Blockchain Taking Root in Africa

If you trace blockchain back to its cypherpunk origins you’ll find strong remnants of idealism. You’ll find closely held beliefs about freedom, privacy, censorship and the ability to do things outside of a corrupted system.

Some have lamented the perceived loss of blockchain’s high-minded promise, especially as the prices of cryptocurrencies have skyrocketed and speculation has ratcheted even further. But others point to incremental progress. Examples of these small steps forward can be clearly seen in Africa.

A continent plagued by corruption, inefficiency, economic & political instability and a lack of access to banking services — If there is a place crying out for the implementation of blockchain — Africa is most certainly it. The good news is that it appears traction is starting to pick up.

The main hubs for crypto/blockchain in Africa are Accra (Ghana), Lagos (Nigeria), Nairobi (Kenya) and Cape Town (South Africa). But other instances of progress are starting to pop up all over the map.

Let’s look at some examples.

Blockchain for Imports

One of the most exciting recent developments is the announcement that the Common Market for Eastern and Southern Africa (Comesa) is going to start utilizing blockchain for import/export processes.

The idea is to roll out a digital free trade area — the first in Africa — where parties to a transaction are connected through a set of decentralized ledgers. The initiative also includes the ability to create digital certificates of origin that can be verified via national informational systems.

The current process requires manual applications and the physical presentation of documents to tax authorities and governmental institutions. The process is typically slow and haphazard.

It is also more costly. The financial services sector makes easy money off of international trade deals like the ones targeted in this proposal. In the Comesa region, an estimated $450 million is paid to commercial banks annually to confirm letters of credit.

Comesa Secretary General Sindiso Ngwenya is understandably bullish on the project and explains it like this. “Let’s say you are an exporter from Zambia and you are exporting to Egypt, the transaction will be accounted for because all these parties will be able to access that information simultaneously and this is through the blockchain application”.

In essence, this means that businesspeople can access cross-border markets from their smartphone without much 3rd party interference or additional tax (under a certain $ threshold).

The program is slated to pilot in 2018 and the countries currently signed up to participate are Kenya, Uganda, Rwanda, Burundi, Democratic Republic of Congo, Sudan, Ethiopia, Egypt, Seychelles, Malawi, Mauritius, Madagascar, Swaziland, Zambia, and Zimbabwe.

Blockchain for Farming

In November 2017, London-based mineral investment firm African Potash announced it was partnering with the Global Markets Exchange Group (GMEX) to “develop blockchain-based platforms for sub-Saharan Africa’s agricultural commodity markets”.

The idea here is relatively simple. The goal is to build a platform(s) that connects producers and traders with more brokers and buyers thereby elevating productivity and boosting the prices they are able to obtain.

According to Hirander Misra, GMEX’s founder and CEO, “The biggest impediment to smallholder farmers in Sub-Saharan Africa is access to finance”. The new venture is a stab at democratizing this inequality and will offer “microloans” to users of the system at about 12 percent, which is about 50 percent less than what’s currently on offer.

This push to provide microfinancing is hardly new. There are quite a few players in the microloan space, but this does represent the first time that all financing and transaction logging will be by blockchain.

Backers of the venture hope that they can improve the lives of individual farmers while also facilitating agricultural value-chain efficiencies on the blockchain.

Blockchain for Land Records

Another issue facing countries in many parts of Africa is the clarity and security of land ownership records. Unclear land rights come with a host of problems. Primary among them is it makes lenders unwilling to securitize land and it presents significant roadblocks for international projects to move ahead.

Many countries have taken steps to address these issues but the fact remains, most records are insecure and/or paper-based. This looks set to change in at least one African country, however. The Ghanaian government recently partnered with US-based startup Bitland to take a new angle on the problem.

Bitland is an organization that “aims to provide services to allow individuals and organizations to survey land and record deeds onto the Bitshares Blockchain.” Their pilot project in Ghana will create a fully transparent, immutable and permanent record of land ownership.

Bitland has bigger aspirations, too. As the organization grows, they want to “build infrastructure in further developing countries to potentially unlock billions of dollars in untapped property rights.”

Cryptocurrency

Many African currencies are reliant on international commodity markets making them largely unstable (not to mention subject to manipulation by corrupt authorities). The result is that many countries have turned to the US dollar as a backbone for business transactions and as a store of value.

Not having much trust in local currency puts people in a precarious position, but it also makes them far more open to embracing cryptocurrency. The potential exists for many Africans to leapfrog into the future the way many skipped a landline and went straight to a mobile phone. In this sense, not having good legacy systems is a big advantage.

The benefits of truly functioning crypto economies in Africa is the stuff blockchain purists dream about. The potential is vast. By using cryptocurrencies, people can benefit from a more stable store of value and hedge against inflation while avoiding reserve issues at the same time (USD withdrawal limits, etc).

Furthermore, cryptos are not bounded by geography making cross-border commerce easier and more feasible for people living without good banking infrastructure.

To find African companies making moves in crypto one needn’t look far. Kenyan startup BitPesa is one of those leading the charge and their primary focus is, “hosting B2B payments and offering a real-time settlement at wholesale FX rates to frontier and emerging markets through blockchain”.

Meanwhile, Golix (formerly BitFinance) is working to help Zimbabweans purchase bitcoin and protect themselves from insane levels of inflation. In South Africa, Luno has become one of the biggest crypto exchanges and wallet providers.

Michael Preiss, a researcher at NTU – SBF Center for African Studies, summarizes well: “Cryptocurrency is not just a solution to the plight of the ‘unbanked’. Rather, it is a method for allowing economically or politically subjugated populations to control their own wealth.”

Final Thoughts

For true believers, these are exciting times. In an African context, we are at the earliest stages of seeing what blockchain technology or cryptocurrencies can do.

While optimism remains high major obstacles still remain.There will be significant data privacy and governance considerations surrounding the use of decentralized ledgers. Resistance is expected on multiple fronts, particularly from many of the less than democratic governments scattered across the continent.

But momentum is slowly building and the need for better solutions is palpable. Africa may not have seen the levels of adoption enjoyed in Asia, Europe or North America but the blockchain ecosystem as a whole appears to be gradually moving in the right direction.

 

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