Cryptocurrency and entrepreneurial Africa: reaching the bottom billion
What innovative funding solutions are needed to mobilise substantially greater financial resources to help drive economic development in the world’s poorest countries – especially those in sub-Saharan Africa?
Solutions to this conundrum have become ever more pressing in the decade since the 2008 financial crisis, which have seen Western overseas development aid fall year-on-year from its 2010 peak of $128.7 billion as cash-strapped governments rein-in their spending.
At present, only two countries – Germany and the United Kingdom – have ever reached the UN target of earmarking the equivalent of 0.7% of their gross domestic product for international aid flows, and both countries have seen mounting opposition to the size of their foreign aid budgets. An alternative source of funding must now be identified.
Rapid rise of cryptocurrencies
The rapid rise of cryptocurrencies make them a compelling source of new funding for start-ups. More than 200 coins were issued in 2017, raising some $3.9 billion for start-ups and early stage companies. Those who thought that ICOs had peaked in 2017 have already been proved wrong.
In the first quarter of 2018, around 150 coins have been floated. Collectively, they have raised $4.7 billion for start-ups and early stage businesses, making them a more important source of funding than venture capital. It looks like 2018 is on target for being the record year for ICOs.
Private capital is an enormous source of global wealth but it has not historically played a significant role in addressing the needs of the so-called bottom billion. Efforts to redress this market failure are now at the centre of an emerging private sector-led development drive.
Reaching the bottom billion
Robert Pyke, CEO of the Aziza Project, an organisation that is seeking to boost the success rate of start-ups in African countries, said: “Private capital is always looking for investment opportunities but only backs those prospects that meet its appetite for risk and reward.”
But there is a catch. “Investors seek good returns but are extremely wary of the risks associated with start-ups and small and medium enterprises,” Pyke said, adding: “There is a paradox here. Start-ups can provide high returns. But investors are put off by the high risks involved.”
“There is a paradox here. Start-ups can provide high returns. But investors are put off by the high risks involved.”
Squaring that circle lies at the heart of the Aziza Project’s attempts to make start-ups more attractive to private investors. According to Pyke: “Start-ups play a uniquely critical role in any economy in terms of job creation and wealth generation.”
“This is all the more important in circumstances where governments are looking to make reductions in public expenditure, and big corporates are seeking to improve their profitability – sometimes at the expense of headcount,” Pyke said.
Rollout of the Aziza digital currency
One prospective solution is the rollout of the Aziza digital currency which is designed to boost job creation by providing start-ups with a broad range of business services they need to become viable, thereby making them more attractive to investors.
“The Aziza digital currency is aiming to ride the cryptocurrency wave to raise finance to invest exclusively in start-ups that that will provide investors with superior returns,” Pyke said. “What makes the Aziza digital currency different is that it will own an equity share of these start-ups and provide support services to enable them to grow.”
What makes the Aziza digital currency different is that it will own an equity share of these start-ups and provide support services to enable them to grow.”
Pyke added: “Our ambition is to provide support services in finance, banking, tax and accounting, legal and intellectual property management, human resources, IT and marketing at a higher quality and a lower cost than a start-up or entrepreneur could achieve themselves.”
Support for Africa New Energies
The first start-up being supported is Africa New Energies (ANE), which has title to 22,000 square kilometres of an onshore prospective hydrocarbon concession in Namibia – and area the size of Wales – along with supportive airborne data and geochemical evidence of hydrocarbons – both oil & gas.
Pyke said: “ANE has also developed innovative exploration techniques needed to search for oil & gas across its Namibian concession at a third of the cost of traditional hydrocarbon exploration techniques, and with ten times the likelihood of success.”
In addition, “ANE has also worked hard to create long-term relationships with central government and local communities. Giving the company access to infrastructure, vital local geological insight and concessionary fiscal terms,” he said.
“Finance raised from the Aziza digital currency sale will fund the implementation of a ten-well drilling programme,” Pyke said, “which if successful, will help fund the construction of a hybrid gas-to-solar power plant that will supply low-cost electricity to the local grid, that will in turn deliver a massive stimulus to the Namibian economy, boosting job creation in the process.”
Pyke added: “The ultimate goal is to use Namibia as a proof of concept, then replicate the achievement in other countries across the continent, and in the process light up Africa and thereby bring electricity to the 630 million Africans who currently have no access to the grid.”