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A technical recession has not struck South Africa since 2009; and now, the South African Rand (ZAR) has taken a slump back into an economic crisis. Could cryptocurrency help revive Africa’s most developed economy?
According to Statistics South Africa (StatsSA), the country’s economic recession is the cause of a 2.6% decline the first quarter (Q1) of 2018, with an additional 0.7% GDP contraction in economic activity in the second quarter (Q2). A Reuters poll of economists believes that the country’s economy struggled to gain traction in Q2 after its worst quarterly contraction in 9-years in Q1 due to capital controls.
StatsSA also reveals that the plummet was led by a decline in the retail, transport and economic sector. Along with the release of the data, government bonds experienced a drop.
Factors sparking South Africa’s recession in 2018
Areas affected in Q2 (2018)
|Agricultural sector||– 29.2%||–|
|Transport, communications and storage||– 4.9%||–|
|Mining output||–||+ 4.9%|
|Gross fixed capital||– 0.5%||–|
Poverty, unemployment and inequality within the country’s emerging economy have gone widely unnoticed. South Africa’s recession does not help considering that it will only accelerate job losses and further erosion of the ZAR. In 2018 alone, South Africans took a financial knock on their pockets with an increase in the VAT, sugar tax and fuel prices.
In addition to VAT and fuel price increases, the lack of banking integration, credit card penetration, high remittance charges and the instability of the South African Rand is a massive problem where widespread poverty is present. In turn, this has made a large contribution to the contraction in economic activity and the result of wide-spread recession across the country.
With few options for survival, the main question is what measures can be taken to stimulate the economy?
South Africa would not have much leeway to inject liquidity into the economy by cutting interest rates. The South African Reserve Bank is also limited in its ability to simply inject cash for economic stimulus. So, how do South Africans act during a financial crisis? Well, they flock to the next big thing that can make them money – cryptocurrency.
While economists’ prediction of an economic crisis has entered reality, it’s questionable as to whether cryptocurrency can help scale South Africa’s economic recession. Cryptocurrency industry holds the second fastest growing economy in the world. Google trends and South Africa’s increasing financial growth show that there is a wide-scale demand for cryptocurrency in South Africa. A demand that is being ignored.
“There is an exciting opportunity to put an open access, secure and private decentralised financial system in the hands of emerging African economies. We believe that cryptocurrency has the potential to revolutionise the way Africans bank, and the launch of our integrated offering is our first step in doing so,” says Chief Product Officer at Coindirect, Stephen Young.
Can Cryptocurrency pull South Africa out of recession?
Every economic market fluctuates. Regardless of the circumstance, the economic cycle is the same in most, if not all, cases. First, there is a market surge. Next comes the bull market where we believe we’ve got the sentiment figured out. Then the economic crash strikes. Finally, a political rush of annual promises and regulations sets in with the feeling of recovery.
Companies servicing South Africa’s financial sector, such as Coindirect, has also placed a large focus on the country’s unnoticed market. To eschew from centralised institutions, millions of money are being poured out into cryptocurrency and blockchain research by institutions around the world.
At the same time, governments are finally seeing the benefits in regulating cryptocurrency to help stimulate economic growth. For example:
- Kenya has developed a blockchain and cryptocurrency project to boost its logistics and transport industry – an industry currently affected by the South African recession. Read more about the Kenya cryptocurrency.
- Businesses in Venezuela have started accepting Bitcoin payments to help Venezuelans combat hyperinflation put in place by the country’s centralised government.
- Asian governments have invested in large amounts of Bitcoin in preparation for a drop in fiat currency prices and depreciation.
- The financial crisis in Greece also forced citizens to migrate to cryptocurrency to protect their value from hyperinflation.
Many consumers have access to use cryptocurrency for everyday transactions at almost 0% transaction fees. While people have stopped or slowed down spending on retail, many have started investing in cryptocurrency to gain an extra bit of cash that could help improve their standard of living.
Moreover, cryptocurrency trading pairs on cryptocurrency exchanges offer a fresh solution to help South Africans during the economy’s recession. Many altcoins (alternative cryptocurrencies) such as Tether (USDT) is tied to the US Dollar and can be used in remittance to avoid paying exorbitant cross-border charges brought by fiat transfers. The Coindirect Exchange offers 15 fiat-to-crypto trading pairs; including ETH, USDT, XRP, LTC, DASH, BCH and BTC trading pairs.
It’s clear that cryptocurrencies and blockchain technology do have many uses other than just as a store of value during South Africa’s recession. Coindirect accelerates the adoption of cryptocurrency for a decentralised South African ecosystem.
#OwnTheFuture with Coindirect.
Disclaimer: This article should not be taken as financial advice. Never invest what you can’t afford to lose as the cryptocurrency market is volatile. Always research as much as possible before buying any coin.