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Potential boon for logistics companies

August 7, 2019
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Cryptocurrencies and the freedom of trade embraced by the African Continental Free Trade Area Agreement (AfCFTA) offer enormous potential for growth in the logistics industry in Africa. Strong political will and competent assistance with technology and regulatory support will, however, be required.

The AfCFTA has come into force after receiving 22 ratifications. It seeks to create the world’s largest free trade area by allowing for the free movement of goods and people between African member states. It does not replace existing regional free trade agreements. It is, however, designed to transform the economies of African states.

African trade patterns 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 improve economies.

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 for 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 governments who fear the loss of sovereignty over their own currencies and an inability to police and tax cryptocurrency payments.  This resistance will need to be overcome if these currencies are to succeed.

The reaction from African countries has varied from cryptocurrencies being banned 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 to stay.

States, regulators and tax authorities are going to have to get to grips with this new technology and try to regulate the cryptocurrencies in order to preserve their control over tax revenue and the payment for 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 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 authorities. 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.

Malcolm Hartwell is a director based in Durban. He is a master mariner and the team leader for transport and has been with Norton Rose Fulbright since 1994. He is a shipping lawyer and specialises in admiralty, international trade, marine insurance and all aspects of maritime casualties, in particular investigating the maritime aspects of cases involving salvage, collisions, grounding, flooding, fires, anchor dragging and cargo claims. He has been involved in most of the casualties in this region in the last twenty years.

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