It looks like cryptocurrency could really help with remittance payments and boost worker salaries in Africa.
Study in Africa Shows the Power of Crypto
A study was conducted in Nairobi, the capital of Kenya. In this nation – and several other nations of Africa – a new industry referred to as microwork has emerged over the past ten years. Microwork is the practice of breaking up large tasks into smaller ones so they can be tackled by many people at once.
This is a huge jump in the way things are done in Africa, particularly in terms of worker payments. As it stands, the average person in Africa only makes about $4.35 per day, but thanks to microwork, they stand to make as much as $7. However, there are problems with paying people in that doing so invokes fees, and thus it is stated that crypto-payment options could wind up making payment collection in Africa a lot easier for workers.
Some of the companies taking part in the mentioned study include Celo, a mobile defi platform; Appen, a publicly traded data company; Kotani Pay, a technology platform based on blockchain, and Niaro Bits, a non-profit in Kenya designed to assist disadvantaged youth. Mercy Corps Ventures (MCV) senior managing director Scott Onder commented in an interview:
We trained 200 Kenyan youth to access digital microwork from global platforms using a mobile app and integrated Valora digital wallet, which is built on Celo. Our pilot tested how a stable coin could reduce the costs and challenges of sending and receiving cross-border micropayments over a three-month period.
Celo partner Will Le says that the study was quite successful and shows just how strong crypto can be when it comes to remittance payments and ensuring employees get their paychecks on time. He said:
By reducing financial frictions, we introduced a new model for tapping talent across borders, which was not previously possible with traditional financial infrastructure. Cryptocurrency, and specifically stable coins, could hugely reduce the cost of remittances and foster cross-border commerce.
How Much Are These Payments Worth?
After the study was completed, MCV mentioned in a statement:
Given that the average cost of remittances to the value of $200 is significantly higher than the global average (8.72 percent in sub-Saharan Africa versus 6.30 globally), the savings are potentially even greater. If all those transactions only cost the 2.02 percent enabled during the pilot, the total potential impact to the Kenyan economy could be over $200 million, or 0.22 percent over Kenya’s overall GDP… High transaction fees, especially for lower payouts, mean that micro workers often forfeit a significant portion of earnings (with a global weighted average cost of 4.71 percent, but in some cases, up to 30 percent of gross earnings).
In 2021, remittance payments accounted for more than 3.5 percent of Kenya’s overall GDP and had a value of around $3.7 billion.