Using available African use-cases, we have shown how blockchain technology and cryptocurrencies could be hugely significant for the continent’s international trade. Recent advances in developed markets, where the blockchain evolution is already in high gear, clearly show how blockchain technology and cryptocurrencies are precisely the innovations African countries need to overcome longrunning trade constraints. Blockchain and cryptocurrencies would enable easier, cheaper and more fraud-proof international trade transactions and relationships for the continent’s traders and partners.
Blockchain technology enables more transparent, cheaper, and quicker international trade. Firms doing business on the African continent grapple with cumbersome and corrupt trade systems, adding to costs. And even as many firms do their utmost to ensure the stated provenance of traded goods are indeed true, there is a great deal that slips through the cracks. Sometimes, it is simply the case that authorities and traders lack the data or capacity to say for sure what the actual source of traded goods are, how they were produced, and in what conditions they were produced. Supply-chain tracing via blockchain would go a long way in resolving such issues.
Greater transparency also means greater scrutiny. With more information at the disposal of authorities owing to blockchain technology, trading firms may face increased taxation. With a better picture of how much value is created, local upstream stakeholders in the value chain may also demand more value be apportioned to them. These should be gains ideally. Still, the bottomline benefits to firms from the information asymmetry that the current cumbersome trade processes facilitated hitherto would also be lost. Even so, the expected gains from reduced costs, shorter lead times, and greater efficiencies owing to a blockchain-based system, should more than offset any such potential losses.
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International firms grapple regularly with hard currency shortages and controls in many African countries. Cryptocurrencies provide a viable means to overcome this longstanding challenge. And even as an increasing number of African central banks are growing wary of cryptocurrencies, discouraging or banning commercial banks from facilitating transactions, their utility as an alternative means of cross-border payments for international trade transactions remains.
Blockchain technology enables more transparent, cheaper, and quicker international trade. Firms doing business on the African continent grapple with cumbersome and corrupt trade systems, adding to costs.
There is a greater onus on Africa’s international trading partners to motivate blockchain adoption. The technological know-how, experience and capacity are still predominantly tilted towards firms in developed economies. Asian firms, which increasingly do more business with African businesses, setting up subsidiaries or trading with local firms, stand to benefit a great deal from more transparent and efficient trade processes on the continent.
Besides, there should be greater interest by Asian blockchain firms in facilitating the upgrade of African trade processes for blockchain. Africa increasingly does more trade with Asia than any other continent. Singapore, which is considered Asia’s cryptocurrency and blockchain hub, is particularly well-suited to lead the charge.
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The following recommendations apply to firms engaged in international trade on the continent, blockchain technology firms that should find deploying the new systems lucrative, international development firms that would be needed to manage government-stakeholder interfaces, and indeed African governments themselves, whose economies stand to benefit a great deal from the potential efficiencies from a blockchain-based international trade system.
They are viz. (1) Optimize African supply chains with blockchain (2) Facilitate Africa-Asia trade digitalization initiatives (3) Engage African central banks on digital currencies and payments (4) Seize digital infrastructure opportunities (5) Bridge knowledge and capacity gaps.
An edited version of this article was first published by Nanyang Business School’s NTU-SBF Centre for African Studies, Singapore. References, figures and tables are in the original article. See link viz.https://www.ntu.edu.sg/cas/news-events/news/details/can-blockchain-and-cryptocurrencies-facilitate-african-trade
