How Will Blockchain Change Africa?
A number of countries in Africa have seen rapid technological development in recent years, as exemplified by mobile internet deployment across Uganda and Tanzania.
This is largely due to a lack of existing infrastructure and regulation allowing for new technologies to leapfrog traditional solutions and for policy frameworks to be implemented in conjunction with new products. This results in stable macroeconomic environments which now sees countries, such as Kenya, as a favourable market for tech investors.
Blockchain and other decentralised systems are likely to be the next technology to capitalise on this ‘test and learn’ approach as they are well suited to manage data, financial assets and B2B transactions without the need for intermediaries. As a core principle, Blockchain improves the quality, reliability and accessibility of data and for this reason, they have the potential to alleviate various issues which can arise when conducting business.
Whilst recognising that there will be regional and national level nuances to Blockchain’s implementation, this report highlights how the technology is expected to affect business across the continent. By no means exhaustive, the examples below represent areas in which Blockchain is likely to have a significant impact in the short to medium term.
Due to their reliance on international commodity markets, African currencies can lack stability. The result is that the US Dollar is often used as an informal currency, particularly by businesses. This presents its own issues as foreign currency reserves are often limited – as an example Zimbabwean banks cap daily cash withdrawals at USD $20.
By using cryptocurrencies, businesses can benefit from a stable store of value and hedge against inflation whilst avoiding reserve issues. Furthermore, cryptocurrencies aren’t geographically restricted which has the potential to facilitate cross-border trade.
BitPesa is currently pioneering this process by hosting B2B payments and offering a real-time settlement at wholesale FX rates to frontier and emerging markets through mobile money networks.
At present, land tenure in many jurisdictions lacks clarity and security – this leads to the issue of ‘dead capital’ as lenders are typically unwilling to securitise land. This prevents effective utilisation of one of Africa’s most significant assets and hinders entrepreneurs who are otherwise unable to raise capital.
Unclear land rights also pose difficulties to international investors (particularly in the projects sector) as the security of tenure is critical to ensuring a project’s success. Many countries have taken steps to alleviate this issue; however, most records still remain paper-based.
Blockchain has the potential to resolve this issue and is currently being trialled in Ghana where the government is working in collaboration with Bitland; a startup which allows land to be surveyed and title deeds to be recorded on the Bitland Blockchain – creating a permanent and auditable land record.
Effective supply chains are critical to development and are of particular importance to many of the continents land-locked states such as Uganda which relies on imports by road from the Kenyan port of Mombasa. Although in operation, many supply chains perform suboptimally which increases the cost and decreases the efficiency of conducting business.
Blockchain can assist with alleviating this issue through a number of mechanisms such as resource management and performance-based incentivisation. Currently, commerce management operates in a siloed fashion with limited information sharing, leaving resources unused or underutilised.
As Blockchain is implemented and full supply chain data becomes available, it will be possible to assess a supply chain’s capacity in real time and automatically allocate items to available space in containers, warehouses and vehicles. This has the potential to substantially reduce bottle-necking that occurs at many terminals.
Furthermore, as individual products will have an increased data history, it will be possible to analyse the efficiency of their transit. Local supply chain partners can then be remunerated on this basis, encouraging distribution efficiency.
The legitimacy of this approach can be seen with Walmart’s Blockchain trials in association with IBM where various smart contracts have been implemented to provide an overview of a product’s supply chain.
Trust Mechanism/ Bureaucracy
Due to their codified nature and automatic execution, Blockchain contracts have the potential to provide greater transparency over contractual compliance – thereby acting as a trust mechanism for contractual relationships and alleviating a significant business risk.
In addition, the distributed nature of the data across multiple nodes ensures that information cannot be held by single organisations/ institutions; nor can data be altered or its accuracy challenged. This will assist with the information imbalance which exists when dealing with many public bodies.
Additionally, smart contracts can have the capacity to track every dollar spent. This will be of particular benefit to lending institutions and will ultimately allow entities which are more risk averse to invest in the African market. BitFury (an American based company) is currently assisting with this process through its involvement with African Bitcoin payment providers such as BitPesa, mentioned above.
As demonstrated above, Blockchain has enormous potential to revolutionise business in Africa and its implementation is compelling. Although in its early stages, we are seeing an exponential growth in the technology’s foothold in the continent and initial trials are proving successful. Furthermore, governments appear to be actively engaging in Blockchain’s implementation which is crucial for technologies to be successfully deployed in the country.
Notwithstanding the above, we suggest that comprehensive legal advice is sought in conjunction with Blockchain deployment to ensure that companies fully reserve their legal position in this relatively untested market.
Peter Kasanda & Lee Bacon, partners at global law firm Clyde & Co