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

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African continental free trade area – AfCFTA
#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
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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Crypto prices drop as global market fear increases

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Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.

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Bitcoin in Africa

The rise of CBDC in African economies

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Many nations have taken cues from the world of crypto and its resounding successes over the last decade. In order to avoid getting left behind, governments worldwide are increasingly turning their attention towards implementing some form of digital currency, a CBDC which in full is Central Bank Digital Currency. Although inspired by cryptocurrencies, CBDC’s are quite different from traditional crypto platforms. The main differences are that CBDC’s are unlikely to be decentralized, the supply of this currency regulated by the host’s country’s central bank as the CBDC is designed to operate as a sovereign legal tender, the digitized form of the host country’s fiat currency. Thus, a central bank may issue digitized tokens of its currency of which their value is pegged to the fiat currency of the nation in question, making CBDC’s stablecoins.

Africa has seen a rise in the use of cryptocurrencies and it’s still pushing frontiers in this sector. Although the use of crypto in many African nations is becoming more and more pervasive by the day, the tone of governments in many of these countries toward the sector is cautious at best and threatening at worst. However, a few nations have voiced interests in creating digitized versions of their legal tender to function as a CBDC. Amongst these are Ghana, Nigeria, Morocco, Kenya and Tunisia.

Many of these projects are still in the research phase or developmental phase however. A good example is Ghana’s proposed CBDC, the E-cedi being developed in partnership with German company, Giesecke + Devrient. Nigeria’s CBDC project, the eNaira has been announced and according to Nigeria’s central bank, this CBDC will be launched sometime in 2021. To that end, the CBN has partnered with fintech company, Bitt Inc. to serve as the technical partner in the eNaira’s development. Reportedly, the CBN had made the decision to digitize the Nigerian Naira in 2017.

While the pursuance of digital currencies in African nations is a welcome development, implementation of these schemes isn’t without challenges. Chief among the issues countries in Africa face would be the already existing financial service inequality and poor penetration of internet access in the continent. These challenges must be tackled in order to allow for mainstream adoption of CBDCs and the subsequent provision of financial inclusion. The benefits largely depend on the peculiarities of the nation deploying them. For instance, a digital currency is thought to help Nigeria increase foreign remittances, it’s second largest source of forex after oil. Whatever the outcome of these projects, it is becoming apparent that CBDC’s have come to stay.

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Decentralize Brief

Bitcoin trades above $51k ahead of El Salvador’s adoption

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Bitcoin growth

Bitcoin price has rallied above $51,000 ahead of El Salvador’s adoption. The immediate surge in price may be due to the social media campaign that everyone should buy sats of Bitcoin to support El Salvador’s plan to make the coin a legal tender or it may be due to the news of El Salvador’s adoption of the coin as a legal tender on September 7. Users of social media platforms like Twitter and Reddit are discussing how they will buy Bitcoin of $30 each to mark the new El Salvador Bitcoin law.

The surge in Bitcoin’s price began in the last 24hrs with the price rallying around $51,955 with a 3.37% increase. This is an all-time high after the April crash that brought the price of Bitcoin from $64k down to $28k. The move by El Salvador to be the first country that accepts Bitcoin as a legal tender and the social media campaign that leads to a surge in price ahead September 7 are a repetition of events that occurred late last year and early this year with regards to institutional investors and how the price of Bitcoin skyrocketed.

El Salvador, a country in Central America, has been preparing heavily to adopt Bitcoin by installing ATMs to allow citizens to convert the token into US dollars. Last week, the country’s Legislative Assembly passed a law to allow for the creation of a $150m Trust to support the conversion of Bitcoins to US dollars.

To promote the use of Bitcoin, the government states that it will give the adult population of El Salvador $30 in Bitcoin once they download “Chivo” the wallet issued by the government. This was confirmed by the Finance Minister, Alejandro Zelaya.

What this means for Bitcoin investors

Apart from the adoption by Salvadorians, on-chain analytics show that Bitcoin is in high demand. The fourth halving that occurred will make Bitcoin become a scarce token in the nearest future. Thereby increasing the price sporadically.

With El Salvador’s interest in Bitcoin, other countries are likely to follow suit- Panama is considering following El Salvador’s lead. History will repeat itself as this development will serve as another crypto rout that occurred early this year when Tesla and MicroStrategy announced their support for Bitcoin.

El Salvador’s new law allows the use of Bitcoin as a legal tender it can be used to buy goods, pay for taxes and bank loans. This means more demand for Bitcoin, with the fourth halving that occurred, it means less supply. A common rule of economics for demand and supply will apply. Prices are projected to keep rising. At the time of writing this report, Bitcoin is trading at $51,839 with a projection of $52k before the end of today and higher tomorrow when Salvadorians begin to use the token.

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