Tech News: Blockchain could make supply chains more efficient
By Louis Fourie
Blockchain solutions are not easy to implement but they are highly desirable for governments and businesses in developing countries, who have long been overwhelmed with issues surrounding data collection, organisation and integrity.
Using blockchain technology to digitise, secure and keep track of records will not only avoid the issues around information mismanagement that many institutions struggle with, but could also curb corruption and restore trust in the public sector, which is at an all-time low among many African citizens.
Many companies across the globe are therefore taking a huge interest in the potential Africa has to offer in terms of market growth for blockchain products.
Apollo Eric, from Æternity Hub Africa, said: “Blockchain technology has the potential to disrupt the current centralised linearly structured systems that typically create bottlenecks and thus a perception of scarcity.
“Africa will hugely benefit from a decentralised planning of economic and governance systems, and in doing so, grow the continent out of poverty.”
Æternity Hub Africa is a Kenyan software company that develops decentralised applications on Æternity’s open-source scalable blockchain platform which enables high-speed transacting and functional smart contracts.
Paxful, a peer-to-peer platform, is another important player making a real impact in people’s lives by providing financial independence through the servicing of more than three million digital currency wallets with major market uptake in South Africa, Nigeria, and Ghana.
Blockchain could transform supply chains
But perhaps the most exciting application of blockchain that has received very little attention amid the cryptocurrency excitement, is the potential for Digital Ledger Technology (DLT) to transform supply chains across the world. The operating cost of supply chains has risen immensely as a result of their increased complexity and digitisation. Blockchain is a possible answer to many of the logistical, cost and transparency issues that plague the growth of supply chains.
For example, in July 2018 the International Finance Company (IFC) made a three-million-dollar investment in Twiga Foods, a business-to-business logistics platform that connects small-scale farmers to shopkeepers in East Africa. The platform through which vendors order and pay for fresh food and vegetables is cashless. By eliminating layers of middlemen, Twiga has created more efficient supply chains, eventually benefiting the farmers and vendors.
Twiga Foods also partnered with IBM to build a blockchain-enabled financing platform to provide microloans to hundreds of small retailers, enabling them to purchase food from Twiga’s suppliers. Twiga found that the financing service dramatically increased the order size, as well as the profits for each retailer. It also provided benefits for those higher up in the supply chain.
The goal was to create an ecosystem whereby individuals could deal with multiple suppliers and permanently record all transactions on the blockchain. It serves as a single point of truth and assigns each retailer or individual a financial identity that can be accessed by suppliers and financiers. That meant retailers could get credit without a bank account. The cellphone-based platform uses simple SMS text messages, rather than requiring an expensive smartphone, while repayments are made using M-Pesa, Africa’s well-known and widely used mobile-money service.
The IFC has also funded IrisGuard, which uses a biometric ID technology that has been deployed in ATMs and is linked to aid distribution programs for Syrian refugees in Jordan. IrisGuard has implemented a blockchain-based back-end payments system that may possibly deliver a cost reduction for the benefits programs that uses its biometric ID.
From these examples it is apparent that two attributes of blockchain – the reduction of agency costs and the availability of auditable traceability – may help improve trade facilitation and compliance with sustainability and inclusion.
Food and agriculture supply chains
Further supply chains, where experimentation with blockchain is taking place, are food and agriculture, and pharmaceutical safety. In food and agriculture, a blockchain-enabled workflow automation (via smart contracts and integration with key machinery and data collection points) and auto-reconciliation for inventory, can reduce costs for consumers and producers. This is significant, given that about eighty percent of the cost of delivered goods in such traditional supply chains is administrative and procedural. Producers, who bear the disparate burden of retaining capital, also curtail their credit, liquidity and operational risk by requiring greater conformity. The blockchain or distributed ledger model could improve access for regulators and authorities for the collection of taxes and customs duties.
With regard to pharmaceutical safety, DLT, together with the internet of things, provide an attractive solution to the tracking of drugs. It is common knowledge that in developing countries an estimated fifty percent of drugs that are consumed are counterfeit. Blockchain can provide a record of all transactions – including location, origin, data, quality, and price – to all involved entities in real time to minimise record‑altering and the distribution of counterfeit medicine.
Monitoring the cobalt industry
In the past, cobalt used in lithium-ion batteries (for example, cellphones and electric cars) has often been mined by children. In the Democratic Republic of Congo blockchain is used to monitor cobalt mining to ensure consumers and investors that the cobalt has been mined ethically and came through the supply chain free of rights abuses similar to other minerals such as tantalum, tin, tungsten and gold.
The maturing of blockchain
Blockchain may be in its infancy but its potential is enormous, especially in emerging markets. It is very much like the Internet in the early 1990s — it could certainly be a game-changer. Blockchain, and DLT more generally, are most beneficial in domains where many stakeholders are involved, such as supply chains, trade finance and real estate. Any industry with a large amount of paperwork involved in the processes, runs the risk of error and fraud. Due to the smart-contract functionality, which can function as a digital equivalent of legal written contracts, DLT can promote trust in transactions between parties with contradictory interests.
Although the adoption of cellphones in Africa is high, some economies may need to develop more before all the benefits of blockchain can be realised. For example, if people do not have access to smartphones, their interaction with digital applications or supply chains can be limited. But making technological concessions can create solutions that provide a better service to the customer, such as designing a user interface using voice calls or SMS. To have a material impact, blockchain solutions must integrate seamlessly with the systems consumers are using.
As technology matures, it often faces technical, regulatory, and institutional difficulties. Many experts, for instance, have raised concerns regarding privacy and confidentiality, identity verification, the permanency and irreversibility in the case of fraud, the enforceability of incorrect implemented smart contracts, intellectual property protection, and the lack of international regulation.
South Africa is preparing to regulate cryptocurrencies like Bitcoin. In addition to protecting individuals, the new rules may pave the way for a mushrooming of blockchain products with cryptocurrencies as their underlying basket of investments.
There are, without doubt, excellent examples of African governments, brands and institutions that are harnessing blockchain technology, to provide citizens with complete control, transparency and lower prices. Blockchain is therefore worth our serious attention.
Prof Louis C H Fourie is a technology strategist
*The views expressed here are not necessarily those of IOL or of for title sites