By David Whitehouse
An African crypto currency derived from customer loyalty points earned with retailers may have the potential to drive Blockchain into commercial viability.
The currency can also provide a deflationary stimulus as Russia’s invasion of Ukraine triggers an inflationary shock, and allow a wider range of applications to be unlocked, says Kim Hodgson, founding partner at Vow Currency in Durban, South Africa. The Vow token, which is issued on the Ethereum blockchain, “brings blood to the veins of Blockchain,” Hodgson says. “The technology will change the landscape completely in the next two to three years.”
The core reason that Blockchain has been slow to take off in Africa, Hodgson says, is that there is a lack of revenue-generating projects. He argues that Vow can bring Blockchain into commercial application. Vow starts from the loyalty points given by customers by merchants. The company takes these and turns them into a digital token which can be used at any other merchant in the world who has signed up for the scheme.
The global inflationary wave triggered by the Russia-Ukraine war means that digital enablement is being undermined, Hodgson says, with inflation putting a strain on both corporate and government balance sheets. He argues that the Vow currency offers a deflationary mechanism which at the same time provides liquidity for retailers.
The system allows decentralised issuance in any territory with one-for-one backing from the local currency. The tokens can rise or fall in value as they are also independently traded on exchanges. They are distinct from stable coins, which Hodgson says are of “no use to man or beast. The only rule is you must accept back what you issue.”
There is no cost to the merchant, though they have to commit 20% of their planned budget for customer discounts to the token, which Hodgson says helps ensure stability in the system. The merchants lock up this sum as a smart contract Blockchain deposit, and are allowed to gear by issuing as much as five times as much digital currency.
Hodgson sees a wide range of potential beneficiaries beyond retailers and their customers. He argues that Vow can increase financial inclusion, which traditional financial services in developing countries have largely failed to do. Financial services are driven by profitability rather than inclusion, which only becomes a reality when no-cost peer-to-peer transactions are possible, he says.
Tokenisation, Hodgson says, could also improve the distribution of aid, with the value being sent directly to a recipient’s cell phone. This would make it certain that the intended recipient gets 100% of the intended amount – which is far from being the case with traditional aid-distribution methods.
Manufacturers could get increased supply-chain visibility, and corporates could themselves issue the currency to retailers. Governments could use it for inter-government transfers, and for payments to their employees or citizens, with potential to reduce corruption. Hodgson says he has been pressing the South Africa government to adopt Vow for the last two years, but as yet sees “little political will” to do so.
Off the Map
Though crypto currency adoption in Africa has been accelerating, data and insights for other African Blockchain-related applications are “fragmented and thinly spread,” according to a report released by Standard Bank, the largest bank in Africa, in May. African Blockchain ventures secured $127 million in funding in 2021, just 0.5% of the global Blockchain total, the report says. Though African Blockchain funding accelerated in the first quarter of this year, the continent has yet to see a major Blockchain investment, the largest to date being the $50 million secured by South African exchange Valr in a Series B round.
The prospect of an African Blockchain unicorn remains a distant one. Just four jurisdictions, Nigeria, Kenya, South Africa and Seychelles, accounted for 96% of the 2021 African total. The rest of the continent is largely off the map as far as Blockchain funding is concerned.
Factors which have held back the use of Blockchain in Africa, Hodgson says, include “abysmal” broadband connectivity. That’s in addition to the universal obstacles of the excessive volatility of digital currencies, and the slowness of transactions using them. “Blockchain needs applications,” Hodgson says. ”Blockchain in isolation does nothing beyond providing transparency and immutability.”
The potential applications for Blockchain in Africa are explained by Kayode Babarinde, executive director at the Africa Blockchain Institute in Rwanda. Factors that make countries good candidates for Blockchain are present in many African jurisdictions, he says: large, young populations, lack of trust in government, and needs for accountability and alternative financial solutions. “The continent has long been plagued by inefficient and often corrupt supply chains, which has stifled economic growth and development.”
In banking, blockchain can help reduce fraud and improve transaction transparency, he says. Through eliminating intermediaries, blockchain can reduce costs and increase efficiency, for example in cross-border payments.
Healthcare is another sector which can benefit. Blockchain offers a secure way to store and share medical data, and can make it easier to it easier to track and manage medical supplies, Babarinde says. Blockchain can help curb corruption and improve governance in areas such as voting, land registration and identity management. In many African countries, a large percentage of the population does not have formal title to their land, which can mean violent disputes. Blockchain could be used to create a secure, immutable and decentralized record of land ownership, he argues.
Babarinde points to a range of existing use cases including the HouseAfrica property record system in Nigeria and the FlexID identity system in Zimbabwe. In Ghana, the BenBen and Bitland initiatives use Blockchain to underpin a digital land registry. Over 80% of land titles in Ghana lack proper documentation, which opens the door to expropriation and fraud, he says.
The BitPesa project in Kenya uses Blockchain to make it easier for businesses to send and receive payments in African currencies. Kenya is also home to AgUnity, which is focused on creating digitized solutions that integrate remote farming communities into global supply chains. Twiga Foods in Kenya has partnered with IBM to create Blockchain-based financial solutions for farmers.
Rwanda in 2021 partnered with Medici Land Governance (MLG) to pilot a project that aims to digitize land transfers. MLG has already built a land transaction platform on Blockchain called Ubutaka, which will be integrated with Rwanda’s existing land registry infrastructure. Rwanda is also employing blockchain through a partnership with Minnexx to help artisanal and small-scale miners increase efficiency and safety by linking them to expertise, equipment and capital. Meanwhile in South Africa, BeefLedger is a verification and traceability system that validates beef products including confirmation of sale history and consumer feedback.
Babarinde sees Mauritius and the Seychelles as potential frontrunners in African Blockchain adoption. Mauritius has achieved regulatory transparency on virtual assets and initial coin offerings, he says, while Seychelles benefits from an absence of restrictive laws and can become a hub for Blockchain operators.
For Africa as a whole, greater crypto currency acceptance and regulatory will be needed. By the end of 2021, only six African countries had made crypto clearly legal, seven had imposed implicit bans, four had imposed absolute bans, while 17 remained uncertain. “Regulation is key,” Babarinde says. “Without regulation and recognition these industries cannot thrive.”
David Whitehouse is editor-at-large at The Africa Report in Paris.