Current Economic Situation in Kenya
Despite being the largest economy in East Africa, Kenya has faced and is still facing several challenges that are consequently detrimental to the economy. These challenges range from natural conditions such as drought and the COVID–19 pandemic, and human factors such as political instability and currency devaluation. However, Kenya’s resilience through these storms may be greatly attributed to its establishment of the Kenya Vision 2030, in 2008.
The Kenya Vision 2030 was released in 2008 after a series of consultations from local and international industry players. The content of the Vision 2030 is also inclusive of the opinions and suggestions from ordinary citizens, in a participatory process conducted between October 2006 and July 2007.
The official website of the Kenya Vision 2030 writes on the vision thus:
A national long-term development blueprint to create a globally competitive and prosperous nation with a high quality of life by 2030, that aims to transform Kenya into a newly industrializing, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment.
The World Bank Group (WBG) is also highly invested in the success of Kenya’s national reformation plan. In November 2022, a framework was designed by the Fiscal Year (FY)2023-2028 Country Partnership Framework (CPF) in alignment with five major provisions.
The CPF drew from the WBG’s Country Partnership Strategy (CPS) FY14-FY20 for Kenya, lessons from the CPS Completion and Learning Review (FY22), the FY20 Systematic Country Diagnostic, a Country Private Sector Diagnostic (FY19), over 34 stakeholder consultations, and is aligned to the Kenya Vision 2030. It also aligns directly with the World Bank’s Africa Strategy, focused on jobs and economic transformation, digital economy, human capital, universal access to electricity, climate change mitigation and adaptation, addressing fragility, conflict, and violence, and achieving gender equality.
In the course of the implementation of this World Bank strategy, up to $10.17 billion has been invested in Kenya, through the International Finance Corporation (IFC), the International Bank for Reconstruction and Development (IBRD), the Multilateral Investment Guarantee Agency (MIGA), as well as the International Development Association (IDA).
Kenya achieved an average of 5.2% growth in its GDP in 2023 which is a progressive increase from 2022’s 4.8%. The country has been innovative in growing its economy by diversifying its revenue sources and trade offerings. Some of the major revenue sources for the Kenyan economy include the agricultural sector, tourism, manufacturing, and transport and infrastructure.
Crypto Law in Kenya
The Central Bank of Kenya (CBK) has for a long time publicly expressed its hesitation towards Bitcoin and other virtual currencies. It is therefore dignifying to find the progress that the country has made in opening its arms and accepting cryptocurrencies as a part of its fiscal policies in recent years.
Prior to the Central Bank’s recent acceptance of digital assets, the body released a public notice in 2015, clearly notifying the public of the risks associated with using, holding and trading cryptocurrencies. Some concerns raised in the public notice include ease of money laundering and terrorism financing, lack of regulation, and the general high-risk nature or volatility of virtual currencies. However, the positive clause to the statement was that Kenya’s Central Bank was careful not to criminalize crypto-related transactions. It said instead that, “CBK reiterates that Bitcoin and similar products are not legal tender nor are they regulated in Kenya. The public should therefore desist from transacting in Bitcoin and similar products.”
Apart from the benefit of this lack of prohibition for consumers and companies alike, it has perhaps also made it easier for the CBK to transition to its current state of acceptance and monetization. Kenya has now taken bold steps in recognizing the viability of cryptocurrency and assimilating it into its financial ecosystem. Also, to alleviate the concern of lack of regulation which it raised in its 2015 Public Notice, Kenya has also put in place regulatory frameworks to guide the operation of cryptocurrencies among companies or service providers and the general public.
There are three acts regulating cryptocurrencies in Kenya. They are:
- The National Payments Systems Act (NPSA): This is under the jurisdiction of the Central Bank of Kenya. Through this act, the CBK is able to ensure that all crypto payment service providers are safe for users to interact with.
- The Capital Markets Act (CMA): This is under the administration of the Capital Markets Authority (CMA).
- The Kenya Information and Communication Act (KICA): Compliance to this act is monitored by the Communications Authority of Kenya.
Other regulations on cryptocurrencies include the licensing requirement for firms under the Money Remittance compliance rule, as well as the taxes placed on crypto transactions.
Current State of Crypto Adoption in Kenya
The Kenyan cryptocurrency market has consistently grown since its government’s public warnings on the state of the ecosystem in 2015. As at July 2023, Kenya was recognized by Forbes as one of the top five crypto owning countries in Africa, with a trading volume of about $18.6 billion from at least 8% of the country’s population.
In the world, cryptocurrency is most popular among people below 35 years. Therefore, Kenya’s current population of 80% youth proves the country a fertile ground for cryptocurrency. Further evidence of this is Kenya’s 15th place as CoinGecko’s most curious country about crypto. Also called “Silicon Savannah” (nicknamed after the Silicon Valley), Kenya’s technology ecosystem is booming and cryptocurrency is a huge part of this.
Kenyans have adopted a robust utility approach towards cryptocurrencies, viewing them beyond digital assets for investment purposes. Crypto has been incorporated into companies such as AZA Finance that allow businesses make or receive international payments at a cheaper rate, Fonbnk that allows users exchange airtime for crypto, and Grassroot Economics that drives community inclusion through crypto. These, in addition to more popular peer-to-peer exchanges like Binance, have contributed to spurring Kenyan’s attraction to the blockchain ecosystem.
Factors Affecting Adoption of Crypto in Kenya
The compliance rules stipulated by the Central Bank of Kenya has played a major role in the rate of crypto adoption in the country. While the licensing requirement for crypto firms makes for a more secure transacting environment for users, the 3% tax on digital assets may affect users’ willingness to hold or trade in large volumes. Meanwhile, the digital asset tax is one of the several taxes that crypto users in Kenya have to deal with.
The Kenyan Revenue Authority (KRA) published a revenue of over $77.5 million from crypto transactions between 2023 and 2024. The KRA is now set to implement a new real-time tax system to monitor all on-chain movement and maximize tax revenue. Therefore, Public reception of revenue made off their digital assets can subsequently affect how they interact with crypto.
Conclusion
Kenya’s government has come a long way from being apprehensive about cryptocurrencies to discovering and exploring the sector as a gold mine. Although there are concerns about the KRA increasing interest in the crypto sector as evident in its plans to implement a real-time tax system, this development only aligns with the authorities across other revenue sources, through the tax source programme. Despite the growth of the Kenyan cryptocurrency sector and its positive effect on the economy, Kenya still falls 10% behind its Vision 2030 target. According to the African Development Bank Group, Kenya needs to average $12 billion per year to reach its goal. The potential of cryptocurrency to fast track this is high, but may require more innovation from the government to drive crypto adoption and attract crypto investors and firms to the country.
