033528000ALMA MATER STUDIORUM – UNIVERSITA’ DI BOLOGNA
SCUOLA DI ECONOMIA, MANAGEMENT E STATISTICASCHOOL OF ECONOMICS, MANAGEMENT AND STATISTICS
Corso di Laurea First cycle degree
BUSINESS AND ECONOMICS
Digital innovation ; FinTech: opportunities for the
Southern African Development Community
PRESENTATA DA DEFENDED BY Lorenzo Condini
0000755025 027495500Sessione seconda B – Graduation session second B
Anno Accademico – Academic year 2017/2018
Introduction on SADC
Economic and financial data
The Fourth Industrial Revolution
The Internet of Things
Blockchain technology and FinTech
Cases from Zimbabwe and South Africa
Implementations in Southern Africa
Cape Town case
The pace and disruptiveness of technological change are creating unprecedented opportunities and challenges. Emerging technologies that are characterizing the Fourth Industrial Revolution bring along immense potential for growth and will profoundly benefit society, but their future holds some threats to be tackled. How can it benefit society as a whole and shrink inequality gaps? Which policies and reforms will be implemented to address inevitable job losses in industries like manufacturing? In which ways will Southern African economies adopt digitalisation and lay the foundation for regional integration and sustainable development? This dissertation analyses the evolution of selected macroeconomic indicators in the Southern African cluster since the inception of SADC in 1992 and evaluates the effect of innovation on productivity to shape a bright future in the community.
The majority of Southern African states have been held back by legacies of colonialism, resulting in problem such as corruption, poverty, and armed conflicts. Local players are striving for adopting technology to solve social, economic, and political problems and as a launch pad into global markets.
In a fast-changing global environment where everything is becoming easily accessible by smartphones, technology has the power to disrupt traditional business models. Trust, transparency, security, and cooperation are needed in order to efficiently eradicate poverty and pave the way for a healthier society. After having performed a thorough analysis of social and economic variables using statistical data collected from international organizations, the research shifts its focus towards the understanding of new technologies that are supposed to transform the business environment. In doing so, this paper presents possible blockchain-backed solutions in industries where Southern African states enjoy a competitive advantage or where developments are required to boost economic growth and enhance living standards.
The Southern African Development Community (SADC) is a regional economic community headquartered in Gaborone, Botswana. Established in 1992, it is currently comprised of 16 Member States: Angola, Botswana, Comoros, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe. According to Article 5 of the SADC Treaty, CITATION SAD09 l 1040 (SADC, 2009) SADC’s objectives include the achievement of economic growth and sustainable development by supporting inter-dependence and cooperation among Member States.
2.1 Historical background
The origins of the SADC can be traced back to 1970s when liberation movements in majority-ruled states of Southern Africa started coordinating their struggles to bring an end to white colonialism and reduce dependence on the then apartheid South Africa. By adopting the Lusaka Declaration “Towards Economic Liberation”, signed by nine states (Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe), the forerunner of today’s SADC was formally established in 1980 under the name of Southern African Development Coordination Conference (SADCC). SADCC was then transformed into SADC on 17 August 1992 at the Windhoek Summit, in the newly independent Namibia. The ten member states signed the SADC Declaration and Treaty, which set out the main objectives of the Community: achieve sustainable development and economic growth through regional integration and cooperation in order to alleviate poverty and enhance living standards of the peoples of Southern Africa.
Following the first multiracial election held under universal suffrage in 1994 that signified the end of the apartheid era, South Africa became the 11th member of SADC. Afterward, also Mauritius, in 1995, the Democratic Republic of Congo and Seychelles, both in 1998, joined the organization. Subsequently, Madagascar in 2005 and Comoros in 2017 became part of the community as well. Between 2000 and 2008, SADC went through a process of institutional restructuring necessitated by the difficulties and constraints encountered in the transition from a coordinating Conference into a Community. Its headquarters were moved to Gaborone, Botswana, and the Treaty was amended. These reforms led to the establishment of both 8 central institutions and the Regional Indicative Strategic Development Plan (RISDP). The latter, along with the Common Agenda, is designed to provide strategic direction with respect to SADC projects, programmes and activities. Moreover, the implementation of the SADC Protocol on Trade CITATION SAD l 1040 (SADC, 2018) in 2000 and its amendment in 2005 laid the foundation for the formation of the SADC Free Trade Area in 2008. Its stated objectives included the creation of a larger market to increase domestic production, improve employment opportunities and attract more foreign direct investment. Among the SADC member states, only Angola and Democratic Republic of Congo remained outside the agreement.
In addition, SADC joined with the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) to form the African Free Trade Zone, consisting of all the 26 members of the three trading blocs.
2.2 Population data
According to World Bank’s latest available data, CITATION Wor182 l 1040 (World Bank, 2018) SADC population increased by more than 90% from its inception in 1992 to a total of 343 million people in 2017, growing 15 times faster than in the European Union. Indeed, while in 1992 Europeans were 2,69 times more than Southern Africans, in 2017 the proportion fell to 1,5 and is projected to continue its downward trend. In the analysed period, the highest growth rates have been experienced in Angola (+130%) and in the Democratic Republic of Congo (+118%), more than doubling also in Tanzania, Mozambique, and Madagascar. In addition, this tendency is expected to continue, and total SADC population is projected to expand by roughly 40% by 2030, with an annual average increase of 3%, and by 2050 it will hit the 734 million mark, which would amount to 114% growth rate since 2017.
Population by country, total
Country 1992 2017 % growth ’92-2017 2030 (e) 2050 (e)
Angola 12.968.345 29.784.193 129,67% 44.712.000 76.046.000
Botswana 1.455.833 2.291.661 57,41% 2.800.000 3.421.000
Comoros 436.448 813.912 86,49% 1.062.000 1.463.000
Congo, Dem. Rep. 37.346.147 81.339.988 117,80% 120.443.000 197.404.000
Lesotho 1.667.121 2.233.339 33,96% 2.608.000 3.203.000
Malawi 9.729.717 18.622.104 91,39% 26.578.000 41.705.000
Madagascar 12.301.336 25.570.895 107,87% 35.592.000 53.803.000
Mauritius 1.084.441 1.264.613 16,61% 1.287.000 1.220.000
Mozambique 14.071.231 29.668.834 110,85% 42.439.000 67.775.000
Namibia 1.513.721 2.533.794 67,39% 3.246.000 4.339.000
Seychelles 70.763 95.843 35,44% 97.000 92.000
South Africa 39.360.225 56.717.156 44,10% 64.466.000 72.755.000
Swaziland 906.034 1.367.254 50,91% 1.666.000 2.081.000
Tanzania 27.219.619 57.310.019 110,55% 83.702.000 138.082.000
Zambia 8.452.275 17.094.130 102,24% 24.859.000 41.001.000
Zimbabwe 10.682.868 16.529.904 54,73% 21.527.000 29.659.000
SADC Total 179.266.124 343.237.639 91,47% 477.084.000 734.049.000
European Union 480.438.474 512.461.290 6,67% 514.876.000 503.140.000
Source: World Bank, data for 2030 and 2050 are estimates
Nonetheless, improved life expectancy at birth reflects enhanced health conditions, with the development of vaccines and antibiotics being among the main drivers of the steady increase. There is still plenty of room for further progress, especially in rural areas, and new technologies will foster future improvements. For instance, while in 1992 life expectancy in the community was around 55 years (75 in EU), it rose to 63 years (80 in EU) in 2016 and is predicted to reach 74 years by 2050. Among the member states, Mauritius and Seychelles have the highest lifespans with 74 years, followed by Botswana (67 years). On the other hand, the lowest life expectancy is found in Lesotho (54 years), in Swaziland (57 years), and in the Democratic Republic of Congo (59 years). As regards percentage change between 1992 and 2016, Angola (+46,3%) and Zambia (+40,8%) have been the top performers, while only Lesotho and Swaziland experienced a decline in longevity, respectively of -8,8% and -3,1%.
Besides, a positive feature is showcased when analysing the increase in population by age group. Almost 70% of the people is under 30. The slice of people in the range of 0-14 years, which accounted for 44% of the total in 1992, is shrinking but still amounts to 40%. On the other hand, in Europe, youth correspond to just 15% of the total population. Not surprisingly people aged 65 or above represent a very small percentage (3,4%) compared to Europe’s 19,8%. This booming society will soon translate in increased total workforce and consumption, which will pave the way for better living standards and economic growth.
One of the biggest challenges to economic development, however, remains to be the high portion of population still living in rural villages, most of which don’t have access to clean water or electricity.
In fact, urban dwellers account for just 44% of the total population (compared to 75% in EU). Migration to cities occurs due to the scarcity of work opportunities in rural areas. By 2100, SADC will host two of the three largest cities in the world. Kinshasa, capital city of the Democratic Republic of Congo, will rank second with 83,5 million inhabitants, followed by Dar es Salaam, Tanzania’s main economic hub, with 73,7 million people. CITATION Glo14 l 1040 (Global Cities Institute, 2014) The process of urbanization will highly depend on the availability of proper infrastructures, currently lacking in most areas of the member states.
Another huge threat is represented by income inequality. In fact, Southern African hosts the world’s most unequal countries, measured in terms of the Gini coefficient. Therefore, governments will have to adopt policies aimed at decreasing this gap to benefit from increased household consumption and prevent social clashes among the population.
Country Year Gini coeff. Country Year Gini coeff.
AGO 2008 42,7 MOZ 2014 54
BWA 2009 60,5 NAM 2015 59,1
COM 2013 45,3 SYC 2013 46,8
COD 2012 42,1 ZAF 2015 63
LSO 2010 54,2 SWZ 2009 51,5
MDG 2012 42,6 TZA 2011 37,8
MWI 2010 45,5 ZMB 2015 57,1
MUS 2012 35,8 ZWE 2011 43,2
Source: CITATION Wor181
l 1040 (World Development Indicators, 2018)2.3 Economic and financial data
The total GDP of the region recorded a massive 222% gain at an average annual 5,4% growth rate at US$ current levels throughout the last 25 years. It is now worth almost US$ 700 billion and estimates by the IMF project a further 34% increase by 2023. CITATION IMF17 l 1040 (IMF, 2017)
South Africa is the most advanced and largest market of the community, with a sophisticated financial system and well developed physical, telecommunications, and energy infrastructures. The “rainbow nation” accounts for more than 50% of yearly total economic production and roughly 50% of both intra- and extra-SADC exports. For this reason, the performance of the entire region relies upon South African efficiency and its ability to attract foreign investments.
Regional integration has speeded up in the past decade as revealed by intra-SADC trade numbers.
In 2016, in fact, intra-SADC exports represented 25% of total exports and intra-SADC imports 21% of total imports, up 63.8% and 16.5% from 2007 results. CITATION SAD16 l 1040 (SADC Statistics, 2016)SADC Averages for Trades
2007 2016 % change
Imports of goods and services as a % of GDP 35,9 32,2 -10,3%
Exports of goods and services as a % of GDP 37,1 29,4 -20,8%
Intra-SADC imports of goods as a % of total imports 18,2 21,2 16,5%
Intra-SADC exports of goods as a % of total exports 15,2 24,9 63,8%
Source: SADC Statistics
SADC countries are world leaders in ore mining and production, especially of diamonds and cobalt. However, these practices have been raising international attention due to the atrocious working conditions miners were forced to. For instance, Democratic Republic of Congo is by far the world’s largest producer of cobalt, accounting for roughly 58% of global production. Demand for the metal has surged in past years, given the fact that it is a fundamental material in the production of lithium batteries, widely used in the production of smartphones, electric cars, and many others electronic devices. Nonetheless, child labour and corruption still represent a major threat to the development of the mining industry. For this reason, some western companies stopped buying minerals from Congolese mines until new laws would have been implemented. The focus on sustainability and workers’ rights must play a key role in drafting new policies in order to obtain international aid more easily. Due to the nature of Southern African economies, foreign direct investments have been a major source of income for development in the region. Both the theoretical and empirical literature reveal that foreign direct investment (FDI), defined as international investment by an entity resident in one economy in the business owned by a resident in another country made with the objective of obtaining a lasting interest, CITATION IMF93 l 1040 (IMF, 1993) can contribute to economic growth. Theoretically, FDI can boost the host country’s economy via capital accumulation by the introduction of new goods and technology and enhance knowledge via the transfer of skills. CITATION Hos11 l 1040 (Elboiashi, 2011) As further highlighted in Herzer et al. CITATION Her08
l 1040 (2008), FDI plays a pivotal role in the host’s economic growth by increasing investible capital and technological spillovers. In addition, OECD CITATION OEC02
l 1040 (2002) argues that FDI represents a potential source for sustainable growth and development, by helping integration into the global economy and assisting the formation of human capital and the creation of a suitable environment.
In the early 1990s, most SADC countries were still coming out of colonialism and as a result, their policies were focused on import substitution, socialism and a command economy. These circumstances paved the way for protectionism and protection of infant industries from foreign competition, thereby posing additional constraints to economic growth.
In the late 1990s and early 2000s, the majority of these countries embarked on privatization, liberalization, economic structural-adjustment programmes and FDI regulatory reviews. These policies led to significant increases in FDI inflows, especially from developed countries. However, like many other African countries, the FDI inflows into these countries are still fairly low, mainly due to political instability, policy uncertainty, poor infrastructure and difficulty in doing business.
Source: CITATION UNC181 l 1040 (UNCTAD, 2018)Covering 137 economies, the Global Competitiveness Index CITATION Wor17 l 1040 (World Economic Forum, 2017) measured the level of national competitiveness, defined as the set of institutions, policies and factors that determine the level of productivity of a country. Scores were given on a 1-7 scale. The highest scores were recorded by Switzerland and the United States with 5.9.
Among the Southern African countries, the best performers are Mauritius (46th) with a 4.5 score, South Africa (61st) and Botswana (63rd) both with a score of 4.3.
Mauritius’ competitiveness mainly stems from its highly developed financial markets and above average health and education prospects.
3. The Fourth Industrial Revolution
Source: CITATION Wor15 l 1040 (World Economic Forum, 2015)Intelligent robots, smart devices, self-driving cars, 3-D printers, virtual reality, neuro-technological brain enhancements are just some of the new technologies the Fourth Industrial Revolution is bringing to life. The Industry 4.0, which builds on previous revolutions, is characterized by a multitude of new technologies that are blurring the lines between the physical and the digital worlds into an array of inter-connections, collectively referred to as cyber-physical systems. Potentially, it could impact all disciplines and industries, resulting in a shift towards an autonomous digital network that is expected to disrupt and revolutionize the way people live, interact one another and do business. It will dramatically improve operational efficiency and asset management, but in order to achieve these goals, collaboration across the world will be required.
In particular, Klaus Schwab, Founder and Executive Chairman of the WEO, calls for leaders and citizens to “together shape a future that works for all by putting people first, empowering them and constantly reminding ourselves that all of these new technologies are first and foremost tools made by people for people.” CITATION Kla16 l 1040 (Schwab, 2016)The new age differentiates from previous revolutions by the speed of technological progress and the pervasiveness of its scope. The proliferation of low-cost sensors and further price cuts in computer processing power allow data collection in an easy and cheap way from virtually any device. Advances in artificial intelligence will permit companies to develop higher-value business models, in an effort to optimise operations in terms of speed, yield and costs. Moreover, machines and even entire facilities will be characterized by autonomous activities that can be remotely managed and monitored through the analysis of big data.
However, awareness of the potential drawbacks has to be established among governments and organizations, especially in the field of security concerns and regarding the impact this disruptive revolution will have on societies. The workforce will have to adapt to a new industrial environment, where people work alongside intelligent machines and robots. Education and training will experience profound changes to keep up pace with the new set of skills needed and effectively adopt the new technologies.
3.1 The Internet of Things
The Internet of Things (IoT) refers to a network comprised of physical objects capable of gathering and sharing electronic information. It includes a wide variety of “smart” devices that often use internet protocols (IPs) to communicate with one another. The term “Internet of Things” was coined by Kevin Ashton, who in 1999 presentation CITATION Kev09 l 1040 (Ashton, 2009) used it to describe the role of RFID tags in making supply chains more efficient. The objective behind this technology is to have many connected devices that self-report data in real time at a much quicker pace without requiring human intervention.
Recently the number of smart sensors has exploded and by 2030 some 125 billion devices are expected to be connected to the Internet, according to IHS Markit in their new ebook entitled “The Internet of Things, a movement, not a market”. CITATION IHS17 l 1040 (IHS Markit, 2017)
The most innovative feature of the Internet of Things is its ability to serve multiple and completely different industries. For example, connected devices may track consumer’s behaviour and tailor future purchases to their interests. They may also assist and improve strategic decisions by continuously streaming, storing, comparing, and analysing data to better manage business activities, increase operational efficiency, and cut overall costs. Another area experiencing a transformation is urban planning. Sensors with IP addresses placed under the streets may alert drivers about upcoming delays or accidents. Waste collection routes will optimize thanks to intelligent trash cans, that are able to notify the company in charge of the service when they become full.
3.2 Blockchain technology and FinTech
A blockchain is a decentralized and public digital ledger that keeps record of all cryptocurrency transactions in a verifiable, transparent, and permanent way.
As the name suggests it is formed by linking a countless number of blocks, which are added through cryptography and connected to each other in chronological order. In order to complete a block, that records the most recent transactions, any current activity has to be verified and validated by the network. Each completed block, containing a cryptography hash of the previous block, is added permanently to the chain. Using a distributed ledger technology (DLT), it allows every market participant to keep track of digital transactions without central recordkeeping. Each computer connected to the network (nodes) gets a copy of the blockchain, which is automatically downloaded. A blockchain database is managed autonomously by a peer-to-peer network and a distributed timestamping server. The record’s authenticity can be verified by the entire community. The data in any given block cannot be altered retroactively without altering all subsequent blocks, a practice that requires consensus of the network majority. Because of that, blockchain does not only increase the efficiency of the transactions, but it also ensures security and verifiability in a permanent way.
Blockchain technology was developed by Satoshi Nakamoto in 2008 to run and support the Bitcoin network, CITATION Sat08 l 1040 (Nakamoto, 2008) the first cryptocurrency ever invented. Its objective was to bypass central regulatory bodies and outdated legal infrastructure revolving around banks and the financial industry. The invention of the Bitcoin blockchain made it possible to solve the double-spending problem without the need of a trusted third-party authority or a central server.
The double spending problem is defined as a potential flaw in a cryptocurrency or other digital cash scheme whereby the same single digital token can be spent more than once, since it may be duplicated or falsified. CITATION Inv18 l 1040 (Investopedia, 2018) Thus, it raises potential threats about the protection of digital currency like traditional currencies have to be protected from counterfeit or fraud, with additional accountability risks in terms of data and privacy protection. A typical Bitcoin transaction works between two parties, where both have a public key and a private key that provide a digital signature. The sender issues a desired amount of Bitcoin to the receiver’s public address. When the transfer is completed, the transaction, the digital signature, and the timestamp, are streamlined to all of the nodes of the network for validation. Once the transaction is approved by the nodes, the block containing the information is irreversibly added to the chain and open for anyone to view and confirm that it did take place. The most striking innovation introduced by the blockchain is that transactions are verified faster, safer and cheaper than with traditional systems. Validity of transactions is proved by timestamping schemes, such as the proof-of-work or the proof-of-stake scheme. Furthermore, cryptocurrency within a wallet is not tied to people, but rather to specific “addresses”. Thereby, owners are not identifiable, but all transactions are publicly available in the blockchain. Blockchain, together with the Internet of Things, has the potential to transform a wide variety of industries, ranging from financial services and retailing to healthcare and mining. For this reason, financial technology (fintech) is rapidly spreading around the financial companies with the aim of delivering their services in a more accessible way to the general public. In the banking industry, private institutions started realizing that they could use the core idea of blockchain and create a private blockchain, where the validator is a member of the entity itself, that runs faster and can be trusted more than a public blockchain. This is possible because a private blockchain is permissioned, meaning that users cannot join it unless invited by the network administrators. This makes the organization readily identifiable and accountable for the entire process of verification of the transactions, ensuring trust and security to its members without sacrificing autonomy and running the risk of sensitive data exposure to the public internet. Possible applications include database management, auditing, and smart contracts drafting. Barclays announced the first of its kind blockchain-backed credit transaction between Seychelles Trading Company and Ornua. CITATION Placeholder2 l 1040 (Reuters, 2016) The first trade documentation to be encrypted and managed on a blockchain network saved the bank significant amount of time and money on the whole transaction. David Rourke, Ornua group trade finance manager, stated how “moving to paperless trade would be hugely beneficial in supporting the supply chain, through reduced costs, error free documentation, and fast transfer of original documents to our customers worldwide”. According to Accenture, banks may save up to $10 billion by using blockchain to store and process clearing and settlement. CITATION Placeholder1 l 1040 (Accenture, 2017) Santander, Spain’s biggest bank, estimates that implementing blockchain technology could save the financial industry up to $20 billion per year. CITATION San15 l 1040 (Santander InnoVentures , 2015) By choosing to migrate all loan and security documentation to an agile ledger which streamlines document storage and processing times, banking will benefit from blockchain and pave the way for a much more flexible and responsive industry. Moreover, the use of smart contracts will ease bureaucratic constraints and establish trust in a sector that lost much of its integrity during the financial collapse of 2008. Smart contracts are contracts written in codes embedded onto a particular blockchain. The code contains all the relevant information needed for its fulfilment, which is automatically executed once the terms are met. The key of smart contracts is the fact that they are more objective than traditional human ones, since they are driven by data that ensure the respect of contract conditions by following an automated and predefined pattern. As such, smart contracts help all participants exchange anything with value (capital, property, etc.) in a totally verifiable, conflict-free method, while cutting out any unnecessary third party. Smart contracts are meant to provide security in a completely democratic way to every market participant, thereby building trust in the digital system as well as helping blockchain’s development. Regulations, however, have not yet been able to keep the pace with this disruptive technology. Laws for creating trust have to be issued to effectively laid the formation of a reliable environment. Indeed, lots of attention has been paid to recent successful hacks occurred in the Bitcoin network that have put at risk blockchain’s reputation. In addition to that, the lack of a proper legal framework paved the way for cryptocurrency market manipulation. Tech startups established with the sole interest of speculation have mined the integrity of the digital market. Tokenization and cryptocurrency exchanges boomed in the past years exceeding $800 billion in total market capitalization, hyped by the incredible rally experienced by Bitcoin in 2017. Its market value skyrocketed from $820 per Bitcoin at the beginning of January to $20,000 per Bitcoin at mid-December, before plunging back to around $6,500. CITATION Coi18 l 1040 (CoinMarketCap, 2018) The cryptocurrency market, still in its early adoption stage, has revealed highly volatile, with monthly pricing movements that can be compared to swings experienced in four years in the stock market. Nonetheless, cryptocurrencies are particularly valuable in economies where public access to traditional banking is low, where transporting cash across borders is highly restricted, where corruption is widely present, or where inflation frightens the savings of locals. With inflation and corruption comes a lack of public trust in governments, central banks, and financial institutions. According to the Edelman Trust Barometer, “trust is a forward-looking metric. Unlike reputation, which is based on an organization’s historical behavior, trust is a predictor of whether stakeholders will find you credible in the future, will embrace new innovations you introduce and will enthusiastically support or defend you.” CITATION Ede18 l 1040 (Edelman Trust Barometer, 2018)3.3. Cases from Zimbabwe and South Africa
For example, after fifteen years of atrocious monetary policy, Zimbabwe experienced hyperinflation a decade ago, when inflation rate peaked at 79,6 billion percent in mid-November 2008. CITATION Wor18 l 1040 (World Bank, 2018) After 37 years of dictatorship, Robert Mugabe, Prime Minister since 1980, has been arrested and replaced by Emmerson Mnangagwa. The new president, with his “Zimbabwe is open for business” policy, announced that the government will adopt new regulations aimed at simplifying investing and bureaucratic procedures in an effort to attract foreign capital after decades of isolation under Mugabe. Mnangagwa vowed to revitalise Zimbabwean economy, which has suffered from high levels of poverty in the recent past. For instance, unemployment rate was as high as 90% in 2016 CITATION Zim17 l 1040 (Zimbabwe Congress of Trade Unions, 2017) and acute cash shortages and rampant inflation represented a major problem in the national economy. As a consequence, mistrust towards national institutions spread all over the country. Contraband and street selling became the only viable ways to purchase food and vital goods. Acknowledging the failure of the former presidency, Mnangagwa called for unity among every citizen to tackle the country’s economic meltdown. The implementation of new technologies would certainly boost sustainable development and instil confidence in the population in order to take full advantage of the country’s economic potential. Digitalization will enhance industrial production in sectors such as agriculture, manufacturing, and mining, and pave the way for driving economic competitiveness. Smart contracts will encourage business activities by easing transactions, cutting costs and ensuring trust and transparency. Tokenization is expected to facilitate financing activities, both from local and foreign investors. Access to healthcare and electricity would certainly improve as well, thanks to increased interoperability of data, expanded scale of operations and trusted financial transactions. In addition to secure confidence and reliability among parties during the payment process, cryptocurrency may also serve as storage of value, whereby it is possible to hedge against national prices instability caused by government’s bad actions.
A first big investment is under construction at the Beitbridge Border Post, one of the most trafficked borders of Southern Africa, that divides Zimbabwe and South Africa. It is crossed by at least 3,000 commercial trucks and 14,000 travellers on a daily basis. There, Joram Gumbo, Zimbabwean Transport and Infrastructure Development Minister, announced a $240 million modernisation project with the goal of implementing a One Stop Border Post to speed up customs procedures. Volume of traffic has increased by 47.5% from January to June compared to the same period last year. CITATION The18 l 1040 (The Herald, 2018) Major problems that slowed transactions were represented by the lack of interoperability and cooperation at the frontier, widespread corruption and incompetence within local authorities. Trucks used to spend there around three days on average due to burdensome levels of bureaucracy, that inevitably generated delays the delivery of goods and significantly raise trade costs. Even if blockchain adoption has still been sporadic across the continent, the technology has the power to overcome these customs problems. Among the early adopters of the technology, South Africa carved out its role as one of the main African hubs. Blockchain is topical in its financial sector, since the South African Reserve Bank (SARB) has recently launched a new FinTech initiative, called Project Khokha. CITATION Sou18 l 1040 (South African Reserve Bank, 2018) With the start-up ConsenSys as technical partner, the platform is based on the Ethereum-based enterprise blockchain Quorum. The purpose of the project is to create a proof-of-concept in the gross settlement space and build a global body of knowledge. The three key pillars of Quorum taken into consideration in the choice have been: privacy and transparency, performance and throughput, permission and governance.
4. Implementations in Southern Africa
After having analysed and evaluated the Southern African economic and social landscape, this paper shifts its focus to practical projects that have already undertaken or that are expected to be embarked on soon. The research, indeed, presents cutting-edge implementations in industries such as healthcare, mining, energy, and agriculture. These sectors represent big components in SADC Economy and their growth has been slowed down by ineffective policies, inability to access the whole population, corruption and harsh working conditions. As such, the objective of blockchain is to allow for transparent and trusted exchange and storage of data and information in a way that would benefit the entire value chain and the majority of the economic participants.
To ensure a sustainable future, the health of citizens remains paramount. The SADC is committed to reach specific targets within the objective of “Health for All” by 2020. The SADC Health Policy CITATION SAD181 l 1040 (SADC, 2018) plans to raise the regional standard of health for all citizens to an acceptable level by promoting, coordinating, and supporting efforts of Member States to improve access to high-impact health interventions. High mortality rates, low nutrition status, poor healthcare infrastructure and services, poor living conditions, and HIV diseases present tough challenges to development, especially in the case that there are inadequate resources for improving the situation.
Furthermore, the lack of interoperability between hospitals and medical providers pose barriers to effective data sharing, leading to fragmented health records. To overcome these constraints, new systems must establish trust and continued participation in the patients.
The healthcare industry is one of the most proactive and excited about switching to a blockchain system. Efficient data processing and sharing will herald opportunities for cutting costs, improving security, privacy and interoperability of health data. The cryptographic nature of the record will ensure data integrity against tampering. The flexibility of the programming language in the context of EHR management will enable advanced functionalities to adapt and comply with different regulations and changing needs. The blockchain healthcare use cases increase even more if we consider smart contracts that could be employed on a healthcare-focused ledger in order to easily process surgery receipts between the hospital, patient, and the insurance provider. In a similar way, a ledger may be used for managing drug supplies and distribution, and supervising regulation compliance. The individual patient could interact with a specific blockchain platform to easily view its medical history, check transactions and payments, or schedule appointments.
The rapid ICT development in Southern Africa, with approximately 60% of the population adopting mobile technology, CITATION SAD18 l 1040 (SADC, 2018) gives the region an opportunity to exploit eHealth services to boost the health systems and hasten the achievement of the Sustainable Development Goals (SGDs).
Medcera, CITATION Med18 l 1040 (Medcera, 2018) a healthcare startup, is building an AI-powered computing system anchored on blockchain that can diagnose infectious diseases within seconds. This solution is called CareAI and combines AI and blockchain to deliver health services to patients anonymously, without then compromising their identities. The technology includes three components, the machine, a finger prick, and a lab-on-a-chip. To use it, a patient’s finger is pricked, the blood sample deposited onto the chip, and then inserted into the machine. In less than three seconds, once the sample is anonymized and analysed, CareAI cross-refers results to a vast array of medical libraries, prints the disease you have, and then gives advices with a certain confidence level. After having prescribed the drug and connected with the pharmacy where to pick up the medication, the AI system would charge the service fees using the tokens tied to the patient’s account. All the data are securely stored on the blockchain and, by supporting smart contracts, it allows to manage rights, permission, and access to the health data. Finally, upon the purchase of tokens to support the initiative, governments and enterprises have access to medical insights to better plan healthcare research, funding, and policy.
As aforementioned above, mining and minerals production represent a huge portion of Southern African economies. Global rough diamond production grew both in terms of output and value. Total value grew 29% in 2017, exceeding the $15 billion mark for the first time in a single year. Botswana has the second largest market for diamond production, whose value reached $3.3 billion in 2017. CITATION Kim17 l 1040 (Kimberley Process, 2017) Moreover, rough diamond recoveries accounted for a big component of the economy in South Africa, Namibia, Lesotho, Zimbabwe, and DR Congo as well.
Another mineral that constitutes a considerably relevant slice of revenues for SADC is cobalt. Its market price has more than doubled in the last year, pushed by strong demand growth from the battery sector. Demand is expected to keep rising as the shift toward electric vehicles and smart devices continues. DR Congo’s economy is highly dependent on the performance of the cobalt industry, accounting for 58% of global production. CITATION USG18 l 1040 (USGS, 2018) After two years of suspended activities, the Katanga mine has returned to business. Once fully operational, according to CRU, it will be the “largest cobalt-producing mining project in the world”. CITATION CRU18 l 1040 (CRU Insight, 2018)Despite their relevance in SADC economies, mining activities raised worldwide concerns because linked to human rights abuses, including harsh, even deadly, work conditions and child labour exploitation. For this reason, the technology giant Apple temporarily stopped buying cobalt mined by hand in Congo and pledged to clean up its cobalt supply chain. (Washington Post, 2017)
In addition, many operational practices remained inefficient and antiquated, leading to corruption, security vulnerabilities and even critical data omissions. Blockchain has the potential to address and solve these critical problems, fundamentally changing the way the mining industry operates. By facilitating supply chain management, the benefits the technology can generate extend over the mere mining activity to a broader value chain set of related activities, such as shipping. Trade in minerals and metals is a paper-heavy process. To make things even more cumbersome, shipping involves multiple intermediaries and a myriad of documents forwarded back and forth the value chain participants via email and fax. In some instances, the physical paperwork needed to certify the validity of the transactions takes more time than the merchandise itself to get to the involved parties, leading to long waiting times that inevitably increase trade costs. Blockchain is expected to improve efficiency by largely reducing paper exchanges and providing immediate access to the entire value chain. Its synchronised nature will allow participants to be directly and simultaneously notified of trade developments, which will result in decreased errors and faster transactions. In addition, the reliability of the information exchanged will reduce at a large extent the number of disputes and make their resolution simpler. Since blockchain solutions are applicable to all participants connected to the broader value chain, they will also drive coordination and integration of different business operators, ranging from actual minerals productors to financial institutions appointed to provide the financing resources needed to run operations. Sustainability and compliance in the industry made giant leaps forward but have neither eradicated the terrible working conditions nor they were able to eliminate malevolent actors yet. Inability to track conflict minerals or verify their provenance left economic participants unaware of the ethics of the activities carried on. Therefore, developing applications that will foster transparency, accountability and trust will have a key role in increasing confidence and efficiency in the system and in unlocking value for mining companies. Complete knowledge of all the processes across the value chain and the creation of immutable records of data will bring a wave of authenticity and integrity against data alteration and manipulation. Nonetheless, smart contracts will help reduce risks regarding licenses and patents, will grant authenticity of information and will ensure security.
According to the “World Sunshine Map”, Africa receives many more hours of bright sunshine than any other continent of the Earth. Despite large solar potential, penetration of solar power in Africa’s energy sector is still very low.
Given the decrease in trust placed in large corporations that are monopolizing the power sector by a significant portion of global population, coupled with the increase in environmentally friendly activities, the advent of blockchain may cause the entire industry to shift from its present centralized architecture to a more decentralized energy trading market. As a result, a global energy sharing ecosystem would allow consumers to gain control over their energy storages and adequately balance their demand and supply. Unlike other industries, the energy sector has been slow to become aware of the blockchain’s potential. Technological breakthroughs in solar panel efficiencies have led energy costs to consistently fall by 80% over the last years and they are set to drop even further. Advances in battery storage technology now permit households to store electricity and consume it when required, allowing for greater flexibility in managing both the buy and the sell side.
Decentralizing energy generation will dramatically change the power sector. With the blockchain technology electricity will begin to behave as a tradable commodity, since its tariff will no longer be fixed by a centralized body, but by the market itself. Indeed, the new business model will allow rates to automatically respond to changes in demand and supply. Peer-to-peer energy trading using the distributed ledger will bring about the elimination of the need for middlemen, thereby directly connecting energy producers with consumers. In addition, by making electricity a tradable asset on a blockchain, consumers will benefit from lower transaction costs and increased network transparency. For an industry that struggles with poor data quality and mistrust, the ability to record every single transaction and energy flow in a way that is tamper proof and verifiable could be truly life-changing. Identity verification of consumers and possibility to track and trace production and consumption will enable greater transparency and increase operational efficiency.
However, the shift towards renewable energy has encountered several challenges, in terms of providing constant supply of electricity. Old technology, in fact, did not permit storage and exchange of energy and thus greatly depended upon sunshine hours. The rise of microgrids allowed the creation of smaller and localised energy generation systems. By not relying on the macrogrids of large national providers anymore, people with their own solar panels can sell surplus electricity to others in a blockchain-backed peer-to-peer network. In areas that don’t have any connection to the national grid, as in many rural areas of Southern Africa, installing solar panels will bring the basic amount of electricity to villages. Moreover, thanks to blockchain, national grid and microgrid will cooperate in supplying energy. For instance, South Africa announced plan to install a minigrid provided by ABB (ABBN: SIX Swiss Ex) on Robben Island. The new microgrid system “will substantially lower fuel costs and carbon emissions, enabling the island to run on solar power for at least nine months of the year.” The system is equipped with solar inverters that convert the direct current output from the solar panels into the alternating current required for electric utilities. Reliable and secure communications between the solar plant and the microgrid are ensured through wireless network connection. This remote set-up is monitored and controlled by an operations centre in Cape Town, which allows the elimination of the need to maintain workforce on the island and reduces environmental impact. The control system enables management of the power supply, including energy storage. CITATION ABB17 l 1040 (ABB, 2017)The birth of a sharing economy with the adoption of blockchain technology is shaping a new business environment, where tracking the volume of transactions and verifying their authenticity will be made straightforward and greener. However, while tokenizing the energy market has a lot of potential benefits, a major problem that has still to be addressed is the scalability of the project. Since transactions remain slow, further developments will have to be undertaken to successfully implement large-scale energy networks. In addition, national grid and microgrids will have to interoperate and cooperate, which require regulations to adapt to the changing economic landscape to avoid conflicts interest and allow democratic distribution of the profits.
Stakeholders Opportunities Challenges
Food producers Added value to food products
Fairer price and lower costs
Better access to global market
Direct contact with consumers Organise blockchain technology implementation
Getting the right conditions into smart contracts
Certification bodies Increased value of certificates
Lower transaction costs
Risk based auditing New competencies needed
Potential threat to current business model
Organizations Reliable data
Efficient regulatory processes
Lower transaction costs New competencies needed
Existing national and international regulatory framework
Retailer/Trader Improving transparency and traceability
Access to more information on the provenance of food products
Providing reliable information to consumers
Improving brand image Comparability with existing systems
Compliance of other players in the supply chain
Traceability and provenance of compound products
Scalability of BCT
Source: CITATION Wag17 l 1040 (Wageningen Economic Research, 2017)Many farmers are investing in new technologies that can help increase production and efficiency at farm level, but the uptake of digital trading technology has been slower. In the last 40 years agricultural production has very much developed and successfully adapted to growing population and increasing consumption. However, while farm productivity has soared thanks to cutting-edge machinery and systems, a stage that has not evolved to suit modern business practices is the trade process. Mostly relying on non-digital interactions such as paper records, verbal agreements and handshakes, these old-fashioned trade practices have paved the way for numerous problems including fraud, dependence on costly and inefficient intermediaries and illegal harvesting. According to the United Nations, food fraud costs the global economy an estimated $40 billion dollars per year due to illegal trades. CITATION Foo18 l 1040 (Food and Agriculture Organzation of the United Nations, 2018) To cope with that, the World Wildlife Foundation (WWF) announced the Blockchain Supply Chain Traceability Project in January 2018 CITATION WWF18 l 1040 (WWF, 2018), with the focus of using technology to help stop illegal tuna fishing. Thanks to its cryptographic nature, the implementation of blockchain will revolutionise the agricultural in a way that will benefit from transparent food traceability and the ability of verifying the history of the product. In addition, initiatives like AgriLedger CITATION Agr18 l 1040 (AgriLedger, 2018) have worked to create trust among African farmer cooperatives by relying on mobile applications and distributed ledgers. Nonetheless, the trade process remains tedious. Buyers and suppliers exchange endless paper documentation throughout the trade process, which is then delivered to the involved third parties, such as financial institutions and insurance companies. Commercial relationships and synchronisation between the different bodies involved are negatively affected by the excessive amount of paperwork and the possibility of incurring into fraudulent transactions. Therefore, smart contracts would not only ease transactions by eliminating at the maximum extent non-digital documentation but also allow parties to reliably share information and verify the authenticity of documents. Furthermore, suppliers will be able to directly connect to buyers, located both within and outside their countries, cutting out costly intermediaries, reducing distribution costs and driving up their share of the profit from the sale of farm goods.
4.5. Cape Town case
Recently, South Africa has been victim of a two-year drought that threatened the city of Cape Town to run out of water. The situation has significantly hit agricultural production and economic growth. “Day Zero”, when taps in the city will run dry and people will queue for water, had been pushed away but residents have to cope with stringent consumption restrictions of 50 litres per person per day. CITATION Cit18 l 1040 (City of Cape Town, 2018) Even if dams are filling up thanks to increased rainfalls, water shortages are still possible due to the volatility of weather conditions. The creation of a decentralized and distributed wireless network would allow interconnection among a wide variety of blockchain solutions. For example, the City of Cape Town may create a combination of interrelated systems to give rise to a cyclical economy based on data and information sharing. Investing in desalination plants able to transform ocean water into potable water would decrease dependence on rainfalls, ensuring constant water supply. Funding may be raised through an Initial Coin Offering (ICO) to allow every citizen to take part in it and tokens purchased by investors would then be used to buy the desalinated water. The plant, directly connected to smart homes and intelligent farms through the peer-to-network, would run off the electricity supplied by solar energy systems. As such, interoperability of different business activities pledges to revolutionise many industries. Easier access to market participants, more efficient operations, lower transaction costs and speed, higher transparency, and improved security and privacy protection are just some of the potential benefits blockchain technology is intended to produce.
Having analysed the socioeconomical aspects that characterise the Southern African states and discussed the potential benefits of the Fourth Industrial Revolution, it is possible to draw some predictions concerning the effects that digitalisation may have on the future business environment. As it was explained in the third chapter of this paper, digital innovation plays a key role in boosting operational efficiency as well as ensuring transparency and security in the transactions. Every revolution transforms and disrupts old business models, causing inevitable job losses in the process but also opening up possibilities for new professions. Software developers, cybersecurity engineers, big data analysts are just some of the roles whose demand is skyrocketing. The skill-intensive nature of these jobs will require high degrees of specialisation. For this reason, public policy-makers shall address the problem by heavily investing in education and supporting the revolution with ad hoc regulations aimed at achieving both harmonisation and cooperation. The Southern African cluster’s development, dragged down by lousy health and living conditions, have to strive for integration among the member states in an attempt to push productivity and eliminate corruption. Building new infrastructure and shrinking income inequality will certainly be assisted by the available cutting-edge technological tools. In addition, further developments in research are expected to improve business practices and lay the foundation for a transparent and sound economic landscape. As explained in this paper, Southern African growth potential is massive but actual performance will have to be evaluated in the coming years, with the hope that the future may hold sustainable and equitable development in the region.
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