Digital finance, forex trade industry a boom or doom to the African economy?

Gifty Annor-Sika Asantewah

Africa has seen a paradigm shift in the fronts of business operations in the past few years, especially in 2020 at the peak of the COVID-19 pandemic brouhaha. The African continent is creating an entirely new developmental path harnessing the potential of its resources and people, as highlighted by the World Bank Group report.

Most economies in the Sub-Saharan region swiftly gravitated toward digitalization, especially in the financial sector.

Globally, all economies are fiercely pushing to find their stands in the digital ecosystem to broaden their technological and digital horizons to keep up with the ever-changing demands on products and services and in all aspects of the government and corporate world.

The digital economy thrives on technology or smart gadgets but whilst it is estimated that almost 45 percent of Africans are with smartphones and on social media, unfortunately, about 85 percent of the population of about a 1.216billion Africans have no knowledge of what the digital finance industry and online trading are all about.

Africa has been tagged as a lucrative destination for foreign investment even though as a whole the continent is dealing with economic challenges; growth has been quick and substantial. It is emerging as a new frontier for forex /online trading.

Per the Bank of International Settlement survey in 2019 on foreign exchange and the counter market report, South Africa’s forex daily volume was US$2.21billion with a total turnover for all forex instruments standing at US$21billion. Nigeria’s daily volume stood at US$314million whiles Kenya’s daily volume stood at US$192.66million thus making South Africa’s rand rank top of the traded currencies in Africa and 18th globally.

Reports indicated that the retail forex and online market in South Africa have high rocketed from $14billion to $21billion between 2013 and 2016 and this was attributed to impressive stands and liberal political views on forex matters.

Unfortunately, the online trading and the blockchain technology industry are met with hostility in Africa as it throws governments out of their control due to a lack of proper fundamental grounding in the capital market.

A robust regulatory and strict licensing regime with massive technical know-how is required to tap into this trillion-dollar industry which currently possesses the ability to save Africa from drowning in unemployment and cyber criminality.

Why are African Governments shying away from Foreign Exchange Market/Online Trading?

There is a big question that needs to be answered. Which is ‘why are African governments shying away from the biggest financial industry in the world (foreign exchange market/online trading)?

The Business and Financial Times in publication on March 1, 2022, headlined ‘Regulatory Dilemma Makes Bank of Ghana Resolute Against Cryptocurrencies’, is a statement that needs probing as it said a lot about the development of the country’s capital market.

The digital finance industry mostly dominated by the foreign exchange market (online trading) has been considered a nonstarter in most African countries. Could this be due to a lack of robust regulation framework, lack of technological know-how, or just conservative bias and fear of change?

The Forex Suggest released a report stating that the forex market in 2021 is worth US$2.409quadrillion with 7.6 trillion volumes of daily transactions. Experts say Africa represents the most exciting growth opportunity for international forex brokers.

Thank goodness for brokerage firms such as Geldex Invest and the likes operating in other African countries to massively impact financial literacy training across the regions despite the limitations in the region.

The central banks must innovate and move faster to find their feet in providing regulatory frameworks that will help the continent tap into this huge financial stream whilst it still flowing seamlessly.

Central banks intervene in the foreign exchange market to achieve a variety of overall economic objectives such as controlling inflation, maintaining competitiveness, or maintaining financial stability.

As Leonard Oniriuba, Bank of Risk Management in Development Economies 2016, rightly put it, the dynamics of the foreign currency market and deals are quite intriguing as the market dwells on the volatility of securities and financial instruments and is inherent in some measure of risk. Yet the market also presents interesting risk-return paradoxes that can make any economy profitable.

What the Future Holds for African Economies

Reports indicate that 85 percent of economies are adopting digital currency and blockchain technology. African countries like Ghana and Nigeria are frontiers in the digital currency movement.

Banks are fast drifting towards online banking operations, the digital economy has become the new order and human involvement is at this point at a disadvantage.

It’s paramount to emphasize that robotics and automatic engineering are taking over human Labour in the next few years looking at the fast adaptation of technologies the world over.

Although the broader market has experienced a variety of unexpected negative effects due to the COVID-19 pandemic and the Russian Ukraine war, the forex market has remained relatively unscathed. The volumes of trading increased due to the volatility the pandemic brought on. The increased volatility globally brought a huge number of opportunities to forex traders.

The Bank of international settlement survey 2020 indicated that the global gross domestic product (GDP) in 2019 amounted to roughly US$142 trillion -meaning the turnover of the forex market is almost 17 times larger.

The forex trading market dwarfs even the largest stock exchanges in the world for example the National Association of Securities Dealers (NASDAQ) which has a daily volume averaging around US$200billion,

Over 170 currencies and thousands of stocks, indices, derivatives, etc are traded online on the global forex market. Some forecasts such as the IMARC group predict a compound annual growth rate of six percent in the next five years globally.

Can we now say a great financial breakthrough found Africa in rather unsettling circumstances?

Article by: Gifty Annor-Sika Asantewah, Financial consultant-Geldex lnvest.


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