We now all aware that our mode of consumption has tremendously evolved over the past few years, calling for traditional institutions and corporations to rethink their business model as collaborative Economy[1] and digitalisation paved the way for the penetration of disruptor players.

One of the major changes in payments is the growing use of mobile devices in the recent years. Yet, if we look at it on a global scale, we realize that this little revolution was born in Kenya in 2007 before spreading in the rest of Africa, as an alternative to poor financial inclusion.

Nowadays, among the top trendy topics is the Blockchain technology.

The creation of innovative services has allowed us to rethink the modern theories of Economy, what about the Blockchain now – could this promising technology revolutionize the socio-economic area? Just like mobile-banking, what can we learn from developing economies?

CRYPTO-CURRENCIES; AN INCLUSIVE REVOLUTION

According to the Global Findex Database 2017, 1,7 billion adults lacked an account in 2017 and they all live in developing countries. Nearly half of them are located in seven countries which are:

Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan [2]. Digital money could power financial inclusion.

In the 2017 World Bank Global Findex survey questionnaire, 26% of the respondents argued that “the lack of money” does not allow them to open an account.[3] Both prohibitive costs and documentation requirements discouraging them, the popularity of mobile-banking improved their living conditions.

We know that crypto-currencies use the Blockchain technology, which works on a peer-to-peer basis.

Now let us have a look at the evolution of the means of payment going back to the 17th century. The cowry shell money, as an example, was used in trade in Asia and Africa in order to exchange commodities and goods. There were then no intermediaries between stakeholders. The number of shells exchanged represented the mutual trust which enabled the execution of the transaction. This is exactly what offers the Blockchain today through its decentralised distributed ledger, the transaction is made directly between the stakeholders.

The Kenyan digital currency BitPesa[4] has brought Bitcoins to thousands of people in Africa. Both Tunisia and Senegal went a bit further becoming the first countries having digitalised their national currency – the eCFA is regulated by the central banking system and is planned on being distributed to the rest of the CFA zone[5] – The CFA zone covers a geographical area comprised of countries located in Western/Central Africa where the CFA Franc is the national currency – and the e-DINAR created by La Poste tunisienne and the Swiss start-up Monetas.

Moreover, Blockchain can facilitate the transactions in a way that could eventually improve the business environment; the digitalised smart contracts[6] would definitely put an end to administrative costs and barriers. Their traceability and irreversibility would help improve the business.

IMPROVING ADMINISTRATIVE PROCESSES

Different types of administrative documents and processes could be registered and stored in the Blockchain.

In certain developing countries, cadastral mismanagement stem from a combination of factors such as colonial inheritance, customary law, ethnical rivalries and administration weakness and too often land dispute lead to deadly conflicts.

Recording cadastral management in the Blockchain will allow land owners to have their property right recognized and respected with files that are safely and securely stored.

Ghana and Honduras are currently studying a blockchain project for land management.

Besides, the technology could play a preeminent role in political elections, with each vote registered and stored in the blockchain, making it impossible for a third party to alter or delete somebody’s vote. Obviously, the counting gets easier as the votes can be read in real time.

LESS CORRUPTION

The decentralized and accessibility of the Blockchain makes it interesting in the fight against systemised corruption. It could eventually lead to a better growth allocation and wealth redistribution.

Besides, the substitution of physical money by crypto-money also curbs corruption.

Among the strongest advocates of the Blockchain are those praising its use to restore trust in governments/politicians thanks to the recording of public expenditure in an auditable and non-erasable format. The latter would allow all citizens to know how and where money is allocated.

A PROMISING TECHNOLOGY BUT MANY CHALLENGES AHEAD
The enthusiasm for the Blockchain sheds a light on the many challenges surrounding its adoption in the economic/political areas mentioned above. Let us have a look at these most important challenges.

  • We can wonder whether national regulators will be willing to prompt the use of a technology that could potentially shuffle the deck of the political landscape? It is likely that both the transparency and dynamism guaranteed by the Blockchain will in the long run reshape the frontiers among current social classes.
  • There is at the moment no legal framework neither favourable regulation in developing countries. The ruling elite would need to encourage a joint reflexion gathering the stakeholders of Blockchain-related projects and issues.
  • Blockchain technology requires important investments in energy infrastructure – indeed if we have a look at the average consumption of energy in Africa, it is around 162 kWH per inhabitant whereas the world average is 7000 kWh[7], education and R&D.

ECONOMY OF DEVELOPMENT – LET US CHANGE OUR MINDSET

Many economists argue that developing countries will benefit from the “leapfrog effect”. According to this common belief, the economic development of these countries will soon reach a tipping point as they are leapfrogging stages of technological development[8]. One shining example was the popularity of mobile-banking in East Africa when OECD countries were discovering it.

Hence, what if technological innovation gives us the opportunity to rethink the fundamental theories of modern economy and the prism through which we apprehend emerging and developing countries?

Indeed, the idea behind terminologies such as “leapfrogging” is that southern economies are always defined and analysed according to the economic trajectory of industrialised nations as if History will repeat itself ignoring the evolutions prompted by new technologies. Moreover, it has been observed that the universalisation of economic theories did not allow us to anticipate the misuses and limits of our system.

The technological revolution proves us that the world is changing at a fast pace and that we, this time, might actually learn from developing countries.

Knowledge economy, sustainable development and digitalisation allow us to understand how trading works in these countries. Indeed, the way people trade is influenced by the social and cultural aspects of their societies where human relationships are placed at the centre of economic transactions.

Through sustainable development and sharing economy, human relationships are back at the centre of market transactions as much as they were before the institutionalisation of financial economy. The main difference with the past is that this time, new technologies have become the support of these ways of consumption. Eventually, the financial and economic crises have spawned the rise of peer-to-peer economy in developed countries. It will be interesting to observe to what extent the Blockchain technology will accompany this trend of peer-to-peer economy, on a global scale.

By Mélanie Renier, consultant at Initio

  1. Collaborative Economy also refers to sharing economy, a peer-to-peer activity
  2. The Global Findex Database 2017 Measuring Financial Inclusion and the Fintech Revolution. https://globalfindex.worldbank.org/
  3. The Global Findex Database 2017 Measuring Financial Inclusion and the Fintech Revolution. https://globalfindex.worldbank.org/
  4. BitPesa is a digital FX and payment platform allowing its consumers to send money to a mobile money wallet.
  5. “Blockchain technology and the Internet of Thing (IoT): what does it all mean for Insurance industry? Anta SYLLA, Agefi Luxembourg, March 2018
  6. “Blockchain technology and the Internet of Thing (IoT): what does it all mean for Insurance industry? Anta SYLLA, Agefi Luxembourg, March 2018
  7. Planète énergies, les défis énergétiques de l’Afrique, l’Afrique : le continent de demain ? published on march 2nd 2016, https://www.planete-energies.com/fr/medias/decryptages/l-afrique-le-continent-de-demain
  8. One illustrative example of the leapfrog effect is mobile banking.

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