Cryptocurrency and blockchain technology- adoption within the AfCFTA

Theories are rife on the pivotal role technology will play in reshaping the architecture of intra-African trade and the convergence of cryptocurrency and blockchain technology holds unique promise as accelerators in achieving the objectives of the African Continental Free Trade Area (AfCFTA) Agreement. As member nations embark on a journey of unprecedented economic integration, decentralised digital currencies and the immutable ledger of blockchain can serve not only as a means for optimising trade transactions but also act as a catalyst for revolutionising trade across the continent.

The commitment of 54 African countries to the AfCFTA game plan and the audacious resolve to create the largest free trade area in the world both bolster the argument that the AfCFTA will succeed far more than other regional agreements have managed in the quest for economic integration, pan-continental economic development and a significant increase in the volume of intra-African trade. However, the challenges to be surmounted are complex and the jury is still out on whether the technological elixir offered by cryptocurrency and blockchain will be sufficient.

State parties must be co-opted as the initiative can simply not work without the political will and buy-in of Governments and institutions.

Successful implementation of the AfCFTA will include a progressive elimination of tariffs, removal of technical and non-tariff barriers to trade (TNTs), promotion of trade facilitation measures, diversification of exports and increased economic growth. In this context, technology must become an enabler of trade as well as a solution to the challenges militating against the actualisation of the goals of the AfCFTA.

It is therefore expedient to examine in detail the specific areas that will benefit from the deployment of cryptocurrency and blockchain in the architecture of the AfCFTA and then analyse how these technological additions may improve the current paradigm.

Potential Challenges to the Adoption of Cryptocurrencies and Blockchain Technology

It is not uncommon to experience difficulties in the adoption of any major technology and trading under the AfCFTA is not likely to be an exception. While many of the features of cryptocurrencies are ideal for facilitating trade, some features will have the opposite effect in the context of implementing the AfCFTA. For example, decentralisation increases the volatility of cryptocurrencies which is not ideal for trade. Global adoption of cryptocurrencies as a means of exchange has stalled for this specific reason since erratic deviations in the value of cryptocurrencies can lead to confusion for buyers and sellers alike. Lack of regulation and anonymity of the system can increase risks of fraud and money laundering which are both serious risks in Africa.

Another significant hurdle to be cleared is the political challenge of convincing the State Parties to accept the whole idea. While the absence of regulation may be attractive to traders and business people, the concept may not be very welcome by the regulators and Governments whose business it is to regulate commerce and trade. We have seen varied responses to the prospects of cryptocurrency adoption in most African Countries ranging from cautious acceptance in a few to implicit or outright bans in about 23 countries including Nigeria. Successfully vaulting this hurdle will not be Uhuru because there are still infrastructural and developmental challenges to contend with thereafter.

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Cryptocurrency and blockchain technology are complex and rapidly evolving technologies, and the knowledge and capacity to properly harness these tools for trade work are not abundant in Africa. Adoption of these technologies requires reliable electricity, internet and telecommunications penetration and sufficiently tech-savvy users which are not in surplus supply in Africa. More significantly, cryptocurrencies and blockchain are developed in different operating languages and run on diverse infrastructure which creates a problem of lack of interoperability and possible obsolescence due to technological advancements.

The regulatory challenge may be the knotiest to unravel as regulators and tax authorities in many African countries will struggle with the financial implications of adopting cryptocurrencies. It is impossible to adopt cryptocurrency and blockchain technology in Africa without the concurrence and active participation of financial regulators and tax authorities in the State Parties.

Adopting Cryptocurrencies and blockchain technology under the AfCFTA

Based on the use cases and challenges examined above, it is evident that there are strong arguments in favour of introducing the functionality of cryptocurrencies in the financial architecture of the AfCFTA. However, concerted efforts are required to address the implementation challenges if the gains of adoption are to be realised.

Principally, State parties must be co-opted as the initiative can simply not work without the political will and buy-in of Governments and institutions. Central Banks and financial regulators in State Parties can play a critical role in developing an enabling framework as well as providing guidelines and regulations for trading in and the taxation of cryptocurrencies.

Infrastructural development and investment in upscaling technology on the continent are also critical in making or marring the adoption of cryptocurrency and blockchain technology. Statistics indicate that a significant percentage of trading in Africa is still informal and advanced technology like cryptocurrencies and blockchain simply do not work for trading at that level.

Capacity building will also be required for Governments, regulators, and traders. Grand-scale engagement and negotiations among stakeholders can be utilised in incorporating these technologies in the framework for trading under the AfCFTA in such a way that it works in the unique intra-African trading environment. There are no examples of any other trade area where this has been done so perhaps, the AfCFTA will be a forerunner and lead the way for a change.

Conclusion

In conclusion, cryptocurrencies and blockchain technology can play a pivotal role in growing intra-African trade and enhancing the implementation of the AfCFTA. There are several areas of trade that will benefit from the adoption of these technologies but implementation will come at a stiff price in more ways than one. The possible gains are significant and provide a good argument in favour of adoption but a great deal of regulatory, political, economic and technological intervention is essential before any progress can be made in this regard.