AFRICAN SUPPLY CHAIN: EXPLORING BLOCKCHAIN APPLICATIONS BEYOND BANKING

The key to overcoming the challenges in logistics and supply chain management (SCM) operations in Africa lies in standardizing indigenous logistics systems (ILS) and enhancing them with advanced, cross-cutting technologies.

Many companies worldwide have recently integrated Blockchain technology into their operations. Although still in its early stages, Blockchain has the potential to transform businesses. The question remains: Will Blockchain technology help Africa achieve its potential as a global supply chain hub?

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People often associate blockchain technology with cryptocurrencies like Bitcoin, but its applicability extends far beyond digital currency. This revolutionary technology can facilitate open cooperation in virtually any industry.

In contrast to traditional organizations, where most interactions are bilateral, blockchain technology allows for unmediated information sharing. Everyone in the ecosystem has access to the same information as everyone else.

This open trust environment differentiates blockchain-powered supply chains from traditional ones, where information, goods, and business documents typically pass along a sequential chain. In a blockchain-powered supply chain, everything is shared with the entire network simultaneously. Therefore, the ecosystem functions more like a network than a chain, with no traditional “chain” involved.

Traditional commerce often requires intermediaries to facilitate information sharing due to trust issues when dealing with other parties. However, blockchain technology is built on the principle of disintermediation, eliminating the need for intermediaries.

Blockchain handles information exchange by making every network member a custodian of the complete information flow within the network. This technology removes the need for a final line of defense for “information custody,” which initially limited the internet’s growth.

Unlike the internet, where information is exchanged from point to point, communication in blockchain is shared throughout the entire system. As a result, no one (including the sender) has more information than any other participant in the system.

KEY ADVANTAGES OF BLOCKCHAIN TO SUPPLY CHAIN MANAGEMENT

The primary challenge of traditional supply chains lies in the need for more open and accessible information, hindered by issues such as trust, outdated technology, and old methods. Traditional supply chains consist of numerous bilateral contractual links, each representing a potential bottleneck for information flow, technological deficiencies, and trust erosion. These gaps extend the supply chain cycle and increase overall costs due to the assumed risks at each link, ultimately detaching the supply chain from the end-user’s perspective.

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Blockchain technology addresses these critical gaps through an open permissioned ledger system. This system creates an ecosystem where information flows freely but with approval, reducing anticipated risks and thereby lowering overall costs. It also enhances the flexibility and agility of the supply chain.

The key difference between conventional and Blockchain-enabled supply chains is the positioning of the linkages. In traditional supply chains, connections are created through a network of linked participants, whereas blockchain connects every participant as an equal actor in a unified network.

1. Smart Contracts

Smart contracts are a standout feature of Blockchain technology, requiring all participants to comply with preset terms. These contracts cannot be bypassed, eliminating the need to continually verify compliance. This shift allows parties to focus more on collaboration and less on enforcement.

2. Chain of Possession

Blockchain technology ensures that every transaction is recorded, providing a traceable history of where each product originated. This creates an authentic and verifiable audit trail integral to the transaction process, establishing a solid basis for trust within the Blockchain ecosystem.

3. Verification

With transactions occurring on a distributed ledger, thorough verification is inherent across the system. Blockchain technology authenticates information, meaning the source is known to the entire ecosystem, eliminating the need for additional validation through test certificates, bills of lading, or letters of credit, as all these commercial tools are incorporated within the Blockchain.

4. Transaction Irrevocability

All transactions are shared with the entire Blockchain network, ensuring the transaction history remains available and unalterable. This transparency prevents hacking, distortion, or manipulation of information to favor any single party.

5. Transfer of Possession

Blockchain simplifies the title transfer for any property it controls, extending beyond digital assets like software, music, or cryptocurrencies to physical items such as cars, raw materials, houses, and goods.

6. Speed and Reliability of Transactions

Transitioning transactions from a series of bilateral exchanges to an ecosystem-based processing line significantly reduces processing time compared to traditional methods. Blockchain technology operates in a secure environment, making transactions faster and more reliable than conventional techniques.

SECTORS APPLICATION OF BLOCKCHAIN TECHNOLOGY IN AFRICA’S SUPPLY CHAIN

• Procurement

In Blockchain-enabled supply chains, procurement begins with the buyer entering a purchase order into the smart contract system for the bill of materials. Upon receiving this information, the supplier provides the raw material to the manufacturer, who then creates a contract. The system then notifies the inspection agency, which records details about the inspected products.

These records are permanently accessible, allowing for audits on any downstream supply chain issues. Once the inspection agency certifies the products in the smart contracts, shippers can arrange transportation and execute the bill of lading within the system. This may trigger payment on the letter of credit, which is also recorded in the Blockchain ecosystem according to the contract.

This information is shared with downstream supply managers to streamline production. Since the technology verifies the smart contract data input, reliability is significantly higher than in traditional supply chains. Additionally, it dismantles the corporate silos that can diminish the overall value of the extended supply chain.

• Mining

Africa is rich in natural resources, from the coltan mines of Congo to the gold mines of South Africa. Ironically, despite this wealth, much of the continent remains impoverished due to factors like greed, illiteracy, corruption, and lack of trust.

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Artisanal and small-scale mining (ASM), formerly considered illegal, involves labor-intensive methods distinct from the operations of large corporations with advanced machinery and extensive workforces. ASM has become a livelihood for 10 million people across Africa and has gained government acceptance as a subsistence form of mining, responsible for a significant portion of the continent’s mining activities.

While ASM provides employment for millions, debates continue about its potential as a revenue source for governments and its environmental impacts, given the primitive methods often used. Despite being legalized, ASM still results in significant financial losses for governments annually. These small-scale miners often lack market knowledge, leading them to sell extracted minerals for less than market value. This issue could be addressed by Blockchain technology, which could enhance Africa’s supply chain.

Provenance is a major challenge in the opaque multi-billion-dollar mining industry, where conflict and synthetic minerals contribute to significant problems. Conflict minerals, in particular, represent a major source of illicit funds and social issues in Africa’s mineral-rich regions.

Blockchain technology can address these issues by enabling the fingerprinting of minerals at both rough and polished stages within the ecosystem. This technology provides transparent information about the source of minerals throughout the supply chain, thereby reducing counterfeiting, which thrives on falsified physical documentation.

The principles of Blockchain technology, which help the mining industry tackle social and commercial challenges, can also be applied to other sectors of Africa’s supply chain, such as crude oil and luxury goods. These industries also suffer from provenance issues, leading to significant value loss.

• Manufacturing

Quality and time-sensitive manufacturing supply chains often lose significant value due to information gaps, which typically arise from parochial behaviors within the discrete links of the supply chain ecosystem.

Ensuring extended supply chain traceability is challenging, as regulations mandate that companies maintain complete traceability of parts used in manufacturing, including details of the manufacturing process. Currently, this information is managed through labor-intensive methods, leading to higher production costs.

Blockchain technology can address this issue by enabling ecosystem players to record information once, making it accessible to all participants in the ecosystem. This technology allows manufacturing stakeholders to concentrate on production without being hindered by the information gaps and trust issues that are prevalent in today’s manufacturing environment.

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CHALLENGES IN IMPLEMENTING BLOCKCHAIN TECHNOLOGY IN AFRICA’S SUPPLY CHAIN

• Lack of Awareness and Understanding

For many non-technical individuals, blockchain remains a mysterious “black box,” and its association with cryptocurrencies adds to the confusion. The technology’s radical approach, involving a permissioned-distributed ledger, challenges long-standing business practices where each entity maintains its own records. This presents a significant hurdle for non-IT professionals.

• Industry Maturity and Trust Level

Implementing a blockchain-enabled supply chain solution requires a mature industry with a high level of trust. Without a strong, industry-wide demand to address common issues, such initiatives are unlikely to succeed.

• Technology Costs and Conflict with Internal ERP Systems

Many companies have heavily invested in multiple ERP systems over the past 5-10 years. An ideal blockchain solution would compete with and potentially replace many functions of these ERP systems. This creates significant challenges both within and outside organizations.