Deep Dives

Will Blockchain Allow Emerging Markets To Leapfrog Ahead?

Developing countries are planning to leverage blockchain to improve their citizens’ well-being and turbocharge their national economies.

The digital ledger technology could help solve some of the developing world’s biggest problems, including the recording of births and deaths, financial exclusion and inaccuracies and fraud in property registration. More than a billion people do not have a recognized means of identifying themselves, leaving them without access to healthcare, education, government assistance and financial services.

The Swiss technology firm WISeKey’s CertifyID is a digital identity dual factor authentication that sits on top of a blockchain, an immutable ledger that allows third parties to validate that an original digital identity or attribute certifications have not been changed or misrepresented. This and similar new technologies could help the United Nations achieve its goal of helping everyone in the world have a secure digital identity by the year 2020, paving the way for a better life both for citizens of emerging market countries and refugees. (See the related story on pages 16 to 18.) In June the government of Andhra Pradesh, the seventh largest state in India, announced it had teamed with WISeKey to explore the use of blockchain to secure government-recorded data, including the provisioning and security of citizens’ identity. It is also considering ways of applying the technology to the local transportation sector.

WISeKey, which specializes in cybersecurity, blockchain and the Internet of Things (IoT), is also building a blockchain/IoT Center of Excellence in Kigali in partnership with the Rwandan government. The center is deploying a “Trusted Blockchain as a Service” platform to enable the creation of a blockchain ecosystem in Rwanda. The project is part of the broader Smart Africa initiative with 17 countries participating, representing a market of about 360 million people.

Removing Constraints On Opportunities For Growth

Blockchain won’t just address digital ID. It could also help address problems caused by political instability, because unlike fiat currencies, blockchain-based cryptocurrencies do not depend on governments or the credit of the state to guarantee their value and are immune to local inflation caused by war or political crises.

Blockchain technology also provides a means of exchanging capital in places where traditional banks are not present and could help provide fast and cost-efficient access to investment capital. That’s not all. The technology could potentially release some of the estimated $20 trillion worth of trapped land capital around the world. Due to the lack of trust in and corruption of land records, many banks in emerging markets refuse to accept land as collateral for loans.

Two startups — BenBen, which was chosen to participate in a Barclays bank accelerator program and now counts Barclays Ghana as a client; and another called Bitland — are working on solving that issue by using blockchain as a way to allow governments to convert physical land titles into secure, transparent and easily accessible digital records. Both startups have global ambitions but decided to first focus on Ghana. The country’s paper-based land registry records are unenforceable by the court system so banks there won’t accept land as collateral, leaving millions without the possibility of leveraging their property to get loans and break out of the cycle of poverty.

Supply Chain Integration

Blockchain could also be a catalyst for better trade and supply-chain integration, benefiting small-scale farmers. An estimated 125 million people make a living growing coffee in countries such as Ethiopia, Ivory Coast, Uganda, Rwanda, Tanzania, Colombia and Brazil. Most are small-scale farmers whose families live on $2 a day or less. Bext360, a U.S. startup using a combination of blockchain, machine vision and artificial intelligence to improve the global supply chain for agricultural products, wants to make it easier for these farmers to get a fair price, and get paid instantly.

The company has built a patented kiosk machine that uses machine learning and AI to evaluate the coffee beans and divide them into grades based on quality. Coffee farmers access a mobile app linked to the machine to view offers from potential buyers. Once a farmer accepts an offer, he or she receives immediate payment for the coffee beans. The distributed ledger at the heart of the blockchain ensures payment and keeps a complete record of every transaction.

Developing countries leapfrogged landlines and jumped directly to mobile connectivity, allowing suppliers and buyers to shift to digital payments processing without legacy technology companies blocking progress. Similarly, because there are fewer legacy cross-border systems for trade, Bext360 says its mobile access allows it to implement blockchain technology directly into the supply chain for traditional supply-chain optimization, product payment, and the financing of capital equipment needed to increase the value of commodities in the country of origin, bringing more equity to local businesses and communities in emerging economies.

Strengthening National Economies

Blockchain’s immutable ledger and transparency would expose and prevent corrupt government practices, which are rampant in many parts of the developing world, slowing or even preventing the uptake of the technology. But there are some powerful incentives for governments to consider. Digital ledger technology could help create new revenue streams from services that are either improved or enabled by the blockchain, such as company registrations, energy sharing and automatic payment clearing. If one pundit is right, it might even help Rwanda become the new Delaware. The American state of Delaware handles registrations for more than 50 percent of companies in the U.S. and more than 60 percent of the Fortune 500.

The Canadian technology lawyer Addison Cameron-Huff notes in a blog post that there’s an opportunity for Rwanda to use blockchain technology

to surpass Delaware and create a global corporate hub. Delaware launched an initiative in 2016 to review its state laws and start working toward implementing blockchain-based share ownership and blockchain transaction finality for share transfers. Rwanda, which has been aggressively modernizing its corporate and investment laws to facilitate foreign investment, could take the concept further.

“As blockchain technology and IT infrastructure more broadly bring the world’s entrepreneurs closer together there is a unique opportunity for a forward-thinking jurisdiction to create a legal-technical framework for online corporations,” writes Cameron-Huff. “A more trusted, transparent corporate registry could be created based on digital ledger technology,” he argues. Corporate voting could be handled on a blockchain and shares could be distributed to the public through the Rwanda Stock Exchange or a new venture exchange created for blockchain-based companies.

The Rwandan Stock Exchange or some other Kigali-based exchange could become the listing venue for foreign technology companies, allowing them to easily issue shares that could be freely traded, without incurring the hundreds of thousands of dollars in legal expenses that are necessary in Canada and in the U.S. Not all corporations would want to opt for this, but many could benefit from a blockchain-based system that offers easier access to capital and a more transparent public market without onerous regulations, according to Cameron-Huff. The offer could be especially attractive to new technology organizations based around smart contracts like The DAO (digital decentralized autonomous organizations), he notes.

Blockchain registration would help avoid concerns about shares not existing or the number of shares issued. The shares could be even more transparent than those in Canada or the U.S. “If the market is more transparent, more liquid, cheaper, and easier due to blockchain-based systems why wouldn’t companies from around the world set up in Rwanda?” writes Cameron- Huff. “ Perhaps this will be a next step for globalization.” And a boon to the Rwandan economy as well.

About the author

Jennifer L. Schenker

Jennifer L. Schenker, an award-winning journalist, has been covering the global tech industry from Europe since 1985, working full-time, at various points in her career for the Wall Street Journal Europe, Time Magazine, International Herald Tribune, Red Herring and BusinessWeek. She is currently the editor-in-chief of The Innovator, an English-language global publication about the digital transformation of business. Jennifer was voted one of the 50 most inspiring women in technology in Europe in 2015 and 2016 and was named by Forbes Magazine in 2018 as one of the 30 women leaders disrupting tech in France. She has been a World Economic Forum Tech Pioneers judge for 20 years. She lives in Paris and has dual U.S. and French citizenship.