confirmed that the country’s Interdepartmental Fintech Working Group (IFWG) had developed a draft policy paper for its crypto space. The working paper reportedly suggests that the government would be looking to classify cryptocurrencies as money. Simultaneously, individuals and companies that deal in crypto exchanges and investments would need to be treated as financial service providers.
The regulators will be looking to combat issues such as money laundering, tax evasion, criminal activity, and terrorist financing. It is unclear how this policy proposal will take shape, but there is every indication that some progress could be made this year.
“Furthermore, the recommendations in policy paper also include dealing with cryptocurrency as any other foreign currency. The Reserve Bank of South Africa is assigned to ask the finance minister for making amendments in exchange control regulations to include South Africa cryptocurrency regulations,” the report read.
Time for Action
So far, policy movements are progressing across countries. However, for many, this speed isn’t enough. Last September, Marius Reitz, the General Manager for Africa at crypto exchange Luno, told Quartz that increasing crypto demand showed that Africans understand digital assets’ benefits for them. With the potential to improve banking services, crypto assets are seeing increasing adoption from citizens.
Reitz also added that increased foreign exchange fees and transaction speeds on traditional services were driving the growing crypto adoption. So, a pan-African crypto policy development needs to come forward to provide a structured industry.
There is every indication that 2021 will be a much better year for regulations across Africa. Governments should be able to get more of them right now that their citizens appear to be demanding more digital assets.