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$15.2 Bln Philanthropy Or Real Binance Business Interests in Uganda

Investments
Anastasia Ermolaeva

Today the new fiat-to-crypto exchange Binance Uganda began accepting deposits in local shillings, Bitcoin and Ethereum. On Monday the exchange started to run the KYC procedure. The trading is expected to begin in two weeks. The first available pairs will be BTC/UGX and ETH/UGX, but in the future there are plans to expand the variety of trading instruments. This is the first fiat-to-crypto branch of Binance. There are two main questions: why the company chose Uganda and what impact the new business can have on the country's economy.

The first assumption we can make is that the project pursues philanthropic goals. In 2017, Uganda's GDP amounted to $25.9 bln, which is only 0.04% of the global figure. One of the key sectors of the economy is still agriculture, which provides 24.9% of GDP and employment to 65% of the working population. As for the financial sector, only 24 commercial banks operate in the country, and most of them are subsidiaries of foreign organizations. However, only 11% of the population have bank accounts. Taking these figures into account Uganda can be hardly called a developed economy.

"We think that crypto has a very strong use case in less developed countries. There’s more money to be made in a more developed country, but we want to distribute crypto to the rest of the world”, - says the CEO of Binance Changpeng ZHAO. The platform launch in Uganda is "both a challenge and an opportunity”. The founder of the exchange believes that the country’s poorly developed financial sector will not become an obstacle to the project development, on the contrary, in such conditions, the cryptocurrency adoption into the world trade as a means of payment can be much easier.

"The penetration of cryptocurrencies in Africa is still generally lower than other regions, and this represents an opportunity for crypto businesses, especially exchanges like Binance. Uganda was one of the first countries on the continent with positive body-language towards the industry”, - tells us the partner in a venture blockchain company Olaoluwa SAMUEL-BIYI. The main African blockchain event (Africa Blockchain Conference) was held in Uganda this year. The government of the country was among the event organizers. The conference was attended by the President of Uganda and the founder of Binance, who, according to our expert, interacted with each other directly. “This openness and willingness to engage are very attractive for crypto companies because the risk of fear-mongering and over-regulation is reduced. This makes Uganda a natural first destination for Binance in Africa", - considers SAMUEL-BIYI.

Our other expert, the Project Lead of the Blockchain Community of South Africa James PRESTON suggests that the initiator of the new Binance project could be the government of the country itself, which could be the first to reach the company. The utilization of “cryptocurrency and Ugandan shilling” pairs can create more opportunities for local businesses to trade and integrate into the global economy, which will eventually have a positive impact on the growth rate of the country's economy. "When you consider that Luno, Africa's largest cryptocurrency exchange, trades approximately 1% of Uganda's GDP every year, you can only imagine that should cryptocurrency and its relevant trading take off in Uganda what kind of increase and impact it will have on the GDP. Based on quick calculations, my estimate is that within 2 years, Binance Uganda will be contributing to the Ugandan GDP by at least 0.5%, which is a massive amount”, - concludes PRESTON.

However, if to study the financial sector of Uganda in more detail, it becomes clear why Binance chose this country. And it's not about philanthropy and the sublime goals to boost progress in underdeveloped regions, speaking about which Changpeng ZHAO at least partially, but is dissembling. Binance Uganda is a commercial project that should bring money in the first place.

If only 11% of Ugandans have bank deposits, the rest of the population carries out cash transactions or makes money transfers and payments through mobile phones. The latter category includes 66% of the country's adults — 29 mln people. At the end of 2016, the volume of mobile money transfers amounted to $11.6 bln, a year later this figure already increased by another $2.6 bln and accounted for $14.2 bln. Mobile money transfers have become key financial services and assumed the function of financial inclusion. Given that more than a third of the population, i.e. 14.6 mln people, is below the poverty line, there are enough people who are unable to afford expensive banking services. Moreover, the majority of the population lives in rural areas, where bank branches are not available at all.

The popularity of mobile transactions together with the revenues of telecommunications companies would have continued to grow, if the new tax law, which prescribes to give the state 1% from each mobile payments, had not come into force on July 1. The tax is charged when a user receives funds to his mobile account, personally replenishes it or withdraws money from it. Population negatively reacted to the innovation, which is reflected in the records of the Telecom. In late September, the operators reported that the volume of mobile transactions dropped by 27%, or $397 mln respectively. Although the government eventually made concessions and reduced the tax to 0.5%, critical sentiments among the population remained.

It’s hard to imagine even more favorable moment for Binance to launch its platform. While telecommunication players calculate losses, the cryptocurrency exchange offers users an alternative to mobile transfers and as a bonus promises not to charge transaction fees during the first month. Considering a strong project support by the state, it can be assumed that regulators will not impose a tax on operations on the Binance Uganda exchange in the following six months.

Moreover, Binance is famous for its operational speed, and the new platform will implement the same technologies, that allow the active exchange to perform the scalability of 1.4 mln transactions per second. High efficiency of payment processing will attract not only ordinary people but also investors and business.  

By the way, about the business. Let's not forget that Binance is originally from China, and China is the largest exporter for Uganda, supplying goods at the total cost of $986 mln. The overall trade turnover between the countries exceeds $1 bln. James PRESTONbelieves that the new project will not have an "official" impact on relations between countries, as China has banned cryptocurrency trading. "But unofficially, I think, there will be many deals done in Bitcoin and other cryptocurrencies between Ugandan and Chinese businesses under the table. There is no doubt it will have a positive impact on business opportunity for Ugandans”, - the expert concludes.

The total value of the market, where Binance is the first to step in, amounts to $15.2 bln. In fact, there are no direct competitors for the exchange in this region since there is no other institution that connects fiat and cryptocurrency. In other words, even if the exchange is not able to occupy the entire market, it will at least take a leading position: anyone who comes afterwards, will be doomed to lag behind. Perhaps the company is truly striving to help developing economies and promote the utilization of cryptocurrencies around the globe, however, Binance skillfully combines such aspirations with its business objectives.


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