What Blockchain-Based Marketplaces Can Do For Africa, Part 2 – Proposed AfCFTA Can Be More Efficient If Decentralized

#AfCFTA Conference 2018 (Rwanda Today)

Without any doubt, the advent of Blockchain has presented numerous opportunities in the aspects of trade, commerce and finance, on a global level. In part one of this article, we discussed the problems associated with traditional marketplaces, and how blockchain-based decentralized markets can help in bringing solutions to most of the challenges faced with centralized marketplaces. 

In continuity, the article will address the potential blockchain impact on the African economy, whilst taking a look at Decentralized marketplaces from the perspective of the African Continental Free Trade Area Agreement (AfCFTA). 

AfCFTA And The Issues It Addresses

The African Continental Free Trade Area – AfCFTA is established by 54 of the 55 member states of the African Union, and it is majorly aimed at creating a single continent-wide market for goods and services, and to improve the movement of capital. 

In terms of the number of participating countries, the AfCFTA is regarded as the world’s largest free trade zone since the establishment of the World Trade Organization. The agreement is meant to improve intra-African trade considerably, up to 52% by 2022, according to analyses. 

General Objectives Of The AfCFTA

African continental free trade area – AfCFTA

AfCFTA’s major objective is to create a single market that would aid in deepening the economic integration of the continent. There are vast differences in business rules and practices in Africa. However, by launching intra-African trades, the AfCFTA tends to boost Africa’s trading position in the global market, giving strength to Africa’s mutual voice in global trade negotiations.

The AfCFTA aims to establish a liberalized market, allowing for free provision of services and also reduce tariff on goods across the continent. It seeks to progressively lessen and ultimately eradicate customs duties. The AfCFTA is equally aimed at facilitating investment by aiding the movement of capital. 

The trade deal requires members to cut tariffs from 90% of goods traded within the 54 countries bloc, allowing free access to commodities, goods, and services on a continental level. Removing tariffs on intra-African trades will improve trade in the region by 15-25% on the average, consequently boosting the net income for the continent. This would impact significantly on the economy of the continent at large. 

Facilitating Cross-border Trade With Blockchain: AfCFTA Can Be More Efficient If Decentralized. 

Research has confirmed that AfCFTA symbolizes Africa’s defense policy and strategy to recover from commercial and economic imbalance. With agencies already in place to deal with several of the non-tariff struggles frustrating intra-African trade, further improvement on a technological level would provide the Trade Area a better potential to attain this height in finance and trade. 

In any marketplace, transaction parties would invariably need a trusted third party that would enable the co-creation of principle in the market. The trusted third party could be platform middlemen who would be in charge of furnishing a stable and dependable environment for transactions. Centralized marketplaces have one department that regulates them all, controlling all marketing activities. On the other hand, marketplaces based on the blockchain, often make effective trading possible, without the presence of a central authority, thereby, making the parties involved in trading responsible for their marketing activities. 

With blockchain, there’s the absence of centralization which gives censorship resistance as well as expectations for additional business values. In the first part of this article, we discussed how blockchain-based decentralized marketplaces eliminate the middleman-matching buyers and sellers. 

AfCFTA could see technological change with its integration of blockchain. Such technological change drives the removal of intermediaries, and the decentralization of transactions between members of the system simultaneously eradicating risks of centralization, poor efficiency, and elevated transaction costs. Including blockchain solutions in the Trade Area would eliminate the necessity for intermediation, allowing direct transactions between trading partners. Blockchain-based marketplace, due to its decentralized approach, can leverage smart contracts and enable members of the system to automate contract conclusions. 

Employing a decentralized approach for AfCFTA would enable the use of Cryptography. Tokenization can substantially change a business model’s value offers, and can provide a large range of advantages such as access to alternative sources of capital, lower transaction cost and heightened efficiency, amid guaranteeing authenticity behind all transactions in the system. More than just a security technology, tokenization helps reduce risks from data violations, simultaneously providing smooth payment services. Centralized marketplace makes use of regulated currencies like the US Dollar, which has an unlimited supply. These currencies are usually moved by economic prospects, as well as market strength. Decentralized market currencies are equally driven by demand and supply but by comparison, their value cannot be enforced as there are no governmental regulations and most importantly, each blockchain crypto has a limited quantity.

Blockchain technology permits participants in decentralized markets to continuously track their assets and settle transactions autonomously, while providing a secure model that is fault-tolerant. This would bid well for Africa in ensuring a seamless trade across the continent, on AfCFTA. Centralized systems are local, restricted most of the time to a particular region, and don’t give room for a truly global market. Contrastingly, decentralized marketplaces offer global assets, available from anywhere in the world.

Final Thoughts

Decentralized and autonomous establishments are viewed by many, as the impending future, as they have the potential to completely transform our financial systems. AfCFTA, if implemented properly, would be a game-changer for Africa. Its establishment is aimed towards bringing Africa’s fantasies of welfare into reality. However, its success can be greatly influenced by decentralization. 

With Blockchain technology,  Africa would see new ways of establishing economic activities. With the guarantee of a reduction in the time and costs associated with intermediaries, AfCFTA, coupled with a decentralized market system, could turn out to be an unmistakable economic possibility for strengthening regional trade.

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