Africa continues to experience rapid economic growth since the turn of the millennium and is expected to sustain this upward trend in the foreseeable future. Such has been the rise it has shed the moniker of the “Dark Continent” and instead has woven a new narrative dubbed “Africa Rising”.
Africa’s growth has been driven by expansion of infrastructures, industrialization, rising incomes, technological advancement, and improved governance among others. These coupled with unexploited resources, a youthful educated population, expanding demand, and growing intra-Africa trade have made the continent attractive to investors. This is evidenced by the many countries and organisations seeking to tap into this potential with each of China, Russia, India, USA and Germany, holding Africa-investment summits.
The problem with Africa’s economic growth
Africa has lagged the rest of the world in economic growth and development for ages but it has made some progress in the past 3 decades signaling a potential shift of fortunes. However, the effects of these changes are not far reaching with the benefits felt spatially across nations, economic sectors, and demographics.
Market liberalization, privatization, and general economic stabilization have been widely adopted, but their impacts are yet to be felt especially at the micro-level. For instance, there is substantial liquidity and capitalization of banks in Africa, yet for most people in Africa there is limited access to financial services, especially credit.
Looking from outside-in, it is plausible to conclude that the thriving banking industry is a reflection of the economic welfare of the people in Africa. Yet nothing could be further from the truth.
Examining the situation from an insider’s purview provides a more accurate depiction of the economic state of most Africans. The supposed benefits of deeper, broader, and cheaper finance have yet to be felt in the region. This has stifled economic progress at individual, community, and national levels as financing remains a preserve of the elite, foreign, and large businesses.
There is underinvestment in many industries, while small and medium-size enterprises perennially struggle to attract the much-needed capital injections whilst operating in highly competitive sectors. The situation is worse for special interest groups including women, youth, and informal sector businesses that normally operate on the periphery of the economy.
Causes of the problems
The financing problem in many African countries is largely, systematic with official policies, objectives, and messages failing to address the underlying issues. Moreover, the reluctance to safeguard the financial sector continues to inhibit local businesses’ ability to get funding. This has been a major stumbling block, particularly for private equity.
Issues such as political risk management, burdensome restrictions on operations and weak governance stand in the way of investment inflow. Such funding is being rerouted to competing nations and regions with friendlier business environments.
The tale of finance for businesses in Africa is one of cautious hope rather than imminent possibility.
New possibilities with blockchain technology
Unsurprisingly, new inventions, products, and technologies have become the panacea for Africa’s financing issues. Innovative approaches such as mobile money have helped improve financial inclusion by bringing in many unbanked people to the national economy. Informal lending, mobile loans, and table banking have also emerged as novel approaches to securing business funding especially in the informal sector.
Now, yet another new invention, blockchain technology, has come to the fore and brings with it some new grand possibilities.
Blockchain decentralizes finance enabling the creation of new products and services not permissible in the conventional financial sector. It drastically changes how people save, lend, borrow, and invest in the digital space.
For instance, the permissionless, decentralized, and transparent nature of the blockchain enables businesses to raise funds from anyone across the globe. It also helps them to bypass red tape and regulatory oversight, which has been a major impediment in fundraising.
This is important for entrepreneurs, SMEs, and special interest groups, as they are rarely the beneficiaries of foreign investment. Since they mostly operate in the informal sector, these businesses and entrepreneurs go unnoticed by potential investors. Blockchain technology helps them overcome these challenges and get funding outside of traditional investment avenues.
Blockchain technology and Africa’s economic development
For so long, Africa has been looking for that one elixir that can cure all its ailments and spur the economic growth and development of its nations. Blockchain technology is emerging as that, much-sought-after, elixir that will help Africa resolve its longstanding impediments to economic progress.
As aforementioned, it will facilitate the flow of investments in Africa through crowdfunding initiatives across multiple sectors. This will aid growth of local industries and provide a host of economic, social, and political benefits such as employment, access to amenities, and better infrastructure. These investments will help African nations to compete on the global marketplace.
Blockchain technology also provides novel approaches towards governance, risk management, equity, transparency, and business operations among others. Streamlining these issues will improve respective African nations’ attractiveness as investment destinations. This will serve as the much-needed catalyst to drive the next phase of Africa’s economic development journey.
The blockchain technology is an integral component of the fourth industrial revolution and will play a critical role in a digital world. The fourth industrial revolution has been hailed as a disruptive force that will fundamentally change every facet of human life. Its explosiveness, magnitude, and potential breakthroughs are expected to usher in a new era rather than act as a continuation of the third.
Unlike previous industrial revolutions, this one is ubiquitous and open for adoption as we continue to evidence its drastic changes. It harbors great risk but also bears the potential for high returns. This is a time of great promise and nations can only ignore these inventions at their peril.
For Africa, it feels like blockchain technology and the fourth industrial revolution is leveling the playing field for the first time in ages. This provides a platform upon which African nations can accelerate their push for economic development and catch up with developed nations.
This is the one head start that Africa cannot afford to lose. Either catch the wave and ride it or be left behind forever in the future.