Nigeria’s Foreign Investment and Crypto Adoption Dilemma

Nigeria, the largest economy in Africa, has been facing a severe shortage of dollars, leading to a decline in foreign direct investment (FDI). The National Bureau of Statistics (NBS) reported that FDI dropped by 33% in 2021, decreasing from $698 million in the previous year to $468 million. The situation is worrying as FDI has decreased by 90% since its peak in 2008, reaching a new low in 2021. The scarcity of foreign investment in the country has led to a significant setback for the growth of the economy.

Despite the decline in FDI, the adoption of cryptocurrencies in Nigeria has grown exponentially. Many Nigerians prefer to store their money in digital currencies rather than the national currency, the naira, due to its constant devaluation. In fact, Nigeria ranked eighth in the world in terms of crypto adoption and usage rate in Chainalysis’ 2020 Cryptocurrency Geography Report. This exponential growth in crypto adoption rate in Nigeria was expected to encourage more foreign investment in the country. However, the shortage of dollars has discouraged foreign crypto companies from investing in Nigeria.

The Central Bank of Nigeria (CBN) banned cryptocurrency transactions in February 2021, directing all commercial banks to close accounts belonging to crypto exchanges and other businesses that deal with cryptocurrencies. The ban has further discouraged foreign investors from entering the market.

Despite the challenges, Olumide Adesina, a certified investment trader, tweeted that no state in Nigeria has taken the initiative to attract foreign investors in the fintech, entertainment, and crypto industries, despite the fact that Nigerians “love” these sectors. In another tweet, Adesina highlighted that building a real tech and crypto community like Silicon Valley in Lagos state would create thousands of direct jobs.

In response, Lagos State Governor, Babajide Sanwo-Olu, announced proposals for crypto adoption in the state, according to local media reports. The initiatives proposed by Sanwo-Olu include establishing a dedicated sandbox regulatory framework for cryptocurrencies, creating a crypto-focused innovation hub, and providing incentives for businesses that accept crypto payments. These initiatives are expected to encourage foreign investors to enter the Nigerian market and to boost the growth of the economy.

In conclusion, Nigeria’s dilemma is that while the adoption of cryptocurrencies has grown exponentially, the country is facing a severe shortage of foreign direct investment. The shortage of dollars has discouraged foreign investors, including crypto companies, from investing in the country. Therefore, it is essential for the government to take the necessary measures to attract foreign investors, particularly in the fintech, entertainment, and crypto industries. By doing so, Nigeria will not only stimulate its economy but will also establish itself as a hub for innovation and technology in Africa.


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Nigerian crypto adoption rises despite govt crackdown

Nigerian cryptocurrency adoption continues to rise in spite of government crackdown, with peer-to-peer (P2P) trade volume for Bitcoin posting its second strongest week on record last month.

According to data from Google Trends, Nigeria still ranks number by search interest for the keyword “Bitcoin” as of this writing. P2P Bitcoin trading denominated in the Nigerian Naira has also steadily increased in 2021, with Nigeria ranking behind only the United States as the second-largest market for peer-to-peer BTC trading, according to Useful Tulips.

The growing Bitcoin adoption in Nigeria has helped Sub-Saharan Africa emerge as the leading region by P2P volume, with the region posting $18.8 million in weekly volume to beat out North America’s $18 million this past week.

Weekly P2P volume by region (USD equivalent):

A confluence of political and economic crises has spurred local crypto adoption, including social repression, currency controls, and rampant inflation.

Tensions in Nigeria have escalated since October, after massive public protests opposing police brutality and the infamous “Sars” police unit swept the nation.

The EndSars protests saw protestors attacked with tear gas and water cannons, with more than 50 civilians killed in total, including one dozen who were shot dead by police armed with live ammunition on October 20.

The government crackdown saw economic repression too, with social organizations supporting the protestors with food and medical aid quickly finding their bank accounts frozen. Amid the violence, protestors increasingly turned to cryptocurrency in order to place their economic activity outside of the government’s reach.

Adewunmi Emoruwa, the founder of Gatefield — a public policy organization whose accounts were suspended for providing grants to journalists covering the protests attributed Nigeria’s recent hostility regarding crypto assets to October’s protests, telling The Guardian:

“I think that EndSars is like the key catalyst for some of these decisions the government is making. It caused fear. They saw, for example, that people could decide to bypass government structures and institutions to mobilize.”

An anonymous source claiming to represent a social organization whose bank accounts were targeted during the turmoil, also told the publication that their group has been able to pay members’ salaries with crypto despite the financial embargo.

“We keep some securities in crypto – not too much but enough, sort of as an insurance policy,” they said. “When the ban happened we were, thankfully, able to pay salaries.”

In February, the government banned licensed banks from processing cryptocurrency transactions in an attempt to crack down on digital asset adoption.

However, Nigeria’s steadily rising P2P Bitcoin volumes suggest the country’s growing crypto user base has largely been driven underground in a bid to access crypto assets from outside of the government’s purview.

Marius Reitz, the Africa general manager of crypto trading platform Luno, told The Guardian that Nigeria’s ban has only made cryptocurrency trading harder to monitor, stating:

“A lot of trading activity has now been pushed underground, which means many Nigerians are now depending on less secure, less transparent over-the-counter channels, as well as Telegram and WhatsApp groups, where people trade directly with each other.”

The government’s moves to repress crypto have also received internal criticism, with Vice-President Yemi Osinbajo publicly rebuking the ban in February.

Related: Why is Bitcoin $86K in Nigeria? Here’s why the BTC premium is huge in some countries

Despite the country’s hostility toward decentralized crypto assets, Nigeria is currently exploring the development of a central bank digital currency (CBDC).

In late July, Nigeria’s central bank revealed plans to begin trialing its CBDC from October 1 of this year.