Kommerce Completes Successful Trade In Central Africa
Kommerce successfully completes first shipment
Kommerce has successfully completed its first cargo shipment. We are now live on the Ropsten Testnet!
With the help of our on-ground operations team in Rwanda, Africa, Kommerce managed many moving parts, including the Exporter, Importer, Logistics, Warehousing, cross-border clearance of goods to execute its first trade.
The trade was for 27.85 metric tonnes of rice that was transacted on the border of Rwanda and DR Congo, with a Congolese businesswoman acting as the Importer.
We have simulated the transactions of the trade through the Kommerce smart contract on the Ropsten Testnet.
The deal validated important things for Kommerce:
Returns:
- Kommerce ran the trade profitably and validated the potential for sustainable margins from future trades for financiers.
Demand
- There is strong demand in the corridor across the product range we have selected.
Quality vs price
- Quality and specification of goods are secondary to price as a consideration.
Pain points
- High collateral demands by local financiers for access to credit.
- Significant bank fees for most operations concerning transfer of funds, with banks having service challenges with even basic features such as internet banking.
- Extremely high spread on foreign exchange rates for African currencies. The picture below, of forex rate spreads available in Kigali, highlights this inefficiency.
Lessons from Kommerce’s first trade deal
Learning Objectives
To better understand the market dynamics for the smaller traders at the border, for our first shipment, we put ourselves in the shoes of the traders. We did this by buying from a domestic seller (fulfilling the Exporter function in the Kommerce trade flow diagram) instead of purchasing directly from an Exporter located outside Africa. This was a slight but necessary variance to the Kommerce trade flow as set out in the schematic below.
Key Lessons
We experienced firsthand the effect of the minor price fluctuations of goods day-to-day, and the need to work with existing mechanisms available on the Rwanda-Congo border to facilitate clearance of goods into DR Congo by small traders.
We also saw the tradeoff that Importers make in terms of quality. They are offered the lowest quality that the Exporters can get away with supplying, at the highest price that can be extracted from them. This signposts areas for improvement, as we start moving product at scale
Execution Ability in challenging circumstances
The trade was carried out during
- the Christmas to New Year period,
- DRC’s General Election
- heightened militia activity in DRC
- DRC’s ongoing Ebola epidemic
We also successfully managed to navigate limitations on clearance of cargo across the border.
Despite these circumstances, Kommerce successfully concluded the trade and received payment in full from the Importer based in DRC. Importantly, this also validated that demand for the chosen commodities remains steady irrespective of domestic turmoil.
Anomaly in product supply
Running the first trade from the point of view and price vulnerability of the small trader gave us a keen appreciation of the importance of landing goods at a competitive price point in order to add value to Importers.
We noted an anomaly in the cross-border rice trade to Congo. The quality of goods represented to the Importers seems not to match stated specifications, although the Importers seem undeterred by this.
On the left is a picture of a sample of the goods traded in the first deal. In the spirit of transparency, we ensured the businesswoman understood the quality of product she was purchasing.
We gained two important insights from this:
- Price is the main determinant of Importers’ purchasing decisions; and
- for the rice trade, it was important to have direct supply from rice mills instead of procuring supply from an aggregator or reseller.
This has guided our selection of suppliers. The supply partnerships Kommerce has struck should help us to continue being competitive on price.
Kommerce aims to develop a reputation for fair dealing, and this includes a reputation for selling goods that match specifications.
Trader Pipeline
In the course of our preparatory work in the Congo border region, our team on the ground made contact with about a dozen traders. They each deal with at least one of the chosen commodities that Kommerce will facilitate the purchase of, with a number of them dealing in multiple commodities. We have selected a subset of these to work with in Kommerce’s initial rollout. Each anticipate that with Kommerce’s support they can at least double their trade volumes.
Kommerce set up in first market — Rwanda-Congo
Kommerce completed its set-up in Rwanda, which included setting up its transacting entity in Rwanda with tax registration, and securing coveted space at the key warehouse on the Congo border. The space was secured with Magerwa, which runs the dry port in Rwanda, and is a subsidiary of Kommerce’s partner, Portek.
Areas where Kommerce can leverage game-theory, censorship-resistant payments and crypto-currency to add value:
Hostage mechanisms
- Importers needed to put up more than 100% collateral to be able to access credit with local banks.
Reputation scores
- Any creditworthiness or reputation earned over time was restricted solely to the Financial Institution they borrowed from; reputation was not accessible, nor trusted by other Financial Institutions.
- Attestations to credit worthiness such as credit reports are not trusted due to fraud.
Improved fund flows
- Payments, wire transfers and money transfers were subject to fees, prone to delays and hard currency shortages.
Provenance tracking
- Commodities did not appear to match the quality specifications, and Importers had to accept the lower quality goods due to lack of options.
With strong Exporter relationships now activated, and the first trade successfully completed, Kommerce aims to scale up the volume of trade facilitated on the Kommerce platform.
To understand more about the macro factors and the problems Kommerce is trying to solve, please read our White Paper.
For more details about the architecture of the Kommerce platform, please view our Technical White Paper.
