The Case for Blockchain in Developing Economies: An Assessment of Africa
Although blockchain technology continues to garner considerable press, the majority of projects still originate in advanced tech economies. These projects typically aim to improve upon existing infrastructure or industries. Unlike developing economies, established countries have already completed the transition from analog to digital, and now embrace primarily digital platforms. As a result, existing applications may work perfectly well without the use of distributed ledger technology.
However, in developing jurisdictions, blockchain technology is poised to make a much more significant impact. In these emerging economies, paper ledgers are commonplace, and governments remain disorganized and at times corrupt. Under these conditions, blockchain technology has the potential to assist developing economies transition to a hyper modern infrastructure, potentially even ahead of more developed economies. Amongst those poised to benefit the most, sub-Saharan Africa and East Africa emerging as an apparent global frontrunner.
One organization that is solving these issue and beginning to actually prove the value of blockchain technology in Africa is IOHK, the maker of blockchain technology projects like Cardano, which is launching a ledger framework in Ethiopia. IOHK founder Charles Hoskinson is leading the project to bring ‘Atala,’ the ledger framework, to governmental record keeping in Ethiopia. If this can be mimicked by other countries in Africa, the continent is set for a momentous transformation to digital record keeping.
Blockchain Technology In Africa
In its Global Economic Prospects report, the World Bank forecast GDP growth of 3.4% in sub-Saharan Africa this year. This growth rate represents an increase over 2018 and points to a modest recovery from a downturn that began in 2015. While this growth rate may not appear overly impressive, it remains higher than several developed economies, including the United States’ projected 2.5% GDP growth.
In addition to a growing economy across the continent, the total African population now hovers near 1.2 billion, which requires a much-needed improvement to essential services and infrastructure. Meeting this need will become increasingly problematic if projections are accurate. There will be four billion citizens in sub-Saharan Africa alone by 2100 without a change in population trends. Considering these variables, it’s evident that Africa will require massive infrastructure improvements in the not so distant future. If implemented appropriately, blockchain technology could be part of the solution.
Challenges to Blockchain Development in Africa
Although the decentralized, immutable, and transparent nature of distributed ledger technology is well-suited to Africa’s needs, there are significant challenges to overcome.
Perhaps the most significant challenge to blockchain use in the region is the limited access to the Internet. In sub-Saharan Africa in particular, rates of Internet use remain below 50% outside of South Africa.
While this trend remains problematic, the growth of smartphone use in the region is accelerating. A third of mobile users currently have a smartphone, and 67% of mobile users are expected to have a smartphone by 2025. As a result, blockchain applications built to perform on mobile devices will prove very valuable in Africa.
This opportunity presents a unique opportunity for African nations — the opportunity to build a more democratized, decentralised web that is not plagued by surveillance from governments. With Africa’s youthful demographic, free speech on an uncensored platform is a pre-requisite for an informed democracy to develop. It is an opportunity that allows us to start over — with consumer ownership of data, and content ownership is recognized by the originator not the aggregator.
This becomes all the more important as we move into the IOT and 5G era, where centralising of that much power means little corporate accountability and scrutiny of corporate censorship of consumers and voters alike. In Africa we can avoid the precarious state of affairs seen in the West and the East and give power to the people through innovative technologies like mobile mesh networks on blockchain, affordable nodes, distributed storage, and interoperable federations of dApps and currencies.
Access to Developers
Deploying a blockchain application requires highly specialized cryptography and database knowledge. As the global demand for blockchain developers increases, competition for top talent will continue to accelerate. Africa may struggle to attract the developers required to establish a robust decentralized ecosystem.
One project that shows promising potential is the IOHK investment to help with training Ethiopian and Ugandan women to learn Haskell. Director of African Operations at IOHK believes “Countries that lack legacy systems and legacy infrastructures, are countries that stand to benefit the most from this new technology,” says John O’Connor, Director of African Operations at IOHK.
Venture Capital Funding
As mentioned, the majority of blockchain funding is typically funneled into novel projects in developed nations. In these countries, venture capital firms are continuously looking to invest in innovative startups; sometimes without a clear value proposition. In Africa, this scenario typically unfolds differently.
Existing venture capital firms tend to invest only in companies that have a history of profitability. This more stringent investment criteria often denies African startups crucial funding. However, the ecosystem does appear to be shifting, as seen with the recent IPO of the Nigerian e-commerce juggernaut Jumia.
According to the 2018 WeeTracker’s Venture Investments Report, US $725.6 million was invested across 458 deals in Africa last year. This amount represents a 300% increase in total startup funding and a 127% increase in the number of deals conducted in 2017.
Using Blockchain to Overcome Africa’s Systemic Challenges
Despite the challenges to blockchain adoption in Africa, the potential benefits are widespread.
Cross Border Payments and Exchange Rates
Encompassing 54 countries and a myriad of currencies, Africa and its economies are inherently disjointed. By using a digital currency built on blockchain technology, local currencies could be used to purchase a single digital asset that transcends borders. This scenario would significantly reduce the challenges of deploying capital across the continent.
In addition, this digital currency could be used as a store of value regardless of geographic location. This functionality has the potential to elevate even more Africans out of poverty through protection from inflation and exchange rate volatility. With many in sub-Saharan Africa already using their phones to make or receive payments, mobile blockchain platforms present a promising opportunity.
As mentioned, Africa is still rife with off-the-book deals, poor record-keeping, and untraceable transactions. The transparent nature of blockchain technology solves these problems and holds all parties accountable through permanent, public records. This functionality alone has the potential to alter the business environment dramatically. While the benefits to consumers are clear, governments have also shown interest in blockchain technology due to its efficient management of large quantities of data.
Facilitating International and Intra-African Trade
Africa is a large and still segmented continent, which complicates both intra-African and international trade. According to a report released by UNCTAD in 2018, Africa’s share of global exports is the lowest amongst developing economies. In fact, the regions share in global exports has been on the decline for decades. From 7% in the 1940s to 5% in the 1970s, 3% in the 1980s, and finally 2% at the end of 2016.
In addition, intra-regional trade made up only 17% of Africa’s exports. While efforts are being made to counter this trend, including the recent Continental Free Trade Area, new value chains are crucial. Blockchain technology could effectively bridge the gap between national economies by establishing robust, efficient trade networks. By effectively linking domestic economies, Africa would be able to achieve more freedom and command more control of its global trade.
The Path Forward For Africa
With a growing population and expanding economy, Africa requires innovative solutions to overcome the hurdles that continue to plague governments across the continent. Improvements in data collection, organization, and institutional integrity are crucial if African countries are to reach their full potential.
By using blockchain technology to digitize information, the issues surrounding information mismanagement can be overcome. This alone could further assist with restoring trust in public institutions and corporations — a critical component of stabilizing economies. If blockchain-driven projects are pursued appropriately, governments also stand to gain a better understanding of their populace and assets.
This technological, economic, and social transformation for Africa will be a shift that the world has not experienced in hundreds of years. With a rising tide of promising use cases for blockchain technologies to radically transform billions of lives, a concerted effort across the continent must be harnessed in order for a legitimate transformation to take place.
Bio: A former barrister by profession, Chris Cleverly has made it his mission to help bring development mechanisms to Africa which can empower Africans to seize their own destiny. His journey on this mission began during the 1990s when he attended King’s Law College and became a barrister. After graduating, he founded the Trafalgar Chambers in the U.K., and became the youngest head of chambers in over a century. In 2005 he founded the Made In Africa Foundation, an organization he has guided to fulfill his dream of bringing systemic infrastructure change to Africa. Today, he is also CEO of Kamari, a blockchain project looking to build an ecosystem of mobile gaming and payments for one billion people across Africa.