Nigerian cryptocurrency foreign investment hits a record low, as it faces a major foreign investment problem despite the exponential growth in the adoption of cryptocurrencies in the country.
The National Bureau of Statistics (NBS) reported that foreign direct investment (FDI) in Nigeria fell by 33% in 2022 due to a severe shortage of dollars. According to the data, the shortage of data influenced the reduction of FDI, which nosedived from $698 million recorded the previous year to $468 million.
And since its peak of $4.7 billion in 2008, FDI has dropped by approximately 90%, according to the data. As a bullish horizon for cryptocurrency, the country boasts a massively active crypto audience, with many more inclined to keep their money in digital currencies instead of fiat cash.
This has become popular because of the persistent drop in the value of the national currency, the naira. Nigeria ranked eighth among 154 countries in Chainalysis’ 2020 Cryptocurrency Geography Report in terms of crypto adoption and usage rate. This adoption rate should have encouraged more foreign crypto investment in the country, but the opposite is true.
Obinna Uzoije, a local data analyst and crypto enthusiast, told Cointelegraph that the low rate of foreign investment in Nigeria could be attributed to the fact that cryptocurrency use has yet to become mainstream in the country. Uzoije explained that the low investment rate was due to the lack of use of cryptocurrency in day-to-day economic activities and the prohibition of financial institutions from servicing crypto exchanges.
Crypto Ban in Nigeria
The Central Bank of Nigeria (CBN) directed all banks to desist from transacting in or with cryptocurrency-related entities. The CBN also directed banks to close accounts of persons or entities involved in cryptocurrency transactions within their systems.
This directive was contained in a circular dated February 5, 2021, signed by the Directors, Banking Supervision and Payments System Management, Bello Hassan and Musa Jimoh, respectively, and communicated to deposit money banks (DMBs), non-bank financial institutions (NBFIs), and other financial institutions (OFIs).
Further to earlier regulatory directives on the subject, the Bank reminded regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited. Accordingly, all DMBs, NBFIs, and OFIs were directed to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure such accounts are closed immediately. The CBN warned local financial institutions against having any transactions in crypto or facilitating payments for crypto exchanges.
CBN had said in January 2017 that digital currencies such as bitcoin, litecoin, and others are largely used in terrorism financing and money laundering, considering the anonymity of virtual transactions. The attention of banks and other financial institutions is hereby drawn to the above risks, and you are required to take the following actions pending substantive regulation or decision by the CBN, the CBN said in a statement in 2017.
The Bank further directed the banks to ensure that you do not use, hold, trade, and/or transact in any way in virtual currencies. Ensure that existing customers that are virtual currency exchangers have effective capital AML/CFT controls that enable them to comply with customer identification, verification, and transfer monitoring requirements. Also, in February 2018, the CBN warned people who invest in cryptocurrencies to do so at their own risk because they are not protected by the law. According to the CBN, dealing in cryptocurrency or facilitating payments for cryptocurrency exchanges is prohibited.
Nigerian crypto users‘ adamancy
Despite the prohibition on cryptocurrency in the country, Nigerians have consistently preferred digital currencies over fiat cash. In Chainanalysis’ 2020 Cryptocurrency Geography Report, Nigeria ranked eighth in crypto adoption and usage rate among the 154 countries included in the study.
However, the report by the NBS shows there is much work to be done by Nigerian crypto users to attract foreign investors. In a tweet, certified investment trader Olumide Adesina responded to the NBS report by saying that while Nigerians “love” crypto, fintech, and entertainment, no state has taken the initiative to attract foreign investors in those areas. In another tweet, Adesina stated that establishing a real tech and crypto community in Lagos, similar to Silicon Valley, would generate thousands of direct jobs.
According to local media reports, Lagos State Governor Babajide Sanwo-Olu had previously announced proposals for crypto adoption in the state. These inititiatives include creating a dedicated sandbox regulatory framework for cryptocurrencies, establishing a crypto-focused innovation hub, and providing incentives to businesses that accept cryptocurrency payments.
Read Also: Bitcoin outperforms other asset classes in Q1 2023; is this a time to invest?
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