Why Africa Is the Next Frontier for Blockchain Technology and Cryptocurrency Adoption
According to Deloitte’s 2018 Global Blockchain Survey, companies are starting to move from proof-of-concept projects to real-world applications, bringing a transition of enterprise focus and interest towards supporting the most impactful use cases for blockchain. The same report reveals that 40% of respondents reported that their organization will invest $5 million or more in blockchain technology in 2019.
There is a case to be made for why companies should be looking to exploit the massive potential Africa has as a market for blockchain innovation adoption. In another 2018 report from Citibank, it was found that South Africa took the sixth place globally for the highest amount of bitcoin holders per capita, Kenya came in the fifth and Nigeria came in third. However, until recently, adoption of cryptocurrencies and blockchain technology across Africa has been sporadic. Nonetheless, some of the transformative use cases in the space will likely have their greatest impact on the African continent.
Some governments have been forward-thinking in setting up initiatives to facilitate progressive transformation. The government of the island Mauritius for example, has created a Regulatory Sandbox License that allows investors to come into the country and develop their blockchain-based solutions under the supervision of the Board of Investment of Mauritius. Countries like Kenya, Sudan, South Africa, Nigeria, and Ghana have already adopted the blockchain in one way or another. According to a report by Global Risk Insights, the most important factors that have influenced the development of Africa’s blockchain markets include its large informal sector. But also formal companies are seeing opportunities for the use of blockchain technology and even the adoption of cryptocurrencies.
Factors spurring blockchain adoption in Africa are fuelled by the challenges facing the continent such as limited access to traditional banking; unstable national currencies; limited employment opportunities which means that with internet proliferation or smartphone ownership, people and businesses will be able to easily exchange value and make global transactions. There are currently over 950 million mobile subscribers in Africa, according to telecommunications researcher Ovum. On the other hand, some of the challenges which have been a barrier to adoption include the lack of collective consensus on many key standards, protocols and processes. Interoperability and back-end integration into legacy architecture is also a limiting factor while governance, regulation and compliance is another area which needs to be addressed, but such is the case in most countries across the globe.
By 2050, the African continent’s population is expected to reach 2 billion, accounting for 24% of the world’s population. According to United Nations data, almost 60% of Africa’s population will live in cities by 2050. McKinsey’s Consumer Sector in 2030 report anticipates that middle-class spending globally will almost treble by 2030, and the Africa Annual report by Ornico Group expects consumer spending on the continent to rise to US$1 trillion by 2020.
Transformation in Progress
Some applications using blockchain technology are already under development in Africa including:
- Online payment systems
- Systems for the attribution and monitoring of public procurement
- Remittance and international money transfer systems connecting the diaspora with homelands
- Land security systems (cadastral management)
- Intellectual property management systems
- Advances in combating counterfeit medicines
- Protocols, platforms and applications for provenance, tracing, and tracking various raw materials and other commodities.
There is hope that blockchain will eventually help combat corrupt political and voting systems or poor governance. During the March 2018 general elections in Sierra Leone, Swiss tech company, Agora, attempted using its technology to test whether the blockchain could contribute to the transparency of national elections, and ensure a fair count of electoral votes. The results indicated that blockchain can mitigate election problems, and that the technology can improve the current voting system. From implementing immutable ledgers for the purposes of recording transactions in both the public and private sectors, to fostering a more open and inclusive economies, blockchain seems to be the ideal solution to these problems.
Another blockchain-based innovation set to make a notable impact is digital identification technology which will prove vital to social and financial inclusion in emerging economies. Using smart contracts capabilities for real estate transactions and land registry is another potential use case. For example, through a partnership with Microsoft and WiseKey, a cybersecurity and IoT solutions firm based in Switzerland, Rwanda’s land registry is looking to be digitised using blockchain technology via WiseKey’s WiseID apps and Microsoft’s Azure cloud.
Improvements around proper resource utilization and more effective accounting for foreign aid are also being looked into. Supply chains, agriculture, and precious metals are some of areas which will benefit from blockchain technology adoption and consequently help not only businesses but local populations tremendously. Tokenizing contracts, assets and finances so that all participants adopt blockchain within value chains i.e. from sellers, dispatchers, warehousing companies, shipping and logistics firms, to receiving parties and buyers is the objective.
South Africa completed a blockchain trial for the banking sector which was undertaken by the country’s central bank, the South African Reserve Bank and recommendations around industry regulations have since been made public. South Africa’s third-biggest bank, Barclays Africa Group also announced joining the R3 blockchain bank consortium in 2016. The remittance and money transfer part of the financial sector will be the likely see the greatest impact in the short term and with some of the large cap crypto projects already focusing on exploiting this potentially lucrative market.
There are also huge opportunities in trade finance if companies are able to provide secure platforms for participants rather than simply being trusted intermediaries and clearing houses that connect buyers and sellers. Blockchain could also be used to solve a number of problems in the trade cycle. There is currently high cross-border and domestic transaction costs in Africa compared to other continents that is limiting cross-border trade transactions. Blockchain technology has the potential to address many of these related trade issues.
Enabling seamless transactions online, and allowing people to send, save and receive money in a quicker, safer, and cheaper way will usher in new avenues for extracting and transferring value from the world’s potentially biggest consumer market in the coming decades, being that Africa has the fastest growing and youngest population in the world.
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