The world of international trade is one of the most complex systems devised by man. Exporters, banks, shipping houses, regulators and traders from across the globe are connected through a series transactions that result in the exchange of goods that form the backbone of global trade.

Punctuated by swathes of checks and balances designed to combat activities such as human trafficking, counterfeiting and  illegal smuggling, global trade has seen little innovation apart from bigger and faster modes of transportation.

Paperwork, processes and bureaucracies are still very much reminiscent of the early days as governments and trade companies struggle to keep up with technological advancement. Until now that is.

Distributed ledger technology (DLT), better known as Blockchain, is attracting widespread attention as a solution to procedural, transactional and security  challenges that have traditionally made global trade a slow and complex undertaking. The technology, according to many companies, has the potential to address many of the existing loopholes exploited by nefarious players in the world of global supply chains.

A New Means of Bartering

The paperwork and processes that traditionally accompany global supply chains are designed to facilitate more transparent trade across international borders. Ironically, however, these have served up countless loopholes to a criminal element that permeates the industry. By their very nature, the complexities inherent in the processes involved in global trade allow criminals to disguise their activities as human error, delays in information sharing, data duplication and miscommunication permeate.

As an alternative to traditional trade processes and mechanisms, Blockchain promises to revamp an archaic system that has far too many intrinsic loopholes — something that is evident when one looks at statistics involving criminal conduct on the global trade stage. For example, trade in counterfeit goods alone totaled nearly $500 billion in 2017 despite increased auditing and physical security at ports and harbours. 

Blockchain technology records transactions in sequential blocks by means of encrypted data that is instantly shared with all parties involved in the supply chain, thereby making it impossible for individuals to hide their activities under mountains of paperwork or sneak out the backdoor as information sharing moves at a snail’s pace. Real-time availability of updated records massively reduces the delays that punctuate trade, which creates windows of opportunity for nefarious activities.

“With roots in financial services, digital ledger technology is making inroads into goods transport through financial instruments, such as letters of credit, and through the digitisation of traditional trade and shipping documents,”

World Economic Forum

To benchmark the efficiency and transparency of incumbent trade processes, Danish shipping giant, Maersk, conducted an analysis of a flower shipment from Kenya to Rotterdam which revealed a staggering 200 communications between parties and dozens of documents processed to facilitate a single shipment. Considering that flowers are of the most fragile and time-dependent goods imaginable, one can only surmise that the end-product arrived at its port of destination in less than stellar condition.

Blockchain’s efficiency promises to eliminate delays in transportation and thereby prevent the degradation of products, place companies on the front foot against fraud and provide a shared point of reference for all players in the loop. Further, prior to arrival, digital records can be sent to port authorities, customs officials and all other relevant parties to ensure checks and balances are carried out against accurate data on arrival and without delay.

Opportunity for the Developing World

According to the World Trade Organisation (WTO), technology will have a massive impact on global trade over the coming decades. In fact, it predicts that continued technological progress could potentially boost GDP in developing markets such as Brazil by 20% and China by respectively. 

Looking back, improved communications facilitated by the arrival of the internet has removed traditional barriers to trade, which resulted in a massive upswing in trade relations, opportunities and access to new markets for developing nations. As a foundation technology (similar to the web) Blockchain has the potential to even the playing field further and give developing nations a strong footing as they compete with incumbents in global trade. 

In fact, Blockchain interest is fast taking root in Africa as companies and government institutions collaborate on proof of concept projects to uncover opportunities resident in the technology. Beyond harbours, containers and ports, African banking institutions are looking at DLT as a means to facilitate more efficient inter-bank, cross-border and inter-party payments that act as the bottlenecks to trade on the continent.

Project Khokha, an initiative between the South African Reserve Bank (SARB) and a consortium of private banks and other parties was established in October of 2017 to investigate the opportunities in making the exchange of goods and payments more efficient and transparent. According to a report by the SARB, the outcomes of the project resulted in much closer collaboration between all parties and produced results that promised to upend current payment systems such as the South African Multiple Option Settlement (SAMOS) system that has set the benchmark hitherto.

“In the case of Project Khokha, the DLT system was able to process the current daily volumes of SAMOS within a two-hour period. There would be technology and resource costs to implementing a new DLT system, but these must be offset against the additional functionality that a DLT system would bring.”

South African Reserve Bank

Blockchain and African Free Trade. A Match Made in Heaven?

With over 50 signatories to the recent African Continental Free Trade Area Agreement, the timing of Blockchain’s rise in Africa couldn’t have been better. The deal is designed to create a single African market for goods and services and is earmarked to accelerate trade on the continent. Blockchain will undoubtedly come up in discussions around transparency and efficiency as new opportunities and challenges arise in the wake of the new trade agreement. How African businesses and governments leverage the technology will play a huge part in the continent’s economic growth. Thus far the signs are positive that yesterday’s laggards and dependents may just become tomorrow’s leaders and pioneers — and Blockchain will be a major contributor to this new reality.

 

Define Your Picture of Potential

WWC’s offering as a Digital Transformation Advisory include facilitated processes to help you as a business in defining your purpose and setting your vision for digital transformation, a process that we like to call, defining your POP (Picture of Potential).

Having spent most of his life operating in Southern Africa, Alex Acton, who heads up WWC’s African business is also one of the businesses senior consultants. With a deep appreciation for the opportunities that Africa presents, combined with the incredible disruption that digitilisation has brought, Alex revels in solving tough business problems in ensuring that businesses are able to transform and adapt to the changing needs of our times.

Having spent most of his life operating in Southern Africa, Alex Acton, who heads up WWC’s African business is also one of the businesses senior consultants. With a deep appreciation for the opportunities that Africa presents, combined with the incredible disruption that digitilisation has brought, Alex revels in solving tough business problems in ensuring that businesses are able to transform and adapt to the changing needs of our times.

Share This