Blockchain funding across the African continent grew by 1,668% in 2022, pointing to an increase in the adoption of the technology and a growth in its Web 3.0 offerings, shows a study conducted by blockchain company Emurgo Africa and consulting firm PricewaterhouseCoopers (PWC).

Released on June 23 in Nairobi, the State of Web 3.0 Report in Africa indicates that blockchain and crypto adoption is recording fast growth in Africa, despite some snags that surround it. Nigeria, Kenya, South Africa, and Egypt lead the way in this cause.

The risks associated with unregulated digital currencies notwithstanding, blockchain continues to be viewed as among a set of solutions to the continent’s financial and currency depreciation challenges.

The report notes: “Web 3.0 presents a plethora of opportunities for the African continent. Blockchain possesses the qualities of transparency and decentralization, allowing for this technology to solve challenges such as international remittance, financial inclusion, and land registration.”

It identifies potential areas of application of blockchain in Africa as SME financing, supply chain management, smart contracts for informal labour markets, governance, digitizing trade infrastructure, title deed registration, verification of education credentials, and mobility.

“The Blockchain industry is growing exponentially and will continue to do so. Investors are keen to fund blockchain startups and companies,” says the report. The survey reveals that between 2021 and 2022, from Emurgo Africa’s funding and investment portfolio of $100 million, $5.16 million was invested in blockchain startups in 2021. This is in comparison to the $91 million raised in 2022, an indicator of the fast adoption of Web 3.0 and the growth of blockchain technology in Africa.

Nigerian, Kenyan, and Egyptian tech startups received the lion’s share of this funding – $88.5 million, which translates to 70% – compared to other African countries.

The amount went into supporting startups largely focused on the finance, trade, education, and energy sectors. Title deed registration, SME financing, supply chain, smart contracts for informal markets, governance, mobility solutions, digitization of trade infrastructure, and verification of education credentials are among the leading industries in which blockchain startups in Africa are investing.

Numerous advancements have been realized in the adoption of Web 3.0 constituent technologies in several countries across the continent since 2020. “In the last year, we have invested in over 40 African startups that are building on-chain solutions for leading Fortune 500s, and financial institutions, and are facilitating the cross-border growth of novel change-making concepts that legitimize the informal economy and give its citizens rights in possessing an identity, accessing adequate healthcare and building financial capabilities,” says Ahmed Amer, CEO of Emurgo Africa in the report.

In April 2022, the Central Africa Republic became only the second country globally after El Salvador to adopt bitcoin as its legal tender. It is the first African country to implement this ordinance.

Nigeria, the Land of Web3 Innovators, Leads the Way

As for Nigeria, the blockchain ecosystem is blossoming, with a growing number of startups and organizations, including the Blockchain Industry Association of Nigeria (BIAN) driving this technology.

The west African country, which has the continent’s largest population, also hosts the largest number of Web3 startups including Bitmama, Afropolitan, BitSport, Chekkit, Versus, and Cassava.

The country’s apex bank, the Central Bank of Nigeria (CBN), is also seeking to collaborate with other stakeholders to leverage blockchain technology for remittance solutions. This is an indication of growing interest and exploration of blockchain across the country’s different sectors.

Nigeria’s Securities and Exchange Commission (SEC), however, does not plan to include cryptocurrencies in a plan to improve trading in digital assets until regulators agree on the standards that protect investors.

In Nigeria, the report shows, NFTs (Non-Fungible Tokens) are being used in various fields such as art, music, fashion and real estate. “Several trends pertaining to NFTs have emerged in the country; one such trend is the use of NFTs to sell digital artworks, with artists such as Victor Ehikamenor selling NFTs up to the value of US$100,000.”

There’s also another NFT trende: A vibrant community of artists seeking to establish forums where they can showcase their NFT collections such as the Naija NFT Collective which launched an NFT art show in Nigeria, and the Nigerian NFT community founded by NFT pioneer Chuma Anagbado.

Though the real estate tokenization landscape in Nigeria is still in its infancy, innovators are confident that investments in the industry are feasible. Ellamediate, a property tokenization startup, “gives individuals the opportunity to own fractions of real estate in Nigeria, the UK, US and the UAE, with as little as $100.”

Following Into Nigeria’s Steps, Kenya Holds Immense Potential

In Kenya, which is one of the nations showing great enthusiasm for Web 3.0, the technology’s space is in its nascent stages. The east African country, according to the report, is limited by finite access to the internet and Web 3.0 technologies due to a significant digital divide.

However, signs of growth have emerged. There is an increasing number of internet users, mobile device usage, and broadband connectivity, all of which are facilitating more people to access the technology’s services including online shopping and e-commerce platforms.

Further to these, in November 2022, a proposed amendment was made to the country’s Capital Markets Bill aiming to mandate that those with, or dealing in cryptocurrencies provide information to the country’s Capital Markets Authority (CMA) about their activities for tax purposes.

Kenyans are also drawn to the security of NFTs, as they cannot be replicated due to the nature of blockchain, reducing the risk of producing counterfeit pieces. the report cites the instance of HoneyCoin which has made it possible for Kenyans to purchase NFTs directly through the M-Pesa mobile moey platform. It reveals that David Nandwa, HoneyCoin founder and CEO, worked alongside Kenyan musician Octopizzo to “create fractional NFTs for five songs in the artist’s album, allowing buyers to access a share of streaming royalties for the listed songs.”

Startups driving the Web3 ecosystem in Kenya include Afya Rekod, BuuPass, Fingo Africa, Melanin Kapital, Fastagger, Safi Protocol, Crypsense, among others.

South Africa, Africa’s Most Developed Economy, Can’t Be Left Out

South Africa’s Web3 ecosystem is characterized by the integration of AI, machine learning, decentralized apps (dApps), and blockchain technology across different industries to enhance user experiences, automate processes, ensure secure data management, enable transparent transactions, and personalize online experiences.

This integration is envisioned to ultimately drive the adoption of advanced technologies for improved efficiency and user satisfaction. For instance, the country’s agricultural sector is using blockchain technology to track and trace the origins of produce, which ensures food safety and supply chain transparency.

Popularly called by innovators as “the southern tip of Europe,” the country boasts the most conducive crypto regulatory environment in Africa. Last October, South Africa’s Financial Sector Conduct Authority (FSCA) classified cryptocurrency assets as financial products, accordingly stipulating that they should be regulated.

NFTs are also gaining popularity in the art and collectibles market, with artists and collectors using the technology to create and trade unique digital artworks. Momint, for instance, hosted Africa’s largest NFT auction in Cape Town in 2021, auctioning off works from artists such as Lucas Radebe, Bryan Habana and Arno Carstens, according to the report. “Overall, the adoption of NFTs in South Africa is still in its early stages, but there is a growing interest and recognition of their potential as a tool for authenticating digital ownership.”

South Africa’s vibrant art and tech communities have therefore led to the development of local NFT marketplaces and platforms, such as the aforementioned Momint, which aim to bring like-minded people together and form online communities. “Overall, the adoption of NFTs in South Africa is still in its early stages, but there is a growing interest and recognition of their potential as a tool for authenticating digital ownership.

Like Nigeria, South African investors are keen on the real estate tokenization market, with the establishment of the country’s first real estate tokenization platform, Flyt Property Investment. “This platform allows investors to subscribe for, redeem and transfer shares in the Flyt Hospitality Fund, a South African Section 12J fund investing in hospitality property and apart-hotels,” the report says.

The Case of Egypt

Egypt is another African country whose blockchain ecosystem continues to burgeon and whose blockchain regulatory environment is still developing. But the trading of cryptocurrencies in the north African country is explicitly restricted, as expressed by the country’s Financial Regulatory Authority (FRA) in 2017. There’s only one flourishing Web3 startup in Egypt – Pravica, according to the report.

FRA cautioned investors in the country about the risks associated with investing in cryptocurrencies and initial coin offerings (ICOs) and advised them to be cautious.

Other countries in the continent, like Ghana, Zimbabwe, Cameroon, and Tanzania also have a fast-developing Web 3.0 ecosystem.

Crypto Regulation and the Rise of Stablecoins

The report shows that out of a sample size of 35 countries across Europe, Asia, the Middle East, Africa, North America and Oceania, 40% had regulatory frameworks for crypto in place. But the figure is higher in Africa, where some form of crypto regulation already exists in 66% of sub-Saharan countries, according to an IMF internal survey. Only 20% of Sub-Saharan African countries have outright bans on crypto trade, according to the Emurgo and PwC report.

“As the need for the regulation of blockchain and cryptocurrencies increases, key stakeholders need to work closely with regulators. This will ensure that risks that may arise as a result of regulatory changes are adequately mitigated,” the study says.

As cryptocurrencies get more volatile, the rise of stablecoins has been witnessed. The report notes that to realize maximum benefits, compliance with know-your-customer rules and regulations will be critical to preventing them from being used for illegal activities and illicit finance. To eliminate fraudulent transactions, the surveys advises that “issuers of stablecoins designed to facilitate consumer payments must demonstrate clearly how consumer protections will be ensured. Customers will need to be educated on how their rights differ between digital wallets and bank accounts.”

The widespread adoption of stablecoins, the report says, may have implications for central banks’ roles and monetary policy. “If a large proportion of domestic households and businesses begin to rely on stablecoin not only as a means of payment but also as a store of value, demand for physical cash may fall and the central bank’s balance sheet may shrink.”

-Edited by Shigeru Sato