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Blockchains and the free trade agreement

A potential boon for logistics companies

Publication July 2019

The combination of cryptocurrencies and the freedom of trade offered by the African Continental Free Trade Area Agreement (AfCFTA) offers enormous potential for growth in the logistics industry in Africa, but will require strong political will and competent assistance with technology and regulatory support.

The AfCFTA, enforced with 22 ratifications, seeks to create the world’s largest free trade area by allowing for the free movement of goods and people between member states. It does not replace existing regional free trade agreements but is designed to transform the economies of African states. The trade patterns of African states are currently dominated by resource exports to the developed and developing world combined with imports of manufactured goods. Intercontinental trade is limited either because the economies are underdeveloped or because tariff barriers are in place. AfCFTA has been welcomed for its promise to drop tariff barriers and help economies improve.

On its own, AfCFTA offers many opportunities to traders and logistics companies wishing to develop corridors and trade routes between African states.

Unfortunately, African countries’ concerns over state sovereignty have always resulted in constrained access to neighbouring markets. That challenge remains and will require considerable political will and perhaps some outlying countries to prove that success comes at a short-term loss of revenue, but is compensated by a long term growth in their economies.

These possibilities are enhanced by a rapid growth in interest in blockchain and in particular, cryptocurrencies operating on blockchain platforms. Those currencies will allow for easier and cheaper payment for goods and services, including logistics services. Other blockchain platforms linking customers and logistics service providers will also dramatically lower the cost of logistics and the cost of doing business.

Cryptocurrencies are facing some resistance from some governments who fear the loss of sovereignty over their own currencies and inability to police and tax cryptocurrency payments. This resistance will need to be overcome if these currencies are to succeed. The reaction from various African countries has varied from outlined bans in some cases to a “wait and see” attitude, such as that reflected by the South African Reserve Bank. The reality however, is that cryptocurrencies are here and here to stay.

States, regulators and the tax authorities are going to have to get to grips with this new technology and try to regulate the cryptocurrencies to preserve their control over tax revenue and the payment of goods. Those who refuse to accept reality will no doubt be left behind as the fourth industrial revolution and its ancillary technologies gain greater acceptance across the world.

Insofar as non-financial blockchain platforms are concerned, they will need to be accepted by regulatory authorities, logistics providers and border control authorities to harness their full potential. They can help in the free movement of goods by reducing the considerable administrative burden currently associated with the import, clearance, transport and export of goods. Blockchain platforms can remove all of the paper shuffling and delays associated with the regional transport of goods.

As with all new technologies, there are likely to be some start-ups that fail, but it is also clear that first movers will gain a considerable advantage if the platforms achieve wider acceptance.

This will require constant and sustained engagement by traders and logistics companies with regulatory and fiscal authority. Should those engagements succeed, there is no doubt that cryptocurrencies and blockchain platforms will help AfCFTA realise its goal of increased inter-regional trade within Africa and change Africa from a resource dependant continent to an active trading partner with the world and within Africa.


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