Can blockchain curb South Africa’s rampant corruption?
By Professor Louis Fourie
AS HAS been the custom over the past few years, President Cyril Ramaphosa addressed the ever-increasing corruption in South Africa in his State of the Nation Address on February 11 and labelled it as one of the greatest impediments to South Africa’s growth and development.
Although he stressed the importance of giving urgent attention to this problem and believed that South Africa has made significant progress in fighting corruption, most efforts, such as the investigations by the Special Investigating Unit, the Special Tribunal and the Judicial Commission of Inquiry into Allegations of State Capture, are post-hoc and occur after the corruption has taken place and the money has been spent.
It is widely known how corruption impacts the economy and tax morality, administration and compliance, and, by extension, the entire country. Since corruption contributes to instability and poverty, and is a major factor driving countries towards state failure, it is time that the government shifts its focus to the prevention of corruption. More than 80 percent of South Africans indicated in a poll at the end of 2019 that they mistrust political parties and politicians, because corruption is on the increase.
The late Auditor-General Kimi Makwetu noted in 2018 that “on average almost 60 percent of the revenue shown in the books will never find its way into the bank account”. South Africa ranks 70th out of 140 countries according to the Transparency International Corruption Perception Index and is surpassed by eight other sub-Saharan African countries.
Preventative blockchain technology
Blockchain technology can help the government with shifting the focus from post-hoc inquiries, investigations and endless commissions to the prevention of corruption and the loss of billions of rand in public procurement. The blockchain platform may make public procurement more efficient, transparent and less susceptible to corruption.
Blockchain, or the distributed digital ledger system, is fundamental to cryptocurrencies such as Bitcoin and Ethereum. It uses multiple independent computers and networks to synchronise financial transactions online without the need for independent validation. It guarantees the secure exchange of value without the need for a central authority, such as a government, bank or other financial institution.
With blockchain technology, all transactions or “blocks” in the “chain” are irrefutable and protected from deletion, tampering and revision. Blockchain creates an immutable trail of information, allowing full traceability of every transaction. It is therefore easy to determine its origin and how and where the funds were/are distributed. It is thus much more difficult to transfer funds to an unauthorised source.
The use of public “keys” by government departments and a public ledger would make the distribution of public funds much more transparent. It would revolutionise procurement by making it completely transparent, with pictures of the people who approved every step of the process so that taxpayers will be able to see exactly where the money goes and how the procurement process occurred.
Blockchain could also assist in automating the transfer of funds through certain important “checks” that would allow only certain transactions to take place, such as a predetermined amount of funds that can be transferred only to a previously accredited supplier.
Blockchain is also valuable when used in supply chain monitoring and management, and can assist with tracking and traceability, as well as provenance and the enhanced efficiency of the system. It can typically be used with emergency food distribution, such as during the Cpvid-19 pandemic, and can ensure transparent tracking that can eliminate the large-scale corruption that took place with government-distributed food packages.
Since he became the president of Tanzania in 2015, John Magufuli has been a strong anti-corruption advocate. In 2018, he introduced blockchain technology to get rid of thousands of public sector “ghost workers” and stopped the monthly illegal outflow of 430 billion Tanzanian shillings (R2.8 billion).
Nigeria’s customs service adopted blockchain technology to reduce corruption and increase revenue.
In Ghana, blockchain is used to create a trusted and decentralised digital ledger of permanent and trackable land records for the majority of landowners who are unregistered and do not have title deeds.
The government of Kenya is working on a blockchain implementation to monitor the construction and distribution of hundreds of thousands of homes for low-income citizens.
In Ethiopia, the government uses blockchain to monitor the supply chain of its signature crop, coffee, to ensure that farmers earn what they deserve, by eliminating corrupt middlemen.
Here in South Africa, the South African Reserve Bank (SARB) implemented Quorum, an enterprise-grade of Ethereum-based ledger technology for interbank transfers (Project Khohka).
Although the use of blockchain to curb corruption is not restricted to Africa and is used worldwide, Africa is building totally new stacks of technology, infrastructure and decentralised applications that fit the continent’s specific needs. Africa, and, in particular Southern and Eastern Africa, is for once at the forefront of the adoption of new technology and is leapfrogging the developing world.
But South Africa is getting left behind as businesses and governments all over the world are embracing blockchain to maintain control of money flows, enhance efficiency and expunge corruption.
It is heartbreaking to see people sleeping on the sidewalk outside a post office to collect their South African Social Security Agency grants, while three years ago the grant could have been automated, using real-time blockchain technology.
Just as sad are the long queues and numerous problems to renew motor vehicle licences or to cross the border from Zimbabwe, while we could have used blockchain technology to improve efficiency.
Blockchain could also have made a huge difference with regard to the personal protective equipment budget and the apparent R10.5 billion corrupt spending and crime against humanity. But alas, the political will, goodwill and commitment were lacking.
However, one positive story is that of Pretty Kubyane, who is disrupting the R100bn a year hair product supply chain industry in Africa by co-founding Coronet Blockchain with her husband in 2018. Coronet Blockchain is a supply chain management solution built on blockchain technology to create end-to-end supply chain transparency with ethical human hair products, vetted hair suppliers, sustainable salon businesses, verifiable and certified stylist skills, and peace of mind for consumers.
South African National Blockchain Alliance
One further ray of hope was the launch of South African National Blockchain Alliance (Sanba) on April 3 last year by the Department of Science and Innovation to act as catalyst for change in moving South Africa towards the use of distributed ledger and blockchain technologies. The idea is to connect players (government, academia, business and civil society), facilitate skills development, catalyse blockchain adoption and leverage the blockchain ecosystem in South Africa.
But it remains to be seen what will become of Sanba and if it is just another talk forum, since currently only the SARB’s Project Khohka has been listed. As with many government initiatives, Sanba is hampered by the lack of a real budget.
What is really needed is a holistic approach across all departments of government and a concrete plan of when each department will implement blockchain to fight corruption and who will be responsible for the implementation.
The potential of blockchain
Certainly, blockchain technology is only as good as the foundational governance structures that support it. A transformation of organisational culture within government is certainly needed, because transparency can be uncomfortable. But with the recent scope of corruption scandals, particularly during the Covid-19 pandemic, innovative technology such as blockchain will make large-scale corruption with public funds much more difficult.
There is a vast potential to use blockchain for automatic transactions and tracking systems that could intercept corruption and fraud in time and do not rely on human intervention, which is often prone to persuasion, error and corruption.
The security of both public funds and private funds affects us all and is important in maintaining the stability of the economic system, because corruption and bad management practices divert public resources away from social grants, education, healthcare, security, water, power and other public spending that improves living standards.
It is critical that stringent measures are put in place to ensure that every rand is accounted for and its impact is measured. Strong and robust technological compliance systems therefore play a critical role in detecting corruption and malfeasance.
Hopefully, decentralised digital ledgers will soon be implemented and will gather enough data to embarrass corrupt politicians, civil servants and citizens. Blockchain technology can eradicate corruption in South Africa – but only if we want to!
Professor Louis CH Fourie is a technology strategist
*The views expressed here are not necessarily those of IOL or of title sites