Nigeria’s Digital City: Are Authorities Waking Up To Friendlier Crypto Regulations?
Despite a generally crypto-unfriendly regulatory climate, Nigeria is almost awash with high-flying initiatives heavily based on digital currencies, the chief of which is a newly-hatched plan vested in eking out a digital city to pave the way for crypto and blockchain-related businesses.
On September 2nd, 2022, it came to light that the Nigerian government had held a precursory meeting with Binance—one of the world’s largest cryptocurrency exchange platforms—and Talent City—a techfrastructure company—for the potential establishment of a special economic outfit, referred to as a “Virtual Free Zone”.
According to a tweet by the Nigerian Export Processing Zones Authority (NEPZA), the said digital city, in semblance to Dubai’s virtual zones, will provide friendly laws, regulations, and tax incentives for crypto-driven ventures.
Dubai, believed to be the most important crypto hub in the Middle East and West Asia, is already looking to make it a global affair. It set itself as a crypto node by introducing the Dubai Multi Commodities Center (DMCC), a free zone tailored to trade and commodity ventures, as well as by launching Crypto Center—an all-in-one ecosystem for crypto-based businesses with substantial registered trade volumes.
The first of its kind in Nigeria and more so in West Africa, Nigeria’s mirrorable efforts come at a time when the country lays claim to one of the world’s highest cryptocurrency adoption rates. However, as earlier noted, it comes at a time when a crypto ban is still effective, with nearly no signs of an all too critical revision.
In February of 2021, Nigerian authorities outlawed all crypto transactions, a move that was nevertheless mitigated by way of peer-to-peer trading; the country had traded USD 2.4 B worth of crypto as of May 2021 and became second to the United States in BTC exchange in 6 months later.
“The new initiative [a crypto-targeted digital city] could mean a good thing for the country but I am somewhat skeptical about the Nigerian government because projects like this often end up nowhere. If they were [actually] serious, the government would double down on crypto, since Nigeria is now the third largest country in terms of volume of traded digital currencies,” says Eche Emole.
Eche, who is the Founder and CEO of Nigerian-born Afropolitan—a crypto and Web3-focused startup building a digital nation for Africans and diaspora Africans—feels that while the principles around the initiative are appreciable, the execution on the part of the government is historically doubtable.
In April, the Central Bank of Nigeria (CBN) imposed a fine of over USD 1.8 M (NGN 800 M) on a trio of Deposit Money Banks—Access, Stanbic IBTC, and UBA—for violating standing regulations preventing customers from crypto transactions.
Prohibiting crypto use is not the only way the Nigerian government has raised a cloud of uncertainty in general tech. In June 2021, the authorities de-platformed Twitter after the microblogging platform deleted an overly controversial presidential tweet by Major-General Muhammadu Buhari (retd.).
The suspension, which lasted for 7 months, was lifted in January 2022 after “successful negotiations with Twitter”, but the damage was already evident. While the ban cost the Nigerian economy USD 250,600 every hour, the 222-day stretch reportedly devalued it by over USD 1.2 B, per NetBlocks’ estimates.
A May 2022 report published under the auspices of the Secretaries-General of the United Nations and the Organization for Economic Cooperation and Development, with support from the African Development Bank (AfDB) stated that Nigeria’s crypto ban, in conjunction with the Twitter suspension, crippled foreign direct investments into the country’s fintech industry.
The report, Africa’s Urbanization Dynamics 2022: The Economic Power of Africa’s Cities, said both prohibitions had adverse impacts on millions of young Nigerians whose livelihoods are dependent on the country’s tech sector.
As it appears, Nigeria remains unwilling to dump its pragmatic approach towards crypto regulation but is actively taking on other initiatives around digital assets; the virtual economic zone is but one of them. The country is the first in Africa to roll out a central bank digital currency (CBDC)—the eNaira, which is unarguably still struggling to find sound footing.
Cryptocurrencies matter most to Nigeria’s financial inclusion drive. With more than 40 percent of its over 200 million population without bank accounts, Nigeria is among the world’s top three unbanked economies. Crypto and crypto-native products are a way to promote financial inclusion to the last mile, in which sense creating a crypto-friendly digital city might make sense for builders.
“Crypto builders are ever on the lookout for existing governments that can provide sandboxes for deploying blockchain technology solutions. Nigeria’s population size and world-leading crypto interests make it a huge testing ground, and, if the digital city exploration works, it would attract even more blockchain-driven ventures into the market,” Eche tells WeeTracker.
Last year, FTX, a cryptocurrency derivatives exchange, moved its headquarters from Hong Kong to the Bahamas, following China’s illegalization of virtual currency-related activities and FTX’s regulatory approval to become a digital assets business in the Caribbean country.
He adds “If well-implemented, the initiative might allow the country to have a deeper reach globally. Blockchain companies not so welcomed in nations like China and the United States can set their sights on Nigeria, leading to more employment. It would also help advance Afropolitan’s cause since it would help people see the possibility and benefits of digital communities”.
It is way too early to determine whether the digital city project would actualize and yield positive results. However, Nigeria ought to look into its backlog of crypto-related needs, to develop an evenly structured cryptocurrency economy.
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