Blockchain propels African finance, trade and government initiatives

Blockchain burst into public consciousness a decade ago as the transaction ledger for bitcoin, and has since evolved to become the foundation for a range of business-model disrupting applications. AfricaCom in Cape Town earlier this month served as a showcase for how enterprises and public administrations on the continent have deployed blockchain in a variety of areas including finance, trade, and secure records storage and management.

Blockchain distributed ledger technology comprises a growing list of records, timestamped and linked using cryptography, allowing value to be transferred securely and about as speedily as the internet transfers data. There are now a range of private and public blockchain platforms used to securely store data and host applications including smart contracts — automatically executing transaction applications.

During AfricaCom, news broke that the Eastern and Southern African Trade and Development Bank (TDB) had closed its first live, trade-finance transaction, using smart contracts in a US$22 million sugar deal.

“With this transaction, we have the potential to revolutionise how we finance cross-border trade at the bank,” said Michael Awori, chief operating officer at TDB, the financial arm of the Common Market for Eastern and Southern Africa (COMESA). “Not only will it impact our bottom line, but it will enable us to reduce processing time, be more responsive to our clients, and de-risk transactions,” he added.

Smart contracts ease trade

In the sugar deal, a letter of credit confirmation and a discounting transaction were executed digitally in a private blockchain, reducing the duration for deal completion by four days when compared to a conventional paper-based process. The process also minimised all parties’ risks by eradicating potential errors and inconsistencies in the exchange or amending of documents, Awori said.

“We have plans to carry out ten billion dollars worth of African trade transactions with the Asia Pacific region, including Japan, by June 2020,” said Samir Neji, CEO of dltledgers, an enterprise blockchain company that was involved in the deal.

Popular interest in blockchain in Africa tends to focus on financial-related applications including crytocurrencies like bitcoin.  Google Trends shows that Nigeria, South Africa and Ghana are among the top countries in the world for bitcoin-related search terms. The interest is understandable, given the large African “unbanked” population. According to Gartner’s Top Strategic Predictions for 2020 and Beyond, 50% of people with a smartphone but without a bank account will use a mobile-accessible cryptocurrency account by 2025.

Africa is expected to have the highest cryptocurrency growth rates as online marketplaces, social media and mobile platforms begin to accept cryptocurrency payments. Cryptocurrency accounts are expected to also drive e-commerce as trading partners emerge in areas previously unable to access capital markets.

“Blockchain technology’s biggest contribution will be in the financial sector – redefining what money is and how it works,” said Farzam Ehsani, co-founder and CEO of South Africa-based VALR.com, which last year launched a digital asset trading platform.

Blockchain disrupts financial sector

This view aligned with that of a number of AfricaCom speakers. For example, Monica Singer, currently South Africa lead for ConsenSys, which develops software based on the Ethereum public blockchain platform, talked about how she led the reengineering of financial markets from paper-based to fully digital during her 20 years at the helm of South Africa’s central securities depository (Strate).

“At Strate, we maintained records of all purchases and sales of securities on organised exchanges and implemented electronic settlement for equity transactions and money market instruments, so when I encountered Satoshi Nakamoto’s Bitcoin whitepaper, I was awakened to the power of decentralized databases and distributed ledger systems and the superior advantages over the centralized databases I’d been working with for so many years,” said Singer, who become well-known in the financial community because of the initiative.

“I have always had a passion for innovation and technology that drives societal change. With the potential disruption that the financial markets may face, particularly with disruptive technologies like blockchain, I will continue to research to stay ahead of developments,” said Singer explaining her reasons to leave Strate to focus on her pursuits in the blockchain space.

Blockchain efficiencies have cut the costs associated with traditional financial systems, which have bypassed a large segment of the African population, thus severely hampering economic growth, noted Marcus Swanepoel, CEO of Luno, which focuses on bitcoin storage and transaction services.

“In Africa cryptocurrency can provide a more secure and cheaper means of exchanging value. This is why we believe that as new cryptocurrencies linked to global brands are introduced, they’ll gain massive adoption across the continent,” elaborated Marius Reitz, Luno GM for Africa.

Blockchain applications can cost-efficiently handle millions of micro accounts – important for Africa.

“If you look at Africa, there are a lot of transactions and spending power,” said Llew Morkel, founder and CEO of Fraxeum, a blockchain-based fintech startup. But individual spending power is limited, he said. “Therefore there’s need to include more people into this economy — blockchain allows us to create financial services for this African market in micro fashion.”

Typically, fintech is expensive and legally complex, Morkel said, so Fraxeum has designed its platform to take into account jurisdictional issues. Once a jurisdiction is defined, Fraxeum enforces compliance to related regulations. The organization will even help source funding for certain projects. Fraxeum’s immediate focus is South Africa, where it will launch its first financial product before year-end, with a view to expand into other markets on the continent, Morkel said.

Essential components of payment systems

Financial systems need three key components to serve unbanked populations, particularly in developing markets such as Africa, said Ray Youssef, CEO of Paxful. “We have essentially created a peer-to-peer financial marketplace which includes all three: a listing service similar to eBay, an escrow service much like PayPal, and a cryptocurrency wallet,” he said.

Once people, particularly in developing countries, have alternatives to government issued fiat currencies which have historically been prone to hyperinflation, they’ll be able to gain greater participation in an inevitable global digital economy of the future, said finance industry insiders at AfricaCom.

“At that point we’ll see a significant shift in how global commerce is conducted and this should level the playing fields and enable effective cross-border trade,” said Richard de Sousa, founder of cryptocurrency trading platform AltCoinTrader.

Though news of blockchain disruption of financial systems tends to overshadow other types of applications, several industry players are shedding light on the implementation of distributed ledger technology in government and public administrations.

For example, Cape Town blockchain-based startup Registree has struck a partnership with the University of Cape Town to create blockchain-based records for thousands of students. The blockchain-based student registry is aimed at addressing the youth unemployment rate and skills shortage.

Registree uses a combination of traditional databases and Ethereum. The system is set up to allow the university to create verified student records, and gives them the ability to monitor records on a continual basis. The system also allows students to control which third parties may see their data.

“Protecting student’s privacy is a priority; that’s why blockchain is a key component of our technology stack. With it we are able to strike a fine balance between the universities’ responsibilities as data custodians, the students’ right to privacy, and third parties’ demand for these data,” said Sabine Bertram, CTO of Registree and Ph.D. student at UCT.

Blockchain for public administration

Meanwhile, the announcement that the Centre for Affordable Housing Finance in Africa (CAHF), research consultancy 71point4 and Seso Global intend to develop South Africa’s first blockchain-based property register was another sign that blockchain is on the rise in public administrations.

Statistics South Africa’s General Household Survey indicates that 13.9% of households are informal dwellings, which makes property registry administratively complicated. The pilot study area will consist of almost 1,000 government subsidised properties located in four sites in Makhaza, Khayelitsha, that have not been registered on the deeds registry properties.

“The title deed backlog in government subsidy housing properties is enormous,” said Kecia Rust, the CEO of CAHF. The project aims to store the data about who lives or has ownership claim of these properties in a decentralised, secure database that can be updated without any loss of historic data.

“The Seso platform facilitates and records transactions such as sales and transfers out of deceased estates and integrates with third parties who facilitate transactions, including mortgage lenders,” said Daniel Bloch, the CEO of Seso Global.

Enterprises face challenges

For enterprises, however, getting started with blockchain can be challenging. Different consortia, financial institutions, vendors and assorted blockchain initiatives have adopted different protocols and consensus mechanisms to verify transactions, establish provenance and create immutable audit trails to enhance transparency. Several vendors are providing Blockchain as a Service (Baas) offerings designed to allow enterprises to build their own blockchain applications.

At the Microsoft Learning Lab at AfricaTech, Fabian van der Merwe, the Azure Blockchain Service lead for South Africa, led a demo showcasing how blockchain applications can be deployed on Azure Blockchain Workbench. The demonstration showed how BaaS can be used in Microsoft Azure to build a secured data structure and create a distributed transactional digital ledger.

Blockchain Workbench can be deployed using a solution template in the Azure Marketplace. Azure Blockchain Workbench Preview simplifies blockchain application development by providing a solution using several Azure components, said the Microsoft team. The template allows users to pick modules and components to deploy including blockchain stack, type of client application, and support for IoT integration. Upon deployment, Blockchain Workbench provides access to a web app, iOS app, and Android app, according to Microsoft staff.