How to build Nigeria a world-class International Financial Centre
Why Nigeria needs to seize the opportunity to leverage cryptocurrency and blockchain to establish its own International Financial Centre
By Iyin Aboyeji, Founder Future Africa, Co-Founder Andela
Continuing to explore digital Africa, our next blog post will discuss cryptocurrency, blockchain and regulatory issues.
For decades, Nigeria has been at the forefront of technology innovation in African financial services. In the ’90s when networking technology was still very new, Nigerian banks deployed it to connect their branches across the country, birthing digital retail banking and helping them build a connected national presence. In the 2000s, Nigerian banks innovated in digital banking, bringing us ATMs, switching networks, and card payment processing. In the last decade, we innovated the Nigerian Central Switch and mobile payments, which have been fundamental to propelling the Nigerian fintech industry to dizzying heights. The results are self-evident.
Regulation by the Central Bank has created a billion-dollar fintech industry, with hundreds of millions of dollars in investment, creating thousands of jobs. Given the CBN’s history, I do not doubt we can rise to the occasion once again as we approach the latest technology innovation that is cryptocurrency and blockchain technology. Encouraging the growth of this industry may very well be an avenue for the Nigerian Financial Services industry to play a crucial role in consolidating our dominance in exporting financial services across Sub Saharan Africa, especially in the wake of the African Continent Free Trade Agreement.
Nigeria’s foreign reserves can grow if it can leverage the widespread adoption of cryptocurrency to build an international financial centre to rival Mauritius and Dubai within Africa over the next five years, and Geneva, London, Luxembourg and The Cayman Islands over the next decade. Every Nigerian of means has faced the prejudice and harassment that comes with trying to operate in global financial centres as a proud Nigerian citizen. Foreign banks shut down our bank accounts at will, without warning. We are subjected to shabby treatment from international trust management companies, and the spectre of fraud perpetrated by a small number of Nigerians who can be easily apprehended hangs over all our heads – no matter how distinguished we may be. The reality is that participating in the global financial system as a Nigerian is painful.
The advantage of cryptocurrency and the blockchain is that they can help us solve these problems. Rather than be held to ransom by billion-dollar corporations in Belgium, London or New York, cryptocurrency will empower Nigerians to quickly scale past the barriers of participating in a global financial system. More importantly, it will enable us to grow Nigeria’s foreign reserves, making the elusive naira price stability more of a reality. This is because making Nigeria Africa’s financial hub will increase the supply of our dollars reserves, while reducing the pressure on our exchange rate. We already see early signs of this in the cryptocurrency markets.
Nigerians have been very curious about bitcoin lately, going by Google search results. In the last 12 months, most global Google search queries for bitcoin originated in Nigeria. Paxful, a leading global cryptocurrency trading platform, estimated that Nigerians traded over $566 million in bitcoin on its platform in the last five years, placing Nigeria second behind the United States in bitcoin volume traded. Considering that Paxful is just one exchange (many transactions happen informally), and bitcoin is only one of many cryptocurrencies, the actual volume of Nigerians’ cryptocurrency transactions in other coins (like Ether, Dogecoin or Binance Coin, as well as stable coins like USDC, Tether and USDT) are possibly worth more. TechPoint estimates peg it at $400 million for 2020 alone. We believe this demand is driven not just by speculation but by the average Nigerian’s desire to participate in the technology-driven global economy.
We believe the CBN should establish the framework for an International Finance Centre similar to the Dubai International Finance Centre. This Nigerian International Finance Centre will be the gateway for Nigeria and Nigerians to participate in the global economy through modern instruments, including but not limited to the regulated use of cryptocurrency and the blockchain. We believe this can grow our banks into truly global institutions with hundreds of billions of dollars under their management, while creating hundreds of thousands of jobs for our financially savvy young people and generating hundreds of millions of dollars in potential tax revenues from the country.
At the same time, we acknowledge that the Central Bank has to carefully consider the state of Nigeria’s economic stability and as one of its highest priorities. Given the need to protect our economy and critical local industries, we cannot completely open up the entire country to uncontrolled and possibly speculative trade in financial products, including cryptocurrency.
If the CBN should establish the Nigerian International Finance Centre with branches in all of Nigeria’s approved Free Trade Zones, it will be backed by law as per the NEPZA Act, the BOFIA Act 2020, and the CBN’s guidelines on banking operations in free trade zones. In restricting international finance activity to Free Trade Zones, the Central Bank can protect the general populace from the adverse effects of unrestrained trade in financial products within the country’s customs area. It will also enable greater freedoms for those who want to participate in the global economy. This position mirrors China’s action in designating Special Economic Zones like Hong Kong, Shanghai and Shenzhen to be global financial centres, while simultaneously protecting its real economy in Mainland China from foreign speculators.
Furthermore, as we have seen with the Central Bank’s prior innovations in instant payments, mobile payments, BVN and branch banking, amongst others, it will generate new possibilities for our young people in the global finance space as cryptocurrency and the blockchain become more globally accepted mediums. The Nigerian Naira Token project is one such project which has created a globally tradable naira token on the blockchain and is gaining traction globally. If we build a framework to encourage this type of innovation, in a decade, Nigeria will have some of the world’s most advanced blockchain technology engineers and experts who will lead the future of decentralized finance. Most importantly, I believe the Nigerian International Finance Centre will provide an avenue for proud Nigerians who are targeted worldwide for simply being Nigerian to bring their wealth home from offshore havens and trusts – so that together, we can grow our nation’s foreign reserves.
Like other central banks across the world, CBN is grappling with how to regulate virtual money systems to control money laundering, terrorism and tax evasion. If well-regulated, especially with the establishment of the Nigerian International Finance Centre, cryptocurrency offers an opportunity for enhancing financial inclusion and broadening investment opportunities.