In the May 2020 issue of African Business, our Deal Tracker section reported the first use of blockchain for an intra-Africa trade finance transaction. The transaction involved several thousand tonnes of fertilisers shipped by OCP from Morocco to Ethiopia, valued at nearly $400m.
This transaction makes the OCP Group the first African company to execute an intra-African trade transaction using blockchain, essentially a digital ledger of transactions.
The deal illustrates the possibility of reducing the trade finance gap in Africa and boosting trade between African countries through adoption of the new technology.
In Chain Reaction: How Blockchain Will Transform the Developing World, the authors – comprising both consultants and entrepreneurs – set about explaining the many practical uses of a technology which is predicted to help bring the next billion emerging consumers into the formal economy by creating reliable institutions of contract, ownership and trust.
Some argue that blockchain is a poor substitute for an efficient banking and regulatory system, but for those living in countries where the rule of law is weak, concepts of ownership are vague and trust in institutions is in scarce supply, it could be truly transformative.
Chain Reaction provides a number of case studies that illustrate many ways that blockchain can facilitate development objectives – everything from property registration to pharmaceutical certification, money transfer to farming applications.
Early in the book, the authors state: “Blockchains can, and will, interact with all of the internet-enabled tech or smart tech: internet of things, machine learning, artificial intelligence, ubiquitous connectivity. These technologies are really about creating systems that do things better than we humans can – whether faster, more safely or for less money. Blockchains could become the transactional lifeblood that enables these technologies to become more effective.”
A timely application of blockchain is in the global war against the pandemic. A Q&A with Genevieve Leveille, the chief executive of OTT8 Group, a company using blockchain to authenticate coronavirus testing kits, explains the thinking behind test kit verification.
Leveille points out that verifiable tracing of the supply chain adds transparency, uniformity and trust, allowing the manufacturer or purchaser of a Covid-19 test kit to track the product.
The transparency and trust this builds “leads to better relationships, secure purchasing and, in the case of medical tests and therapeutic treatments, more certainty around efficacy,” she argues.
Leveille goes on to explain just why this is so important in an emerging markets context. In the case of Covid test kits, the volume manufacturers are based in China, a country where verifying quality in medical goods has traditionally been difficult.
Via a blockchain-enabled supply chain management ecosystem, manufacturers can demonstrate in a verifiable way that their product has been manufactured and delivered according to certain specified standards.
Such technology can also help with other medicines common in emerging markets. The authors quote research that indicates that fake drugs are estimated to account for 15% of the global pharmaceutical supply, rising to as much as 50% in some developing countries. This causes deaths from untreated illnesses and side-effects from harmful ingredients in fake pills.
The market for counterfeit drugs is particularly significant and deadly in Africa, which the World Health Organisation estimated accounts for 42% of all fake or substandard drugs globally. Counterfeit malaria tablets alone result in 120,000 children dying every year across the continent, according to the Brazzaville Foundation.
But with blockchain technology, if at any point in the supply chain nefarious activity occurs, it is possible for a pharmacist to track precisely where and when it happened. Patients can scan the digital label with their smartphone and receive an instant reply on the authenticity and provenance of the drugs.
While the authors are broadly enthusiastic towards blockchain technology, they add a note of caution regarding the limited usage of cryptocurrencies and the financial risks inherent in an unregulated currency.
The authors write: “With regard to how many outlets in a given area accept payment, crypto-currencies are very limited. As compared to the ubiquity of whatever the local physical currency may be, crypto-currency penetration has a long way to go, even in countries where the local currency is more challenged. Electronic cash, by contrast, has reached material penetration even in the most remote of regions.”
But they argue that the reality is that cryptocurrencies are only the very first of many financial applications of blockchain technology.
Take the perennial issue of sourcing forex in Africa. The authors profile AZA, a profitable firm which developed through blockchain technology and which now employs over 200 currency traders at offices in Africa and Europe and administers $100m of intra-African trades every month.
The firm began when banker Elizabeth Rossiello, frustrated that a Kenyan, Ugandan or Tanzanian exporter can’t transact with a Nigerian, Senegalese or South African importer without the cost and delay of routing payments via the US dollar, began trading African currencies from her living room via bitcoin as a cheaper and faster alternative.
Nowadays, very few of the trades involve bitcoin. AZA now has enough transaction volume to deal the currencies direct, meaning that it can move beyond the blockchain. But the authors say the firm offers a model for how startup firms can adopt the technology to suit their business needs.
“The most fascinating thing about AZA’s journey is Blockchain’s usefulness as a catalyst for creating infrastructure – in this case financial. While the ultimate outcome has been to evolve beyond Blockchain, this would not have been possible without first building the market using bitcoin.
“The second most fascinating thing is that AZA is a profitable business – and there aren’t too many of these amongst the Blockchain startups set.”
The authors conclude: “That this should occur in Africa is significant.”
As the last paragraph of this compelling book states: “The post-Covid world may be filled with shadow as we slowly recover from the pandemic, but the blockchain future remains brighter, and as complicated, as it ever was. We’re now hurtling towards a blockchain-based future even faster.”