Why Kenya’s Impending Dollar Shortage May Pave The Way For Crypto Adoption

The writing is on the wall. The entire world is gearing up toward the likelihood of a major recession, and the winds of worry are slowly blowing across the African Savannah. Kenya in particular is having a hard time keeping her economy afloat. A perfect economic storm is brewing in the country that is likely to set the stage for the emergence of a new economic order. The looming shift, depending on how the situation plays out, may result in a renaissance-like adoption of decentralized finance and digital assets. 

Listed below are some of the factors that I believe will lead to increased adoption of Blockchain-related financial products in the near future: 

  1. Steady Depreciation of The Kenyan Shilling Against the Dollar

The Kenya shilling is currently trading at historic lows compared to the dollar. The CBK ‘s official rate currently is at Ksh 117 to the dollar, but some manufacturers claim that the actual purchase rate at bank desks is Ksh.120. The steady decline has been occasioned by reduced growth after the pandemic, a huge external debt obligation by the government, skyrocketing global oil prices, and reduced forex reserves due to lesser inflows from erstwhile booming money makers like tourism. This has resulted in sharp increases in the prices of basic commodities necessary for daily survival by citizens, e.g cooking oil, bread and milk. Smart capital seems to be fleeing the country, with record outflows from institutions like The Nairobi Securities Exchange (NSE), seeking a safer haven against erosion. 

  1. An Impending Dollar Shortage

“Uchumi ni mbaya my fren!”. This is the rallying cry across the nation, as the effects of the global economic downturn seep into the pockets of citizens, evaporating away their hard-earned fortunes. The Kenya Association of Manufacturers (KAM) has also raised the alarm on the biting dollar shortage, a factor that they say has impeded the production capacity of its members. Should the situation continue unabated, they say massive layoffs will be the only way forward. The situation is also compounded by the fact that Kenya is a net importer, relying on other nations for the majority of its production components. The Russia-Ukraine conflict has also exacerbated delays in the global supply chain, making it harder to receive goods. 

  1. Potential Unrest Due To An Upcoming General Election.

A keen observer of local politics would opine that Kenya’s economic growth is inextricably connected to the country’s electoral cycles. Tensions have marred previous elections, with violence, internal displacement, and a general reduction in industry and business a hallmark of the process. This inevitably translates into reduced economic growth, as investors wait for the politicking to end before injecting money into projects. True to this, reports from Stanbic Bank’s Purchasing Managers’ Index (PMI) cite that confidence in the business sector is dwindling steadily as we approach the August elections. Savvy investors are likely to transfer their assets into stable positions, and the use of crypto dollars is one potential avenue of escape. 

  1. A Global Push Towards Regulation of Crypto Assets

The influx of institutional funding in the crypto space between 2017 and 2022 has led to increased uptake by the masses. This has created the need for formalization of the industry through robust consumer protection policy and legal frameworks. The United States, for example, recently approved a bipartisan bill that has set the stage for debate on regulation. Japan also recently passed a law that regulated stablecoin providers. The Kenyan government’s stance towards regulation has been accommodative, except for an explicit policy by the Central Bank warning all its licensed entities from engaging as on or off-ramps, and warning investors of the volatile nature of crypto assets. The Central Bank has also been experimenting with the possibility of launching its own digital currency.  16% of Kenyans reportedly own crypto. 

  1. Flexibility and Sovereignty of Assets Held Under Self Custody

The adoption of digital assets, especially stablecoins, may be a blessing for the unbanked or underbanked in Kenya. Although MPESA has revolutionized the system and given many means through which to transact, it is still not fully optimized. The centralized entity behind the platform charges exorbitant transaction costs, does not give optimized yields on any savings made with them, and still requires a user to have an identification card, a luxury that is not available to 38% of the population. Data by the Communications Authority (CAK)  from last year, however, indicates that about one out of two Kenyans owns a smartphone, making the country a great possible entry point. 

My call to action to my readers would be to start educating themselves, in order to embrace the unlimited possibility that may be brought by decentralized finance products. Besides allowing you to escape the erosion of the Kenya shilling, keeping your savings in stablecoin format allows you returns that are better than any traditional bank rates, in a secure, self-custody environment. Most platforms provide returns between 7% to 9% for staking your dollars in crypto. 

The legacy financial system is in its death throes, and only the brave will be able to take charge of their assets and create an empowered, inclusive, decentralized new economy.

Norman Gabula Commercial & Tech Lawyer | Crypto, Blockchain & Decentralized Finance and Consultant Sheria Online.