The potential use cases of blockchain technology largely complement Africa’s efforts to address its socioeconomic challenges, but the funds to create solutions have been hard to come by in pre-pandemic times.
But a report published recently by Swiss venture capital firm CV VC in partnership with Standard Bank shows that millions of dollars have started trickling into the continent (pdf) in the form of blockchain financing. According to the study, 41 African blockchain startups in eight countries raised $127 million in 2021.
Anne Kaluvu, a blockchain expert and lecturer at the Jomo Kenyatta University of Agriculture and Technology (JKUAT) in Kenya, tells Quartz there is a lot of vested interest on blockchain in Africa currently.
“I believe the efforts that Africans have shown in their creativity and openness to the technology is inspiring a lot of venture capitalists to salivate on what can happen if funds were availed in this market.”
Nigeria, Seychelles, Kenya, and South Africa are the region’s blockchain darlings
96% of the funding went to Nigeria, Kenya, South Africa, and Seychelles but it was in the first quarter of this year when the millions rolled into the continent more, showing promise of an even better year to come.
“Companies raised $91 million in Q1 of 2022, a staggering 1,668% YoY increase from Q1 of the previous year,” the report says.
The continent’s venture funding growth in the first quarter of 2022 was 11 times the growth of general venture funding in the same period in 2021.
Blockchain financing in the second quarter of this year got off to a quick start, with some noteworthy fundraising by Mara which raised $23 million in Nigeria and Kenya, Jambo which has injected $30 million in the Republic of Congo, and Afriex which pumped $10 million into Nigeria.
The link between blockchain technology and fintech
Globally, blockchain has mostly been deployed to ease pain points in payments, and it comes as no surprise that fintech businesses raised the most funding in 2021 at $67 million, representing 53% of all blockchain funding in Africa.
Exchanges and fintech businesses together accounted for $101 million or 79% of all total funding and the report calls Africa the ‘crypto continent’ as it leads the rest of the world in crypto adoption and central bank digital currencies (CBDCs) despite implicit and absolute crypto bans by 31 countries.
“Funding for blockchain in Africa is increasing because investors believe the continent has a greater potential for adoption,” Nairobi-based blockchain expert Benjamin Arunda told Quartz.
Blockchain smart contracts hold the biggest promise in making Africa a better place for business through tackling corruption, ending vote rigging, transforming health and education sectors, protecting intellectual property, creating fintech solutions, curbing the sale of counterfeits, and decentralizing electricity. The latest wave of funding is expected come in handy.
“There is no market where the growth of and demand for inclusive and accessible financial services is more prevalent than in Africa,” says Ian Putter, regional director of Blockchain Research Institute Africa at Standard Bank.
But Mathias Ruch, CEO of CV VC feels that there is an urgent need for governments across Africa to embrace blockchain technology and develop regulatory frameworks to regulate crypto and linked emerging industries.
“Breaking through the quagmire of apprehension with good regulation will enable the GDP of its countries to be progressively improved,” he says in the report.
Globally, blockchain companies raised $25.2 billion in funding across 1,247 deals in 2021, a 713% increase in funding and an 88% increase in the deal count YoY compared to $3.1 billion and 662 deals in 2020, the survey shows.
The US is still comfortably leading the field, with a 56% share of the global dollars invested in blockchain.