A decentralised solution

Did you know that there are still more than 700 million people in the world who live in extreme poverty? These people must scrimp, starve and struggle to survive off less than $1.90 per day. By 2030, the World Bank estimates that more around 90 percent of those people will be concentrated in Sub-Saharan Africa.

This is perhaps one of the greatest developmental failures of the modern world. Despite the continent’s expansive natural resources and increasing connectivity, foreign actors still feel it’s too risky to heavily invest in their markets.

Blockchain, however, could be the key to changing that! 

Bitcoin and “Blockchain” were created in the mass wave of distrust in banks after the 2008 financial crisis. Therefore, the technology enables individual, distributed data storage that could become the perfect evidence base and financial infrastructure for a developing country.

With the right implementation, Blockchain holds the potential to completely revolutionize and revitalize such economies, especially in Sub-Saharan Africa.

So, what is this Blockchain?

How Blockchain works

Blockchain is essentially a kind of decentralized database that allows individuals to have a safe, secure way to handle their data without the need for third parties.

For example, people with Bitcoin can make or accept payments in real-time without needing a centralized bank.

“[It is] a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer,” said software entrepreneur Marc Andreessen.

“The consequences of this breakthrough are hard to overstate.”

Why Blockchain could be the perfect fit for Africa

Until the mid-twentieth century, most of Africa was ruled under a colonial system meant to exploit the people and the resources for European benefit. However, they were rushed into development according to European standards rather than homegrown ones.

The legacy of rapid development, distrust and corruption left behind an economic system failing to recover in the 21st century.

While the World Bank celebrates a decrease in global poverty levels, the number is expected to remain stagnant in Africa. Today’s poorest people are living in places with the least economic growth. Sadly enough, poverty and lack of investment in many developing countries stem from how they were integrated into the world system.

The land was cut into countries according to European treaties and agreements, rather than by traditional and tribal land divisions. This situation worsened upon the handover of colonial power to so-called “democracies,” where power often shifted to the ethnic groups that former colonizers favoured.

Corruption multiplied in the form of bribes, political persecution, rigged elections and a massive wealth gap—all of which still affect the wealth distribution and investment potentials of many developing countries.

Of course, this created a lack of trust in banks and government throughout much of Sub-Saharan Africa. During a 2012 study conducted in rural Western Kenya, Stanford University researchers waived the costs of opening a basic savings account for a number of unbanked individuals.

While 63 percent of the subjects opened an account, only 18 percent of them used the accounts. This was likely due to three factors: a lack of trust in banks, unreliable service and prohibitive withdrawal fees.

Unfortunately, the prevalence of unbanked individuals in the informal sectors scares off foreign investors, who heavily rely on transactional evidence to make investments. Otherwise, pouring money into markets is too risky. That’s where Blockchain comes in.

How would it work?

SmartContracts


Blockchain can host an entire evidence base of transactions, loan repayments and asset titles. The technology is also decentralized and requires individual confirmation, creating an element of trust and transparency beyond traditional banking systems.

According to Victor Olorunfemi, Director of Products for Pan-African tech and cryptocurrency exchange, KuBitX, Blockchain’s major benefits lie in “frictionless P2P and cross-border payments, transparent elections, land registry management [and] transparent crowdfunding.”

Let’s look at some of the different ways Blockchain could benefit developing economies, especially in Sub-Saharan Africa.

1. Creating financial infrastructure and accountability

According to a study by the Milken Institute, viable financial markets require consistent, accurate data on assets and credit histories. Luckily, Blockchain may fulfil these needs.

The use of Smart Contracts technology is ideal in areas lacking accountability, such as the real estate or land/agricultural sectors. In Africa, a lack of record-keeping practices often leads to “missing” or non-existent title deeds. In some cases, this is intentional.

Title deeds “go missing,” only to end up in the hands of benefactors other than the rightful owners. Smart Contracts could eradicate these issues through the use of special tokens that cannot be duplicated, changed or removed. See the article on tokenization.

Likewise, Bitland, a company in Ghana, currently helps individuals record deeds and land surveys. By resolving land disputes, Bitland creates more stability while accurately recording land asset data.

Blockchain has the potential to build up individual credit histories, as well. An individual could record on-time bill repayment or smaller transactions to obtain loans.

“There’s a massive number of people in the informal sector, but there’s not much data being collected on them right now,” said Merit Webster, co-president of the MIT Sloan Africa Business Club.

“That means you don’t have that credit history or payment history for them. If you have a decentralized approach to collecting data, you end up with more malleable data. [This] is very valuable for creating credit histories.”
The agricultural industry also has the potential to thrive using Blockchain.

“In the case of small-scale farmers, Blockchain technology helps with transportation logistics,” said Webster. “Blockchain could be used to track goods around the world. This allows farmers to earn a fair wage for their goods.”

Also, farmers could use record-keeping technology to streamline the supply chain and document resources. This would lead to better efficiency, lower transactional costs and improved logistics—especially for commercial farming activities that invariably contribute to exports.

2. Security in banking

According to the World Bank, there were 1.7 billion people with no bank account in 2017. This situation is worst in developing countries, especially African ones. For example, over 62 million of these people lived in Nigeria.

Besides, data from Google Trends reveal that Lagos, one of Nigeria’s biggest cities, ranks globally as the number one city based on the volume of online searches for Bitcoin (BTC). Clearly, for the city’s 21 million-odd people, there an immense interest in some form of an accessible payment system.

N26 Bank
N26 Bank

Of course, it’s unrealistic to expect bank branches to magically appear in every remote corner of the world. However, a digital database using Blockchain technologies has the potential to reach far beyond physical banks.

Many Africans value trust and transparency. In developing countries, this lack of trust goes beyond the Internet. Developing countries with less industrialization tend to have higher levels of corruption. This reduces national investment opportunities in the public sector and instils a lack of trust in centralized oligarchs handling international investment.

Because its power lies within the community of users, Blockchain can combat these trust issues. All data logs and amendments must pass through this community and identification confirmation tests.

Blockchain technology also secures its data incredibly. Hacking and data breaches are all too common nowadays. In 2017, for example, around 3 billion Yahoo user accounts were stolen. When information is stored in the same place, hackers have one, easy target. In contrast, Blockchain is a distributed entity. This dissemination of data leaves it far less vulnerable to cyberattacks.

3. Fostering Entrepreneurship

Coupled with the Internet, Blockchain technology could be the perfect platform for aspiring African developers. Because the ‘source code’ is free of charge, skilled coders can adopt, create and configure special applications, called DApps, via Crypto platforms provided by companies like Ethereum, Tron and even a South African firm specializing what they called the Keto-Coin.

Rather than waiting for governments to drag their feet trying to create jobs—which they tend to do—individuals on the continent can form small firms that build and sell Crypto-based Apps locally or abroad.

“Despite the frictions and impediments mentioned,” said Olorunfemi. “Blockchain can still provide an avenue for promising African tech (and even non-tech) projects to access capital (foreign direct investments) via token offerings on digital assets exchanges.”

Many courses are even readily available online to quickly learn about the new technology. Microsoft, for instance, offers a platform via Azure to build and learn about the Blockchain.

One-man shops in countries with unfavourable economic systems, like Zimbabwe, can also adopt smaller, stable, Crypto-built Apps/coins to facilitate or replace payment systems. In cases of rampant inflation, Cryptos can temporarily act as a store of value or help pay for things until the currency stabilizes again.

As with the Venezuelan hyperinflation case study, Cryptocurrency intervention could help many developing countries troubled with economic instability.

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There is also the option of Crypto-mining. Now before you pull out the high-energy (electricity needed to power PCs that mine Cryptocurrency) argument, think outside the box for a moment. What about energy sources that are free and available nearly 24/7? Like water and the sun!

The African continent is full of capable scientists and mechanical engineers. One could build special solar-powered energy centers to power Bitcoin-mining.

And without the expertise, governments or private companies could alternatively just invite Crypto companies with abundant financial resources to mine (cleanly) for a special tax/fee while creating jobs for the locals.

4. Elections

In addition to the financial side of things, Blockchain technology could help eliminate some forms of corruption. For example, many African countries’ elections are incredibly vulnerable to the social scourge. In some extreme cases, some officials change or forge written ballot votes to rig elections.

Corruption


To combat this, Blockchain databases could record votes, which are nearly impossible to tamper with using Smart Contract technology. Having fair elections improves infrastructure, which then increases development and economic dependability.

Blockchain non-profit company Cardano, this year, has partnered with the Ethiopian government to battle these issues specifically.

5. Leapfrogging

While some might see Africa’s economy as underdeveloped, others might see it as a blank canvas well-suited for a large-scale implementation of Blockchain. Economic and governmental systems are shifting and slightly shaky in many Sub-Saharan African nations.

MPesa

Although these facets have been detrimental in the past, this also means that there is no rigid current economic system to upend to implement Blockchain.
Don’t just take our word for it—African nations have often implemented new, practical technologies before the Western world. Let’s look at the example of M-Pesa. Back in 2014, Americans and Europeans were amazed by Apple Pay’s launch.

However, this mobile payment system wasn’t exactly “new.” By that time, Kenyans had used M-Pesa, a very similar technology, for years.

“There’s a lot of opportunity to leapfrog the way the West developed and have these more unique African solutions, but it needs to come from within,” said Webster.

“It needs to come from entrepreneurs in the continent who want to implement these solutions. It’s important to engage people very early on. Systems incubated in the West don’t stand as great of a chance to work as African ones do.”

With the possibility of an experimental, large-scale takeover of Blockchain technology to improve African infrastructure, the nations there could leapfrog in development and growth, surpassing current World Bank expectations and its developing national counterparts.

This must begin internally. According to Olorunfemi, “Education—of policy makers and other stakeholders—which is often ignored has to be a critical factor in paving the way for the acceptance and adoption of new technologies and the accompanying investment.”

The results in Sub-Saharan African countries could help eliminate much of the world’s poverty, along with remnants of mistrust and corruption left behind by the days of colonial exploitation.

While there are some obstacles to large-scale Blockchain implementation, we can’t think of a better benefactor than there. The possibilities for business using the Blockchain are endless!

To learn more about how to get started with Cryptocurrency mining or purchasing, visit our resources page for useful links and guides.


Additional input by Bobby Quarshie (BQ). 

Citations: Christopher Lee and Jackson Mueller. 

Swan, Melanie. “Anticipating the Economic Benefits of Blockchain.” Technology Innovation Management Review 7.10. Oct. 2017.

Bitcoin Lessons from Venezuela, Where Hyperinflation Reigns. Online Source: https://www.lathropgage.com/newsletter-237.html

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The fuss about trade disputes

What does a small-scale farm-holding, two presidents, some tech companies and their respective local currencies all have in common?

The answer might be obvious if you have been paying attention to the so-called trade war between China and the US in the news lately.

But why is it of concern and what are the far-reaching implications for the rest of the world?

Well, active involvement in international trade is a vital sign of a country’s financial health and a significant input to its Gross Domestic Product (GDP).

GDP measures the value of all goods and services produced in a country from raw materials (input costs), to value added (assembly and skilled labour costs) to come up with final goods or services.

And though “domestic” implies that this refers to a country’s internal economy as a whole, the contributions can be extended from a services perspective.

This occurs when the country places emphasis on or relies on income from Foreign Direct Investment (FDI) to help boost its economy via its GNP. GNP is a similar measurement but slightly different from GDP as it incorporates.

Importance of trade

Fact is, all goods and services come from the price or costs starting with that of the initial extraction/acquiring of raw materials.

These then undergo the production and assembling process leading to the product or service of intrinsic value for both local and international (via exports) consumption.

An ideal situation for a country is to export more then it imports to maintain a positive balance of trade. So basically more money flowing in than out.

The extra surplus can be ploughed into the economy via the fiscal budget and can supplement a shortage of funds raised from domestic taxes.

The opposite, which isn’t always a bad thing, (called a trade deficit) would have to be managed and nursed like any other loan.

The US has often criticized Germany for exporting a lot (of its cars, trains and machinery) and not importing much and thus not being ‘fair’ in trade practice. But trade itself, arises from market forces, priorities and consumer demand.

Everyone loves a BMW, Audi and Mercedes Benz so these German-made products will always be in demand compared to US car makes.

Who you chose to trade with will often give rise to favourable balance of trade if you are engaged in a trade agreement or part of a trading bloc.

Why this is also a big deal

The demand for your country’s goods and service will directly impact the strength of its local currency – more trade means more of your currency is required to pay for goods and thus the value of the Dollar, Euro, Yen or Naira etc., goes up.

A strong local currency leads to stronger purchasing power for its citizens and residents. This comes in handy when you plan things like holidays, purchase goods online, invest or just send cash abroad as gifts.

So, you can see why a strong Dollar or Euro is always favoured and why sometimes drastic measures are taken to keep it that way.

“A higher demand for a country’s goods and services has a direct positive impact on its currency and exchange rate”

A quick glimpse of the world in terms of the input costs for goods and services that gives countries a competitive edge when it comes to trade.

USintellectual property, services, weaponry;

Germany – steel and engineering machinery giving rise to high performing automobiles;

Many African countries – mineral resources such as oil, tobacco cocoa and precious stones;

Israel – military intelligence,

South America – agricultural produce;

India – IT and customer services;

China – agriculture, building/(manual) labour and of late technology.

Country Trades

The beef with China

The said technology that China (no.2 on the list) offers the rest of the world is the subject of hot debate. The alleged theft of US intellectual property for tech gadgets and software by China.

This is one of several unfair trade practises and motives for why the US recently decided to start imposing heavier (punitive) tax-like increases on multiple goods imported by China.

These extra costs, referred to in trade terms as import tariffs, have a spill-over effect on the costs of production.

China then reciprocated by hitting the US with tariffs (mainly on agriculture produce) causing the trade war that drives each country to protect its own economy.

The higher input costs naturally, lead to the price of the product going up and reducing its competitive advantage and demand. Higher input costs can also affect the local labour force for the worse too.

Factories, multinational corporations and industries such as farms (both commercial and subsistence) will have to cut the cost of labour. In worse cases which we have seen, workers are laid-off in a heartbeat to stop or prevent accounting losses.

These factors would have hopefully been taken into consideration by the respective leaders before pulling the tariff triggers. Acting with emotions rather than looking at the far-reaching implications is irresponsible and affects all recipients of the goods and services.

Have the talks of the trade war impacted productivity and the global trade economy? So far its just the stock markets (securities and commodities) reacting.

Only time will tell.

The ramifications will also depend on the price elasticity of demand of the commodities under the tariffs. That is, how markets and respective industries affected react to the sentiment versus the actual economic activity they engage in.

Nine Reasons Why Globalization Can’t Be Permanent

We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved.

This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.

It well written and covers all salient points and asks all the right questions – such as what you may have pondered on the validity of GDP as a measure of success.

The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence. This especially so with the growing popularity of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI).

You must also question the accuracy in the way the success (or disguised failures) of a nation is presented.  This follows what you are told is required for this success to materialize.

We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:

bicycle-analogy

Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018).

In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:

Read about the 9 reasons here:   https://wp.me/p3dRG-b4w

Also read more on how Globalization has evolved here

Hope you enjoy it as much as we did.  That it has the same effect it had – getting one to think outside the box and look at the big picture.

How countries operate

At times, we can all become frustrated by political agendas, misfortunes and perceived lack of planning by various governments around the world. As a result not quite often seeing the bigger picture – or the economics of how countries work.

Naturally, the political fracases provide fuel for media companies who in turn bombard us with their 24-hour news cycles. But we need to understand that politicians are only temporary custodians of the country and its economy.

Each economic model is built on the same premise that started many hundreds of years ago – that of bartering.

Two pillars of government

There are two main mandates or rather tasks that a ruling party is assigned by the electorate when it comes to governing. These are: controlling the country’s fiscal and monetary policy.

Fiscal policy is the internal running of the country and basically deals with tax and how it is allocated. The fiscal budget is then awarded to the various sectors of any economy.

These include education, transport, healthcare, finance, trade and industry, defence, agriculture and many other building blocks of your country.

How the government prioritizes the spending on each of these sectors will determine its policy priorities. It will also be a signal of its wider political intentions. And this not only to voters but also to its neighbouring countries in regard to international trade and security.

A nation concerned with information and its human capital will prioritize education in its budget. There are however other approaches to budgetary allocation such as funding trade and industrial activities.

This leads to job creation that will, in turn, drive a need for tradesmen and women to diversify and obtain the new skills required.

This also provides an incentive for state-run schools, privately funded schools, and institutions to develop new skill sets.

Doing both is ideal – as governments must foster innovation by promoting and funding higher learning institutions where top talent can be nurtured and developed.

Fiscal policy forms the larger mandate as this budget is derived from the collective taxation of income, capital gains, trading and customs, sin taxes, corporate, and simple public services.

That way allocation of the fiscal budget to finance will pave the way for monetary policy to function.

International trade is the key to generating further income as a government cannot rely on an internally driven economy to sustain wealth. The same applies to business so an agreed trade policy would need to accommodate all aspects of the country’s economy.

National specialization

Every thriving nation has been built on either skilfully utilizing internal resources or have created global demand for a service or industry.

The UK has strong financial and corporate offerings plus its geo-positioning (GMT) allows it to be a central commercial trading point for the world.

Germany has always had a rich source of steel enabling the production of cars, rail brands, and manufacturing.

In addition, it continues to be a market leader in developing technologies to compliment those industries thus allowing the country to thrive as a major European power.

The Nordic countries are rich in mineral resources of which they have converted the revenues into national trust funds. These are used to aid its citizens; many of whom develop skills in trade, innovation, and finance (and now Fintech).

Though Japan is a geographically smaller and is made up of two islands it continues to prosper by becoming a global leader in the exporting of innovation, artificial intelligence (robotics), fishing stocks.

It even ‘exports’ financial aid (loans) to other countries due to strong and disciplined monetary policy.

The US has invested heavily in services, human capital, and innovation – to a large extent immigration has played a major role in these areas of growth.

The emerging economies

Russia is mineral-rich and has outsourced its intelligence gathering skills, military technology, and training for years.

China continues to grow and subsidizes its agriculture and manufacturing industries fully utilizing the abundance of manual labour at its disposal.

China even exports this labour thus gaining influence and soft power enabling Chinese goods and services to be exported more freely to other economies.

The ability to offer the global economy a form of expertise or goods/service can attribute hugely to each country’s economic wealth.  Israel – military and intelligence; Brazil agriculture and tourism not to mention countries in the Far East – oil and fossil fuels.

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Most African countries obtain their sources of income (though not as much as they should) from natural minerals, agriculture, and tourism.

Ghana has gold and cocoa; Nigeria – oil; South Africa – gold and many mineral resources; Kenya and Tanzania – tourism. Even a poor country like Zambia has survived because of its coal and coffee reserves.

Any country without resources or the ability to offer goods and services would have to be more subsistence-like. This usually means having to rely on aid or import goods and services.

That, however, comes at a price and leads to the country functioning with an unsustainable debt burden.

Application of policies
Interesting food for thought by Dr. Jagdish Bhagwati, a famous Indian-born economist in the US:
Americans spend, save little. Also US imports more than it exports.
Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.
The Japanese on a contrary, save a lot. They do not spend much. Also, Japan exports far more than it imports, has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing.
Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillion.
Thus, savings, far from being the strength of Japan, has become its pain.
International trade

This then gives way to various trading blocs, which over time have been built, broken or renegotiated when it was not suiting either of the participants.

The strength of a country’s currency is primarily determined by supply and demand for its sovereign currency – but demand can only be fostered by trade.

The more the demand for a countries commodity the greater the demand for its currency – which is the medium we use to compensate for transactions.

In terms of a country’s monetary policy, it is more of a singular relationship between a government and its banks.

The banking system

Banking is the system to which people can place their disposable income (gross income after tax). The central (reserve) bank regulates the money supply into the economy ensuring that locally, inflation does not corrode the value of its currency.

The central bank controls how much it lends to local banks and at which payable interest rate.

The central bank is independent of government. They have their policies shaped by fiscal influences and is under obligation to impact the strength of the economy through its interest rates and exchange rates.

So, the central bank sets the mandate by which banks offer security interest, loans and building deposits to help you benefit from their hard-earned cash.

Banks, however, have a wide range of consumer charges so transacting doesn’t offer much protection against inflation. In some cases, banks offer you zero interest on savings deposited!

You can therefore understand the frustration of citizens who would like to see increased corporate taxes especially for banks.

This especially as they reward executives with excessive remuneration packages even in a failing economy.

Financial governance and regulations

The new wave of Cryptocurrency aims to shake-up these long-standing benefits banks have enjoyed.

Benefits such as the bailouts from taxpayers’ money from risk-taking behaviour that nearly brought the global economy to its knees.

Like a petulant child knowing well that its parents will only mildly reprimand but ultimately still allow the continuation of behaviour with a slap on the wrist.

Governments continue to tolerate excessive wage packets and risk-taking due to the fact banks play a strategic role in the stability and growth of an economy.

This is just a tip of the iceberg and paints a big picture of how a country is managed – or indeed can be mismanaged.