Much of the Middle East and Africa region has various levels of embracing cryptocurrency and blockchain as is the rest of the world, particularly with the rise of the likes of bitcoin and wider digital transformation in both a pre and pandemic COVID-19 world.
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VARIOUS LEVELS OF EARLY AND MORE DEVELOPED STAGES OF ADOPTION OF DIGITAL
Previously reported by The FinTech Times that the Gulf Cooperation Council (GCC) region (Saudi Arabia, Qatar, United Arab Emirates (UAE), Bahrain, Oman and Kuwait) and much of wider MEA have been undergoing their various economic development transformations and digital transformations. According to the Middle East Institute, with regards to blockchain, it is expected to grow in the next few years, particularly in the GCC countries like the UAE, Bahrain and Saudi Arabia. Most of the current blockchain-based development projects that have been announced GCC countries are in the preliminary concept or establishment stage. As in much of the world, only a few such projects in the Gulf have entered the experimentation and testing phase due to the newness of the technology and the fundamental changes it promises to bring.
From the recent United Nations Department of Economic and Social Affairs E-Government Survey 2020 report, countries in MEA within the top 100 list include all the GCC countries (UAE leads MEA at 21st, Bahrain at 38th, Saudi Arabia at 43rd, Kuwait at 46th, Oman at 50thand Qatar at 66th) as well as Israel at 30th and Turkey at 53rd. African representation is light in the top 100 with Mauritius at 63rd and Seychelles at 76th; Ghana missed the top 100 ranking at 101st. The survey, according to them, “is the only global report that assesses the e-government development status of all United Nations Member States. The assessment measures e-government performance of countries relative to one another, as opposed to being an absolute measurement.” The leaders overall were Denmark at number one and followed by South Korea at number two.
DEMAND IS THERE
Luno, a global cryptocurrency platform, announced the findings of a global survey which revealed that nearly 3 out of 5 Nigerians are ready to adopt a global digital currency, reflecting the country’s growing interest in cryptocurrencies since the start of the global pandemic. Nigerians also rank higher than the global average of 37%t for openness to digital currency adoption. With a population of 200 million people, Nigeria is MEA’s largest country by population.
The survey, which included 15,000 respondents from South Africa, UK, France, Italy, Indonesia, Malaysia and Nigeria, was first conducted in 2019 and then repeated last year; it forms the basis of Luno’s “Trust and Uncertainty in 2020” report which explores how the attitude towards governments, money and the decision making by central banks have changed.
54% of Africans think a single global currency would make their financial system better according to the survey, compared to 41% for Asia and 35% for Europe. Looking at the responses in total, across all the countries in the survey, respondents expressed a more negative sentiment on the development of their local currency than the previous year. 40% believe their local currency will decrease in value over the next year, while 31% think it will stay the same and only 29% see an increase going forward. Hence, the majority are anticipating a decrease in their local currency which is leading many to explore alternatives.
It is worth noting that MEA as a whole has a relatively young population and an economy that is vast in terms of its economic development – where countries such as Israel and much of the Gulf like Qatar and the UAE boosting some of the world’s highest gross domestic product (GDP)s per capita as well as some of the world’s lowest (mainly in Africa) – according to the UN. Particularly in the Gulf, which has attracted talent across the world to help grow and build their economies that were historically oil reliant, it is home to a large expatriate population where many send money home overseas. And in other parts of the Middle East and Africa, which has been a source of people who had to immigrate for economic reasons that are the beneficiaries of remittances. Cryptocurrency and blockchain have a large potential that places it uniquely compared to much of the rest of the world.
ADOPTION OF BLOCKCHAIN AND CRYPTOCURRENCIES COMING FROM THE TOP
Particularly in much of the Middle East with its various levels of economic development, where digital transformation is playing a large role, blockchain and cryptocurrencies are playing a large part in that. For instance, in the UAE, according to the UAE government website, “The UAE Government adopted blockchain technology in conducting its transactions. To aid this move, it launched the Emirates Blockchain Strategy 2021 and Dubai Blockchain Strategy. The Emirates Blockchain Strategy 2021 aims to capitalise on the blockchain technology to transform 50 per cent of government transactions into the blockchain platform by 2021. The Dubai Blockchain Strategy will help Dubai to be the first city fully powered by Blockchain by 2020 and make Dubai the happiest city on earth. The strategy will be using three strategic pillars: government efficiency, industry creation, and international leadership.”
It is worth noting the UAE (particularly with its commercial hub of Dubai and capital Abu Dhabi) is a digital transformation leader not just in the Arab world but globally – which a previous Fintech Times article called How the UAE Has Been Leading in Digital Transformation highlighted across AI to wider digital infrastructure to name a few. Also, as part of its efforts to adopt the latest technologies and innovation practices at the global level, Dubai Future Foundation established the Global Blockchain Council to explore, discuss current and future applications, and organise transactions through the Blockchain platform – according to the Dubai Multi Commodities Centre (DMCC) website.
An example in the wider Middle East in 2020 in leading in crypto and digital in practice has been IBMC Financial Professionals Group, an internationally recognized financial services institution and business consultants, how joined forces with US Gold Currency Inc and Blockfills to bring the world’s first monetary gold-backed digital gold currency to MEA and India.
Also, the Saudi Central Bank (SAMA) and the Central Bank of the United Arab Emirates (CBUAE) have announced the results of “Aber” Project last year. Project Aber was created by the central banks of both countries to explore domestic and cross-border settlement via a single regional currency, with IBM being the technical partner. This initiative sought to explore whether distributed ledger technology could enable cross border payments between the two countries to be “reimagined”; reducing transfer times and costs between banks, using a new dual issued digital currency. The final results of the pilot project were consistent with the results of similar pilots conducted by a number of central banks. These results showed that the distributed ledger technology would enable central banks to develop payment systems at both local and cross-border levels.
Bahrain, who have been proactive in fintech innovations in general in the region, have demonstrated that for instance in crypto and blockchain. In 2019, The Central Bank of Bahrain (CBB) issued the final rules on a range of activities relevant to crypto assets. From a statement in 2019, Khalid Hamad, Executive Director – Banking Supervision, said, “We will continue to enhance our regulatory framework in order to keep pace with the innovations taking place in the major financial centres around the globe. The CBB’s introduction of the rules relating to crypto-assets is in line with its goal to develop a comprehensive rules for the fintech eco-system supporting Bahrain’s position as a leading financial hub in the Middle East and North Africa (MENA) region.” The CBB Crypto-asset rules deal with the rules for licensing, governance, minimum capital, control environment, risk management, AML/CFT, standards of business conduct, avoidance of conflicts of interest, reporting, and cyber security for crypto-asset services. They also cover supervision and enforcement standards including those provided by a platform operator as a principal, agent, portfolio manager, adviser and as a custodian within or from the Kingdom of Bahrain – all according to the same CBB statement.
Afterwards, the same year according to a July 2019 statement in reference to crypto-asset brokerage firm Rain, a statement said, “We are happy to announce that Rain has acquired the Crypto-Asset Module (CRA) licence from the CBB. Rain is the first crypto-asset brokerage to earn a regulatory licence in the Middle East and joins an elite group of brokerages internationally. In addition to the licensure, we are also pleased to announce that we have closed a seed round of $2.5 million.”
It is not just the Middle East mainly the Gulf, but also across MEA where adoption is being felt. In Nigeria, cryptocurrency was made legal and regulatory guidelines for digital currencies and crypto-based companies or start-ups were issued. In South Africa, key financial regulators such as the South African Reserve Bank released a policy paper in April last year with recommendations for the regulation of cryptocurrency. Meanwhile, Kenya is set to experiment with a digital tax from January this year, which can open the door to more crypto regulation. The country also passed a startup law last year as well.
Egypt, which in 2018 placed an all-out ban on cryptocurrency trading, appears to recently reconsider that decision due to global demand and popularity of crypto. The ban in 2018 came over concerns of money laundering, tax evasion, and other illegal activities worried the government to the point of imposing that ban. As a whole, the African Continental Free Trade Agreement (AfCFTA) could also help bring more cross-border collaboration across African AfCFTA member states.
On a final note, due to the popularity globally of crypto there have been developments that governments have implement. A recent development has been in Israel where The Israeli Tax Authority (ITA) is now requiring its residents to disclose their cryptocurrency holdings for taxation purposes, according to a Globes report.
Crypto, with the likes of bitcoin and wider blockchain, is a global trend and that is appearing in MEA as well. Digital transformation will be the future growth in the global economy and crypto and blockchain will play a part of that for some time.