A few days ago, the Nigeria Revenue Service held an interactive session with the virtual assets industry, in an attempt to throw more light on its recent circular on virtual assets taxation. As expected, the industry’s misgivings did not exactly evaporate into the ether, even though the NRS was doing its part, as expected, to sell the policy as the best thing since the fuel subsidy removal.
At some point, when asked why crypto transactions could not receive the same flat-rate stamp duty treatment as fiat currency transactions, the NRS hedged, went off on a tangent, circled back, and ultimately laid the blame at the door of the legislature. It is difficult to see how the National Assembly can be held responsible for a policy document issued by a federal agency.
While we continue to grapple with the substance of the policy, and persist in advocating for concessions on this and other unfavourable measures, the government’s body language deserves closer analysis.
First came a blanket ban, years ago, on all crypto and crypto-related activity. Then a reluctant, gradual lifting of that ban. It is difficult not to conclude that the reversal came only once government realised these trades would happen underground regardless. So the cleverer move was to promise licences, coax more operators out of the shadows, and keep them in an almost eternal sandbox.
What, then, is the government’s problem with crypto? Here is my theory. Blockchain technology is disruptive. That word gets thrown around a lot in tech circles, but this is one instance where it is truly earned. Blockchain technology is extremely disruptive. If decentralised finance were its only use case, that alone would be more than enough disruption to reckon with. Most technological advances hailed as “disruptive” have historically upended other business models or business processes. This time, both business and government face disruption simultaneously.
The government of every independent republic, kingdom or state holds, as part of its sovereign mandate, the regulation of its economy. Governments deploy fiscal and monetary policy as tools to achieve a range of economic aims. The rise of virtual money, stablecoins chief among them, presents a challenge most governments are wholly unfamiliar with: a store of value and unit of exchange that cannot quite be called legal tender, yet is increasingly “popular tender”, and over which government has essentially no control. This is what keeps policymakers up at night.
One clear illustration of the government’s dilemma is its struggle to control the FX rate and dollar supply in the face of easily accessible dollar-pegged stablecoins.
There are three things Nigeria’s government should do about this.
First, it is encouraging that the government appears to recognise this as an “if you can’t beat them, join them” situation. But recognition is not enough, it must be willing to embrace this technology within its borders in full, rather than through half-measures that signal only half-hearted acceptance and, worse, an intention to frustrate the market and its players. The NRS virtual assets tax policy, as it stands, comes across as exactly this kind of cynical policy.
Second, government should build robust legislation rather than governing by circular or executive order. Great nations are governed by the rule of law, not the rule of circulars.
Third, it should deploy every tool at its disposal to secure the success and dominance of naira-pegged stablecoins, like the cNGN, which potentially could be as advantageous to the naira as the USDC is to the US dollar. Concretely, that means setting real adoption targets, easing on/off-ramp friction, and giving cNGN preferential treatment in government-linked settlement rails, so the comparison to USDC is more than aspirational.
Nigeria holds considerable political, diplomatic, economic and military leverage within the West African economic bloc and across the African continent. With the intentional deployment of statecraft, naira-pegged stablecoins could emerge as the de facto trading currency if not in all of Africa in most of African intra-continental trade, particularly within the West African corridor. None of this happens by accident, and it requires intentionality.
The most successful countries treat business as a national priority and prop up their economic poster-boys. Economists call this a National Champions policy. According to writer Marília Maciel, “From a governmental perspective, national champions are usually private-led companies seen as vital to promoting the interests of the nation. Often, this recognition translates into governmental policies that support or favour these enterprises in the domestic market or abroad.”
In my view, Nigeria must adopt the doctrine that business is geopolitics, and use its considerable regional heft, as other nations do, to promote and protect its own national champions. This is one way the Federal Government can absorb the disruptive shock of the blockchain economy, while simultaneously co-opting it as an asset to national economic prosperity.
MELA CLAUDE AKE, Esq is the President of Stakeholders in Blockchain Technology Association of Nigeria (SIBAN)