- The present geopolitical supply chain environment gives enterprises and governments a once-in-a-lifetime chance to establish Africa as a global supply chain hub.
- Many firms worldwide have recently adopted Blockchain technology into their processes.
- Blockchain technology establishes an eco-system in which information flows freely but with approval, lowering the anticipated risk in the supply chain.
Potential in Africa’s supply chains
The United Nations Conference on Trade and Development (UNCTAD) recently published the Economic Development for Africa 2023 Report. The document, titled “The Potential of Africa to Capture Technology-Intensive Global Supply Chains,” looks at Africa’s capacity to become a prominent player in global supply chains for “high-technology” industries, which include automobiles, mobile phones, green energy, and healthcare.
As stated in the research, disruptions in universal supply chains resulting from trade turbulence, economic volatility, a worldwide pandemic, and geopolitical occurrences have driven businesses worldwide to diversify their production sites. As a result, the analysis reveals that the present geopolitical supply chain environment provides enterprises and governments with a once-in-a-lifetime chance to establish Africa as a global supply chain hub.
For African governments and the business community, UNCTAD’s belief in the distinctive possibilities of Africa’s supply chains ecosystem represents a timely reminder of various economic observers’ declarations about the outsized economic windfalls that will accrue to the continent with well-harnessed supply chain systems.
The key to unlocking the constraints hindering logistics and supply chain management (SCM) operations in Africa is standardising indigenous logistics systems (ILS) and upgrading them via cross-cutting technologies.
Many firms across the world have recently adopted Blockchain technology into their processes. Although Blockchain technology is still in its early stages, it can transform businesses. Will blockchain technology help Africa realise its global supply chain hub potential?
How is Blockchain technology different
People associate blockchain technology with cryptocurrencies such as Bitcoin. The applicability of blockchain technology, however, extends beyond digital currency. This game-changing technology can help create open cooperation in practically any business.
Unlike conventional organisations, where most interactions are bilateral, information sharing on the Blockchain is unmediated. Everyone in the ecosystem has access to the same information as everyone else.
The environment of open trust distinguishes it from typical supply chains in which information, commodities, and business paperwork constantly pass “along a chain.” Everything in a Blockchain-powered supply chain is shared with the whole network simultaneously. Interestingly, there is no “chain” in Blockchain since all participants are members of an ecosystem. Hence, the ecosystem is more of a network than a chain.
Due to trust concerns when interacting with other parties, traditional commerce setups generally require intermediates to facilitate information sharing. Disintermediation, on the other hand, is the cornerstone of Blockchain technology.
Blockchain technology handles information exchange by making every network member a custodian of the complete information flow inside the network. This technology eliminates the final line of defence for “information custody,” which initially prevented the internet from exploding.
Unlike the internet, where information is exchanged from point to point, communication in Blockchain is shared throughout the system. As a result, no one (including the sender) has access to more information than any other actor in the system.
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What does blockchain technology bring to supply chain management
A typical supply chain comprises several bilateral contractual links that create a supply chain adjacent to each other. Every supply chain connection represents a bottleneck for information flow, technological deficiencies, and trust loss. The gaps lengthen the supply chain cycle and increase the extended supply chain cost due to assumed risk at every link, resulting in an overall detached supply chain from the end-user’s point of view.
Through an open permissioned ledger system, blockchain technology can fill these critical gaps. The technology establishes an eco-system in which information flows freely, but with approval, lowering the anticipated risk in the supply chain and, as a result, reducing overall cost while making the supply chain more flexible and agile.
The exact positioning of the linkages is the crucial distinction between conventional and Blockchain-enabled supply chains. A connected network enables links in traditional supply chains, connecting every participant as an equal actor.
The standout principles of Blockchain technology in supply chains
Blockchain technology fundamentally differs from the usual e-commerce transactions with fundamental standout principles.
Smart-contracting
Smart contracts represent Blockchain technology’s most powerful feature. As such, players must comply with the available smart contracts. One cannot bypass smart contracts. This eliminates the need to “check the checkers,” enabling more focus on partnership and less on compliance.
Chain of possession
Since the ecosystem records every transaction, the trails of where each product originated remain traceable backwards with authenticity. Blockchain records every transaction. The records form an integral part of the transaction process, and an audit trail exists in the ecosystem. This level of detail forms the basis of trust in the Blockchain ecosystem.
Verification
Because every transaction occurs on a distributed ledger, adequate verification exists across the system. Given that Blockchain technology offers authentication, the whole ecosystem knows the information source, eliminating the need to validate the information again via test certificates, bills of lading, or letters of credit. These commercial tools are all contained inside the Blockchain ecosystem.
Transaction’s irrevocability
Every transaction that happens is shared with the entire Blockchain ecosystem. Thus, the histories of the transactions always remain available, eliminating the chances of information hacking, distortion, or manipulation to suit one party.
Transfer of possession
Title transfer becomes easy for any property controlled by Blockchain technology. Still, these may not be limited to digital property like software, music, or cryptocurrencies but could include physical property like cars, raw materials, houses, and goods.
Speed and Reliability of transactions
When a transaction moves from a chain of bilateral transactions to an ecosystem-based processing line, it takes a comparatively small amount of time compared to conventional techniques. Transactions become much more dependable than old ones since Blockchain technology functions in a secure environment.
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Application sectors for Blockchain technology in Africa’s supply chain
Some of the Blockchain technology’s applications are already in use by businesses globally in their nascent form. However, the possibilities are only limited by the imagination and collaboration in ecosystems. Some of the simple applications include:
Procurement
In Blockchain-enabled supply chains, the buyer enters a purchase order in the smart contract system for the bill of materials. After receiving the information, the supplier provides the raw material to the manufacturer, who creates the contract. The system subsequently sends a message to the inspection agency, which records the information about the examined products.
These figures will be accessible forever to allow for any audit on concerns anywhere in the downstream supply chain. Once the inspection agency has provided the certifications in the smart contracts, the shippers may arrange for the shipping of the goods and execute the Bill of lading in the system, which may trigger payment on the letter of credit (also recorded in the ecosystem) based on the contract.
This information is also provided to downstream supply managers to facilitate production. Because technology validates the smart contract information input, the dependability is much more excellent than in conventional supply chains. It also breaks through the silos of corporate behaviour that may degrade the total value of the extended supply chain.
Addressing conflict minerals supply chain
From the Coltan mines of Congo to the gold mines of South Africa, Africa is rich in resources. However, somewhat ironically, most of the continent remains impoverished. Africa remains poor amidst riches because of greed, illiteracy, corruption, and lack of trust.
What is known today as artisanal mining (ASM) used to be illegal mining. It is labour-intensive small-scale mining that differs from large corporations with sophisticated machines and massive workforces.
With ASM becoming a source of livelihood for 10 million people across the continent, it has been accepted by the concerned governments as a subsistent form of mining responsible for most of Africa’s mining activities.
Though ASM employs millions of Africans, there are some arguments about how it is a potential revenue source for governments and its impacts on the environment, given the crude methods miners employ.
Although no longer considered illegal mining, governments still lose considerable money to ASM yearly. These small-scale miners need more market knowledge and end up selling the minerals they extract for less than the going price in the market. This is the problem that Blockchain technology would solve by enhancing Africa’s supply chain.
Provenance is the biggest issue in the multi-billion mining industry and, needless to emphasise, quite opaque in terms of transparency, and conflict/synthetic minerals might be contributing to a growing portion of the industry’s problem.
Conflict minerals are the most significant parallel source of black money flow and a social problem in Africa’s mineral-rich countries.
Blockchain-based technology allows the fingerprinting of every mineral in the rough and polished stages of the ecosystem. Thus, it enables very open information on the source of the minerals that pass through the various aspects of the supply chain. This cut down on counterfeiting, which was nurtured in the physical supply chain through the counterfeiting of physical documentation.
The principles of how Blockchain technology helps the mining industry tackle a growing social and commercial problem can extend to other sectors of Africa’s supply chain, like crude oil and luxury goods, as these industries also suffer from the source of origin issues and as a result lose a lot of value.
Manufacturing
Quality and time-sensitive manufacturing supply chains lose a lot of value from discrete information gaps in the supply chain. Parochial behaviours from the discrete supply chain links in the ecosystem generally explain these information gaps.
Extended supply chain traceability is a challenge as regulations require companies to have complete traceability on the parts used in the manufacturing process, including details of the manufacturing process.
All of this information availability is managed through brute force, resulting in increased cost of production. Blockchain technology will enable the ecosystem players to record the information only once, and the same information will be made available to all the players in the ecosystem.
Blockchain technology allows the manufacturing stakeholders to focus on manufacturing since information gaps and trust issues in the supply chain, common in today’s manufacturing environment, do not hold them back.
Challenges in implementing Blockchain technology in Africa’s supply chain
Lack of awareness and understanding
Blockchain is still an enigmatic black box to most non-technology people, and its association with cryptocurrencies does not help. Blockchain technology’s radical approach with a permissioned-distributed ledger has challenged the core of business practices for the last centuries, where every business entity has maintained its catalogue. This is by far the biggest challenge for non-IT professionals.
Industry maturity and trust level
Industry maturity and a certain level of trust is prerequisite for conceiving any Blockchain technology-enabled supply chain solution. This will be a non-starter unless the industry is screaming/rallying to solve an industry-wide issue.
Technology costs and conflict with internal Enterprise Resource Planning (ERP) systems
Most companies already have multiple ERP Systems and have incurred heavy investment over the last 5-10 years. A Blockchain technology solution in its most ideal form competes with and replaces a significant role played by these ERP systems. This will be a challenging battle both within and outside the companies.
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