Booming blockchain technology will soon have a stimulating effect on intra-African trade, especially as the continent emerges from the COVID-19 pandemic, according to industry players.
Insiders say blockchain technology provides a decentralized layer of trust between the parties, which is essential for commerce, and will soon be a key catalyst for economic growth on the continent.
The warning comes at a time when the continent is implementing the African Continental Free Trade Area (AfCFTA) Agreement, which, if successfully implemented, will create a single African market of more than ‘a billion consumers.
Louis du Plessis, head of trade finance at RMB, says that despite the laudable ambitions of AfCFTA, intra-African trade has yet to gain momentum and digitization, especially the use of technology blockchain, can boost commerce on the continent.
“In Europe and Asia, intra-regional trade is well over 50%. It lays bare the enormous potential for much higher trade volumes on the African continent.
“There is no reason to believe that intra-African trade could not increase by 20-30% over the next five years with the use of digitization and blockchain. This will help bypass long-standing factors that have held back trade, such as expensive processes, a lack of funding, and a lack of reliable systems that those who trade with other countries can rely on.
“Over the past two years, we have seen significant growth in blockchain projects across the entire business value chain, including trade finance, supply chain, shipping and freight, as well. as the digitization of business documents. ”
Likewise, Blockchain Academy consultant Carel de Jager says Africa is ripe for blockchain adoption, especially in the payments landscape, which has no real obstacles to implementation.
“If regulatory guidelines that promote innovation and freedom are adopted, it would place the continent in a very favorable position to lead the world by example,” he said.
De Jager believes that blockchain-facilitated payments are very mature and that there are already plug-and-play solutions that can be implemented with little effort.
“These alone have the potential to massively benefit the continent. Africa has thousands of payment methods, but they are often tied to geographic jurisdictions and therefore do not speak to each other. There is a lot of value eroding friction when payments are attempted to bridge these networks. The traces of silver are often opaque or nonexistent. A rail blockchain works transparently and can include smart terms such as escrow or multi-party authentication for free.
However, he cautions that most use cases for blockchain technology other than payments and escrow would require further development and a well-defined policy or regulatory framework before they can be used on a large scale.
For Farzam Ehsani, co-founder and CEO of VALR, blockchain technology is a solution to many problems that are “fundamentally linked to inefficient workflows or poor governance,” including commerce on the continent.
However, he also cautions that while blockchains can help in some areas, “we have a lot of work to do to improve our governance structures in society, which will ultimately determine how far we can progress as a company. humanity”.
Ehsani adds: “Blockchain technology and in particular the native assets of blockchains – namely cryptocurrencies or crypto assets – are extremely powerful technologies that promise to revolutionize many systems of humanity.
“However, it must be remembered that blockchains and crypto assets are tools and as such the extent to which they help humanity depends on the willingness of people and governments to use them appropriately.”
Marius Reitz, Luno GM for Africa, says blockchain technology is still relatively new and it will take some time for all of its benefits to materialize; however, in the context of intra-African trade, one of the most promising applications of the technology is in cryptocurrencies.
“In the absence of an official continent-wide currency, they [crypto-currencies] provide a viable medium of exchange that can enable efficient and effective cross-border payments, greater monetary stability and increased access to financial services for the informal economy.
In addition, he says, blockchain technology could better equip Africa’s informal economy with financial services to boost participation in intra-African trade.
“Although some studies estimate that this sector contains over $ 1 trillion in wealth, the traditional banking sector has struggled to serve the informal economy for decades due to its prohibitive cost structure, leaving many informal businesses with. cash as the main medium of exchange. This limits a huge chunk of the economy to trade in their immediate circles. ”