Industry touts blockchain tech as catalyst to lift intra-African trade
The burgeoning blockchain technology will soon have a stimulating effect on intra-Africa trade, especially as the continent emerges from the COVID-19 pandemic, industry players say.
The insiders say blockchain technology provides a decentralised layer of trust between parties, which is critical to trading, and will soon be a key catalyst to economic growth on the continent.
The caveat comes at a time the continent is implementing the African Continental Free Trade Area Agreement (AfCFTA), which, if successfully implemented, will create a single African market of over a billion consumers.
Louis du Plessis, head of trade finance at RMB, says despite the laudable ambitions of AfCFTA, intra-African trade is yet to gain momentum, and digitalisation, especially use of blockchain technology, can uplift trade on the continent.
“In Europe and Asia, intra-regional trade is well above 50%. It lays bare the enormous potential for much higher volumes of trade on the African continent.
“There is no reason to think intra-African trade couldn’t rise 20% to 30% within the next five years with the use of digitisation and blockchain. It will help circumvent the long-running factors which have held trade back, such as costly processes, a lack of finance, and a lack of trustworthy systems that those trading with other countries can rely on.
“Over the last two years, we have seen significant growth in blockchain projects across the whole trade value-chain, including trade finance, supply chain, shipping and freight, as well as digitisation of trade documents.”
Africa is mellow
Similarly, Carel de Jager, a consultant at the Blockchain Academy, says Africa is ripe for blockchain adoption, especially in the payments landscape, which has no real barriers to implementation.
“If regulatory guidelines that foster innovation and freedom are adopted, it would place the continent in a very favourable position to lead the world by example,” he says.
De Jager believes blockchain-facilitated payments are very mature and plug-and-play solutions already exist that can be implemented with little effort.
“These alone have the potential to massively benefit the continent. Africa has thousands of payment methods, but they are often bound to geographical jurisdictions and, therefore, don't speak with each other. There is lots of friction that erodes value when payments are attempted to bridge these networks. Money trails are often opaque or non-existent. A blockchain rail works seamlessly, and can include smart conditions like escrow or multi-party authentication for free.”
However, he cautions that most use cases of blockchain technology other than payments and escrow would require further development and a well-defined policy or regulatory framework before they can be used at scale.
For Farzam Ehsani, VALR co-founder and CEO, blockchain technology is a solution to many problems that are “fundamentally related to inefficient work flows or poor governance”, including trade on the continent.
He, however, also cautions that while blockchains may help in some domains, “we have a lot of work to do to improve our governance structures in society which will ultimately determine the extent to which we can progress as humanity”.
Ehsani adds: “Blockchain technology and particularly the native assets on blockchains – namely crypto-currencies or crypto assets – are tremendously powerful technologies that promise to revolutionise many of humanity's systems.
“However, it must be remembered that blockchains and crypto assets are tools, and as such, the extent to which they help humanity depends on the willingness of people and governments to use them appropriately.”
Marius Reitz, Luno GM for Africa, says blockchain technology is still relatively new and it will take some time for its full benefits to be realised; however, in the context of intra-African trade, one of the technology’s most promising applications is seen in crypto-currencies.
“In the absence of an official continent-wide currency, they [crypto-currencies] offer a viable means of exchange that can enable effective and efficient cross-border payments, greater currency stability and increased access to financial services for the informal economy.”
Furthermore, he says, blockchain technology could better equip Africa’s informal economy with the financial services to boost participation in intra-African trade.
“Although some studies estimate this sector contains over $1 trillion in wealth, the traditional banking industry has struggled to serve the informal economy for decades due to its prohibitive cost structure, leaving many informal businesses with cash as the main medium of exchange. This is limiting a huge section of the economy to trading within their immediate circles.”