Podcast transcript: Episode 1- Chaining the African economy
Transcript
Chaining the African economy
Host: Hello, my name is Abiodun Dabiri and you are listening to the Experience Pod. The Experience podcast series discusses the adoption of relevant emerging technologies and trends for impact oriented professionals who demand realistic and thought provoking perspectives on the opportunities and challenges presented by these phenomena in our unique environment.
In this episode, we explore the potential challenges and opportunities for the new trade agreement and the less travelled perspectives of digital currency and blockchain technologies. I have with me PwC, West Africa's chief economist, Dr. Andrew Nevin. Welcome Dr. Andrew.
Dr. Andrew Nevin: Great to be here. I'm really happy to do this. I think people need to recognize that the AfCFTA is a long term project. It’s part of the African Union's 2063 program, a fifty-year program. So I don't think people should expect a lot of benefit in the short term. But in the medium term, let's say three to seven years, I think if it's working, we're going to start to see some significant benefits. At the end of the day, Africans need to trade with Africans to be prosperous. Some of the things that we need here are some infrastructures, basic roads, in many cases between these different markets. In other cases, we need software infrastructure, like payment systems and perhaps unification of currency. But I think people should expect that if we're on the right path, three to seven years, I don't think people should expect in the next one to three years, that you'll see much impact of such a long term project.
Host: In terms of trade, it appears Africa seems to be moving from a manufacturing to a service based economy. Do you think that is premature as we are not a fully industrialized continent yet?
Dr. Andrew Nevin: No, I don't worry about this issue. I mean, to begin with, just in the way that we measure an economy, the distinction between service and manufacturing is not really clear. For example, designing services for a manufacturer, in-house is called manufacturing, if they're outsourced to another firm, they're called a service. So even the measurement doesn't necessarily work, and of course, what people need is physical goods, but more and more they need goods/services that are provided. So whether they're virtual or something like a haircut. I'm not worried about the mix. I mean, we need all sectors, Manufacturing, Services, Power, ICT Nollywood in Nigeria, but in general cultural industries from Africa to advance
Host: Bringing the AfCFTA into this, PwC has released an article AfCFTA thriving in the new Africa, which speaks about opportunities and threats for cross-border trade. Getting to the idea of cross border data flow, there has been some research on the negative effects of data localization, since laws like GDPR took effect in the EU. Bringing privacy in perspective, what are your views on localization and data flows for the data intensive service economy Africa appears to be shifting to?
Dr. Andrew Nevin: Well, I think the data privacy issue is absolutely critical. But I don't think it can be solved at a national or even at a continental level. Data privacy is going to have to be done at a global level, and I think what we need is more awareness of everyone, how much of their data is being captured by players like of course, Google, for example, and others, and how that data is being used and for individuals to get more control over their data. But I sense Africa needs to be part of the solution. We need a whole global movement effectively, people need to rise up and say we own our data, we control our data. Where we're trying to get to is we have harmonized rules.
Now if we had that harmonized rules, I would be okay with quite loose rules on where the data is held. So we may not necessarily have to have a data center that holds, It could be held in Nigeria, could be held in Ghana, it could be held elsewhere. The core thing is what data? How do people control their own personal data?
Host: Another goal of the AfCFTA is to drive the adoption of a single currency. Could it be a digital currency?
Dr. Andrew Nevin: Well, I think to begin with, from our perspective, we think digital currency is critical. It's valuable for Africa, because it's easily traded, we don't have to use cash. Essentially, value can be transferred instantly. You don't have to clear it through the system. But we don't necessarily need a single currency to have digital currency. For example, we can have a digital Naira, digital Cedi. We can have a system where they are interchangeable. We can even form a sort of African digital currency that was a blend of currencies, but you could still turn that into their own international currency.
Our view is not to be in a hurry for a single African currency, that's probably premature. But there are intermediate steps using digital technology that we can take to make trade better and really to take the US dollar out of the Africa trading system.
Host: So speaking of digital currencies, Central banks globally seem to pay more attention to digital currencies, upon the announcement of Libra. What do you anticipate with the bet of the Libra coin?
Dr. Andrew Nevin: It’s a very interesting situation. I think that what Libra highlighted is the value to the global economy of having some kind of tradable asset and with essentially, no cost. The problem is that Libra also woke up the established interest central banks and the financial system to the threat that something like Libra would pose to them.
Now, I think for Africa, there's an opportunity here. If Libra had gone ahead, I believe Africa would have embraced Libra as a way to trade and it would have been bad for Africa, because again, we would have replaced the US dollar with something a little bit better, but still not controlled by Africans. I think at this stage, there's a chance and I've been encouraging groups to do this, for central banks in Africa and players like Africa ExIm Bank and Ecobank International to step up and create an African digital asset that we can use to facilitate trade and investment across Africa. So I think in Africa, we should use the Libra's challenges, which don't look like they're going to go away quickly, to quickly get something going on. As I said, I've been encouraging different political institutions to do that. And because we have the least developed payment system, so much use for cash, so much cross-border trade done in an informal way, we would benefit the most in Africa from creating an Africa, single currency - Let’s call it, Africa digital asset.
Host: I do think I agree with you, especially when it refers to financial institutions that have a large footprint in Africa, being able to be the vanguard and be the leader in this particular adoption of digital currencies in the different countries.
What effects do you see for banking, trade and capital markets with digital currencies? In terms of regulation, to what extent can the government control the use of cryptocurrencies?
Dr. Andrew Nevin: Well, I think this is part of the challenge right now, with these digital assets. Governments and central banks have traditionally viewed that they can have a high degree of control. Some of them are approaching it, like they can continue that high degree of control. I guess our counsel would be that digital assets are going to become more and more prevalent. They are transferred peer to peer. So the question is, how do the central authorities work in conjunction with this world of digital assets, and the more they try to ban this activity, I think the more we're going to see it happen anyway.
One of the things that we have been encouraging, the Central Bank of Nigeria, is to consider a digital Naira. That's something that you can look around- China is going to have a digital Yuan soon. So other countries are moving in that direction. Rather than stay away from it, I think that they need to embrace it to be part of the ecosystem. Within that, of course, we're still going to try the best we can to have regulations around anti-money laundering, about know your client, to prevent the financing of terrorism. But all of those issues have to be approached from the perspective of the reality on the ground with these digital currencies and the way that value is transferred between individuals.
Host: I’m really enjoying this interview. The blockchain has been promoted over different perspectives. The Next Web that is web 3.0, the trust based, decentralized database, and more. A more interesting perspective is the blockchain as an emerging market economy. We are thinking about demand and supply, capital and depth on the blockchain network, how to empower users when it comes to risk, and how to better distribute assets in a sense of who captures value for these networks. Our current economy provides fiat currency and capital market, most of the value sits in the capital market due to scarcity. This has arguably driven wealth inequality. As an economist, how do you think about creating these new economies, while avoiding the inequality we see in our traditional systems? Can digital currencies solve wealth inequality?
Dr. Andrew Nevin: Well, I think the short answer to that is, I don't know. I don't think anyone knows. I think it is very interesting. We all are starting to understand the potential for blockchain technology, to help to have a common understanding, a common database and how many situations that's useful.
A simple example in the Nigerian context; we struggle a lot with credentials. Is someone a member of a professional association? Where did they graduate? Did they get their NYSC? That kind of information on the blockchain, that has a shared ledger that everyone can agree on, will make a huge difference. But your question goes a bit further and says, two years ago, three years ago, we had this frenzy of people issuing their own tokens for different ecosystems, different economic ecosystems, and a lot of those tokens have lost most of their value. So then, people might say that, that doesn't work. But I think we're kind of in very early stages of all of this, and the ability to create ways of participating in an ecosystem that can more equitably share the benefits of the ecosystem, I think, is a very powerful idea. The question is, which ecosystems? when we had the frenzy of coins, maybe 2000 coins produced during the ICO bubble, too many of those 2000 ecosystems weren't viable, and too many of the promoters of those ecosystems were pretending they were trying to spread the benefits, but we're actually trying to capture a disproportionate share of value for themselves. So I think that those models have been swept away, I do think we're going to see some very interesting things . A little bit like, you know, those of you who are old enough, like myself, remember the first internet wave, and then many of the companies got swept away, then the second wave and new companies emerged, I think we're going to see the emergence of people who can use this technology in ways we never imagined and groups that aren't purely focused on their own profit motive, and they'll create something that the value is widespread. If you look at the second generation internet companies like Facebook, Snapchat basically created value for their owners, for the initial founders. But I don't think that's necessarily going to hold as we enter into Blockchain 2.0 or Blockchain 3.0. I sincerely hope that some of these technologies result in wealth inequality declining around the world.
Host: I find your comments very agreeable. Why? Because I do think that a lot of people get caught up in the concept of cryptocurrencies and forget the fact that blockchain as a solution brings trust in so many areas, like credentials. How are we sure that this gentleman actually did his NYSC? and if he had the other documents accurate. A solution like that being adopted by the Nigerian universities would go a long way in curbing fraud. Then you also have different solutions that blockchain can participate in, things like land registries, it's very useful, it could also be used to track donations that have been made, because you have people set up organizations, NGOs, and what they're doing there is capturing value for themselves, right? So a blockchain solution would allow visibility into that, because like I always say to some people, if I were to make a transaction in the Nigerian banking system, and the money goes into limbo, there is no way to validate that. But with the Block Explorer on the blockchain, I can see a transaction immediately after it has been sent, and I can confirm if it has been delivered, Confirmed totally or not. If it is not a successful transaction, I have visibility immediately, and I can know what to do with the client and my goods and services.
Dr. Andrew Nevin: Oh, absolutely! We're pushing very hard. I've been pushing very hard to bring that to the benefits of blockchain in Nigeria, and people have been complaining a little bit that It hasn't happened fast enough. But I mean, this is a very new technology. It's a
Host:Yes, It’s a very new technology, even the Internet and email took some time to take off.
Okay, speaking of predictions, what was the last prediction you got wrong?
Dr. Andrew Nevin: Well, I predict things wrong every day. But let me highlight one. 23 years ago, I invested $25 million of a Canadian bank's money, creating a wireless point of sale terminal. So this company, the founder, was a scientific genius and I looked at the product and said this is going to be huge. Of course, we now go around, and it's completely ubiquitous, It's a very normal thing. Losing the bank's money was a painful lesson and what it taught me as a prediction is, don't be too early. We sometimes end up too early because I thought it was obvious this was going to be a big thing. But it actually didn't really start to become big until 2010, so it took 14 years and by that time, the company I invested in had lost them.
Host: Wow! But now wireless payments are a huge thing. I mean, wireless POS is everywhere.
Dr. Andrew Nevin: Right! So don't be too early. Yeah, well, but the interesting thing about all these innovations is a lot of these little companies they're all working so hard and I have a tremendous admiration for the entrepreneurs who try to do things but they're not all going to succeed, most of them fail, but the entrepreneur is always optimistic that her/his solution is going to succeed.
Host: What's one view you seem to find very few people agree on?
Dr. Andrew Nevin: Well, I mean, let's go back to an issue we talked about earlier in this podcast which is digital privacy. It's an issue I think should be debated, we reach a consensus on a global basis. I think there's an increasing awareness and yet we have such a wide range of views. There are some people who give away their data very easily and effectively. They are very comfortable with that and there are other people that are trying to hold on to it. I do think it's an issue for us because while as a people globally, we're dithering on this issue, what's happening is that the major digital companies are capturing this value. So I think there should be more attempts to build consensus around this to get the right rules for digital privacy.
Host: Yes, yes. Yes. My final question - what's one perspective you'd like to get from our next interviewee?
Dr. Andrew Nevin: Well, I think in Nigeria, one of the things that we're saying is that there has been a tendency to be a little over centralized things driven out of the federal government. So we believe that a lot of change is going to be driven at the sub national level, and also between the organized private sector, the NGO sector and state or local government.
So I think what will be interesting on the future podcasts to hear from people doing things who are not necessarily in the Lagos or Abuja axis, people who are making change in Edo state, people making change in Cross River State, in Calabar, people that are making change in Niger State. I was there two months ago and it was very impressive. I think those stories would really encourage Nigeria because we need things to progress across the nation not only because 10% of people live in Lagos, but also because we don't want people coming to Lagos, where it's crowded. It's a difficult environment, if you can have a prosperous life in some of the smaller commercial centers and they're thriving. I think a lot of people would prefer that.
So I would like to hear more voices from around the country and not necessarily business voices, but also NGOs, also, government people outside of the Lagos or Abuja axis, trying to make a difference.
Host: Thank you so much, Dr. Andrew Nevin. It has been a real pleasure having you on this podcast. Thank you!
Dr. Andrew Nevin: You're very welcome. It's been a delight for me!
