Blockchain & cryptocurrencies: Prospects for African trade (7)
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.
Optimize African supply chains with blockchain
Asian firms doing business on the continent, most of which are in the agricultural and mining sectors, would be able to improve their operations with blockchain technology. Chinese firms are major players in the rare metals mining industry in key African countries. And while these are legitimate mining endeavours, there are many smaller-scale mining ventures which are not. Illegal gold mining by Chinese nationals is a major headache for the Ghanaian government, for instance. A situation whereby the Chinese government instigates its ICT firms to support African governments with supply-chain tracing and formalisation of the mining activities of its nationals in tandem would be a win-win for both parties.
There are also a lot of Asian firms involved in the food and agricultural sector, producing for the local market and export for greater value addition abroad. Growing concerns about provenance, amid recent global food scandals, make the case for greater supply chain transparency. While ordinarily, this is even more difficult in many African cases, international firms now have an opportunity in blockchain technology to optimize their supply chains.
Facilitate Africa-Asia trade digitalization initiatives
There are numerous ongoing global blockchain-based trade digitalization initiatives. Very few are focused on Africa, however. This is not surprising. Africa still accounts for less than 5 percent of global trade. Africa – Asia trade is significant, however. There is a strong case for Asian firms doing business on the African continent to motivate their ICT counterparts towards trade digitalization initiatives that would boost the booming trade relationship between the two continents. The fact is not lost on Asian stakeholder firms. For instance, the first trade on the blockchain trading platform by Singaporean bank DBS and Swiss commodities trader Trafigura was for the shipping of a US$20 million worth cargo of iron ore from Africa to China.
Engage African central banks on digital currencies and payments
Like their global counterparts, African central banks are mulling the issuance of central bank digital currencies (CBDCs). Already, many are working on the upgrade of their digital payments infrastructure. And while a lot of African central banks remain averse to cryptocurrencies, they are not averse to blockchain technology, since it is similarly what underpins CBDCs. Besides, respected jurisdictions like Singapore, which have managed to integrate cryptocurrencies, digital currencies, blockchain and other related infrastructure to develop a cohesive digital payment and trade ecosystem, are precisely the types of partners Africa needs to move forward on trade digitalization.
The first trade on the blockchain trading platform by Singaporean bank DBS and Swiss commodities trader Trafigura was for the shipping of a US$20 million worth cargo of iron ore from Africa to China
Seize digital infrastructure opportunities
Cheaper and faster internet are germane to leveraging on new technologies like blockchain and cryptocurrencies. Internet connectivity is still low in many African countries. The information and communication technology (ICT) infrastructure opportunities are writ large. In this regard, global ICT firms can engage with the more than a hundred African Union ICT infrastructure projects aimed at upgrading broadband and other related internet infrastructure across the continent.
Besides, there already exists local foundations in a number of African countries for foreign firms to build on with respect to the emergent new economy technologies like blockchain and cryptocurrencies. Johannesburg, Cape Town, Nairobi and Lagos already rank amongst the global top 100 cities for fintech ecosystems (AUC & OECD, 2021).
There is also clearly an opportunity for cheaper smartphones, without which blockchain scale opportunities on the retail demand side would be elusive. Asian firms already export cheaper but still effective smartphones to many African countries. As a significant portion of the continent’s telecommunication infrastructure is being built and upgraded by Asian firms, they are also well-positioned to steer adoption of blockchain systems and other new technologies.
Bridge knowledge and capacity gaps
Recent blockchain-backed trade finance transactions with African counterparties point to the huge potential of broader digitalization and automation of the international trade process on both sides. Costs were lower. Lead times were significantly shorter. But current use-cases have yet to scale. For that to happen, there must be buy-in by governments.
Clearly, there is an opportunity for global firms doing business on the continent to engage their African trading partners and governments to enhance capacity. As discussed earlier, there is already some engagement by a number of international firms to facilitate adoption by African firms and financial institutions. For instance, Singaporean blockchain firm dltledgers has already facilitated quite a number of blockchain-based trade finance initiatives on the continent and plans to scale the digital capabilities of its existing African clientele. After recent successes, dltledgers and other Singaporean blockchain firms stand to secure additional and perhaps bigger opportunities. Similarly, the Blockchain Association of Africa is working with Singapore’s Blockchain Worx to set up blockchain innovation centres in South Africa, Uganda, Rwanda and Tanzania. Clearly, Singaporean blockchain firms have an edge already.
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